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Trust and Power: Consumers, the Modern Corporation, and the Making of the United States Automobile Market

Author(s):Clarke, Sally H.
Reviewer(s):Offer, Avner

Published by EH.NET (April 2009)

Sally H. Clarke, Trust and Power: Consumers, the Modern Corporation, and the Making of the United States Automobile Market. Cambridge: Cambridge University Press, 2007. xviii + 296 pp. $50 (cloth), ISBN: 978-0-521-86878-5

Reviewed for EH.NET by Avner Offer, Department of History, University of Oxford.

Making, selling, buying, and using cars involves risk. This fine book investigates the interactions of three groups of stakeholders: manufacturers, consumers, and dealers. The organizing idea is the allocation of this risk between stakeholders in bilateral transactions. The risks and their incidence altered as technologies matured, as experience accumulated, and as institutions developed. Consequently, the book proceeds chronologically in three parts, up to 1916, from then up to 1941, and the post-war period to 1965. Some issues are specific to a period, others recur. The initial years presented high risks both for makers and for users. Factories faced new challenges as they learned to design and assemble their vehicles, and strove to sell them. Buyers and users faced radical unreliability, and risks to life and limb. Chapter 2 is about what the author calls “the problem of social costs.” The term is taken from Coase, but its use here is confusing: it describes the infliction of private costs on individuals in the form of mechanical breakdown and physical harm. The author tells how judges gradually shifted liability away from the user, and towards manufacturers. One of the puzzles of industrial organization is the outsourcing of retail car sales to franchised dealers. The author has an interesting explanation: it was to insulate the manufacturer from product liability. I do not find this entirely convincing. In the New Institutional Economics risk ends up with those who are best placed to bear it. A large corporation can cope with risk and rectify it better than a car dealer or user. The Coasian insight suggests that in a competitive market, manufacturers should be willing to accept the risk and incorporate it in prices; indeed, that is what the courts nudged them to do. If risk has indeed ended up with the factory, then it is not clear why franchise has persisted, unless one invokes path dependence, which is not an elegant explanation, and appears unlikely. Chapter 3 deals with marketing strategies, and focuses on the General Motors policy of product differentiation and updating, Alfred Sloan?s “car for every purse and purpose.” Chapter 4 explores the uncertainty that arose out of engineering innovation, and its effect on quality control and the competitive position of different companies. Chapter 5 is about styling risk, with a focus on Harley Earl and his design studios. The final chapter here extends our understanding of the dealer?s role in helping to match supply to demand. The dealer was paid to absorb pressures from both the factory and the buyer. My own hunch (which requires further research) is that effective selling requires a type of motivation and local knowledge which the factory was not able to supply. Dealers could refine the arts of price discrimination, and the factory twisted their arm to go the extra yard. The final substantive chapter describes the mature car economy of the first two post-war decades. It depicts the car in American household life, the problems of affording it, and its larger meanings in those early Cold War years.

For an industry that has been so thoroughly studied, it is not easy to come up with something new. The book is full of incident, anecdote, argument, and detail ? a bonanza for highbrow car buffs. Documentation is deep. Footnotes often occupy a quarter of every page, and the proportion is sometimes reversed. Every subsequent investigator will begin with this book. I was particularly impressed by the breadth and depth of the primary sources cited. Uncertainty, risk, trust, and bargaining, are excellent framing devices and flag the right questions. Some fascinating legal discourse is cited, both conceptual and from case law. At heart the method is historical. The author goes out, reads everything, and reports back. The narrative is well paced, full of new detail and observational insights. But it does not work so well as social science. If an issue is found in the sources, the author will flag it and report the evidence in detail. But the issues provide signposts rather than structures. The task is not conceived as using evidence to resolve analytical questions. Conundrums are richly illustrated, but we do not get much closer to their resolution. For example, the division of labor between manufacturers and dealers is a fascinating problem. The author puts forward arguments, but does not seem to realize what kind of evidence would be required to clinch them. With regard to product differentiation, she does not cite the analytical literature on fashion cycles in the industry. The issue of depreciation is not properly dealt with, although it is the main cost of car ownership, is influenced by model change, and has also produced a literature. The engineering implications of model changes are not dealt with deeply. Credit is described impressionistically rather than analytically or structurally. The cost of ownership and how it fitted into family budgets is addressed at length, but only discursively. Likewise, the neglect of small cars is not approached as a strategic problem, but anecdotally. But no book can do everything. There is a great deal here, and other writers will take these issues further.

There is also a poignant quality which is almost elegiac, even if this may not be intended. As the book appeared, the great North American car firms appeared to be driving into their sunsets. General Motors, at the heart of this study, is on the brink of bankruptcy; Chrysler and Ford are ailing too. A decade or two down the road, we can glimpse the end of the internal combustion car. This book will stand as a memorial to the times when the highway still beckoned. (This book?s author, Sally H. Clarke, is Professor of History at the University of Texas at Austin.)

Avner Offer, All Souls College, University of Oxford, is the author of ?The Markup for Lemons: Quality and Uncertainty in American and British Used-Car Markets, c. 1953-1973,? Oxford Economic Papers, vol. 59, 5, Supplementary issue (2007), pp. i31-i48. His book The Challenge of Affluence: Self Control and Well-Being in the United States and Britain since the 1950s (Oxford University Press, 2006) includes a chapter titled ?The American Automobile Frenzy of the 1950s.?

Subject(s):Transport and Distribution, Energy, and Other Services
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII