American automobile industry in the 1930s

The automotive industry was hard-hit by the Great Depression, suffering significant losses in sales. On the long road to economic recovery, the number of manufacturers dwindled, paving the way for the emergence of the “big three” manufacturers in the industry.

For the automotive industry, the 1930’s was a decade of catastrophic decline and slow recovery, one in which only the strongest manufacturers were able to survive the steep losses in sales brought on by the Great Depression. The output of an industry that had produced more than 5.6 million cars and trucks in 1929 plummeted to 1.3 million vehicles by 1932. While Americans continued to drive, they did not buy new vehicles, largely because so many people lacked the financial resources to do so. Before the stock market crash of 1929 forty-four American companies were manufacturing automobiles; a decade later the list had dwindled to fewer than twelve, and 90 percent of sales were made by the big three: General Motors, Chrysler, and Ford. While sales increased gradually from the low point in 1932, the industry still produced only 3.6 million vehicles in 1939. The decline in sales during these tough times required companies to be innovative and ruthless, and only those who exhibited both qualities managed to be in business at the end of the decade.

Industry Response to Economic Catastrophe

The initial shock of the Great Depression was felt in the automotive industry almost immediately. General Motors stock lost two-thirds of its value in October, 1929; other publicly traded companies fared no better. Auto manufacturers large and small found it necessary to severely curtail their production activities. Some plants were shuttered, and workers were laid off. At other facilities, shifts were reduced, and any temporary rise in demand required remaining employees to work overtime.

How quickly each manufacturer reacted to the drop in sales during 1930 and 1931 was not consistent, however. Initially, Henry Ford was certain that the catastrophe would be short-lived. Only months after the stock market crash, he announced plans to increase wages and to invest $25 million in plant expansion. One year later, however, he was forced to abandon those plans, and the Ford Motor Company joined other companies in scaling back operations. Dealers, too, were hard hit, as many found themselves holding inventory that they could not sell. By 1930, auto sales fell by as much as two-thirds for smaller manufacturers such as Hudson and Willys-Overland. The severity of the problem was evident in the downturn in sales of low-priced models during 1931. In that year, only Chrysler experienced a small increase in sales, largely because its new Plymouth model was heavily promoted and seemed truly innovative. Chevrolet sales were down 25 percent, while Ford sales declined 40 percent. Companies found it necessary to adjust their production schedules and sales techniques to weather the economic storm.

In addition to curtailing expenses, automobile manufacturers tried to deal with the economic downturn by becoming more innovative. At General Motors, chief executive Alfred P. Sloan insisted that the company continue to conduct annual model changes, improve vehicle quality, and introduce technical and stylistic innovations for each of its product lines. Thus, potential customers were offered new choices each year at various price points designed to allow Americans to consider purchasing new automobiles regardless of their level of income. In 1931, General Motors added a six-cylinder Chevrolet to its product line, offering a car with more horsepower than those models offered by their competitors. Henry Ford also believed Americans would eventually return to purchasing automobiles, especially inexpensive ones that showed some innovation in design. The initial success of his Model A, introduced in 1928, persuaded him that weathering the financial crisis was possible by making cutbacks in production until sales improved. In 1932, Ford introduced the V-8, an economy car with an eight-cylinder engine. Walter P. Chrysler was more attuned to the need for constant improvements in both style and technical efficiency. Throughout the decade, the Chrysler company maintained a strong engineering division, allocating millions to research in product design.

In 1931, Ford’s company pioneered several engineering innovations, including a “floating” power system for engine mounting that produced a smoother ride. Introduced in 1934, Chrysler’s new “Airflo” body design did not catch on. However, Chrysler’s advances in the design of its high-end Imperial forced both General Motors and Ford to revamp their luxury Cadillac and Lincoln models and eventually forced Ford to increase its product line to compete at every price range with its major competitors.

Government Intervention and Unionization

During the first three years of the Great Depression, the automotive industry was largely left on its own to deal with the economic crisis. The inauguration of Franklin D. Roosevelt in 1933 changed the relationship between these private businesses and the federal government drastically. One of the first initiatives of the new administration was to intervene directly in managing the economic crisis in the country. Central to that initiative was passage of the National Industrial Recovery Act (NIRA). Under this legislation, businesses involved in the same industry were required to create codes for fair competition and set up wage and price guidelines. The latter were designed to stop companies from further lowering prices simply to make sales, so that the economy would not continue in a deflationary spiral. This move caused serious concern for the automotive industry, in which lowering prices while providing additional features to customers had become the standard practice for increasing sales volume. General Motors, Chrysler, and many smaller manufacturers agreed reluctantly to participate in enforcement of the industry codes and guidelines established by their trade association. Ford refused to cooperate, even though the federal government threatened to withhold contracts with his company. Two years later, the Supreme Court declared NIRA unconstitutional, and auto manufacturers were allowed to return to competitive practices that had made them successful before 1929.

