Sunday, March 28, 2010

Final Version of my SAH Paper, The American Automobile Industry and the 'Eisenhower Recession' of 1958"

The American Automobile Industry and the “Eisenhower Recession” of 1957-8, SAH Biennial Automotive History Conference, Tupelo, MS, March 24-27, 2010

John A. Heitmann

Department of History

University of Dayton

300 College Park

Dayton, OH 45469-1540

Copyright 2010. Do not quote or cite without permission of author.

Crises, economic or otherwise, rarely have simple origins, recoveries, and only short-term consequences. The 1957-1958 Recession was global phenomenon, but it hit manufacturing communities in the American northeast and Midwest particularly hard, albeit for a relatively short time. It was the third post –WWII downturn, but also the most severe, and one that resulted in many anxious moments among individuals who still had fresh memories of the Great Depression. Largely originating from a rapid retrenchment of the consumer in response to higher levels of household indebtedness, a dramatic drop followed in the real estate markets – and soon it affected other sectors. Subsequently, auto sales declined 31% and unemployment in Detroit reached 20%. Yet, unlike the current recession, no government stimulus was forthcoming. Eisenhower and his advisors chose to rely on “built-in” economic stabilizers, including interest rate adjustments, and unemployment insurance. And in retrospect, that strategy proved to be effective. By late 1959, unemployment settled in at 5.5 percent, and Detroit automobile manufacturers were poised for a second post-WWII wave of prosperity.[1]

In sum, economic conditions dramatically improved without a stimulus package. The question of causes, government intervention, and recovery aside, however, how did this episode, largely neglected by historians, reshape the American automobile industry in the years that followed? In part it is the purpose of this paper to address the long–term consequences of a severe, but short downturn that automobile historians usually associate with the failure of the Edsel, the rise of the European imports, and the introduction of the first generation of American compacts.

Consequently, I shall put under a microscope short and long term responses of the American automobile industry to the challenges of consumer dissatisfaction, excess capacity, contracted credit, and high unemployment. Drawing primarily on evidence gathered from printed source materials, including popular literature, trade magazines, and government publications, the story traces significant long-term shifts in management strategies (the rise of finance, at the expense of production engineering); new production techniques (widespread use of transfer machines); and finally materials used in the making of cars (aluminum and plastics). In the short term, and only for a few seasons, product lines were also altered. But with few exceptions, the full-sized V-8 engine powered car, albeit composed of a different raw material mix and slightly more austere, remained at the center of America’s automobile love affair until Oil Shock I (1973).

Despite being a child at the time, my own memories of this event remain vivid, and I would be interested in your memories as well. I remember the concerns of my father, given the fact that the layoffs had hit our community hard. Indeed, my friend next door, Bobby, had a father working at Du Pont at the time who was laid off; he occupied his newly found free time by sanding down his red 1954 Chevy in the driveway, preparing it for a repaint. It was that mental image that caused me to include this event in my book, The Automobile and American Life, although little was said of substance in my two paragraphs on the topic.[2] Yet it was more than other survey histories have given to the topic.

Ironically, perhaps, given its slant towards business and economic history, James Flink’s, The Automobile Age even says less about the 1958 recession. Flink gave it only a passing mention, explaining it away in terms of the “dinosaur in the driveway,” and changing consumer preferences. John Keats’ Insolent Chariots is at the heart of Flink’s narrative.[3] It seems that the successes of the Rambler, Studebaker Lark, and the new Big Three import fighters (Corvair, Valiant, and Falcon), at the expense of the Edsel, were a foregone conclusion.[4] Similarly, John B. Rae relegates the episode to a mere seven words.[5] And in both cases, the long term effects of this episode were never considered.

Lawrence White, the author of the most detailed economic study of the post-war American automobile industry, also failed to contextualize the recession in a longer continuum. He asserted that

By the time the car reached the market in the fall of 1957, however, consumer preferences had changed, smaller cars were in demand, and the Edsel was a flop.

Small imported cars were suddenly reaching American shores in tidal wave proportions…. The increased physical size and price of U.S. domestic makes left a wide gap on both accounts at the bottom of the scale. A recession psychology on the part of consumers looking for smaller, cheaper packages and an increased willingness and ability by Europe to export its production contributed to the tide.[6]

So what do the sources say that take us beyond these superficial accounts? The recession first attracted the attention of journalists during the fall of 1957. In September, the editor of The New Republic wrote of a creeping recession, one that began in the spring of that year with an economy that was moving sideways. It was noticed that prices were rising, overall economic activities in decline, the cost of living going up, and people were waiting for new car models that had lower prices. It was conjectured that the administration in Washington was desirous of higher unemployment rates, so that “labor would be put in its place.”[7] David Lawrence, writing in U.S. News & World Report, dismissed tight money as the cause of the downturn, instead pinned the primary cause on organized labor, acquiescing management, and yearly wage escalator clauses. Lawrence closed by remarking that “When will the monopoly of organized labor be tackled by Congress? As has been said many times, there is enough in America for everybody’s need – but not enough for everybody’s greed.”[8] Yet in fairness to labor there were other reasons why the economy was becoming sick. Corporate giants also had a hand in this situation, as oil and steel were continuing to raise prices despite that fact that demand for these commodities was falling.

