General Motors' Success in The 1920s

Prior to the 1920s, ownership of a vehicle was an uncommon luxury in the United States. While many people likely knew a vehicle owner, they were not in a position that they could afford to purchase one on their own.

Statistically, about one third of households owned a car during 1920, although they were not uniformly distributed around the nation. Southern states with more poverty had markedly less vehicle ownership than wealthier Northern states (Kyvig 27). In the late 1910s and early 1920s, the way automobiles were designed and sold changed drastically forever. This change was primarily due to a shift in the attitudes of the American people towards consumer credit and the balance of form and function. These shifts were influenced by newly available consumer credit opportunities and occurred in reaction to the 18th century attitudes of function being more important than form.

However, things were on the upswing. Ever since Ford’s introduction of a low cost family vehicle in 1908, Ford Model T’s were seen in driveways more than any other vehicle before. Introduced at a price of $825, it did not meet the mark of the most affordable vehicle for the masses. Ford’s previous vehicle, the Model N, lacked the features, refinement and size of the Model T, and cost only $600. Random Olds’ original Oldsmobile Curved Dash cost $650, only slightly being beat out by the Model N (Kyvig 27-28). While the Model T was objectively a better car with room for the family, more horsepower, a higher top speed, and relatively good fuel economy, the average salary was between $400 and $600 (Nearing 208). The vehicles that were available at the time were just not attainable for the normal person.

Henry Ford’s use of the assembly line as well as parts and production decisions that increased assembly efficiency slashed the cost of the Model T. The 1914 Ford Model T cost only $490, significantly less than offerings from other auto makers (Kyvig 29). In contrast, General Motors was poised to offer great competition to Ford with their more expensive vehicles. Families saved money for years in order to afford their Ford Model T, and many others were unable to save enough within a reasonable time to justify planning their car purchase.

In 1919, General Motors established the General Motors Acceptance Corporation (GMAC) (Smith). The GMAC’s sole purpose was to allow General Motors to loan people enough money to purchase their cars, solving a problem that both Ford and GM were having at the time. Initially requiring a 30-35% down payment, the loans were scheduled to be paid back in one year. Since banks generally did not offer automotive loans, the GMAC was the average family’s first opportunity to buy a car without first saving for the entire purchase (Smith; GMAC Financing Programs, 1919.). While this was a great step towards improving the mobility of Americans, it did not entirely ease the pain of paying for a car. Since 65-70% of the vehicle still had to be paid for within the next year, families remained under pressure to pay for the car quickly. Even so, this was the best option for financing cars as it was largely unavailable from other sources. Financing a vehicle was not considered to have the same importance as financing purchases for a business, and was looked down upon. It was acceptable to finance necessities, but cars had alternatives. Appliances were affected by this as well, and they were mostly purchased by the wealthy. However, financing was offered on Singer sewing machines in order to make them more attainable for the average households (Credit History: The Evolution of Consumer Credit in America.) Saving cash and then using it to make the purchase in full was the norm in the United States prior to the GMAC, and they remained the best way for average families to acquire a car.

Henry Ford was a firm believer in cash purchases. He intended for his vehicles to be purchased outright, which was difficult at even the lowest price of the Model T, around $310 (Kyvig 31). Some Ford dealers offered their own financing opportunities to customers, but it was not an officially approved practice. Ford’s official program was called the Weekly Payment Plan and it required customers to place regular deposits at local dealers. Once they purchase price of the vehicle was paid, customers were finally able to take home their car (Smith). This was not a popular program, as customers were able to more quickly afford their car with GMAC financing. General Motors sweetened the deal to Americans in response to Ford’s Weekly Payment Plan, even though it was not a very competitive program. They introduced an easier way for families to afford their new Chevrolet with the 6% Purchase Certificate. This plan allowed the down payment for GMAC financing to be paid in small portions on a weekly basis. Once the down payment amount had been paid, customers were able to drive home in their new Chevrolet and the remainder of the payments were through the standard GMAC program (GMAC Financing Programs, 1919.). People seemed to gravitate towards the approach of financing a more expensive car rather than buying a cheaper car outright. In 1927, General Motors sold more vehicles than Ford (Williamson).

Ford responded to consumer demand and opened the doors to a new subsidiary offering auto loans in 1928 (Smith). This returned Ford to position of top seller in the United States, but only for a few years. Ford and General Motors fought back and forth for the position of top seller, but after 1937, General Motors dominated the market. While they contributed, the payment terms were clearly not the only things important to automobile buyers. General Motors, although it entered the market later than Ford, surged ahead as the market leader. General Motors had a different strategy of vehicle production than what Ford offered. While Ford was focused on providing inexpensive vehicles, General Motors was designing vehicles with better quality and wanted them to be more attractive to customers.

General Motors offered vehicles that came in colors other than black, a stark contrast to Ford’s black-only Model T’s (Gartman). General Motors also worked to make their automobiles more attractive to consumers, further strengthening its appeal over Ford in the mind of the American consumer. While the Ford Model T looked largely the same from its introduction until its sale was stopped, General Motors refreshed the appearance of their vehicles for each model year. Their designers made small changes to the bodywork to allow people to differentiate model years from one another, in hopes that people would sell their old vehicle and purchase a new one when they saw all of the newer vehicles surrounding them on the road (Gartman.).

Ford eventually did embrace the idea of offering stylish vehicles to consumers in 1928, the same year they started offering financing. Their competition to General Motors’ vehicle styling was the Ford Model A. Designed with flowing lines, the Model A was objectively a nice looking car embodying a modern appearance. However, it lacked things such as an integrated heater to keep occupants comfortable. One year later in 1930, General motors one-upped the Ford Model A with their new 6 cylinder engine installed in the Chevrolet 6, advertising that buyers got a good deal buying “Six For the Price of Four” (Williamson). Chevrolet seemed to introduce new features to entice buyers at a relentless pace, and Ford tended to only be able to emulate the successes of Chevrolet, the highest grossing General Motors brand.

In just one decade, Ford had fallen to the second-place position in the American automobile industry due to its inability, particularly due to Henry Ford’s ideals, to respond to consumer demand. Initially rejecting that people might prefer vehicles with paint colors other than black, Ford fell further behind by not offering financing to the growing number of people seeking to buy cars on credit. After Ford finally began to offer credit to the American people, it was resistant to changing the design of its sole model. General Motors realized and accepted that consumers would pay more for a vehicle that offered more to them, especially if they could pay for it over time. This illustrates the changing attitudes towards vehicles in the United States. Henry Ford’s leadership decisions were based on life in the late 1890s and early 1900s, and did not reflect that automobile customers really wanted. General Motors offered new vehicles with fresh styling and features that shifted with demand, propelling them to the position of the most profitable automobile producer in the nation where they remain today.