Chapter 18
Outside the United States and Canada, the free world absorbed more than seven and a half million cars and trucks in 1962 and over eight million in 1963. General Motors has a substantial position in this overseas market, totaling 855,000 vehicles in 1962, and an estimated 1,100,000 in 1963. Our Overseas Operations Division is a large international organization today with assets of over $1.3 billion and about 135,000 employees. This division is responsible for manufacturing, assembling, or warehousing activities in twenty-two foreign countries, for the export of our products from the United States and Canada, and for distributing and servicing General Motors' products in every country in the free world except the United States and Canada—about 150 countries. The 1963 sales of the division are an estimated $2.3 billion.
Looking back on the rapid growth of this division during the past four decades, one might regard our progress overseas as a kind of natural and inevitable extension of our progress in this country. In reality, there was nothing at all inevitable about it. I have reviewed a number of documents dealing with the formulation in past years of an overseas policy in General Motors. The documents have revived in my mind the long and complex history of that policy, and they have also reminded me of the difficult decisions on which our progress turned. For the overseas market is no mere extension of the United States market. In building up our Overseas Operations Division, we were obliged, almost at the outset, to confront some large, basic questions: We had to decide whether, and to what extent, there was a market abroad for the American car—and if so, which American car offered the best growth prospects. We had to determine whether we wanted to be exporters or overseas producers. When it became clear that we had to engage in some production abroad, the next question was whether to build up our own companies or to buy and develop existing ones. We had to devise some means of living with restrictive regulations and duties. We had to work out a special form of organization that would be suitable overseas. All of these problems were considered fully within the corporation for a period of several years in the 1920s when the basic policies were established.
Today, General Motors participates in the overseas market in two ways: as an exporter of American cars and trucks, and as a producer abroad of smaller foreign vehicles. In 1962, for example, about 59,000 cars and trucks were exported from the United States and Canada in what are called SUP's, or Single-Unit Packs. This means that the vehicles were shipped fully assembled, and could be made ready for the road with only minor adjustments. Another 46,000 were sent abroad as CKD's, that is, Completely Knocked Down, and they had to be put together at one of ten General Motors assembly plants abroad. (Ordinarily, CKD shipments do not include certain parts—upholstery and tires, for example—which can be supplied locally.) Altogether, over 105,000 General Motors cars and trucks were exported from the United States and Canada; these were all of makes and models available in the United States, and they represented all of the corporation's automotive divisions.
In addition, in 1962 about 750,000 vehicles were designed and manufactured abroad, and an estimated one million in 1963. The gain in 1963 reflects the introduction of a new small car by Opel. The three principal General Motors overseas car-manufacturing subsidiaries are Adam Opel A.G., in Germany, Vauxhall Motors, Ltd., in England, and General Motors-Holden's Pty. Ltd., in Australia. Each of these companies manufactures relatively small (by American standards) cars, a type which predominates almost everywhere in the overseas market. The three companies are entirely owned by General Motors and all three now have a substantial export business of their own and ship vehicles to countries all over the world. In recent years manufacturing plants have been established in Brazil, where 19,000 trucks and commercial vehicles were produced in 1962, and in Argentina, where production of complete engines and stampings was recently started.
The corporation's overseas business hinges largely on our overseas production facilities. In 1962 about 88 per cent of all General Motors vehicles sold abroad were produced abroad. This proportion has been rising, and is likely to increase in the years immediately ahead, for major expansion programs have recently been completed by our overseas producers. The corporation's exports from the United States and Canada, on the other hand, are no larger than they were in the 1930s, and are actually smaller than they were in the late 1920s. (In 1928, the peak year for exports, the corporation shipped almost 290,000 vehicles abroad from the United States and Canada.)
It is easy for Americans to forget how undeveloped this market still is. Its potentialities appear to be almost limitless. In large areas of the world, the motor age is only now dawning. Vast areas are still not serviced by good roads. Even the industrial nations of Western Europe lag far behind the United States in their use of motor vehicles; the countries in the European Common Market, taken together, have about one vehicle for every nine persons, compared with one for every three persons in this country. General Motors now sells as many vehicles abroad as it sold in the United States as late as 1926.
In our early gropings toward the development of a policy for overseas business, we were soon made acutely aware of the problems engendered by economic nationalism abroad. From the earliest days of the automobile industry, dollar-poor nations abroad imposed high tariffs and severe quotas upon the import of American cars (and other American products). This nationalism has led many foreign nations to press for production at home, even when the home market appeared too small to sustain an efficient, integrated automobile industry.
In 1920 the entire overseas market absorbed about 420,000 cars and trucks. About half of these were sold in four industrial nations of Western Europe: Great Britain, France, Germany, and Italy. While this Western European market was the richest, it was also the most difficult to penetrate; for these four countries as a group produced about three quarters of the vehicles they absorbed, and they were determined to exclude effective American competition. The other half of the overseas market consisted of relatively undeveloped nations scattered over the face of the globe. In this "second market," American producers generally had free access.
