Abstract

"Scaling Production: A Re-Examination of Detroit’s Emergence as the Hub of the American Automobile Industry"

Sandeep Pillai, Bocconi University (sandeep.pillai@gmail.com)

How did Detroit become the hub of the American automobile industry? Klepper proposed the most prominent explanation for this in his influential 2007 article. He suggests that the fortunate placement of Ford, Olds, Cadillac, Buick, and GM in Detroit and the strategic disagreements within these firms resulted in their employees leaving and starting their spinoffs in Detroit. These Detroit spinoffs were more successful than spinoffs elsewhere, resulting in agglomeration in Detroit. In this study, we decided to re-examine this explanation due to two observed anomalies. Firstly, missing from Klepper’s analytic consideration, which primarily relies on the analysis of firm survival, is another measure of performance: the number of cars manufactured by each firm. Secondly, a deep reading of firm histories suggests that some of the key firms considered to be spinoffs and could bias the analysis in favor of spinoff theory may not necessarily be classified as spinoffs. Thirdly, because Klepper’s analysis spans from 1895-1941, the spinoff theory may have been biased by the later-stage outcomes of firms.

Our analysis suggests that the formation of spinoffs does not sufficiently explain the emergence of Detroit as the hub. We suggest that Detroit’s emergence occurred earlier than previously suggested - it became the leader of the early American automobile industry by 1903 and emerged as its undisputed hub by 1910. We argue that Detroit became the capital of the American automobile industry because it solved the complex problem of manufacturing automobiles. Specifically, by 1910, Detroit had multiple firms that made gains in figuring out the complex process of manufacturing cars, and Detroit had a greater number of manufacturers than others. Further, we suggest that Detroit firms resolved the manufacturing problem by engaging in economic experimentation, launching products in the market, and learning about the interdependencies between technology, market expectations, and product capabilities.