Student's last name 1

Automobile Industry during 1980s

Student name:

Instructor name:
Course:
Date: 12 March 2013

Student's last name 2

Contents
History of automobile industry in United States..........................................................3
Evolution of automobile sector during 1980s ..............................................................4
Factors affecting the price hike of automobiles during 1980s .....................................5
Effect of 1980s auto industry transition on employment .............................................6
Impact of globalisation on automobile industry during 1980s......................................8
Conclusion....................................................................................................................10
Works Cited...................................................................................................................11

List of Figures
Figure 1: US market share 1999-2006, Big three vs. Foreign competition....................5
Figure 2: US and worldwide annual motor vehicle production, 1946-90......................7

Student's last name 3

History of Automobile Industry in United States
The beginning of automotive industry in US dates back to 1890 and since then has witnessed
continuous growth and evolution to become the second largest manufacturer of automobiles
(by volume) in the world. During 1980s, it was overtaken by Japan's automotive company,
Toyota Motor Corporation followed by China in 2008.
Till 1895, only four cars were there in US that were officially registered (Davis). The
following years saw the birth of three big automobile manufacturers- The Ford Motor
Company, General Motor Corporations, and the Chrysler Corporation. Henry Ford in 1903,
started his own company named Ford Motor Company which began with producing Model
T in 1908. Model T was a huge success for Ford till 1927 and made it the largest automobile
company in US. In 1927, it introduced Model A, which proved to be successful but lost in
competition with General Motors and Chrysler due to lacking style in model (Davis).
The General Motor Corporation was founded by William Durant in 1908. It grew by
acquiring number of small car companies such as Buick, Oldsmobile, Oakland, and Cadillac.
In 1913, Durant lost control on General Motors (GM) due to over-extension of company by
acquisitions. The same year, he started a new company named Chevrolet in partnership
with Louis Chevrolet. During 1917, Chevrolet was acquired by GM. During the late 1920s,
under the leadership of Alfred Sloan, GM was ranked as the largest automotive making
company in US, leaving behind Ford (Klepper). Also, it expanded its market abroad by
acquiring Vauxhall Motors in England, Opel in Germany, and Holden in Australia in year
1925, 1929, and 1931 respectively.
The Chrysler Corporation was founded in 1925 by Walter Chrysler, the former
executive of GM. It launched the brands Plymouth and DeSoto in 1928 and became
second largest vehicle manufacturer in US by overtaking Ford during 1930s (Stevenson 6).

Student's last name 4

Evolution of Automobile Sector during 1980s
During 1980s, all the three major players in automobile sector- GM, Chrysler, and
Ford had good hold in the US market. Simultaneously, they were facing strong competition
from foreign imports, especially Japanese firms. To promote the sustainability of American
automobile companies, Buy American campaign was started by people (mainly those
whose livelihood was dependent on US auto industry) in mid-western US as most of the
manufacturing units were situated in that region (Charleston). However, soon this Buy
American campaign was diminished because of the establishment of New United
Manufacturing, Inc. (NUMMI), as a result of joint venture between Toyota and GM in 1984.
In NUMMI, vehicles were produced under the name plates of both GM (Nova, Prizm, Vibe)
and Toyota (Corolla, Toyota truck). During this period, many mergers and acquisitions took
place between US and overseas automobile manufacturers and this created a huge market for
overseas products in US, fading away the distinction between American and Foreign
products. For example, it has been seen that an engineer who was once an employee in
Chrysler is now working in a German company and making Mitsubishi trucks (Charleston).
In addition to selling their products in US market, the foreign competitors such as
Toyota, Honda, Nissan, Hyundai, and BMW started setting up manufacturing and assembly
units in North America. These units were referred to as New Domestics or New American
Manufacturers. The New Domestics either used to import goods from their suppliers in
home countries or convince them to open plants in North America.
Following entry of foreign automakers in US automobile market, the market share of
big three native vehicle manufacturers dropped continuously and significantly. From 1999 to
2006, the market share of domestic automakers was reduced from 70 percent to 57 percent
while that of foreign automakers was increased from 29 percent to 42 percent (Figure 1).

