Automobile Industry

MODERN ECONOMIC ORIGINS OF THE AUTOMOBILE INDUSTRY

COMPETITIVE STRUCTURE

MAJOR COUNTRIES OF PRODUCTION AND CONSUMPTION

IMPORTANCE OF THE INDUSTRY FOR MACROECONOMIC ACTIVITY AND INTERNATIONAL TRADE

CHANGES AND CHALLENGES IN THE AUTOMOBILE INDUSTRY

BIBLIOGRAPHY

The turn of the twentieth century witnessed the dawning of the automobile industry. Tinkering by bicycle, motorcycle, buggy, and machinery entrepreneurs in Europe and the United States led to the first prototypes of automobiles in the late nineteenth century. French woodworking machinery makers Rene Panhard and Emile Levassor built their first car in 1890 with an engine designed in Germany by Gottlieb Daimler and Wilhelm Maybach. Armand Peugeot, a French bicycle maker, licensed the same engine and sold his first four lightweight cars in 1891. German machinist Carl Benz followed the next year with his four-wheeled car and in 1893 Charles and Frank Duryea built the first gasoline-powered car in the United States. Ransom Olds is credited as the first mass producer of gasoline-powered automobiles in the United States, making 425 “Curved Dash Olds” in 1901. The first gasoline-powered Japanese car was made in 1907 by Komanosuke Uchiyama, but it was not until 1914 that Mitsubishi mass-produced cars in Japan.

Each region in the triad—North America, Europe, and Asia—has made significant contributions to process, product, and organization throughout the twentieth century. These innovations together have shaped the competitive structure of the automotive industry that exists today. The organization of production inputs—such as labor and suppliers of components and materials—as well as the configuration of distribution channels are also important dimensions of the growth and evolution of the industry. Furthermore, various forces outside the industry shape industry structure and strategies: trade flows; regional and international movement of capital; regional and global policies on trade, environmental regulation, and intellectual property, particularly in emerging economies; and the infusion of information technology throughout the procurement, production, and distribution systems.

The automotive industry is dynamic and vast, accounting for approximately one in ten jobs in industrialized countries. Developing countries often look to their local automotive sector for economic growth opportunities, particularly because of the vast linkages that the auto industry has to other sectors of their economy.

MODERN ECONOMIC ORIGINS OF THE AUTOMOBILE INDUSTRY

The auto industry has passed through several stages: (1) craft production (1890-1908), in which dozens of small enterprises vied to establish a standard product and process; (2) mass production (1908-1973), precipitated by Henry Ford’s moving assembly lines, which became the standard operating mechanism of the industry; and (3) lean production (1973–present), which was initially developed at Toyota under the leadership of Taichi Ohno during the 1950s, and which introduced a revolutionary management process of product-development and production.

Mechanization of auto production has also been transformed over the past century, led by the need for faster and lower-cost production on the supply side of the industry. Ford’s mass-production system relied on standardized designs to enable the construction of assembly plants that were fully automated and utilized interchangeable auto parts. In its heyday, between 1908 and 1920, Ford streamlined the assembly process to the point where it took just over an hour and a half to produce one car. Setting the industry standard for production enabled Ford to take the lead in market share, but it also led to a complacent mindset that hindered innovation. In the 1920s General Motors improved on Ford’s assembly line process by introducing flexibility into the production system, enabling faster changeovers from one model to the next. However, it took half a century after Ford stopped mass producing Model T’s in 1927 for another production paradigm to emerge as the standard in the global automotive industry. Toyota’s lean production system—which had its beginnings in 1953—drove productivity to new heights by replacing the “push” system with a “pull” system. Instead of producing mass quantities of vehicles and pushing them through to dealerships to sell to customers or hold as inventories, the lean system pulled vehicles through the production process based on immediate demand, minimizing inventories at suppliers, assemblers, and dealerships. Just-in-time production also gave a larger responsibility for product design, quality, and delivery to assembly workers and suppliers than did the mass-production system. Suppliers were not vertically integrated into auto assembler operations, but rather networked to the assemblers via long-term contracts. This total system of cost-minimization and responsiveness to customer demands revolutionized auto manufacturing on a global scale, although the model has been adapted to regional conditions.

Product innovation in the automotive industry has mainly been a response to customer demands, although product positioning is a critical strategic variable for automakers. Ever since General Motors began producing different types of vehicles for different product segments, thereby ending the reign of Ford’s low-price, monochromatic Model T, the ability to vary products on several dimensions has been the main strategic variable of auto producers. U.S. automakers have mainly been responsive to customers’ desires for comfort, speed, and safety, and have developed rugged drive trains, plush suspensions and interiors, and stylish chassis and bodies. In contrast, European auto producers have focused their attentions on performance and agility features of vehicles, such as steel-belted radial tires, disc brakes, fuel injection, and turbo diesel engines. For Japanese producers, the miniaturization culture and the scarcity of fuel, materials, and space largely determine the specifications of cars.

Organizational innovations have also occurred over the past century. In concert with the introduction of mass production techniques came the vertical organization of production processes. Auto assemblers internalized the production of critical components in an effort to minimize transaction costs associated with late deliveries and products that were not produced to exact specifications. For example, the share of components purchased from outside suppliers relative to the wholesale price of an American car dropped from 55 percent in 1922 to 26 percent in 1926. During the Great Depression, this propensity to internalize production eased, with suppliers gaining independence and importance in the replacement parts market. Automakers found that a highly vertical organizational structure did not permit the flexibility in operations necessary for product innovation. In the 1930s, Ford’s vertically integrated and centrally controlled organizational structure gave way to the multidivisional organizational structure that was implemented by Alfred Sloan at General Motors Corporation (GM). Sloan’s decentralized configuration of GM fostered an independent environment for the development, production, and sales of a wide variety of vehicles. With the lean production revolution came the introduction of organizational reform referred to as the extended enterprise system : Although Japanese auto manufacturers established and diffused efficient mechanisms of supply chain management throughout the industry, Chrysler Corporation is credited with successfully implementing these innovations in the American venue.

COMPETITIVE STRUCTURE

Rivalry among assemblers in the automotive industry, once contained within national boundaries, has evolved into global competition. First movers established market dominance in the early 1900s, and their brands are still the most recognized by consumers today. The fact that auto producers choose market strategies based on what their rivals are doing indicates that this is an oligopolistic industry. What is interesting here is that market leadership remains dynamic: It is not a given that General Motors or Toyota or DaimlerChrysler will be the market leader of tomorrow.

Before industry standards for products and production were established, hundreds of automakers existed, each vying to establish a beachhead in the industry. In the United States, for example, the year 1909 saw the largest number of automakers in operation in a given year—272 companies. It is estimated that in the first twenty years of the industry’s existence, over five hundred firms entered the industry in the United States alone. The 1920s brought a wave of precipitous exits by auto manufacturers, with many firms merging into more profitable companies. In the 1930s General Motors became the market leader, with Ford slipping to second place because of a yearlong changeover in production from the Model T to the Model A. By 1937 General Motors, Ford, and Chrysler—long referred to as the Big Three—had 90 percent of total sales in the U.S. market, forming a dominant-firm oligopoly (General Motors accounted for 44.8%, Chrysler 25%, and Ford 20.5%). By the 1960s, only seven domestic auto producers remained.

In the late 1990s Japanese auto manufacturers took over more than a quarter of the U.S. market, and Big Three market share slipped below 70 percent. Today, there are only two-and-a-half U.S. automakers—General Motors, Ford, and DaimlerChrysler—collectively capturing 58.7 percent of the U.S. market. GM still has the largest share of the U.S. market (27.3%), but Toyota’s market share in the United States is just one percentage point below Chrysler’s (13%). Worldwide, market concentration has also been declining since the mid-1980s, with entrants such as Hyundai/Kia diluting the collective market share held by dominant automakers.

Market rivalry in the auto industry centers on two strategic variables: (1) product variety and quality, and (2) transactions price, which is manipulated to boost sales. The tension between shareholder concerns about short-term profitability and a company’s desire for long-term viability is palpable. Automakers must attract and maintain a solid customer base, building allegiance to brand name in an effort to maximize earnings in the long term. Maintaining high customer repurchase rates is critical to long-term profitability in the industry. Therefore, automakers attempt to attract and keep customers from the purchase of their first car in their late teens until retirement and thereafter. Product variety at all of the major automakers spans the full spectrum from small to full-sized cars, although some automakers are better known in particular market niches. For example, Mercedes, BMW, Lexus, Infiniti, and Acura capture a third of the upscale market in the United States, whereas Buick, Ford, Mercury, and Toyota are known for their family-styled traditional cars. Turnkey reliability is the hallmark of Japanese makes, whereas Ford, Chevrolet, and Toyota appeal to buyers of small or sporty vehicles. The fastest growing market segment in the United States in recent years has been sport utility vehicles (SUVs). By the early 2000s, SUVs captured 55 percent of vehicle sales.

