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Strategy

Strategy Byte 85 – The Evolution Part II

How the car industry changed from 1940 to 1989: wartime production, Toyota's lean system, Japan's rise, the oil shocks and emissions rules. Part 2.

Anand N Panicker

• 8 min read
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Butterfly emerging from its chrysalis, a metaphor for the evolution of the car industry
Photo by Suzanne D. Williams / Unsplash

Table of Contents

  1. Recap
  2. 1940s
  3. 1950s
  4. 1960s
  5. 1970s
  6. 1980s
  7. Sources & Citations

Recap

Last week, we started our time travel to understand the evolution of the automobile industry. We covered the period from 1900's to 1930 under the below headings in blocks of a decade:

  1. Technology - What was the technology used & what new was introduced during the period under discussion which led to newer models &/or facilities in the car
  2. Market - What was the market position of the automotive industry during the period
  3. Business & Operating Model - What was the business & operating model of the automakers during the period
  4. Rules & the State - Major regulations introduced during the period
  5. Companies - Who were the companies in the news & their major activities during the period

This week we cover the decades from 1940s to 1980s. Let's keep going...

an hourglass sitting on top of a table
Photo by Roy Muz / Unsplash

1940s

a black and white photo of a man standing in the middle of a street
Photo by Unseen Histories / Unsplash
  • Technology: Carmakers turned their mass-production lines for war purpose. Ford’s Willow Run plant built one B-24 bomber an hour by 1945, and about 660,000 jeeps were made. Renault’s 4CV (1946) and Citroën’s 2CV (1948) mark the return to civilian cars.
  • Market: US civilian car output stopped in 1942, then factory sales reached 2,148,699 cars in 1946. Japan made 28,700 vehicles in 1949, Volkswagen 46,154 and Fiat 70,800.
  • Business and operating model: US makers turned out $29bn of war material. Fiat’s car output fell while its commercial vehicles grew fivefold. Opel restarted car production in late autumn 1947. Toyota moved vehicle financing in-house in 1948.
  • Rules and the state:
    • France: Renault was nationalised on 16 Jan 1945.
    • Germany: Volkswagen says forced labourers were about two-thirds of its 1944 workforce, and it was placed under British trusteeship. The US ordered BMW’s Munich plant dismantled, and Opel’s truck plant went to the USSR as reparations.
    • Japan: occupation authorities approved Toyota’s truck production (1945).
    • Italy: Fiat rebuilt with Marshall Plan aid by 1948.
  • Companies: In 1946 the Big Three (General Motors, Ford and Chrysler) made 84.7% of US passenger cars, and the remaining independents later collapsed. Honda was founded in 1948.

1950s

interior view of car
Photo by Sam McNamara / Unsplash
  • Technology:
    • Toyota’s “pull” production system takes shape. In a pull system, each step makes only what the next step has actually used, at the moment it’s needed. Production follows real demand rather than a forecast. For e.g., in a supermarket, a shopper takes two cartons of milk from the shelf. The gap on the shelf tells staff to bring exactly two cartons from the back room. The back room then orders two more from the dairy. Nobody restocks what hasn’t been bought, so the shelf never overflows and never sits empty for long.
    • Ford’s Cleveland plant (1951) gave rise to the word “automation”.
    • The Citroën DS (1955) had hydropneumatic suspension and front disc brakes. Mercedes says it introduced the crumple-zone safety body (1959).
  • Market: US registered cars rose from 40.3m to 61.7m over 1950–60. Volkswagen went from 90,038 to 705,243 vehicles, 40.5% of Germany’s car market.
  • Business and operating model:
    • In 1955 six models made up 80% of US sales.
    • Volkswagen began importing to the US in 1956, after dropping a US plant over labour costs.
    • Toyota split its production and sales companies in 1950 and built monthly instalment selling.
    • Carmakers’ finance arms spread. Volkswagen’s (1949) financed 13% of its German sales in 1950–52 (company figure). Ford Credit followed in 1959.
  • Rules and the state: the 1956 US Highway Act put $25bn toward 41,000 miles of motorway. The 1956 Dealer’s Day in Court Act gave US dealers federal protection. Italy kept foreign makers out with import barriers until the EEC began, then set quotas at 3% of its own production (1959).
  • Companies: the Big Three’s share of US-built cars rose to 95.6% in 1955. BMC (Austin plus Morris, 1952) held about 40% of the UK market and launched the Mini (1959). Toyota held 38.9% of Japanese sales, and Daimler-Benz’s bid for BMW was rejected (1959).