Student's last name 5

Figure1: US market share 1999-2006, Big three vs. Foreign competition

Source: Automotive News Monthly Sales (as cited in Charleston)

Factors Affecting the Price Hike of Automobiles during 1980s

If we track back the car prices during 1980s, we will find it pretty low compared to present
costs. However, comparing the value of money then and now, the price seems to be quiet
alarming. The cost of Toyota Corolla 4-door sedan was $5,458, Ford Mustang was $6,408,
Toyota Celica GT was $7,209, and Mazda RX-7 GS was $9,095 (Manning). The high costs
are attributed to the regulations imposed by US government for maintaining fuel economy,
controlled emissions, and improved safety. It was estimated by Bureau of Labor Statistics that
making a car following government regulations would add up $600 to the existing cost,
which was a significant amount for an average customer and an average automaker. The
Environmental Protection Agency (EPA)in 1980, came up with the idea of installing airbags
in new cars to regulate auto noise, which was estimated to have added $800 to car prices.
However, it did not came into practice due to combined non-consent of House of

Student's last name 6

Representatives.
During the period of Economic Crisis of 1970s, it was difficult for an average
automaker in US to manufacture cars following all government regulations, at high price for
which there was no demand in the market. At the same time, entry of Japan's automaker
Toyota in US market, selling cars at less expensive prices and of better quality than
American-made cars at that time, lead to loss of market share by American automakers
(Florida). One out of every four cars sold in US during 1980s was the imported one
(Manning). Japanese cars also had positive impression among customers for giving very good
gas mileage, which was necessity at that time to manage fuel economy because of rise in
crude oil prices by OPEC (Organization of the Oil Exporting Countries).
As a consequence of price hike and automobile imports, Ford and Chrysler suspended
production in two major plants in November 1980, which resulted in unemployment. Around
200,000 auto workers were removed. Chrysler reduced his labor force from 160,000 to
85,000 (Manning). The auto production in America was declined by 30 percent within three
years. During this time, the big three automakers came up with strategies to overcome the
competition from Japanese imports. Chrysler launched its plain and gas-efficient K-model
cars. GM launched J-cars in early 1981 (Aizcorbe 17).

Effect of 1980s Auto Industry Transition on Employment

The major setback suffered by world's dominant motor vehicle producers, the US
automakers during 1980s, has resulted in fluctuating output and employment in US
automobile industry (Singleton 18). Automobile industry is one of the largest employers of
US economy and therefore, impacted the employment growth of the country significantly
during the declining phase of 1980s. Hundreds and thousands of workers, especially in

Student's last name 7

manufacturing units lost their jobs. From 1979 to 1989, the automobile industry suffered a net
loss of 105,000 jobs (Singleton 19). The number of employment in December 1989 was only
80 percent of that in January 1979. However, the fluctuations in employment level
experienced by the industry cannot be indicated by these data.
Figure 2: US and worldwide annual motor vehicle production, 1946-90

Source: Automotive News (Detroit, MI, Crain Communications as cited in Singleton 19)
From January 1979 to July 1980, the employment dropped by 335,000. Motivated by
the demand of the hour, American automakers launched compact cars with smaller engines
and greater fuel efficiency to increase sales. This lead to the employment recovery. However,
it lasted only for 11 months , which resulted in generation of only 11,000 jobs. The period
between 1981-82 witnessed maximum drop in employment (185,000 jobs June 1981 and
November 1982) as a consequence of drop in production by 14 percent.
After November 1982, the initiatives were taken by US automobile industry for
economic expansion. The US automakers started focusing on cost reduction and quality

