Productivity of Automobile Industries using the Malmquist Index: Evidence from the Last Economic Recession

Abstract

In this paper, the financial information provided by Fortune Magazine is used to study the productivity changes in the global auto industry during 1991-1997, including automakers from the USA, Europe, Japan, and South Korean. The paper seeks to uncover global auto industry’s productivity changes during the early 1990s economic recession. Data envelopment analysis (DEA) is used to identify the empirical performance frontier. A new DEA-based Malmquist productivity index is used to further analyze the two Malmquist components. The analysis not only reveals patterns of productivity change and presents a new interpretation along with the managerial implications of each Malmquist component, but also the analysis identifies the strategy shifts of individual companies based upon isoquant changes. The labor efficiency and overcapacity of the global auto industry is studied, and judgments can be made about whether such strategy shifts are favorable and promising.