(EXPANDED ON 8/19/2022)
In the late-1950s George Romney made headlines by arguing that the U.S. auto industry had become an oligopolistic dinosaur. Competition had become so weak — the “Big Three” controlled more than 95 percent of the market by mid-decade — that the industry was in danger of being whipsawed in the years ahead by competition from nations with more robust competition.
Romney, the CEO of small but feisty American Motors, proposed at congressional antitrust hearings that the industry’s two largest firms, General Motors and the Ford Motor Company, should be broken up. Here is his rationale:
“Where competition is shrinking below adequate minimum levels, even the most efficient company will ultimately lose its competitive drive. Like boxing champions who lack suitable opponents, companies will become soft and flabby. Furthermore, artificial and undesirable restraints on competition develop more easily and even unintentionally.” (Mahoney, 1958)
Romney’s words proved to be remarkably prophetic. The U.S. auto industry had become a classic example of the negative repercussions of an oligopoly. By the 1970s, even a traditionally compliant car enthusiast press openly ridiculed the mediocre quality of Big Three products — mostly to no avail (Yates, 1983).
Imports push U.S. automakers up against the wall
By the 1980s, an alarming percentage of car buyers swore they would never get another American car. Imported car sales, led by the Japanese, surged to a third of the market before a frantic U.S. government stepped in and erected trade barriers (Halberstam, 1986). And in the span of a decade, each of the once-invincible Big Three barely avoided a financial meltdown.
Former Wall Street Journal editor Vermont Royster described the dramatic fall of the Big Three as a metaphor for the economic malaise plaguing the United States:
“Historically our economic growth was built on imaginative innovation not only in products but in production methods. By the end of World War II our major industries — autos, for example . . . — were preeminent; the world begged for their products. Complacency was the result. . . . The auto industry remained unruffled by the innovative imports from Volkswagen or Toyota until they became a flood. It simply sat by and let a good part of the market, at home and in the world, be taken away from it.” (Cray, 1980; p. 525)
A big part of the problem was what Car and Driver columnist Brock Yates called “Detroit Mind.” This is a pattern of behavior among Big Three’s management that “placed a premium on cultural conformity, which helps explain the auto industry’s inability to maintain parity with the Germans and the Japanese even in the apparently simple area of design” (Yates, 1983; p. 88).
Romney argued for new approach to antitrust law
The traditional way the U.S. has dealt with oligopolies and monopolies was through antitrust regulations. This largely consisted of filing suit in court that alleged violations of antitrust law. Romney suggested a new approach whereby large corporations would be required to divide themselves once they captured 25-to-35-percent of a market (Mahoney, 1958).
Romney argued that this would unleash Detroit’s creativity to a level commensurate with what was happening in other nations — including in GM and Ford’s own foreign operations. “The smaller companies historically have been the principal innovators,” he stated. In addition, stockholders of a broken up GM and Ford would benefit financially in much the same way that they did when the Standard Oil Company was split up.
Romney’s proposal never went anywhere and court action against GM only nibbled around the margins of its vast empire. Even during the Johnson administration a draft complaint that accused GM of violating antitrust laws was never filed because of political considerations (Sherefkin, 2008).
Fast-forward 40 years, when GM collapsed. Automotive News reporter Robert Sherefkin (2008) wryly noted, “You might say that the government didn’t have to dilute GM’s power. GM did it all by itself.”
Yes, GM did. Along the way, the automaker’s leadership has being dutifully honored in the Automotive Hall of Fame.
Imagine: Two giant companies are split into five
One could conclude that the collapse of the U.S. auto industry represents the magic of the marketplace — and have another beer. Or one might take a moment to imagine what would have happened if Romney’s proposal had been signed into law. Would greater domestic competition have done a better job of holding back the imports?
Let’s flesh out this scenario: Romney’s proposal is approved in 1960 and it takes a good seven years to be implemented. As of September 1967, GM is officially broken up into three separate companies and Ford into two.
Also see ‘Late-1960s Ford car design film shows US automakers losing it’
This could have been done in any number of configurations, but to kick off the discussion let’s assume that these are the new companies:
- Chevrolet Motors Corp. — Chevrolet cars and trucks
- Pontiac Motors — Pontiac, Oldsmobile, Opel, Vauxhall and GM South America
- General Motors Company — Buick, Cadillac, GMC and Holden
- The Ford Company — Ford cars and trucks
- Lincoln-Mercury Corp. — Mercury, Lincoln, Ford of Australia, Europe and South America
A transition period would obviously be needed whereby the newly independent companies were still partially enmeshed. For example, any nameplates that shared platforms and major components would have continued to do so at least in the short run. However, being separate companies would not have precluded them from longer-term partnerships when those were mutually beneficial.
