From the 1950s into the start of the 1970s General Motors was consistently the most profitable firm in the world, earning 40% on investment and 60% on equity. How did they manage that? After all, GM faced competition from Ford and Chrysler. American Motors (formed in 1954 through the merger of Nash and Hudson) was also a nuisance, as were Studebaker and Packard (until their exit in 1958).
Now GM benefitted from economies of scale. For example, they were large enough to not just automate engine machining, but to make multiple engines while running their factories at capacity. Ford faced challenges in that regard, because their volume per engine (6-cyclinder vs 8-cylinder) were smaller. Chrysler was at an even greater disadvantage. With a broad product portfolio, one mis-step was not so damaging at GM. A poor selling model really hurt at Ford, whereas Chrysler faced periodic crises. And then there were the truly fringe firms: despite mergers that aimed to increase their scale, Nash, Hudson, Studebaker and Packard all went out of business, while Chrysler acquired American Motors (and hence Jeep) and Chrysler was ultimately acquired by Fiat to form today’s FCA.
Anyway, during the 1905s and into the early 1970s GM held 50% of the market. Their worry, in fact, was not Ford, but the Department of Justice, which threatened to pursue them under then-prevailing anti-monopoly guidelines. Because of its divisional structure, with separate design, engineering, manufacturing and sales operations, the DOJ could realistically break up the firm into 2 or more pieces.
Three pieces of indirect evidence: Ford maintained copious archives. They are a research resource for everything from business history to US racial issues. In contrast, GM kept no archives; corporate policy was to destroy all documents unless needed for a short-term corporate purpose. GM’s fear of being broken in two seems to have pervaded senior management in another way: it led to a culture of deniability. Then there was a corporate reorganization that realigned the divisional structure. In the 1970s that led to a PR nightmare: the installation of engines used in plebeian Chevrolet cars in Oldsmobiles. How could GM dare use the same parts in 2 different products? You might as well have Jaguars, Mercedes and BMWs coming out of the same factory [actually, that happens at the Steyr-Magna plant in Austria].
Well, if GM couldn’t exercise market power to maximize profits by dropping price to raise their market share, then what were they to do? Ford almost went out of business when the founder Henry Ford’s maniacal focus on the Model T led to declining sales, as they had to keep dropping prices to compete against used Model Ts. In the 1920s Alfred Sloan and Pierre DuPont instituted two policies to address that issue. First they reorganized GM’s operations to focus on a range of models, from low-priced entry level ones to Cadillacs at the luxury end. Second, they began regular model changes at GM. Eventually Ford and Chrysler followed suit, with new (or at least “refreshed”) designs launched every year, to great fanfare.
As things developed, GM came out with theirs first each fall, showing them off in huge media events each fall, including tentative list prices. Ford and Chrysler launched their new models a bit later. Think a bit: if you are Ford, what price would you announce? Surprise, surprise: you follow GM’s lead. But isn’t this illegal price-fixing?
One year jumps out as anomalous: 1955. It wasn’t a boom year, but neither was it a recession. Yet sales were 45% higher than in 1954 or 1956, while prices were lower (Bresnahan 1987, 458). Price controls from the Korean War period had been lifted before 1954; import competition didn’t begin until the arrival of the VW Beetle in 1957. However, that was also the first year that the newly created American Motors launched their first new car, the compact Rambler. It was life and death for them: they had to establish a market presence, fast. So did they really sell so many cars as to sway the entire market? What else might have gone on?
Bresnahan, Timothy F. 1987. “Competition and Collusion in the American Automobile Industry: The 1955 Price War.” The Journal of Industrial Economics 35 (4): 457–82.