The Automobile Industry in the 1920s: Henry Ford and the Motorized Revolution

No single industry did more to define the 1920s economy than the automobile industry. In the span of a single decade, the car went from a luxury toy of the wealthy to a mass-market product that reshaped daily American life. The numbers are staggering: the number of registered passenger vehicles in the United States rose from about 6.7 million in 1919 to more than 23 million by 1929, the total output of American factories rose by roughly 50 percent, and the automobile sector alone employed one of every nine American workers. The industry’s growth drove the demand for steel, rubber, glass, and petroleum that powered the rest of the decade’s boom. Its collapse in 1929 was a leading indicator of the broader crash.

The story of the 1920s automobile industry is the story of three companies — Ford, General Motors, and Chrysler — and the men who ran them: Henry Ford, Alfred P. Sloan, and Walter Chrysler. It is also the story of an entire physical and cultural infrastructure — paved highways, gas stations, traffic signals, drive-ins, suburbs — that the automobile called into being.

The Model T and the Moving Assembly Line

When Henry Ford introduced the Model T in October 1908, the automobile was still a curiosity owned mostly by the rich. Ford’s goal was to make a car “for the great multitude,” and the Model T — simple, durable, easy to repair — was designed to do exactly that. What made the goal achievable was Ford’s innovation in production.

In 1913, Ford’s engineers introduced the moving assembly line at the Highland Park Plant in Detroit. Workers stood in fixed positions while the car chassis moved past them on a conveyor; each worker performed a single task over and over. The system was borrowed from the meat-packing industry, where “disassembly lines” had long been used to butcher hogs. Ford reversed the process to build cars. The result was a productivity revolution. The time to build a Model T dropped from about 12.5 hours in 1913 to about 93 minutes by the early 1920s. The price dropped accordingly.

The Model T’s price history is the most dramatic cost reduction in American industrial history. In 1908, the car sold for $850. By 1916, it sold for $360. By 1925, the famous Model T Runabout sold for just $260 — less than the average American’s monthly wage. Ford made money not by charging high prices but by selling enormous volumes at thin margins. By 1927, when production finally ended, more than 15 million Model Ts had been built, more than half of all the cars ever manufactured in the world.

The $5 workday that Ford had introduced in January 1914 also played a crucial role. By paying workers enough to buy the products they were building, Ford created a mass market for his cars. The strategy worked: Ford’s market share peaked at around 60 percent in the early 1920s, and his workers became the first large group of industrial laborers who could realistically aspire to own the products they made. The pattern — high wages, mass production, mass consumption — became known as Fordism and was imitated around the world. To understand the man and the car in greater depth, see our guide to Henry Ford and the Model T.

The Rouge River Plant and the Limits of Vertical Integration

By the 1920s, Ford’s operation had grown to be the largest industrial enterprise on earth. The Rouge River Plant, completed in Dearborn, Michigan, in the late 1920s, was Ford’s attempt to build a completely self-contained industrial city. Iron ore arrived on Great Lakes freighters at one end of the complex, and finished automobiles rolled out the other. The Rouge had its own power plant, its own railroad, its own steel mill, its own glass works, even its own rubber plantation in Brazil.

The Rouge was an extraordinary engineering achievement, but it was also an early sign of Ford’s strategic decline. Vertical integration made sense in 1920, when Ford produced only one model in one color (black) for a uniform market. By the late 1920s, when customers wanted variety, the system’s inflexibility became a liability. The Rouge could produce cars cheaply, but it could not produce variety, and customers were beginning to demand variety.

General Motors, Alfred Sloan, and the Birth of Modern Marketing

While Ford was perfecting the assembly line, his rivals were quietly reinventing the business. General Motors, founded in 1908 by William C. Durant, had stumbled through its first decade under a string of executives. Its salvation came in 1923, when Alfred P. Sloan became president and reorganized the company.

Sloan’s insight was that the car market was not one market but many markets, and that a manufacturer could serve them all by offering a tiered brand structure. Under Sloan’s plan, GM would offer five brands at five price points: Chevrolet for the entry-level buyer, Pontiac for the lower-middle, Oldsmobile for the middle, Buick for the upper-middle, and Cadillac for the top. Each brand would have a distinct identity and price range, and the brands would be carefully managed so they did not compete with each other. A Chevrolet buyer who prospered could “trade up” to a Pontiac; a Pontiac buyer to a Buick, and so on.

Sloan added two more innovations that defined modern marketing. The first was the annual model change. Beginning with the 1923 models, GM redesigned its cars every year, making last year’s model seem obsolete. Sloan called it “the principle of constant change.” Ford, who had famously said customers could have “any color as long as it is black,” initially resisted the strategy. It cost him his market share.

