Automobile Industry Revolution: From Horseless Carriage to Mass Mobility

The automobile industry was one of the most important industries of the Second Industrial Revolution. The development of the internal combustion engine and the mass-produced automobile reshaped transportation, society, and the environment, and it created one of the largest industries in the world.

The Internal Combustion Engine

The automobile was made possible by the development of the internal combustion engine, a heat engine in which the combustion of a fuel occurs inside a working fluid. The internal combustion engine was more compact and more efficient than the steam engine, and it was particularly well suited to transportation.

The first internal combustion engines were developed in the late eighteenth and early nineteenth centuries, but the practical automobile engine was developed in the 1860s and 1870s. The four-stroke engine, based on the Otto cycle developed by Nicolaus Otto in 1876, became the standard for automobile engines, and it remains the basis of most automobile engines today.

The First Automobiles

The first practical automobiles were built in the 1880s by a number of inventors in Germany, France, and the United States. Karl Benz of Germany is generally credited with building the first true automobile, a three-wheeled vehicle powered by an internal combustion engine, in 1885. Gottlieb Daimler, also of Germany, built a four-wheeled automobile in 1886. In France, the Panhard et Levassor company became one of the first major automobile manufacturers.

The early automobiles were expensive, hand-built machines, affordable only to the rich. They were also unreliable, and they required constant maintenance. The development of the automobile as a mass-market product required both technical improvements and the development of mass-production techniques.

The American Automobile Industry

The American automobile industry developed rapidly in the early twentieth century, and by 1910 the United States was the world’s largest automobile producer. The most important figure in the development of the American automobile industry was Henry Ford, who founded the Ford Motor Company in 1903. The article on Henry Ford and mass production describes his work in more detail.

Ford is best known for the Model T, introduced in 1908, and for the development of the moving assembly line, which made possible the mass production of automobiles. The article on the Model T Ford describes this important car in more detail.

The Effects of the Automobile

The automobile had a transformative effect on the modern world. It changed the way people lived, worked, and traveled, and it created entirely new patterns of urban and suburban life. The growth of the automobile industry was also a major stimulus to other industries, including the oil, rubber, glass, and steel industries.

The Automobile and the Environment

The automobile has been one of the major drivers of environmental change in the twentieth and twenty-first centuries. The burning of gasoline in automobile engines has produced large quantities of carbon dioxide and other pollutants, contributing to climate change and urban air pollution. The environmental effects of the automobile have become one of the major political issues of our time.

The Moving Assembly Line at Highland Park

The most consequential single event in the history of the automobile industry was the introduction of the moving assembly line by Henry Ford at the Highland Park Plant in 1913. The Highland Park Plant, opened in 1910, was at the time the largest industrial building in the world, and it was here that Ford’s engineers, particularly William C. Klann and Charles E. Sorensen, developed the moving line. The first moving line, used for the assembly of the Model T’s flywheel magneto on April 1, 1913, reduced the time required for the operation from 18 minutes to 5 minutes; the line for the complete chassis, introduced on October 7, 1913, reduced the assembly time from 12.5 hours to 93 minutes. By 1914 the chassis time was 93 minutes; by 1920, 56 minutes; and by 1928, 24 minutes. The price of the Model T fell from $850 in 1908 (about $27,000 in 2023 dollars) to $360 in 1916 and $260 by 1925, when more than 1.9 million Model T’s were sold. The mass-production techniques developed at Highland Park — moving assembly lines, standardized parts, vertical integration of components — became the model for the twentieth-century industrial economy, and Ford’s $5 daily wage, announced January 5, 1914, was a defining moment in the history of American labor relations.

The Early European Industry: Panhard, Peugeot, Benz, and Daimler

The European automobile industry developed in parallel with the American, and it had its own distinct character. The French firms Panhard et Levassor and Peugeot were the pioneers of the late 1880s and early 1890s, with Armand Peugeot producing the first series-produced automobile in 1889. The German industry, founded by Karl Benz and Gottlieb Daimler, with the Benz Patent-Motorwagen of 1886 and the Daimler Stahlradwagen of 1889, was the most technically innovative, and the German system of large, vertically integrated firms — including Daimler-Benz (founded 1926), BMW (1916), and Volkswagen (1937) — established the European model of industrial organization. The European industry, with its emphasis on engineering quality and its focus on the upper end of the market, never adopted the American system of mass production, and it was the deliberate subject of Alfred P. Sloan’s strategic studies at General Motors in the 1920s. The contrast between the American and European models is the subject of Michel Albert’s Capitalisme contre capitalisme (1991) and of Charles F. Sabel and Jonathan Zeitlin’s World of Possibilities (1997).

The Sloan Revolution at General Motors

The most important competitor to the Ford system was the alternative developed by Alfred P. Sloan at General Motors in the 1920s. Sloan, who became president of GM in 1923 and chairman in 1937, organized the company into a series of divisions — Chevrolet, Pontiac, Oldsmobile, Buick, Cadillac — each targeting a particular segment of the market, with shared components and a coordinated pricing and marketing strategy. The Sloan model, which was based on the principle of “a car for every purse and purpose,” was the basis for the success of GM in the 1930s, when it overtook Ford as the largest automobile manufacturer in the world. The Sloan model was a key element in the development of modern corporate management, and Alfred D. Chandler Jr.’s Strategy and Structure (1962) used the GM example to develop the famous “structure follows strategy” thesis. The model was, in turn, a key influence on the development of management theory at the Harvard Business School and the University of Chicago, and it shaped the structure of the modern corporation more broadly.

