Entrepreneurship In U.S. Auto Industry: Ford Stays Ahead

Abstract

The big three U.S. auto manufacturers namely General Motors, Ford and Chrysler play an important role in the U.S. economy. The total direct and indirect employment by these manufacturers account for over 3 million jobs. Combined total sales before the onset of the recession of 2007-09, known as the “Great Recession” was $412 Billion. More than the employment and income effect, the auto companies with their manufacturing plants, dealership and service organizations dominate the American landscape. The big three auto makers performed well by conventional measurement of their revenues until the Great Recession hit in 2007. The purpose of this paper is to analyze how the revenues of General Motors and Chrysler plunged so deep as to force them file bankruptcy and seek government help in the form of Troubled Assets Relief Program (TARP), and how Ford avoided it with a background of entrepreneurship that dates back to its founder, Henry Ford. Through his pioneering work, Schumpeter analyzed entrepreneurship using the production function approach and identified five factors which an entrepreneur uses for innovation and for changing the existing way of doing business. Schumpeter termed this process as “creative destruction”. These five factors are: introduction of a new good; adoption of new inputs to produce a new good or the previously produced good; introduction of new technology; opening of a new market; and creating a new economic organization. The paper uses the five factor model of Schumpeter to analyze entrepreneurship in the U.S. auto industry and demonstrates that the tradition of innovation through new technology and new sources of supply was woven into the corporate structure of Ford Motor Company since it went public in 1956. The analysis shows that while Ford continued in the path of entrepreneurship, its American rivals failed to capture the deep implication of several significant turn of events including the gas crunch of 1979. This allowed Ford to stabilize its base, increase its market share and earn profit in the height of the Great Recession.