Developments before World War I

Most early automobile companies were small shops, hundreds of which each produced a few handmade cars, and nearly all of which abandoned the business soon after going into it. The handful that survived into the era of large-scale production had certain characteristics in common. First, they fell into one of three well-defined categories: they were makers of bicycles, such as Opel in Germany and Morris in Great Britain; builders of horse-drawn vehicles, such as Durant and Studebaker in the United States; or, most frequently, machinery manufacturers. The kinds of machinery included stationary gas engines (Daimler of Germany, Lanchester of Britain, Olds of the United States), marine engines (Vauxhall of Britain), machine tools (Leland of the United States), sheep-shearing machinery (Wolseley of Britain), washing machines (Peerless of the United States), sewing machines (White of the United States), and woodworking and milling machinery (Panhard and Levassor of France). One American company, Pierce, made birdcages, and another, Buick, made plumbing fixtures, including the first enameled cast-iron bathtub. Two notable exceptions to the general pattern were Rolls-Royce in Britain and Ford in the United States, both of which were founded as carmakers by partners who combined engineering talent and business skill.

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In the United States almost all of the producers were assemblers who put together components and parts that were manufactured by separate firms. The assembly technique also lent itself to an advantageous method of financing. It was possible to begin building motor vehicles with a minimal investment of capital by buying parts on credit and selling the finished cars for cash; the cash sale from manufacturer to dealer has been integral in the marketing of motor vehicles in the United States ever since. European automotive firms of this period tended to be more self-sufficient.

The pioneer automobile manufacturer not only had to solve the technical and financial problems of getting into production but also had to make a basic decision about what to produce. After the first success of the gasoline engine, there was widespread experimentation with steam and electricity. For a brief period the electric automobile actually enjoyed the greatest acceptance because it was quiet and easy to operate, but the limitations imposed by battery capacity proved competitively fatal. Especially popular with women, electric cars remained in limited production well into the 1920s. One of the longest-surviving makers, Detroit Electric Car Company, operated on a regular basis through 1929.

Steam power, a more serious rival, was aided by the general adoption, after 1900, of the so-called flash boiler, in which steam could be raised rapidly. The steam car was easy to operate because it did not require an elaborate transmission. On the other hand, high steam pressures were needed to make the engine light enough for use in a road vehicle; suitable engines required expensive construction and were difficult to maintain. By 1910 most manufacturers of steam vehicles had turned to gasoline power. The Stanley brothers in the United States, however, continued to manufacture steam automobiles until the early 1920s.

As often happens with a new technology, the automotive industry experienced patent controversies in its early years. Most notable were two long, drawn-out court cases in Britain and the United States, in each of which a promoter sought to gain control of the new industry by filing comprehensive patents. In Britain the claim was rejected by the courts in 1901, five years after the patent application. In the United States there was a legal battle between Ford and the Association of Licensed Automobile Manufacturers over the Selden patent, which the association claimed as a basic patent on the gasoline-powered car. In 1911 the courts held the patent “valid but not infringed” by Ford. The main consequence of the decision was the formation of the predecessor of the Alliance of Automobile Manufacturers to supervise an agreement for cross-licensing patents, which was ratified in 1915.

Mass production

The outstanding contribution of the automotive industry to technological advance was the introduction of full-scale mass production, a process combining precision, standardization, interchangeability, synchronization, and continuity. Mass production was an American innovation. The United States, with its large population, high standard of living, and long distances, was the natural birthplace of the technique, which had been partly explored in the 19th century. Although Europe had shared in the experimentation, the American role was emphasized in the popular description of standardization and interchangeability as “the American system of manufacture.” The fundamental techniques were known, but they had not previously been applied to the manufacture of a mechanism as complex as a motor vehicle (see work, history of the organization of).

The kind of interchangeability achieved by the “American system” was dramatically demonstrated in 1908 at the British Royal Automobile Club in London: three Cadillac cars were disassembled, the parts were mixed together, 89 parts were removed at random and replaced from dealer’s stock, and the cars were reassembled and driven 800 km (500 miles) without trouble. Henry M. Leland, founder of the Cadillac Motor Car Company and the man responsible for this feat of showmanship, later enlisted the aid of a noted electrical engineer, Charles F. Kettering, in developing the electric starter, a significant innovation in promoting the acceptability of the gasoline-powered automobile.

