AUTO HISTORY 101: Through the Past Darkly

Ever notice how history has a way of repeating itself? And, isn’t it important to learn from the past? Common sense observations, right? Well in reality, history does repeat itself, and sometimes we never learn. Such is the case of the economy and the auto crisis of the past several years. As the auto industry crawls back to life, let’s look back to its beginning.

Henry Ford began production of his revolutionary Model T back in 1909. It was a basic, rugged vehicle made of sturdy materials, with a high clearance to provide reliable transportation over the challenges of existing horse and carriage trails.
For $850, it was initially a luxury and a novelty; a status symbol for the rich, or a toy for the first motor heads. Ford was ambitious, "I will build a motor car for the great multitude,” clearly stating his goal of placing a Model T in every home. To realize this vision, Ford adapted assembly line production techniques in 1913, and applied them to the Model T. Ford quickly lowered the production time for a new car from several hours to one every 93 minutes, then eventually to its final impressive rate of 23 seconds per car. Saving time and money, the purchase price lowered to an affordable $290. Sales of the “Tin Lizzy” sky rocketed, and Ford eventually sold an amazing 15 million Model Ts before the end of its production in 1927.

General Motors upped the ante. While Ford kept the production costs and the price down by producing basically the same car every year (“Any color as long as it’s black.”), GM updated their cars annually in flashy new colors, the latest in design flare and fancy options. Through aggressive advertising, GM’s Alfred P. Sloan sold the idea of two cars in every family, along with the need to buy a new car every year. Planned obsolescence became GM’s strategy, convincing buyers that last year’s model was out of date and out of style. Anybody that’s anybody would have to buy the latest and greatest GM car. Cost was not a problem, thanks to Sloan’s new finance program, the installment plan. In the freewheeling roaring twenties, the buyer could pay monthly for a car, and then return it to the dealer for the next year’s exciting new model. Ford perfected the use of the assembly line, but Sloan revolutionized the auto industry by selling cars on credit.

Autos sales soared through the 1920s, feeding a booming economy.
The support industries of steel, rubber and glass thrived, as did thousands of businesses capitalizing on the new found mobility provided by cars. Movie theatres, grocery stores and baseball games attracted thousands of auto touring families and individuals in search of new destinations and diversions with their cars. Highway construction began, gas stations were built, and life was good. Then in 1929, Black Thursday and Black Tuesday hit, and the greatest stock market crash in history was a reality. Ten years of the Great Depression followed. Jobs were lost, monthly installment payments were missed, cars were repossessed, and the idea of a new car every year was history.

Flash forward to today where buying a car on credit is a given. With new car prices regularly over $20,000, paying cash for a car is rare. Credit is an industry unto itself. Companies developed another alternative by creating lease programs where the buyer only pays for a car during a finite period of time, and then returns it to the dealer. Similar to Sloan’s plan, leasing allows a purchaser to buy a car without really owning it. In good times, credit or leasing programs can provide a buyer a new car every three or four years, and possibly a better car than they could normally afford. There is also big money to be made for the loan companies that provide the financing. But obviously, the success of either program is reliant on the buyers paying their debt.

As with the 1930s, our recent auto crisis brought all of the fun to an end, again. Before this downturn, auto manufacturers could not make enough cars. Vehicles were sold, even more were made. When auto sales reached their peak and people slowed their buying, companies made even more vehicles and marketed them aggressively with ambitious rebate plans. A vicious cycle accelerated. Manufacturers made less on each car, so they needed to sell still more just to break even. Most car makers did not succeed. Huge inventories backed up. Then the economy plummeted, people lost their jobs, cars stopped selling, auto companies were stuck in the red, and the government bail-outs are now history. Déjà vu: too many cars and too much credit.

Reflecting back to a simpler time, the days of Henry Ford providing basic, reliable transportation for $290 CASH made perfect sense. Alfred P. Sloan contributed to the Crash of 1929 with GM’s installment plan, and the planned obsolescence of their flashy new models. Could Sloan be responsible for the ills that the auto industry is only now recovering from, yet again? It’s hard to believe that lessons can’t be learned.

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