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Source: Industry and Market Structures 77

I

THE AUTOMOBILE STORY
The automobile industry in the early years of this century grew so
fast that its markets changed drastically. There were four different
responses to this change, all of them successful. The early industry
through 1900 had basically been a provider of a luxury product for
the very rich. By then, however, it was outgrowing this narrow mar-
ket with a rate of growth that doubled the industry’s sales volume
every three years. Yet the existing companies all still concentrated on
the “carriage trade.”
One response to this was the British company, Rolls-Royce,
founded in 1904. The founders realized that automobiles were
growing so plentiful as to become “common,” and set out to build
and sell an automobile which, as an early Rolls-Royce prospectus
put it, would have “the cachet of royalty.” They deliberately went
back to earlier, already obsolete, manufacturing methods in which
each car was machined by a skilled mechanic and assembled indi-
vidually with hand tools. And then they promised that the car
would never wear out. They designed it to be driven by a profes-
sional chauffeur trained by Rolls -Royce for the job. They restrict-
ed sales to customers of whom they approved—preferably titled
ones, of course. And to make sure that no “riff-raff” bought their
car, they priced the Rolls-Royce as high as a small yacht, at about
forty times the annual income of a skilled mechanic or prosperous
tradesman.
A few years later in Detroit, the young Henry Ford also saw
that the market structure was changing and that automobiles in
America were no longer a rich man’s toy. His response was to
design a car that could be totally mass-produced, largely by semi-
skilled labor, and that could be driven by the owner and repaired
by him. Contrary to legend, the 1908 Model T was not “cheap”: it
was priced at a little over what the world’s highest-priced skilled
mechanic, the American one, earned in a full year. (These days,
the cheapest new car on the American market costs about one-
tenth of what an unskilled assembly-line worker gets in wages and
benefits in a year.) But the Model T cost one-fifth of the cheapest
model then on the market and was infinitely easier to drive and to
maintain.