The Automobile Industry in the Early 1900s - Essay Example

NCU Cover Sheet Running Head: Significance of the Assembly Line The Significance of the Assembly Line: How it Helped Ford Establish Himself in the Automotive Industry Course: Name: University: The invention of the automobile is greatly considered to be one of the greatest milestones in human history. It has become a necessity for practically billions of people all over the world today, and has become a status symbol for many. The object of this paper is to examine the history of the automotive industry, more specifically, the introduction of the assembly line and how it has played a significant role in establishing Ford as a market and industry leader, and changing the industry itself. Currently, the automobile industry has suffered a downturn of growth as a direct result of decreasing sales. Nonetheless, the automobile continues its role of an everyday necessity in developing countries and in the third world. As the Economist states the current situation: The car industry makes nearly 60 million cars and trucks every year and employs millions of people around the world. Products are responsible for almost half the world’s oil consumption and their manufacture uses up nearly half the world’s annual output of glass and rubber and 15% of steel. The car industry is the epitome of mass production, mass marketing and mass consumption involving some of the strongest brands in the world. However, in America, Europe and Japan, where over 80% of the world’s cars and trucks are sold, the industry has been running out of growth (The Economist, 2004). Basic History Despite the fact that the earlier inventions of the automobile were done in Europe, the city of Detroit in the United States played an important role in the evolution of the automobile industry. Since as early as the 1920’s Detroit has been called “The Motor City” in acknowledgement of the historical milestones and current achievements it has had in this regard. It is noteworthy to state that the first cars had been designed and manufactured individually, meaning that one person does the job of putting the car together. Although Henry Ford is well known for greatly adapting the assembly line to change how the car was made, the concept was invented by Oldsmobile pioneer Ransome Olds. Ford took that basic concept and improved on it by adding a conveyor belt, and with it, efficiency and mass production took place. The Craft Production Stage At the turn of the century, cars were being invented and produced in a very small-scale manner, many of which took place in backyards of homes mostly in Europe and in US states such as Michigan. In 2000, Wibbeling and Heng describe the period thus: The beginning of the automobile industry was characterized by craft production. The organizations were extremely decentralized and many of the skilled craftsmen were their own bosses, service as independent contractors within a plant. This mode of production was not efficient and was unable to introduce innovation. It was the genius of Ford to solve such problems while incorporating innovations and technological advancement then currently obtaining. His name is thus closely associated with vertically integrated and centrally controlled organizations evolved during the early years of the 20th century. The new form of organization for car production was so successful that it virtually eliminated the craft organization. The growth of the automobile industry brought about more technical know-how about automobile production and increased competition. These, together with other changes in the business environment, posed new challenges to Ford who somehow failed to respond effectively. He was to lose out to Sloan who introduced in the 1930’s a more decentralized organization. The decentralized mode of mass production was to dominate the automobile industry for decades. This in turn failed to respond to the greater availability of knowledge of car production, the improved capacity of the production system which found favor among the major automobile companies in the 1980s. The lean producers introduced a pull concept of production and used extensive subcontracting in order to co-ordinate the supply chain. In the 1990s automobile companies are downsizing, focusing of their core business in order to become more efficient and more effective than ever before. The Successful Adoption of the Assembly Line Ford’s improved assembly line was created in 1913, which revolutionized the setup process of creating an automobile. His concept basically brought the car to the workers by moving along the conveyor belt to be put together, instead of all of the worker working on one car at a time. This process increased efficiency by reducing time spent waiting for the workers to bring the parts and tools to the car, since workers added parts to the car as it moved along. This translated into faster car manufacturing and reduced costs significantly. According to statistics from the Detroit Historical Museum (2001) show that since the production of the assembly line and the improvements made by Ford, prices for cars dropped significantly and efficiency improved: The first hand-made Oldsmobiles sold for $ 2,382. The mass-produced models sold for about $625. Ford’s popular Model T sold for as little as $275. By 1924, Ford’s assembly- line techniques began to put ownership of an automobile within the reach of most Americans. On the Oldsmobile