Automotive industry history

In 1900, motor vehicles were built one at a time by hundreds of startup companies for sale to rich people as novelties. Most of these manufacturers disappeared by the 1920s, and except for a brief period after World War II, three companies—GENERAL MOTORS, Ford, and Chrysler—controlled around 90 percent of the U.S. market between the 1929 stock market crash and the 1973 oil crisis.

Into the 21st century, the two surviving U.S.- owned motor vehicle producers—GM and Ford—held only one-half of the U.S. market. New competitors from Asia and Europe had begun selling and making motor vehicles in the United States, using efficient production methods that resulted in high-quality products.

Controversy surrounds the identity of the builder of the first workable gasoline-powered motor vehicle in the United States. Claimants during the early 1890s included Henry Nadig in Allentown, Pennsylvania (1891), John William Lambert in Ohio City, Ohio (1891), Gottfried Schloemer and Frank Toepfer in Milwaukee, Wisconsin (1892), Charles H. Black in Indianapolis, Indiana (1893), and Elwood P. Haynes in Kokomo, Indiana (1894).

The first company organized in the United States for the purpose of producing and selling motor vehicles was the Duryea Motor Wagon Co. of Springfield, Massachusetts. Duryea sold four cars in 1895 to lead all U.S. producers. Its reputation was enhanced by winning the first important motor vehicle race in the United States, in Chicago in November 1895.

European manufacturers clearly had a head start on their American counterparts during the late 19th century. In France, De Dion–Bouton & Trépardoux pioneered production of steam-powered vehicles in 1883. Panhard & Levassor started building and selling the first “modern” motor vehicle in 1892, with the engine mounted in the front rather than under the driver.

Carl Benz and Gottlieb Daimler debated who was first in Germany during the 1880s. Daimler was the first to design a four-cycle gasolinepowered engine in 1883; he received the first German patent on a three-wheeled gasolinepowered vehicle in 1885, but did not start manufacturing vehicles until 1890, three years after Benz. Benz made the first authenticated tests of a vehicle with three wheels and a onecylinder gasoline engine in 1885, patented it in 1886, started sales in 1887, and built a fourwheeled vehicle in 1893.

Motor-vehicle sales grew rapidly in the United States during the first decade of the 20th century, from 2,300 in 1900 to 120,000 in 1910. More than 3,000 firms were organized to manufacture motor vehicles, though only a few hundred achieved commercial production and sales of more than a handful.

First to sell more than 1,000 in a single year—in 1900—was the Columbia, an electric car built in Hartford, Connecticut, by the Pope Manufacturing Co., founded by Col. Albert A. Pope, the nation’s leading bicycle manufacturer. A year later, the steam-powered Locomobile became the second to exceed sales of 1,000.

Southeastern Michigan quickly emerged as the center of U.S. auto production early in the 20th century. The amount of national production clustered in southeastern Michigan reached 80 percent in 1913. Michigan’s edge came in part from expertise with gasoline engines. Of the roughly 4,000 motor vehicles sold in the United States in 1900, 40 percent were powered by steam, 38 percent by electricity, and only 22 percent by gasoline. By 1908, the three-way competition was over: Gasoline engines accounted for 83 percent of sales, and the other two power sources soon disappeared altogether.

Michigan had become a center for production of gasoline engines for agricultural and marine uses during the late 19th century. The Olds Motor Works in Lansing was a leading producer of small stationary engines to operate farm implements. Olds was the first to build motor vehicles in Detroit, in 1899, but when the factory burned two years later, the company moved back to Lansing, where it became a prominent community fixture for most of the 20th century. The Oldsmobile Curved Dash was the first largevolume low-priced car, hitting peak sales of 4,700 in 1903.

Henry M. Leland, head of Leland & Faulconer Manufacturing Co., the nation’s leading producer of marine gasoline engines, also in Detroit, organized the companies responsible for the two surviving U.S.-made luxury vehicles: Cadillac in 1903 and Lincoln in 1917. Leland & Faulconer was also a major supplier of engines, transmissions, and other components to early motor vehicle manufacturers.

For five years, while he experimented with motor vehicles, Henry FORD was in charge of keeping generators in operation at one of the Edison Illuminating Company’s Detroit power plants. Ford became good friends with Thomas EDISON, who despite his role in developing electricity encouraged Ford to use gasoline to power his cars.

