My Years With General Motors

by Alfred P. Sloan Jr.

  1. Must we not look forward to the time when restrictions will be placed upon us and where exportation of American cars will be confined to the higher priced cars and that the real market from the standpoint of volume will, to a large extent, go to locally made cars and through evolution corresponding influence is bound to be felt on the higher priced cars?

  2. Is there not a tremendous opportunity, both on the Continent, in England and overseas, for the production of a car having less of the elements of luxury than the present Chevrolet, providing it is so designed and developed that it can be sold at a price sufficiently lower than the present Chevrolet?

  3. Is it not reasonable to suppose that assuming the second point above is correct, that even if not now . . . through the development of the German industry the point will soon be reached when the difference in cost of manufacture will be less than the tariff and importing charges, especially writing into the picture the handicap of the h.p. tax, in which event importation abroad will be more and more limited?

  4. Is there not an opportunity for the Corporation to protect its large organization, large volume and substantially large profits accruing to it through its Continental and English operations and, to some extent, afford protection to its overseas business elsewhere by investing capital in manufacturing abroad and making a substantial return on that additional capital?

  I concluded with these general admonitions:

  ... I want particularly to say to the members of the Committee individually and to you as Chairman that you should take nothing for granted—every point should be studied and approached with an "Open Mind", without prejudice and with the sole purpose of getting the facts wherever they may lead us. As a matter of fact, this is one of the most important steps from the standpoint of capital investment and expansion of the organization that the Corporation has made since the present management has been connected with its administrative side. The advent of General Motors into the manufacturing situation abroad is bound to stir up a great deal of discussion, both within industrial circles as well as within Government circles, therefore, our reputation for doing a constructive thing and doing it in a constructive way, is in the balance. The Committee has a tremendous responsibility not only to itself but to the whole Corporation in analyzing the problem.

  The study group sailed about the 1st of January, 1929, and on the 18th I brought up the Opel issue—and, indeed, the entire issue of overseas production—before the Finance Committee. The committee was, in general, disposed sympathetically to the Opel deal, and adopted the following resolution unanimously:

  RESOLVED, that to a sub-committee of the Executive Committee instructed to go abroad for the purpose of determining the advisability of purchasing a substantial interest, to close or extend an option held by General Motors Corporation to purchase the entire business of the Opel Automobile Company of Germany for 125,000,000 marks, there be lodged full authority to do in connection with this matter whatever in their opinion is for the best interest of General Motors Corporation; it being understood that, in the event part of the ownership is left in the hands of the Opel management, it is desirable to have such string attached to said interest as will enable General Motors Corporation to acquire same later on (should the future dictate the desirability of such a course in connection with any plans the corporation might have for extending its operations in Europe) on the basis of the original price plus accrued profits.

  It is clear from the above record that the Executive and Finance committees were now in agreement. The subcommittee authorized to close the Opel deal consisted of Fred J. Fisher, a director of the corporation and a member of the Executive and Finance committees, and myself. Early in March we sailed for Europe and met the study group in Paris. The group handed us a report, dated March 8, 1929, which embodied their findings about Opel. The report was complete and the recommendations were crisp and specific. In the covering letter delivered to me, as president of the corporation, the study group said: "We strongly recommend the exercise of the option to purchase upon the terms as modified." The pertinent findings in the report may be summarized as follows:

  (1) The German domestic automobile market was in about the same state of development as the United States market had been in 1911.

  (2) Germany was naturally a manufacturing country, well supplied with coal and iron, with a large population of skilled labor. In order to develop its domestic economy, Germany had to produce and export a surplus of goods and to manufacture at low cost. It followed that to be successful in the German automobile market you had to manufacture in Germany.

  (3) The firm of Adam Opel A.G. was the largest motorcar manufacturer in Germany; it led the low-price field and manufactured 44 per cent of all the German-made cars sold in Germany in 1928 (and 26 per cent of all cars sold in Germany).

  (4) The Adam Opel A.G. factory at Rüsselsheim was well equipped for the manufacture of automobiles. Buildings were well designed. Seventy per cent of the machinery had been purchased during the past four years and had been well selected. Practically all special tools had been written off. The plant was flexible and readily adaptable to new models. A good supply of high-class labor was available.

  (5) Opel had 736 sales outlets, constituting the best dealer organization in Germany.

  (6) The allowance for good will ($12 million) over and above the net tangible assets of the corporation ($18 million) was reasonable. For us to build or equip for manufacturing a new factory in Germany would require at least two or three years before operations could be put on an efficient and profitable basis. The amount paid Opel in excess of net assets would be returned within the time required to start from the ground up.

  (7) The acquisition would give General Motors the Opel dealer organization, and we would acquire a "German background," instead of having to operate as foreigners.

