The Modern Automotive Industry

The modern automotive industry is huge. In the United States it is the largest single manufacturing enterprise in terms of total value of products, value added by manufacture, and number of wage earners employed. One of every six American businesses is dependent on the manufacture, distribution, servicing, or use of motor vehicles; sales and receipts of automotive firms represent more than one-fifth of the country’s wholesale business and more than one-fourth of its retail trade. For other countries these proportions are somewhat smaller, but Japan, South Korea, and the countries of Western Europe have been rapidly approaching the level in the United States.

The trend toward consolidation in the industry has already been traced. In each of the major producing countries the output of motor vehicles is in the hands of a few very large firms, and small independent producers have virtually disappeared. The fundamental cause of this trend is mass production, which requires a heavy investment in equipment and tooling and is therefore feasible only for a large organization. Once the technique is instituted, the resulting economies of scale give the large firm a commanding advantage, provided of course that the market can absorb the number of vehicles that must be built to justify the investment. Although the precise numbers required are difficult to determine, the best calculations, considering both the assembly operation and the stamping of body panels, place the optimum output at between 200,000 and 400,000 cars per year for a single plant. Increasingly stringent and costly regulations aimed at correcting environmental damage due to the rising number of vehicles on the road also have been a factor in the move toward consolidation.

The structural organization of these giant enterprises, despite individual variation, resembles the pattern first adopted by General Motors in the 1920's. There is a central organization with an executive committee responsible for overall policy and planning. The operating divisions are semi-autonomous, each reporting directly to the central authority but responsible for its own internal management. In some situations the operating divisions even compete with each other. The Ford Motor Company was consciously reorganized on the GM pattern after World War II; other American automotive firms have similar structures. In addition, the largest producers decentralize their manufacturing operations by means of regional assembly plants. These permit the central factory to ship frames and components rather than complete automobiles to the areas served by the assembly plants, effecting substantial savings in transportation costs. This system was developed for the Ford company in 1911.

Some alteration of that principle took place in the 1980's and 1990's as Japanese firms built new plants around the world and American and European manufacturers adopted, to varying degrees, the Japanese “just-in-time” inventory method. Rather than stockpiling a large number of parts at the assembly plant or shipping all the parts from central locations, automakers have yielded the manufacture of many noncritical components (such as seats and wheel assemblies) to independent suppliers to make the pieces at small facilities close to the assembly plants. The components are often assembled into larger groups of parts or modules (a complete instrument panel, for example) and sent to the assembly plant in the exact sequence and at the exact time needed.

The automotive industry’s immense resources in production facilities and technical and managerial skills have been devoted predominantly to the building of motor vehicles, but there has been a consistent and strong incentive to extend into related products and occasionally into operations whose relationship to automobiles is remote. The Ford Motor Company, for example, once manufactured tractors and made the famous Ford Trimotor all-metal transport airplane in the late 1920's and early 1930's. GM manufactured refrigerators and diesel-powered railway locomotives. By the end of the 20th century, however, Ford and GM had divested themselves of most of their nonautomotive operations and had spun off the majority of their automotive component-making divisions into separate stock companies—Delphi Automotive Systems in the case of General Motors and Visteon Automotive in the case of Ford.

In Europe, but to a lesser extent, automakers also divested non core operations, while depressed economic conditions in Japan forced auto companies there to begin divorcing themselves from nonautomotive and components companies in which they had long held interests. By the late 1990s the trend was toward more international consolidation of core automotive operations.

The process of putting a new car on the market has become largely standardized. If a completely new model is contemplated, the first step is a market survey. Since there may be an interval of five years between this survey and the appearance of the new car in the dealers’ showrooms, there is a distinct element of risk, as illustrated by the Ford Motor Company’s Edsel of the late 1950's. (Market research had indicated a demand for a car in a relatively high price range, but, by the time the Edsel appeared, both public taste and economic conditions had changed.) Conferences then follow for engineers, stylists, and executives to agree on the basic design. The next stage is a mock-up of the car, on which revisions and refinements can be worked out.