As 1957 closed, the economy was more a source of worry than in crisis. Detroit still projected sales of 6.2 million units in 1958, the same as the year before. More cars were scheduled for production for the first week of December, 1957 than any month since December, 1956. The first ten days of sales in November were 10 percent better than for the same time the previous year. True, the new Edsel was an initial disappointment, but General Motors President Harlow Curtice stated that “the initial response to the 1958 line is the best we’ve ever experienced.”[9]

However, by the end of 1957 this optimism was beginning to be tempered. Chrysler President Tex Colbert ominously remarked that “the consumer has lost the desire to buy.” And an Atlanta Plymouth dealer cautioned that “There is simply no business. We aren’t even able to attract window shoppers.” The loss of consumer appetite appeared uneven, however, for despite a huge dealer backlog of unsold 1957 models pushed on to dealer’s lots, at the same time a White Plains, New York, Oldsmobile-Cadillac dealer reported “Sales are very excellent this year – at least 15% to 20% better than a year ago.”[10]

Despite the mixed reports, by February of 1958 it was clear that this was no mere, mild inventory adjustment with regional variations. Between August of 1957 and February of 1958 the Federal Reserve Index of Industrial Production declined some 10 percent from 145 to 130, and unemployment increased by 2 million. A comparable week in the spring of 1957 resulted in a production volume of 161,865; a year later the numbers were 101,266.[11] In fact, the span between the fall of 1957 and the spring of 1958 marked the worst six month decline in economic activity since 1947. At 3.7%, it surpassed the declines experienced between the third quarter 2008-1st quarter, 2009 (3.2%) and 3rd quarter, 1981-1st quarter 1982 (2.9%).[12] This was no ordinary downturn, and since it happened at a time immediately after the launch of Sputnik, Jeremiads proclaimed that everything was wrong with America—its economy, its educational system, its society. The automobile industry was now the subject of considerable criticisms from journalists, pundits, and politicians, including President Eisenhower and the curmudgeonly Senator Estes Kefaufer.

And among its chief critics was industry insider George Romney, President of American Motors. Testifying before the Senate Antitrust and Monopoly Subcommittee investigating auto prices, Romney argued that

The trouble with the auto industry is too much concentration of power by Big Business and Big Labor, [and] too little competition. To increase competition, said Romney, both General Motors and Ford should be forced to split up into smaller companies….”[13]

Romney also argued that “union monopolies” should also be broken up and that unions should be organized around single employers. He went on to state that “A big company becomes muscle-bound and resistant to change.” Burdened with heavy fixed investment and long lead times to retool, carmakers were unable to shift production to meet changing consumer preferences. Indeed, by the middle of March, 1958, dealer stocks stood at 900,000 unsold cars. Consequently, Buick executive Edward T. Ragsdale embarked on a nationwide tour of 26 cities on “a crusade for confidence in the nation’s economy.” The burden was now placed on dealers’ sales staffs to work aggressively, as it was concluded that “the trouble is that auto salesman have had it easy for so long that a lot have forgotten how to work.”[14]

Despite the mounting bad news, the federal government was ever so slow to react. In April of 1958, Arthur F. Burns, president of the National Bureau of Economic Research, spoke of tax cuts, highway construction, and in particular procurement contracts that would be offered to the Big Three. In the meantime, he cautioned that “It is the duty of private citizens, no less than government officials, to try to do this. It is also our duty to avoid speculations or exaggerations which can bring comfort and advantage only to Communist rulers and their henchmen.”[15]

Indeed, consumers, some undoubtedly reacting to the excessive tailfins and chrome, had demonstrated their dissatisfaction by purchasing imports in an unprecedented fashion. By mid-summer, a Life magazine article exhorted for “Volkswagen, go Home!” [16] By mid-year, five month 1958 import totals were:

VW – 33,866

Renault – 14, 231

English Ford – 10,866

Hilman – 6,335

Fiat – 5,987

MG – 5,834

Simca – 5,127

Triumph – 5,402

Vauxall – 4,838

Opel – 4,710

It was said at the time that the small car buyer was seldom poor. Their reasons for buying imports included “snob appeal and evidence of perceptive taste.” But whatever were the reasons, Detroit insiders recognized that cars would have to be more fully tailored to individual tastes; there now existed a not-so-secret fear that America’s love affair with the automobile was being supplanted by other attractions.

