2 January 2020
As we enter the 2020s, we thought we’d take a look at the car industry one hundred years ago. The 1920s was a decade of change that saw the business consolidate, both in technology and structure, paving the way to the industry that we see today.
Mass automation takes off
The origin of the motor car can be traced back to Europe in the 19th century. To give just one example of the work of European inventors, Karl Benz patented a three-wheeled motor car in 1886. However, by the 1920s, the United States dominated the automotive industry due to the invention and adoption of mass production technology.
The Ford Motor Company pioneered the moving assembly line, introducing a complete line in 1913 at its Michigan plant. The line enabled large-scale production of the Model T motor car. The Model T was designed to be easy to drive and to repair, while light materials and Ford’s innovative production methods kept its price relatively low. However, by the 1920s, Ford’s techniques had been adopted by other manufacturers. For instance, General Motors (GM) created a unified assembly line in 1926, which was vertically integrated for efficiency. A complex system of conveyor belts transported components from every direction to each assembly station.
At the same time, Ford began to struggle. After making mass car ownership a reality, production of the Model T ended in 1927. The Model T’s technology had become obsolete, while the expansion of the used car market appealed to those customers who preferred a low-cost option. Ford’s switch from the Model T to the Model A took over a year, during which time Chrysler entered the lower-priced car sector with the Plymouth.
Meanwhile, European car manufacturers were relatively slow to adopt mass production techniques. Manufacturers tended to have a more diverse product line, which made it difficult to streamline processes. Instead, the industry relied heavily on manual labour during assembly and finishing. Manufacturers also found it difficult to find suppliers willing to manufacture large amounts of parts. The UK’s largest car manufacturer, Morris Motors, sourced parts from the United States instead.
However, the 1920s saw the Austin Motor Company install mechanical assembly lines at the company’s Longbridge plant. By 1928, the factory was using mechanical tracks and a high number of specialist machine tools. By contrast, Morris was slower to adopt mass manufacturing and used fewer machine tools. Mechanical assembly lines weren’t introduced by Morris until the 1930s.
The industry consolidates
Industry consolidation was a feature of many automotive markets in the 1920s. In the UK, according to the Encyclopaedia Britannica, “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.” In just one example of consolidation, Vauxhall was bought by GM in 1925.
In France, three of the world’s largest automotive companies – Peugeot, Renault, and Citroën – dominated the industry by the end of the 1920s. According to the Encyclopaedia Britannica, Citroën accounted for 40 percent of French car production by 1925, while Peugeot began mass-producing cars in 1929.
The German car industry suffered during the country’s post-WW1 economic difficulties. Relatively slow rates of innovation by German car makers left the market open for manufacturers from the US. The Ford Motor Company opened a German subsidiary in 1925, while GM took over German manufacturer Adam Opel in 1929. The 1920s also saw the merger of Daimler and Benz, which took place in 1926 after the founders of the firms, who were bitter rivals, had died.
In the US, the increased investment required to compete with the larger, more automated manufacturers lead to consolidation of the car industry. Economies of scale meant that smaller manufacturers found it difficult to buy components sufficiently cheaply, and did not have the volumes to produce components themselves. According to ‘The Industrial Revolution in America’ by Kevin and Laurie Hillstrom, “the number of active automobile manufacturers in the country had dwindled from 253 in 1908 to…44 in 1929”. By the end of the decade, approximately 80% percent of the car industry’s output was produced by Ford, GM, and Chrysler.
Manufacturers react to the Wall Street Crash
The Wall Street Crash of 1929 and the subsequent Great Depression had a profound impact across many industries. The US car industry was no exception; according to the Boston Consulting Group, “sales of new automobiles fell by 75 percent—and automobile companies had a combined loss of $191 million in 1932 ($2.9 billion in today’s money), or 25 percent of industry sales”. Furthermore, “the highly profitable luxury end of the market virtually disappeared. The lower-priced segment grew from 40 percent of sales in 1929 to 80 percent of sales in 1933 and remained at 60 percent through the upturn and beyond. As a result, half the automakers closed down.”
Ford was caught at the onset of the depression in the midst of constructing a large new factory. The company responded to the downturn by cutting production and making thousands of workers redundant. Many Ford dealers went out of business, unable to move their stock and not permitted to return unsold cars to the manufacturer.
Under Alfred P. Sloan, GM reacted quickly and decisively to the depression. The company cut its costs by closing factories and making large-scale redundancies. It scaled back production of its high-end and mid-market models to realign its price points, while slashing the price of its cars to reduce inventory levels. The company pivoted marketing activity in favour of the Chevrolet, putting its high-volume, lower-priced model at the heart of the company.
Chrysler also cut costs and closed factories. The company was particularly notable for its focus on improving production efficiency, maximising its profit per unit. Walter Chrysler increased the company’s advertising spend for its inexpensive Plymouth model, taking advantage of cheap media and leading to an increase in sales.
Demand is driven
General Motors introduced a series of changes in the 1920s aimed at manipulating the consumer’s view of cars. The company created the concept of planned obsolescence, with the objective of making consumers sufficiently dissatisfied with their older models to purchase the latest update. This was mainly achieved through the car’s appearance, with a cosmetic update annually and a more thorough restyling every three years.
The company also introduced consumer credit to the car industry. Expensive purchases such as pianos had previously been bought in instalments, and GM introduced the concept to the car industry. The company founded the General Motors Acceptance Corporation to fund their customers’ credit, helping consumers to fund their purchase at a time when banks didn’t usually provide loans for cars. By 1930, three-quarters of all new cars were bought using credit. Henry Ford, who disapproved of using debt to finance new vehicle purchases, had introduced a lay-away plan instead, which required customers to make payments to the car dealer and take possession of the vehicle once the payment plan was completed. However, Ford dealers were eventually forced to offer credit terms too.
European manufacturers were inspired by the example of GM. André Citroën created a banking subsidiary, SOVAC, which provided credit to Citroën customers. Renault and Peugeot soon followed.
The electric car declines (for a while)
Inventors in the 19th century had produced a range of prototype electric carriages and cars, and by 1900, according to the US Government, “electric cars were at their heyday, accounting for around a third of all vehicles on the road”. In just one instance, the Porsche company developed the P1 electric car in 1898.
Petrol cars also emerged onto the market, but were noisy, difficult to operate and produced unpleasant exhaust fumes. Electric cars, meanwhile, were considered cleaner and easier to drive. Their relatively short range did not act as a barrier, since the road infrastructure in many countries was too poor for long journeys to be undertaken by car.
By the 1920s, however, road conditions had improved, particularly in the US, creating greater demand for vehicles with a longer range. Americans also benefitted from falling petrol prices and the expansion of filling stations across the country. Electric cars began to disappear, with one of the last manufacturers, the Detroit Electric Car Company, filing for bankruptcy in 1929.
For a look at the future, check out our article on the new wave of flying cars.