The rise and fall of the US auto industry
The rise and fall of the US auto industry
DOT ought to convoke a national dialogue seeking renewal
The Ford Motor Company was founded by Henry Ford in 1903. The Ford Motor Company sold 4.4 million vehicles in 2023, providing a revenue of US$176.2 billion. Ford is the second largest U.S. automaker, behind General Motors, and the sixth largest in the world behind Toyota, Volkswagen, Hyundai, Stellantis, and General Motors. Ford’s classic strategy was to focus on efficient production methods in order to make cars affordable for the middle class. This strategy to some extent was followed for decades, although Ford created the Mercury in 1939 as a higher price companion to the Ford, and Henry Ford purchased the Lincoln Motor Company in 1922 to compete with Cadillac and Packard in the luxury car market. These initiatives evolved into a “Lincoln-Mercury” division in the late 1950s. The Ford Mustang was introduced at the 1964 New York World’s Fair, on a pavilion made by the Walt Disney Company. Following the financial crisis of 2008, Ford did not have to be rescued by the federal government, like the other two major U.S. automakers. In 2016, Ford announced plans to modernize its Dearborn facilities through a ten-year building project. In 2017, Ford cancelled plans for a new plant in Mexico, and announced new investments in Michigan.
The General Motors Company was founded in 1908 by William C. Durant and Charles Stewart Mott. It has 396 facilities on six continents and operates manufacturing plants in eight countries. It sold 6,186,000 vehicles in 2023, obtaining a revenue of US$171.8 billion. Its major brands are Buick, Cadillac, Chevrolet, and GMC. It has subsidiaries in Europe, Argentina, Brazil, Canada, Chile, Colombia, Ecuador, Egypt, Japan, Korea, Mexico, and New Zealand. It is the largest automaker in the USA and the second largest in the world, behind Toyota, which attained the top spot in 2008. GMC holds interests in two Chinese brands. GMC sales abroad account for between one-tenth and one-third of the national markets of Colombia, Venezuela, Canada, Mexico, Brazil, Argentina, United Kingdom, Australia, China, and Russia. General Motors is owned primarily by American institutional investors.
Chrysler Corporation was founded by Charles Chrysler in 1925. The first Chrysler car was introduced at the New York Automobile Show in 1924. The first Chrysler cars, launched by Maxwell Motors, had features that never before had been offered in medium-priced cars, such as a high-compression six-cylinder engine, carburetor air cleaner, replaceable oil filter, and four-wheel hydraulic brakes. During the 1930s and 1940s, Chrysler cars were characterized by numerous technological improvements. However, beginning in the 1960s and 1970s, changes were more in style and design. Chrysler merged with the Italian automaker Fiat in 2014, with plans to offer a competitive luxury brand, which did not come to fruition. Fiat Chrysler Automobiles (FCA) were incorporated into Stellantis, a multinational automotive manufacturing corporation headquartered in Amsterdam, formed from the merger in 2021 of the FCA and the French PSA Group. As of 2023, Stellantis was the world's fourth-largest automaker by sales, behind Toyota, Volkswagen Group, and Hyundai Motor Group.
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The great innovations of the U.S. auto industry
Henry Ford’s Model T was introduced on October 1, 1908. The steering wheel was on the left, a feature that every other maker soon copied. The four-cylinder engine and transmission were enclosed. The car was simple to drive, and easy and cheap to repair. It sold at $825 in 1908 ($27,980 today), with the price falling each year to $360 by 1916.
Durant and Mott established GMC on September 16, 1908, as a holding company that included two auto companies, Buick and Oldsmobile. During 1909 and 1910, Durant purchased thirteen car companies and ten parts manufacturers, some of which were not profitable, but others of which, like Cadilac and Oakland (later Pontiac), became highly profitable.
Cadillac had already established itself as one of America’s premier luxury car makers when it was purchased by GM in 1909. The complete interchangeability of its precision parts provided the foundation for the modern mass production of automobiles. Cadillac was in the forefront of technological innovations. It introduced full electrical systems, enabling starting, ignition, and lighting; classless manual transmission; and a steel roof. Cadillac has been and remains the prestige division of General Motors, producing luxury vehicles.
