History shows what went wrong with auto industryWritten by Nick Shultz | | email@example.com
Much of the U.S. auto industry is suffering through the worst financial times since its inception just over 100 years ago. In order to understand where the American auto industry is today, I investigated its 100-year history in hopes of discovering where it went wrong.
Contrary to what most folks think, Henry Ford did not build the first production vehicle in America. That distinction belongs to Ransom Eli Olds, who mass-produced 425 “Little Curved Dash Olds” mobiles in 1901. Olds built his curved dash car through 1907. Henry Ford’s first Model T was sold in 1908. Olds, who never graduated from high school, later formed the REO Company and went on to build the famous REO Speedwagon.
The Dodge Brothers
Many of Olds’ and almost all of Ford’s major vehicle components were manufactured for them by one of the finest machine shops in the area at that time. The Dodge Brothers Machine Shop, located in Detroit, was owned and operated by John and Horace Dodge. Sons of a mechanic who fixed marine engines and equipment along the St. Joseph River in Niles, Mich., the two brothers grew up poor. Nonetheless, they learned their father’s trade well and, together, were able to secure the first patent in the United States for a sealed ball bearing, which established them as a legitimate player in the auto industry. After their contracts with Ford and Olds expired, the Dodge brothers went on to produce their own car. The first was released in November 1914.
By the time World War 1 broke out, the Dodge name was synonymous with dependability, and General John J. Pershing ordered hundreds of Dodges for the war effort. Gen. George Patton used four Dodge Power Wagons during a raid against Poncho Villa’s chief general, further enhancing the Dodge reputation for dependability.
Ford and General Motors supplied vehicles to the war effort as well.
Henry Leland built engines for Ransom Olds at the Leland and Faulconer machine shop in Detroit in the very early 1900s. Leland was a highly touted machinist at that time. Because of his reputation, he was able to secure financing for his own car company and used the money he borrowed to design and build the luxurious Cadillac.
The very successful Cadillac Company was sold to General Motors in 1909. Leland, who loved luxury cars, went on to form the Lincoln car company which, in 1922, was sold to Henry Ford. Leland, too, was not a highly educated man.
Louis Chevrolet was born in 1878 on Christmas day in Switzerland. Chevrolet, the son of a watch and clock maker, developed a great interest in mechanics and at an early age he designed and built his own bicycle. While working as a chauffeur in France, he continued to tinker with bicycles until he saw his first combustion engine. For Chevrolet it was love at first sight. Louis, who was very athletic, began racing cars soon after immigrating to the United States. At first he raced for Fiat and then Buick.
He earned great respect and fame as a racer and William Durant, the founder of General Motors, decided that Chevrolet’s name had great appeal. Durant convinced Louis to join his new company, General Motors. Then, using Chevrolet’s six-cylinder engine design, they created the Chevrolet car company.
Competition for market share was fierce in the early days of the automobile. Every successful carriage manufacturer at the time was converting all or a portion of its carriage companies operations into horseless carriage production.
There were hundreds of manufacturers competing for automobile sales.
The men who forged the automobile industry in America were visionaries. Despite fierce competition, they were able to carve a niche for their vehicles within the merging markets. These early founders risked everything they owned, driven only by their overwhelming desire to succeed.
When these men failed and were forced into bankruptcy, as many were more than once, they lifted themselves back up and got back into the race.
The early automobile manufacturers changed our nation and the world. They built factories and employed thousands of workers in and around Detroit. They fueled the influx of immigrants from around the world to Michigan and Ohio. They saw us through two world wars. These early founders had one major attribute in common. They loved the cars they produced.
These were men of character and many were indeed characters in their own right. Many of these men had little formal education. They weren’t educated money men, although they were forced to learn about money early on in their careers.
The industry saw many changes throughout the 1920s and ’30s. The engineers at Ford, GM and Chrysler incorporated many refinements into their products and the period saw a great rise in the dependability of the product.
Most vehicles prior to this time burned either gasoline or ethanol. The chief reason was prohibition. From 1919 until 1933, it was illegal to sell or transport alcohol here in the United States. This law, more than any other reason, caused the automobile manufacturers to build cars that operated only on gasoline. An infrastructure was established, and gasoline soon replaced ethanol as the fuel of choice.
The founders of the auto companies began to pass control of their companies onto their children or trusted friends during this period of time. The style of the cars produced began to favor the demands of the youth who were running the companies. Larger vehicles and engines began to displace the four cylinder models their fathers had built.
World War II
The auto industry was pressed into the war effort during the World War II. The American assembly lines were converted to the production of military equipment. Because of the war effort, only a handful of cars were sold to the general public between 1941 and 1945. Assembly lines that had been building Fords, Chevrolets and Dodges were now building rifles, airplanes, tanks and trucks. Women and the elderly went to work on the assembly lines, while the men went off to war.
