The History Of The Auto Industry
Learn about history of the auto industry from Henry Ford to Lee Iacocca and beyond.
The automotive industry has certain trends it has to follow, just like fashion designers and musical composers. In times of recession and decreasing sales there is less room to take chances and manufacturers are prone to follow the common pattern as a safer bet rather than releasing a controversial product or idea that might or might not be successful. However throughout the automotive industry's history, great innovators have "boldly gone where no man has gone before" to set new trends which have dynamically altered the industry as a whole.
Henry Ford was one entrepreneur who knew the concept of innovation very well. In fact, he accomplished three things that were among the most dynamic developments in the automobile business in this century. First, he created the assembly line, which became the basis for most of the 20th century's mass manufacturing. Second, he helped many other companies realize the value of their employees when he offered to pay his factory workers $1 a day (which believe it or not, was far above the average wage in the early part of the century). Third, Ford "democratized the automobile". The Model T, introduced in 1908, was the first car for the middle class, and it radically changed the nation's view of automobiles as simply a luxury. Once the average person could afford to buy an automobile, the industry was never the same again.
Ford started his car company in Dearborn, Michigan in 1903. By 1920, 60% of all vehicles were Fords. The company dominated the industry through the 1930s, until General Motors finally started to catch up. By 1938, Ford was third behind GM and Chrysler, and the company experienced both high times and low times throughout the middle of the century. Today, Ford is back to being one of the world's four biggest, most profitable automakers.
General Motors, led by Alfred Sloan, also turned out to be quite an innovator throughout America's automotive history. Strong central control and perfected decentralized management were the cornerstones of what Sloan was preaching as he let the various divisions design, build and sell their own cars. This created a swarm of competing products to battle Ford and Chrysler, launching GM in the 1930s, to economic victory over Ford.
In the recent past however, no one has been more successful at creating a positive public image for the automotive industry than former Chrysler chairman Lee Iacocca. His self-congratulating commercials were as much about self-promotion as about selling cars. Although Iacocca's personal extravagances and petty, tyrannical management style were constantly called into question, he is still accredited with the unmitigated task of "saving the company". In the late 1980s, the Chrysler Corporation teetered on the verge of bankruptcy. By 1983, Chrysler was profitable again, due in large part to the efforts of Lee Iacocca.
In recent decades, the automotive industry owes most of its success to a shift in the economics of three basic variables. The first is price. Cars keep getting more expensive. From 1989 to 1993, the average price of U.S.-made luxury cars rose nearly $2,000 each year. In fact, prices on some models rose even faster. A Cadillac Seville that cost $20,000 in 1989 retailed for $36,000 five years later. The second variable is quality, which has also increased. Cars today are built better to last longer. The third variable, depreciation, hasn't changed much over the years. In fact, the average new car still, as always, loses approximately 28% of its value the moment you drive it off the lot.
In addition to higher awareness of the changing economic variables, American companies are now understanding that we must engineer and manufacture products in a global market, and that the only way to ensure long term survival is to deliver the highest quality product at an affordable price (and cost), precisely when the customer wants it.
Today, when all a person has to do to find out the dealer's cost on any given car is to look it up on the Internet, customers often walk into the showroom knowing exactly what they plan to pay. If they don't get their price, they walk down the street to a rival dealer and price his product. Thus the average gross profit margins on new cars are going way down due to the dynamic increase in consumer awareness.
Of course, if the traditional car buying process is replaced by e-commerce, where does that leave consumers in regards to the personal service that dealers have been so vehemently trying to promote over the years? The trends of the new millennium are certainly geared toward the high-speed technology of the Internet, but the dissipation of "the personal touch" may well backfire and leave the buying public feeling angry, neglected and ready to embrace whatever new innovation comes along next, even if that means a reversal back to traditional buying and selling structures.