Auto producers have used various means to develop a full line of product offerings for a broad spectrum of customers. For example, GM has historically used acquisition or shareholdings to offer a variety of brands—including Chevrolet, Oldsmobile, Pontiac, Buick, GMC, and Cadillac. In the late 1970s, GM purchased shares in Suzuki and Isuzu subcompacts and imported those vehicles, in part to satisfy Corporate Average Fuel Efficiency requirements. In recent years, Ford-Mercury-Lincoln has also diversified its portfolio by acquiring Volvo and Jaguar. Toyota, Honda, and Nissan initiated a clever marketing ploy in the 1980s aimed at selling luxury vehicles in the United States: They named their luxury brands Lexus, Acura, and Infiniti, respectively, even though these cars are built on the same platforms as their other vehicles.

Product quality has been converging over time. As recently as 1998, European and Japanese makes had fewer vehicle defects than average for cars in their first few months on the road, whereas U.S. and Korean cars had more defects than average. By 2004 vehicles from all four regions were within ten defects per hundred vehicles of the average, which had fallen from 176 to 119 defects per hundred vehicles. Interestingly, both the Japanese and the South Korean newcomers outperformed U.S. and European vehicles on this quality scale.

To attract customers to a brand, small cars are at times used as a loss leader; that is, a firm will sell their low-end vehicle at a price below invoice, while recuperating large returns on SUVs, luxury brands, and specialty cars. Another pricing strategy that is often used by automakers to clear inventories and to get the customer in the door is discounting. At particular times of the model year (which typically begins in October and ends in September of the following year) direct assembler-to-customer discounts as well as dealer-to-customer discounts are used to adjust transaction prices to ebbs and flows in demand. If the revolutionary pull system becomes pervasive in the auto industry, the need to manage inventories through end-of-model-year discounting could become obsolete. However, product positioning will continue to be an important competitive variable for automakers because demographic attributes drive the needs and desires of customers.

Automotive suppliers have been gaining global importance in the automotive industry, taking on the primary responsibility for product development, engineering, and manufacturing for some critical systems in the automobile. In its initial stage of development, the auto industry was comprised of auto assemblers that integrated parts production into the enterprise. Independent auto parts producers mainly supplied aftermarket parts. Throughout the twentieth century, this vertically integrated structure within assemblers has been replaced by a more network-oriented tiering structure. Here, assemblers coordinate design and production efforts with premier first-tier suppliers, while these suppliers are responsible for global coordination of the supply of their subassemblies and for the coordination of production by sub-tier parts manufacturers. Thus, first-tier suppliers have been rivaling automakers in market power and in share of value added to any given vehicle. While it seems unlikely at this time that such suppliers will evolve into complete vehicle manufacturers, the profit generated by the sale of a vehicle is shifting toward the supplier and away from the traditional assembler. Automakers, therefore, face stiff rivalry both from other automakers and from dominant suppliers. Only a select few suppliers have achieved “true global competency” in the production of automotive systems, but the industry trend is pointing in this direction. The “Intel Inside” phenomenon seen with computers—in which the supplier’s brand identity is critical for the sale of the final product—has not yet taken over the automotive industry, although “Hemi Inside” could be an emerging example.

As manufacturing momentum shifted toward auto parts suppliers, so too did the share of labor. Since the early 1960s, total employment in the U.S. auto industry has ranged between 700,000 and just over 1 million workers. Up until the mid-1980s, auto assemblers employed the majority of those workers, but from then on the employment share for automotive parts suppliers in the United States has consistently been greater than the share of workers at assembly plants. Between 1987 and 2002, the share of automotive sector employment at assembly plants declined from 44 percent to 36 percent, whereas the share of workers at automotive suppliers increased from 46 percent to 54 percent. Add to this change the influx of mostly non-unionized automotive transplants (foreign suppliers and assemblers), the outsourcing of parts and assembly to foreign nations, and the general sectoral shift away from manufacturing toward the service sector, and it is clear that the 1980s marked a turning point for labor in the U.S. auto industry.

Labor unions that represent autoworkers in the United States have had to weather a myriad of undulations in domestic business cycles since 1935, when the United Auto Workers (UAW) was founded. (Other unions that represent auto workers in the United States include the International Association of Machinists and Aerospace Workers of America, the United Steelworkers of America, and the International Brotherhood of Electrical Workers.) Recent changes in the organization of the auto industry and in the ownership of domestic firms, however, present uniquely formidable challenges to union strength. First, the implementation of lean manufacturing techniques and the drive to achieve globally competitive prices, quality, and delivery standards is likely to precipitate job cuts as suppliers strive to increase productivity. Second, only a few automotive transplants in the United States allow union status—namely, NUMMI (GM-Toyota), Diamond Star (Chrysler-Mitsubishi), and Auto Alliance (Ford-Mazda), all of which are joint ventures with U.S. companies. Yet, total transplant employment is rising: Between 1993 and 2003 employment at transplants in the United States rose from 58,840 to 93,408. The UAW continues to strive to organize labor at transplants and is targeting supplier parks near unionized assemblers in an attempt to maintain locational control. Third, outsourcing of production in a continuously globalizing industry diminishes the bargaining power of unions not just in the United States, but in Europe as well. Fourth, auto assemblers and suppliers are increasing their utilization of temporary workers. In Germany, BMW has a pool of temporary workers that can be utilized at different factories as needed, and in the United States auto assemblers are increasingly employing contract workers to reduce costs.

The globalization of the auto industry appears to challenge the status quo for labor in traditional regions of vehicle production. As employment in the industry shifts toward the supplier sector and toward emerging economies, the attempt to maintain good wages at traditional plants is paramount for autoworkers. Total hourly labor cost at GM and Ford for 2005 was estimated at $65.90, with $35.36 in wages and $30.54 in benefits, healthcare, and retirement costs. Other estimates for 2004 show earnings of production workers at assembly plants at $1,217 per week, whereas workers at parts plants earn $872 weekly, and workers in all manufacturing industries make an average of $529 per week. Autoworkers—particularly those who work in assembly plants in developed countries—certainly have a great deal at stake as the industry continues to globalize.

By contrast to labor, the power that dealerships exert on assemblers has historically been minimal. The push system of production meant that dealerships were the repositories for the inventory overruns of auto assemblers. Also, up until the 1960s, dealerships could legally be controlled by automakers. Therefore, auto dealers earn the majority of their profits from aftermarket sales of parts, accessories, supplies, and service, all of which are a small portion of their business. With the movement toward a pull system of production, dealerships could play a more important role in the automotive industry. However, the countervailing threat to dealerships is Internet-based sales, an innovation that stands to mitigate the market power of dealerships vis-à-vis auto assemblers.

MAJOR COUNTRIES OF PRODUCTION AND CONSUMPTION

The Worldwide Big Three automakers are General Motors, Toyota Motor Corporation, and Ford Motor Company. In 2004 these companies had worldwide market shares of 13 percent, 11 percent, and 10 percent, respectively, and production shares that closely mirrored these numbers. Interestingly, the geocenter of automotive production is the Asia-Pacific region, with over 23 million units produced in 2004. Japan was the dominant producer, with China a distant second at half of Japan’s output that year. Western Europe and North America ranked a distant second and third in worldwide production, respectively, producing between 16 and 17 million vehicles in 2004. Germany is the dominant producer in western Europe, while the United States produces the lion’s share of vehicles in North America.

The biggest consumers of vehicles are North Americans, with Asian Pacific and western European customers a close second and third. Although per-capita ownership of vehicles in China is very small (1.5 vehicles per 100 households compared to 50 vehicles per 100 households in Japan in 2001), the number of vehicles sold in China in 2004 fell only a few hundred thousand short of vehicle sales in Japan. In addition, the growth rate of sales in Japan between 2003 and 2004 was a sparse 0.1 percent, whereas China experienced a 17.2 percent growth in vehicle sales during that period. The other countries with over a million in vehicle sales per year that also had double-digit growth in vehicle sales in 2004 were Russia (24 percent), India (18.2%), Brazil (17%), Mexico (11.8%), and Spain (10.2%). Market opportunities in these countries are highly dependent on macroeconomic performance and policies. Hence, automakers pursue a portfolio approach to production and marketing, given the fragility of economic growth in these regions.