Michigan also became the center of the motor vehicle industry because of expertise in building bodies. Flint in particular was a center for production of horse-drawn wagons and carriages. Largest was Durant-Dort Carriage Co., organized in 1886 by William C. DURANT and J. Dallas Dort. Early motor vehicles had bodies adapted from horse-drawn carriages.

Anticipating the demise of the horse-drawn carriage, Durant entered the motor vehicle industry by taking control of a struggling Flintbased Buick Motor Company in 1904. David Buick, a plumbing parts producer, had started the company bearing his name, but was unable to make it profitable. Under Durant, Buick became the best-selling brand in 1909.

Availability of investment capital also influenced the clustering of motor vehicle production in Michigan. Wall Street bankers regarded investing in motor vehicle producers as too risky because of the high failure rate. In Michigan, start-up funds came from wealthy investors who had made their fortunes in Michigan’s extractive industries, such as copper, iron, and lumber.

From the thousands of companies trying to enter the motor vehicle industry during the first decade of the 20th century, two quickly emerged as the leading manufacturers: FORD MOTOR CO. and General Motors. These two companies were the sales leaders in the United States and worldwide nearly every year through the 20th century and into the 21st century.

After two failures, Henry Ford established the successful Ford Motor Co. in 1903. Ford’s priority from the beginning was to build low-priced vehicles affordable for working people and practical in reducing their daily tasks. This strategy went against the conventional wisdom that luxury cars were more profitable to build. Only very wealthy people could afford cars in 1900, and they were used primarily for recreation. Henry Ford’s genius was to recognize that the desire to own a motor vehicle was nearly universal.

After several years of experimentation, Ford brought out the Model T in 1909, priced at $650, at a time when the average American vehicle cost $2,000. One-half of the cars in the world were Model Ts during the 1910s, and more than 15 million Model Ts were sold before production ended in 1927 (when it was priced at only $290).

Despite its low price, the Model T was extremely profitable because of innovative mass production techniques, especially the moving assembly line, which Ford installed at his Highland Park, Michigan, factory in 1913. Each worker was given a specific task to perform, repeated every few seconds throughout the day. Workers were arrayed along the line based on the logical sequence of tasks to be performed, and the moving line brought the needed materials in turn to each of them. Ford reduced the amount of time needed to build a car from 1,260 person-hours in 1912 to 533 in 1915 and 228 in 1923.

Ford passed the benefits of the moving assembly line to the public through lower prices, thereby stimulating universal demand for vehicles in the United States, and in turn swelling Ford’s gross receipts. Ford also passed on benefits to his workers by more than doubling their wages to $5 a day in 1914.

The $5 a day wage made Henry Ford a folk hero in the United States. A lifelong pacifist, Ford sailed to Europe in 1915 to try to stop World War I. He barely lost a race for the U.S. Senate from Michigan in 1918 to an opponent, Truman Newberry, who spent a fortune and was forced to resign the seat a few years later because of fundraising irregularities during the election.

Success with MASS PRODUCTION and the Model T gave Henry Ford a belief in the absolute infallibility of his judgment. He insisted on selling only the primitive Model T until 1927 despite the advice of his son Edsel and other top advisers, nearly all of whom left the company. He refused to adopt modern cost accounting, bookkeeping, or billing practices.

Ford’s eccentric behavior took a more sinister turn during the 1920s. He criticized bankers, teachers, lawyers, doctors, insurance, charity, sugar, and jazz. Ford’s “Sociological Department” investigated the living conditions and personal habits of his workers to certify them as worthy of the $5 a day wage. Ford published about 90 anti- Semitic articles. Ford’s Service Department, led by ex-convicts and organized crime figures and staffed by thugs, monitored worker behavior, even trips to the bathroom.

General Motors was created in 1908 by Flint carriage maker William C. Durant, who had already turned Buick into the best-selling brand. Recognizing economic benefits resulting from large size, Durant acquired numerous parts makers to supply Buick and moved them to Michigan. In 1908, Durant brought the leading motor vehicle manufacturers to a Detroit hotel room and proposed that a “trust,” or monopoly, be created, much as had occurred in steel, telephone, and other industries. When Henry Ford demanded cash for his company, the deal collapsed. Durant then established General Motors in 1908 as a HOLDING COMPANY to acquire as many carmakers as possible to supplement Buick.

