03 November 2011

A Century of Chevy And A Brief History Of American Automobile Industry

The Chevrolet automobile brand is a century old today. The company was fonded by William Durant and Louis Chevrolet in 1911, and while Swiss born Chevrolet left the company two years later, the name stuck even after the company was acquired by General Motors (itself found in 1901) in 1918 and demoted from being an independent corporation to being merely a brand.

A Brief History Of The Big Three

Every American automobile company that remains in business today has business operations in direct succession to a company founded by 1904. But, as a public company, the current incarnation of General Motors is less than a year old, with its initial public offering held on November 18, 2010. Ford, which was founded in 1903, went public in 1956 (initially with 40% family ownership, which has now been diluted to about 5%).

Chrysler was founded as a brand in 1925, following a reorganization out of bankruptcy of a company founded in 1904 when it was called the Maxwell Automobile Company. Chrysler survived a close call with bankruptcy in 1980, when it received a government bailout. German-based Daimler-Benz AG made Chrysler its subsidiary in 1998, and sold it to a private equity firm in 2007 before it went bankrupt in 2009. Italian car maker Fiat is its 53.5% shareholder as of June 2011 (it owned 20% immediately after the bankruptcy) and remains closely held with the other 46.5% of the company owned by the United Auto Workers union trust fund for Chrysler pensioners). Hence Chrysler is scarcely even really a domestic automobile company, as opposed to a foreign company's brand with significant employee ownership.

Much of the automobile market in the United States belongs to companies the entered to American automobile industry much later: Toyota, Honda, Nissan, Hyundai, Kia, Volkswagen, Subaru, and Saab, for example. Fiats are just returning to the American market, through a partnership with Chrysler, after a long hiatus. But, no new American company has managed to enter the market and survive during the working lives of anyone participating in the industry today.

A Brief History of American Automobile Brands

Indeed, even new brands created within the industry have not fared well. There are ten American automobile brands in existence today. Four are General Motors brands: Chevrolet, Cadillac, Buick, GMC. Two are Ford Motors brands: Ford and Lincoln. Four are Chrysler brands: Chrysler, Dodge, Jeep and Ram, and those are, of course, simply marquees of a majority foreign owned, closely held company.

Chevrolet, Ford and Dodge are the mass market brands of the respective big three automobile makers. Cadillac, Lincoln and Chrysler are the luxury brands of the respective big three automobile makers. Buick is the last of the American upper mid-market brands. GMC, Jeep and Ram are truck brands, a category that Ford manages to live without. But, GMC model trucks are now sold mostly at Buick dealers, rather than having a mostly independent distribution channel, are most GMC makes are also sold, in very similar models, under the Chevrolet brand. GMC is, in effect, a model in name only without much of a marketing side, or a manufacturing and design side, of its own.

Nine out of ten post-World War II American brands of automobiles have come and gone. Ram, which debuted as a Doge make in 1981 and is named after a Dodge trademark hood ornament that debuted in the 1930s, was promoted to brand status in 2009 is the only one of the ten that is left. Jeep, the youngest American automobile brand in the United States other than Ram, that is still on the market debuted in 1941. The runner up, Lincoln, debuted as a brand in 1917.

Six of the ten American automobile brands are legacies of acquired car companies, and three more are the names of the companies that produce the vehicles. Only the Ram brand has never been car companies of its own at some point.

The other three GM brands: Buick (1903), Cadillac (1902) and GMC (1901) have histories comparable to Chevy. GM foreign brands Vauxhall (1925), Opel (1929), and Holden (1948) came later. GM had already discontinued seventeen domestic brands and one foreign brand before World War II, it discontinued seven foreign brands and two domestic brands before its bankruptcy, and it discontinued three domestic and one foreign brand in connection with its bankruptcy. The three brands it created after 1930, Geo (1989), Saturn (1985) and Hummer (1992) are all no more.

The Lincoln brand at Ford was formed in 1917 as an independent company and acquired in 1922 and shared a division with the former Mercury brand from 1945 to 2010, when the Mercury brand was discontinued and in 2011 the Lincoln model lineup was expanded to make up for the demise of Mercury. Ford launched the Edsel brand in 1958, only to cancel it in 1960 as its name became synonymous with business failure. Ford's foreign Merkur brand created in 1985 was discontinued in 1990. Ford made the jeep in 1941, but Chrysler ultimately wound up owning the brand.

Chrysler bought the Dodge brand in 1928, which was founded as a parts company in 1900 and began selling cars of its own in 1915. Chrysler has discontinued eleven domestic brands (excluding Renault a foreign affiliate sold as a U.S. brand and later divested after a few years) and nine foreign brands including five brands it created and then discontinued after World War II: Rambler (reintroduced 1950-1969 after an initial 1910-1914 run), American (1954-1988), Imperial (1955-1983), Valiant (1960-1976) and Eagle (1988-1998). Chrysler did promote Ram, formerly a Dodge model, to brand status of its own in 2009, and acquired the Jeep brand (begun in 1941) in 1970.

All three of the American automobile companies have bought and divested themselves of investments in various foreign automobile companies, sometimes the same ones (e.g. Jaguar and Volvo) at different points in time. Daewoo, which is 70.1% owned by GM is the only foreign subsidiary of the big three American automobile makers today. Of course, Chrysler is a subsidiary itself and has Ferrari, Maserati, Alfa Romeo, Abarth, Lancia and Fiat as sister brands.

It is also worth recognizing that from the standpoint of economic reality, many "foreign" cars are built mostly or entirely in the United States, and many "domestic" car models of the Big Three American Automobile makers are built substantially or even mostly abroad.

An Investor's Perspective

Ford is the only American automobile company that hasn't gone bankrupt (it went public in 1956 after 53 years as a closely held company and continues to be about 5% family owned). Chrysler and General Motors both went bankrupt in 2009. Ford is the only company in which an automobile industry IPO purchaser of stock at any time before 2009 would still own shares of the company, and everyone who owned bonds in Chrysler or General Motors in 2009, some decades old, would have taken a haircut. No one has continuously owned shares of any American automobile maker for more than fifty-five years. Ford has come perilously close to failing more than once, both before and after going public, but managed to survive so far.  any other car companies came into being, were not lucky enough to be bought by one of the big three, and went out of business as the industry consolidated.

And, these are some of the oldest big businesses in existence. We think of corporations as having eternal lives, but die after lifetimes not much longer than the children of the people who create them and some pass much more quickly.

Of course, we are on the dawn of a new age when it comes to American automobile brands, as a number of new electric car companies attempt to launch themselves independently of any existing automobile manufacturer. But, none of them have yet become household names and some, if not all, will surely be acquired by existing automobile manufacturers if and when they prove themselves.

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