(UPDATED FROM 1/1/2019)
Antitrust regulations in the United States were created in the late-19th and early-20th centuries. Their goal was to support free competition in an era of increasingly large corporations — some of whom engaged in restraint of trade or even created monopolies (Wikipedia, 2019). The U.S. auto industry became a potential target because of industry consolidation, particularly in the 1950s and 1960s.
The mid-1950s saw the shrinkage in the number of independent automakers from six — Hudson, Kaiser-Frazer, Nash, Packard, Studebaker and Willys — to three. This raised the question of whether the Big Three automakers — General Motors, Ford Motor Company and the Chrysler Corporation — had become so dominant that they were effectively restraining free competition.
Should General Motors have been broken up?
Policy discussions tended to center around breaking up General Motors, whose market share reached upwards of 50 percent of domestic production by the early-60s.
In 1954 the Justice Department under President Dwight Eisenhower launched an investigation of the auto industry, and over the rest of the decade a series of Congressional committees explored potential legislative action.
In testimony before Estes Kefauver’s Anti-trust and Monopoly Subcommittee, American Motors head George Romney made himself an industry pariah by calling for both GM and Ford to be broken up into a number of companies. Romney’s rationale was prescient:
“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)
Antitrust actions only nibbled around the margins
Congressional hearings did not result in any major legislation gaining passage. By the same token, the federal government launched 18 antitrust actions against GM and “claimed victory in 13 — either by convictions, pleas, civil judgments, or consent decrees” (Cray, 1980; p. 447). Yet none of those actions did more than nibble around the margins of GM’s empire.
Also see ‘Was the ‘Ford blitz’ to blame for the collapse of independent automakers?’
Just as importantly, all of this did nothing to cool GM’s competitive zeal. The automaker’s top two executives, CEO Thomas Murphy and president Pete Estes, “openly espoused a ’60-60-60 formula.'” This summed up the goals of boosting the automaker’s share price to $60 and attaining 60 percent of the domestic market during 1976, which was the year when both executives turned 60 years old (Yates, 1983; p. 106).
GM didn’t quite get there. However, by 1978 the automaker captured an all-time-high of 57 percent of the domestic market. Historian Ed Cray noted that “only the imports, collectively holding 20 percent of the market, managed to avoid the juggernaut that was General Motors” (1980; p. 509).
GM centralized its structure to thwart regulators
Perhaps the biggest impact of antitrust talk was that it may have helped spur GM to begin centralizing engineering and manufacturing operations that had been primarily managed for many years at the division level. A tightly integrated GM would presumably be harder to break apart.
The plan worked like a charm. Eugene Metzger, an antitrust lawyer for the Department of Justice, told Automotive News (Sherefkin, 2008) that the logistics of breaking up GM were challenging because of the automaker’s level of integration.
“One option the feds examined was to split off Chevrolet along with other assembly operations and parts-making plants,” noted reporter Robert Sherefkin (2008). “But how would you split off Chevrolet when Chevrolet had no assembly plants of its own? All Chevys were put together by the General Motors Assembly Division.”
The downside of GM’s centralization efforts was that they undercut the rationale for fielding so many brands (go here for further discussion). The seeds of GM’s collapse in 2009 were partly sown by its shift away from brand distinctiveness toward badge engineering.
As GM was sinking toward collapse, Sherefkin (2008) offered a libertarian-tinged quip: “You might say that the government didn’t have to dilute GM’s power. GM did it all by itself.”
Industry decline shows why antitrust was needed
The problem with the government’s fairly hands-off approach to antitrust regulation was that it helped to fuel the decline of U.S. automakers. They went from controlling roughly 94 percent of the total car and truck market in 1961 to under 45 percent in 2016 (Wards Auto, 2017). That resulted in an enormous amount of economic dislocation.
This is part of what antitrust law is supposed to protect against. Unfortunately, the U.S. government was largely asleep at the wheel in enforcing the laws on the books, let alone updating them (such as with Romney’s proposal). This occurred across decades regardless of whether Republicans or Democrats controlled the White House and Congress.
