My Years With General Motors

by Alfred P. Sloan Jr.

  It seems appropriate in this connection to speak of General Motors as an institution. In the corporation there is an atmosphere of objectivity and enjoyment of the enterprise. One of the corporation's great strengths is that it was designed to be an objective organization, as distinguished from the type that gets lost in the subjectivity of personalities.

  Let me say, however, that my experience tells me that there is no simple formula in this matter of organization. The role of personality can be so important that sometimes it is necessary to build an organization, or rather perhaps a section of it, around one or more individuals rather than to fit individuals into the organization. This will be seen in rather dramatic form in my account of the development of our early engineering staff work. Great constraint, however, is required when any part of a corporation has to be adapted to an individual, because there are limits to this process as well as to the other. And as I have said above, it is imperative for the health of the organization that it always tends to rise above subjectivity.

  If I have expressed or implied in this book a so-called ideology, it is, I suppose, that I believe in competition as an article of faith, a means of progress, and a way of life. It should be recognized that competition takes various forms: General Motors, for example, has competed with other enterprises as a type of organization (decentralized) and in its long-range way of doing business (upgrading the product), as well as in the usual day-to-day business activities. The elder Henry Ford, on the other hand, believed more in centralized organization and in a static car model. Such competition in basic policy has at times been decisive. We proceeded, too, with a belief in progress, which is evident in our forward investment planning. We set out to produce not for the chosen few but for the whole consumer public on the assumption of a continuously rising standard of living. Our interpretations of the significance of the rising standard of living marked an important difference between us and others in the formative years of the modern market.

  The area in General Motors that I have staked out for this book is one that is not usually visible. It extends from the board of directors to the producing divisions, and consists of the general administration, the executive officers, the policy committees, the line and staff organization, and the interactions between the producing divisions; in other words, the area in which the part contributes to the whole and the whole to the part. Not the interior of the producing divisions, therefore, but the interior of the constellation we call General Motors is my subject.

  The book is divided into two parts. Part One is an integrated, continuous story of the main lines of General Motors' progress, involving the origin and development of the corporation's basic management concepts in the areas of organization, finance, and product. Part Two consists of individually distinct sections dealing in some detail with engineering, distribution, overseas operations, war and defense products, incentive compensation, and other aspects and branches of the enterprise. I have not, however, attempted to be comprehensive. It would have been an impossible undertaking for me to try to tell the whole story of General Motors, covering more than a half century. I have selected—as all authors must—largely from my own experience, and I am prepared to be judged accordingly.

  The approach of this book is to deal with business from the logical point of view, and to combine ideas and history. The structure of the book, particularly the sequence of chapters in Part One, resulted from a consideration of the logic of management in relation to the events of the automotive industry. There were, of course, other possible approaches, psychological, sociological, subjective, and so forth. The logical approach was chosen because it made possible the presentation of a large amount of complex material in a limited space. It also made it possible to give a clear view of the business as a business. Such an approach was appropriate to the subject of General Motors, since one aspect of the corporation's business strategy has been a conscious effort to be objective in the pursuit of business aims.

  Necessarily, I have emphasized work done in times past, when many long-term, basic policies were first laid down. I recognize, however, that in the operation of the corporation year in and year out, new creative efforts have to be continuously made which result in refining and modifying the early policies. Furthermore, new policies have to be formulated to meet new conditions. Change, as I have often said, means challenge, and the ability to meet challenge is the sign of good management. Far-reaching changes in product, demand, and outside pressures have had to be met to maintain General Motors' growth and prosperity. Indeed, the present management of General Motors is meeting and taking care of entirely new problems unique in its generation.