The Automobile and the Suburbanization of America

The automobile transformed the spatial structure of American society. The combination of cheap gasoline, the Federal-Aid Highway Act of 1956, and the GI Bill mortgage program of 1944 produced a wave of suburbanization that moved 50 million Americans out of central cities between 1950 and 1970. The 1956 Highway Act, sponsored by Albert Gore Sr. and signed by President Eisenhower on June 29, 1956, authorized the construction of 41,000 miles of interstate highway over the following 20 years, and the resulting highway system was the largest public works project in American history. The automobile industry’s contribution to the suburbanization of America is the subject of John B. Rae’s The Road and the Car in American Life (1971) and of Kenneth T. Jackson’s Crabgrass Frontier (1985), which documents the demographic and economic changes produced by the combination of the automobile, the highway, and the suburban house. The environmental costs of the automobile — air pollution, climate change, the destruction of the inner cities — are the subject of a vast literature, including John R. Stilgoe’s Borderland (1988) and James Howard Kunstler’s The Geography of Nowhere (1993).

The Automobile Industry in the World Economy

The automobile industry was, by 1950, the largest industry in the world, and it remained so until the 1970s. The industry employed, directly and indirectly, perhaps 50 million people in the post-war world, and the major automobile firms — GM, Ford, Chrysler, Toyota, Volkswagen, Renault, Fiat, Peugeot, Honda, Nissan, and Hyundai — were among the largest and most influential corporations in the world. The industry’s globalization began in the 1960s, when European and Japanese firms began exporting to the United States, and it accelerated in the 1980s and 1990s, when European, Japanese, and American firms began building assembly plants in developing countries. The development of the Toyota Production System (TPS) by Taiichi Ohno in the 1950s and 1960s, with its emphasis on just-in-time inventory control, kaizen continuous improvement, and jikoda automation, became the new model of industrial organization, and it gradually displaced the Fordist mass production system in many industries. The contemporary transition to electric vehicles, led by Tesla and the Chinese firms BYD, Nio, and Geely, represents another transformation of the industry, with consequences for the petroleum industry, the electrical grid, and the global supply chain of rare earth minerals that are still being worked out in the 2020s.

The 1970s Oil Shock and the Decline of the American Industry

The American automobile industry, which had dominated the world market in the 1950s and 1960s, was challenged in the 1970s by the 1973 oil shock and the resulting demand for fuel-efficient cars. The Japanese firms, particularly Toyota, Honda, and Nissan, responded with small, fuel-efficient models — the Toyota Corolla, introduced in 1966, and the Honda Civic, introduced in 1972 — that were well suited to the new market. The American firms, particularly GM, Ford, and Chrysler, were slow to adapt, and their market share fell from 85 percent in 1965 to 60 percent in 1980. The 1979 Iranian Revolution and the second oil shock, with crude oil prices rising to $35 per barrel in 1980, accelerated the decline, and Chrysler, the smallest of the Big Three, was saved from bankruptcy only by a $1.5 billion federal loan guarantee in 1979. The American industry’s response — the development of small cars, the adoption of just-in-time manufacturing, the outsourcing of components — was based on the Japanese model. The history of the American industry’s decline and the Japanese challenge is the subject of David Halberstam’s The Reckoning (1986) and of Maryann Keller’s Rude Awakening (1989).

The Electric Vehicle Question and the Future of the Industry

The 21st century has seen the beginning of the transition from the internal combustion engine to the electric vehicle, and the transition is, in many ways, the most important transformation of the automobile industry since Henry Ford’s assembly line. The Tesla Model S, introduced in 2012, was the first electric vehicle to compete with the internal combustion engine on a mass-market basis, and the company’s success was followed by the entry of the major American, European, and Japanese manufacturers into the electric vehicle market. The Volkswagen ID.3 (2020), the Nissan Ariya (2022), the Ford Mustang Mach-E (2021), and the General Motors Ultium-based models are the major products of the transition. The Chinese firms — BYD, Nio, Xpeng, Geely, and Great Wall Motors — are also important competitors, and the Chinese share of the world electric vehicle market was about 60 percent in 2022. The transition to the electric vehicle has implications for the petroleum industry, the electrical grid, the supply chain of rare earth minerals (lithium, cobalt, nickel), and the urban environment, and it is the most important new chapter in the history of the automobile industry since the assembly line. The current state of the transition is the subject of Edward Niedermeyer’s Ludicrous (2019) and of Steve LeVine’s The Powerhouse (2015).

Key Dates in the Automobile Industry

A short chronology of the principal dates in the history of the automobile industry:

1769 — Nicolas-Joseph Cugnot’s steam-powered vehicle
1860s-1870s — Étienne Lenoir, Nikolaus Otto develop the gas engine
1876 — Otto develops the four-stroke engine
1885 — Karl Benz builds the first true automobile
1886 — Gottlieb Daimler builds the four-wheeled automobile
1893 — Duryea brothers build the first American automobile
1903 — Ford Motor Company founded
1908 — Ford Model T introduced
1913 — Ford’s moving assembly line at Highland Park
1914 — Ford announces $5 daily wage
1920 — 8 million automobiles registered in the U.S.
1923 — Alfred Sloan becomes president of GM
1956 — Federal-Aid Highway Act
1973 — Oil shock
1984 — Toyota produces 3.3 million cars
2012 — Tesla Model S introduced
2020s — Electric vehicle transition accelerates

In this section

Henry Ford and the Assembly Line The life and work of Henry Ford, the American industrialist who developed the Model T and pioneered the moving assembly line that made the mass-produced automobile possible. The Model T Ford The story of the Model T Ford, the car that Henry Ford designed to be affordable for ordinary Americans and that he produced using the moving assembly line.