Oldsmobile had been the top selling car company in the USA in 1903 and 1904. As a division of General Motors, Oldsmobile was in the middle of GM’s five passenger car divisions, above Chevrolet and Pontiac, and below Buick and Cadillac.
The Oldsmobile Model R, produced from 1902 to 1907, was the first car produced by an assembly line. Oldsmobile produced the Model R on a stationary assembly line, in which the vehicle being assembled stayed in one place and the workers moved from one car to the next, performing one assigned task. Prior to the assembly line, a team of workers would collectively assemble one car until it was completed. With the assembly line, a greater number of cars could be produced through a given quantity of labor time.
In 1908, Ford became the first company to manufacture cars on a moving assembly line. Contemporary sources indicate that the collaboration of four Ford employees was central to the conceptualization and development of the moving assembly line. By 1914, this manufacturing method was known throughout the world as Fordism.
Durant purchased the various companies of GMC on the basis of his belief in the future strength of the auto industry, which earned him the lack of confidence of bankers, who considered him a foolish speculator. Because of the lack of support among bankers, he lost control of the company in 2010, but he was able to retake control in 2016 through the purchase of stocks, using profits from a new company that he formed with racing driver Louis Chevrolet. However, in 1920, stocks lost 25% of their value, which led Durant to obtain bank loans to protect his investors, but on the condition imposed by the bankers that he resign from GM. Thus, Durant was ousted from GM for the second and final time. Durant spent his final years living with his second wife on an annual pension of $10,000.00 ($217,482 in 2023), arranged by Alfred P. Sloan, long time CEO of General Motors.
Durant’s speculative purchase of companies appears to have little in common with the methods of “unfair competition” used by John D. Rockefeller in the consolidation of the oil industry. Rockefeller adopted unfair measures to force successful companies to sell to him or face ruin, as is described by Matthew Josephson’s 1934 classic, The Robber Barons.
Companies purchased by Durant became semi-autonomous divisions in General Motors, producing cars that fit into a marketing and pricing niche. The General Motors brands were competing with Ford, which dominated the market on the basis of its production of a single model, the Model T, with a four-cylinder engine and with the body always painted black. During the 1920s, the GM marketing strategy was systematized, which each division expected to identify specific demographic and socioeconomic market segments, with each division distinguishing itself from the others on the basis of what GM President Sloan called a “ladder of success,” with the “basic transportation” of the Chevrolet at the bottom, and the luxury model Cadillac at the top. Whereas Ford focused on improvements in the production process to reduce costs, GM paid attention to consumer tastes with respect to style, power, and prestige, without ignoring production costs. In addition, GM offered a financing package, which made GM cars easier to purchase, until Ford followed suit, setting aside Henry Ford’s moral objections to buying things on credit.
Durant also was an innovator in vertical integration, purchasing parts and accessories manufacturing companies as well as car companies. And Durant conceived the modern system of automobile dealer franchises.
In 1921, Thomas Midley Jr., an engineer for General Motors, discovered that tetraethyl lead (TEL) when added to gasoline eliminated knocking, which made possible the development of higher compression engines using “high octane” gasoline, resulting in more power and efficiency. It was known at the time that TEL was poisonous if absorbed through the skin. In 1925, a backlash against leaded gasoline emerged when five workers at the Standard Oil Refinery in New Jersey died from TEL poisoning. However, a 1926 public health service report concluded that there was no reason to prohibit the sale of leaded gasoline, because the risk of exposure by drivers and gas station attendants was minimal, and trace amounts of lead in the blood were not harmful. However, in the 1970s, there emerged evidence that large amounts of led in the environment were dangerous to children, who are susceptible to neurological injury, due to their physical immaturity. Thus began a legal battle between consumer advocates and the automakers, which resulted in the widespread use of unleaded gasoline.
In the 1920s, the U.S. auto industry moved into ownership in other advanced auto markets. In 1925, General Motors acquired Vauxhall of England. In 1929, it acquired a 80% interest in the German auto manufacturer Opel, expanded to 100% two years later, making Opel a wholly-owned subsidiary. In 1931, GM acquired Holden of Australia.
