One hundred years ago this week, Henry Ford brought the automobile to the American people with the cheap, reliable, mass produced Model T. In the century that followed, Ford and other American auto manufacturers grew to become some of the most powerful, successful corporations in the world. 

But centennial celebrations in Detroit have not been joyous.  Ford posted a $9 billion dollar loss in the second quarter of 2008, and it’s not as if the prior years had been especially rosy. General Motors and Chrysler have been suffering from similar problems, while around the world, foreign manufacturers are thriving. So what went wrong?

In many ways, it was a lack of innovation that brought Ford to its current precarious situation. At the time of its release, the Ford Model T averaged between 13 and 21-miles-per gallon;  today the average Ford light truck gets a mere 22.2.  Some might argue that for a majority of Ford’s existence, there has been no market pressure to create more fuel efficient vehicles, and to a certain extent, that’s true; between 1908 and 1970, the real cost of gasoline actually declined.

When Honda released its innovative Insight hybrid in 1999, American manufacturers took little notice. American companies didn’t produce a single hybrid until 2004, when the Ford Escape was launched, and since then a continued lack of attention to smaller, more efficient cars has brought record losses to the industry.

Still, American manufacturers aren’t dead in the water. Ford and other manufacturers create a variety of smaller cars for European markets, which they have now pledged to bring to American markets.  Chevy has built on GM’s experience with the EV1 to create the Volt, a sporty-looking plug-in hybrid that can runs entirely on electricity for 40 miles. It’s due to be released in 2010. GM is cutting  back on truck and SUV production and will focus more on smaller cars.

The only question now is whether the American auto giants can ride out more foreign competition in an increasingly rough market until these initiatives pay dividends.