Since the 1960s, auto analysts have looked to a few regions for sources of new productive capacity: Eastern Europe, Latin America, India, and China. By 1980, however, the eastern European motor industry had stagnated and during the 1980s severe economic and political turmoil caused halting growth in the Latin American automotive sectors. In the 1990s liberalization of trade and investment policies gradually emerged in India and China. Today, China has captured attention as the location for new automotive productive capacity. Beginning with Volkswagen’s investment in 1985, all of the major automakers have established productive capacity in China through joint-venture relationships with local automakers.

In the mid 1970s passenger car production was practically nonexistent in China. Thirty years later, sales and profit rates had soared, although capacity utilization is low (between 50% and 60%) and inventories are high relative to their Japanese, European, and U.S. competitors. If China continues on its pathway from centrally planned economy to modest marketization, and continues to become more fully integrated into the global economy, then its domestic automotive industry will most likely steadily expand.

IMPORTANCE OF THE INDUSTRY FOR MACROECONOMIC ACTIVITY AND INTERNATIONAL TRADE

The automotive industry is an important sector of the overall economy, particularly in industrialized countries. For example, the automobile is second only to a house in purchase value for the average American household. The average manufacturing job in the automotive sector pays 60 percent more than the average U.S. job. It is estimated that the industry generates 10.4 jobs for every worker directly employed in automotive manufacturing and support services (excluding auto dealers) in the United States. Employment spillovers are seen in manufacturing and nonmanufacturing industries, including retail trade and services. In 2000 motor vehicles and equipment (assemblers and suppliers) expenditures on research and development (R&D) outpaced R&D spending in many of the thirty-nine largest industry groups, including pharmaceuticals and medicines, semiconductors and other electronic components, communications equipment, and computers and peripheral equipment.

Motor vehicles are also a major component of international trade and foreign direct investment between countries. In 2000 the share of automotive products in world trade was 9.4 percent, unchanged from its share a decade earlier. Western Europe, North America, and Asia in declining order are the global leaders in exports and imports. While western Europe and Asia are net exporters of vehicles, North American imports far outpace exports. In North America, exports have remained relatively flat since the 1980s, whereas imports have ratcheted up. North America, eastern Europe, the Middle East, and Africa are all net importers of automotive products. Intraregional trade figures show that intra–western European trade was the largest in value at almost US$200 billion that year, intra–North American trade was second at US$87.7 billion, and intra-Asian trade was the lowest at US$19.6 billion. Interestingly, intra–North American trade declined by 10 percent compared to 1990. The fastest growing region-to-region trade was North America’s trade with its European and Latin American partners.

From time to time barriers have been erected around the globe to protect local automotive sectors. For example, over the past twenty years, countries in North America and Europe have erected tariff and non-tariff barriers specifically applied to trade in automobiles. Between 1981 and 1988, the United States and Japan “voluntarily” agreed on a fixed number of vehicle units that Japan would export to the United States. The European Union and Japan also entered a voluntary export agreement (VER) between 1990 and 1999, as Japanese imports to Europe began to surge. In both cases, the VERs were partly responsible for an increase in transplant production, as Japanese auto producers jumped over the trade barriers to erect manufacturing plants in the United States and Europe. Although the transplants have become a critical component of the local manufacturing landscape, the jobs and exports that they generate are weighted against their dampening effect on wages and the costs that some local governments incur to attract foreign firms to their region.

In developing countries, trade and investment restrictions in the automotive sector take the form of local content rules, tariffs, and quotas. The impetus behind these protectionist measures is to give local producers a chance to develop before they face competition from world-class auto producers that are more productive and therefore have lower unit costs. In recent decades, regional trade pacts have been implemented that liberalize many of these local content, investment, and trade restrictions. The North American Free Trade Agreement (NAFTA), which was implemented in 1994, is one significant example. When the United States and Canada included Mexico in their free trade pact on trade in automobiles and parts, Mexico reduced tariffs for its northern partners and lifted restrictions on local investment for all foreign companies, allowing domestic status for transplant operations.

One of the critical determinants of the location of assembly plants and their related suppliers is production cost. Production costs and market opportunities are the primary reasons why jobs are shifting away from the traditional geographic centers of vehicle production. At the same time, implementation of the lean production paradigm is shifting the operational center of vehicle production toward first-tier suppliers with global capabilities. Variable costs of production—costs that depend on the number of vehicles produced—include expenditures on materials and labor. In the automotive industry, material costs range between 22 and 50 percent, whereas labor costs range from 10 to 20 percent. Because these costs vary by region and product produced, auto assemblers and suppliers are actively engaged in assessments and adjustment processes that lead to changes in the configuration and operations of their plants. Yet, the evolution of North American, European, Asian, and South American trading blocs has significant implications for the geographic configuration of production and trade flows. While it remains an important factor, comparative advantage is not the sole determinant of trade patterns in the automotive industry.

CHANGES AND CHALLENGES IN THE AUTOMOBILE INDUSTRY

Auto industry analysts anticipate major organizational and geographical changes in the global auto industry in response to innovations in auto-manufacturing techniques, reconfigurations in the loci of demand for vehicles, and growing environmental concerns. A new model of labor utilization will develop as suppliers and automakers adjust to flexible manufacturing practices and the globalization of their operations.

As of 2007, overcapacity in the global automotive industry is estimated at 20 million units, which is approximately one-third of global annual production or the productive capacity of the western European automakers. With minimum efficient scale of production at an assembly plant estimated at 200,000 vehicles, dozens of assembly plants are likely to close as automakers strive to improve their profitability. Capacity unitization of about 75 percent is the tipping point below which automakers are in jeopardy of experiencing financial losses.

Overcapacity, therefore, has triggered mergers, acquisitions, and network alliances. Auto companies are consolidating and simplifying control and development functions, and attempting to minimize new investment initiatives, the number of unique parts in their vehicles, the number of design and production tools used, the number of components made in-house, and the number of direct supplier relationships. Assemblers are also utilizing modularization to simplify final assembly processes, and they are experimenting with various organizational designs as part of the restructuring process. Automakers and parts suppliers are utilizing vertical and horizontal strategic alliances with the expectation that they will facilitate the development of new products and the spread of automotive productive capacity to new geographic regions. These ventures, however, will also create new competitors, particularly in emerging economies.

However, consolidation has not proven to be a panacea for optimizing productive capacity in the industry. Mergers have typically occurred between companies that have complementary product lines and therefore the opportunities for retiring some plants are diminished. Effective rationalization brings job losses. Yet mergers between companies from different countries (such as Germany’s Daimler-Benz and Chrysler in the United States) have not typically brought capacity reduction, because political forces strive to maintain domestic jobs.

Analysts anticipate that production will shift away from traditional regions in North America, Europe, and East Asia to Brazil, China, India, and countries in Southeast Asia. Trade liberalization will facilitate this geographical shift in production, as well as increased commonilization —the sharing of principal components and platforms—although consumer tastes will militate against the full introduction of a homogeneous “world car” from each automaker. Commonilization—coupled with the differentiation of products based on regional tastes—is already practiced by Ford and Honda, and other automakers are also adopting this practice. There is no clear evidence, however, that automakers are converging on one comprehensive paradigm of production.

Economic growth in East and South Asia is also expected to influence the locational decisions of auto producers. For example, economic and political developments in China during the past decade have had considerable influences on global sourcing and production decisions of German, American, and Japanese automakers. Growing disposable income among middle-and upper-income citizens, burgeoning industrial development in coastal regions, and the periodic liberalization of personal finance markets are driving demand for passenger cars and commercial vehicles in China. Given these trends and the size of the market, automakers anticipate good returns from their productive capacity in the Far East. Yet, exuberance over the potentially hot auto market in China is tamed from time to time by the prospect that the underpinnings of that market rests importantly on government fiat.