Durant started with Olds, which had lost its sales leadership after Ransom E. Olds left the company in a dispute with his financial backers. Durant bought the Pontiac-based Oakland Motor Car Co. a few days before its owner, Edward Murphy, died in 1909. Oakland struggled until it brought out a popular low-priced model called Pontiac in 1931. Cadillac was acquired from Henry Leland in 1909.

Unable to repay all the loans he had secured to pay for GM’s rapid expansion, Durant was forced by the bankers to resign in 1910. Durant organized several new companies, including Chevrolet, which was based on a prototype developed by a famous race driver, Louis Chevrolet.

In one of the most remarkable events in American industrial history, Billy Durant, through his Chevrolet Motor Co., regained control of General Motors in 1916. By all accounts an extremely charming man, Durant convinced GM stockholders to turn over their GM shares to him in exchange for Chevrolet stock and a promise of greater profits.

Durant again overextended GM and again was forced to resign, this time for good. After another failed attempt to create a car company Durant died in poverty and obscurity. Control of GM passed to DUPONT. Alfred P. Sloan, president and then chairman of the board of GM between 1923 and 1956, pioneered modern management practices, including decentralized day-to-day decision making and a standardized accounting system.

Sloan created a “car for every purse and purpose,” assigning a distinctive price segment to each of the company’s products, from the lowpriced Chevrolet, which displaced Ford as the country’s best-selling brand, to the dominant luxury car brand, Cadillac. GM introduced the annual model change, in which mostly cosmetic “improvements” were unveiled once a year amid fanfare, thereby convincing many motorists to trade in their otherwise serviceable older models for brand new ones. To facilitate frequent trade-ins, GM also pioneered selling cars on credit.

In 1929, a record 4.3 million vehicles were sold in the United States. The 1929 sales record would not be exceeded for 20 years. Sales declined to 1.3 million in 1932, at the depth of the Great Depression, and halted altogether between 1942 and 1945 for World War II. Ford and GM had established themselves as the two industry giants during the 1910s. They were joined during the 1920s by CHRYSLER CORP., which grew rapidly after its incorporation in 1925. They became known as the Big Three carmakers.

Walter CHRYSLER, who had run GM’s Buick division and Willys-Overland Co., became president of Maxwell-Chalmers Co. in 1923. In 1924, he introduced a line of cars named Chrysler, which became so successful that he changed the name of the company to Chrysler Motors Co. in 1925, and dropped the Maxwell line of cars altogether in 1926. Chrysler passed Ford during the 1930s as the second leading carmaker behind GM.

High unemployment and poor working conditions in the plants still open during the 1930s fueled union organizing activities. Skilled craftspeople had put together early motor vehicles by hand. Along the mass-production moving assembly line, work was repetitive and automatic, with a specified number of seconds allocated to perform each task. Workers were expected to exercise little thought, judgment, or skill. Unskilled labor was supplied by immigrants to Detroit, especially African Americans from the U.S. South and eastern Europeans.

The UNITED AUTOMOBILE WORKERS (UAW) union successfully organized General Motors following a 44-day sit-down strike in early 1937 at a Flint Fisher Body plant. Chrysler and smaller producers quickly recognized the UAW. Ford held out until 1941. The UAW initiated a “pattern bargaining” process during the 1950s in which it picked one of the Big Three for intense negotiations. To add pressure, the union would call a strike against only the targeted company while its competitors could continue to produce and sell vehicles. The contract signed with the targeted company served as a pattern for contracts negotiated with the other two of the Big Three.

The Big Three were hit hard by the Depression. Sales declined between 1929 and 1932 from 1.5 million to 322,000 at Ford, from 1.4 million to 522,000 at GM, and from 400,000 to 200,000 at Chrysler. However, smaller companies were even more devastated and were forced to cease production altogether. By the mid-1930s, Chrysler, Ford, and GM sold 90 percent of the vehicles in the United States, and they would continue to account for nearly 90 percent of sales in most years through the 1960s.

Immediately after World War II, several smaller companies together captured one-fourth of the market, taking advantage of the enormous pent-up demand for motor vehicles. But the independents fell by the wayside once the Big Three completed conversion from military to civilian production and introduced newly designed postwar models. Among the smaller independents, Studebaker merged with Packard in 1954 and ceased production in the mid-1960s. Also in 1954, Nash and Hudson formed American Motors, which hung on until acquired by Chrysler in 1987.

