How the U.S. Automobile Industry Has Changed

The American automotive industry had an immense impact on the domestic economy through the boom and bust years of the 20th century. The number of new cars sold annually was a reliable indicator of the nation’s economic strength. But when the recession hit between 2007 and 2008, new car sales declined precipitously, reflecting the overall decrease in consumer spending.

Economic Effects of the U.S. Auto Industry

The American economy was transformed by the invention of the automobile and Henry Ford’s mass production techniques that made the machines affordable. Tens of thousands of jobs were created as the industry grew. Workers were required for the assembly lines on which these cars were made. Part by part, Ford’s Model T became the first popular and affordable mass-produced car.

The steel industry and machine tool makers also flourished as the automotive industry required ever-increasing supplies and components for the engines, chassis, and other metal fixtures of the cars. Beyond these basics, every car needed a battery, headlights, interior upholstery, and paint. Entirely new businesses, or subsidiaries of existing businesses, were created to meet the needs of the automobile industry as it grew incrementally year after year.

Other unexpected economic effects rippled outward into numerous additional industries as more people bought and operated automobiles, which eventually became an essential mode of transportation and commerce.

A comprehensive study of the automotive industry’s contribution to the U.S. economy was produced by the Center for Automotive Research in July 2024. Some 3.7 million U.S. jobs were directly or indirectly related to the automobile industry. Auto production contributed over $450 billion to gross domestic product (GDP).

Insurance and Interstate Highways

Cars required insurance coverage, which accounted for hundreds of millions in revenue for insurance companies. National advertising campaigns for cars added millions to ad agencies as well as print and broadcast media. The maintenance and repair of cars became a major business. One of the biggest winners of all was the petroleum industry, which sold gasoline for the barrage of cars on the road.

When World War II began, the automotive industry geared up for military production. The Jeep, a highly maneuverable, overland vehicle first built by the Willys Company, was manufactured in large numbers for military use. Chrysler retooled itself to build tanks.

In the immediate years after World War II, pent-up demand for new cars gave the industry a boost in profits. Under the Eisenhower administration in the 1950s, a national network of interstate highways was built. When the system was completed, a driver could cross the country on the four-lane roads from New York to Los Angeles without encountering a single red light.

Suburbia’s Influence

Millions moved into the suburbs just beyond the metropolitan limits of the country’s large cities. Housing construction boomed to serve families leaving cramped cities for relatively spacious homes on sizeable plots of land. Returning veterans were encouraged to purchase homes by the generous terms of government-insured loans for people who served in the military. Furnishings, household appliances, and hundreds of additional incidental items needed for each new home added to the economic boom.

The trucking industry also enjoyed a sustained period of economic growth, beginning in the Interstate Highway era, as more goods were shipped via truck, and through a so-called piggy-back system through which trucks were transported by train to key locations and then unloaded from the railroads and sent to their destinations via roads.

The impact on the American economy of these industries and their commercial enterprises and accomplishments was immense. The U.S. economy boomed, especially the automobile industry. In some years, 10 million new cars were sold. American auto manufacturers dominated the world market for many years. After some complacency, major automakers encountered formidable competition from foreign automakers, principally German and Japanese companies.

American cars lost market share to these foreign brands, which provided better gas mileage, affordability, and attractive design features. But the U.S. auto industry, with the help of government loans, recaptured its dominance and, by 2012, reigned as the world’s largest and most profitable.

Important

The U.S. federal government bailed Chrysler and GM out to the tune of $80 billion in 2012.

The Early Years

In 1895, there were only four cars officially registered in the U.S. Little more than 20 years later in 1916, almost 3.3 million were registered. Numerous entrepreneurs and inventors went into the auto-making business to meet an ever-growing demand for the vehicle once derisively called a horseless carriage, which made the horse and buggy all but obsolete.

The names of these early automakers—some of which survived for many decades, and a few still operate—are near-legendary: GM, Ford (the most notable), Olds Motor Company, Cadillac, Chevrolet, Pierce-Arrow, Oakland Motor Car, and the Stanley Steamer, to name a few. Many were located in the Detroit area, and the Big Three remain there.