Prime goal: to increase diversity of approaches
The whole point of breaking up GM and Ford into five separate automakers was not so each would use its own unique platforms, engines, other components and factories. Rather, the goal was to create greater diversity in corporate approaches.
For example, Pontiac Motors might have chosen to apply the Toronado’s front-wheel drive to its entire line of family cars whereas the General Motors Company may have decided to stick with rear-wheel drive.
In the short run, dismembering GM and Ford might have been heavily colored by redundancy and confusion — perhaps to the point where some may have wondered whether it was worthwhile.
Projecting into the long run is fraught with peril, but I think one can safely say that having five moderate-sized companies rather than two large ones would have resulted in at least somewhat more diverse market strategies and technologies.
Also see ‘1954 Chevrolet was beginning of the end for GM’s brand hierarchy’
A big reason why is that there would have been more opportunities for innovative thinkers to experiment. A John Z. DeLorean would have been much more likely to implement his dream of downsizing big cars in the early-70s if Pontiac had not been hamstrung by GM management (go here for further discussion).
Automakers might have relied more on foreign arms
Another factor that could have significantly shifted corporate strategies was that smaller automakers would have needed to do more to maximize their economies of scale than GM and Ford did.
For example, GM and Ford thought nothing of developing subcompacts in the early-70s that shared little with their foreign operations. A post-breakup automaker may not have had the resources to do so. Thus, the two new automakers with operations in Europe — Lincoln-Mercury and Pontiac — would presumably have looked to them for subcompact cars. Ironically, the resulting cars would likely have been much more competitive with the imports than the home-grown Chevrolet Vega and Ford Pinto.
Also see ‘Was Ford right to kill the front-wheel-drive 1963 Cardinal/Redwing?’
By the same token, GM and Ford’s high-end European offerings would have been more likely to have been used in the United States. Yates (1983) argued that these cars were much more competitive with premium-priced imports when it came to styling, handling and braking.
Lack of full-line automakers would have been a plus
An additional advantage of splitting up GM and Ford is that it could have dramatically changed the industry conversation about what constituted “success.” The Big Three’s ideal was a full-line automaker structured similarly to GM, with a hierarchy of brands that fit each price category.
For years Chrysler labored mightily — and ultimately vainly — to match GM model for model. So did Ford. To this day, more than a few armchair auto historians pine for American Motors to have merged with Studebaker-Packard in order that they could have become a fourth full-line competitor modeled in GM’s image (go here for further discussion about “GM envy”).
Also see ‘1965-68 GM big cars: The end of different strokes’
In a post-oligopolistic auto industry, no domestic automaker would have been large enough to offer a full line of cars and trucks. Neither would any one company have possessed the sheer breadth of international holdings that GM and Ford did.
This would have forced the management at each automaker to develop more niche-based market strategies, perhaps akin to what BMW and Mercedes-Benz have done. That, in turn, could have resulted in at least somewhat more emphasis on practical innovations rather than brand management centered around superficial sheetmetal differences.
I don’t mean to suggest that a breakup would have magically remade Detroit’s structure and culture. Some automakers would have taken advantage of new-found opportunities to innovate. Others would invariably have plodded along much as before.
Also see ‘It’s a big deal that Ford and GM knew about climate change in 1960s’
A self-selection process among staff would likely have occurred. For example, if renegades such as DeLorean went with Pontiac Motors, traditionalists like William Mitchell might have gone with the General Motors Company. The Pontiac and Oldsmobile brands might have embraced an international vibe whereas Buick and Cadillac might have continued to offer old-fashioned Detroit iron.
Romney’s idea could have saved Detroit from itself
In time, some automakers would have inevitably fallen by the wayside, perhaps partly due to the persistence of Detroit Mind. In 2017 — a half century after the dismemberment of GM and Ford — all five automakers might not have survived.
Also see ‘Bigger didn’t prove to be better for General Motors in late-70s and 80s’
But even in that case, splitting up GM and Ford would still have been worth it. Greater competition among American automakers — particularly in the 1970s and 1980s — could have meaningfully reduced import inroads into the U.S. market. The surviving domestic automakers would have been more efficient and adaptive than GM and Ford.
Romney’s new twist on antitrust law was met with such hostility by the rest of the auto industry that he became a “pariah” (Foster, 2016; p. 173). Yet his idea could have played a crucial role in saving the American auto industry from itself. File that under: “No good deed goes unpunished.”
