My personal conviction, be it right or wrong, is that under existing circumstances ... so far as we can see, there is no justification whatsoever of General Motors taking any operating responsibility commensurate to what it was carrying before the war, from the standpoint of making a profit ... It does not appear to me that a limited market such as indicated in your assumptions justifies all that we would have to go through . . .
My pessimistic conclusion, I am afraid, reflected a good deal of the emotional impact of the war and its devastation, and of course the large number of unknowns in the Opel situation tended to intensify my feeling. This feeling changed as the future unfolded and facts evolved out of the area of unknowns. Negotiations between General Motors and the Allied Military Government in the American zone of Germany continued during the next two years. General Lucius D. Clay, the American military governor, made it clear to us that he was in favor of our taking the properties back as soon as possible. He emphasized that if we delayed indefinitely the properties must pass to a custodian appointed by the German State.
On November 20, 1947, the Operations Policy Committee recommended to the Financial Policy Committee that General Motors resume control of Adam Opel A.G. This recommendation was in line with the findings of the Overseas Policy Group, which had also recommended resumption of control.
On December 1, 1947, the Financial Policy Committee considered the matter and directed the appointment of a study group to review all the facts about Adam Opel A.G. as they then existed. This group was appointed by C. E. Wilson, then president of the corporation. Its chairman was B. D. Kunkle, an operating executive with experience and competence. Its other members included E. S. Hoglund of our overseas operations; Frederic G. Donner, then vice president in charge of finance; Henry M. Hogan, then general counsel, and R. K. Evans, vice president, an executive experienced in engineering and production who had had many years of overseas experience.
The group left New York on February 11 and returned on March 18. During that interval they closely examined Opel's financial situation and interviewed military-government representatives in Berlin, Frankfurt, and Wiesbaden, and also many Germans, including Opel executives, important German suppliers, local representatives of the German government, and officers of the Opel Works Council. Before they completed their observations the study group also contacted industrialists, bankers, and government officers in England, Holland, Belgium, and Switzerland, and representatives of the U. S. State Department and U. S. Army in Washington.
The study group's findings were submitted to the president of the corporation on March 26, 1948. The group presented its report in the form of a balance sheet showing the points in favor of resuming control as well as those against it. Its own recommendation was that we resume control of Adam Opel A.G. However, the Financial Policy Committee, at its meeting of April 5, 1948, questioned the justification for General Motors resuming the responsibility for operation of Adam Opel at the time. The minutes of that meeting show the following:
Report dated March 26, 1948 ($580) was received from the special committee appointed by the President to examine the desirability of resuming operations in western Germany.
It was the conclusion of the [Financial Policy] Committee that, in view of the many uncertainties surrounding the operation of this property, the Corporation is not justified in resuming the responsibility for its operation at this time . . .
The Overseas Policy Group held a meeting on April 6, 1948, and discussed the conclusions reached at the April 5 meeting of the Financial Policy Committee. After further consideration of the report submitted by the special study committee, the opinion was expressed that the generally unfavorable attitude of the Financial Policy Committee toward resumption of operating control of Adam Opel A.G. arose largely from uncertainty in the minds of the various members of the committee with respect to certain important aspects of the situation. The group thought that these uncertainties might be boiled down to a few basic questions. In the discussion I urged that if a majority of the points of uncertainty were clearly set forth and clarified in a brief memorandum they might provide a basis for reopening the question of resuming control with the Financial Policy Committee. I suggested that Mr. Riley undertake the preparation of basic material for such a memorandum and stated that if upon completion it was agreed that the points thus dealt with possessed sufficient substance and effectiveness, I would be willing to submit a further report and to request the Financial Policy Committee to reconsider the entire matter.
Mr. Wilson, in a letter to me dated April 9, 1948, had pointed out that the Opel situation had been much in his mind since the Financial Policy Committee action. Excerpts from this letter are as follows:
... I was surprised Monday to find myself the only member of the [Financial Policy] Committee who was willing to resume operations in Germany, with the exception of Mr. Donner who concurred in and supported the unanimous recommendations of the special committee of which he was a member . . .
It is obvious to me, however, that the matter cannot long be left in its present status, and that it will again have to be considered by the FPC. I do not believe that such a review should be undertaken until after the election in Italy and until Walter Carpenter and Albert Bradley can join in the discussion and share in the responsibility for the final decision . . .
In reply to Mr. Wilson's letter to me I wrote him under date of April 14, 1948, in part as follows:
. . . You state you were surprised Monday to find yourself the only member of the Committee who was willing to resume operations in Germany, with the exception of Mr. Donner and perhaps Mr. Bradley. That is not correct. So far as I am concerned, I have been willing right along to resume operations in Germany. And still am willing to do so, providing I have a definite bill of particulars which I can consistently support . . .