In 1927, Harley Earl became the first design engineer to be named to an executive position. He created a system of automobile design that is still used today.
From the 1920s through the early 1950s, General Motors attained significant technical advances in buses. During the 1920s, there were significant advances in chassis and engines, resulting in improvements in speed and handling. Later advances include monocoque (single-shell) construction (1931), automatic transmission buses (1936), diesel-engine buses (1936), buses that could carry more than fifty passengers (1948), and air suspension buses (1953). In contrast, streetcars—burdened by restrictive and financially burdensome local regulations as well as high costs for constructing and maintaining rails or electric cables—made no significant technical improvements. As a result, buses were much preferred by the public, and city bus lines grew significantly while streetcar use declined. A myth was promoted in the 1970s that General Motors had conspired to destroy viable electric rail systems, but subsequent scholarship shows that the decline of the electric streetcar system was a normal economic development, reflecting technological developments in transportation. (See “General Motors and the Demise of Streetcars” by Cliff Slater, Transportation Quarterly, January 2003).
In 1932, Ford introduced the Ford V8, the first low-price eight-cylinder engine. The surprising move, which was the result of a secret project, enhanced Ford’s reputation as a performance automaker.
In 1937, Walter E. Jominy and A.L. Boegehold of General Motors invented a test for the hardenability of carbon steel. It is still used today.
During World War II, General Motors and Ford reconverted production to support the needs of the Allies for armaments, vehicles, and aircraft. At the same time, production in the GM Opel division in Germany was not controlled by GMC and was directed by the German government toward German war needs. GMC remained the legal owner of its properties in Germany, and following the war, GMC was compensated $32 million for the bombing of its factories in Germany during the war.
In 1962, General Motors introduced the first turbo charged engine for use in a car.
General Motors introduced compact models in the 1960s, in order to compete with the Volkswagen Beetle and the Ford Falcon. Compact models increased the tendency toward the blurring of the distinctions among the General Motors divisions. In the 1970s, a new subcompact class was introduced to compete with foreign imports. But General Motors was burdened by a public perception of low-quality production. In the 1980s, a reorganization that consolidated the company divisions was not well received by GM’s customer base.
In partnership with Boeing, GM’s Delco Defense Electronics Division designed the Lunar Roving Vehicle, which traversed the surface of the Moon in 1971. It was a symbol of American technological superiority.
In 1975, General Motors installed the first catalytic converter in all its models.
In 1984, Robert Lee of GM invented the neodymium magnet, commonly used in products like a computer hard disk. That same year, General Motors bought Electronic Data Systems and the Hughes Aircraft Company, in accordance with its plan to diversify its sources of income. It acquired companies in construction and mining equipment; locomotive, marine, and aircraft engines; refrigeration and air conditioning. GM later divested from non-automotive industries.
In 1987, jointly with AeroVironment, GMC built the Sunraycer, which won the inaugural World Solar Challenge. Many of the advanced technologies of the Sunraycer were incorporated in the Impact prototype electric vehicle (jointly built by GMC and AeroVironment), which was a predecessor to the General Motors EV1 (also known as the Impact), a battery electric vehicle that was displayed at the LA Auto Show in 1990. The Impact was produced for the 1996 model year, but it was available only through leasing through certain dealers in California and Arizona. GMC ceased production of the Impact during the period 1999 to 2002, believing that it would not be profitable.
In the late 1990s, GM turned to the production of light trucks and SUVs, which led to an increase in the GM market share.
In 2004, GM produced the first full-sized pickup truck hybrid vehicles, which were “mild hybrids,” in that they did not use electrical energy for propulsion, like GM’s later designs. It also developed with BMW a diesel electric hybrid engine, manufactured by Allison Transmission for transit buses. In 2008, GM began to offer the hybrid system in four of its models.
In 2008, General Motors announced its intention to recycle and reuse waste in the manufacturing process in its manufacturing plants. And it installed the world’s largest solar power roof at its manufacturing plant in Saragoza, containing 85,000 solar panels.
