Automotive Industry

automobile industry

automobile industry, the business of producing and selling self-powered vehicles, including passenger cars, trucks, farm equipment, and other commercial vehicles. By allowing consumers to commute long distances for work, shopping, and entertainment, the auto industry has encouraged the development of an extensive road system, made possible the growth of suburbs and shopping centers around major cities, and played a key role in the growth of ancillary industries, such as the oil and travel businesses. The auto industry has become one of the largest purchasers of many key industrial products, such as steel. The large number of people the industry employs has made it a key determinant of economic growth.

Industry History

Although ancient Chinese writers described steam-powered vehicles, and both steam- and electric-powered cars competed with gas-powered vehicles in the late 19th cent. Frenchman Jean Joseph Étienne developed the first practical internal-combustion engine (1860), and later in the decade several inventors, most notably Karl Benz and Gottlieb Daimler, produced gas-powered vehicles that ultimately dominated the industry because they were lighter and less expensive to build. French companies set the design of the modern auto by placing the engine over the front axle in the 1890s and U.S. manufacturers made important advances in the mass production of the auto by introducing cars with interchangeable machine-produced parts (one such car was created by Ransom E. Olds in 1901).

In 1914 Henry Ford began to mass produce cars using assembly lines. In addition, his practice of providing loans to consumers to buy cars (1915) made the Model T affordable to the middle class. In the 1920s, General Motors further changed the industry by emphasizing car design. The company introduced new models each year, marketed different lines of cars to different income brackets (the Cadillac for the rich; the Chevrolet for the masses), and created a modern decentralized system of management. U.S. auto sales grew from 4,100 in 1900 to 895,900 in 1915, to 3.7 million in 1925. Sales dropped to only 1.1 million in 1932 and during World War II, the auto factories were converted to wartime production.

The Modern Industry

After 1945, sales once again took off, reaching 6.7 million in 1950 and 9.3 million in 1965. The U.S. auto industry dominated the global market with 83% of all sales, but as Europe and Japan rebuilt their economies, their auto industries grew and the U.S. share dropped to about 25%. Following the OPEC oil embargo in 1973, smaller, fuel-efficient imports increased their share of the U.S. market to 26% by 1980. In the early 1980s, U.S. auto makers cut costs with massive layoffs. Throughout the 1990s, imports—particularly from Japan—took an increasing share of the U.S. market.

Beginning in the early 1980s, Japanese and, later, German companies set up factories in the United States; by 1999, these were capable of producing about 3 million vehicles per year. That year, 8.7 million vehicles were sold in the Untied States. Since then, domestic production by U.S. companies has continued to decline, so that they now produce somewhat more than half of all light motor vehicles sold in America (and many of their vehicles contain a significant percentage of foreign parts as determined by dollar value). In 2007, over $440 billion worth of motor vehicles and parts were produced in the United States by U.S. and foreign companies employing more than 902,000 workers. The credit crisis that began in 2008 and the associated recession resulted in significant losses for most automobile manufacturers. The U.S. industry was especially hard hit, losing sales as well from late 2007 to mid-2008 as customers sought more energy-efficient cars as gasoline prices skyrocketed, and in late 2008 U.S. automotive companies sought government financial aid. Subsequently, the government forced Chrysler and General Motors to declare bankruptcy (2009) and reorganize in an attempt to create viable companies. The U.S. and Canadian governments, Italy's Fiat (which purchased a majority stake in Chrysler), and the United Auto Workers owned much of the new companies. In 2014, Fiat announced plans to purchase all of Chrysler's shares, and rename itself Fiat Chrysler Automobiles NV.

Complaints about auto pollution, traffic congestion, and auto safety led to the passage of government regulations beginning in the 1970s, forcing auto manufacturers to improve fuel efficiency and safety. Auto companies are now experimenting with cars powered by such alternative energy sources as natural gas, electricity, hydrogen fuel cells, and solar power.

Bibliography

See R. Sobel, The Car Wars (1984); J. Fink, The Automobile Age (1988); J. A. C. Conybeare, Merging Traffic: The Consolidation of the International Automobile Industry (2004); B. Vlasic, Once Upon a Car: The Fall and Resurrection of America's Big Three Automakers (2011).

The Columbia Encyclopedia, 6th ed. Copyright© 2014, The Columbia University Press.

Automotive Industry: Selected full-text books and articles

Who Really Made Your Car? Restructuring and Geographic Change in the Auto Industry By Thomas Klier; James Rubenstein W.E. Upjohn Institute for Employment Research, 2008
Car Launch: The Human Side of Managing Change By George Roth; Art Kleiner Oxford University Press, 2000
Transitions: The State of the Automotive Industry-A Summary By Strauss, William A.; Engel, Emily A Chicago Fed Letter, No. 242a, September 2007
Does Porter's Diamond Hold in the Global Automotive Industry? By Sledge, Sally Advances in Competitiveness Research, Vol. 13, No. 1, January 1, 2005
Continuity and Change in Japan's Automotive Industry By Aoki, Katsuki; Delbridge, Rick; Endo, Takahiro Ivey Business Journal Online, January/February 2011
The Italian Automotive Industry and Economies of Scale By Truett, Lila J.; Truett, Dale B Contemporary Economic Policy, Vol. 21, No. 3, July 2003
PEER-REVIEWED PERIODICAL
Peer-reviewed publications on Questia are publications containing articles which were subject to evaluation for accuracy and substance by professional peers of the article's author(s).
The Evolution of Production Systems: Exploring the Sources of Toyota's Competitiveness By Fujimoto, Takahiro Annals of Business Administrative Science, Vol. 11, January 1, 2012
PEER-REVIEWED PERIODICAL
Peer-reviewed publications on Questia are publications containing articles which were subject to evaluation for accuracy and substance by professional peers of the article's author(s).
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