The automobile industry will also need to continue to address a range of environmental concerns related to carbon dioxide levels and other health risks. While estimates vary widely as to the impact that vehicle emissions have on the global environment, automakers have made emissions and safety adjustments to their automobiles over time. In the United States, rules and guidelines that originated in the 1970s—such as the Corporate Average Fuel Efficiency Standards (CAFE) and federal safety regulations—have brought about significant emission reductions. Thirty years since CAFE standards were put in place, new cars in the United States emit approximately 1 percent of the smog-producing compounds emitted by new cars in the 1970s. This progress is not solely the result of government regulations, however. The Alliance of Automobile Manufacturers—a trade association of nine automakers from the United States, Germany, and Japan—has identified clean energy technologies as a means to further economic growth in the industry. It is important to note, however, that increased use of vehicles and persistent use of vehicles with old technology mitigate some of these important strides.

Automakers around the globe are also engaged in developing new technologies and products, such as electronic fuel cells, navigational systems that manage congestion problems, and “telematics” (telecommunications capabilities). Information technology networks will be fully integrated into the R&D, procurement, manufacturing, and distribution functions of the enterprise structure. The Internet and Web-based communications are expected to drive the next transformation in the automobile industry. The next frontier in distribution channels is fully to implement a build-to-order system. While dealerships might not become obsolete, the efficiency of the pull system will reduce their inventories and associated costs. Implementing a system similar to the Dell Direct model could mean significant cost reductions in the distribution and purchasing functions of firms in the industry.

SEE ALSO Ford Motor Company; General Motors

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Kaye Husbands Fealing

AUTOMOBILE INDUSTRY

AUTOMOBILE INDUSTRY became the world's largest form of manufacturing by the middle of the twentieth century, making more money and employing more people than any other industry. In the United States, the automobile industry changed how business was conducted and how Americans lived; automobiles were more popular in America than anywhere else in the world.

Origins of the Industry

It was in America that the first three important steps toward automobile manufacture were taken, two of them by Oliver Evans of Philadelphia. During the last two decades of the 1700s, he created an automated flourmill. It took in unprocessed grain and used conveyor belts and screws to transport the grain from step to step, through chaffing, grinding, and packaging, without human intervention. The mill was powered by a steam engine. Evans had not quite invented the assembly line Henry Ford would later use to change how the world manufactured almost everything, but the basic ideas were present: stations for each step in the flour-making process and machines doing the physically strenuous work.

Evans's other significant contribution was the world's first amphibious, fully functioning automobile. In 1805, he completed work on a machine that could be stored on land, driven to the shoreline, and then paddled through the water. It was a dredge for keeping waterways clear. With its steam engine chugging away, Evans' automobile made a great deal of noise as it was driven down to the docks on four large wheels. Once in the water with the paddle wheel attached, the machine could paddle about for several hours. It was the first clear demonstration that a mechanically powered transport could function for hours at a time without falling apart and do practical work.

The other important American in the history of the automobile from Evans's day was Eli Whitney of Connecticut. He developed the concept of interchangeable parts and showed that the concept could be put to practical use: in 1798, he was contracted by the United States government to produce 10,000 muskets that would be identical to each other.

In the 1830s, Charles Goodyear discovered that sulphur mixed with boiling natural rubber created a material that was not prone to melting under friction; this breakthrough would lead to the tires that automobiles would use. In 1832, Walter Hancock of Britain made a steam carriage for personal use. His ideas would quickly evolve into busses that ran regular routes in England, but the English government would outlaw most uses of mechanical power for transportation, dropping England out of the competition for producing practical automobiles.

In 1860, in France, Étienne Lenoir invented a rival to the steam engine, the first practical internal combustion engine. Its advantage over the steam engine was its compactness: it was smaller and lighter. The German engineer Nikolaus Otto refined the internal combustion engine, making it more powerful and more efficient. In 1876, he introduced his four-stroke-cycle compression engine. A compression engine mixes air and fuel, draws the mixture into a chamber, a piston compresses it, and then it is ignited by a spark.

Otto's engine would become the foundation for most internal combustion engines. Almost immediately, it was put to use in automobiles. In some, it generated electricity rather than powering a drive shaft; the electric cars needed no gearshifts and gained or lost power smoothly when in use. These electric cars would be competitive with automobiles with direct drives into the 1920s. Another German, Wilhelm Maybach, invented the carburetor that, by squirting a spray of fuel into air to form the mixture the piston would compress, made possible the use of gasoline in Otto's engine.

In 1879, New Yorker George Baldwin Selden applied for a patent for what he called a "road locomotive." It was the frame of a buckboard with a compression engine underneath the front seat, above the front axel. Selden quickly discovered that the technology of the time needed to catch up to him; the tools for manufacturing his machine were not in general use, so he delayed the patent process until he had financial backing and a market for his device. He and his backers claimed the patent rights to every motor vehicle that used a compression engine, and they made millions of dollars from the manufacturers of cars until they pushed Henry Ford too hard; he took them to court and won in January 1911, breaking their monopoly.

In 1894, the French firm Panhard and Levassor produced an automobile with a V-engine, a water-cooling system, a gearshift transmission, springs under the passengers to cushion the ride, and brakes fitted to wheel hubs. This state-of-the-art automobile was crafted piece by piece, rather than with interchangeable parts, but it is the first automobile to pull together most of the major ingredients of the modern automobile. In 1899, a visionary American, Ransom E. Olds, made the necessary leap of thought to the idea of using interchangeable parts for the purpose of producing automobiles for the masses and soon out produced every other automobile manufacturer in the world; in 1901, he produced the Oldsmobile. Elsewhere in 1899, Henry Ford helped form the Detroit Automobile company. Ford had an idea for a simple-to-maintain automobile that would appeal to farmers. His first effort was taken over by his financial backers, becoming Cadillac. In 1903, Buick Motor Company was founded in Flint, Michigan, while Ford formed the Ford Motor Company in Detroit, Michigan.

Henry Ford and Mass Production

Henry Ford did not invent the automobile, but he did coin the phrase "mass production," and he found a way to excel beyond Olds' efforts by creating a process whereby goods could be made so fast, and in such great quantities, that they could be sold for a tiny profit and still earn millions for their manufacturer. In 1903, he produced his first Model A (there was another in 1927). He tried new designs, working up the alphabet until he reached T in 1908. In 1908, he tried reorganizing his factory; it took twelve-and-a-half hours to produce one car, and he realized that he had just about reached the limit for speeds using old, craftsman techniques of fitting parts to automobiles. His ambition was to sell a car to every American home, and he needed to speed up the process of production. Two of his innovations began the mass-production revolution.

One had to do with small parts. At the time, automobile manufacturers used wood for many of their parts because steel was so soft it would warp when heated during the manufacturing process. It took workers many hours to hammer such parts back into shape and to file them until they fit each other. Ford took advantage of a new kind of steel that was hardened during production and therefore would not warp during the manufacturing of an automobile or while the automobile was in use. Ford combined this development with manufacturing-to-gauge: that is, he assigned an exact set of specifications for every part, and all the parts were to be made exactly to those specifications so they did not need to be hammered or filed to fit a particular car; the idea was that if the parts of cars were all mixed together, workers would be able to build the cars while randomly selecting their pieces. Ford was obsessed with manufacturing-to-gauge, and brought his zeal to the work floor of his factory.

With parts made of hardened steel that were universally interchangeable, he was able to effect his other great innovation. He had chassis of his automobiles hitched to ropes and towed the length of his factory. Workers would walk alongside the chassis to piles of parts; each pile was a station where the chassis would stop and the workers would add the parts. In 1908, this dropped the production time for a single automobile to under six hours, and his company became the world's largest annual producer of cars.

The Model T became popular. At a little over 900 dollars, it was within the financial reach of middle-class Americans. Even so, Ford wanted the car to be within reach of anyone earning a living wage; this meant faster production and lower overhead. In 1913, he introduced the assembly line, as it would be known even into the twenty-first century. Instead of having workers move to piles of parts, he had the parts moved to them; each station had a worker or a small team of workers who performed one function over and over throughout their long work day. The time to produce one Model T dropped to one-and-a-half hours. In 1914, the price for one Model T dropped to 490 dollars and Ford produced forty-five percent of America's automobiles.

Ford's business practices were considered insane by most manufacturers: in 1915, he shook the manufacturing

world. He promised customers that if he sold 300,000 Model Ts during the year he would send each purchaser a rebate; when sales exceeded 300,000 he rebated fifty dollars per car. More disturbing to other companies was his doubling the minimum wage of his workers from $2.50 a day to $5.00 a day. It became possible for a Ford worker who stayed on the job for several years to own his own home and automobile and to build a sizeable savings. Ford would go on to advocate shorter working hours and fewer work days, because, he said, mass production enabled a company to meet all of its market demands with shorter work times; in the 1930s, he advocated a thirty-hour work week. In 1917, he bought out his stockholders for $105,250,000, and then he could experiment even more.

