Barcelona Field Studies Centre

Changes in the Car Industry

By Jon Zuloaga Housley and Jonathan Brandwood (Year 8 Students)

Share of US Car Market 1955-2005
Share of US Car Market 1955-2005

Changes in the US Car Market

The US car industry has changed dramatically since its origins over one hundred years ago.

Before the 1950s, manufacturers from the US were the unrivalled leaders in their home car market. GM (General Motors), Ford and Chrysler, who were 'The Big Three', had a lot of success.

By 1965 Europe and Japan had entered the car industry with a small share of the US car market.

From 1965 Japan's car sales in the US increased significantly and by 1985 had taken a one fifth share of the market.

From 1985 to 2005 Japan's share of the US car market has grown to 43%, at the expense of the US motor manufacturers, who have suffered a 23% share loss.

Decline of Detroit

Detroit was chosen as a major site for car factories in the US partly because of its location on the Great Lakes giving low-cost access by water to raw materials and major markets for cars. Henry Ford first established car factories in the city in 1903. Well paid assembly line jobs with 'The Big Three' helped the city grow rapidly.

In consequence of the oil crisis of 1973 and increasing competition from foreign manufactures, Chrysler, Ford and General Motors made immense losses. They reacted by closing their old works in favour of new facilities, many of which were set up in countries where wages were much lower. Between 1970 and 1980 alone, Detroit lost 208,000 jobs.

Globalisation of the car industry

GM and Toyota world car assembly plants 1955 - 2005
GM and Toyota world car assembly plants 1955 - 2005

In 1955, there were no Toyota car plants in the US, and only one in Japan.

By 1975, Toyota had opened car plants in the new markets of South America, Europe, Indonesia and South Africa, but had yet to enter the US market.

By 2005 the impact of globalization on the US car industry is very clear. Toyota is growing at the expense of GM and there is a particularly striking cluster of Toyota plants in the north east of the United States. Japan appears to be slowly taking over with their smaller, cheaper and higher quality cars. GM factories are starting to close because of people buying the Japanese cars.

Rise of Toyota

How long does it take to build a car? Productivity differences between US car companies.
How long does it take to build a car?

One reason why Toyota is overtaking GM (General Motors) in the market is its highly efficient production system. Toyota groups its workers on the assembly line in teams, and gives them individual responsibility to correct mistakes before the cars reach the end of the line.

In the graph you can see how 'The Big Three' take more time to build a car than a Japanese company like Nissan, Toyota and Honda. Toyota produces more environmentally friendly and reliable cars. Now Toyota is set to overtake GM as the world's largest carmaker, ending 70 years of dominance.

Toyota and Kaizen

Kaizen is a Japanese concept meaning 'continuous improvement'. The gradual accumulation of many small developments in processes and quality over 50 years has helped make Toyota the lowest cost and highest quality car company in the world.

Kaizen requires workers thinking about improvements day by day and minute by minute. It also requires that these same workers possess the skills for this type of thinking.

Kaizen is difficult to keep up and takes a long time for results to show. But, as Toyota has demonstrated, it offers a sustained competitive advantage.

Nissan Barcelona

Nissan opened a factory in Zona Franca, Barcelona, Spain to strengthen its European operations.

Nissan Barcelona
Nissan Barcelona

As you can see in the image, there is good road access to the factory. This makes it very accessible for the delivery of components. Zona Franca is by the port, allowing easy transport of finished cars by sea.

Like Toyota, Nissan uses 'Kaizen' and a 'Just-in-Time' production system. Nissan, however, have taken 'Just-in-Time' a stage further. A separate company, Visteon, makes parts on the same site as the car plant in order that components may be delivered just in time for assembly. This saves transport and storage costs as well as theft and is an innovative system for a car plant.

Nissan also uses 'Job Rotation' to ensure productivity remains high. Workers are skilled in at least three different jobs, and at least three people are capable of doing each job. This idea ensures that each job can be covered in the case of absence. It also means that jobs can be regularly rotated to prevent a worker from becoming bored in a particular role.

Alliances in the car industry

Alliances in the car industry have provided advantages to companies such as Renault and Nissan. By sharing production in a single car plant, they can move into new markets faster and with lower costs because they don't have to build new plants. Renault builds cars in Nissan's Mexico plants and Nissan uses Renault's Brazil plant and distribution networks. The companies share common components and engines, and each company leads engine design in their area of expertise - Renault in diesel and Nissan in petrol. They also benefit from economies of scale because with increased demand and purchasing power they now buy components for six million cars, not three.

Hybrid cars: the future?

With fuel prices increasing, people aren't buying large cars in the numbers they used to. Small cars consume much less fuel, and are better for the environment.

What is a hybrid car? It's a car that usually has two tanks for fuel. One tank is for petrol and the other for hydrogen/ethanol or an alternative renewable fuel. The car is started for a few seconds with petrol, meaning you have to re-fill your petrol tank only once every five months, even if you use your car everyday. Then the car runs on the alternative fuel. This causes less damage to the environment and is cheaper too. Some hybrids could combine a petrol engine with an electric motor, with battery recharge locations in towns. The problem is that hybrids cost more to build than customers are currently willing to pay.