August, 1967 ^ ^ Preface
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THE AUTOMOBILE INDUSTRY IN THE UNITED STATES OF AMERICA - A STUDY OF ITS GROWTH AND COMPETITIVENESS A THESIS SUBMITTED TO THE FACULTY OF ATLANTA UNIVERSITY IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION BY CHIH-KANG PENG SCHOOL OF BUSINESS ADMINISTRATION ATLANTA, GEORGIA •->-.■ 11 AUGUST, 1967 ^ ^ PREFACE This thesis was undertaken as a result of my interest in the automobile industry in the United States. My attention, along with the interest of many others, was attracted by the brief history of the industry, and the dif ficulties of survival of the small firms which form an oli gopolistic model of the industry. My interest in this thesis was encouraged by Dr. K. K. Das, Professor of Management and Economics in the School of Business Administration, Atlanta University, who gave me precious guidance and project questions to work. I appre ciate very much Dr. Das' help. I also wish to express my appreciation to Dr. N. F. Davis, Professor of Business at Atlanta University, who gave me the benefit of his criticism and suggestions. I also appreciate the automobile firms and associations who related automobile industry information and who sent published materials and books for my reference. I made a trip to Detroit, Michigan, an automobile industry city, and got lots of help from the Automobile Division, Detroit Public Library. G. K. P. 11 TABLE OF CONTENTS Page PREFACE ii LIST OF TABLES iv Chapter I. INTRODUCTION 1 The Automobile General Influence Purposes of the Study- Procedure of the Study II. GROWTH AND DEVELOPMENT OF THE INDUSTRY. ... 15 The Birth of the Automobile The Early Merger: General Motors and United States Motors The War Boom (World War I) Depression Time World War II Post War III. THE CHARACTERISTICS OF AN OLIGOPOLISTIC BUSINESS OF THE UNITED STATES AUTOMOBILE INDUSTRY ... 54 The Question of Size Marketing Disadvantages IV. CONCLUSIONS 79 What is the Likely Competitive Trend for the Future? BIBLIOGRAPHY 86 APPENDIX 89 LIST OF TABLES Table Page 1-1. Businesses Dependent on Manufacture, Distribution, Servicing and Use of Motor Vehicles .............. 3 1-2. 12,400,000 Employed in Highway Transport Industries-~One of Every Seven Employed in the United States ............ 5 1-3. Automobile Consumption of Materials, 1965 ... 7 1-4. General Figures of the Major Automobile Manufacturers in 1964 9 2-1. Net Income of United States Corporations 1914-1917 ..... 26 2-2. Automobile Production 1914-1916 27 2-3. War Products Produced by Automobile Companies .................. 44 2-4. Automotive Industry Percentage of Total War Output ....... ..... 45 2-5. Historical Motor Vehicle Statistics ...... 50 2-6. U. S. Passenger Car Production by Makes 1960-1964 ..... 52 3-1. Massachusetts Cars of Major Makes 1916 .... 55 3-2. Massachusetts Cars of Minor Makes 1916 .... 56 3-3. The Competitive History of the Automobile Industry 1946-1955 67 iv LIST OF TABLES - Continued Table Page 3-4. Passenger Gar Advertising Expenditure By Manufacturer and Per Car Registered 1949-1958 . 75 4-1. The Percentage of Motor Vehicle Produc tion By Makes 1960-1965 ..... 84 CHAPTER I INTRODUCTION The history of the automobile industry is not a long one. It was born in the latter part of the nineteenth century, and has grown with tremendous speed. As it devel oped, some representative aspects of capitalism can be seen. It tells a story of booms and depressions, of the rise of industrial unionism, and of the national effort in two world wars. It also gives us the foundation of know-how upon entering the air plane age of World War II, and the present space age. The Automobile General Influence The role of the automobile industry in the United States has developed as one which can manage or control the economy of the entire country. The following facts may give us a clear idea of how the automobile industry has weight in the economy and affects the family and man's life in this country. 1. One out of every six businesses in the United States is dependent for its existence upon the 1 2 manufacturer, distribution, and servicing of automobiles. (See Table 1-1, page 3.) 2. One-seventh of the country's wage earners--almost 12 million people--earn their living from the automobile. These range from the president of General Motors, who gets upward of $740,000 each year for his services; to the ticket seller in a drive-in movie, who may receive $35 a week. (See Table 1-2, page 5.) 3. The automobile industry relates to other indus tries. It uses 22 per cent of America's steel, 57 per cent of its iron, 65 per cent of its na tural rubber. Forty-four per cent of the nation's radios are on the road. Two and three-tenths persons own a car. Fifty-seven per cent of the 3 world's passenger cars are in the United States. (See Table 1-3, page 7.) 