NOTES:
This story was first posted Aug. 1, 2019, updated on March 26, 2021 and slightly expanded on Aug. 19, 2022. Market share figures are from Wards Auto (2017). Note that these figures look somewhat different from those typically used at Indie Auto because they are for sales of cars and trucks of all types.
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RE:SOURCES
- Cray, Ed; 1980. Chrome Colossus: General Motors and its Times. McGraw-Hill Book Co., New York, NY.
- Foster, Patrick; 2017. George Romney: An American Life. Waldorf Publishing, Grapevine, TX.
- Halberstam, David; 1986. The Reckoning. William Morrow & Co., New York, NY.
- Mahoney, Tom; 1958. The Story of George Romney: Builder, Salesman, Crusader. Harper & Brothers, New York, NY.
- Sherefkin; Robert; 2009. “Stunning postwar growth brought antitrust scrutiny in the 1950s.” Automotive News (subscription required). Posted Sept. 14.
- Wards Auto; 2017. “U.S. Total Vehicle Sales Market Share by Company.”
- Wikipedia; 2019. “Automotive Hall of Fame.” Page last modified, June 30.
- Wright, J. Patrick; 1979. On A Clear Day You Can See General Motors. Wright Enterprises, Grosse Pointe, MI.
- Yates, Brock; 1983. The Decline and Fall of the American Automobile Industry. Empire Books, New York, NY.
ADVERTISING & BROCHURES:
- wildaboutcarsonline.com (Automotive History Preservation Society): Chevrolet (1974)
- oldcaradvertising.com: Chevrolet Vega (1971); Ford Motor Company (1972); General Motors (1967)
- oldcarbrochures.org: Ford Cortina (1971); Ford Pinto (1971); Holden Commodore (1978); Oldsmobile Toronado (1970); Pontiac Firebird (1967); Pontiac Grand Prix (1969)
Interesting to note then Hemmings blog posted in July 2020, an article about what if the Feds had break out GM? https://www.hemmings.com/stories/2020/06/04/open-diff-what-if-the-feds-had-succeeded-in-breaking-up-general-motors One poster on Hemmings wondered if it could have followed the same path as AT&T?
Good point! I’m glad that Hemmings brought up the idea because it doesn’t tend to get much play in the auto history media.
One issue with simply breaking up GM (or even GM and Ford) is that all of these companies would still be located in and around Detroit, and would still watch each other carefully. That doesn’t solve “Grosse Pointe Myopia.”
In my perfect universe, the solution would have been to order GM headquarters to relocate to New York City (or even Philadelphia, if the concern is high cost of doing business in New York City), and Chrysler headquarters to Los Angeles. Get two of the Big Three OUT of Detroit, and instead located in places where imports were gaining headway with everybody, not just Sports Car Club of America (SCCA) members.
Yup. One of the best parts of Brock Yates’ book, The Decline and Fall of the American Auto Industry, describes how midwestern auto execs didn’t get what was happening out on the coasts. It clearly wasn’t enough to move a design studio to Los Angeles. DeLorean was a partial exception to the rule, but as previously discussed, he also did not manage to transcend some basic elements of how Detroit did business.
It’s interesting to consider how Tesla’s approach has been colored by the automaker’s west coast origins. That’s why the idea of moving Tesla’s headquarters to Texas sounded problematic to me.
I disagree with Steve about John Z. DeLorean not “getting” with how Detroit did business. DeLorean worked for Packard, then the Pontiac Division, Chevrolet, then was the corporate head (taking Semon E. Knudsen’s place) of G.M.’s cars and trucks before he left. Perhaps DeLorean did not understand the finance side of G.M., but if he didn’t, the I would think that J.Z.D. only had himself to blame. If DeLorean had understood finance, then he might not have turned to allegedly selling cocaine in the 1980s. J.Z.D. was a brilliant engineer and understood marketing, but it appears that he never understood the money side. By the way, after Alfred P. Sloan retired, Frederick G. Donner made sure that no “car guy” would run General Motors, and was quoted in Ed Cray’s “The Chrome Colossus” as saying so out loud !
James, I didn’t say that DeLorean didn’t “get” how Detroit did business. I said that he was unable to transcend the way that Detroit did business in key respects:
In a post-oligopolistic auto industry, no domestic automaker would have been large enough to offer a full line of cars and trucks. However, that didn’t stop Chrysler and even GMC from trying. The only positive would “hopefully” bring on an earlier world car mindset rather than the half hearted captive imports of the 60s and 70s.
