The consolidation of the U.S. auto industry into three large firms began in the 1920’s and demonstrated that only large and efficient producers could survive.
In 1921, the number of firms actively producing automobiles in the United States was eighty-eight; by 1927, the number had declined to forty-four. Consolidation of the American automobile industry continued for decades after 1927 as a result of basic economic factors associated with motor vehicle production.
Brothers Charles E. Duryea and J. Frank Duryea built the first gasoline-powered automobile in Springfield, Massachusetts, in 1893. In 1896, they organized the Duryea Motor Wagon Company,
Early automobile factories consisted of buildings with little machinery and were devoted mostly to the final assembly of vehicles. In 1908, the Ford Motor Company,
Mass-production techniques reduced the cost of building an automobile and therefore cut the retail price. The 1907 Ford Model K had a retail price of $2,750. The mass-produced Ford Model T retailed for a base price of $850 in 1908; by the early 1920’s, the base price had fallen to $265.
The growth of Ford’s production to two million cars per year by 1923 was generated internally, except for the purchase of the Lincoln Motor Company in 1922. The success of Ford indicated to other auto manufacturers that mass-production techniques were needed. To become large and compete, most firms had to undertake mergers and consolidations.
The creation of General Motors
Briscoe persisted in his automotive consolidation efforts and founded the United States Motor Company in 1910. It included more than 150 affiliated companies, with the Maxwell-Briscoe Company, Columbia Motor Car Company, Dayton Motor Car Company, and Brush Runabout Company forming the nucleus. The company went into receivership in 1912; the liquidation created the Maxwell Motor Company,
In September, 1908, Durant incorporated General Motors (GM). Within one year, GM acquired Oldsmobile, Buick, Cadillac Automobile Company (founded 1902), Oakland Motor Car Company (founded 1907), Reliance Motor Truck Company (founded 1903), and the Rapid Truck Company (founded 1902). The rapid expansion of GM caused a cash shortage. Bankers agreed to lend GM fifteen million dollars on the condition that they could name a new board of directors. As a result, Durant remained a director but was excluded from management. He continued his interest in automobiles, however, and founded the Chevrolet Motor Company
The 1920 recession caused financial problems at General Motors. After a series of moves to raise the market value of GM stock, Durant sold his GM stock to the E. I. Du Pont de Nemours Company, which assumed control of 36 percent of the common stock of GM. Durant resigned as president of GM by the end of 1920.
In 1921, Maxwell went into receivership. Walter P. Chrysler, who began his automotive career at Buick in 1911 and headed the Buick division of GM until 1920, was brought in to reorganize Maxwell. In 1924, Maxwell produced a car bearing the Chrysler name. In 1925, Chrysler completed a takeover of Maxwell and incorporated the firm as Chrysler Motors Corporation.
Chrysler needed an efficient manufacturing facility to compete with GM and Ford. In 1928, Chrysler purchased Dodge Brothers, Inc. (founded in 1914), which had a modern assembly, forge, and foundry plant and was then the third largest U.S. automobile producer. Chrysler thus became the successor to a series of consolidations that began in 1910 with the founding of United States Motor Company. The consolidations included bringing the Everitt-Metzger-Flanders Company and Chalmers Motor Company into Maxwell and the purchase of Dodge. With modern facilities available, Chrysler introduced a low-priced car called the Plymouth to compete with Ford and Chevrolet and a medium-priced car called the De Soto.
During the 1920’s, the U.S. automobile industry evolved into a structure with three dominant firms—General Motors, Ford, and Chrysler. A number of important independent firms also existed, including Studebaker (founded as a wagon maker in 1852, with auto production beginning in 1904), Packard (founded 1899), Nash (founded as the Thomas B. Jeffrey Company in 1902), Hudson (founded 1909), and Willys-Overland (founded 1903).
The major impact of the consolidation of the U.S. auto industry to forty-four firms by 1927 was the recognition that the production of motor vehicles requires large volumes for efficient operation and survival because of the high fixed costs of developing new vehicles and equipping plants. As of the 1980’s, achieving minimum costs per unit required an annual output of about 200,000 units in auto assembly and 500,000 units in engine plants. These levels of output for efficient operation were consistent with the experience of Japanese producers—including Honda, Nissan, Toyota, Mazda, and Mitsubishi—that had built plants in the United States after 1980. The thirty-two auto assembly plants in operation in the United States in 1993 had capacity levels consistent with these estimates. The number of auto assembly plants nearly doubled in the late 1990’s as non-U.S. companies built additional plants.
Consolidation of the auto industry continued from the late 1920’s through the 1980’s. The Great Depression of the 1930’s caused the failure of several firms. U.S. auto production declined from 4.5 million in 1929 to 1.1 million in 1932, and output did not recover to the 1929 level until 1949. Industry volume was insufficient to support the number of producers in existence. Once-prominent firms such as Chandler-Cleveland, Marmon, Peerless, Auburn-Cord-Duesenberg, Hupmobile, Graham, and Pierce-Arrow exited the industry in the 1929-1941 period.
