The Automotive Giants in the early 1920's

With the return of prosperity in the early 1920's, the American automobile industry came into its own as the nation's largest manufacturing enterprise. Production of motor vehicles climbed from 2,227,349 in 1920 to a phenomenal high of 5,337,687 in 1929, a figure not surpassed for another 20 years. By 1929, there was one automobile on the highway for every six people in the United States, and Herbert Hoover's campaign slogan of "two cars in every garage" was by no means as ridiculous as it was made out to be by subsequent critics.

Much of the economic expansion of the period, in fact, was a direct consequence of the rise of the motor vehicle. The production and the operation of automobiles absorbed 20% of the country's annual steel output, 90% of its gasoline, 80% of its rubber, and 75% of its plate glass. Moreover, as millions of Americans became automobile owners, they demanded better roads. The Federal Highways Act of 1921 and the dedication of the Zero milestone in Washington a year later, a ceremony at which Roy D. Chapin was appropriately one of the principal speakers, signaled the launching of a vast program of road building by both Federal and state authorities. The automobile also brought with it a substantial new area of service occupations: dealers and repair shops, filling stations and tourist camps.

Expansion, of course, had its problems. For both the manufacturer and the dealer, the most serious was the fast-growing number of serviceable used cars. The trade journals of the decade contain a variety of proposals for taking second-hand cars out of circulation; quite clearly, none of them worked. Associated with the used-car difficulty was the unbelievable fact that after just a quarter of a century, automobile ownership in the United States had become so widespread that for the time being new cars would be bought predominantly for replacement rather than by purchasers who had not previously owned an automobile. This situation gradually achieved a reluctant recognition within the industry. As early as the end of 1925 there were warnings of the danger of overproduction and of excessive liberality in retail financing. The continued upsurge of business made this note of caution appear needless at the time, although at the peak of the boom in 1928 Alfred P. Sloan was advising that the automobile industry was thinking too much of volume production and not enough of net profits, while James D. Mooney, president of the General Motors Export Corporation, was suggesting that the executive who thought in terms of production for its own sake was now outmoded. These, however, were minority opinions, noteworthy because it was the engineer-executives who were looking critically at the demand side of the picture while practically everyone else was hypnotized by the bull market ( Mooney was a graduate of Case who had worked for Westinghouse and B. F. Goodrich before entering General Motors via the Hyatt Roller Bearing Company).

On the technological side, there were few major changes in the cars themselves. Essentially the automobile of the 1920's was the same as its predecessor of the previous decade, with refinements in the form of more efficient and more powerful engines, better lighting systems, and more graceful body styling. The most conspicuous innovation of commercial significance was Roy D. Chapin's offering of both Hudson and Essex closed cars in 1922 at prices only $100, above the comparable touring car.

The boldness of the move may be seen in the following table:

COMPARATIVE PRICES OF OPEN AND CLOSED CARS

Make Lowest Touring Car Price Lowest Closed Car Price Differential
Ford $ 393 $ 595 $202
Chevrolet 525 850 325
Dodge 880 1,195 315
Buick 885 1,395 510
Essex 1,095 1,195 100
Hudson 1,575 1,695 100

The Essex coach body, the cheaper of the two, was at first a somewhat ungainly wooden box with a metal framework, since cost considerations ruled out either manual cabinet work on the wood or an all-steel body-the latter because stamping presses large enough to make steel body forms had yet to be introduced, along with facilities for making sheet steel cheaply and in quantity. Nevertheless, Chapin was right in assuming that the American public would regard a closed car as being worth some deficiencies in style. The experiment was so successful that the rest of the industry had to conform. In a short time, the touring car with its awkward top and its flapping side curtains virtually disappeared from the American scene, until a swing of the technological circle brought it back in vastly improved form as the convertible.

There were several important technological developments in what can be classified as essential adjuncts to the automobile. Quick-drying and durable lacquer finishes became available in 1923 through the joint efforts of Charles F. Kettering and the DuPont Company; Kettering and Dr. Thomas H. Midgley contributed ethyl gasoline a year earlier, the result of 10 years of research. Kettering was convinced that the cause of motor knock was in the fuel, and in due course he and Midgley came up with tetraethyl lead as the most effective antiknock agent. Ethyl gasoline was first marketed through the Standard Oil Company ( Indiana), but in 1924 General Motors and the Standard Oil Company ( New Jersey) joined forces to organize the Ethyl Gasoline Corporation. The rubber industry was also pressing to keep pace with the needs of its principal customer. Cord tires came into general use at the end of the First World War, and low-pressure balloon tires first appeared in 1922. Automobile manufacturing was also responsible for a revolutionary change in glass making when the Ford Motor Company built its own plant and worked out a technique for continuous-process production of plate glass. Safety glass, moreover, was developed largely in response to automotive needs.

Thus, there was enough technological activity in and about the automobile industry to keep its leaders aware of this part of their field. When the agreement for cross-licensing patents came up for renewal in 1925, there was a vigorous demand for modification, led by Roy D. Chapin, Alfred P. Sloan, and Alvan Macauley. Chapin was especially disgruntled with the cross-licensing system because he had just been through a long and unsuccessful fight to get class B rating for a patent on a balanced crankshaft designed by Stephen I. Fekete, the Austrian-born chief engineer of the Hudson Motor Car Company. The fact that the Fekete patent was the only one for which B classification was sought during the 10-year life of the original cross-licensing agreement is striking testimony to the absence of any basic change in the automobile itself.

While Chapin was discontented, he was unwilling to go as far as Sloan, who wanted to limit cross-licensing to minor construction details. Macauley's company had not been a party to the original agreement, but he was willing to work with Chapin to revise the system. In the end, crosslicensing was continued for class A patents held as of January 1, 1925, later extended to January 1, 1930, at which time the number of patents included was 1,687. This modified agreement was renewed at intervals until December 31, 1956, when it finally lapsed.

The gradual decline of the cross-licensing arrangement was directly related to the advance of concentration in the industry. As the larger comparties developed their own research programs, they came increasingly to feel that they should be reimbursed for what they were spending in this way before they gave their competitors access to their discoveries. On their side, the smaller concerns were at some disadvantage because patents taken out by parts manufacturers, even if they were subsidiaries of the big automobile companies, were excluded from the agreement. Nevertheless, the tradition of cross-licensing had become so ingrained in the automobile industry that, in 1953, Alfred Reeves was able to boast that there had not been a patent suit between members of the Automobile Manufacturers Association in 37 years.

The principal beneficiaries of the automobile industry's expansion were the big companies. Mass production and mass marketing gave a tremendous advantage to large-scale operation. This feature of automobile manufacturing had, as we have seen, been emerging for some time, but without a definite indication of how many giants the industry would support or which firms would make the grade. To be sure, Ford and General Motors appeared to be secure once they had weathered their respective crises in 1920, but beyond these two it was anybody's guess. Studebaker, Hudson, Nash, Willys-Overland, Maxwell--all were prospective candidates for the top rank.

The boom period of the 1920's saw the pattern of bigness crystallize. Ford and General Motors remained well in the lead but changed places, so that General Motors became the nation's and the world's largest manufacturer of motor vehicles. Meanwhile, Walter Chrysler was putting together another behemoth, and these three completely outstripped and overshadowed the rest of the field.