I meant AMC, not GMC. Sorry.
It’s too bad that your research didn’t include my article in a 1970 issue of Motor Trend. I spelled out in detail how GM could be subdivided into two companies, including a forensic allocation of the manufacturing entities that this would involve.
Karl, I recall your article. Perhaps I missed it, but I didn’t see that story posted on the Internet (please share a link if you have one). For example, the Automotive History Preservation Society does not currently have any Motor Trend issues posted from 1970.
I don’t have access to a comprehensive library of printed car magazines and books, so I work with the art of the possible.
This is a good moment to note that, unlike most automotive media, Indie Auto does not accept advertising — it is purely reader supported. So those who would like Indie Auto to expand its research capacity are invited to make a contribution.
And since we’re talking, what is your current perspective on the idea of breaking up both GM and Ford in the late-60s? What impact do you think that could have had on the U.S. auto industry’s ability to compete more effectively with the imports?
Steve: I am preparing to move into assisted-living in a couple of months. I would be willing to donate my collection of automotive magazines with some dating back to the late 1950s to “Indy Auto” upon my death, if you are willing to accept donations. – James E. (Jed) Duvall, Indianapolis, IN 46227, (317) 332-6502.
That’s a wonderful offer, James. I’d be happy to discuss this further with you.
This is intriguing. This takes place around the time that GM dropped its merchant banker approach regarding its various divisions and moved to more platform drivetrain and sheet metal sharing. I always felt it was due to increasing bean counter influence. Could it be more to make it harder to break up?
Looking at things from a limited non-US perspective, an attempted breakup of GM and Ford would be a big Gordian knot to untangle regardless of the configurations formed in the aftermath that a more managed slimming down and culling of overlapping marques (in GM’s case) would be preferable.
Can understand the idea of creating greater diversity in corporate approaches outside of the prevalent groupthink at the time and encouraging the post-breakup marques to lean on their international operations for competitive products, or further develop what they already have domestically that was largely neglected. From that perspective can easily see the appeal depending on how the successor companies are formed.
However in GM’s case they would have probably benefited just as well from an earlier implemented VOH interchangeability programme / TASC (first common platforms followed overtime by common engines) and a longer term plan to gradually cull their marque portfolio down to about two (when brand loyalty becomes less of an issue), say just Chevrolet and Cadillac for example.
Ford could have easily applied a similar approach as GM with regards to a similar interchangeability programme and be composed of just Ford and Lincoln had they been willing to can Mercury earlier.
The American auto industry started with a few companies, grew to hundreds and perhaps thousands, then shrank and consolidated. By the late 1940s the remaining independents had every opportunity to innovate, and many did but none were able to create a total package that captivated the hearts of the masses and gained significant market share. The Big 3 also innovated, and intensely competed even within its own walls. It also greatly expanded its product offerings from 1958-70.
So we get to George Romney, unquestionably one of the industry’s great leaders. And yet, his rationale for a break-up of his primary competitors was not proven out by his 1963 and 1964 line-up of rather ordinary cars, nor by any deeply held corporate ethos that he left behind to help guide the company for years and decades to come.
So one must ask: if not even the architect of the Big 2’s break-up could demonstrate the value of small, innovative and agile, why would historians choose to embrace it as a worthy counterfactual?
Another data point? How about John DeLorean, who had his big chance to offer the world a new type of car that responded to the imperatives of the day. What did he deliver? A gimmicky, low-slung, impractical sports car.
I think it is important to first acknowledge all the incredible things that the U.S. auto industry has accomplished, then identify what failed and why. Maybe it wasn’t size after all. Maybe it was and continues to be something else.
I write about some topics even though I know they are unpopular. I don’t do so to annoy readers but rather to be truthful to the historical record.
Anti-trust policy is a topic that gets very little attention in U.S. automotive history. And when it does, that tends to be from writers like Donald Critchlow, a historian who happened to write one book about a car company.
If we wish to thoughtfully debate industry concentration, it seems to me that it could be broken into three components: 1) was the U.S. auto industry an oligopoly in the post-war period, 2) what impact did it have on U.S. automakers’ ability to successfully compete against foreign automakers, and 3) what regulatory response could have best rectified the problems?
The industry was clearly an oligopoly. During the first half of the 1960s, GM and Ford alone maintained a total market share of around 75 percent. As discussed here, an oligopoly is the term for an industry where a few producers control the majority of its market share. Investopedia summed up why oligopolies can be so problematic:
Are you going to argue that GM and Ford’s dominance did not result in any of the negatives listed above? And that the industry’s concentration had no impact on its ability to compete with the imports?
