Flint Journal file photoAt a celebration marking the 25 millionth car, Alfred P. Sloan Jr. greets William C. "Billy" Durant in January 1940. |
Although General Motors has experienced a remarkable decline
in market share and stock value, it still is one of the most powerful
corporations in the world.1 Hampered by health care costs and prior
union agreements, the maxim remains true, however, that “what is good for
General Motors is good for America.” Indeed, GM’s financial resources are
greater than all but a handful of countries. And while in many respects it has
been characterized as a faceless corporation where decisions are made by
committee and individualism is frowned upon, it is ironic that the firm was
forged by a few strong individuals, among them William C. “Billy” Durant,
Alfred P. Sloan, Charles Franklin Kettering, William S. Knudsen, Richard H.
Grant, and Harley Earl. Perhaps its future will again be fashioned more by
individuals than the organization itself, at least if current GM vice-chairman
Bob Lutz has any say.2
“Billy” Durant and “Silent” Sloan
Chapters from Alfred Chandler’s
classic Strategy and Structure remain
perhaps the most concise recounting of General Motors early history.3
General Motors’ beginnings are intimately tied to the career and fortunes of
the “dealmaker,” Billy Durant.4 In 1885 Durant, a twenty-four year
old insurance salesman living in Flint, Michigan, purchased a patent for $50 to
make two-wheeled carts. Durant’s partner in this venture was J. Dallas Dort, a
young hardware salesman. The two began marketing their product nationwide, and
as their efforts were successful, they first erected a manufacturing plant in
Flint, and set up specialized plants to make bodies, wheels, upholstery, paint,
varnish, axles, and springs. Durant’s efforts to develop a high volume,
integrated business made him a millionaire before he was 40, yet he was never
interested in the operational details of the business. Accordingly, he moved
his personal headquarters to New York, where in imitation of business titans
J. P. Morgan and others, he began to look for new industrial empires to
conquer.
By 1900 the
automobile was clearly emerging as an entrepreneurial opportunity for many, and
Durant recognized that it posed a threat to his existing carriage business. In
1904 one of the smaller firms in the America automobile industry was that of
the Buick Motor Company, located in Flint, Michigan and headed by Scotsman
David Buick. Then in bankruptcy, the Buick firm was taken over by Durant, and
it became the foundation for an auto empire. Durant redesigned the car, built
large assembly plants, and set up a nationwide distribution network and dealer
organization.
As sales
volume increased, Durant encouraged the production of parts and accessories in
Flint or purchased suppliers and moved them to Flint. Thus, he bought the
Weston-Mott Axle and Wheel Company and moved it from Utica, New York to Flint
in 1905; in 1908 he bought Alfred Champion’s spark plug company and moved it to
Flint from Boston. Durant was following a strategy of backwards integration and
in doing so he was eliminating uncertainties associated with outside parts
suppliers.
As a result
of Durant’s leadership, Buick’s output rose from only 16 cars in 1903 to nearly
8,500 units in 1908. This initial success with Buick convinced Durant that the
automobile had a huge potential market in the U.S. Rather than expanding Buick
internally and adding to capacity, Durant began to think of merging a number of
existing companies into a conglomerate. To that end, on September 8, 1908,
Durant formed the General Motors Company, which by the end of the year owned
stock in Buick, Oldsmobile, and the W. F. Stewart Co., bodymakers located
in Flint. Durant then followed a strategy of exchanging stocks to control
Cadillac, Oakland, six other car companies, three truck companies, and ten
parts and accessory companies.
While
following an expansion strategy using both vertical and horizontal combination,
Durant never prepared for a temporary decline in demand in the form of a
business recession. He never considered building up cash reserves to weather an
economic downturn. Ever-expanding through acquisitions, Durant made no attempt
to collect information about output and demand in order to make adjustments in
production that might compensate for temporary fluctuations in the economy.
Further, Durant was not interested in management principles related to
organization; he never focused on maximizing the economies of scale in
purchasing or production that were possible due to his empire building.