4. The automobile companies are most meaningful in Automobile Manufacturers Association, Automobile Facts and Figures (Detroit: Automobile Manufacturers Assoc iation, 1965), p. 65. 2 Ibid., p. 66. 3Ibid., p. 14. TABLE 1-1 BUSINESSES DEPENDENT ON MANUFACTURE, DISTRIBUTION, SERVICING AND USE OF MOTOR VEHICLES Number of Kind of Business Establishments Retail Stores Automotive Passenger car dealers {franchised). ..... 38,646 Passenger car dealers (nonfranchised) .... 25,401 Tire, battery, accessory dealers ...... 20,952 Household trailer dealers .......... 3,076 Automotive dealers, N.E.C. ......... 659 Gasoline service stations .......... 206,755 Total Retail Automotive ... 295,489 Automobile Repair General repairs ..........•■•>• 70,627 Battery & ignition repair & service ..... 1,902 Glass replacement & repair ......... 1,356 Point shops ................. 3,026 Radiator repairs .............. 3,153 Tire repairs .......... 4,027 Top and body repairs ............ 14,416 Brake repairs ........ ... 1,082 Wheel, axle, spring repairs ......... 1,244 Other repairs, N.E.C 3,265 Total Automobile Repair . 104,098 Automobile, truck rentals (without drivers) . 4,751 Automobile services, except repairs ...... 5,926 Total Automobile Services ....... 10,577 Manufacturing Motor vehicles and parts 1,551 Motor truck and bus bodies ......... 562 Motor truck trailers ............ 170 Automobile trailers* 528 Rubber tire and inner tubes ......... 142 Petroleum refining ...... - 631 TABLE 1-1 - Continued Number of Kind of Business Establishments Storage batteries .............. 256 Total Manufacturing .......... 3,840 Wholesale Motor vehicle distributors ......... 3,926 Automotive equipment ............ 17,102 Tire-tube wholesalers . 2,107 Gasoline, kerosene, fuel oil wholesalers . 29,717 Petroleum products distributors, ex cluding bulk stations, terminals ..... 4,734 Total Wholesale 57,586 Automobile Storage, Parking Parking structures, storage garages ..... 1,910 Parking lots ... ........ 9,106 Total Automobile Storage ....... 11,016 Miscellaneous Auto Enterprises Drive-in theatres ....... » 4,071 Automobile race tracks ..... 578 Motels, tourist courts .. 41,371 Trailer parks ...«.......••>•• 8,133 Total Miscellaneous 54,153 Total of Above Concerns ...... 536,759 For-Hire Trucking, Motor Bus Operators Taxicab company, auto wreckers* « 250,000 Highway Contractors* ........ 11,300 Total Automotive Business in U.S. ....... 798,059 Grand Total All Business in U.S 4,635,000 Per Cent Automotive 17.2 * Estimates by AMA; N.E.C. - Not Elsewhere Classified Source: Census of Manufacturers and Business 1958; Copy from Automobile Facts and Figures, Automobile Manufacturers As sociation, 1965, p. 65. 5 TABLE 1-2 12,400,000 EMPLOYED IN HIGHWAY TRANSPORT INDUSTRIES One of Every Seven Employed in United States Motor Auto Sales State,Coun- Truck Drivers, Motor Bus, Vehicles, Petroleum and ty and Other Employ- Taxi Em- States Parts Mfrs. Refining Servicing Local Roads ment ployment Total Alabama 1,939 246 37,864 13,549 159,000 1,769 214,367 Alaska 1,797 1,502 24,000 310 27,609 Arizona 77 22,164 5,197 116,000 722 144,160 Arkansas 389 1,302 24,333 5,889 131,000 750 163,663 California 29,261 16,165 236,468 37,678 968,000 14,280 1,301,852 Colorado 660 675 31,980 5,946 153,000 1,460 193,721 Connecticut 2,338 30,190 7,790 101,000 3,333 144,651 Delaware 6,186 1,649 44,000 496 52,331 Florida 836 103 81,939 15,849 244,000 4,084 346,811 Georgia 9,363 * 53,906 12,370 201,000 1,304 277,943 Hawaii * 6,388 1,834 21,000 448 29,670 Idaho 11,570 3,124 68,000 492 83,186 Illinois 19,966 8,310 119,954 23,784 296,000 26,633 494,547 Indiana 53,533 8,488 64,575 12,189 249,000 3,154 390,939 Iowa 1,489 42,433 9,585 140,000 1,506 195,013 Kansas 4,398 3,500 36,898 10,177 169,000 1,256 225,229 Kentucky 4,146 1,578 34,925 9,924 157,000 2,684 210,257 Louisiana 506 9,780 40,227 12,435 164,000 1,981 228,929 * Maine 14,286 5,141 49,000 697 69,124 Maryland 5,480 * 38,010 7,703 108,000 9,222 168,415 Massachusetts 3,449 316 58,365 16,491 153,000 9,094 240,715 Michigan 262,876 2,016 110,000 17,810 283,000 6,470 682,172 Minnesota 3,300 783 46,746 11,898 158,000 3,964 224,691 Mississippi 668 22,621 9,429 109,000 425 142,143 Missouri 22,748 * 67,665 10,341 228,000 4,631 333,385 Montana 1,019 12,661 3,515 64,000 502 81,697 Nebraska 1,328 23,911 5,334 92,000 850 123,423 Nevada 6,941 1,891 45,000 1,232 55,064 New Hampshire 9,388 3,108 37,000 445 49,941 New Jersey 14,787 6,951 70,020 14,244 218,000 6,451 330,453 New Mexico 148 * 16,728 3,153 82,000 830 102,859 New York 38,464 1,161 164,246 41,723 407,000 30,147 682,741 North Carolina 1,708 60,530 11,970 230,000 2,886 307,094 * North Dakota 9,946 3,284 38,000 346 51,576 6 TABLE 1-2 - ContinuE d Motor Auto Sales State, Coun-