Motor vehicles are prominent among the flows of exports and imports for Canada, Germany, Japan, and the United States, and these trade flows are heavily influenced by the basic relative competitiveness of the production processes for automotive manufacturing. In this book the authors analyze in depth the factors that contributed to the comparative cost competitiveness of the four countries’ auto industries over the period 1961–84, and disentangle the factors contributing to the Japanese cost and efficiency advantages. Their main contribution is to provide estimates of comparative costs of automobile production (both short-run and long-run) and the sources of these cost differences, based on the econometric cost-function methodology. An innovation is the careful treatment of capacity utilization, one of the most important sources of short-run cost and efficiency differences. This methodology is also used effectively in an analysis of the Canada-U.S. Auto Pact, a unique experiment in trade liberalization.