Because of the increasingly competitive and international nature of the industry, manufacturers have employed various means to shorten the time from conception to production to less than three years in many cases. This has been done at GM, for example, by incorporating vehicle engineers, designers, manufacturing engineers, and marketing-managers into a single team responsible for the design, engineering, and marketing launch of the new model. Automakers also involve component manufacturers in the design process to eliminate costly time-consuming re-engineering later. Often the component maker is given full responsibility for the design and engineering of a part as well as for its manufacture.

The bulk of the world’s new cars come from the moving assembly line introduced by Ford, but the process is much more refined and elaborated today. The first requisite of this process is an accurately controlled flow of materials into the assembly plants. No company can afford either the money or the space to stockpile the parts and components needed for any extended period of production. Interruption or confusion in the flow of materials quickly stops production. Ford envisioned an organization in which no item was ever at rest from the time the raw material was extracted until the vehicle was completed—a dream that has not yet been realized. The need for careful control over the flow of materials is an incentive for automobile firms to manufacture their own components, sometimes directly but more often through subsidiaries. Yet complete integration does not exist, nor is it desirable. Tires, batteries, and dashboard instruments are generally procured from outside sources. In addition, and for the same reasons, the largest companies support outside suppliers even for items of in-house manufacture. First, it may be more economical to buy externally than to provide additional internal facilities for the purpose. Second, the supplier firm may have special equipment and capability. Third, the outside supplier provides a check on the costs of the in-house operation. American companies rely more than others on independent suppliers.

Production of a new model also calls for elaborate tooling, and the larger the output, the more highly specialized the tools in which the manufacturer is willing to invest. For example, it is expensive to install a stamping press exclusively to make a single body panel for a single model, but, if the model run reaches several hundred thousand, the cost is amply justified. The assembly process itself has a quite uniform pattern throughout the world. As a rule, there are two main assembly lines, body and chassis. On the first the body panels are welded together, the doors and windows are installed, and the body is painted and trimmed (with upholstery, interior hardware, and wiring). On the second line the frame has the springs, wheels, steering gear, and power train (engine, transmission, drive shaft, and differential) installed, plus the brakes and exhaust system. The two lines merge at the point at which the car is finished except for minor items and necessary testing and inspection. A variation on this process is “unitized” construction, whereby the body and frame are assembled as a unit. In this system the undercarriage still goes down the chassis line for the power train, front suspension, and rear axle, to be supported on pedestals until they are joined to the unitized body structure. Most passenger vehicles today are manufactured by the unitized method, and most trucks and commercial vehicles still employ a separate frame.

Assembly lines have been elaborately refined by automatic control systems, transfer machines, computer-guided welding robots, and other automated equipment, which have replaced many manual operations when volume is high. Austin Motors in Britain pioneered with its automatic transfer machines in 1950. The first large-scale automated installation in the United States was a Ford Motor Company engine plant that went into production in 1951. A universal form of automatic control has used computers to schedule assembly operations so that a variety of styles can be programmed along the same assembly line. Customers can be offered wide choices in body styles, wheel patterns, and color combinations.

Mass production implies mass consumption, which in turn requires an elaborate distributive organization to sell the cars and to develop confidence among customers that adequate service will be available. In the early days of the industry, cars were sold directly from the factory or through independent dealers, who might handle several different makes. Many bicycle manufacturers simply used their existing sales outlets when they added horseless carriages to their line. When sales in large quantities became the objective, however, more elaborate and better organized techniques of distribution became essential.

In the United States the restricted franchise dealership became the uniform and almost exclusive method of selling new cars. In this system, dealers may sell only the particular make of new car specified in their franchise, must accept a quota of cars specified by the manufacturer, and must pay cash on delivery. In return the dealers receive some guarantee of sales territory and may be assisted in various ways by the manufacturer—financing or aid in advertising, for example. Contracts also specify that dealers must maintain service facilities according to standards approved by the manufacturer.