  Part One

  Chapter 1 - The Great Opportunity—I

  Two events occurred in 1908 that were to be of lasting significance in the progress of the automobile industry: William C. Durant, working from his base in the Buick Motor Company, formed the General Motors Company—predecessor of the present General Motors Corporation—and Henry Ford announced the Model T. Each of these things represented more than a company and its car. They represented different points of view and different philosophies. History was to assign these philosophies to leading roles in the automobile industry in successive periods. Mr. Ford's was to come first, to last nineteen years—the life of the Model T— and to bring him immortal fame. Mr. Durant's pioneer work has yet to receive the recognition it deserves. His philosophy was an emerging one in the Model T era and was afterward to be realized not by him but by others, including myself.

  No two men better understood the opportunity presented by the automobile in its early days than Mr. Durant and Mr. Ford. The automobile was then widely regarded, especially among bankers, as a sport; it was priced out of the mass market, it was mechanically unreliable, and good roads were scarce. Yet in 1908, when the industry produced only 65,000 "machines" in the United States, Mr. Durant looked forward to a one-million-car year to come— for which he was regarded as a promoter of wildcat ideas—and Mr. Ford had already found in the Model T the means to be the first to make that prediction come true. The industry produced more than a half-million cars in the United States in 1914. In 1916 Mr. Ford alone produced more than a half-million Model Ts and at his high point in the early 1920s he produced more than two million in one year. The downfall of that great car in later years, after it had served its historic purpose, is one of the pivotal facts of this story.

  Both Mr. Durant and Mr. Ford had unusual vision, courage, daring, imagination, and foresight. Both gambled everything on the future of the automobile at a time when fewer were made in a year than are now made in a couple of days. Both created great and lasting lines of products whose names have been assimilated into the American language. Both created great and lasting institutions. They were of a generation of what I might call personal types of industrialists; that is, they injected their personalities, their "genius," so to speak, as a subjective factor into their operations without the discipline of management by method and objective facts. Their organizational methods, however, were at opposite poles, Mr. Ford being an extreme centralizer, Mr. Durant an extreme decentralizer. And they differed as to products and approach to the market.

  Mr. Ford's assembly-line automobile production, high minimum wage, and low-priced car were revolutionary and stand among the greatest contributions to our industrial culture. His basic conception of one car in one utility model at an ever lower price was what the market, especially the farm market, mainly needed at the time. Yet Mr. Durant's feeling for variety in automobiles, however undefined it was then, came closer to the trend of the industry as it evolved in later years. Today each major American producer makes a variety of cars.

  Mr. Durant was a great man with a great weakness—he could create but not administer—and he had, first in carriages and then in automobiles, more than a quarter century of the glory of creation before he fell. That he should have conceived a General Motors and been unable himself in the long run to bring it off or to sustain his pers
onal, once dominating position in it is a tragedy of American industrial history.

  It may not be generally known that at the turn of the century Mr. Durant—who had started from scratch—was the leading wagon and carriage producer in the United States; that he entered and reorganized the failing Buick Motor Company in 1904 and by 1908 was the leading motorcar producer in the country. He built 8487 Buicks in 1908, as compared with a production in that year of 6181 Fords and 2380 Cadillacs.

  Mr. Durant incorporated the General Motors Company on September 16, 1908. Into it he brought first Buick, on October 1, 1908; then Olds, on the following November 12, and then, in 1909, Oakland and Cadillac. The old companies retained their corporate and independent operating identities in the new one, which was a holding company—that is, a central office surrounded by autonomously operating satellites. By various means, mainly exchanges of stock, Mr. Durant between 1908 and 1910 brought into General Motors about twenty-five companies. Eleven were automobile companies; two were electrical-lamp companies, and the remainder were autoparts and accessory manufacturers. Of the automobile companies, only four, Buick, Olds (now Oldsmobile), Oakland (now Pontiac), and Cadillac, were to have a permanent place— first as companies, later as divisions—in the evolution of the corporation. The other seven early automobile companies were only shadow enterprises; they had principally engineering designs and little plant or production.

