Do consumers understand TCO? : an empirical study of consumer decision making in the U.S. automobile market

At the beginnig of the 1980\u27s,there was a gap in quality between cars made by the U.S."Big Three" and those made by the Japanese.Since then,the Big Three have adopted Japanese production techiniques,parts prucurement practices,and lavor relations,dramatically improving the quality of their automobiles.During the period,the Japanses manufactures kept their automobiles more expensive than the comparable models made by the Big Three to slow their sales,thereby blunting trade frictions,and preventing possible dumping complaints by the Big Three.Yet the Big Three seem to be losing overall U.S. market share,dipping to 68.3% in 1999 after fluctuating between 70-74% for the precedeing two decades,while that of the Japanses automobiles increased from 19.8% in 1985 to 24.0% in 1999.To find an economic rationale underlying this trend,we formulated a hypothesis that U.S. consumers\u27 automobile purchase decisions were influenced not by the initial purchasing prices,but by the total cost of ownership(TCO).We first proposed and illustrated a method to convert the automobiles\u27 reliability scores in Consumer Repots into monetary maintenance and repair expenditure.We then calcuated those expenditures,and incorporated them into the TCO calculation for the twenty-six most popular 1996-model-year vehicles.The proposed statisical model takes care of the bias introduced by partially missing reliability data.We found that the market shares of vehicles generally reflected their TCO differential when U.S. consumers chose from U.S automobiles.In medium passenger car market where the Japanese had already been offering credible alternatives by 1996,however U.S automobiles seem to have been given "buy American" TCO premium of about $2,000.Includes bibliographical reference