Whether Romney’s specific proposal was the best approach strikes me as a different question. I have given the proposal visibility because it 1) came from an industry insider and 2) offers a much richer counterfactual than the more widely discussed idea of dividing GM into two firms.
I think it is worth discussing the splitting up of Ford because its management was arguably just as dysfunctional as GM’s, e.g., its neglect of smaller cars in the late-60s (go here for further discussion).
I think the burden of proof is on those who claim that the combined 75% market share of GM and Ford did, in fact, result in one or more of the negatives listed. Has a court ever done so? Has anyone through the years ever produced any concrete evidence? The comment about oligopoly that you provided speaks of a “concern” rather than a guarantee that one or more of the negative outcomes will occur.
Things in the auto industry, like in so many other areas, are not always what they appear to be. Its a tough business and sustained, healthy margins are hard to come by. At war’s end there was one dominant American company, GM. It was not an oligopoly so much as a monopoly. Even Ford was struggling.
But in 1945 it was a fair race, everyone having enough money to design, tool and launch one new design, to show the market their best stuff. It was time to put up or shut up, and GM had to produce too because one can see, looking back, that had they botched 1948 and 1950, and had one or more of the others hit homeruns, the market split would have ended up quite different. Ford did connect, and improved its position despite GM’s successes.
Excluding GM, the competitive atmosphere during the years 1945-48 was not unlike the state of affairs that proponents of the later breaking up of GM and Ford desired. And look what happened by 1952. A mixed bag of good, bad and ugly, right? Advocates of breaking up GM and Ford fail to mention that with smallness comes both a narrower breath of knowledge and experience and a greater inclination to pursue flawed experiments. The euphoria of freedom sometimes leads to a nasty hangover.
Okay, you’ve made your position really clear. I don’t see it as my role to talk you out of it. I am putting forth a perspective. As time goes on I will add additional layers of information and analysis to that perspective. And, of course, you can take it or leave it.
Perhaps I would be persuaded if you explained how the leaders of these broken up companies would have been chosen. Say, the top dozen in each, because it is they who would ultimately determine success or failure.
Put the salaried and hourly employees from all the American OEMs into one big resource team, because they were just numbers anyway, paid and trained to carry out orders. Perhaps we’d of gotten something brilliant from say, one in ten of these leadership teams. Make that one in 100, err 1000.
Don’t you see the fundamental problem? It’s the feeder mechanisms prior to and within these companies that deliver execs to their final positions of authority.
Steve, a reply on a couple of themes.
As for the above, it’s been an axiom of mine that there are never enough qualified people to head up the auto companies that we have.
On the consequences of a breakup, I’m sure it would have strengthened the American industry as a result of the intensified competition that would have been created.
Karl, you have a real point there. In the independents, for every George Romney you had a string of people who while they were dealt bad hands, played them badly.
Kim, I think that the trajectory of the independents offers a useful data point. However, I would put forth three caveats:
1) The managerial weaknesses of most of the independents would not have been so damaging if the cards weren’t so heavily stacked against them, particularly in 1953-54. In contrast, the Ford Motor Company made hugely expensive mistakes in the second half of the 1950s but managed to survive mainly because of its size.
2) Romney’s proposal would have effectively created a handful of companies roughly the size of Chrysler. They would have enjoyed significantly better economies of scale than even AMC at its peak. They would thus have had a much greater margin for error. In addition, they would also have inherited a goodly chunk of the infrastructure and skills from their donor company. I think it safe to argue that the Big Three mostly had “better bones” than any of the independents, e.g., more modern factories, more sophisticated administrative processes, and a much larger pool of skilled workers such as engineers and designers.
3) The split-off companies with foreign holdings would have been more likely to “internationalize” their management ranks than GM and Ford did during the 1960s and 1970s, which could have greatly helped them better compete against the imports. None of the independents had enough of a foreign footprint to benefit from this type of move (at least until AMC aligned with Renault).
The basic argument that there already wasn’t enough talent to go around makes sense . . . to a point. Brock Yates noted that some pretty talented people felt constrained enough by Detroit’s complacency that they moved over to the imports in the 1960s and 1970s — and went a long way toward building their organizational strength in the United States (go here for further discussion). If GM and Ford had been broken up, there would likely have been more appealing career opportunities among the domestics. So not only might Detroit’s wares have been more internationally competitive, but the imports might have had a harder time recruiting the talent they needed to get a foothold.