Car manufacturing is the largest manufacturing activity in the world, with close to 92 million  new vehicles manufactured per year (50 million when the book was written in 1990). In the early 1890s, the French company P&L manufactured a few hundred cars a year. These cars were designed according to the “panhard system” – where the manufacturer used highly trained workers and simple but flexible tools to do exactly what the consumer demanded – one item at a time. In 1905, hundreds of companies in Western Europe and North America manufactured cars in small volumes using craft techniques.
MASS PRODUCTION. The car industry developed into mass production after the First World War. The mass producer uses skilled workers to design products later assembled by unskilled or semi-skilled workers on expensive single-purpose machines. One of the most basic assumptions in mass production is that unit costs fall dramatically as production volume increases.
THE T-FORD. Ford’s 1908 Model-T was his twentieth design over a five-year period. The key to mass production was the consistent replacement of parts and the ease of attaching them to each other. Familiarity with a task meant that workers could perform the task faster. Adjustment of parts was eliminated, which led to a noticeable increase in productivity. In 1913, the movable assembly line (“the rolling belt”) was introduced. With a production volume of 2 million identical vehicles per year in the early 1920s, Ford had reduced the real cost to the consumer by an additional 2/3.
SHARED PARTS INCREASES EFFICIENCY. From the 1930s to the end of the 1950s, GM had five basic models – Chevrolet, Pontiac, Oldsmobile, Buick and Cadillac – which had five different chassis and engines but shared thousands of other parts – pumps, electrical components, etc. Development of a new car involved a complex collaboration with the other automotive departments and the component division. Using the same parts in several models provided economies of scale. It was also important to reduce the total number of parts (a GM car contained 10x parts of a similar assembly in a Ford engine).
USA IN THE 1950’S. In 1955, for the first time, more than 7 million cars were sold in the United States. Ford, GM and Chrysler accounted for 95% of all sales and six models accounted for 80% of all sales. However, from 1955 to 1988 Japan’s share of the world market increased from 1% to 30% in 1988. One reason why “The Big Three” lost its competitive advantage was that mass production in 1955 became common worldwide. Europe had lower wages and built good cars, which drove sales growth between 1950 and 1970 (European workers began to find that mass production paid too little in the 1980s).
LEAN PRODUCTION. By the end of the 1940s, the Japanese Ohno had purchased a number of used presses from the United States and began experimenting with the equipment. The Japanese eventually developed a way to increase productivity while delivering better quality through “Lean production” (combining the advantages of craftsmanship from P&L, and mass production from Ford, while avoiding the disadvantages). Lean producers use teams of multi-skilled workers at all levels of the organization as well as flexible and automated machines. Lean producers strive for perfection: constantly reduced costs, zero deficits, zero inventories and an endless product range.
JAPAN GAINS MARKET SHARE. In 1950, Toyota had produced 2,685 cars during the past 13 years. By the 1960s, Japanese companies had created a major competitive advantage over mass producers. They then started offering a wider range of products and replaced them more often than the mass producing competitors. This has been happening in the automotive industry worldwide since the 1980s.
TECHNICAL SHIFTS. It took more than fifty years for mass production to spread throughout the world. In the 1980s, as the pace of technological advances in the automotive industry increased, Aston Martin and similar companies became allies with the car giants (Ford in the case of AM) to gain access to specialized expertise in areas such as emission control and crash safety. The cost of developing this independently would have been too high – economies of scale were important.
JAPANESE CROSS-OWNERSHIP. The Japanese concluded that in order to be effective, even the most advanced technology must be linked to the main market-driven activities of the company. But they did not want to integrate their suppliers into a large bureaucracy. Instead, they built a quasi-independent organization where Toyota bought a small part of the suppliers ‘and distributors’ shares to have common interests. The suppliers later bought shares in each other.
THE SUBCONTRACTORS. Instead of requiring a specific gear, Toyota encouraged their suppliers to experiment with what the most efficient gear should look like. Toyota manufactured only 27% of the total cost of materials, tools and finished parts needed to make the car (Toyota produced 4 million vehicles per year with only 37,000 employees). GM, on the other hand, manufactured 70% of the cost of materials for 8 million vehicles and needed 850,000 employees worldwide. In 1987, GM had 6,000 employees in its purchasing departments, while Toyota had only 337.