  It was clear to Mr. Fisher and myself that the recommendation of the study group was adequately supported by the comprehensive report. We therefore decided to approve the acquisition of the property, and proceeded to Rüsselsheim, the home base of Adam Opel A.G. In due course we concluded an agreement which was only slightly different from that contemplated at the time I had secured the option. The final agreement provided that we receive an 80 per cent interest in Opel at a cost of $25,967,000; in addition, we received an option to buy the remaining 20 per cent for $7,395,000, and the Opel family received a "put" which entitled it to sell the 20 per cent to us within five years, at a specified scale of prices. The family exercised that option in October 1931 and General Motors thus came into complete ownership of Adam Opel A.G. at an aggregate cost of $33,362,000.

  Though Opel was a well-run company, it was not without management problems, especially at the top policy level. The company also had a problem, as we saw it, with its dealers. Many of them had set up rather elaborate machine shops of their own, in which spare parts could be produced. Adam Opel A.G. had not developed a system of interchangeable parts. When a customer needed a spare part, the distributor had to make the part to fit that particular car; or, if he got a part from the factory, he would have to refit it. That did not make sense to an American producer used to a system of mass production based on interchangeable parts, and we set out to correct this.

  The purchase of Opel gave us a strong position in Germany. The company's 1928 output of about 43,000 cars and trucks was small by American standards, but we made no secret of our plans for a dramatic expansion. Soon after the deal had been completed, Geheimrat Wilhelm von Opel, the company president, brought all its dealers and distributors together at a big meeting in Frankfurt; altogether, some five or six hundred of them came, from Germany and from nearby countries to which Opel was exporting. I spoke to the group about the policies of General Motors. I observed to them that, while Germany was a highly industrialized country, its automobile production was very low by American standards, and that I anticipated Opel production might one day run as high as 150,000 vehicles a year. When the statement was translated
into German, it was received with a good deal of derision. I was viewed as another impractical, visionary American. Yet as I write this, the capacity has been brought up to 650,000 vehicles.

  Soon after we took over Opel, we installed I. J. Reuter as managing director. Mr. Reuter had been general manager of our Olds Division. He was an operating executive who combined a good engineering background with production and sales experience. He was also of German extraction and spoke the language with a fair degree of fluency. It took a good deal of persuasion on my part to get Mr. Reuter to accept the assignment, but he finally yielded; and in September 1929 he and I and several men whom we had chosen to be his assistants made a trip to Rüsselsheim, and formally inaugurated his regime.

  While my own point of view prevailed, in general, in our development of a policy for Germany, Mr. Mooney's recommendations were finally adopted in England. It was clear by 1929 that we either had to build up Vauxhall or else give up on the English market. Mr. Mooney was successful in advocating that Vauxhall should develop a smaller car. In 1930 a lower-priced six-cylinder model was added. The year was also notable for the fact that Vauxhall first entered the commercial-vehicle market. The company gained a strong position in the truck business, but its position in the passenger-car business remained disappointing. I therefore appointed a committee early in 1932 to proceed to England to make a report and submit recommendations for a product program. This committee, under the chairmanship of Albert Bradley, then vice president of finance, recommended that Vauxhall discontinue its current passenger-car lines and then manufacture and sell a smaller and lighter six-cylinder passenger car, to be followed at a later date by a four-cylinder line. The new "Light Six" was introduced in 1933 and the lower-horsepower four in 1937. The committee's recommendations were of lasting significance for Vauxhall. At present Vauxhall's capacity is being expanded to 395,000 passenger cars and trucks on an annual basis.

  In acquiring Opel and building up Vauxhall, General Motors underwent an important change. It was transformed from a domestic to an international manufacturer, prepared to seek markets for its products wherever they existed, and to support these markets with manufacturing and assembly facilities and organizations where the circumstances justified such a course. A high-level determination of policy had been established.

  We were fortunate in acquiring Vauxhall and Opel during the late twenties. For when the great world-wide depression began in 1929, our export business went into a sudden steep decline—as did that of other American producers. General Motors exports from the United States and Canada went from 290,000 vehicles in 1928 to only 40,000 in 1932. Thereafter, they began to grow again, but the growth in our overseas production was more rapid still. In 1933, for the first time, the Vauxhall and Opel sales were greater than the sales abroad of General Motors' American-made vehicles. The biggest prewar year for all overseas operations—domestic and foreign production—was 1937. In that year we exported 180,000 vehicles from the United States and Canada and sold 188,000 vehicles manufactured abroad.

  The future of our entire overseas operations was, of course, very much in doubt after World War II broke out. Assuming the ultimate defeat of the Axis powers, it was still hard to say with any certainty just what political and economic conditions would prevail in much of the world. In 1942 at my suggestion we set up a Post War Planning Policy Group inside the corporation, and entrusted it with the heavy responsibility of making some estimates of the future political shape of the world, and also of recommending future General Motors' policies abroad. I was the chairman of this policv group. Edward Riley, General Motors vice president and the general manager of the Overseas Operations Division, undertook to provide for me and the policy group a detailed summary of the best available thinking on the political and economic situation in the postwar overseas world. Most of these findings are contained in a letter to me dated February 23, 1943. I shall quote at some length from this document, because during the war years it was the guideline of much of our thinking about future overseas operations.

