GM Turns 100

(page 1 of 6)

The final assembly line at a Chevrolet plant in 1918. Chevrolet was started by GM founder Billy Durant.

Photograph Courtesy of GM Archives

By Ronald Ahrens

There was no great “A-ha!” moment. There was no “Mr. Watson, come here.” Not even a “Gentlemen, start your engines!” No, when General Motors Corp. was born 100 years ago, all there was, was some exasperation with the moneymen. Large trusts had already been formed in the steelmaking and farm-equipment industries, and it increasingly made sense that consolidation among leading automakers would reduce the risk of a single, poor-selling line of cars.

The financial panic of 1907 had also commanded wide attention. In the spring of 1908, industry leaders from Ford, Buick, REO, and Maxwell-Briscoe pursued the question of a merger that was to be underwritten by J.P. Morgan & Co. When the deal fell apart, William C. “Billy” Durant, who had made Buick Motor Co. a household name, kept industry consolidation alive. First, he saw possibilities in the struggling Olds Motor Works. Because of the company’s early industry leadership, the Olds name was valuable. As he would do many more times, Durant cooked up a complicated stock swap. Olds’ Frederic Smith said at the time, “Durant did the understanding; the rest of us just thought we understood.”

But no one was there to tell Durant when to stop. Soon after GM’s incorporation papers were filed in New Jersey on Sept. 16, 1908, capitalization was increased from $2,000 to $12.5 million, and Durant went on a buying spree. The new holding company acquired Buick for $3.75 million in stock. Investors in Flint had enormous faith in Durant, who had enriched them while he was in the carriage business before the turn of the century, and again after he assumed control at Buick in 1904. Now Durant rather haphazardly set about assembling the bones of his behemoth. Despite the problem that he might occasionally connect the thigh bone to the jawbone, he established the vertically integrated organization that allowed GM to make just about everything it used. For example, Albert Champion would set up in a corner of the Buick factory to manufacture his advanced new spark plug. And Durant acquired Novelty Incandescent Lamp Co., of St. Mary’s, Pa. (where light bulbs continue to be made in the present OSRAM Sylvania plant at the rate of about 2 million per day).

The previously arranged Olds acquisition was finalized Nov. 12, 1908, for about $3 million in stock. Then Durant picked up the Oakland Motor Car Co. (later to become the Pontiac Division), Cadillac Motor Co., and Reliance Motor Truck Co. and Rapid Motor Vehicle Co., which were ultimately combined to form GMC Truck. GM also expanded to Canada and Great Britain by acquiring interests in McLaughlin Motor Car Co. and Bedford Motors. But there was madness in the method. Cartercar Co., of Pontiac — “No clutch to slip, no gears to strip” — offered a unique vehicle with “friction drive,” which used power-transmission disks made of compressed paper. Alfred P. Sloan Jr. later called such purchases “random gambles.”

Durant saw it differently. “They say I shouldn’t have bought Cartercar. Well, how was anyone to know that Carter wasn’t to be the thing? It had the friction drive, and no other car had it. How could I tell what these engineers would say next?” What the bankers said next became Durant’s real concern.

Intensive Care for Billy’s Baby

General Motors nearly perished in its infancy. In 1910, it offered 21 different models by 10 manufacturers. Buick’s profits had been supporting all this irrational extravagance, but even as production in Flint rose to 30,000 cars, the profits didn’t keep pace. Durant couldn’t meet demands for repayment of loans. Persuaded by Cadillac’s Wilfred Leland, a group of Eastern bankers arranged a $15 million bailout, which included the reorganization of GM’s management. A five-member committee would run the company without Durant’s help.

In the next half decade, GM concentrated on what’s known today as “core competencies.” Many of Durant’s acquisitions were closed down. Viable products were equipped with such technical advances as Charles F. Kettering’s electric self-starter. First offered on the 1912 Cadillac, it eliminated the hand-cranking of engines. The Cadillac V-8 engine roared to life in 1914, with ballyhoo provided by some classic ad copy about the “penalty of leadership.” GM met all of its obligations to the bankers and attracted new investors, most notably Pierre S. du Pont, who within six years would be in for about $50 million, or 43 percent of the company.

But first, Billy Durant, ever the market manipulator, leveraged his interest in the new Chevrolet Motor Co. to corner GM’s stock. Initially listed on the New York Stock Exchange in 1911, its price had fluctuated between $24 and $99 per share. At the beginning of 1915, it was $82, but as Durant kept buying, it soared to an outrageous $558 on Dec. 9, 1915, and he held 71,218 shares, or 44 percent of all shares. By the next spring, he stood the Eastern financiers on their heads and reclaimed control of GM.

Meanwhile, he formed United Motors Corp. as a complement to Chevy; this conglomerate comprised Kettering’s Dayton Engineering Laboratories, Remy Electric, New Departure Manufacturing, and Hyatt Roller Bearing, which brought Sloan into the picture. United Motors became part of GM in 1918 in what Fortune magazine called “the great agglomeration.” The Frigidaire Division was also a newcomer during this period, thanks to one of Durant’s independent ventures. General Motors Acceptance Corp. was formed in 1919 and, within a few short years, 75 percent of all car buyers would be paying in installments. GM was now capitalized at $1 billion, second only to U.S. Steel.

However, after yet another of Durant’s speculations, the Samson Tractor Division, had gulped down $33 million just in time for the next economic recession, he was out for good on Nov. 30, 1920. Du Pont and Sloan were now running the show.

Free Rein for Sloan’s Wizardry

Alfred P. Sloan Jr. was an MIT engineer who had run the Hyatt Roller Bearing Co. in Harrison, N.J. Even after being named GM’s vice president of operations and reorganizing the company, he still carried his lunch to work in a brown bag. One historian contends that Sloan patterned GM after the German army of the late 1800s. To be sure, Durant’s shoot-from-the-hip style was gone. From now on, executive committees would control policies, while divisional managers continued to independently oversee manufacturing, distribution, and sales. GM’s cars would be positioned at the top of six price ranges, “a car for every purse and purpose,” in Sloan’s words, and buyers would stretch to obtain the premium features.

Determining just how many buyers there would be was the job of Donaldson Brown and Albert Bradley. These financial men came up with the concept of standard volume, which intended to keep factories from becoming idle and ensure a profit, even in mediocre markets. Relying on data analysis, Brown and Bradley formed economic models that allowed the company to meet customer demand while ensuring adequate production capacity.

Did you like what you read? Subscribe to DBusiness »

Tell Us Your Thoughts