1960s

woman carrying child standing between two vintage cars
Photo by Seb [ P34K ] Hamel / Unsplash
  • Technology:
    • Toyota’s kanban system went company-wide (1963) and to suppliers (1965).
    • Mazda’s rotary engine and Bosch’s electronic fuel injection came in 1967, &
    • Peugeot’s first front-wheel-drive car was first introduced in 1965.
  • Market: Toyota’s history says Japan passed West Germany to become the No. 2 car producer by 1967. A 1,000cc car cost 1.4 times income per head around 1965, which sparked a boom in private cars. US factory sales were 9.3m in 1965.
  • Business and operating model: Ford of Europe was formed from Ford of Britain, Ford Germany and Ford Ireland (no year given). Hyundai began building Ford’s Cortina at Ulsan (1968). Volkswagen’s finance arm signed 24,668 car loans in 1961 (company figure).
  • Rules and the state:
    • US emissions rules: California (1962), the federal Clean Air Act (1963) and national standards (1968).
    • US safety acts (1966) and the 25% “chicken tax” on imported light trucks (1964).
    • The 1965 US–Canada auto pact.
    • Japan’s trade ministry proposed a bill to consolidate makers and limit newcomers (1961).
  • Companies: Honda made its first car in 1963 and Hyundai was formed in 1967. Volkswagen bought Auto Union (1965), PSA was formed (1965), Nissan merged with Prince (1966), British Leyland was created (1968) and Fiat took over Lancia.

1970s

a group of people standing on the side of a road next to parked cars
Photo by Documerica / Unsplash
  • Technology:
    • Catalytic converters and unleaded petrol was introduced (1975),
    • Bosch’s lambda sensor was introduced (1976) and ABS (1978).
    • Mercedes says its S-Class was the first series car with ABS.
    • Honda says its CVCC engine met US rules without a catalyst, &
    • VW moved to front-wheel drive (Passat 1973, Golf 1974).
  • Market:
    • Oil rose from $2.59 to $11.65 a barrel (1973–74).
    • US car makers were shaken from three sides :
      • Oil shocks made big cars expensive to run,
      • New federal rules forced changes to the car itself, &
      • Japanese imports took a fifth of the market. Detroit came out of the decade weaker, with Chrysler close to collapse
    • Japan’s output rose from 5.29m to 11.04m, and its exports from 1.09m to 5.97m.
    • Volkswagen’s sales fell about 15% in 1974.
  • Business and operating model: Honda licensed its CVCC engine to Toyota (1972). Renault sold the Renault 5 in the US through its partnership with AMC (American Motors, 1975). Germany turned from a seller’s into a buyer’s market, and makers turned their focus to customers.
  • Rules and the state:
    • The Clean Air Act (1970) required a 90% cut in emissions.
    • The US fuel-economy (CAFE) rules required 27.5 mpg for cars by 1985, with a looser category for light trucks; new-vehicle fuel economy rose from 13.1 to 19.2 mpg.
    • France capped Japanese cars at 3% of its market (1977).
    • Chrysler asked for federal loan guarantees (1979), and Britain nationalised British Leyland, the makers of Austin, Morris, Rover, Jaguar and Triumph (1974).
  • Companies: in US car sales, Japanese makers rose from 3% to 20% and Detroit fell from 86% to 74%. Chrysler lost $1.1bn in 1979. Peugeot and Citroën merged into PSA; PSA bought Chrysler Europe (1978), whose cars became Talbots. Hyundai launched the Pony (1976).

1980s

a white mercedes benz benz benz benz benz benz benz benz benz benz benz benz benz
Photo by Dennis Zhang / Unsplash
  • Technology: three-way catalytic converters became standard (1981), and robot lines spread (Toyota 1980; Golf II, 1983). Minivans arrived in the US (1983), and Mercedes says it introduced the driver airbag (1981).
  • Market: Toyota says Japan passed the US as the largest vehicle producer in 1980. US output averaged under 8m a year in 1980–82.
  • Business and operating model:
    • Japanese plants in the US: Honda’s Ohio plant opened in 1982, and US-built Japanese cars were about 10% of US sales by 1990.
    • Joint ventures: NUMMI, Toyota with GM (1984), and Shanghai-VW, 50% owned by VW (1985).
    • India: Suzuki and the state-owned Maruti agreed to build cars together (1982), and production began in 1983.
  • Rules and the state: Japan capped its US car exports at 1.68m (1981), rising to 2.3m. The Chrysler loan guarantee act (1980) allowed up to $1.5bn, of which Chrysler used $1.2bn.
  • Companies: in US car sales, Japanese makers reached 30% and Detroit 67%. Hyundai’s Excel arrived in the US (1986). Volkswagen bought 51% of SEAT and says it became No. 4 worldwide. Fiat bought Alfa Romeo (1986), and Chrysler bought AMC (1987).

Sources & Citations

Research papers and official records

Carmakers’ and suppliers’ own histories

Other