My Years With General Motors

by Alfred P. Sloan Jr.

  What changed it, principally, was the sudden interest of one railroad president—Ralph Budd of the Burlington—in the diesel engine. Mr. Budd was then hoping to build a new, streamlined, lightweight passenger train that would be dramatic in appearance and economical in operation. One day in the fall of 1932 he stopped off in Cleveland to see Mr. Hamilton, who told him about General Motors' diesel experiments and put him in touch with Mr. Kettering. Mr. Budd was excited about the prospects.

  He paid a visit to Detroit and to the General Motors Research Laboratories. Mr. Kettering showed him the experimental two-cycle engine but warned him that the eight-cylinder model was not yet built and certainly required a great deal more development work before it could be considered seriously as a source of locomotive power. Mr. Budd was told about General Motors' plans to test the engine at the World's Fair.

  When the fair finally opened, our diesel engines were visible, through a plate-glass window, to anyone who cared to inspect them. However, we were still apprehensive about them, and the publicity man for our exhibit was under strict orders to say nothing about them—even though they were, in a sense, the most dramatic feature of our exhibit. The engines were unheralded, then, but Mr. Budd, at least, paid close attention to them during the entire fair. He was well aware of the difficulties we were having with the engines. He knew that every night one or two engineers had to work on them to ensure that they would still be functioning the next day. He knew the opinion of Mr. Kettering's son, Eugene, who was in charge of the maintenance operation, and who later commented that "the only part of that engine that worked well was the dipstick."

  Nevertheless, Mr. Budd continued to press us for a diesel engine that he could use on his Burlington Zephyr. He became more insistent than ever when, in 1933, the Union Pacific publicly announced its plans to build a streamlined train. The Union Pacific was planning only a small, three-car affair without any real locomotive—the power car was to be an integral part of the train itself. The power was derived from a twelve-cylinder, 600-horsepower gasoline engine, which was built by Winton. There were no major technological innovations in this Union Pacific train; but pictures of it were widely distributed, the public reception was quite favorable, and suddenly the nation was very much interested in streamliners. All of this served to fortify Mr. Budd's desire, which was intense anyway, to put his own streamliner in business. But he still wanted diesel power.

  We would have preferred to spend another year or two taking the "bugs" out of Mr. Kettering's engine, but Mr. Budd's insistence finally won us over. In June 1933 we agreed to build an eight cylinder, 600-horsepower diesel engine for his Pioneer Zephyr. When it was put in test operation in April 1934 it broke down continually, as we had feared. However, the defects were gradually ironed out of it, and in June 1934 Mr. Budd ordered two more 201A General Motors Diesels, as they were called, for his Twin Zephyrs. Meanwhile, the Union Pacific had not waited for the delivery of its streamliner. Before this, it had placed a new order with Winton in late June 1933, this time for a twelve-cylinder, 900-horsepower diesel for a six-car articulated sleeping-car train; and again in February 1934 the Union Pacific ordered six 1200-horsepower diesel passenger units for its "City" series.

  These early diesel-powered streamliners were spectacular successes. In a memorable test run from Denver to Chicago, the Burlington Zephyr averaged 78 miles per hour for a total running time of only thirteen hours and ten minutes. The Union Pacific "City" trains cut the running time from the West Coast to Chicago from over sixty to less than forty hours. Operating costs to the railroads were lower and passenger patronage was considerably higher. Both of our customers immediately began calling upon us for more power so they could lengthen their trains. In May 1935 we began delivering the Union Pacific's 1200-horsepower diesels; we furnished the Burlington with two engines of 1200-horsepower apiece. These engines were able to pull twelve-car trains.