In 2011, GM introduced the Chevrolet Spark EV, an all-electric version of the Chevrolet Spark. It was the first all-electric passenger car marketed by GM in the USA since the EV1 was discontinued in 1999. It was unveiled at the Los Angeles Auto Show in 2012 and sold in selected U.S. markets in California and Arizona. Subsequently, GM began production of the Chevrolet Volt EV, the first mass market electric car with a range of more than 200 miles. It was sold in the USA and Canada. In 2018, GM announced that it would cease production of the Volt in favor of its models with access to the Tesla supercharger network, which were selling far better than the Volt. In January 2020, GM announced a series of electric vehicles to be sold within the GMC portfolio, beginning with the pick-up truck GMC Hummer EV, reviving the Hummer nameplate. In November 2020, GM announced its commitment to invest more than half of its new capital expenditures in electric vehicles, totaling $27 billion over five years. In 2021, GM announced its intention to end production of vehicles using internal combustion engines by 2035, and it announced plans to establish an automotive battery laboratory in Michigan. In 2021, GM announced a joint venture with the South Korean conglomerate LG to build a $2.3 billion plant to manufacture batteries for electric vehicles. In January 2022, GM announced plans to invest $7 billion to convert a plant in Michigan to elective car production and to build a new battery plant. In August 2022, GM offered buyouts to U.S. Buick dealers that did not want to make investments as the company switches to an all-electric lineup. A similar offer with Cadillac dealers had reduced their number by one third. In September 2022, GM announced introduction of an electric version of its Chevrolet Equinox in the third quarter to 2023, priced at $30,000, less expensive than comparable vehicles. In October 2022, GM announced the creation of GM Energy, which would provide battery packs, EV chargers, and software to assist residential and business customers in charging and with electrical grid disruptions.
In 2022, Ford announced a reorganization that would create a separate division for electric vehicles. In 2023, Ford announced that its elective vehicle business had lost $3 billion during the previous two years, and it anticipated a similar loss in 2023, due to significant investments in electronic technology. It expects the Ford Model E to be profitable by 2026.
In 2016, General Motors acquired Cruise, a San Francisco self-driving vehicle startup, with the intention of producing self-driving cars for use in ride-sharing fleets. In 2023, Ford’s BlueCruise technology was approved for use in the UK. The technology uses sensors and cameras to regulate the car’s speed and monitor speed limits and road signs. It also keeps a safe distance from other vehicles, and it gradually reduces speed if the driver stops looking at the road. Drivers can legally take their hands off the wheel on certain roads. It is not self-driving but is classified as a partial automation assistance system. True self-driving cars are anticipated for the not-too-distant future.
In 2023, GM abandoned its goal for delivering 400,000 electric vehicles between 2022 and 2024, citing failures in the scaling of battery module production and recognizing the lack of consumer demand. General Motors reached agreement with LG Chem Ltd, a South Korean chemical company, for the long-term supply of cathode materials for batteries, sufficient to produce five million electric vehicles.
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Social and economic reforms
Henry Ford believed that good wages decrease worker turnover and increase worker efficiency. On January 5, 1914, Ford announced a $5 daily wage, equivalent to $152 in 2023. The move had positive results, in that the best mechanics flocked to Ford, increasing productivity and lowering training costs. It forced competitors to raise their wages as well. In 1926, Ford introduced the forty-hour work week, eight hours a day. Ford believed that more leisure time would boost the productivity of the workers. He declared that leisure time ought not be viewed as a class privilege.
Ford offered profit-sharing for workers who had worked at the company for six months and who conducted their lives in accordance with the norms of the company’s “Social Department,” which was opposed to heavy drinking, gambling, and fathers not financially supporting their children. A large percentage of workers were able to qualify for profit sharing. However, Henry Ford retreated from this program, arriving to the conclusion that the company ought not intrude into the private lives of the workers.
In 1918, the number of employees of General Motors increased from 49,000 to 85,000. Many migrated from the South to work in GM’s facilities in Michigan. In 1919, GM set aside nearly $2.5 billion for housing construction for its workers, one of the top expense categories of the GM budget for the year. In addition, workers could invest a percentage of their wages or salaries in an investment plan, with matching funds provided by GM. In 1926, GM establish the General Motors Group Insurance Group to provide life insurance for its employees.