He did what he did partly out of idealism and partly because of his memories of being young and poor. Further, he wanted to build worker loyalty; he wanted his workers to have jobs for life with his company. In addition, he wanted to build brand loyalty; he wanted his customers to remember that Ford gave them a fair deal. Not all of his efforts worked. His implementation of the assembly line changed how workers viewed their jobs. No longer craftsmen who would learn how everything in the factory worked, Ford's workers learned only about the function of their specific work stations; status came not from skill but from seniority, and status was not rewarded with increasing responsibilities for the manufacturing process but by moving to the work stations that required the least amount of physical effort. Workers became more like interchangeable parts of the manufacturing process. When Dodge began production in 1915, the lesson became clear: assembly-line workers could easily move to another factory and stand at workstations doing what they had done before. There was another dark side to Ford's achievements: while long-term workers benefited from their loyalty to Ford, on average, a worker lasted three months on the assembly line. The tedium was over-whelming; assembly lines were dangerous and losing limbs was a risk workers took; what came to be known as repetitive motion injuries could cripple workers. Automobile manufacturers managed to cover up many of these problems well into the 1920s, but they were a constant tax on production.

1920–1950

By 1920, the automobile industry was shaking down to a small number of competitors. A recession in 1921 caught small manufacturers without enough cash on hand to operate their factories. During the 1920s, the big two manufacturers were Ford and General Motors (GM), with a young Chrysler Motor Corporation, established in 1925, gaining ground. In 1920, the luxury car maker Dusenberg introduced four-wheel brakes and a straight-eight engine. In 1924, Hudson introduced an enclosed sedan as a standard release, costing the same as its open car, $895.00. Further, ethylene glycol antifreeze was invented. These two innovations meant that manufacturers could produce all-weather cars that could withstand cold and shelter their drivers.

In 1925, the last strong challenge to the internal combustion engine ended when the versatile Stanley Steamer ceased being manufactured. Journalists had been predicting the "saturation" of the automobile market for over a decade, claiming automobile sales had to decline once everyone who wanted a car had a car; they had long been wrong. In 1925, Alfred P. Sloan, Jr., who ran GM, suggested that the time was coming when the saturation of the market would have to be dealt with, and he suggested what would later be called "planned obsolescence" as the solution. Change the style every year to make older styles seem out of date. By 1927, GM's Chevrolet division was outselling Ford. Meanwhile, Chrysler bought out Dodge and in 1928, launched Plymouth and De Soto.

It was in 1928 that automakers began to make planned obsolescence a reality, but in the early 1930s, the industry was hit hard by the Great Depression. From 1931 to 1932, nine thousand auto dealerships went out of business, although neither Ford nor GM lost even one. Because of its virtues of being inexpensive and durable, the Ford Model A, introduced in 1927, helped Ford re-take its lead in sales in a much diminished market. In 1933, Chrysler introduced aerodynamic designing, but its futuristic offering did not fit public tastes in hard times.

Unionization hit the industry in the 1930s. Ford was outraged, viewing his workers as ungrateful, but his reaction was mild compared to the violence GM used to discourage unionization of its plants. Even so, the major automakers eventually signed collective bargaining agreements with the United Auto Workers. In 1942, the automotive industry almost came to a stop because the United States had entered World War II. The government ordered the automobile companies to produce war supplies, and this they did. The Ford Motor Company had been taken over by Henry Ford II, grandson of the founder, and he was beginning to reshape the company in 1941. During the war, Ford applied its mass production principles to manufacturing heavy bombers. By the end of the war, it was producing a B-24 bomber every sixty-three minutes. To GM fell the manufacturing of tanks. The GM management rethought their manufacturing process, introducing teams of workers who ran their work stations and a new whole chassis welding process that encouraged workers to be their own quality managers.

1950–1980

In 1945, Henry Kaiser founded Kaiser-Frazer Corporation and began manufacturing innovative automobiles. In 1954, Nash and Hudson merged to form American Motors. The big three in automobile production were GM, first, Chrysler, second, and Ford, third. At the time, about seventeen percent of American-made automobiles were sold in foreign countries. Ford was especially well positioned for sales in Europe with factories in England and elsewhere on the continent. The "Big Three" did not seem to care about what was happening in Japan during the 1950s.

The Japanese were listening to American management consultant W. Edwards Deming, who told them they should produce high-quality, durable products, and stand behind their quality with warranties in order to sell their wares internationally. Not all Japanese manufacturers believed Deming, but some invested everything they had into Deming's ideas. One such company was Toyota, who developed the "Toyota Production System." They encouraged worker suggestions for improving products as well as procedures and they created teams of workers who were responsible for the quality of their workstations' performances, which they called kaizen. During the 1950s and 1960s, planned obsolescence governed the American auto industry; the fiasco in 1957 of the Ford Easel came about in part because it was not at all innovative in performance or design.

Meanwhile, the world and Americans were changing fast. By the end of the 1960s, people who had never been in a coalmine were dying of black lung disease in polluted cities such as New York and Los Angeles. In the early 1970s, the United States Congress mandated cleaner burning automobile engines and set standards for automobile safety. The Japanese were ready with cars that met the standards; the Americans were not. Then in 1973, the Organization of Petroleum Exporting Countries (OPEC) cut back steeply on exports, gasoline prices rose steeply, and Americans had to wait in long lines at gas stations because of gasoline shortages. Since the 1920s, automobile manufacturers knew that Americans preferred big cars over small ones. A forty-miles-per-gallon automobile, the Crassly Hotshot, had been produced in the 1940s but had disappeared because of poor sales. In the 1970s, Americans wanted small, gas efficient cars. The Japanese had them.

In 1977, more American automobiles were recalled because of faulty parts or construction than were actually built during the year. In 1979, Chrysler almost went bankrupt, and only earnest pleas for help from charismatic company president Lee Iacocca won the federal loan guarantees the company needed in order to continue operations.

Meeting the Japanese Challenge

In 1980, America's automakers lost 1.8 billion dollars. In 1980, Japanese automobiles outsold American automobiles worldwide for the first time. Yet, in that year, American automobile companies invested seventy billion dollars to reconstruct their plants. They were putting computers into their cars to manage fuel, the shifting of gears, and other aspects of cars, to make driving them more efficient and with less wear and tear. The Texaco Controlled-Combustion System, invented in the 1940s, allowed automobiles to burn almost any fuel efficiently, and engines that ran on methanol, coal dust, and natural gas were created.

Meanwhile, Japanese manufacturers ran into problems. The most important one was their dependence on foreign imports of raw materials. Another problem was the saturation level: they were running out of markets for their small cars, and without high volume sales, it was hard to earn profits making them. Thus, Japanese manufacturers began to shift toward making more expensive large automobiles with luxury features; they could make a higher profit per car for the large ones than for the smaller ones. Further, the Japanese yen had been strong against the American dollar for many years, helping make Japanese cars cheaper than American ones. By 1985, the yen had dropped against the dollar, adding two thousand dollars to the price of a Japanese automobile in America.

In 1987, Chrysler bought out American Motors and showed its renewed financial strength by paying back its loans early. GM showed that there was still life in the idea of worker participation in quality management by beginning, in June 1982 (but publicly announced in 1983), a new car division for the Saturn, the first of which was manufactured 15 September 1984. The car depended on its reputation for high quality to succeed in the American market. In Japan, automobile manufacturers depended heavily on robots to man their workstations, whereas American companies did not. What seemed to make economic sense in the 1980s, proved a money pit for the Japanese. They discovered that while they saved money from laying off workers who were replaced by robots, they were spending extra money on the people who maintained the robots and programmed the robots' computers. Plus, kaizen was disappearing as the workers who could have made constructive suggestions were laid off. The result was that by 1995, American automobile makers regained their dominant position in the marketplace.

BIBLIOGRAPHY

"The Arsenals of Progress." The Economist (US) 330, no. 7853 (5 March 1994): M5–7.

De Camp, L. Sprague, and Catherine C. De Camp. The Story of Science in America. New York: Charles Scribner's Sons, 1967.

Grove, Noel. "Swing Low, Sweet Chariot!: The Automobile and the American Way." National Geographic (June 1983): 2–35.