I came into the meeting of the FPC with the hopes that we could lay down certain definite principles along the lines of your assumptions. I urged that this be considered. In their absence I was forced, against my fundamental convictions, to take the negative position . . .
I agree with you that the matter is in very unsatisfactory condition at the moment. I felt so at the close of the meeting on Monday, and even more so after the subsequent discussion on Tuesday. It was for that reason that I urged on Tuesday, the same as I tried to have considered on Monday, a concrete proposal setting forth the conditions under which we would resume. I am quite of the belief that if that can be done, it is not impossible that the FPC may reverse itself. Anyway, the effort is with them.
There followed a series of discussions between Mr. Riley and myself to clarify some of the uncertainties and establish realistic limitations that would be acceptable to the Overseas Operations Division from the operating point of view. As a result of this exchange of views I drafted a report and submitted it to the Financial Policy Committee under date of April 26, 1948, in which I stressed the following points:
1. It must be recognized that this is not the same question that came before the then Finance Committee in 1928. It is not a question of whether we will enter Germany in an operating way. We are already there. The original question involved in general a very important principle of major policy which I will expose later. Put more specifically, the problem in 1928 involved the export of a very considerable amount of capital, the uncertainty of our ability to organize a complete and highly technical manufacturing operation in a foreign country, the potentiality of the market for a somewhat different although related line of products, the profit possibilities and other considerations. The present question must contemplate no export of capital . . .
2. There is no doubt that the report reflects a situation existing close to economic stagnation so far as a foundation for constructive enterprise is concerned. But how could it be otherwise? The whole German economy since the close of the war, has been in status quo so far as a constructive and aggressive attack to rebuild it is concerned . . .
3. The question
of whether General Motors was to remain a national enterprise, manufacturing in this country and exporting its products outside wherever markets exist, or whether it was destined to continue to expand as an international organization, manufacturing where constructive opportunities present themselves, in support of or independent of its American production, was determined in the latter part of the twenties ... I am convinced that GM must—whether it likes it or not—aggressively follow that policy. I believe the sole consideration involving any particular question, is as to whether the opportunity for profit justifies the venture from the long term position of the business.
Specifically I made these recommendations:
1. That the Committee reconsider the decision reached at its meeting on April 5th and bring the report before it for further consideration.
2. That the Committee authorize the resumption of the management of Adam Opel A.G. for a probationary period of approximately two years and after the two year probationary period the situation be reviewed in light of the then existing circumstances.
3. That the conditions under which we resume the managerial responsibility shall be as hereafter defined. It is not intended that the conditions so defined will be underwritten by any authority or that any authority will take any responsibility relative to same. It is intended that they shall be used solely as a pre-determined basis of withdrawing from the management responsibility any time during the two year period if in the opinion of our administration of the business, the operating conditions have become such that it is useless or impossible to continue further.
My fourth point spelled out the conditions referred to in the previous point: General Motors should risk no additional capital in Opel. Credit facilities should be available. We should have complete freedom in personnel policies and administration. The products produced by Adam Opel A.G. should be solely within the jurisdiction of management, and if prices had to be approved by government authority, a reasonable return on the capital employed should be allowed.
At its meeting on May 3, 1948, the Financial Policy Committee reviewed the Opel situation. The minutes of the meeting read as follows :
A report dated April 26, 1948 ($606) was received from Mr. Alfred P. Sloan, Jr., recommending that the Committee authorize resumption of the control of Adam Opel A.G. under certain conditions. It was the consensus of opinion that the Committee should base its conclusions on the following premises: (1) that General Motors Corporation will not advance or in any way guarantee the advance of any additional funds to Opel, and (2) that resumption of control does not alter the U. S. Federal income tax situation of General Motors Corporation.
A general discussion concerning the tax liability of General Motors Corporation followed. Messrs. Hogan and Dormer gave their opinion that the U. S. Federal income tax position of General Motors Corporation would not be affected adversely by resumption of control at this time.
Upon motion duly seconded, the following preambles and resolutions were unanimously adopted:
WHEREAS it is the understanding of the Financial Policy Committee that the resumption of control of Adam Opel A.G. will not require or obligate General Motors Corporation to advance, or in any way guarantee the advance of, any additional funds to Adam Opel A.G., and
WHEREAS it is the understanding of this Committee that the U. S. Federal income tax position of General Motors Corporation would not be affected adversely by resuming control at this time;
NOW, THEREFORE, IT IS
RESOLVED that the Financial Policy Committee advise the Operations Policy Committee that on this basis it does not object to the resumption of control of Adam Opel A.G.; and further
RESOLVED that, in the light of the above, the resumption of control and management of Adam Opel A.G. be under such terms and conditions as are deemed advisable by the Operations Policy Committee; and further
RESOLVED that a copy of the report of Mr. Alfred P. Sloan, Jr., dated April 26, 1948 ($606) entitled Adam Opel A.G., be forwarded to the Operations Policy Committee for its consideration.