prices alone, the economic improvement brought about by the introduction of the assembly line translates into approximately 381% savings. This mechanical improvement coupled with Ford’s management theories clearly made the average Joe afford buying a car: In 1914, ten thousand men sought jobs at Ford’s Highland Park Plant, responding to Henry Ford’s offer of an unprecedented $5-a-day wage for autoworkers, more than double the prevailing pay rate for an eight-hour day. Ford’s theory proved correct: pay workers more, reduce turnover in the plant, and make more cars more efficiently. Sales increased, prices dropped, and the workers could afford to buy the Model T’s they built. (Detroit Historical Museum, 2001) Other statistics show how the assembly line implementation helped Ford become an industry pioneer and subsequent market player. In as early as 1903, Michigan’s leading auto producers had Oldsmobile in the lead with 4,000 cars made, and Ford and Cadillac tied with 1,700 cars produced. By 1906, Ford took national sales leadership in 1906 with 8,700 cars sold, two times more than second place competitor, Cadillac. Ford’s policies and management styles definitely helped in establishing his dominance in the automotive industry. Instead of following competitor’s trends in making high-end cars on small scale production, Ford maximized sales of low-priced cars through productivity improvements, lowering prices as production-improvements and economies of scale lowered costs. He continued innovating and instead of declaring higher dividends as a result of good profits, Ford re-invested large percentages of profits into innovative technology. By 1920, approximately ½ of the world’s cars were Ford’s Model T. Table 1 shows the market position of Ford in 1914, as a dominant force in the inexpensive cars market. With 1913 sales, Ford captured 46.11% of the inexpensive cars market, and 47.93% of the entire automobile manufacturing market. Figure 1 also shows how steep was Ford’s growth in terms of sales from 1901-1920 vis-à-vis that of General Motors. By 1920, General Motors’ highest sales peaked above 250,000 cars. This pales in comparison to Ford’s sales which had breached 750,000 cars twice over the 20-year period, and as it was declining, was still enjoying a good lead over General Motors. According to Womack, Jones and Roos in 1991, Ford was able to overcome problems and reduced cost with help of following policies and processes: Consistent interchangeability of parts and the simplicity of attaching them Insisted for same gauging system for all components. Applied in an extreme fashion the principle of division of labor. Introduced specialists like Industrial Engineers, Manufacturing Engineers and product engineers. Used dedicated machines which though increased production but did not allow variety in production. Through the above concepts and processes, Ford was able to create a much more efficient way to manufacture his cars. In 1913, the manufacturing time to create a Model T was 2.3 minutes, approximately 2,213% faster than the manufacturing time of 514 minutes it took only five years earlier. He was later able to reduce manufacturing time even further to 1.19 minutes. However, not all of the success is attributable to the invention and improvement of the assembly line. Much of the success lies in Ford’s deviance from the decentralized industry and created a better and more efficient organizational structure. Wibbeling & Heng in 2000 described the organizational structure of Ford during that time to have been as follows: In the early days of the automobile industry, the dominant organization form is that of a network organization. The technology used then was essentially that of a craft industry, the knowledge then was not widespread, and the demand of cars limited to the social elites. The genius of Ford was to transform the whole industry by creating the centralized hierarchical organization which, under the obtaining conditions then, proved to be a more suitable form for incorporating related innovations, developing knowledge and techniques. Together with the advent of electricity, he and his associates were able to usher in the mass production based on the assembly line. The result was a much cheaper and higher quality car. This, together with economic and social change, was to mean the mass market for the industry. According to Langlois & Robertson (1989), another factor that assisted in Ford’s success in was that he believed in vertical integration, which has been defined as the process “when a company expands its business into areas that are at different points of the same production path.” (“Vertical Integration,” 1999.) Ford applied vertical integration as he tried to make all the components in-house. Langlois & Robertson further discuss how the assembly line’s resulting mass production coupled with Ford’s concepts and policies of management revolutionized the automotive industry thus: Mass production involved Ford in the large-scale design of machine tools, at least some of which also seem to have been manufactured by the firm. Although Thomas contends that the automobile industry was well served by outside machine-tool firms in its early days, the greater extent to which Ford took the division of labor when he developed mass production and the assembly line called for a far wider use of special purpose machinery than had been necessary for other firms. To meet their new needs, Ford and