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I think the real reason was simpler—competition. Ford, Chevy, Dodge, Pontiac, and Oldsmobile were all fighting for market share. Engine selection was a way to differentiate yourself when the cars looked basically the same.

The nostalgia around this era ignores how unreliable many of these engines were. You could get a 400-cubic-inch Oldsmobile or a 350 Chevy in the same car, but build quality varied wildly depending on which factory made it.