Seemingly weighted in favor of the manufacturer, the system has been subjected to periodic dealer complaints, producing state legislation and a federal statute in 1956 to protect dealers from arbitrary actions by manufacturers. Yet dealers have never been united in these attitudes, and no effective substitute for the restricted franchise has yet been found. On the contrary, it is becoming the general practice in other parts of the world where large-scale markets for motor vehicles have developed.

Attempts by automakers in the 1990's to move away from the traditional franchised dealer network to direct selling via the Internet met strong resistance in the United States. American dealers enlisted the help of state governments in enacting prohibitions of this practice (and in blocking attempts by automakers to own dealers through subsidiary corporations). In markets outside the United States, principally in Europe and South America, manufacturers sell directly to consumers via the Internet in limited quantities.

The market in used cars is an important part of the distribution system for motor vehicles in all countries with a substantial motor vehicle industry because it affects the sale and styling of new cars. The institution of the annual model was adopted in the United States during the 1920's to promote new-car sales in the face of used-car competition. The new model must have enough changes in styling or engineering to persuade prospective buyers that it is indeed an improvement. At the same time, it must not be so radically different from its predecessors as to give the buyer doubts about its resale potential.

Like all machinery, motor vehicles wear out. Some become scrap metal to feed steel furnaces; some go to wrecking yards where usable parts are salvaged. Throughout the world, however, the disposal of discarded motor vehicles has become a problem without a completely satisfactory solution. In many areas, landscapes are disfigured by abandoned wrecks or unsightly automobile graveyards. Spurred by European legislation requiring automakers to take back all of their end-of-life-cycle vehicles beginning in 2007, manufacturers worldwide have begun engineering new products with the complete recycling of components in mind. At the same time, they have used more and different recycled material in new vehicles. For example, old bumper covers have been recycled into fender liners or battery trays for new cars.

Although the automotive industry has long been multinational in its organization and operation, beginning in the 1980's and accelerating in the late 1990's, it has established a trend toward international consolidation. Larger, more financially secure firms buy controlling interest in financially troubled ones, usually because the weaker firm manufactures a highly prized product, has access to markets that the larger company does not, or both. For example, Chrysler, as discussed above, acquired AMC in 1987 for access to AMC’s Jeep vehicles and in 1998 was itself merged with Daimler-Benz, which sought Chrysler’s expertise in high-volume manufacturing and design techniques. Recognizing its need to penetrate closed markets in Japan and South Korea, DaimlerChrysler in 2000 took a controlling 34 percent interest in Mitsubishi Motors Corporation and signed a cooperative venture in trucks with Hyundai Motor Company. General Motors bought a 50 percent interest in Sweden’s Saab in 1989 and acquired the remainder 10 years later; in 2000 it took a 20 percent stake in Japan’s Fuji Heavy Industries to have access to the all-wheel-drive technology used in Fuji’s Subaru vehicles. In 1999 Ford bought the passenger car operations of Sweden’s AB Volvo, and in 2000 it bought Britain’s Land Rover operations from BMW.

The most promising markets for motor vehicles have traditionally been developed countries with the purchasing power to create a demand for automobiles; these have included North American and European countries as well as Australia, New Zealand, South Africa, and Japan. Since 1950 there has been a significant shift in market prospects, however, as developing countries have shown greater growth in vehicle registrations than the highly developed countries. Consequently, there has been an intensification of both assembly and distribution in parts of the world not previously important in the automotive industry.

