EFFECT OF 1930s CRISIS ON EUROPEAN AND NORTH AMERICAN AUTOMOBILE SECTOR PDF

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THE EFFECT OF 1930s CRISIS ON EUROPEAN AND NORTH AMERICAN AUTOMOBILE SECTOR Before the crisis of the 1930s erupted, the automobile market was in an upward trend, especially in the United States and in some European countries. In turn, it was these territories which, at the end of the nineteenth century, created and innovated in this sector. Entrepreneurs such as Karl Benz, Michelin brothers, Louis Renault or Charles E. and Frank Duryea are examples of this. By that time, the "Ford method" was already in use in these countries, being a great advance in the organization of companies and in automobile mass production. Henry Ford based his strategy on the reduction of the unit costs, accelerating the time needed and the scale of production, counting with specialized machines and high division of works to obtain a unique standardized final product. Even so, “flexible specialisation” did not disappear between the 1920s and 1930s, as in some markets in Europe highly qualified workers and economies of scale prevailed. So, what happened in the automotive sector after that the 1930 economic crisis affected the industry? The crisis had a major negative effect on the U.S. economy, pushing some companies to close down and to dismiss staff. As a result, consumption was affected, same as was the automobile sector, which,as we see in Graph 1, hired far fewer people in the years following the crisis. In 1933 hired just over half as many as in 1929. Related to this factor, vehicle production fell during the years following the crisis.

Graph 1. Source: United States Bureau of the Census: Census of Manufactures On the contrary, the crisis did not stop the production, in aggregate terms, in European companies . As we can see in Graph 2, the French, English, German and Italian companies, although they suffered a small setback in the first years, finally managed to come back up and gain positions. The Germans were the ones who gained the most during this period, changing the leadership positions, producing more than France and Italy. Thus, in the year 1938, the countries of Western Europe produced 151% respect to 1929 and the United States only produced 43.75% of the vehicles than in 1929, as we can see in Table 1.

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Graph 2. Source: Loubet, Jean- Louis (2001) Histoire de l'automobile français, Paris Seuil.

Country/Territory

Production in 1938

North America

43,75

Western Europe

151,43

Table 1. (1929=100) Source: Jones, D.T. (1985), “Vehicles” en CH. Freeeman (ed.), Engineering and vehicles, Gower, Aldershot, pp. 128-187. Loubet, Jean- Louis (2001) Histoire de l'automobile

The reason France was decreasing position can be explained easily. In France in 1939 a strong protectionism was held and the largest companies controlled almost of their domestic market. Even so, each one of these companies produced in average an insignificant number of vehicles compared to the millions of automobiles produced by the US. Since 1920 and during the crisis, the position of this country fell in the foreign market of the automobile industry. The small producers group oriented to the high-range production did not cooperated during the economic crisis and competed with each other in a market that was very reduced by trade protectionism. However, they got an agreement to use some common mechanical components in order to decrease prices and diversified their production

In the United States Ford had some problems in the late 1920s, so they had to change the strategy and they started offering different models and prices to different consumers, depending in their wants and necessities, so they started a related diversification. The components were share with cars produced by General Motors in order to maximize scale economies in their production. This last company obtained an increase in its market share after the crisis because they focused more on the commercialization of the product and not that much on the production.

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US foreign direct investment in Europe before the crisis was totally stimulated by the protectionism situation they had. Matford if a good examples of this, the company was created in 1929 in France but was controlled by the Ford US multinational and the range of local products was replaced by Ford products, so they could limit the effects of French policy. Although the postwar situation encouraged protectionism, there were some intercompany cooperative relations in favor of trade.. Finally, when the crisis ended, aluminum light cars were done in Europe; which were cheaper, smaller and more energy-saving. They were publicized and took a place in the market forcing Americans to modify the type of cars they were producing and offering. The beginning of the World War in 1939 put in pause the European convergence towards mass consumption, which was resumed once the war finished.

REFERENCES “The automobile sector in Europe and in the United States during the 1930s” Teaching working paper Jones, D.T. (1985), “Vehicles” en CH. Freeeman (ed.), Engineering and vehicles, Gower, Aldershot, pp. 128-187. Loubet, Jean- Louis (2001) Histoire de l'automobile Loubet, Jean- Louis (2001) Histoire de l'automobile français, Paris Seuil. United States Bureau of the Census: Census of Manufactures

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