Hapgood, Fred. "Keeping It Simple." Inc. 18, no. 4 (19 March 1996): 66–70.

Ingrassia, Paul J., and Joseph B. White. Comeback: The Fall and Rise of the American Automobile Industry. New York: Simon & Schuster, 1994.

Kerson, Roger. "Ending the Bends." Technology Review 89 (April 1986): 6.

Showalter, Williamm Joseph. "The Automobile Industry: An American Art That Has Revolutionized Methods of Manufacturing and Transformed Transportation." National Geographic 44, no. 4 (October 1923): 337–414.

Sloan, Alfred P., Jr. My Years with General Motors. New York: Doubleday, 1972.

Smith, Philip Hillyer. Wheels within Wheels: A Short History of American Motor Car Manufacturing. New York: Funk & Wagnalls, 1968. By someone who actually lived the history.

"Toyota's New Bombshell." World Press Review 42, no. 6 (June 1995): 33.

Womack, James P., Daniel T. Jones, and Daniel Roos. The Machine That Changed the World: How Japan's Secret Weapon in the Global Auto Wars Will Revolutionize Western Industry. New York: Maxwell Macmillan International, 1990.

Kirk H.Beetz

See alsoAir Pollution ; Assembly Line ; Ford Motor Company ; General Motors ; Mass Production ; Steam Power and Engines ; United Automobile Workers of America ; andvol. 9:Ford Men Beat and Rout Lewis .

INDUSTRY: THE AUTOMOBILE

Model T

In 1908, when Henry Ford was forty-five years old and the president of the Ford Motor Company, he had an idea that must have made both his associates and competitors think he had taken leave of his senses. The Ford organization, following conventional wisdom, had been manufacturing the Ford Model N, a large, popular car. Auto producers generally believed that the car demanded by the public would be large and expensive, since by definition the auto attracted only those in the upper-income groups and would never be produced for the average man who could not afford it. But now Henry Ford wanted to manufacture a small car to sell to a mass market at a low price—less than $1,000—an invitation to bankruptcy, the industry thought. Before the Model T went out of production, nearly twenty years later, the lowest-priced model was sold for $260. While his associates had predicted disaster, by 1920 Ford was the most famous figure in the industry, and his Model T the best-known car in the world, seventeen million having been sold.

The Industry

The industry was in great flux during the decade. Dozens of small firms merged with others or ultimately left the automobile field completely; from 1900 to 1930 some two thousand or more auto manufacturers were in business for at least some period of time. Such well-known smaller companies as Packard, Reo, Nash, Velie, Hudson, Franklin, Duesenberg, Chandler, Pierce-Arrow, and Rickenbacker enjoyed a reasonable share of the market, though many of them ultimately failed. Generally these smaller firms concentrated on the high-price/high-quality end of the market.

The "Big Three."

Yet the smaller companies were of course overshadowed by the giant auto manufacturers. Founded in 1908 by William C. Durant, General Motors rose during the 1920s to the top of the industry, followed later in the decade by the Chrysler Corporation under the leadership of Walter P. Chrysler; both GM and Chrysler were amalgamations of other companies. The "big three"—GM, Chrysler, and Ford—accounted for well over 70 percent of the auto market, GM controlling about 40 percent of the market, and Ford and Chrysler dividing roughly 30 percent, though, as the decade passed, Ford began to lose its market share to the other two major firms. The greatest area of competition took place in the low end of the market occupied by Ford's Model T and, later, Model A; GM's Chevrolet; and Chrysler's Plymouth—the three most widely sold cars.

THE DAY THE NEW CARS ARRIVED
IN TOWN

Interest in the automobile during the 1920s was immense, perhaps because there was no television or because in those days the various makes were quite distinctive. The introduction of new models in the local dealers' showrooms was a major event.

September and October were the magic months. In small communities new Fords, Chevrolets, Plymouths, and other makes would begin arriving at the local freight yard to be unloaded and driven to the nearest dealer, the process supervised by small boys and hangers-on. And when the cars reached the showroom, everyone came to see them. Brochures illustrating the new models were stacked on tables, and, in some cases, passed rather sparingly to those who gave some appearance of being likely customers (small boys not included).

Loud, sometimes heated discussions would get under way over the advantages of hydraulic brakes, "free wheeling," the "turret top," "knee action," "synchro-mesh" transmission, and so on.

Salesmen boosted the youngsters into front seats, opened hoods, pointed out improvements, and suggested trial spins. Serious negotiations began when a prospective customer and a salesman stepped outside to look over the trade-in.

The scene at the high-priced auto showrooms was a bit different from that at the Ford or GM dealerships. Packard, Cadillac, and Lincoln customers were older and clearly more affluent, the salesmen more restrained. The automobile brochures for upscale cars were more attractive and often expensively produced. Later they would become collectors' items.

GREENFIELD VILLAGE

Henry Ford had many interests—farming, social issues, food fads, politics, and pacifism among them. During a legal proceeding he once said that history was "bunk," but around 1919 he began to re-create history on his property near Dearborn in the neighborhood of his River Rouge plant. Greenfield Village became over the next twenty years a potpourri of American history: a somewhat unstructured living museum filled with tradesmen's and workers' shops and historic buildings of various kinds (including Thomas Edison's laboratory moved from New Jersey and rebuilt on the Greenfield Village site). Ford and members of his family spent some $37 million on the project, far more than they put into their other philanthropic endeavors, such as the Ford Hospital and the Berry Schools.

Source:

William S. Adams, Henry Ford and Greenfield Village (New York: Stokes, 1938).

Evolving Structure

By middecade the industry had begun to change in structure and emphasis. The number of makes in autos had substantially declined, and while emphasis was still put on stylistic innovation and mechanical developments, increased attention was being given to management and the business side of the industry. The major figure of this era was Alfred P. Sloan Jr., who became the dominant personality in General Motors after the departure of Durant. Unlike many of the early giants of the industry, Sloan was a professional engineer, a graduate of MIT. Under Sloan, GM became a model of the modern corporation, just as Ford earlier had become the symbol of mass production and low prices.

Related Industries and Social Phenomena

The auto industry produced a vast network of related industries and generated significant social phenomena. Among the related businesses were car dealerships; parts and supplies manufacturers and retailers; petroleum-products developers; service stations and garages. Highways were built linking almost every city, town, and village in the nation. As automobile ownership made distances easier to cover, schools were consolidated, and factories moved to the countryside. The suburbs mushroomed well beyond the limits of the electric interurban system, which had fueled the original exodus to the suburbs. Investments in motel-like tourist courts, gas stations, and other auto-support facilities rose to enormous levels by the end of the decade.

Profits

In the middle and later parts of the decade the auto industry was hugely profitable almost across the board but especially noticeably in the largest firms. When Henry Ford introduced his Model A (put on the market in November 1927 but generally unavailable to the public until 1928), the company took in more than fifty thousand orders (with cash deposits) before the model had entered production or many buyers had even seen the car. In the same year, GM declared a $65,250,000 dividend on its 17.4 million shares, the largest dividend in any firm to that date. Dealers throughout the nation prospered. And while most attention was fixed on the big three's low-priced entrants, demand was substantial and increasing, as the market boomed at the high-priced end of the market: Packard, Pierce-Arrow, Cadillac. In large cities some imported models, such as Rolls-Royce and Bentley, were seen. Other than these extremely expensive autos, the imported auto was unusual, and the idea that Japan would someday be a major supplier of U.S. cars would have been laughable.

Automania

Public interest in the automobile was intense. During the tooling-up period for the Model A, for example, rumors swept the country about what it would look like and how much it would cost. Newspapers ran pictures purporting to show the new car. On the day the Model A was introduced, Ford ran fullpage ads in every paper in the country, and its introduction attracted worldwide attention. Crowds in showrooms were immense. In New York the major dealer had planned a show in the Waldorf Hotel lobby but had to shift to Madison Square Garden instead. In small towns the status symbol over the next few months was to own a new Model A. Although the old Model T was being phased out, it actually remained in production for months to fill orders, and Model T replacement parts were manufactured for years. Yet a new day had dawned. No longer would a standard model remain in production for twenty years, as the Model T had done, and, in fact, the Model A, of which about a million units were produced a year, was replaced by Ford in 1932.