The great bulk of this production is assembly, done in plants affiliated with and usually operated by American, European, Japanese, or South Korean automotive firms. In order to stimulate their own automotive industries, most developing countries have tariff policies that make imported cars prohibitively expensive and, in addition, have requirements that a substantial portion of the components used in local assembly plants be of domestic origin. A certain percentage of local ownership, public or private, is also a normal requirement. The rest of the financing and most of the initial managerial and technical skill come from the parent company. In the 1990's China attracted the attention of the world’s major automotive companies. Somewhat relaxed governmental controls on private ownership and the consequent rise of entrepreneurial enterprises provided a burgeoning market in China for automobile ownership by individuals. This potential, plus local-component requirements, led to the establishment by automakers and component manufacturers of complete manufacturing facilities in China rather than limited local assembly operations.

The automotive industry has become a vital element in the economy of the industrialized countries—motor vehicle production and sales are one of the major indexes of the state of the economy in those countries. For such countries as the United Kingdom, Japan, France, Italy, Sweden, Germany, and South Korea, motor vehicle exports are essential to the maintenance of healthy international trade balances. The effect of motor vehicle manufacturing on other industries is very great. Almost one-fifth of American steel production and nearly three-fifths of its rubber output go to the automotive industry, which is also the largest single consumer of machine tools. Moreover, the special requirements of automotive mass production have had a profound influence on the design and development of highly specialized machine tools and have stimulated technological advances in petroleum refining, steel making, paint and plate-glass manufacturing, and other industrial processes.

The indirect effects are also considerable through the many auto-related businesses, such as motor freight operators and highway construction firms. In addition, truck transportation has grown steadily throughout the world.

Before the advent of the motor vehicle, roads in most parts of the world were generally poor. The available methods of road transport were so costly and inefficient that, unless there were special considerations such as military movements, it was not worthwhile to maintain roads for other than local traffic. The general use of automobiles created a strong demand for better highways. The first response was to provide for the improvement of existing road networks. Experience subsequently demonstrated that roads for automobile traffic needed to be differentiated functionally, depending on whether they were intended for through traffic or local traffic. Main arteries are best designed as freeways (motorways, autostrade, or Autobahnen)—i.e., divided highways with complete control of access and no intersections at grade.

A historian has said that Henry Ford freed common people from the limitations of their geography. The statement cogently summarizes the social transformations still proceeding throughout the world as a result of the motor vehicle. It has created mobility on a scale never known before, and the total effect on living habits and social customs is still incalculable.

The automobile has radically changed urban life by accelerating the outward expansion of population into the suburbs and beyond. As with other automobile-related phenomena, the trend is most conspicuous in the United States but is rapidly appearing elsewhere. The decentralizing trend is accentuated by the fact that highway transportation encourages business and industry to move outward to sites where land is cheaper, where access by car and truck is easier than in crowded cities, and where space is available for the one-story structures that permit optimum use of modern materials-handling techniques. Yet the effect on rural life has been, if anything, more pronounced than the effect on cities. In the days of horse-drawn transport, the economical limit of wagon transportation was 15–25 km (about 10–15 miles); any community or individual farm more than 25 km from a railroad or navigable waterway was isolated from the mainstream of economic and social life. Motor vehicles and paved roads have narrowed much of the gap between rural and urban life. Farmers can ship easily and economically by truck and can drive to town when convenient. In addition, such institutions as regional schools and hospitals are now accessible by bus and car.

It would be impossible to list all of the specific effects of motor vehicle production, but two are especially illustrative. First, the marketing of automobiles has stimulated a great expansion in the use of credit. Installment buying existed before the automobile but in a limited scope. The technique was introduced into the American automobile industry in 1916 by manufacturers of medium-priced cars to help meet the competition of the low-priced Model T. It became a universal practice in nearly all countries in the purchase of motor vehicles, and it accustomed people to buying other durable consumer goods in the same way. Second, there has been a striking development of businesses such as drive-in and drive-through eating establishments and of commercial developments, such as shopping malls, that are designed to be accessed primarily by car.

In both urban and rural areas after World War II, the automobile is credited with having caused drastic changes in the sexual values of young people, who found in it a privacy not formerly attainable.