A second challenge to auto manufacturers’ autonomy had lasting effects. As part of its plan for assuring fair treatment for workers in all industries, the Roosevelt administration was committed to unionization. Before the 1930’s unions were virtually nonexistent in automobile factories. Men such as Ford and Sloan were vehemently opposed to allowing workers to organize, considering the practice bad for business. Passage of the National Labor Relations Act (NLRA) of 1936, however, guaranteed workers the right to organize and choose a bargaining agent. The new law prompted renewed efforts by many activists to infiltrate the largest industry in the United States, none with greater zeal than the United Auto Workers (UAW). Shortly after the passage of the NLRA, union organizers persuaded workers at the General Motors plant in Flint, Michigan, to strike.

In February, 1937, after serious and sometime volatile negotiations, General Motors management agreed to accept the UAW as the bargaining agent for General Motors workers. Two months later, management at Chrysler also came to terms with the UAW, virtually guaranteeing that union shops would become the norm throughout the automotive industry. Once again, Ford was the lone holdout. He ordered the head of his services division, Harry Bennett, to marshal resources to combat any attempt to unionize Ford Motor Company workers. Bennett ran what amounted to the largest private police force in the country, and he routinely used it to intimidate workers at Ford into working more efficiently and keeping quiet about problems within the company. In 1932, Bennett’s group effectively quelled a protest against employment practices at Ford. In May, 1937, Ford workers and union officials demonstrating to support unionization were brutally attacked by men hired by Bennett to disrupt their efforts. Several more years passed before Ford Motor Company management agreed to recognize the UAW as the bargaining agent for Ford workers.

Changes in Leadership

Another significant change occurred during the 1930’s, not so much a result of the Depression but rather because of the inevitable passage of time. During the decade, several key industry leaders either died or retired, most notably Chrysler in 1935 and Sloan in 1937. While both men retained a hand in strategic management of their companies, responsibilities for handling day-to-day operations were passed to capable successors. The transition of power at Chrysler and General Motors demonstrated that companies built on sound management principles with a strong leadership infrastructure and quality products could survive even in times of dire financial stress. The continuing slide of Ford Motor Company, as the aging Ford dictated policy often in an erratic and counterproductive fashion, was the exception, and it proved the wisdom of the management philosophies developed at the other two automotive giants.

Impact

During the 1930’s, the automobile industry demonstrated that in times of crisis, firms that can produce new products or improve older ones can still find buyers for their goods and can maintain a loyal client base. It also proved that in an industry in which significant capital investment is necessary for continued operations, only those companies with the financial wherewithal can sustain significant, long-term downturns in consumer sales. Nevertheless, the eventual success that General Motors and Chrysler showed by weathering the Depression, and the ability of smaller firms to stay afloat by changing business plans and achieving key mergers, represents the industry’s resiliency during the decade. On the other hand, dozens of automobile manufacturers went bankrupt during this time. Of lasting significance, too, was the change in labor-management relationships brought about by government pressure on auto manufacturers to allow unions into their factories. Since the 1930’s, the prices of American automobiles have been affected by the costs companies incurred in providing higher wages and improved benefits packages to their workers.

Bibliography

Brinkley, Douglas. Wheels for the World: Henry Ford, His Company, and a Century of Progress. New York: Viking Press, 2003. Chronicles the accomplishments and mistakes at Ford Motor Company during the 1930’s, a period in which the company fell to third among the “big three” U.S. auto manufacturers.

Curcio, Vincent. Chrysler: The Life and Times of an Automotive Genius. New York: Oxford University Press, 2000. Explains how Chrysler positioned his company to overtake Ford as the second largest auto manufacturer during the 1930’s.

Lichtenstein, Nelson. The Most Dangerous Man in Detroit: Walter Reuther and the Fate of American Labor. New York: Basic Books, 1995. Describes the efforts of unions to establish a foothold in the automotive industry and explains tactics union leaders used to bring management to the bargaining table.

Pelfrey, William. Billy, Alfred, and General Motors. New York: AMACOM, 2006. Traces the growth of General Motors, emphasizing its unique place among auto manufacturers as a conglomerate of formerly independent manufacturers; explains why the company became the dominant player in the market by the 1930’s.

Rae, John B. The American Automobile Industry. Boston: Twayne, 1984. General history of the growth of the automobile industry in the United States; describes the reasons for the emergence of the “big three” auto companies during the 1920’s and 1930’s.