GM’s position in the post–World War II market was especially dominant. After Henry Ford’s death in 1947, the Ford Motor Co. began a modernization program under grandson Henry Ford II. A strong group of managers known as the “Whiz Kids” were brought in to revive Ford. Chrysler’s sales slipped behind Ford into third place when its redesigned postwar cars proved less appealing and less well built than its competitors.

Had it engaged in aggressive price-cutting, GM might have driven every other carmaker out of business. But the company decided that it could not exceed its 50 percent market share without incurring the wrath of congressional antitrust watchdogs. Therefore, GM used its dominant position to raise prices and swell profits. GM’s annual rate of return during the quarter-century after World War II was more than twice as high as other carmakers and other U.S. manufacturers. By far the world’s largest parts maker, GM further added to its profits by selling spark plugs, bearings, air conditioners, automatic transmissions, and other parts to Ford, Chrysler, and the smaller independents.

GM set up an Art and Color Section in 1927 led by Harley J. Earl, the industry’s most influential designer for the next four decades. Innovative styling such as tailfins, chrome trim, and hardtop bodies (no pillar between the front and back doors) took precedence over engineering improvements. The dominance of General Motors at mid-century was best captured by its president, George Wilson, at 1953 U.S. Senate hearings to confirm his appointment as secretary of defense in the Eisenhower administration: “[F]or years I thought what was good for our country was good for General Motors—and vice versa.”

GM’s power reached its peak during the 1960s, when it tried to smear Ralph NADER, who had argued in his 1965 book Unsafe at Any Speed that the company was more concerned with profits than safety in developing its Corvair model. GM’s campaign backfired, and the company ended up settling an invasion of privacy suit for $425,000, which Nader used to set up consumer advocacy programs.

Prior to 1973, the Big Three regarded foreign cars as a minor nuisance. British sports cars such as MG and Triumph had style and flair, but imports—nearly all from Europe—were in general objects of ridicule and held a combined total of only 1 percent of the U.S. car market in 1955. Reliability was abysmal: Broken-down foreign cars sat for weeks until replacement parts arrived from Europe by boat.

The one exception during the 1950s and 1960s was Volkswagen, whose U.S. sales increased from 26,000 in 1955 to 156,000 in 1960 and 569,000 in 1970. The German carmaker’s appeal touched two rapidly expanding groups of U.S. consumers: households seeking an economical second car and baby boomers seeking an alternative to their parents’ massive “land cruisers.” The Big Three blunted the growth of foreign car sales by introducing smaller models of their own in 1960, including Ford’s Falcon, Chrysler’s Plymouth Valiant, and GM’s ill-fated Chevrolet Corvair.

The OPEC oil embargo during the winter of 1973–74 and rapid oil price rise during the rest of the 1970s induced many Americans to trade in their gas-guzzling U.S. models for fuel-efficient foreign cars. But Volkswagen was not the beneficiary of this increasing interest in foreign cars; its U.S. sales declined to 294,000 in 1980 and 159,000 in 1982. Rather, Japanese companies, led by Toyota and Honda, increased their U.S. sales from 300,000 in 1970 to 2 million in 1980. GM and Ford lost money for the first time since the Great Depression, and Chrysler was saved from BANKRUPTCY by federal government loan guarantees.

U.S. companies were mandated to raise fuel efficiency from 12 miles per gallon in 1975 to 27.5 miles per gallon in 1985. As memories of high prices and shortages of petroleum faded, the Big Three were unable to recapture market share from Japanese companies. Americans were initially attracted to Japanese cars because of higher fuel efficiency, but they continued to buy them because of higher quality.

The Big Three denied the existence of a quality gap during the 1980s. They blamed the perceived gap on consumer magazines, Ralph Nader, and biased questionnaires. Japanese companies were challenged to “level the playing field” by building cars in the United States with American workers. A dozen Japanese-owned and -managed assembly plants were built in the United States during the 1980s, and quality remained high. Most telling was a joint venture between Toyota and GM called New United Motor Manufacturing Inc. (NUMMI) in Fremont, California. Under GM management, the plant had a reputation for poor quality and a dysfunctional workforce. Under Toyota management, the same workers produced high-quality cars efficiently.