In 1935, General Motors workers participated in the formation of the United Auto Workers labor union. The UAW organized strikes in two plants in Flint, Michigan, which led to strikes in six other plants, including plants in Janesville, Wisconsin, and Fort Wayne, Indiana. The strike was resolved when GM recognized the UAW as the exclusive bargaining representative of GM workers and agreed to a 5% salary raise. It was an important step in forging a capitalist-labor alliance in defense of the auto industry, a process different from the development of alliance with other sectors of the people—such as unskilled workers, independent workers, small businesspersons, professionals, and women—in defense of the common needs of the people and the economic development of the nation, as has occurred in Cuba.
Ford was opposed to unions, because he believed that workers had a tendency to be influenced by leaders who were oriented to resisting productivity as a means of fostering employment. He believed that productivity gains, even though they eliminated certain jobs, created new jobs and stimulated the larger economy. But Ford eventually acceded to pressure and to unalterable tendencies, such that the 1941 Ford contract with the workers was more favorable than those of other automakers.
Henry Ford was opposed to war, and he was highly critical of financiers and entrepreneurs that financed war. He believed that war retarded long term economic growth. He recognized that arms makers profited from war, but he believed that most businesses want to maintain peace and produce and sell useful goods, thereby generating steady long-term profits. President Woodrow Wilson asked Ford to run for the U.S. Senate, counting on his support for Wilson’s League of Nations, but Ford lost in a close election. In 1919, Ford helped fund Wilson’s national campaign to promote the League of Nations. Nonetheless, when the Second World War came, Ford directed the Ford Motor Company to construct a vast aircraft factory.
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Financial difficulties
The once near-total domination by the U.S. national market by the U.S. Big Three automakers (GMC, Ford, and Chrysler) deteriorated as a result of the entrance of Japanese, European, and South Korean automakers into the U.S. market. The share of the U.S. automakers of the U.S. auto market fell to 75% by 1984 and to 40% in 2023. One of the Big Three, Chrysler, is now a subsidiary of Stellantis, offering three of the Dutch corporation’s 14 brands.
Rising retiree health care costs and a faltering national economy led to declining sales and reduced profit margins, due to incentives such as rebates and low-interest financing. The decline in sales may have been due to the industry’s emphasis in the 1950s on individual prestige associated with car ownership, and not enough attention to affordable transportation for the individual and society, with a long-term vision.
In 2000, General Motors announced that it would begin phasing out the Oldsmobile. It was discontinued in 2004, seven years after it became the first American car brand to reach 100 years. The Oldsmobile division was dissolved.
GM found that its purchase of non-automative industries did not result in the expected dividends. General Motors divested of its non-automotive companies from the 1980s through the 2000s.
Ford in 2006 revealed to the public its plan to adjust to market realities, by dropping unprofitable models, consolidating production lines, and eliminating 30,000 jobs.
In 2008, GM announced that its operating loss was $2 billion, and that its cash position was $24 billion, or $6 billion less than what it had been six months earlier.
General Motors underwent a government-backed Chapter 11 reorganization in 2009. General Motors sold assets and some subsidiaries as well as the General Motors name to an entirely new company, which possessed funds as a result of investment by the U.S. Department of the Treasury under the Troubled Assets Relief Program, and secondarily by the federal government of Canada, provincial government of Ontario, and employee trust funds of the auto workers unions of the USA and Canada. The original General Motors was renamed Motors Liquidation Company, and the new General Motors was freed from approximately 80% of $94.7 million in liabilities of the original General Motors.
The government sold its shares in the new General Motors in 2013, with a net loss of $10.3 billion. However, a study by the Center for Automotive Research found that the General Motors bailout saved 1.2 million jobs and $34.9 billion in tax revenue.
The new GM focused on its four core brands in North America (Chevrolet, Cadillac, Buick, and GMC) and shedding its poorest performing brands, including Hummer, Saab, Saturn, and Pontiac. It also initiated a multi-year process of abandonment of many markets, focusing on more profitable markets, like the USA and China.