For example, the Johnson administration shelved an eight-year investigation of GM “despite virtual unanimity among the staff lawyers and economists that the suit should be brought,” Cray wrote. A key reason why was that attorneys general “regardless of their background, promptly learn about politics and the risks involved in sticking out their necks” (1980, p. 445).
The U.S. auto industry is thus a good example of the need for antitrust laws — and the difficulties of actually enforcing them.
RE:SOURCES
- Cray, Ed; 1980. Chrome Colossus: General Motors and its Times. McGraw-Hill Book Co., New York, NY.
- Mahoney, Tom; 1958. The Story of George Romney: Builder, Salesman, Crusader. Harper & Brothers, New York, NY.
- Sherefkin; Robert; 2008. “Stunning postwar growth brought antitrust scrutiny in the 1950s.” Automotive News (subscription required). Posted September 14; accessed December 30, 2018.
- Wards Auto; 2017. “U.S. Total Vehicle Sales Market Share by Company.”
- Wikipedia; 2018. “History of United States antitrust law.” Accessed December 30.
- Yates, Brock; 1983. The Decline and Fall of the American Automobile Industry.Empire Books, New York, NY.
ADVERTISING & BROCHURES:
- oldcaradvertising.com: American Motors (1956)
- oldcarbrochures.org: Buick LeSabre (1977); Oldsmobile Eighty-Eight (1977)
This is an updated version of a story that was originally posted January 1, 2019.
From my limited perspective, even GM would have to recognise things were unsustainable at the divisional level unless they began centralizing engineering and manufacturing operations sooner even without the threat of being broken up.
However with the benefit of hindsight they could have reacted a lot better then they did at least mechanically and product wise, before the decline in brand loyalty ovr the next few decades allows them to gradually discontinue redundant marques both overseas and domestically.
The same goes with Chrysler, though in both the former and Ford’s cases they could have centralised their divisions much better then they did. It could be said that Ford Dearborn’s actions arguably delayed a more organic integration of its European divisions during the 1960s.
GM had been pushing to centralize more functions at the corporate level even before there was serious talk of antitrust action. The main driver was the fragmentation of the market. One doesn’t have to be a GM accountant to realize that allowing each GM division to engineer and build its own version of a full-size car, intermediate and compact (with perhaps a personal luxury couple or pony car in the mix) was not sustainable over the long haul – even for a company the size of GM.
One reason GM management was unhappy with its 1961-63 “senior” compacts was that the unique technology used by each version raised costs and decreased profitability (without having any real demonstrable positive effect on sales). The 1964 A-bodies addressed that issue – and sold far better than their predecessors.
As for the difficulty of breaking up GM – even if a plant is under the control of General Motors Assembly Division (GMAD) instead of Chevrolet, if it builds Chevrolets, it should thus be easy to assign that plant to a newly created Chevrolet Car and Truck Corporation. That excuse leaves me scratching my head.
The real problem here was that, once one went beyond the B-body Chevrolet, which had sufficient volume to keep more than one plant busy, it would have been necessary for divisions to share plants to build vehicles on the same platform. I seriously doubt, for example, that it would have made economic sense to have separate plants build the Firebird and Camaro, even in the late 1960s. That is less an effort to thwart trustbusters than a logical response to a fragmenting market.
As the article notes, it also undercut GM’s rationale for having all of those brands in the first place, but the Sloan Brand Ladder had started to crumble in the 1950s. The process only accelerated in the 1960s with increased market fragmentation, when one could buy a Buick Special that was smaller and cheaper than a Chevrolet Impala (after decades of GM hammering home that increased size and price equated to increased prestige).
Also note that other countries – France, Italy and Great Britain – did not take a laissez-faire attitude regarding their respective auto industries. But those governments still ended up intervening, either via direct subsidies and government ownership, or strict protectionist measures that drove up costs to customers (while also discouraging the implementation of quality improvement measures that could have benefitted customers), to protect the home team.