Student's last name 8

control to overcome the economic crisis imposed by Japanese imports. Also, voluntary
restraint agreements between US and Japan resulted in limited Japanese exports. As a
consequence of these initiatives, a growth in employment was recorded. 222,000 jobs were
added between December 1982 and January 1986 (Singleton 20). A steady growth in
employment occurred between 1982 to 1986. This period was also associated with opening
up of Japanese assembly and production lines in United States, making the domestic
employment directly dependent on Japanese firm operations. During 1986-87, the drop in
employment was recorded to be 45,000 due to drop in sales of domestically manufactured
cars. However, the sale of light duty truck was steady during this period. In 1988, a moderate
growth in employment took place reverting the losses experienced by previous two years.
But, this growth was short-lived and lasted only till January 1989. By the end of 1989, the
demand for cars was diminished because of excess supply and rising interest rates. This
compelled industries to empty their stocked inventories and cut down their production plans.
This resulted in temporary shut down of many auto production plants leading to rise in
unemployment. About 60,000 workers became unemployed between January to December
1989 (Cooney). This was followed by globalisation of automobile sector in 1990.

Impact of Globalisation on Automobile Industry during 1980s

The positive response got by Japanese automakers by investing in US automobile
industry during late 1980s encouraged Foreign Direct Investment (FDI), global production,
and cross-border trade globally (Sturgeon 9). It also led to to the globalisation of other
industries such as apparel, electronics, and consumer goods. The market potential and lowcost skilled labors attracted FDI in developing Southeast Asian and Latin American countries
such as India, China, and Brazil. Big US, Europe and Japan based companies started

Student's last name 9

establishing their manufacturing units in developing countries which produce products for
local market and for exporting back to developed countries. The policy of liberalization
introduced by World Trade Organization (WTO) during 1990s further promoted cross-border
trade.
The case of automobile industry is somewhat different than electronics, apparel and
consumer goods industry because unlike others all of the automotive market in world is
controlled by the eleven lead firms concentrated only in three countries- Japan, Germany, and
US. The mergers and acquisitions drive initiated during 1990s paved way for global
expansion of lead firms (Shimokawa). They adopted the strategy of producing end parts and
final motor vehicle assembly in countries in whose market the product was intended to be
sold. This strategy helped in winning trust of the customers and overcoming political issues.
This lead to the opening of numerous assembly units in many countries. For example,
presently the Toyota Motor Corporation (TMC) has manufacturing and assembly units in 50
countries which serves the market in more than 160 countries (Bhandari).
The automobile giants, especially Japanese firms, adopted the marketing strategy of
targeting, segmentation, and positioning for reaching all categories of customers. They
divided the market on the basis of demographic and psychographic (interests, attitudes, and
personalities) characteristics of customers. Also, variations in marketing strategy were
introduced depending upon the economy, market condition, purchase ability and consumer
preferences.
With the globalisation, a sudden rise in global vehicle production was observed
between 1990 to 2000. About 73 million vehicles were produced in 2007, which is almost
double the numbers produced in 1975 (Sturgeon 10). In 1975, where 80 percent of the total
world automobile production was accounted by seven countries rose to eleven countries in

Student's last name 10

2005 due to opening of manufacturing units in Southeast Asian countries. Brazil, Mexico,
India, China, and Korea are some of the new players that came into existence. The annual
growth in automobile production during 1990-2005 was recorded to be 3 percent against 2
percent during 1975-1990. Integration of lead firms with major suppliers of automobile parts
also came into practice post globalisation.

Conclusion
This paper presents the changes underwent by automobile industry in US during 1980s. The
factors that lead to the downfall of three big automakers in US during 1980s, the rise of Japan
in the automobile sector and its influence on US automobile industry, corrective actions taken
by US firms to meet the challenges imposed by Japanese vehicle imports, impact of downfall
of US automobile economy on employment, and globalisation have been discussed in detail
in this paper.
The major changes in US automotive industry started during 1890s, which led to the
emergence of three big automakers- General Motors, Chrysler, and Ford. The three
companies, meeting several ups and downs through their journey, dominated the US
automotive market during 1980s. At the same time, they started facing strong competition
from Japan based vehicle manufacturing firms whose products were of better quality and less
expensive, gaining good hold in US market. Buy American campaign were initiated by
native people to promote the sale of US produced vehicles, so that production houses can be
prevented from shutting down. On agreement of both Japanese and US governments, a joint
venture was formed between Toyota and General Motors in 1984, giving rise to NUMMI
(New United Manufacturing, Inc.). Cars were manufactured in NUMMI under the name
plates of both General Motors (Nova, Prizm) and Toyota (Corolla, Toyota truck). During this