In 2017, Ford announced plans to cut its global workforce, due to declining share price and declining profits. In 2018, Ford announced plans to discontinue passenger cars in the North American market, except for the Mustang, concentrating on Trucks and SUVs.
In August 2022, Ford announced plans for the layoff of 3,000 employees and contract workers, which would mostly affect divisions in the USA, Canada, and India. In February 2023, Ford announced that it would cut 3,800 jobs across Europe, mostly in Germany and the UK.
“The US response to China’s Seagull: The alternative economic model of cooperation among sovereign nations,” April 2, 2024
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Final considerations
The significant technological advances of the U.S. auto industry during the first six decades of the twentieth century, and their patriotic application of their knowledge to the allied war effort during World War II, are central to the American story. Americans today ought to appreciate this story and draw upon it as a source of future achievements. To be sure, American achievements were built on a colonial foundation, as we ought to more fully understand. But they nonetheless remain impressive. We should keep in mind that all great human achievements have been built on conquest. The challenge that humanity now confronts is to learn how to achieve on an alternative foundation of cooperation. This is what leaders in China and Cuba have arrived to appreciate, as they are showing to the world, in similar yet somewhat different ways.
At the same time, in looking at the history of the U.S. auto industry, the prevailing tendency of the industry to cater to consumer tastes stands out. Except for the teachings of Henry Ford, there was little effort to educate the public concerning the necessary functions and characteristics of transportation in a technologically advancing society. The recent initiatives of General Motors and Ford in the development of electronic vehicles are praiseworthy. But auto execs appear to not have the moral authority before the people to educate and lead the people on the necessary road, perhaps a consequence of the historic errors of the industry, combined with exaggerated attacks on the industry’s management from progressives and consumer activists.
The U.S. auto industry is not what it was, but it remains a relatively strong sector of the national and world economy. The nation as a whole, in dialogue with industry managers and specialists, needs to arrive to a consensus concerning the direction that the U.S. auto industry ought to go, calling for the support of the people.
In my April 2 commentary, “The US response to China’s Seagull,” I note that we could understand more about human potentialities if we were to observe what peoples in other lands are doing and building. Having observed Cuba for many years, I have arrived to appreciate the human potential to attain a respectful national dialogue, with respect for all persons and views that have the good of the nation at heart, seeking to attain national consensus.
With this in mind, it seems to me that the U.S. Department of Transportation ought to convoke a national dialogue. Not a debate that seeks to demolish the enemy band. But a conversation that seeks national consensus.
We have demonstrated our national capacity to build a great system of road transportation and to create technologically advanced vehicles. It seems to me that we are capable of creating a system of national and urban transportation based in a great fleet of electric buses made in America with American owned companies and American workers, supported by state subsidies and/or tax incentives. This would have lots of benefits, including less crowded roads, affordable and comfortable public transportation within cities and between cities, and a revitalization of American auto industries; lots of high tech, engineering, and manual jobs; and less damage to the environment. This should be combined with sustained negotiations with China, in order to arrive to an agreement with respect to their Seagull and with respect to our interest in having access to their growing market in cars. Above all, we should respond to the calls of the global South for cooperation; let us begin discussions in search of ways that our auto manufacturers could supply electric buses (and secondarily passenger cars) in ways that are beneficial to the manufacturers and peoples of those nations. Sources of international funding can be identified to subsidize a great international project of transportation.
Let us imagine a better future in which electric buses made in America will be a key ingredient of the transportation systems not only of North America but also of Latin America and Africa. And in the process, American prestige in the world will be restored.
Few people in the United States are aware that shortly after the triumph of the Cuban Revolution, a journalist asked Fidel Castro what he thought of America. He responded that he admired its scientific and technological achievements. You can be assured that he fully understood the role of colonialism and neocolonialism in American technological advances. But his historical and social consciousness did not leave him blind to the achievements that were evident before his eyes.
All nations have social sins, yet all nations are capable of redeeming themselves. Dear America, let us believe in ourselves.
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