Henry Ford is commonly thought to be the inventor of the automobile (he was not), but he was nevertheless a great innovator. His goal, as he was quoted as saying, was to “build a motor car for the great multitude.” He deliberately reduced his company’s profit margins to achieve greater unit sales. He introduced the Model T in October 1908 and sold 10,000 vehicles at a starting price of $825 in the first year. The automobile soon became a necessity rather than a luxury item, as it was first positioned in industry marketing and advertising.

In 1914, Ford raised his workers’ pay to an unprecedented-at-the-time $5 a day, doubling the average salary, and cut work hours from nine hours to eight hours. Ford’s assembly line innovations and management techniques cut production time for the Model T from 12 hours and eight minutes in 1913 to one car every 24 seconds in 1927 when the last of the Model Ts were manufactured. In less than 20 years, from 1909 to 1927, Ford built more than 15 million cars.

The Depression Years

Although a record number of cars were sold in 1929—the year of the stock market crash in October that ushered in the Great Depression—car sales decreased substantially during those years. The U.S. economy was especially hard hit by the decline in the automobile industry. Jobs were lost in the industry itself and many of the ancillary businesses associated with automotive manufacturing.

Nevertheless, the automotive industry continued to offer innovative features and designs. Chrysler and DeSoto made cars with new, aerodynamic streamlining. By 1934, despite hard economic times, 21.5 million cars were in use in the U.S.

The United Auto Workers was organized in 1935, providing union members in the auto industry with an increase in wages and other benefits. The union went on strike several times in later years, extracting more benefits from the companies for which they worked. Some economists claimed that union benefits, including pensions, became financially burdensome for the companies that provided them, creating nearly insurmountable financial problems and leading to bankruptcies.

In 1939, Packard became the first brand to offer air conditioning. In 1940, GM developed the Hydra-Matic, the first hydraulic fluid automatic transmission. The 1948 Oldsmobile was the first automobile model equipped with automatic transmission. 

Post World War II

America’s mighty economic resources and manufacturing capacity were turned to the great military challenges confronting it. The major automakers converted their production facilities to war-time vehicles—Jeeps, tanks, trucks, and armored cars. During the war, only 139 passenger vehicles were made in the U.S. for civilian use.

When the war ended in 1945, pent-up consumer demand for new cars created a new boom in the industry and profits hit new highs. In 1948, the American auto industry rolled out its 100 millionth car, and Buick introduced its Dynaflow automatic transmission. More innovations followed, including power steering, disk breaking, and power windows.

But in 1958, Toyota and Datsun—Japanese-made automobiles—vehicles were imported into the U.S. for the first time, and American automakers began losing market share to the well-engineered, gas-saving, and affordable foreign vehicles.

Foreign-made, fuel-efficient cars gained a stronger foothold in the American market during and after the 1973 oil embargo and a corresponding rise in gas prices in the wake of the Arab-Israeli war. American firms Ford, GM, and Chrysler responded by manufacturing new lines of smaller, more fuel-efficient cars.

In the ensuing years, Honda opened a U.S. factory, Toyota introduced the luxury Lexus, and GM launched Saturn, a new brand. Some American firms bought stakes in foreign companies to exploit the growing overseas markets.

Major Losses Hit the Industry

The U.S. was still the world’s top automaker, but in less than a decade it would suffer a major decline as a devastating recession hit the economy.

Although Ford celebrated the 100th anniversary of its Model T in 2008, there was no cause for GM to celebrate. The auto-making giant posted an annual loss of $39 billion for 2007, the biggest loss ever for any automaker. This colossal failure reflected the slump in the U.S. economy, and the ceding of market share to foreign brands, mainly the Japanese Toyota.

Chrysler was also hit with losses, and along with GM, both of which declared bankruptcy, received a total of $63.5 billion in bailout money in loans from TARP, an appropriation of funds to help various major businesses that suffered losses due to the recession. Ford, however, did not ask for bailout funds because it had set aside a reserve fund of nearly $25 billion which helped it through the difficult period.

In an effort in 2007 to help the struggling industry, the United Auto Workers agreed to concessions and give-backs on wages and health benefits in contract negotiations.

Note

There were almost 250 million cars, trucks, and SUVs on American roads in 2012. About 25 years would be required to replace all of them, given the current rate of yearly automobile sales. So, even though the American auto industry was the world’s most profitable in 2012, some analysts were still only moderately optimistic about its future.

The Road to Recovery

The U.S. automobile industry recovered from its financial woes by 2011. GM posted a net profit of $7.6 billion, the most ever reported by the firm. Chrysler announced a profit of $183 million, its first net profit since its bankruptcy. The U.S. government’s bailout of the auto industry was seemingly effective. Chrysler paid back $11.2 billion in government loans, along with GM, which also repaid the government in full, with interest and years ahead of the due date.

Although Ford had a cash reserve of billions as a hedge against hard times, other automakers like General Motors (GM) and Chrysler faced bankruptcy and the United States government stepped in with bailout money from the Troubled Asset Relief Program (TARP) to rescue the sinking firms.

News reports showed the multi-billion dollar U.S. automotive industry was enjoying a brisk recovery in early February 2012, by which time both GM and Chrysler paid back their government bailout loans. Big profits were posted again. Detroit’s so-called “Big Three (the classic OEM manufacturers GM, Ford, and Chrysler), were flourishing.

American auto-making companies reigned worldwide in 2012 as the biggest and most profitable. Few could have foreseen the industry colossus which rose from its inauspicious origins more than a century earlier.

Where Are They Now?

The U.S. auto industry remains a major player in global auto production and innovation. According to the Alliance for Automotive Innovation, auto manufacturing contributes $1 trillion to the U.S. economy annually. This figure includes sales and auto servicing as well as employment and suppliers. The organization says that federal, state, and local governments collect roughly $280 billion in tax revenue annually from the industry.

There are as many as 20 auto manufacturers in the United States that operate out of 15 states. A total of 55 plants assemble these vehicles, which are destined for the domestic and global markets. The country supplies parts and vehicles to 206 different countries. Exports were worth nearly $97 billion in 2022.

As for the Big Three, they are still around in some form or another. Ford and GM continue to sell vehicles, taking the third and fourth spots globally by revenue after Volkswagen and Toyota. Chrysler, though, was fully acquired by Fiat in 2014. Fiat merged with PSA Group to form Stellantis in 2021, which included the Chrysler brand.

What Is the Value of the U.S Auto Industry?

The U.S. auto industry was worth more than $1.51 trillion in 2022. The industry is expected to grow to roughly $2.064 trillion by 2032. Growth is expected to be boosted by demand for commercial vehicles to meet the needs of the transportation industry during this period.

What Is the Largest Automaker in the World?

Volkswagen is the world’s largest automaker by revenue. As of December 2023, the company reported revenue of €322.3 billion (roughly $356.13 billion) with Toyota following in second place. The Japanese automaker reported revenue of $307.48 billion during the 2023 fiscal year.

What Happened to Chrysler?

Chrysler is considered one of the Big Three U.S. automakers. Competition, rising gas prices, and declining sales nearly bankrupted the company. But, the U.S. government bailed the company out during the Great Recession. The company repaid the government by 2011. Chrysler was fully acquired by Fiat in 2014. It now operates as a distinct brand under the Stellantis banner after Fiat and PSA Group merged in 2021.

The Bottom Line

While U.S. auto sales increased substantially in China, the European market for U.S. cars is struggling. Despite its huge profits, GM announced major cost-cutting initiatives. If the U.S. economy continues its apparent, although slow and as yet not too vigorous recovery, auto sales are likely to improve as well. Americans love and need their motor vehicles—for work, business and pleasure—and the American auto-making industry will prosper as the nation prospers. But it may take a while.