  One day early in 1934 Mr. Kettering and Mr. Hamilton paid me a visit, and we got to talking about the diesel. Mr. Hamilton, who was always in close touch with the railroad people, told me that our engines were considered by them to be a vast success. However, he said, the railroads were beginning to ask General Motors to supply them with all-purpose diesel-powered locomotives instead of merely engines for power cars. Mr. Kettering indicated that he would like to undertake the development of an experimental diesel-powered locomotive. I inquired how much money he thought he would need. Mr. Kettering said that he thought it might take as much as $500,000. I told him that my own experience with new development projects suggested strongly that he could not give us a new locomotive on such a comparatively modest sum. "I know," he replied amiably, "but I figure if we spend that much, you'll come through with the rest." He got the money.

  Actually, we were a long way from being in the locomotive business at that time. Our only production facilities were those for making engines in the Winton plant, and even these were somewhat outmoded; we had nothing at all for building electrical transmission equipment and locomotive bodies. Accordingly, we decided early in 1935 to build our own factory at La Grange, Illinois. This plant originally produced only the body of the locomotive—the cab and the truck—with the engines coming from Winton and the other components from outside suppliers, as before. But the La Grange plant was designed so that we could expand its operations to produce and assemble all the parts of a locomotive. We began this expansion soon after the plant was completed. By 1938 La Grange was a fully integrated locomotive plant.

  Our early experience with the diesel was, as I have indicated, in the passenger-locomotive field. But in the mid-thirties Mr. Hamilton and his group decided that there was a great economic potential for diesel-powered switching locomotives. At that time one of our competitors was offering the railroads a diesel-powered switcher that weighed about one hundred tons and sold as high as $80,000. The locomotive was, in large measure, built to the customer's specifications. It was Mr. Hamilton's contention that if the customer was willing to accept a standard diesel switcher "right off the shelf," then we could market one for $72,000. Under his prodding we began to build these switchers. Indeed, we put fifty of them in production before we had one firm order.

  The importance we attached to this new policy may be gauged by a memorandum written on December 12, 1935. It was from Mr. Pratt to me, and it said, at one point:

  There is one fundamental policy which we believe will have to be maintained, namely, that the Electro-Motive Corporation will build a standardized product and not undertake to build to the many different standards and specifications on which each railroad demands to purchase; and our recommendation is that the policy of building a standard product be given at least a fair trial before we yield to obtaining business by letting each railroad write its own specifications as to what the locomotive should be.

  As it turned out, the issue was settled very quickly. Our first batch of switchers was sold easily, deliveries beginning in May 1936. Although the margin of profit was small at first, it was enough to make a big difference in Electro-Motive's profit picture. Mr. Hamilton promised the railroads that, as our volume in switchers increased, we would pass along our operating economies to them in the form of price reductions. By 1943 when the War Production Board took General Motors out of the switcher field and directed us to concentrate entirely on freight locomotives, we had built 768 switchers; and the price to our customers on the 600-horsepower switchers was down to $59,750 by October 1940.

  Meanwhile, our passenger-locomotive business expanded rapidly. By 1940 we had about 130 diesel-powered passenger locomotives in service on railroads all over the country. We began to build freight locomotives in 1939. There was an interruption during the early part of World War II when our plant was virtually out of the locomotive business while producing LST engines for the Navy.

  At this point the reader may be wondering what the rest of the locomotive industry was doing while we were pushing ahead with our diesel program. With only a few exceptions and
qualifications, the answer is that the rest of the industry was sticking with steam power. Though a few attempts were made, in this country and Canada, to build diesel passenger locomotives before 1940, production never advanced beyond the prototypes. (In 1940 a diesel-powered passenger locomotive built by a competitor finally went into service.) Outside of one attempt made by a group of builders in the late twenties, no manufacturer in this country, other than ourselves, brought out a diesel-powered freight locomotive until after World War II. Aside from switchers, it might be said, we were first everywhere on the railroads of this country with diesel power. To suggest, as a Senate subcommittee did in 1955, that we shoved ourselves into the locomotive market by main force, is to ignore the fact that other manufacturers failed to see the potential of the diesel. As Mr. Kettering once remarked during another congressional investigation, our biggest advantage in the locomotive industry was the fact that our competitors thought we were crazy.