Strength of the Industry

The auto industry would soon become the largest industry in the nation. In 1926, 4.2 million units were produced, and by 1930 the figure rose to 5.3 million. It has been estimated that by 1927 Americans owned 39 percent of all the autos in the world. Yet Ford and GM were also very strong in Europe where, during the 1920s, they established branch plants or bought interests in European firms. Even later, in the depth of the Depression, the demand for autos remained amazingly strong, partly because of the availability of used cars and partly because auto producers were among the first industries to adopt installment-buying plans.

MR. QUALITY

Henry M. Leland (1843-1932) was one of the great figures in the development of the automobile during the first two decades of this century. Beginning as a toolmaker, he rose to executive positions in several corporations, and in 1908 he won the Dewar trophy for automotive excellence. He had reassembled three knocked-down Cadillac automobiles that had interchangeable parts, and all ran successfully for five hundred miles or more.

After he sold Cadillac to General Motors in 1909, Leland and his son continued to operate the Cadillac division, where they introduced many technical improvements. In 1917 he left GM to manufacture Liberty airplane engines, and in 1920 he began to produce the Lincoln.

At first the Lincoln was well received, largely on the basis of Leland's reputation for high-quality work. But although the car was superbly engineered, it was poorly styled, and its production was slowed by Leland's insistence on quality and by the economic decline in the early 1920s. The car was soon in difficulty.

In 1922 the Lincoln passed to the control of the Ford Motor Company. Henry Ford and Leland were both strong-willed men. The Lelands, who had been slated to manage Lincoln production under Ford direction, soon left. Edsel Ford had the automobile restyled in the late 1920s and in the late 1930s produced the Lincoln Continental, a superb car. Henry M. Leland is remembered as the man who created the top cars of both the GM line (Cadillac) and the Ford line (Lincoln Continental).

Sources:

Ottile M. Leland and Minnie M. Millbrook, Master of Precision: Henry M. Leland (Detroit: Wayne State University Press, 1966);

Allan Nevins and Frank E. Hill, Ford: Expansion and Challenge, 1915-1933 (New York: McGraw-Hill, 1957).

DISTRIBUTORSHIPS, DEALERSHIPS, AND AGENCIES

The structure of the automobile industry in the 1920s was built on the needs of the market at the time. High-priced cars sold poorly in small towns and rural areas, where incomes tended to be low. The Packard, with its $1,200 price tag, was beyond the reach of the lower-income groups, and in a small town or rural community there might be only three or four Packard owners. Ford, Chevrolet, and Plymouth, on the other hand, were popular in these markets, and it was a small town, indeed, that lacked dealers in these lines.

General Motors, Ford, and Chrysler produced makes of cars to fit most budgets, but the independents—Packard, Reo, and Pierce-Arrow, for example—found it impossible to maintain dealerships in small towns. These manufacturers relied instead on distributorships that were located in large cities and supplied cars to small-town "dealers," often local service stations or garages that sold on order only.

Dealers, in contrast, held franchises and maintained inventories of automobiles. The market was sliced up by the individual manufacturers into segments; a medium-sized town might have dealerships that sold two lines of cars only: Chevrolet/Oldsmobile or Buick/Cadillac or Buick/Pontiac, for instance. Chrysler might match up Dodge/Plymouth or Chrysler/Plymouth or Dodge trucks/Dodge cars or De So to/Plymouth. Ford, since it had so many dealers and sold so many Ford cars and trucks compared to smaller companies, generally preferred dealers to offer the full line of Ford vehicles, although it was clear that few Lincolns would be sold in small communities. Only in the largest cities would one find dealers selling luxury cars and, only in the very largest, dealers in Rolls-Royce, Mercedes-Benz, and other costly European cars.

Source:

Charles E. Edwards, Dynamics of the United States Automobile Industry (Columbia: University of South Carolina Press, 1965).

Source:

Alfred D. Chandler Jr., Giant Enterprise: Ford, General Motors and the Automobile Industry (New York: Harcourt, Brace & World, 1964).

UNITED AUTOMOBILE WORKERS OF AMERICA

UNITED AUTOMOBILE WORKERS OF AMERICA (UAW) was the largest and most politically important

trade union during the heyday of the twentieth-century labor movement. Although the UAW held its first convention in 1935, its real founding took place the next year, when it became one of the key unions within the new Committee for Industrial Organization. After a dramatic, six-week sit-down strike at General Motors during the winter of 1937, the UAW won union recognition from that company, then the nation's largest corporation. Chrysler and numerous supplier plants followed within a few months, after which it took four difficult years to organize workers at the Ford Motor Company, an intransigent union foe. By 1943, the UAW had organized more than a million workers in the auto, aircraft, and agricultural equipment industries.

The UAW was a uniquely democratic and militant union for three reasons. First, under conditions of mass production, supervisors and unionists fought bitterly and continuously over the pace of production, the distribution of work, and the extent to which seniority would govern job security. Second, the UAW enrolled hundreds of thousands of Poles, Hungarians, Slavs, Italians, African Americans, and white Appalachian migrants for whom unionism represented a doorway to an engaged sense of American citizenship. Finally, the founders and officers of the UAW were a notably factional and ideological cohort, among which socialists, communists, Catholic corporatists, and Roosevelt liberals fought for power and office.

Homer Martin, who served as union president from 1936 until 1939, was a former Protestant minister whose maladroit leadership nearly wrecked the union during the sharp recession of 1938. He was followed by R. J. Thomas, who tried to straddle the rivalry that made the former socialist Walter Reuther and his "right wing" faction the bitter enemies of Secretary Treasurer George Addes and Vice President Richard Frankensteen and their communist supporters. Reuther won the union presidency in 1946, and his anticommunist caucus, which nevertheless embodied the radicalism of many shop militants and progressive unionists, took full control of the UAW the next year. Reuther served as president until 1970, when he died in an airplane crash.

During its first quarter century, the UAW established the template that defined much of modern U.S. unionism. In bargaining with the big three auto corporations, the union raised and equalized wages between plants, regions, and occupations. It established a grievance arbitration system that limited the foreman's right to hire, fire, and discipline, and it won for its members a wide array of health and pension "fringe benefits" when it became clear that the unions and their liberal allies could not expand the U.S. welfare state. The real income of automobile workers more than doubled between 1947 and 1973.

But the UAW was thwarted in many of its larger ambitions. During World War II, the union sought a role in administering the production effort and sharing power with corporate management. Immediately after the war, Reuther led a 113-day strike against General Motors not only to raise wages but also to pressure both that corporation and the administration of President Harry Truman to limit any subsequent rise in the price of cars, thus enhancing the purchasing power of all workers.

The defeat of the UAW on both of these issues paved the way for a midcentury accord with most of the big auto firms. The union abandoned most efforts to challenge management pricing or production prerogatives, in return for which the corporations guaranteed autoworkers a slow but steady increase in their real pay. But this industry–UAW accord was not peaceful. Individual UAW locals struck repeatedly to humanize working conditions and to defend unionists victimized by management. At the company wide level, both sides probed for advantage. Thus, long strikes occurred at Chrysler in 1950 and 1957, at Ford in 1955 and 1967, and at General Motors in 1964 and 1970.

Politically, the UAW was a liberal presence in national Democratic politics and in those states, such as Michigan, Missouri, Ohio, Illinois, New York, Iowa, California, and Indiana, where it had a large membership. Until 1948, many in the UAW leadership supported forming a labor-based third party, but after Truman's unexpected victory, the UAW sought a liberal "realignment" of the Democrats. The union pushed for aggressive Keynesian fiscal policies to lower unemployment, fought for an expanded welfare state, and favored détente with the Soviets. The UAW funded numerous civil rights activities in the 1960s, despite or perhaps because its role in Detroit municipal politics and in numerous auto and aircraft factories was an equivocal one on racial issues. The UAW did not break with President Lyndon Johnson over Vietnam. But it withdrew from the AFL-CIO from 1968 to 1981, because of what Reuther considered the conservative posture and stolid anticommunism of that union federation and of George Meany, its longtime president. In 1972 the UAW vigorously supported the presidential candidacy of George McGovern.

Until the late 1970s, UAW membership fluctuated between 1.2 and 1.5 million, but the back-to-back recessions of the late 1970s and the early 1980s combined with automation, the deunionization of the auto parts sector, and the closing of many older factories slashed UAW size to about 750,000. When Chrysler verged on bankruptcy in 1980 and 1981, the union agreed to a series of contract concessions that for the first time in forty years broke wage parity among the major auto firms. The UAW eventually reestablished the industry wage pattern and won employment guarantees for many of its remaining members, but the concession bargaining of the early 1980s spread rapidly across industrial America with devastating results for millions of workers.