Complicating matters for market researchers, however, was that the American consumer response -- or lack of response -- was far from simple. Surprisingly, 1958’s best seller among higher-priced cars was what the trade called “ the jewelry-box special” – an Oldsmobile, with more chrome (44 lbs.) than any other car in history! In fact, Oldsmobile pushed Plymouth for third place. Among the low priced three, the fancy Chevrolet Impala and Ford Fairlane 500 outsold less chromy models by three to one. On Ford’s custom line, there was a decorative gold-anodized –aluminum strip (along with armrest and cigarette lighter) that cost $20 extra; 76% of Ford’s customers demanded it on their cars. Ford stylist George Walker remarked: “I fought so hard against chrome I nearly lost my job. But I was wrong, and the others were right. People can buy austerity any time they want to. They don’t want to”[17]

The turmoil and fears of 1958 were countered by a renewed optimism from Detroit as the 1959 model year approached. Defense Department contracts to the auto manufacturers were quietly made during the summer of 1958 and that kept things going. New economy cars were in the pipeline, and that proved to counter the import wave coming from Europe. Prices tended to drop. Yet, most of the cars made in American factories in 1959 were still the massive, large finned boats that the critics had assailed during the previous year. With a 17 month retooling time, Detroit had to go with what was in the pipeline. Chrysler’s models were finnier than ever, and the 1959 Cadillac remains the iconic style reflecting the era of tailfins and chrome. Market researchers claimed that the Big Three was making what 93% of American wanted, and GM’s Red Curtice, slow to prophesize, predicted in May 1958 that “it is my belief that we will see an upswing in automobile sales with the introduction of the 1959 models in the fourth quarter

And by early November, 1958, U.S. car production reached 69,599 units v. 45,387 the week before, and prospects were for a production of 75,000 by mid month.[18] Cars were selling. Buick announced that it has received more than 100,000 new orders from dealers, almost two-thirds of which have already been sold. Ford announced that its dealers sold almost 27,000 new Fords on introduction day alone, and Pontiac reported sales and confirmed order of more than 20,500 during the car’s first three days on the market. Buyers came back. And indeed Red Curtice was proven right, although as a result of this experience the American auto industry would never be the same.

The long-term consequences of this downturn were both complex and manifold. First, it was the success of the imports in 1958 that led management at Toyota to begin to bring cars to the U.S. Secondly, in an effort to drop manufacturing costs while dealing with the demands of organized labor, substantial increases in the amounts of aluminum and plastics were incorporated in the America automobile. For example, in 1958, the average car contained 50 lbs. Of aluminum; a year later the amount rose to 57 lbs. And in a major effort to reduce costs, Aluminum suppliers like Reynolds and Alcoa were constructing smelting facilities right next to engine foundries, as in the case of GM in Massena, New York, and Ford in Sheffield, Alabama.[19] Plastic knobs, grills, and interior components were gradually introduced. Additionally, the term automation, first coined in 1948, became the new catchword in automobile manufacturing as transfer machines increasingly became commonplace in engine and other larger parts facilities. Automation in the newer plants ($100 billion invested between 1955-57) meant less material handling, less direct machine operations, more attention to lights and gauges, yet no real increase in job skills.[20] And, with this increase in productivity, GM would proclaim that in 1959 it would make 25% more cars with only a 5% increase in workforce. Thus, a number of the jobs lost during the 1958 recession were gone forever.[21]

Finally, the recession of 1958 led to important shifts in to management, as operations and product men gave way to accountants and finance specialists. At Ford, former Packard executive James Nance had been brought in to head the Edsel campaign, only to see it falter miserably. Nance, who had jumped over a number of the Whiz Kids, had incurred the wrath of Robert McNamara, who saw the former as a real threat to his career.[22] Consequently, McNamara and his group threatened Henry Ford II with a mass defection to Chrysler if Nance were not let go, and by late August Nance was no longer a Ford employee. Concurrently, Ernie Breech was kicked upstairs as the “honorary Chairman” at Ford. Quantitative analysis ruled.

