The continuing importance of economies of scale in the automotive industry

The considerable attention given to flexible methods of production and work organization as a fundamental determinant of achieving international levels of competitiveness in the manufacturing industry (and of late, in service industries also) in the wake of Japanese dominance over the past two decades has, as a corollary, seen a tendency to neglect the importance of economies of scale (EOS). Despite the indubitable importance of flexibility, argues that EOS remain an essential determinant for cost‐efficient production, and that without sufficient EOS, high levels of flexibility cannot alone translate into world competitive production. Summarizes the reasons for the continued importance of EOS, and provides a discussion on the levels of EOS (in particular, “minimum efficient scale”) that are necessary for efficient automotive manufacturing. It is assumed that EOS are optimal only when a plant is operating at high capacity utilization levels, and that where this is not the case penalties are severe.