After the mid-1980s, the UAW no longer played the "vanguard" role within the labor movement once hailed by Reuther. Until 1983 it was led by Leonard Woodcock and Douglas Fraser, both union pioneers and labor spokesmen of national stature. The UAW voice was more muted during the subsequent presidencies of Owen Beiber and Steven Yokich. The union cooperated with the auto industry to dilute government-mandated fuel efficiency standards and to stanch Japanese imports. But when foreign firms built assembly and parts plants in the United States, the union could not organize the workers. For more than a decade the UAW accommodated management efforts to deploy team production and employee involvement schemes, which often eroded work standards and eviscerated union consciousness. By the early twenty-first century the UAW was the nation's fifth largest union.

BIBLIOGRAPHY

Boyle, Kevin. The UAW and the Heyday of American Liberalism,1945–1968. Ithaca, N.Y.: Cornell University Press, 1995.

Halpern, Martin. UAW Politics in the Cold War Era. Albany: State University of New York Press, 1988.

Jefferys, Steve. Management and Managed: Fifty Years of Crisis at Chrysler. New York: Cambridge University Press, 1986.

Lichtenstein, Nelson. The Most Dangerous Man in Detroit: Walter Reuther and the Fate of American Labor. New York: Basic Books, 1995.

Moody, Kim. Workers in a Lean World: Unions in the International Economy. London: Verso, 1997.

NelsonLichtenstein

See alsoAmerican Federation of Labor–Congress of Industrial Organizations ; Automobile Industry ; Labor ; Sitdown Strikes ; Strikes andvol. 9:Ford Men Beat and Rout Lewis .

automobile industry the business of producing and selling self-powered vehicles, including passenger cars, trucks, farm equipment, and other commercial vehicles. By allowing consumers to commute long distances for work, shopping, and entertainment, the auto industry has encouraged the development of an extensive road system, made possible the growth of suburbs and shopping centers around major cities, and played a key role in the growth of ancillary industries, such as the oil and travel businesses. The auto industry has become one of the largest purchasers of many key industrial products, such as steel. The large number of people the industry employs has made it a key determinant of economic growth.

Industry History

Although ancient Chinese writers described steam-powered vehicles, and both steam- and electric-powered cars competed with gas-powered vehicles in the late 19th cent. Frenchman Jean Joseph Étienne developed the first practical internal-combustion engine (1860), and later in the decade several inventors, most notably Karl Benz and Gottlieb Daimler, produced gas-powered vehicles that ultimately dominated the industry because they were lighter and less expensive to build. French companies set the design of the modern auto by placing the engine over the front axle in the 1890s and U.S. manufacturers made important advances in the mass production of the auto by introducing cars with interchangeable machine-produced parts (one such car was created by Ransom E. Olds in 1901).

In 1914 Henry Ford began to mass produce cars using assembly lines. In addition, his practice of providing loans to consumers to buy cars (1915) made the Model T affordable to the middle class. In the 1920s, General Motors further changed the industry by emphasizing car design. The company introduced new models each year, marketed different lines of cars to different income brackets (the Cadillac for the rich; the Chevrolet for the masses), and created a modern decentralized system of management. U.S. auto sales grew from 4,100 in 1900 to 895,900 in 1915, to 3.7 million in 1925. Sales dropped to only 1.1 million in 1932 and during World War II, the auto factories were converted to wartime production.

The Modern Industry

After 1945, sales once again took off, reaching 6.7 million in 1950 and 9.3 million in 1965. The U.S. auto industry dominated the global market with 83% of all sales, but as Europe and Japan rebuilt their economies, their auto industries grew and the U.S. share dropped to about 25%. Following the OPEC oil embargo in 1973, smaller, fuel-efficient imports increased their share of the U.S. market to 26% by 1980. In the early 1980s, U.S. auto makers cut costs with massive layoffs. Throughout the 1990s, imports—particularly from Japan—took an increasing share of the U.S. market.

Beginning in the early 1980s, Japanese and, later, German companies set up factories in the United States; by 1999, these were capable of producing about 3 million vehicles per year. That year, 8.7 million vehicles were sold in the Untied States. Since then, domestic production by U.S. companies has continued to decline, so that they now produce somewhat more than half of all light motor vehicles sold in America (and many of their vehicles contain a significant percentage of foreign parts as determined by dollar value). In 2007, over $440 billion worth of motor vehicles and parts were produced in the United States by U.S. and foreign companies employing more than 902,000 workers. The credit crisis that began in 2008 and the associated recession resulted in significant losses for most automobile manufacturers. The U.S. industry was especially hard hit, losing sales as well from late 2007 to mid-2008 as customers sought more energy-efficient cars as gasoline prices skyrocketed, and in late 2008 U.S. automotive companies sought government financial aid. Subsequently, the government forced Chrysler and General Motors to declare bankruptcy (2009) and reorganize in an attempt to create viable companies; the U.S. and Canadian governments and the United Auto Workers owned much of the new companies.

Complaints about auto pollution, traffic congestion, and auto safety led to the passage of government regulations beginning in the 1970s, forcing auto manufacturers to improve fuel efficiency and safety. Auto companies are now experimenting with cars powered by such alternative energy sources as natural gas, electricity, hydrogen fuel cells, and solar power.

Bibliography

See R. Sobel, The Car Wars (1984); J. Fink, The Automobile Age (1988); J. A. C. Conybeare, Merging Traffic: The Consolidation of the International Automobile Industry (2004).

UNITED AUTO WORKERS

The United Auto Workers (UAW) was created in 1936 to protect the rights of workers in America's largest industry, automobile manufacturing. Unionizing auto workers was a formidable task. Management was staunchly anti-union, harassing workers suspected of union activity and even employing spies to report on employee activities. Workers were subjected to capricious firings and bullying from foremen, and could not appeal management decisions. Because the American Federation of Labor (AFL) was not concerned with the needs of unskilled workers, a group of radical labor leaders emerged to advocate for their rights. John L. Lewis (1880–1969) of the United Mine Workers, David Dubinsky (1892–1982) of the International Ladies' Garment Workers, and Sidney Hillman (1887–1946) of the Amalgamated Clothing Workers formed the Committee of Industrial Organization (CIO), a committee within the AFL. The CIO worked on organizing unskilled labor into huge industry-wide unions. The UAW, with Homer Martin as its first president, became the auto workers' union.

Workers, intimidated by management's hostility, were reluctant at first to join the UAW. They needed proof that the union could succeed against the biggest and most powerful industry in the country. To confront these industry giants, organizers adopted a new tactic. They staged sit-down strikes at several plants, forcing companies to stop production. This strategy was so damaging to business that the auto companies were finally forced to accept the union as labor's legitimate bargaining agent.

The recognition of the UAW was a landmark in the struggle for labor rights. It signaled the emergence of a new generation of labor leaders who were ready to push hard for the rights of unskilled labor. And workers responded enthusiastically. UAW membership rose from 98,000 in early 1937 to 400,000 by mid-year. During the 1930s and 1940s, the UAW fought for and obtained significant improvements for its members, especially under the leadership of Walter Reuther (1907–1970), who served as UAW president from 1946 to 1970. The union successfully bargained for such measures as cost-of-living adjustments, wage increases, and pensions. In 1955, auto workers won a guaranteed annual wage. At the same time, however, the UAW grew increasingly bureaucratized in the years after World War II (1939–1945). Abandoning its more democratic roots, the UAW became a fiercely authoritarian and anti-Communist organization. Power was concentrated within the central administration, the autonomy of local chapters destroyed, and accusations or patronage abounded. Though the UAW continued to win concrete labor benefits, it imposed contracts on membership without their input and stifled internal debate. By the 1960s, workers grew increasingly alienated from the union, which had not brought a national strike against General Motors since 1945–1946. When disgruntled workers finally staged wildcat strikes in 1970, UAW officials broke up picket lines to force strikers back to work.

By the 1990s the UAW had modified many of its positions. Though power was still centrally concentrated, the UAW at the end of the twentieth century was one of the most democratic unions in the United States. Unlike many unions, such as the Teamsters, the UAW has been relatively free of corruption charges and maintains a good reputation for its efforts.

See also: Automobile Industry, Labor Movement, Labor Unionism, Sit-Down Strikes

United Automobile Workers. See Congress of Industrial Organizations; Labor Movements; Reuther, Walter.