A Guide to the Automotive Industry

The automotive industry has a rich history and complex workings that have evolved over the past century. From the early “horseless carriages” powered by steam engines to the mass-production techniques pioneered by Henry Ford and the complex supply chains of today, the industry has been defined by innovation. Understanding how this industry has developed can give us a greater appreciation of the progress that has been made so far as well as the challenges facing automakers in the present.

The Horseless Carriage and the Steam Engine

Some of the earliest motorized vehicles were steam-powered, based on the technology that powered locomotives in the 1800s. These vehicles were somewhat popular but difficult to use, and the development of the more efficient gas-powered engine ended the era of steam cars. The transition from horse-drawn buggies to gas-powered vehicles represented a major breakthrough in mobility, launching the automotive industry as we know it today. The first modern car that would be recognizable as such today was made in the 1880s by Karl Benz.

Rise of the Big Three

Several pioneering automakers emerged in the early 20th century that helped grow and shape the new auto industry. Ford Motor Company, founded by Henry Ford in 1903, started mass-producing the Model T using an assembly line in 1908, making cars affordable for average Americans. General Motors was formed in 1908 by William Durant and pioneered the modern automaker organizational structure and management techniques. The Chrysler Corporation was founded in 1925 by Walter Chrysler and was one of the first automakers to use replaceable oil filters on every vehicle. These “Big Three” automakers came to dominate the American consumer auto market through mass production.

Mass Production and the “American System”

The moving assembly line enabled automobile manufacturing on a large scale by dramatically improving efficiency. Parts could be assembled quickly and sequentially using standardized, interchangeable parts as each unit moved down the line. Henry Ford built the first moving assembly line for the Model T in 1913, reducing chassis assembly time from 12 hours to just 90 minutes. This “American system” of mass production cut production costs and revolutionized the industry’s productivity. It became a core component of auto manufacturing, enabling high efficiency and economies of scale.

Key Segments in the Automotive Industry

The automotive industry consists of several main segments today, with the largest being passenger vehicles like cars, pickup trucks, SUVs, and minivans. This light vehicle segment accounts for more than 85% of new sales annually. Major producers include Toyota, Volkswagen, General Motors, and Ford. The commercial vehicle segment encompasses larger trucks and buses used for freight and public transportation. Leading manufacturers in this segment are Daimler, Volvo, PACCAR, and Navistar. Construction and agriculture equipment covers heavy machinery such as bulldozers, backhoes, cranes, tractors, and combines used for building infrastructure and farming. Top brands include Caterpillar, Komatsu, John Deere, and CNH Industrial. Electric vehicles and plug-in hybrids are a growing “green” segment as companies invest in emission-free transportation, led by Tesla, BYD, and BMW. Autonomous/self-driving vehicles represent an emerging segment led by Waymo, GM’s Cruise division, Mercedes-Benz, and others. While traditional gasoline-powered vehicles still dominate, innovations in electrification, autonomy, and mobility services are transforming the future automotive landscape.

Automotive Industry Value Chain

The automotive value chain encompasses the full set of complex, interconnected activities required to design, manufacture, market, and service vehicles. The chain starts with inbound logistics, which involves procuring thousands of parts from suppliers globally, requiring sophisticated inventory management and supply chain coordination. Vehicle design uses the latest technologies and extensive testing to develop new models that meet consumer preferences. Production entails machining, welding, and assembling components into finished vehicles on assembly lines, combining automation and skilled labor. Rigorous quality control is critical. Engineering teams integrate mechanical, electrical, and software systems to achieve performance, safety, and emissions goals. As connected technologies advance, automakers now offer infotainment, telematics, and over-the-air updates to vehicle systems. At the end of the value chain are marketing and service. Marketing employs incentives, social media, and events to stimulate customer demand through dealers and direct sales channels, while after-sale service maintains satisfaction through maintenance, repairs, parts supply, and ongoing support.

Automotive Industry Key Terms and Definitions

• Badge Engineering: When one company uses the platform, parts, and brand of another but with cosmetic modifications
• CKD: Complete knockdown, kits that allow localized assembly by shipping disassembled parts globally
• JIT: Just-in-time inventory, meaning that parts are delivered right as needed in production, minimizing warehousing
• Kanban: A supply chain management approach for JIT using visual signals to trigger resupply
• OEMs: Original equipment manufacturers, who actually assemble and manufacture vehicles. Examples are Ford, Toyota, and Mercedes-Benz.
• SKD: Semi-knockdown, kits that ship with partly assembled components for final assembly
• Tier 1, Tier 2, and Tier 3: Supply chain levels that provide parts and components to OEMs. Tier 1 directly supplies major systems.

Additional Resources

• Automotive History
• COVID-19, Supply Chain Shortages, and the Automobile Industry
• How the Automotive Industry Is Driving Toward a Sustainable Future
• When Were Cars Invented?
• A Brief History of the Automotive Industry
• Manufacturing Trends and Technologies in the Automotive Industry
• A Breakdown of the U.S. Automotive Industry
• Cross-Country Automobile Shipping
• Characteristics of Automotive Value Chains
• The Age of the Automobile
• The Automotive Industry
• History of the Automotive Industry
• The Power Train Supply Chain Is Transforming
• Door-to-Door Automotive Transportation
• The Biggest Milestones in the History of Automotive Manufacturing

This page was last updated by Marc Gregory