Ford and the assembly line

The mass-produced automobile is generally and correctly attributed to Henry Ford, but he was not alone in seeing the possibilities in a mass market. Ransom E. Olds made the first major bid for the mass market with a famous curved-dash Oldsmobile buggy in 1901. Although the first Oldsmobile was a popular car, it was too lightly built to withstand rough usage. The same defect applied to Olds’s imitators. Ford, more successful in realizing his dream of “a car for the great multitude,” designed his car first and then considered the problem of producing it cheaply. The car was the so-called Model T, the best-known motor vehicle in history. It was built to be durable for service on the rough American country roads of that period, economical to operate, and easy to maintain and repair. It was first put on the market in 1908, and more than 15 million were built before it was discontinued in 1927.

When the design of the Model T proved successful, Ford and his associates turned to the problem of producing the car in large volume and at a low unit cost. The solution was found in the moving assembly line, a method first tested in assembling magnetos. After more experimentation, in 1913 the Ford Motor Company displayed to the world the complete assembly-line mass production of motor vehicles. The technique consisted of two basic elements: a conveyor system and the limitation of each worker to a single repetitive task. Despite its deceptive simplicity, the technique required elaborate planning and synchronization.

The first Ford assembly line permitted only very minor variations in the basic model, a limitation that was compensated for by the low cost. The price of the Model T touring car dropped from $950 in 1909 to $360 in 1916 and still lower to an incredible $290 in 1926. By that time Ford was producing half of all the motor vehicles in the world.

Spread of mass production

Ford’s success inspired imitation and competition, but his primacy remained unchallenged until he lost it in the mid-1920s by refusing to recognize that the Model T had become outmoded. More luxurious and better-styled cars appeared at prices not much higher than that of the Model T, and these were increasingly available to low-income purchasers through a growing used-car market. In Britain, William R. Morris (later Lord Nuffield) undertook to emulate Ford as early as 1912, but he found British engineering firms reluctant to commit themselves to the large-scale manufacture of automotive parts. Morris in fact turned to the United States for his parts, but these early efforts were cut short by World War I. In the 1920s Morris resumed the production of low-priced cars, along with his British competitor Herbert Austin and André-Gustave Citroën and Louis Renault in France. British manufacturers had to face the problem of a tax on horsepower, calculated on a formula based on bore and the number of cylinders. The effect was to encourage the design of small engines that had cylinders with narrow bore and long stroke, in contrast to the wide-bore, short-stroke engines favoured elsewhere. This design handicapped the sale of British cars abroad and kept production from growing. It was not until 1934 that Morris Motors finally felt justified in installing a moving assembly line; the Hillman Company had preceded Morris in this by a year or two.

General Motors

General Motors Corporation (GM), which ultimately became the world’s largest automotive firm and the largest privately owned manufacturing enterprise in the world, was founded in 1908 by William C. Durant, a carriage manufacturer of Flint, Michigan. In 1904 he assumed control of the ailing Buick Motor Company and made it one of the principal American producers. Durant developed the idea for a combination that would produce a variety of models and control its own parts producers. As initially formed, General Motors included four major vehicle manufacturers—Buick, Cadillac, Oldsmobile, and Oakland—and an assortment of smaller firms. The combine ran into financial trouble in 1910 and was reorganized by a financial syndicate. A similar combination, the United States Motor Corporation, was formed in 1910, collapsed in 1912, and was reorganized as the Maxwell Motor Company. General Motors survived. A new reorganization took place after Durant, with backing by E.I. du Pont de Nemours and Company, regained control in 1916. Durant, who had previously established the Chevrolet Motor Company, brought Chevrolet into GM in 1918.

Rise of the Big Three

At the end of World War I, Ford was the colossus, dominating the automotive scene with the Model T not only in the United States but also through branch plants throughout the world. British Ford was the largest single producer in the United Kingdom. GM was emerging as a potential major competitor in the United States. No other automotive firms of comparable size existed.