Following World War II, a series of mergers occurred among independent automobile manufacturers. In 1954, the Studebaker Corporation was purchased by the Packard Motor Car Company. The combined car and truck output of Studebaker and Packard was nearly 400,000 units in 1950. Studebaker-Packard Corporation
In 1953, the Kaiser-Fraser Corporation, founded in 1947, merged with Willys-Overland. Kaiser-Willys ended its passenger car output in 1955 and concentrated on production of the Jeep. In 1969, Kaiser-Jeep Corporation was purchased by American Motors Corporation
During the 1980’s, Chrysler Corporation emerged from a decade of financial problems during which it nearly entered receivership. Lee Iacocca, a former Ford executive, became president and board chair of Chrysler in 1978 and reorganized the firm to be more efficient in production and marketing strategies. In 1987, Chrysler purchased American Motors to obtain the Jeep line of vehicles, to strengthen the Chrysler product line, and to increase Chrysler volume to achieve more efficient levels of production. A consolidation beginning in 1910 with the emergence of Maxwell as a survivor of the United States Motor Company had thus led to the development of Chrysler, which now included the remnants of Hudson, Nash, Willys-Overland, and Kaiser-Fraser.
The consolidation of the U.S. auto industry into three major producers demonstrated that auto producers must be large to have the capital resources necessary to adopt lean production techniques and to gain the full advantages of large-scale production. Lean production utilizes multiskilled workers with flexible machinery to produce large numbers of vehicles efficiently. The major Japanese producers pioneered the use of lean production processes in the 1970’s. In the early 1980’s, Ford and Chrysler invested the capital to become lean producers. General Motors began to adopt lean production practices in the late 1980’s and early 1990’s.
In order to generate the production volume necessary to be an efficient producer, an automaker must offer the public a substantial product line. At General Motors, Alfred P. Sloan recognized the importance of a full line of vehicles. Sloan joined General Motors in 1918, when United Motors, which he headed, was acquired by GM. In 1923, he became president of GM and created a management and production system that became a model for industry in general. Under Sloan’s leadership, GM became the largest U.S. automobile manufacturer. Sloan’s product policy was that GM should produce a full line of cars covering every price field, from low-priced basic transportation to high-priced luxury cars.
GM’s commitment to a full-line philosophy—low-priced Chevrolets, medium-priced Pontiacs (formerly Oaklands), Oldsmobiles, and Buicks, and high-priced Cadillacs—combined with the success of the production and financial controls instituted by Sloan, set a pattern for the industry. Chrysler recognized this trend in the industry when the Plymouth, Dodge, De Soto, and Chrysler lines were offered in the late 1920’s. Chrysler achieved refinement of the full-line concept in 1987, when the acquisition of American Motors enabled the company to add the Jeep utility vehicle to its product line.
Ford initially maintained a limited product offering of low-priced Fords and a few luxury Lincolns. Introduction of the medium-priced Mercury in the late 1930’s indicated that Ford now recognized the need to offer a full line of vehicles to remain competitive.
By 1927, the U.S. automobile industry had three major producers. The development of production, design, and marketing techniques over the subsequent years evolved an industry in which only those three firms became large enough to survive as U.S.-based automobile producers. Foreign firms, however, made increasingly substantial incursions into the market and established U.S. plants to augment their home production.
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American Automobile Manufacturers Association. Automobiles of America. 5th ed. Lakeland, Fla.: Cars & Parts, 1997. Excellent chronicle of the development of the U.S. automobile industry and the major persons involved. Features an appendix that lists all the makers of automobiles in the United States since 1893. -
Edwards, Charles E. Dynamics of the United States Automobile Industry. Columbia: University of South Carolina Press, 1965. Provides excellent analysis of consolidation in the American auto industry following World War II. Discusses manufacturing, marketing, and management problems of independent automobile manufacturers in depth. Includes tables and graphs. -
Farber, David. Sloan Rules: Alfred P. Sloan and the Triumph of General Motors. Chicago: University of Chicago Press, 2002. Biographical work focuses on Sloan’s years at GM. Sheds light on Sloan’s personality, his politics, and his motivations as a manager. Includes photographs and index. -
Moritz, Michael, and Barrett Seaman. Going for Broke: The Chrysler Story. Garden City, N.Y.: Doubleday, 1981. Presents an analysis of the problems at Chrysler Corporation in the late 1970’s. Excellent, readable history of the early years of Chrysler Corporation and its predecessor firms. -
Seltzer, Lawrence H. A Financial History of the American Automobile Industry. 1928. Reprint. New York: A. M. Kelley, 1973. Excellent comprehensive examination of the early years of the industry. Provides insight into the consolidation of the auto industry from the perspective of an analyst writing in the 1920’s. Includes useful statistical information. -
Sloan, Alfred P., Jr. My Years with General Motors. 1963. Reprint. New York: Doubleday, 1990. Definitive, readable biographical work on Sloan, the person primarily responsible for management decisions at GM during a critical thirty-year period. Includes his analysis of policy and product development at the company. -
White, Lawrence J. The Automobile Industry Since 1945. Cambridge, Mass.: Harvard University Press, 1971. Presents a thorough analysis of economic trends in the American auto industry following World War II. Invaluable for readers interested in the fundamental economic forces that have determined the structure of the U.S. auto industry. Includes excellent footnotes and bibliography. -
Womack, James P., Daniel T. Jones, and Daniel Roos. The Machine That Changed the World. New York: Rawson Associates, 1990. Definitive work on the concept of lean production presents the results of a five-year study of the global automobile industry conducted by the Massachusetts Institute of Technology. Includes graphs, tables, footnotes, and bibliography.
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