One of the conspicuous effects of the automobile has been to permit nearly everyone in the automotive countries to travel for recreation. The motor vehicle allows for such auxiliary devices as trailers (called caravans in Europe), campers, trailers for boats and off-road vehicles, and bicycle and ski racks, which broaden the scope of recreational opportunities.

The mass use of motor vehicles was bound to have some unforeseen and undesirable consequences, of which three can be singled out: traffic congestion, air pollution, and highway accidents. The approach to each of these problems illustrates a common propensity to blame the technology, rather than the way in which the technology has been used.

City streets were congested long before the automobile existed, but the problem has been compounded enormously by the masses of motor vehicles that enter or leave cities at peak traffic hours. The constantly growing number of automobiles throughout the world adds to the difficulty of finding remedies for congestion. The heart of the problem is that few city street systems have been designed for automobile traffic. Reliable estimates are that some two-thirds of the vehicles in central business districts are only passing through and should have been routed on circumferential highways. Remedying this situation is difficult and expensive. It calls for modern highways to provide both ready access into downtown areas and ways to avoid them. Programs for this purpose encounter vigorous opposition, frequently justified, on the ground that building freeways in cities disrupts neighbourhoods and destroys scenic or historic areas.

The widespread use of automobiles for business travel has also led in many cities to a decline in public transit systems, and the need to develop and use mass transit has been much discussed. Given the trend toward dispersal of people and businesses in urban areas, it seems doubtful that mass transit will appreciably diminish motor vehicle traffic. Still, in most cities, bus systems can provide the needed capacity for public transportation and are the most economical way of doing so.

Atmospheric pollution antedates the automobile, but the concentration of many thousands of motor vehicles in large cities has given the problem a new dimension. Automobile exhaust commonly contributes half the atmospheric pollutants in large cities and even more in cities where atmospheric and topographic conditions are peculiarly conducive to smog formation. In the 1960's federal and state legislation in the United States required the installation of controls on motor vehicles to restrict the emission of pollutants (seeemission-control systems). At the end of the 20th century, many scientists believed that emissions from motor vehicles, industrial processes, and power plants were leading to a buildup of carbon dioxide in the atmosphere, thus trapping additional heat and raising Earth’s temperature with potentially disastrous long-term results (see greenhouse effect). Although not universally accepted, the theory of led governments in many major automotive countries to enact legislation requiring a significant increase in motor vehicle fuel economy, thereby reducing the output of carbon dioxide. Many automobile manufacturers also have undertaken development of alternative, less-polluting power sources, such as fuel cells that convert hydrogen (derived from gasoline, natural gas, methanol, or other sources) and oxygen into electricity to power an electric motor, to enhance their competitive positions even in countries without strong requirements that they do so.

Highway accidents create a distressing toll of fatalities and injuries wherever there is widespread use of automobiles. Each year there are hundreds of thousands of motor vehicle fatalities worldwide and more than 40,000 in the United States alone. The social and economic cost of such accidents is incalculable. Efforts to improve highway safety have been successful in most countries, but a reduction in the ratio of fatalities and injuries per distance traveled is often offset by increases in numbers of accidents because of the ever-growing use of motor vehicles. Safety features such as seat belts and air bags that inflate on impact have become standard features in cars and passenger trucks since the 1960's (see vehicular safety devices). Today many vehicles are equipped with multiple air bags to protect occupants in side-impact and rollover accidents as well as frontal crashes.

The desire to reduce fatalities and to conserve fuel has led policy makers to focus on speed limits. Most countries of the world have set speed limits ranging from about 65 km (40 miles) per hour in some island nations to 120–130 km (75–80 miles) per hour in many European countries. In some parts of the world, such as areas of Germany, India, and the Philippines, speed limits traditionally are not prescribed. In 2000, British policy makers and government researchers debated a controversial proposal to equip new cars with a speed-control device that would use global positioning satellites to track a vehicle’s location and, in conjunction with an onboard digital road map, cut off the car’s fuel supply if local speed limits were exceeded.