During the next decade there was a striking transformation. The depression of 1921 had far-reaching effects on the American automotive industry. GM was plunged into another financial crisis. Alfred P. Sloan became president of the corporation in 1923 and raised it to its unchallenged first place in the industry. Among other steps, he gave GM a staff-and-line organization with autonomous manufacturing divisions, which facilitated management of a large corporate structure and became the model for other major automotive combinations. Henry Ford also went through a crisis because the 1921 crash caught him involved in the construction of a large new plant (River Rouge) and in the process of buying out his stockholders. Ford weathered the storm (though many of his dealers, unable to sell cars and not permitted to return them, went out of business), but the Ford Motor Company had reached its crest.

The third member of the “Big Three” automotive manufacturers in the United States was created at this same time. When the Maxwell Motor Company failed in the 1921 depression, Walter P. Chrysler, formerly of General Motors, was called in to reorganize it. It became the Chrysler Corporation in 1925 and grew to major proportions with the acquisition of the Dodge Brothers company in 1928. When Ford went out of production in 1927 to switch from the Model T to the Model A (a process that took 18 months), Chrysler was able to break into the low-priced-car market with the Plymouth.

The independents

By 1929 the Big Three supplied three-fourths of the American market for motor vehicles; most of the remainder was divided among the five largest independents—Hudson, Nash, Packard, Studebaker, and Willys-Overland. In less than 10 years the number of automobile manufacturers in the United States dropped from 108 to 44. Some of the minor carmakers had technological or personal interests, including Nordyke and Marmon, makers of Marmon luxury cars, and E.L. Cord, who marketed front-wheel-drive cars between 1929 and 1937. The depression years of the 1930s eliminated all but the largest independent manufacturers and increased still further the domination of the Big Three. Motor vehicle production declined from a peak of more than five million in 1929 to a low of just over one million in 1932. It rose again slowly but had not returned to the 1929 figure when World War II broke out.

While these years were difficult economically, they saw some significant developments within the industry. Greater emphasis was placed on style in passenger-car design, with the general trend in the direction of incorporating the body, bumpers, and mudguards into a single pattern of smoothly flowing lines. A number of technical features came into general use: the V-8 engine, introduced by Ford in 1932; three-point engine suspension; freewheeling (permitting the car to coast freely when the accelerator was released); overdrive (a fourth forward speed); and, on a limited scale, automatic transmission.

Growth in Europe

The period from 1919 to 1939 also brought significant growth in automobile manufacturing in Europe, though on a considerably smaller scale than in the United States. The European industry was moving in the same directions as the American industry, toward a mass market for motor vehicles, but it made slower progress for a variety of reasons: lower living standards with less purchasing power, smaller national markets, and more restrictions in tax and tariff policies. Still, the same trend toward concentration was discernible. British automotive production rose from 73,000 in 1922 (both private and commercial vehicles) to 239,000 in 1929, while the number of producers declined from 90 to 41. Three firms—Austin, Morris, and Singer—controlled 75 percent of the British market in 1929.

The apparent analogy to the American experience was temporary. British production had not yet reached the level at which the economies of scale gave the larger firms as commanding a lead as in the United States. There were other factors that created a somewhat different situation. During the 1930s British automotive production continued to increase steadily, in contrast to American production, and so the smaller companies were not forced to compete for a shrinking market. Output reached almost half a million in 1937, and at the end of the decade there were six major British producers instead of three: Morris, Austin, Standard, Rootes, Ford, and Vauxhall. The last two represented entry by American firms. Vauxhall had been bought by GM in 1925; Ford had been in Britain since 1911, had lost ground in the 1920s, and had later recovered. The Rootes Group, based on Hillman and Humber, was a combine formed by a family that had built a large automobile sales concern and then moved from sales to production. The replacement of Singer by Standard was simply the rise of one company and the decline of another, as evidence that open competition could still change the structure of the British automotive industry.