  Yet the superiority of diesel power over steam was apparent from the beginning. Rudolph Diesel first mentioned this superiority in railroad applications in 1894 and numerous times afterward. During the late 1920s engineering and railroad journals were carrying full reports and operating-cost data on diesel locomotives then in operation in Europe. To anyone who would listen, we could prove that the diesel offered smoother, faster, cleaner service, and an enormous saving in fuel and other operating costs. The railroads, which were eager to trim their operating costs in every way possible during the 1930s, listened eagerly; the other locomotive manufacturers continued to regard the diesel as a sort of passing fad. This explains why a group of long-established, economically strong locomotive manufacturers, with strong ties to their customers, were so easily outdistanced by one newcomer to the business. It was not until the mid-1950s that the building of steam locomotives in this country stopped completely, with production in the closing years going largely to export. Less than a hundred steam locomotives remain in operation in the United States today. Diesel power alone is now being purchased by the railroads, except for electric locomotives used on electric-powered roads. This revolution in the railroad industry in the United States was made very largely by General Motors.

  It is hard to make precise statements about the future of the diesel locomotive business, but it appears that the market in the United States will be somewhat smaller in the years ahead. Railroad passenger service is being discontinued in many areas of the country, and even freightcar loadings have declined somewhat in recent years. There were about 60 per cent more steam locomotives in service during the mid1930s than there are diesels today. This fact reflects the greater power and operating availability of the diesel, of course, but it also reflects the depressed condition of the railroads.

  Overseas there still are some 100,000 steam locomotives in operation. These eventually will be replaced by diesel-electric, diesel hydraulic, and electric locomotives. The potential market for diesel electric locomotives overseas is approximately 40,000 units. The Electro-Motive Division has developed a wide range of lightweight, restricted-clearance locomotives to meet this export demand. Where applicable, standard domestic locomotives have been sold overseas. Over four thousand General Motors locomotives are now in service in thirty-seven countries outside the United States—nine countries, including Canada, in the Western Hemisphere and twenty-eight countries of the Eastern Hemisphere.

  The U.S. market is now a replacement, reconditioning, and upgrading rather than a new-user market. The so-called upgrading market is, of course, an increasingly important one today, and I do not mean to minimize it. Still, the industry in the United States has been dieselized; the revolution is over. At the same time, it is just under way overseas.

  Frigidaire

  Despite a lack of enthusiasm at the highest levels of the corporation in the early days, the Frigidaire Division has grown steadily for about forty-five years and has become a major factor in the appliance industry. The Frigidaire line today includes electric household refrigerators, food freezers, ice-cube makers, automatic clothes washers and dryers, electric ranges, water heaters, dishwashers, food-waste disposers, air-conditioning equipment, and commercial laundry and dry-cleaning equipment. Frigidaire now has about ten thousand outlets in the United States.

  The curious story of how General Motors got into the refrigerator business begins in June 1918 when Mr. Durant, who was then president of the corporation, purchased the Guardian Frigerator Company of Detroit. Mr. Durant made the purchase in his own name and with his own funds; the precise amount was $56,366.50. The company passed from Mr. Durant to General Motors in May 1919 at the same price. It was a small enterprise of no great substance. He soon renamed the company the Frigidaire Corporation, and also gave the name Frigidaire to the rather crude, primitive device which was then its sole product. Mr. Durant's motives in this transaction are not within my knowledge. But he was, of course, a man of boundless enthusiasms and great curiosity; and it is easy to understand that an "iceless frigerator"—as the Guardian product was called—would excite both of these qualities. I can only admire his gift for being in touch with future developments in this as well as the automotive field.