At GM, a different drama, but similar transition took place. With Red Curtice retiring and Alfred Sloan slipping ever more into the background, Frederick Donner now emerged as chairman of the board and chief executive officer. As noted in a 1958 Fortune article, Donner “ has never built an automobile, but he is the company-wide expert on cost controls and product pricing…[and] one can begin to perhaps discern the makings of a momentous change in the whole character of the corporation…[is] bound to come in their time.”[23] With the rise of Donner, the primary source of power at GM was now in the hands of its financial managers, not its product and engineering managers as in the past. Despite the warnings of the old-line Fishers, the hard driving “Detroit Crowd” was now supplanted by the sophistication and finesse that had rubbed off from the executives at du Pont.

In sum, what can be said about the 1958 recession from the perspective of automobile history? Certainly, the story is far more than one simply centered on the failure of the Edsel and the end of Packard. Indeed, it marked the beginning of a new era in the history of the American automobile industry and the Big Three, one that still had considerable momentum derived from past glories, but also contained the seed for future difficulties. The ascendancy of the Big Three in the domestic marketplace was now challenged, and the following two decades would be a tale of response to changing consumer attitudes in an environment of increasing government scrutiny and regulation. 1958, then, is an episode that demands further investigation, particularly from the vantage point of primary sources.



[1] On this era, see Harold G. Vatter, The U.S. Economy in the 1950s: an Economic History (Westport, CT, 1985); Michael D. Bordo and John Landon-Lane, Exits from Recessions (Cambridge, MA, 2010); Christina D. Romer, Changes in Business Cycles (Cambridge, MA, 1999); Gary Donaldson, ed., Modern America: a Documentary History of the Nation Since 1945 (Armonk, NY, 2007); Judith Stein, Running Steel, Running America: Race, Economic Policy, and the Decline of Liberalism (Chapel Hill, 1998).

[2] John Heitmann, The Automobile and American Life (Jefferson, N.C., 2009), pp. 153-4.

[3] John Keats, Insolent Chariots ().

[4] James Flink, The Automobile Age (Cambridge, MA, 1988), p.281-88.

[5] John B. Rae, The American Automobile Industry (Boston: Twayne, 1984), p.110.

[6]Lawrence J. White, The Automobile Industry since 1945 (Cambridge, MA, 1971), pp. 15-6.

[7] “Creeping Recession,” The New Republic, 137 (September 2, 1957), 2.

[8] David Lawrence, “The Unnecessary ‘Recession,’” U.S. News and World Report, 42 (November 29, 1957), 116.

[9] “The 1957 Recession: Facts & Figures for the Debate,” Time, December 2, 1957,

[10] “Autos: Lower Targets,” Time, December 23, 1957,

[11] T.N. Vance, “The Eisenhower Recession,” New International (Winter, 1958), 3.

[12] David Leonhardt, “Shrinking Like It’s 1958,” New York Times Economix, April 29, 2009, http:economic.blogs.nytimes.com/2009/04/29/shrinking-like-its-1958/?pagemodeprint, accessed 1/29/2010.

[13] “Autos: Break ‘Em Up,” Time, 71(February 17, 1958), 88.

[14] “Slowdown in Detroit,” Time, 71 (March 10, 1958), 82..

[15] Arthur F. Burns, “The Current Business Recession,” The Journal of Business, 31 (April, 1958), 145.

[16] Herbert Brean, “Volkswagen, Go Home!” Life, 45 (July 28, 1958), 82-4.

[17] “Autos: On the Slow Road” Time, 71 (May 12, 1958), 84-89.

[18] “Autos: More and Cheaper Cars,” Time, 72(November 3, 1958), 88.

[19] “Selling Aluminum by the Bucket, Business Week, November 29, 1958, 125-6. On the use of plastics, see Andrew W. Shearer, “Plastics…Drive Ahead in Automotive Field,” part 1, Automotive Industries, 119 (July 1, 1958), 58-63, 77 and part 2, 119 (August 1, 1958), 42—7, 76.

[20] William A. Faunce, Automation and the Automobile Worker,” Social Problems, 6 (Summer, 1958), 68-78.

[21] “The Jobs are Gone Forever,” Business Week, December 29, 1958, 39-40.

[22] James Ward, The Fall of the Packard Motor Car Company (Stanford, CA: Stanford University Press, 1995), p. 250; Thomas Bonsall, Disaster in Dearborn: The Story of the Edsel (Stanford, CA: Standford University Press, 2002), p.154.

[23] Thomas Powers, unpublished paper, “General Motors’ 1958 Reorganization: Transition Away from the Market, “p.20. See also, “GM Lines Up its New Top Men,” Business Week, August 30, 1958, 18; “GM Board Heads for Big Shifts,” Business Week, April 18, 1959; J. Patrick Wright, On a Clear Day You Can See General Motors (Grosse Point, MI: Wright Enterprises, 1978), pp. 184-192.

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