In France three major firms—Peugeot, Renault, and Citroën—emerged in the 1920s. Citroën accounted for 40 percent of French automotive production in 1925 but had reached that dominating position at the cost of financial stability. When André Citroën died before the decade ended, his company came into the hands of Michelin Tire. A new French firm, Simca, rose to prominence in the 1930s. The German automobile industry suffered from the dislocation of World War I and Germany’s subsequent economic difficulties. The major developments of the 1920s were the merger of Daimler and Benz in 1926, after the founders of those firms had died (their bitter rivalry for the distinction of being the inventor of the gasoline automobile made any such union during their lifetimes unthinkable), and the entry of General Motors onto the German scene through the acquisition of the Adam Opel company in 1929. The Germans were ardent admirers of Henry Ford and his methods, which they termed Fordismus, but Ford never succeeded in becoming a power in the German automotive world. During the 1930s the Nazi regime sought to emulate Ford by undertaking mass production of a low-priced car, the Volkswagen, but the onset of war interrupted this project. Italian automobile manufacturers gained a reputation for highly engineered sports cars and racing cars, but Italy had no mass market and therefore achieved only small-scale production at that time.

The industry in the United States

At the end of World War II the American automobile industry had intact facilities, somewhat enlarged by construction for military needs. There was also a great demand for automobiles. This situation invited several attempts by newcomers to enter the industry, but all proved unsuccessful. The most promising, Kaiser-Frazer Corporation, lasted some 10 years but lacked the financial, technical, and sales resources to compete when the automobile market returned to normal. By the mid 1950s Kaiser-Frazer had stopped producing everything but Willys Jeeps, an operation that it had acquired by buying Willys-Overland. The manufacture of Jeeps continued as a subsidiary of Kaiser Industries until 1970, when the division was sold to American Motors Corporation (AMC) in a transaction that gave Kaiser financial interest in AMC.

The trend of the automotive industry to mergers and large-scale organization, and to a situation in which each producer could affect but not control the market, continued unchecked. In 1954 Nash and Hudson joined to form AMC. The company enjoyed temporary prosperity in the late 1950s when it introduced the first American compact car, the Rambler, in response to growing imports of small foreign cars. A merger of Studebaker and Packard in 1954 was less successful. The new company stopped production in the United States in 1964 and in Canada two years later.

Declining sales and heavy financial losses pushed the Chrysler Corporation close to bankruptcy in the late 1970s. Attempting to avert the company’s collapse, the U.S. government granted Chrysler $1.5 billion in loan guarantees. In return Chrysler surrendered supervisory control to the government’s Chrysler Loan Guarantee Board. By exercising such control, the U.S. government became a de facto partner of the country’s third largest automaker. The government’s influence was short-lived as Chrysler, under the leadership of Lee A. Iacocca, returned to profitability and repaid its government loans in 1983, seven years early.

By the early 1980s the automotive industry in the United States was concentrated in four major firms—GM, Ford, Chrysler, and AMC—and one important manufacturer of commercial vehicles, International Harvester Company. A few producers of specialized vehicles remained, along with an assortment of companies that made automotive parts and components.

Increasing competition from imported cars and from new manufacturing operations established by European and Japanese firms continued to reduce the share of the American market controlled by the four domestic manufacturers through the remainder of the 20th century. Germany’s Volkswagen opened an assembly operation in the United States in the late 1970s but closed it a decade later. Japan’s Nissan Motor Corporation established a plant in the early 1980s to build its popular small pickups and later added car production. Another Japanese automaker, Honda Motor Company, followed with a car manufacturing operation adjacent to its motorcycle plant; it later added a second car facility in the United States and a car plant in Canada. Japan’s Toyota Motor Corporation formed a joint venture with GM called New United Motor Manufacturing Incorporated, which built small cars for both Toyota and GM. Toyota also opened two plants of its own in the United States—one for cars and small vans and the other for pickup trucks and sport utility vehicles—and a car-making facility in Canada. A number of other Japanese manufacturers opened plants in the United States as joint-venture operations.

Many of the Japanese-owned American plants were built in response to limitations imposed on exports of cars to the United States by Japan’s Ministry of International Trade and Industry. The restrictions followed threats of sanctions by the United States in the wake of Chrysler’s near collapse and heavy losses by Ford and GM. Called the Voluntary Restraint Agreement (VRA), it spelled out how many cars each Japanese producer could ship to the United States in a single year. The VRA took effect in 1981 and was renewed annually through the early 1990s. A similar agreement was in effect in Canada during the 1980s.

