Automotive industry: Automobiles Become Mainstream - Business in United States of America
Automotive industry: The Beginning of the Industry
Automotive industry: After World War II
During the first two decades of the twentieth century, Ford’s company emerged as the leading American manufacturer of automobiles. In 1906, Ford successfully produced a popular vehicle, the Model N, which he priced at $500, significantly undercutting his competition. By 1908, Ford had sold twelve thousand Model Ns. His basic strategy was to design a car for a mass market and then search for the means to produce it as cheaply as possible. Based on his intuition and a long heritage of American manufacturing, he emphasized five principles of production: standardization of product, interchangeability of parts, efficient mechanization, continuous flow production, and the minimal use of skilled labor.
In 1908, Ford introduced his famous Model T, also known as the Tin Lizzie, and he sold ten thousand of the model in the first year. After opening a large Highland Park plant in 1911, Ford controlled 20 percent of the business within a year. In 1913, he introduced the moving assembly line, in which individual workers stayed in one place and performed only one or two simple operations, as the automobiles rolled by them. The resulting efficiency allowed Ford to further reduce prices, quickly propelling the Model T to represent 40 percent of the U.S. market. In 1914, Ford decided to reward workers by paying them $5 per day, which was more than twice the average industrial wage. Continuing to improve his product, Ford was the first manufacturer to use vanadium steel and regional assembly plants.
With the need for military vehicles and trucks during World War I, annual investments in new plants grew from$600 million in 1914 to $2.5 billion in 1918. Detroit was the fastest growing city in the country, going from a population of 465,000 in 1910 to 994,000 in 1920. The prosperity of the 1920’s was a boon to the industry, as was the Federal Highway Act of 1921, which provided states with matching funds for highway construction. During the decade, production soared from 1.1 million units in 1920 to 5.3 million in 1929. President Warren G. Harding observed that “the motorcar has become an indispensable instrument of our political, social, and industrial life.”
For many years, Ford’s River Rouge Complex, which was constructed between 1917 and 1928, was the largest integrated factory in the world. By 1921, the Model T controlled over 55 percent of the U.S. market. Ford continually improved mechanization to employ fewer skilled workers, and by 1914, three fourths of the company’s workforce was unskilled. Many were immigrants, and it was said that they needed only to understand one command, “hurry up.” Most of the savings from mechanization were passed on to the consumer. The price of the Model T, which was $690 in 1911, dropped to only $265 in 1927, the last year of its production. By then, more than 15 million Model T’s had been sold.
During the 1920’s, General Motors (GM) began to challenge Ford’s dominance of the automobile industry. In 1908, William Crapo Durant, a flamboyant businessman, had founded GM as a holding company for Buick, and he then added Oldsmobile, Cadillac, and Pontiac. After Durant lost control of GM to a banking trust in 1910, he and race car driver Louis Chevrolet founded the Chevrolet Company. By 1916, Durant had earned enough money to purchase a controlling interest of GM, and he retook control of the company through a dramatic proxy war. In 1919, Durant successfully established the innovative finance division, General Motors Acceptance Corporation (GMAC), but he made the bad mistake of over expanding during an economic downturn. Pierre Du Pont and other investors forced Durant to leave GM in 1920, and they replaced him with the more practical Alfred Sloan, who served as president from 1923 to 1946 and as chairman of the board from 1937 to 1956.
Credited with coining the term “professional manager,” Sloan emphasized order, careful research, and joint decisions based on the bottom line. In organizing GM’s autonomous divisions, his goal was “decentralized operations with coordinated control.” In contrast to Henry Ford’s pragmatic view of the automobile as simply a means of transportation, Sloan recognized that an automobile was a personal statement of aspiration and status. Appreciating the differences in consumers, he used the motto “a car for every purse and purpose.” Under Sloan’s leadership, GM’s sales grew from $304 million in 1921 to $1.5 billion in 1929.
During the Great Depression of the 1930’s, the production of automobiles plummeted from 5.5 million units in 1929 to only 1.5 million in 1932. Automobile ownership had already become so firmly entrenched in U.S. culture, though, that gasoline sales declined by only 4 percent. One of the consequences of the Depression was that it forced dozens of small manufacturers out of business. In 1929, the independents held about one-quarter of the market; by 1941, their share was only 10 percent. Passage of the National Labor Relations Act (also called the Wagner Act) in 1935, which established workers’ right to collective bargaining, also had a great impact on the automobile industry. GM was persuaded to negotiate with the United Auto Workers (UAW) as a result of the Flint sit-down strike of 1936-1937. Despite Henry Ford’s disdain for labor unions, a strike combined with government pressure finally coerced him to recognize the UAW in 1941.