  Putting together organizations in that period often involved "stock watering" and other manipulations, and this financial alchemy sometimes changed water into gold. I doubt whether that can be said to be the case when the General Motors Company was formed, for Buick was a very profitable enterprise before it became the cornerstone of General Motors. It earned about $400,000 on about $2 million in sales in 1906; about $1.1 million on $4.2 million in sales in 1907, a year of national economic "panic"; and an estimated $1.7 million on $7.5 million in sales in 1908—clearly a nice growth and profitability.

  But Mr. Durant was interested in consolidation, through the extension of his product lines and through integration. He was advanced for his time in his general methods of production. Unlike most early motorcar producers, who merely assembled components made by the parts manufacturers, Mr. Durant already had Buick making many of its own parts, and he expected to bring about increasing economies in this direction. A prospectus of his for an unrealized consolidation of Buick with Maxwell-Briscoe Motor Company in 1908 specifies economies expected in purchasing, sales, and integrated production. It notes that one of Buick's plants in Flint "is situated in the midst of a group of 10 independent factories which manufacture bodies, axles, springs, wheels and castings" and reports that options were held on some of them. Mr. Durant thus showed a considerable sophistication in economic matters, very different from the popular image of him as a mere stock-market plunger. I cannot say that he was precise in the application of his economic philosophy; but he emerged prominently from a period that saw the birth and death of a great many automobile companies.

  I see three simultaneous patterns in the way Mr. Durant set up General Motors. The first was variety in cars for a variety of tastes and economic levels in the market. That is evident in Buick, Olds, Oakland, Cadillac, and, later, Chevrolet.

  The second pattern was diversification, calculated, it seems, to cover the many possibilities in the engineering future of the automobile, in search of a high average result instead of an all-or-none proposition. Among the nonsurvivors in General Motors, there was, for example, the Cartercar, which had a "friction drive" that was then considered a potential rival of the sliding-gear transmission; and also the Elmore Manufacturing Company, an outgrowth of a bicycle-manufacturing enterprise, which had a two-cycle motor that looked as if it might have a chance for a demand of some kind. There were a number of other random gambles which I*shall only name: the Marquette Motor Company, the Ewing Automobile Company, the Randolph Motor Car Company, the Welch Motor Car Company, the Rapid Motor Vehicle Company, and the Reliance Motor Truck Company. The last two were combined and named Rapid Truck, which was absorbed by the General Motors Truck Company, organized on July 22, 1911.

  The third pattern in Mr. Durant's arrangements was his effort, mentioned in connection with Buick, to increase integration through the manufacture of the parts and accessories that make up the anatomy of the motorcar. Mr. Durant brought into the original company a number of component manufacturers: the Northway Motor and Manufacturing Company, an enterprise producing motors and parts for passenger cars and trucks; the Champion Ignition Company of Flint, Michigan, a manufacturer of spark plugs, later renamed the AC Spark Plug Company; the Jackson-Church-Wilcox Company, a manufacturer of parts for Buick; the Weston-Mott Company of Utica and later of Flint, a producer of wheels and axles; and others. He also brought in the McLaughlin Motor Car Company, Ltd., of Canada, which had been a fine-carriage maker. This company bought Buick parts and manufactured the McLaughlin-Buick car in Canada. This move brought into association with General Motors the talents of R. Samuel McLaughlin, who was to be largely responsible for the development of General Motors in Canada.

  Not all of these additions were companies acquired by Mr. Durant. He created Champion Ignition, for example, by putting up all the money, and gave Albert Champion 25 per cent for his knowhow. It remained a partially owned subsidiary until 1929, when General Motors purchased the minority interest from Mr. Champion's widow.

  Altogether, from the standpoint of potential integration, Mr. Durant brought into General Motors in the beginning an important group of component enterprises. On the other hand, he also paid more for a property called the Heany Lamp Companies, which became worthless, than he did for Buick and Olds combined. The Heany shares were purchased at a cost of about $7 million, paid for principally in General Motors securities. Heany's main asset consisted of an application for a patent for tungsten lamps, which the Patent Office later threw out.