In 1979 Renault of France acquired a 46 percent interest in AMC to increase its small presence in the United States and gain access to AMC’s line of popular Jeep vehicles. Mounting financial pressures, however, prompted Renault to sell its AMC stake to a reinvigorated Chrysler in 1987. Chrysler quickly acquired all outstanding AMC stock and made the company a division. In 1998 Chrysler was merged with Germany’s Daimler-Benz AG, which then became DaimlerChrysler AG; the joint venture ended in 2007.

In 2008 the U.S. auto industry seemed close to collapse amid the global financial crisis. Through the Troubled Assets Relief Program (TARP), billions in loans were made available to GM, Chrysler, and Ford; only the last automaker did not accept the government relief. Despite the assistance, GM filed for Chapter 11 bankruptcy protection in June 2009. It emerged from bankruptcy reorganization the following month and went through a period of downsizing that helped it rebound. Chrysler also filed for bankruptcy in 2009, and shortly thereafter the Italian automaker Fiat bought a share of the automaker, eventually becoming a majority shareholder in 2011.

Technically, the initial decades after World War II were marked by improvement and refinement rather than by important innovation. Diesel engines were increasingly used on trucks and buses. Automatic transmissions became virtually standard equipment for passenger cars, and power brakes and power steering found widespread acceptance, as did luxury features such as air-conditioning. In the early 1960s Chrysler experimented with a gas turbine engine for passenger automobiles, but it had too many technical problems for general use. By the early 21st century, automakers were facing new design issues, as growing concerns about climate change had resulted in a push for more fuel-efficient cars, including electric vehicles.

Styling became increasingly important in automotive design as a marketing device. The general trend in styling became established late in the 1920s when cars began to lose their square, boxlike lines and to develop flowing curves. In time the new design encompassed both body and chassis, integrating such formerly separate features as mudguards, running boards, and bumpers. A combination of pressures made American cars of the 1950s high-powered and ornate, with extravagant use of chrome and exaggerated tail fins; these features were abandoned when the public found the simpler lines of imported cars more attractive.

Consolidation

The trend toward consolidation in the industry has already been traced. In each of the major producing countries the output of motor vehicles is in the hands of a few very large firms, and small independent producers have virtually disappeared. The fundamental cause of this trend is mass production, which requires a heavy investment in equipment and tooling and is therefore feasible only for a large organization. Once the technique is instituted, the resulting economies of scale give the large firm a commanding advantage, provided of course that the market can absorb the number of vehicles that must be built to justify the investment. Although the precise numbers required are difficult to determine, the best calculations, considering both the assembly operation and the stamping of body panels, place the optimum output at between 200,000 and 400,000 cars per year for a single plant. Increasingly stringent and costly regulations aimed at correcting environmental damage due to the rising number of vehicles on the road also have been a factor in the move toward consolidation.

The structural organization of these giant enterprises, despite individual variation, resembles the pattern first adopted by General Motors in the 1920s. There is a central organization with an executive committee responsible for overall policy and planning. The operating divisions are semiautonomous, each reporting directly to the central authority but responsible for its own internal management. In some situations the operating divisions even compete with each other. The Ford Motor Company was consciously reorganized on the GM pattern after World War II; other American automotive firms have similar structures.

In addition, the largest producers decentralize their manufacturing operations by means of regional assembly plants. These permit the central factory to ship frames and components rather than complete automobiles to the areas served by the assembly plants, effecting substantial savings in transportation costs. This system was developed for the Ford company in 1911.

Some alteration of that principle took place in the 1980s and ’90s as Japanese firms built new plants around the world and American and European manufacturers adopted, to varying degrees, the Japanese “just-in-time” inventory method. Rather than stockpiling a large number of parts at the assembly plant or shipping all the parts from central locations, automakers have yielded the manufacture of many noncritical components (such as seats and wheel assemblies) to independent suppliers to make the pieces at small facilities close to the assembly plants. The components are often assembled into larger groups of parts or modules (a complete instrument panel, for example) and sent to the assembly plant in the exact sequence and at the exact time needed.

Diversity of products

The automotive industry’s immense resources in production facilities and technical and managerial skills have been devoted predominantly to the building of motor vehicles, but there has been a consistent and strong incentive to extend into related products and occasionally into operations whose relationship to automobiles is remote. The Ford Motor Company, for example, once manufactured tractors and made the famous Ford Trimotor all-metal transport airplane in the late 1920s and early ’30s. GM manufactured refrigerators and diesel-powered railway locomotives. By the end of the 20th century, however, Ford and GM had divested themselves of most of their nonautomotive operations and had spun off the majority of their automotive component-making divisions into separate stock companies—Delphi Automotive Systems in the case of General Motors and Visteon Automotive in the case of Ford.