Student's last name 11

period, many mergers and acquisitions took place between US and overseas firms leading to
opening up of US market for overseas vehicles. The entry of foreign automakers in US
market led to significant drop in the market share of domestic automakers (70 percent in 1999
to 57 percent in 2006).
As a result of economic crisis, hike in the price of crude oil, and introduction of
government regulations on fuel economy, the cost of producing vehicles was increased
significantly during early 1980s. At the same time, the entry of Toyota in US market with its
less expensive and high gas mileage cars, led to huge loss in market share by the American
automakers. The growth of Japan based vehicles in US market resulted in heavy
unemployment during 1979 to 1989. Around 105,000 jobs were lost during this period. The
recovery of US automakers started during later years of 1980 decade. New policies and
marketing strategies such as mergers and acquisitions, integration with suppliers,
segmentation, and product localization were adopted for the growth of the company.
Globalisation of automobile industry took place in 1990. The market potential and low cost
skilled labor of developing Asian countries (India, China) and Latin American countries
(Brazil) were identified by leading firms in US, Japan, and Germany, as a result of which
many manufacturing and vehicle assembly units were opened in these countries.

Works Cited
Aizcorbe, Ana. Japanese Exchange Rates, Export, Restraints, and Auto Prices in the 1980.
Monthly Labor Review. February 2007. p. 17-22.
Bhandari, Surendra. An Analysis of Toyotas Marketing Strategy. 2007. Web. 11 March
2013. <http://ssrn.com>
Charleston, Gregory A. Globalization Drives Big Changes for U.S. Auto Industry.

Student's last name 12

Turnaround Management Association Headquarters, Chicago. Jan 1, 2007. Web 11
March 2013. <http://www.turnaround.org/Publications/Articles.aspx>
Cooney, Stephen and Brent D. Yacobucci. U.S. Automotive Industry: Policy Overview and
Recent History. CRS Report for Congress. 25 April 2005.
Davis, Mark. How The U.S. Automobile Industry Has Changed. Investopedia US, A
Division of ValueClick, Inc. 09 April 2012. Web 11 March 2013
<http://www.investopedia.com/articles/pf/12/auto-industry.asp>
Florida, Richard and Timothy J. Sturgeon. Globalization and Jobs in the Automotive
Industry. Industrial Performance Center, MIT, Working paper series: MIT-IPC-00012. November 2000.
Klepper, Steven. The Evolution of the U.S. Automobile Industry and Detroit as its Capital.
Carnegie Mellon University, Pittsburgh, USA. November 2001
Manning, Jason. Car Wars. 2000. Web 11 March 2013
<http://eightiesclub.tripod.com/id291.htm>
Shimokawa, K. Reorganization of the Global Automobile Industry and Structural Change of
the Automobile Component Industry. Japanese Automotive News. 26 June 2002. p.231. Web 11 March 2013 <http://hdl.handle.net/1721.1/1417>
Singleton, Christopher, J. Auto Industry Jobs in the 1980's: A Decade of Transition.
Monthly Labor Review. February 1992. p. 18-27.
Stevenson, H. American Automobile Advertising, 1930-1980: An Illustrated History.
Academy Books. England. 1995. ISBN: 13: 978-0-7864-3685-9. p. 6
Sturgeon, Timothy, J. et al. Globalisation of the Automotive Industry: Main Features and
Trends. International Journal of Technological Learning, Innovation and
Development 5.1/2 (2009): 7-24.