When Model T production was in full swing, Ford absolutely dominated the U.S. car market. And yet, by the thirties their lead had evaporated and GM's Chevrolet brand topped the sales charts for decades thereafter. (Only in the late eighties, thanks mainly to the Taurus and a parade of uninspired GM products, did Ford climb back into first place.)
How did FoMoCo blow its seemingly insurmountable lead during the reign of Henry Ford?
Sliiiight nitpick here. The reason Chevrolets outsold Model-Ts in 1929 is because Ford stopped producing them in 1927. The figure you should probably be comparing against is the Model-As, which began production that same year. And in 1929, Ford produced 1.5 million Model-As, compared to Chevy's 1.3 million.
But that doesn't change your premise.
Ford was kind of a victim of his own success. The Model-T was so devastatingly success because Ford was able to simply the car to its most basic, and then built them faster than anyone could keep up with. They were solid cars, easy to maintain, and most importantly, cheap.
Cars up until this time had been exclusively out of the price range of the middle class. The Model-T and the first Chevy rolled out in the same year--1913. The Chevrolet Series C started at $2,150, not an outrageous price for the time. The Model-T? $525. It's not a surprise that Chevy built just under 3,000 cars that year, compared to Ford's 170,211.
However, by the mid '20s, other car manufacturers had cottoned onto the fact that there was a market for cheap cars. Chevy rolled out the Series F Superior in 1924 for $525 (Ford slashed its price to $265 that year), and Chrysler created the Plymouth line to compete in the market in 1928. The first Plymouth Model Q Coupe started at $655.
However, even at two or three times the price of a Model-T, consumers still flocked to the new brands. Why?
One of his problems, however, was that General Motors was changing models each year to incorporate new technology and cater to fashions in style. Ford’s strategy of manufacturing a good car, putting it on the assembly line, and selling it almost unchanged for 15 years no longer appealed to American consumers. Ford, however, was stubborn and slow to change his ways. The sales of the Model A dropped steadily during the early 1930s, and Ford fell permanently behind General Motors in car sales. Even his development of the powerful V-8 engine in 1932 did not win him back most of his old customers.
-- "Henry Ford and the Triumph of the Auto Industry", by Burton Folsom
GM (and Chevy) did go on to steal market share from Ford. By 1936, GM held 43% of the total market, Chrysler 25%, and Ford 22%, because they could deliver what Ford couldn't--style.