  ... I should like to submit it as our belief [wrote Mr. Riley] . . . that the United States will assume and hold a stronger position and attitude in the world after this war than we did after World War I. By this I mean that regardless of the course of our domestic political developments . . . America, with the past quarter century of experience before it, will not again withdraw into a position of isolation from world problems and activities which, if permitted to run their course without benefit of American guidance, intervention and support, have turned, and can again turn, in directions wholly opposed to our interests . . .

  In England ... we believe certain indications of future events can already be identified.

  Amongst these, as we see things today, is the English determination in important quarters, to compete as a world trading nation on the basis of low costs through efficient production as opposed to the prewar position of cartel-protected basic industries, with resultant high production costs and consequent need for protected markets.

  Another discernible trend in England is the undoubted growing realization that the future well-being and safety of the British Commonwealth can best be protected by closer political collaboration with the United States.

  ... in the light of information available today, we feel that the dominant center-line of Russian political thought will continue to be expressed in terms of peaceful development rather than external conquest through aggressive warlike action . . .

  Russian influence has been directed not only westward toward Europe, but to the south and east as well. Persia, India, China, Manchukuo and even Japan have felt this influence in the past . . . Russia will continue her efforts after the war to maintain this influence in all directions.

  We feel . . . that the Russian social and political philosophy . . . will continue to spread beyond the borders of Russia into areas where conditions favor its acceptance and development . . . The most effective means of counteracting the spread of this Russian philosophy is to prevent or relieve the conditions favorable to its development and to demonstrate that the system of life which represents the American and British point of view can offer as much or more to the mass of the people . . .

  The net result of the foregoing general viewpoints ... is that there will probably be certain lines of demarcation or division to the west, south and east of the Soviet Union, within which the Russian idea will predominate, and outside of which the American and British viewpoint will prevail.

  . . . Based on past experience, the areas under strong Russian influence after the war will probably not present a fertile field for our type of business.

  Though these predictions were put forward only as tentative "educated guesses," they proved to be reasonably good on the whole. I think I might summarize our wartime perspective by saying that we anticipated something like the "cold war"; but at the same time we were confident that our overseas operations would be able to flourish in large areas of the world when the war ended.

  After studying Mr. Riley's report and much other material, our Overseas Policy Group, under the chairmanship of Albert Bradley, adopted in June 1943 a statement dealing with the corporation's plans for expansion abroad. One large question confronting the policy group was whether we wanted to acquire any new manufacturing companies abroad after the war. The statement took note of the world-wide trend toward industrialization, and suggested that this would be continued and intensified. It went on to say that General Motors expected to participate in and support these trends wherever the corporation had overseas operating companies. "However," the statement said, "General Motors does not believe that the basic conditions required to support complete manufacture of cars and trucks exist or will be found to exist for some time in any countries abroad which did not already have such manufacture before the war. An exception to the above is Australia . . ." In other words, except for Australia, we anticipated that we would not want to acquire any more major manufacturing bases abroad when the war end
ed.

  The largest immediate problem we faced after the war concerned the Opel properties. These had been seized by the German government soon after the war began. In 1942 our entire investment in Opel amounted to about $35 million, and under a ruling which the Treasury Department had made concerning assets in enemy hands, we were allowed to write off the investment against current taxable income. But this ruling did not end our interest in, or responsibility for, the Opel property. As the end of the war drew near, we were given to understand that we were still considered the owners of the Opel stock; and we were also given to understand that as the owners, we might be obliged to assume responsibility for the property.

  At this point we were somewhat in the air about resuming control of Opel. We did not know the physical condition of the property, and our tax position was quite unclear. A committee appointed to study the question stated the case as follows in a report to the Overseas Product Group, on July 6, 1945:

  1. Due to the lack of available information as to the condition of the property, no decision can be reached currently as to the advisability or inadvisability of disposing of the stock investment . . .

  2. It would be incorrect to consider that the sale of the stock for a nominal amount at this time would eliminate any further tax liability arising from recovery of the Opel property . . .

  3. The statutes which deal with War Loss recovery, as now written, are not at all clear as to rate of tax on recovery, limit of tax, date of recovery and method of evaluation . . .

  To complicate matters still further, the Russians were demanding that the Opel properties be turned over to them as reparations, and it appeared for a while as though this might actually be done. But in the latter part of 1945, after the war had ended, the American government took a firm position against such a move. I should mention, perhaps, that General Motors played no role at all in any of the discussions concerning the possibility of using the Opel properties as reparations. Indeed, I felt at one point that we could not possibly regard Opel as a money-making operation. In a letter to Mr. Riley dated March 1, 1946, I wrote: