Components of the past and vehicles of change: Parts manufacturers and supplier relations in the United States automobile industry

In the first two decades of the U.S. automobile industry (1896-1916), motor vehicle "manufacturers" were largely just assemblers and often dependent upon their independent parts suppliers for production capacity as well as technological know-how. Established parts makers (many of which had been successful suppliers to the bicycle and carriage industries in the past) also provided favorable credit arrangements to their automobile producing customers, allowing them to assemble and sell their vehicles prior to paying for the constituent parts. The credit that parts manufacturers provided, along with application engineering services to design components to work effectively with other elements of a particular automobile model, significantly reduced the financial and technical barriers to entry into the motor vehicle industry.; Close supplier relations, based upon high levels of commitment (multi-year contracts) and communication between car makers and their parts producers were highly conducive to continuous incremental innovation of components. Inter-firm standardization occurred only for basic parts as a result of automobile makers' interest in protecting the unique features of the more complex design-defining components of their vehicles. Contrary to the dominant historiography, standardization efforts by the Society of Automotive Engineers were often unsuccessful, and parts trade organizations sometimes played a significant role in reducing component variation within the industry.; By the late teens and twenties, as consolidation and vertical integration of both manufacturing and design engineering became increasingly common for the leading automobile firms, supply relationships in the motor vehicle trade became increasingly adversarial. Automobile makers shifted to a competitive bidding system to award suppliers with only short-term contracts. Declining margins for parts producers and insecurity of maintaining business with primary customers led to increased focus on cost reductions and decreasing investment in component innovation throughout the middle four decades of the twentieth century.; In the early 1970s, renewed commitments to product innovation, resulting from foreign competition and government regulation, led to greater attention by parts makers on product development. The gradual movement toward lean production methods in the 1980s and 1990s indicates the potential contemporary benefits of a system of close supply relationships.