  Mr. Durant's approach, whatever its validity might have been in the long run, was in the short run his undoing. For Buick and Cadillac, especially Buick with its combination of quality and volume, were about all the substance there was to the original General Motors. They accounted for most of its car production, which in 1910 represented about 20 per cent of the automobile output in the United States. The rest of the company's cars were of little consequence. And so, as it turned out, General Motors was soon overextended and in financial difficulties. In September 1910, just two years after he created the General Motors Company, Mr. Durant lost control of it.

  An investment banking group, headed by James J. Storrow of Lee Higginson and Company of Boston and Albert Strauss of J. and W. Seligman and Company of New York, came in to refinance General Motors and in this connection took over its operation through a voting trust. A loan was obtained on stiff terms, through a $15million five-year note issue, from which the proceeds to General Motors were $12,750,000. The note issue carried a "bonus" to the lenders in the form of common stock which would eventually be vastly more valuable than the notes. Mr. Durant, a large shareholder in General Motors, was still a vice president and member of the board of directors, but he was forced to step aside in matters of management.

  For five years thereafter, from 1910 to 1915, the banking group ran the General Motors Company efficiently though conservatively. They liquidated the unprofitable units, writing off about $12.5 million—a huge amount at that time—in the value of inventories and other assets. They organized the General Motors Export Company, on June 19, 1911, to sell General Motors products overseas. The automobile industry as a whole expanded rapidly during this period, from about 210,000 units in 1911 to about 1.6 million units in 1916, due mainly to Ford's operations in the low-price field. General Motors increased its sales from about 40,000 units in 1910 to about 100,000 in 1915 but lost in relative position—down from 20 per cent to 10 per cent of the market in units—owing to Ford's rise. General Motors was not then represented in the low-price field. The company, however, was in good shape financ
ially. Its efficiency in operations was due largely to its then president, Charles W. Nash.

  Mr. Nash came to General Motors in this way. He had been with Mr. Durant in the Durant-Dort Carriage Company for about twenty years and had stayed on as manager there when Mr. Durant first went into the automobile business. He was as steady and careful as Mr. Durant was brilliant and daring—or reckless, as you may choose to call it. In 1910 Mr. Nash had had little experience in automobiles, but he had demonstrated talent in the art of manufacturing and administration. It was, I understand, at Mr. Durant's suggestion that the banker, Mr. Storrow, engaged Mr. Nash to take over the management of Buick. In any event, Mr. Nash became president of the Buick subsidiary in 1910 and did so well there that he went on to become president of the General Motors Company in 1912. (Note 1-1.)

  It was no accident that Buick remained the mainstay of General Motors throughout its early years. It had a management of stars. Mr. Storrow, a director of American Locomotive, discovered Walter P. Chrysler in one of that company's shops and recommended him to Mr. Nash. Mr. Nash hired Mr. Chrysler in 1911, I believe, as works manager of Buick. In 1912, when Mr. Nash moved up to be president of General Motors, Mr. Chrysler remained at Buick, where he was later to be president and general manager. Between 1910 and 1915, the period of banking control, Buick together with Cadillac continued to make just about all the profits of the General Motors Company.

  General Motors at that time needed the prestige which the banking group gave it. The proceeds of the $i5-million five-year note issue enabled the company to liquidate its past-due obligations, but working capital still was needed. This made necessary large borrowings from banks, which at one period rose to about $9 million. By 1915, however, General Motors was in such good financial condition that the directors, at a meeting on September 16 of that year, declared a cash dividend of fifty dollars a share on the common stock, the first cash dividend since the founding of the company seven years earlier. This action involved a distribution of over $8 million divided among the then 165,000 shares, and it amazed the financial community, for it was the largest cash dividend per share ever declared on a stock listed on the New York Stock Exchange up to that time. The minutes of the board meeting say that the motion to declare this dividend was made by Mr. Nash and supported by Mr. Durant. However, the period of the voting trust was running out and a momentous conflict between Mr. Durant on the one hand, and the banking group and the Nash management on the other, was brewing as Mr. Durant sought to regain control of the company.