The modern automobile can be traced back to the development of a gasoline-powered internal combustion engine in the 1880s by German automobile pioneers Karl Benz and Gottlieb Daimler. Before Benz and Daimler, inventors working independently all over the world had experimented with self-powered vehicles, mostly using steam, but these early steam-powered automobiles were noisy, dangerous, and cumbersome. The design and manufacture of gasoline-powered automobiles soon began to flourish in the United States. Charles Duryea and Frank Duryea built the first U.S. model in 1892–93.

Three main factors in early 20th-century America signaled the automobile’s success in this country: the nation’s rapid population growth, its large and expanding middle class, and its geographic vastness. American automobile manufacturers needed an efficient and affordable new method of producing their cars. Henry Ford believed that mass-produced cars could and should be affordable to the average person. He wanted to build “a car for the great multitude.” This car was the Model T. It first sold for $950 in 1908 (a price tag most middle-class Americans could not afford), but went down drastically in price as Ford’s assembly line became more efficient; it sold at $360 in 1916 and as low as $290 in 1926. In his efforts to make the Model T more affordable, Ford developed a moving conveyor belt for his assembly line. Speed and efficiency of car manufacturing was greatly improved from this point on.

Henry Ford was also a pioneer in employee management. He believed strongly that workers who were happy and successful at home could be more productive on the job. He implemented the five-dollar day (a profit-sharing plan) in 1914, a high wage for the time, and lines of men seeking jobs formed outside his factories. In order for a worker to receive his share of the profits, the company required that “he must show himself to be sober, saving, steady, industrious, and must satisfy the staff that his money will not be wasted in riotous living.” Ford also encouraged his workers to purchase Ford vehicles.

Ironically, it was Henry Ford’s good intentions that laid the groundwork for unionized labor in the auto industry. Many employees did not like the control Ford exercised over their lives and added this protest to already growing discontent over working conditions that often included long days, few breaks, and increases in assembly-line speed by management. The United Auto Workers (UAW) union was founded in Detroit in 1935. Through the years it has lobbied the industry for benefits such as pensions, unemployment for laid-off workers, and cost-of-living wage increases. The largest and longest postwar strike was from November 1945 to March 1946, by the UAW against General Motors (GM).

By the end of World War I, Ford was the dominant American automobile manufacturer. Ford’s only potential U.S. competitor at the time was General Motors. General Motors was founded in 1908 in Flint, Michigan, by carriage manufacturer William Durant. By the mid-1920s, a new major competitor to Ford and General Motors joined the market. Walter Chrysler took over the failed Maxwell Motor Company in 1925 and founded the Chrysler Corporation, thus completing the so-called Big Three of the American automobile industry.

After World War II, the world output of automobiles skyrocketed from 10 million a year in 1950 to 30 million a year in 1970. During this period, the United States lost its dominance in automobile production to the Japanese automakers, who soon became the world leaders.

In the 1970s, Japanese automobile manufacturers made the next big advancement in the industry with their implementation of highly specialized computer automation to the assembly line. It was not until the 1980s that American manufacturers began employing similar types of automation in their assembly lines.

Environmental regulations and the high price of gas in the 1970s and 1980s ushered a shift in American automobile preferences to the smaller, more fuel-efficient cars made by the Japanese and Europeans. Although the industry experienced six years of consecutive growth during the 1980s, 1989 through 1991 were dismal years for the U.S. industry. Sales finally went up in the mid- to late-1990s. Today, the automobile industry’s success fluctuates on a quarterly basis.

In the 1980s, as the global economy became more prevalent and definable, the larger automobile manufacturers became multinational corporations by opening facilities, called transplants, in other countries. Transplant operations allow foreign manufacturers to bypass costly tariffs and unpredictable fluctuations in foreign exchange rates, which are reflected in a vehicle’s price. In 2006, Toyota Motor Company surpassed Ford to become the second-largest carmaker in the United States, behind General Motors, and still retained a commanding lead in 2014. Having invested heavily in making SUVs and other larger vehicles, American car manufacturers have struggled to compete.

The Great Recession hit this industry particularly hard, with consumer new-car sales dropping drastically in the 2008–09 time period. This caused auto manufacturers to severely cut production and employment; two of the three U.S. automakers (General Motors and Chrysler) filed for bankruptcy, but have since emerged. Government intervention, through economic bailouts, a stronger economy, and slowly rebuilding consumer confidence are gradually helping this industry, but the outlook for U.S. auto manufacturing remains difficult to predict. Foreign automakers with plants in the U.S. were not immune to the uncertainty. In 2009 and 2010, a recall of many Toyota vehicle models with a faulty gas pedal damaged the company’s reputation and cost it billions of dollars spent to repair recalled vehicles and manage the crisis. Volkswagen also reported profit losses in 2015, due to a scandal over its cars that were designed to cheat on emissions tests.

Today the auto industry looks toward a future producing more fuel-efficient vehicles to comply with government's changing fuel economy standards and the need to reduce dependence on fossil fuels. Cars are also becoming increasingly computerized and offering onboard GPS and Wi-Fi capabilities. Some auto manufacturers are even experimenting with self-driving cars.