In Europe, but to a lesser extent, automakers also divested noncore operations, while depressed economic conditions in Japan forced auto companies there to begin divorcing themselves from nonautomotive and components companies in which they had long held interests. By the late 1990s the trend was toward more international consolidation of core automotive operations.

New car development

The process of putting a new car on the market has become largely standardized. If a completely new model is contemplated, the first step is a market survey. Since there may be an interval of five years between this survey and the appearance of the new car in the dealers’ showrooms, there is a distinct element of risk, as illustrated by the Ford Motor Company’s Edsel of the late 1950s. (Market research had indicated a demand for a car in a relatively high price range, but, by the time the Edsel appeared, both public taste and economic conditions had changed.) Conferences then follow for engineers, stylists, and executives to agree on the basic design. The next stage is a mock-up of the car, on which revisions and refinements can be worked out.

Because of the increasingly competitive and international nature of the industry, manufacturers have employed various means to shorten the time from conception to production to less than three years in many cases. This has been done at GM, for example, by incorporating vehicle engineers, designers, manufacturing engineers, and marketing managers into a single team responsible for the design, engineering, and marketing launch of the new model. Automakers also involve component manufacturers in the design process to eliminate costly time-consuming reengineering later. Often the component maker is given full responsibility for the design and engineering of a part as well as for its manufacture.

Manufacturing processes

The bulk of the world’s new cars come from the moving assembly line introduced by Ford, but the process is much more refined and elaborated today. The first requisite of this process is an accurately controlled flow of materials into the assembly plants. No company can afford either the money or the space to stockpile the parts and components needed for any extended period of production. Interruption or confusion in the flow of materials quickly stops production. Ford envisioned an organization in which no item was ever at rest from the time the raw material was extracted until the vehicle was completed—a dream that has not yet been realized.

The need for careful control over the flow of materials is an incentive for automobile firms to manufacture their own components, sometimes directly but more often through subsidiaries. Yet complete integration does not exist, nor is it desirable. Tires, batteries, and dashboard instruments are generally procured from outside sources. In addition, and for the same reasons, the largest companies support outside suppliers even for items of in-house manufacture. First, it may be more economical to buy externally than to provide additional internal facilities for the purpose. Second, the supplier firm may have special equipment and capability. Third, the outside supplier provides a check on the costs of the in-house operation. American companies rely more than others on independent suppliers.

Production of a new model also calls for elaborate tooling, and the larger the output, the more highly specialized the tools in which the manufacturer is willing to invest. For example, it is expensive to install a stamping press exclusively to make a single body panel for a single model, but, if the model run reaches several hundred thousand, the cost is amply justified.

The assembly process itself has a quite uniform pattern throughout the world. As a rule, there are two main assembly lines, body and chassis. On the first the body panels are welded together, the doors and windows are installed, and the body is painted and trimmed (with upholstery, interior hardware, and wiring). On the second line the frame has the springs, wheels, steering gear, and power train (engine, transmission, drive shaft, and differential) installed, plus the brakes and exhaust system. The two lines merge at the point at which the car is finished except for minor items and necessary testing and inspection. A variation on this process is “unitized” construction, whereby the body and frame are assembled as a unit. In this system the undercarriage still goes down the chassis line for the power train, front suspension, and rear axle, to be supported on pedestals until they are joined to the unitized body structure. Most passenger vehicles today are manufactured by the unitized method, and most trucks and commercial vehicles still employ a separate frame.

Assembly lines have been elaborately refined by automatic control systems, transfer machines, computer-guided welding robots, and other automated equipment, which have replaced many manual operations when volume is high. Austin Motors in Britain pioneered with its automatic transfer machines in 1950. The first large-scale automated installation in the United States was a Ford Motor Company engine plant that went into production in 1951. A universal form of automatic control has used computers to schedule assembly operations so that a variety of styles can be programmed along the same assembly line. Customers can be offered wide choices in body styles, wheel patterns, and colour combinations.