Most influential in changing the attitude of U.S. carmakers was The Machine That Changed the World, a 1990 report by the International Motor Vehicle Program (IMVP). Funded by U.S. and European carmakers and government agencies, the IMVP identified why Japanese carmakers were able to produce better-quality vehicles more efficiently than U.S. or European firms. The IMVP team called the Japanese system “lean production.”

Under lean production, Japanese firms organized workers into teams, each trained to perform a variety of operations that rotated among team members. Teams were given more control over immediate workspace, such as arrangement of machinery, and authority to address problems, including stopping the moving assembly line if necessary. Parts made by independent suppliers arrived at the assembly plant on a just-in-time basis, shortly before needed, eliminating the need to stockpile expensive inventory. Under lean production, new models were developed more quickly in response to changing consumer preferences, and assembly lines were flexible enough to accommodate model changes without a costly and time-consuming changeover period.

The Big Three adopted many lean production principles during the 1990s, thereby closing—but not completely eliminating—the productivity and quality gaps with Japanese carmakers. The economic fortunes of the Big Three improved during the 1990s primarily because of consumer interest in trucks, which increased from 20 percent of the U.S. market in 1974 to 50 percent in 2000. The Big Three ceded sales leadership in traditional four-door “family” passenger cars to the Japanese, especially Honda and Toyota, while concentrating on highly profitable sport utility vehicles and pickups.

For their part, Japanese companies struggled during the 1990s because lean production led to lean profits. Under the principle of kaizen (continuous improvement), productivity and quality were improved without regard for cost effectiveness. Higher profit margins were achieved by adopting optimum lean production, which combined elements of lean and mass production. More parts were standardized, products were consolidated onto fewer distinctive platforms (chassis and underpinnings), and development and assembly times were sharply cut.

Into the 21st century, the Big Three’s most significant competitive disadvantage was heavy pension and health-care costs that added $1,200 to every vehicle. UAW contracts maintained generous benefits for current and retired workers and their families while permitting the Big Three to reduce their workforce. UAW membership declined from a peak of 1.5 million in 1979 to 639,000 in 2002. In contrast, Japanese companies had fewer retirees and a workforce with fewer health care needs and little interest in joining a union.

The U.S. motor vehicle industry has become part of a global system. U.S. and Canadian motor vehicle production has been fully integrated since the 1960s, while the 1993 NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA) eliminated trade barriers in and out of Mexico. More goods arrive in the United States across the Detroit-Windsor Bridge than through any other port of entry in the country, largely because of Canadian-made motor vehicles and parts. In the aftermath of the September 11, 2001, terrorist attacks, however, U.S. borders with Canada and Mexico became less easy to cross, jeopardizing further integration of the North American motor-vehicle industry.

Asian- and European-owned companies build and sell vehicles in the United States, while U.S. companies are major producers in Europe and own controlling interests in several Asian carmakers. The sale of Chrysler to the German carmaker Daimler-Benz in 1997 effectively erased meaningful differences between the Big Three “domestics” and “foreign” manufacturers.

Control of the world’s motor manufacturing is expected to further consolidate into a handful of multinational companies. Sales and production are not expected to increase in North America, western Europe, and Japan in the 21st century; but rapidly rising consumer demand in developing countries, especially the two most populous, China and India, is expected to fuel further expansion of the world’s motor vehicle industry. Another challenge facing the automotive industry comes from concern that the increasing number of gasoline-powered automobiles is damaging the Earth’s environment with their tailpipe emissions. This has prompted the U.S. government to start imposing higher mileper- gallon regulations on automobiles (the strictest state being California), which in turn is forcing the automakers to explore new fuels and technologies—such as hydrogen and “hybrid” vehicles—to meet these changes.

Further reading

• Cray, Ed. Chrome Colossus. New York: McGraw-Hill, 1980. 
• Flink, James J. The Automobile Age. Cambridge, Mass.: MIT Press, 1988. 
• Nevins, Allan. Ford: The Times, the Man, the Company. New York: Charles Scribner’s Sons, 1954. 
• Rubenstein, James M. The Changing U.S. Auto Industry: A Geographical Analysis. London: Routledge, 1992. 
• ———. Making and Selling Cars: Innovation and Change in the U.S. Automotive Industry. Baltimore: Johns Hopkins University Press, 2001. 
• Womack, James P., Daniel T. Jones, and Daniel Roos. The Machine That Changed the World. New York: Rawson, 1990. 

James M. Rubenstein