In 1910 a
slight recession took place, and Durant lacked the money to pay his employees
and suppliers. He was financially rescued by bankers who took control of his
company, and consequently, Durant was forced into a position where he had
little to say about company matters. James J. Storrow was the leader of a group
of bankers involved in saving General Motors. Storrow desired more organization
and more control over what had been autonomous company operations. To that end,
centralization took place at General Motors, and as a first step in that
process Storrow moved headquarters from New York to Detroit. He set up three
permanent offices at the main office, with the idea that the firm would be
administered more effectively. A new purchasing office was established, so that
economies would be achieved in volume buying for the various subsidiaries. An
accounting office was also created, and accounting procedures were standardized
throughout the company. Accurate information on costs, profits, and losses were
now tallied. Finally, a new production office was set up. With Charles Nash as
president and Walter Chrysler in charge of production at Buick, GM’s sales rose
from $85 million in 1912 to $157 million in 1915.5
Storrow’s
measures were all steps in the right direction, but in 1915, when he left
General Motors, company operations were far from efficient. Storrow left
because Durant returned through a complex financial arrangement. In that
transition, the DuPont family was now in an important financial position at
General Motors. With the support of the DuPont family, Durant encountered
little restraint in expanding the firm in the years immediately after 1915.
Increased volume was the focus of Durant’s maneuvers, and he paid no attention
to the different needs or the demands of the market. Concurrently, he paid
little attention to organization and strategies and policies where control and
coordination would be exerted. Durant’s expansion was exhibited in a number of
different ways. First, he acquired several leading parts and accessory
companies, including Hyatt Roller Bearing Co., Remy Electrical Co., Delco, and
Pullman Rim Co. New products, including tractors and refrigerators, were also
introduced. After World War I, this drive to expand accelerated, as Durant
bought the Fisher Body Company; gear manufacturer T. W. Warner Company;
and Buffalo Metal Goods, a producer of braking systems. Stock investments were
also made in Alcoa, Goodyear, and General Leather, all major automobile
suppliers.
The DuPont
family – flush with money due to the profits made during World War I but
conservative in their business strategies – was troubled by Durant’s aggressive
behavior and speculation in the stock market, but little was done until the
economic downturn of 1920. By October, the automobile market had collapsed and
General Motors stock took a nosedive. As a result, Pierre DuPont became
president of General Motors and he acted decisively. One of his first acts was
to approve Alfred Sloan’s organizational structure for General Motors, a
structure that remains to this day the company’s basic organization. The
multidivisional structure that was proposed and approved by Pierre and Irenee
DuPont featured a central office that planned, coordinated, and appraised the
work of a number of operating divisions and allocated to them the necessary
personnel, facilities, funds and other resources. The executives in charge of
these divisions had under their command most of the functions necessary for
handling one major line of products or a set of services over a wide area, and
these men were responsible for the financial results of their respective
divisions. This new structure was designed to mobilize resources effectively,
so that both short- and long-term demands were met.
Sloan’s
organization plan was implemented in 1921, and only slightly modified during
the next four years. Up to 1921, competition existed between divisions.
Boundaries between divisions were established based on market strategy.
Furthermore, the company did not have a low-priced car to compete with the Ford
Model T, but by 1923 GM product lines were redefined and readjusted. Cadillac
sold in the highest price position, followed by Buick, Oakland, Oldsmobile, and
finally Chevrolet. Chevrolet had the highest volume and the lowest price. In
1925 Pontiac was created, thereby filling a gap and enabling Sloan to achieve
his goal of “a car for every purse and purpose.”
The
difference between the approaches of Durant and Sloan to the problems of
administration reflected contrasting personalities, education, and experience.6
Durant was a small man, energetic and personable. Almost everyone who knew him,
called him “Billy.” Sloan, on the other hand, was tall, quiet and cool, and his
increasing deafness heightened his reserve. Nearly everyone called him “Mr.
Sloan,” and when in company whom he did not know, he turned into “Silent
Sloan.” Durant had gone from high school into business, but Sloan was an
electrical engineer with a degree from the Massachusetts Institute of
Technology. Durant was a salesman and stock speculator, but Sloan was a very
deliberate thinker and a production man. In 1899, with the assistance of his
father, Sloan purchased the Hyatt Roller Bearing Company. It grew so rapidly
that the company was sold to Durant for $13.5 million in 1916, at which time
Sloan joined GM as a president of its parts subsidiary. Charles Franklin
Kettering would join GM in a similar way as a result of the purchase of Delco.
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