  While I had no personal knowledge of Mr. Durant's transaction at the time it took place, John L. Pratt has told me that in his opinion more than enthusiasm for a new appliance underlay the purchase. He says that Mr. Durant was concerned about the prospect of the automobile business being declared unessential to our World War I mobilization effort, and was looking for an "essential" business to take the place of civilian automobiles. Given the great national effort to conserve food during World War I, a refrigerator company might be considered essential. However, the government made no effort to end automobile production; and in November, five months after his purchase had been made, the war ended.

  The original Guardian refrigerator had been built by a Dayton mechanical engineer named Alfred Mellowes in 1915. The following year he organized the Guardian Frigerator Company in Detroit to manufacture and sell his device. Between April 1, 1916, and February 28, 1918, Guardian built and sold only thirty-four refrigerators, all of which were installed in homes in the Detroit area. Guardian's manufacturing facilities in 1917 consisted of only two lathes, one drill press, one shaper, one power saw, and a hand vacuum pump. In addition to manufacturing the "frigerators," Mr. Mellowes personally serviced them; he kept in close touch with the purchasers, visiting each of them every two or three weeks. As we ascertained at the time we bought Frigidaire, most of these early Guardian customers were pleased with the product. Many of them had, in fact, despite the numerous service problems, invested in Mr. Mellowes' company. But as investors, it appeared, they were less happily situated than they were as consumers. During its first twenty-three months Guardian showed a loss of $19,582. In the three months just before Mr. Durant bought it the company lost another $14,580, bringing its total deficit to $34,162. Less than forty refrigerators had been built and sold in the entire period. It is not difficult to understand why the original shareholders were happy to sell out.

  When Frigidaire passed into General Motors, we tooled up in our Northway plant in Detroit to manufacture Frigidaire Model A— a machine which was identical to the old Guardian except for minor mechanical changes. Our miscalculation about the product's suitability for mass consumption was speedily brought home to us. Model A, and its successors in the first few years, remained a luxury product. What was worse, we could not get the "bugs" out of the machine, which broke down repeatedly. Our efforts to introduce a sales and service organization into a number of cities outside of Detroit were largely unsuccessful. It appeared that the machine really needed the kind of steady personal service that Mr. Mellowes had provided his small group of customers; but this kind of service was obviously impossible in a product intended for a mass market. After about a year and a half we seriously considered whether the Frigidaire operation might not be jettisoned. Something of our frame of mind may be sensed from the minutes of a meeting which
took place in my office on February 9, 1921. The summary of my remarks includes these comments:

  Frigidaire Corporation: Located at Detroit, Mich, and makes Frigidaires which up to the present have been a failure. Models have been changed frequently in order to create demand, but without success. Branches were opened at various points which have since been discontinued . . . Loss to date about $1,520,000. Inventory is about $1,100,000 —total loss expected to run about $2,500,000.

  In a year when General Motors was in serious need of operating capital, the continued losses and relatively high inventory could not long be tolerated. And it is possible that Frigidaire would somehow have been disposed of then except for one fortuitous circumstance, upon which hangs a story.

  In an earlier chapter I told how General Motors in 1919 acquired the Dayton properties with which Mr. Kettering was associated. Among these properties were the Domestic Engineering Company and the Dayton Metal Products Company.

  The Domestic Engineering Company—later renamed the DelcoLight Company—was a manufacturer of home-lighting plants, which were sold mostly to farmers.

  The Dayton Metal Products Company, an armament manufacturing concern, had begun research in the refrigeration field early in 1918 as part of a program designed to obtain a product which might keep the company in operation when the war ended and the armament business ceased.

  The two enterprises—Domestic Engineering and Dayton Metal Products—were in the appliance business in some items, and were preparing to expand into some other items. With these enterprises General Motors also acquired all of the refrigeration developments of Mr. Kettering's research group. This informal research organization continued operations at Dayton until June 12, 1920, when the subsidiary General Motors Research Corporation was organized. General Motors thus acquired some outstanding engineers in this field, as well as the management and sales ability of Richard H. Grant, who was to contribute importantly to the success of Frigidaire in the early and middle 1920s.