Car phones worked on cellular technology, the same way as modern cell phones. That’s not a long enough answer so I’ll just say they usually were very expensive and had a speakerphone system installed by default with the option to pick up the receiver and hold it like an old fashioned phone. My dad had one for years before it became obsolete by just having a cell phone. He liked it for the quality of the speakerphone system versus cellphones at the time. He could also get good reception with bigger antennas installed directly on the car.
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