Early history of automobile manufacturing:
It did not start in Detroit:
– First auto manufacturing company, Duryea Motor
Wagon Company of Springfield, MA, in 1895
– As many as 3,000 firms organized to produce autos
– More than half of these clustered in Northeast
– Most never entered into commercial production
– Like the Internet boom of the 1990s?
1904 Census revealed Michigan to be
center of production for 42% of all cars, up
to 51% 5 years later
Why Michigan?
– Southeastern Michigan was already a center for
machine shops specializing in gasoline engines (which
quickly became dominant engine)
, Southeastern Michigan also a center for carriage
makers with experience building chassis
Southeastern Michigan was well endowed with wealthy
entrepreneurs looking to invest fortunes made in the
copper, iron, and lumber industries
– Henry Ford’s first two automotive ventures collapsed,
but he was still able to obtain financing for his third
venture
– Ford’s failed second venture was renamed Cadillac,
went on to become an important component of General
Motors
• Ford’s early dominance:
– Ford’s (3rd) company, founded in 1903, took national
sales leadership in 1906 with 8,700 cars (twice as many
as second-place Cadillac)
– Unlike competitors, who focused on small-scale
production of “high-end” cars, Ford focused narrowly
on maximizing sales of low-priced cars through
productivity improvements, lowering prices as
production-improvements and economies of scale
lowered coststechnology rather than higher dividends
– Ford dominated auto sales until 1920s, was the
principal contributor to Detroit’s dominance
Ford’s early dominance
– Introduced the moving assembly line and Model T in
1908-1909
– Cost of Model T declined from 7 months of a Ford
assembly line worker’s wages in 1908 to less than 3
months in 1916
– This brought millions of middle-class families into the
market for autos
– By 1920, half the cars in the world were Model T
Fords!
– Product diversity, options strictly limited by Ford to
maximize standardization, production efficiency.
(“You can have any color car you want, so long as it’s
black.”)
GM’s marketing counter-revolution
– General Motors founded in by William Durant in 1908,
acquired several other auto companies and the
marketing genius of Alfred Sloan
– Formed GMAC in 1919 to help new car buyers finance
purchases
– Created a differentiated product line of comfortable,
stylish, easily operated cars; introduced annual model
changes
• Self-starter
• Other significant technological improvements
– Facilitated a more active used car market to encourage
buyers to “trade up” for newer models
GM’s marketing counter-revolution
– Ford had continued too long with an increasingly
“stale” technology
– Ford was forced to shut down production, drastically
re-tool as GM grabbed market share during the “roaring
20s”
– Fueled by booming economy, consumer credit, stock
market wealth, demand for autos soared – U.S. had 1
car for 5 people, a ratio not exceeded until the 1950s
– Ford caught up with GM in market share just as the
stock market crashed
The Great Depression
– Sales of automobiles collapsed 1930-32, rebounded
slowly
– GM recovered, exceeded late 1920s sales levels by end of the 1930s
– Ford continued to languish under the increasingly
erratic leadership of Henry Ford, who was quite
unhinged by the end of the decade
– Ford would have gone bankrupt without WWII
• World War II
– Military procurement contracts increased demand
– Most of the auto industry in Europe, Japan effectively
bombed out of existence
– Technological improvements made during the war were
applied to postwar auto production
• Better automatic transmissions
• Functional power steering and brakes
• V-8 engines
• Air conditioning
The Fat Years, 1950-1967
– Smaller producers went bankrupt or exited auto
production (Kaiser, Studebaker, Packard, Nash,
Hudson) leaving three large domestic manufacturers
– Imports were less than 10 percent of sales (U.S. gas
prices, driving conditions quite different from those in
Europe or Japan)
– Despite rapidly rising wage costs, industry profitability
remained substantially above the profit rate for all U.S.
manufacturing
– Evidence of monopoly profits: the 1955 Price War
– U.S. companies
• The Japanese invasion
– German imports of 1950s, 1960s never accounted for
much of the market
– Imports of Japanese cars soared after the second oil
shock
– Japanese firms had quality, price advantages which
devastated U.S. industry profits, sales
– Big 3 forced to retool, rush new, smaller models into
production
– Chrysler slid into bankruptcy, Ford and UAW
petitioned government for import relief
• The auto industry in the 1980s
– Expansion of Japanese production overseas
– Luxury sedan market increasingly dominated
by European, Japanese brands
– U.S. industry pioneered, dominated increasingly
popular “light truck” market segment
• Minivans
• Sport Utility Vehicles
• Vans
• Trucks
The Global Auto Industry in 2000
• Mergers and Consolidations, 1999-2000
– $38 billion merger of Daimler-Benz, Chrysler
– VW acquires Rolls Royce plants, products; BMW
acquires Rolls Royce name
– Renault partially acquires Nissan
– Ford acquires Volvo
– Ford consolidates hold on Mazda
– GM, Ford bid for Daewoo Motors
– Follows up on other prominent mergers
– Ford plowed large percentage of profits into innovative
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