The late 1940s and ’50s saw demand for cars rise dramatically. The returning soldiers were working and raising families. The desire for family-friendly cars grew. The cars were not just for work anymore. The auto companies realized that a fairwage to their employees ensured increased auto sales. The rising incomes of the middle class afforded average men opportunities their fathers never had. The Sunday afternoon drive became a way of life in America. Cars were designed and built to enhance the driving experience.
By this time, many of the American car companies were among the largest corporations in the world. The accounting departments in each of these companies necessarily grew and began to control more and more of the decision making within their respective corporations.
The 1960s saw a rise in the concern about the safety of the automobile. There were more and more cars on the road every day and accidents were common place.
The government stepped in with regulations that forced the auto manufacturers to address many of the safety concerns within their designs. Auto companies faced litigation from consumers and were forced to hire teams of lawyers to defend themselves and their companies. With little or no knowledge of cars, the legal teams had a great influence on their design.
The ’60s also saw government regulations regarding emissions. With all the vehicles on the highways, and within the cities pollution was becoming a real concern. The auto companies responded by hiring large numbers of engineers to design and build systems that could meet the new regulations further influencing the design of the automobile.
With the 1970s came the oil embargo. America almost came to a standstill. Our dependency on foreign oil was exposed for what it was. Americans began to demand more fuel-efficient cars and there simply weren’t many being produced by U.S. automakers at that time.
This opened the door for foreign manufacturers. Once the flood gates were opened, it was impossible to close them. Further environmental and efficiency regulations were imposed on the car industry by the U.S. government during this time, which further exasperated the U.S. auto makers’ problems.
Also in the ’70s, the United States was caught up in an unpopular war in Vietnam. Suddenly everything American was bad. Entire American industries disappeared overnight. Remember the Zenith TV set?
Industry leaders at the time warned us about foreign influence in our colleges and universities that were undermining the U.S. economy and system of government. Respected U.S. automotive publications were bought up by foreign publishers and the U.S. market was inundated with negative press regarding the U.S. vehicles.
Some of the press was deserved, while some was not.
U.S. automakers suffered great financial losses for the first time in their histories. The money men within their organizations convinced the manufacturers that they could solve the financial woes of the industry. The U.S. manufacturers became huge financial organizations, and for a short time it seemed that the money men were right.
Auto manufacturing was what the name plate on the door said; but real money was in the financial divisions set up by a new breed of CEOs.
All the while, foreign competitors refined their products and shipped them to the United States. Some of the financial branches of the American car manufacturers even financed the sale of those import vehicles. While the foreign manufacturers were spending money on new factories and state-of-the-art tooling to build their cars American manufacturers were building cars in 80-year-old plants with out-of-date tooling, while their profits were being leveraged by their respective financial institutions.
The result was short-term gains for the companies, which resulted in huge bonuses for the CEOs and upper management.
The UAW, wanting a piece of the pie, demanded larger wages and benefits for its membership. Things appeared to be going just fine.
Today, the American car companies are run by money men. The car men are subservient in most decisions to the demands of the accountants. The all-knowing and all-powerful money men have relegated the car guys to second-class status within the American auto industry.
Rick Wagoner, the recently released CEO of General Motors, is an example of a money man. Wagoner earned an economics degree from Duke Uniersity and an MBA from Harvard University. Under Wagoner’s tenure as CEO, GM lost 20 percent market share and more than $85 billion. GM stock went from an average of $60 a share when Wagoner took over in June 2000 to as low as $1.45 a share in March 2009. During this time, Wagoner and most of his upper management team received huge bonuses for their performance.
It was under Wagoner’s watch that GM shut down the oldest car company in the United States, Oldsmobile.
For car buffs throughout America, it was a slap in the face. It seemed as though General Motors had a total disregard for automobile tradition and a total lack of understanding for what car people wanted in a car.
Yet Wagoner had a stranglehold on GM. Regardless how far and fast GM fell, he was able to hold onto his job. Like most money men, Wagoner’s real love was, and is, money. Unfortunately it was not the cars he was producing. While Wagoner, and those who supported him, grew rich, GM grew poor.
While Wagoner’s demise will not be mourned by car people in America, the loss of GM most surely will. Perhaps the lesson will be learned by those who follow him:
If you’re in the car business, you’d better love cars!
Nick Shultz is an instructor of Automotive Technologies at Owens Community College. He is an arbitrator for the Better Business Bureau who specializes in cases involving the Ohio and Michigan Lemon laws. He is a certified master automotive technician by ASE, General Motors Corp. and Ford Motor Co. Shultz, a Toledo native, will take questions at firstname.lastname@example.org.