The second innovation was the General Motors Acceptance Corporation (GMAC), founded in 1919. GMAC provided installment loans to buy GM cars, opening up the mass market by letting middle-class families buy cars on credit. The success of GMAC was a major reason that the 1920s saw consumer credit explode across the entire economy. For the broader transformation, see our guide to consumer culture in the 1920s.

Walter Chrysler and the Chrysler Corporation

The third great name in 1920s automobiles was Walter Chrysler, a former railroad mechanic who had risen to run Buick in the early 1920s. Chrysler left GM in 1920 in a dispute with Durant, took over the failing Maxwell Motor Company in 1924, and launched the Chrysler Corporation in 1925.

Chrysler was a brilliant engineer and a savvy marketer. His first Chrysler cars — the Chrysler Six of 1924, the Chrysler Four of 1925, the Chrysler Imperial of 1926 — were technically advanced and stylishly designed, undercutting Buick on price and Cadillac on features. By the end of the decade, Chrysler had become the third pillar of what would be called the “Big Three” — a position it would hold for the next seventy years.

The Used Car Market and the Bottom of the Market

A feature of the 1920s automobile industry that is often overlooked is the rapid growth of the used car market. As new car prices fell, used cars became affordable even for the lowest-paid workers. By 1929, an estimated 1.5 million used cars were sold each year in the United States — about a third of total car sales. Used car lots appeared on the outskirts of every American city, and the used car became the first automobile for millions of working-class families. The phenomenon created a “ladder” of automobile ownership: a worker might buy a five-year-old Model T, then trade up to a newer used Chevrolet, eventually to a brand-new Pontiac. This ladder was an essential part of the mass-market revolution that Sloan had engineered.

The Road-Building Boom

Cars cannot exist without roads, and the 1920s saw the largest road-building boom in American history up to that time. The starting gun was the Federal Highway Act of 1921, championed by President Warren Harding and his Secretary of Agriculture (and later Vice President), Henry C. Wallace. The act provided federal funding for the construction of a national highway system and created the blueprint for the numbered U.S. Route system.

Two transcontinental highways were established in the 1920s. The Lincoln Highway, which had been dedicated in 1913 as the first transcontinental automobile road, ran from Times Square in New York City to Lincoln Park in San Francisco. Route 66, designated in 1926, ran from Chicago to Los Angeles through the heart of the Southwest. The 2,448-mile route would become the most celebrated highway in American culture — John Steinbeck would later call it “the Mother Road” in The Grapes of Wrath.

The road-building boom transformed the American landscape. Paved roads replaced dirt. Bridges replaced ferries. Cities built beltways, bypasses, and automobile suburbs. The new roads enabled the trucking industry, which by the end of the decade was competing successfully with railroads for short- and medium-haul freight.

The Cultural Infrastructure of the Automobile

The automobile also called into being a vast new cultural infrastructure. Gas stations appeared at every intersection; the first true drive-in gas station had been opened in 1913 in Pittsburgh, and by 1929 there were more than 120,000 filling stations in the United States. Traffic signals spread rapidly — the first electric traffic light had been installed in Cleveland in 1914, and by the 1920s they were a common feature of American downtowns. Free parking lots became standard in front of suburban shops, allowing cars to drive right up to the storefront.

A new landscape of leisure grew up around the car. Drive-in restaurants began in the late 1920s. Motels — a contraction of “motor hotels” — first appeared along highways in 1925, when Arthur Heineman opened the Milestone Mo-Tel in San Luis Obispo, California. Auto-row dealerships lined the main arteries of every American city, with the new brands displayed in windowed showrooms designed to appeal to the rising middle class.

The automobile made the suburb possible. Before the 1920s, only the very rich could afford to live outside the city; daily life required walking to work, to shops, and to church. The automobile broke that constraint. The first planned automobile suburb was Levittown, New York, built on Long Island after World War II, but the 1920s saw the rise of similar developments: Beverly Hills, Bel Air, River Oaks in Houston, and dozens of others.

The Auto Industry as Economic Engine

The automobile was the central economic engine of the 1920s. By the end of the decade, the industry directly employed about 400,000 workers, paid more than $1 billion a year in wages, and produced more than $3 billion of finished vehicles. Indirectly, it supported the rubber, steel, glass, textile, petroleum, and highway-construction industries on an even larger scale.

When the stock market crashed in October 1929, the auto industry was among the first to feel the pain. New car sales fell by more than half in 1930, and by 1932 production had collapsed to about one-quarter of the 1929 level. The collapse of the auto industry, more than the crash itself, marked the beginning of the depression for most American workers. To see how the automobile transformed daily life beyond the economy, see our guide to how the automobile changed American life in the 1920s.