The position of the corporation was now clearly established. Its purpose was to resume the control of Adam Opel A.G. consistent with the limitations laid down by the Financial Policy Committee and the clarification of innumerable important details covering the negotiations with the American Military Government for the release of the Opel properties, permitting the resumption of control and management of Adam Opel A.G. by General Motors Corporation. All this was finally accomplished and on November 1, 1948, a press release was issued by General Motors Corporation, as follows:
General Motors has announced that, effective today, it has resumed management control of Adam Opel A.G. located at Rüsselsheim, near Frankfurt am Main, Germany. Edward W. Zdunek, formerly regional manager for Europe of General Motors Overseas Operations Division, has been named managing director of the company. The Board of Directors, elected this week, is composed of nine American representatives of General Motors, with Elis S. Hoglund, assistant general manager of General Motors Overseas Operations, as chairman of the Board.
By 1949 sales of Opel cars and trucks were up to 40,000 vehicles; and expansion thereafter was rapid, as was the remarkable industrial recovery in other sectors of Western Germany's economy. In 1954 Opel sales had reached nearly 165,000 units, which was higher than the best prewar year.
While we were negotiating over Opel in the early postwar years, we were also acquiring a new manufacturing property in Australia. We had secured our first foothold in that country in the early twenties. Australia then favored the American automobile overwhelmingly, by over 90 per cent in some years. But the Australian government was making it difficult to import American car bodies. The duty was £60 on a touring-car body—nearly $300 at that time. This duty had its origins in World War I, when shipping space was at a premium, and it was afterward encouraged for a familiar-sounding reason—to encourage domestic industry. Because of the high duty, General Motors made an arrangement in 1923 to purchase car bodies from Holden's Motor Body Builders, Ltd., in Adelaide, a former leather-goods concern that had begun to produce bodies during World War I. We established close business relationships with this company, and obtained almost its entire output during the latter part of the twenties. In 1926 we formed General Motors (Australia) Pty. Ltd., and began to develop assembly plants in Australia and to build our own dealer organization. In 1931 we bought the Holden's company outright and merged it with General Motors (Australia) to form General Motors-Holden's, Ltd., which began manufacturing a number of components. Thus at the end of World War II we already had manufacturing experience in Australia as well as a dealer organization and familiarity with the local market.
Our decision to build Holden's into a full-fledged manufacturing operation was made while the war was still in progress. As I mentioned earlier in this chapter, the statement adopted by our Overseas Policy Group, of which Mr. Bradley was chairman, had concluded in June 1943 that Australia was probably the only country in which we would want to consider establishing a new major manufacturing base after the war. By September 1944 the Overseas Policy Group had further decided that it would be desirable to move in the direction of complete car manufacture in Australia. This proved to be a timely decision, for in October of that year the Australian government officially invited General Motors, as well as other interested parties, to submit proposals for the manufacture of a motorcar in Australia. As our thinking in this area had already largely crystallized, we were able to move quickly in accepting this invitation. In a report to the Administration Committee dated November 1, 1944, which had the approval of the Overseas Policy Group, the case for manufacturing in Australia was stated. It was pointed out that:
(1) We were already manufacturing there, to some extent, and a decision to go all the way was only a question of degree.
(2) Australia had the skilled labor, low-cost steel, and other economic foundations for an automobile producer, as well as a good climate.
(3) The alternative to ma
nufacturing would doubtless be a declining share in a protected market.
The status of General Motors-Holden's was agreed on with the Australian government authorities by March 1945. During the remainder of that year, and on into 1946, General Motors assembled in Detroit a group of about thirty American engineers and production men and their Australian understudies, and briefed them on starting the new manufacturing operation. Three prototype cars were built before the group left this country. In the fall of 1946 these men and their families—some seventy-five persons—left Detroit on a specially chartered Canadian Pacific train to Vancouver. With them were test cars, all the required engineering data, several tons of drawings and prints, and a good deal of the spirit of Detroit. A chartered steamship took them from Vancouver to Australia in December 1946. Their first production for the Australian market was in 1948, when 112 cars were sold. By 1950 production was up to 20,000 cars, and by 1962 to 133,000 cars, and expansion to a capacity of 175,000 units is under way.
Chapter 19 - Nonautomotive Diesel Electric Locomotives, Appliances, Aviation
General Motors manufactures not only cars and trucks, but diesel electric locomotives, household appliances, aviation engines, earth-moving equipment, and a variety of other durable goods; altogether, our nonautomotive business accounts for roughly 10 per cent of our civilian sales. And yet there have always been limits to our product diversification. We have never made anything except "durable products," and they have always, with minor exceptions, been connected with motors. Not even Mr. Durant, for all his expansion and diversification, ever suggested that we should stray into any broad field clearly outside the boundary suggested by our corporate name, General Motors.
My Years With General Motors Page 41