his engineers were forced to develop many of these devices themselves. As Silver hypothesizes, this was not because the technical advances in the tools were beyond the understanding of independent tool makers; rather, it was because only the men at Ford understood the uses to which the new machines were to be put. It would have cost more for Ford Motor Company to explain the process of automobile -manufacture to the tool makers (a process that was in any case still evolving in the minds of Ford and his assistants) than it did to diversify into tool design on an ad hoc basis. The Ford techniques could have diffused to outside suppliers and indeed quickly did so, but the massive demand for the Model T generated by Ford’s low-price policy made even small delays costly. In this sense, integration was a strategy forced upon decision. Ford as much as it was a conscious entrepreneurial. There is also more to the story than the radical newness of the Ford machines. Central to the innovation of mass production is its systemic character-its organization and timing of production activities-which had the effect of making vertical integration self-reinforcing in certain ways. Because much of the assembly activity was collected in one place, Ford engineers were able to perceive opportunities for grasping economies of scale that would not have been apparent to decentralized parts suppliers. An example of this is the development of metal stamping techniques. Pressed-steel frames, which were much stronger than their structural-steel predecessors, were generally adopted in the industry by 1909. A couple of years before, however, the managers of the John R. Keim Mills, a producer of pressed steel in Buffalo, had approached Ford with a proposal to supply axle housings. Ford agreed, and by 1908 Keim was supplying a variety of parts. Engineers from the two firms cooperated in perfecting the pressing process; Ford invested heavily in machinery for the Buffalo plant, and eventually purchased Keim in 1911. When the workers at the Keim plant struck the following year, Ford ordered all of the machinery removed from Buffalo and shipped to Highland Park. The technology sparked the interest of Ford’s engineers, and metal-stamping was soon adapted to producing crankcases, axles, housings, and even bodies. Thus integration initially motivated by a desire to avoid hold-up problems and supply disruptions led to further integration because of the possibilities for innovation it opened up in the Ford environment. Clearly the concept of vertical integration and self-production of key parts helped in establishing a better vision of what changes had to be made. As stated above, the use of vertical integration enabled Ford’s engineers to have a unique view on how to take advantage of economies of scale, a key feature that was not present in small scale manufacturers that made use of decentralized suppliers. Conclusion Throughout this paper we have seen what the circumstances and situations were like during the critical period of the car industry’s development. From the backyard single person assemblies and inventions to the efficient and expeditious mass production assembly lines of Ford, the car quickly became a popular and affordable item to own. We have also seen how the business organizational structures of the times helped and hindered the growth of the car industry. Ford’s improved assembly line conveyor belt and management techniques indeed helped in catapulting the company into becoming a giant in the automobile manufacturing industry at that time. Furthermore, we saw how his policies on vertical integration, division of labor and other production management techniques played a role in his success. Clearly, the mechanical improvements of the assembly line brought about drastic change in how automobiles were built in the 1900’s. However, it is clear that a major part of the success is Ford’s ability to revolutionize production techniques and management policies in order to bring about increasing sales and a highly impressive chunk of the market. After all, Olds was the inventor of the assembly line, and yet he was unable to utilize it to create a business as successful as Ford’s and in only a few years, Ford overtook his competitors and reduced production times a thousand-fold. Works Cited Detroit Historical Museum, The. (2001). On The Assembly Line. Retrieved May 1, 2006 from http://www.detroithistorical.org/learningcenter/curriculummaterials/detroitsstory/a4.pdf Investopedia. (1999). Vertical Integration.  Retrieved May 1, 2006 from http://www.investopedia.com/terms/v/verticalintegration.asp Langlois, Richard N. & Robertson, Paul L. (1989). Explaining Vertical Integration: Lessons from the American Automobile Industry. Journal of Economic History, Volume 49, Issue 2, The Tasks of Economic History (June 1989). pp. 361-375 The Economist, (September 2, 2004). Perpetual Motion. Retrieved May 1, 2006 from http://www.economist.com/surveys/showsurvey.cfm?issue=20040904 Wibbeling, R.P. & Heng, M.S.H. (2000). Evolution of Organizational Structure and Strategy of the Automobile Industry. Amsterdam: Vrije Universiteit Womack, James P., Jones, Daniel T., & Roos, Daniel. (1991). The Machine that Changed the World: The Story of Lean Production. London: Harper Perennial. Tables, Charts and Graphs: Table 1: Sales and Market Share of Automobile Makers in 1913 Figure 1: Comparative passenger car sales of Ford and GM from 1901-1920 Read More