Although we dealt with each country as a separate proposition, a pattern of sorts began to emerge in our overseas operations during the 1920s. We gradually perceived that two main kinds of marketing situations predominated abroad. The first of these situations was largely confined to Western Europe. Superficially, our export business to the Continent appeared to be thriving. But it became increasingly clear that, in the long run, our European export and distribution systems were threatened by economic nationalism. We continued to press our export business there as best we could, and we backed up this position by building assembly plants in several European countries. The assembly plants made it possible for us to identify ourselves more closely with the local economies by utilizing local management and labor. Moreover, as we gained experience with local supply conditions, we made increasing use of local sources for such items as tires, glass, upholstery, and the like. In other words, we could ship unassembled cars from the United States without these items, and purchase and install them locally if the economics justified. This had another advantage, compared with exporting complete cars, in that it resulted in lower duty payments. (Today, American automobiles are assembled by General Motors in Belgium, Denmark, and Switzerland.) But the conviction grew that our future in Europe lay in producing cars there. The case for European production was stated vigorously and insistently by James D. Mooney, who was head of our Export Companies. However, the Executive Committee of the corporation, of which I was chairman, remained doubtful about the wisdom of our becoming producers abroad until close to the end of the 1920s.
A different kind of marketing situation prevailed in large areas of the world outside of Europe—areas which were not heavily industrialized. No manufacturing operations would be feasible in these areas for many years. Accordingly, our efforts there had to be primarily in exports, with both SUP and CKD shipments playing a role. Our assembly operations outside of Europe today are in the Republic of South Africa, Peru, Mexico, Venezuela, Australia, New Zealand, and Uruguay.
Though our unit sales overseas have grown more than eight times since 1925, I think it is fair to state that the character of the operations and our basic overseas marketing strategy were both established in the twenties.
Our first thoughts about securing a European production base concerned the Citroen Company in France. Negotiations for the acquisition of a half-interest in Citroen consumed several weeks during the summer and early fall of 1919. In that year, as mentioned earlier, Mr. Durant sent a group of General Motors executives abroad to make a study of the European automobile industry, and it was this group, consisting of Mr. Haskell as chairman, Mr. Kettering, Mr. Mott, Mr. Chrysler, Mr. Champion, and myself, that did the actual negotiating. Andre Citroen was an aggressive, imaginative businessman, and as it happened he was interested in selling his company. At the end of our stay in France we were still uncertain about the wisdom of acquiring the property. I recall that, the night before we were due to sail back, we sat up until early in the morning in a room in the Hotel Crillon, arguing at great length about the issue. In a general way, we were for the acquisition, but there were some specific difficulties. For one thing, the French government did not like the idea of American interests taking over an enterprise that had contributed importantly to the war effort. For another, the production facilities did not appeal to us, and it was clear that if we undertook to run Citroen, an investment running far beyond the initial cost would be required. Furthermore, the company's management then was not entirely adequate. At one point that evening, we discussed a proposal that either Mr. Chrysler or myself move to France and run the company. I was personally not interested in this proposition, and I argued that, in general, our own management at home was not strong enough to supply the top men that would be needed to operate Citroen.
I sometimes wonder just how different the history of the industry would have been if either Mr. Chrysler or I had offered to operate Citroen for General Motors. In those days when the industry was new and expanding explosively, its future was shaped by a small number of individuals who took leading positions; as often as not, the capital went to these men rather than the men to the capital. At any rate, a few hours before we were due to sail, we decided not to buy Citroen. The company was later taken over by the Michelin Company, which did very well with it. General Motors never has established an automobile-producing company in France; somehow, the time and circumstances have never seemed quite right. However, we do have a large Frigidaire operation in France, and we are an important manufacturer there of spark plugs and some other components for the automobile industry.
Our next effort to secure a manufacturing position abroad was made in England. The future of American cars in the British market looked poor in the early 1920s. The so-called McKenna duties raised a formidable tariff barrier to all foreign vehicles. In addition, motorcar license fees were assessed per unit of horsepower. The formula for determining horsepower greatly favored a small-bore, long-stroke, high-speed engine, and penalized the American engine, the bore of which was nearly equal to the stroke. And since insurance costs were generally related to the license fees, the owner of an American car was doubly penalized. Altogether, the fees, insurance, and garage charges on a Chevrolet touring car in England in 1925 came to one pound sterling a week (about $250 a year) — all this before normal operating costs. By contrast, the owner of an English-made Austin had fixed charges of perhaps eleven shillings a week (about $138 a year), and his first cost was lower too.
While the export of American cars to England was inhibited by these circumstances, British manufacturers faced some difficulties of their own. By the mid-twenties, a large number of British producers had come into the automobile industry, but their combined volume amounted to only about 160,000 cars and trucks, split up into a large number of designs and price levels. The British producers therefore lacked many of the economies associated with American mass-production techniques, and their prices were chronically depressed. In gaining a manufacturing base, then, we had to think of the long-term prospects; there was no hope of large immediate gains.
Our first efforts were directed to acquiring the Austin Company. It produced nearly 12,000 cars in 1924, which in England at that time was fairly substantial production. Mr. Mooney, then vice president in charge of the General Motors Export Companies (now the Overseas Operations Division), discussed the prospects of acquiring Austin with me and with others in the corporation several times during 1924-25. We saw that Austin had managed to build up its volume and profits even when the protection of the McKenna duties was temporarily suspended. (They were removed on August 1, 1924, then re-established on July 1, 1925.) Mr. Mooney inspected the Austin properties in the spring of 1925, and wrote a report recommending that we buy them. In July a committee went to England to look into the question further. It included Fred Fisher, Donaldson Brown, John Pratt, and of course Mr. Mooney. In August the committee sent me the following cable:
Committee agrees unanimously English Company will be of advantage to General Motors Export Company. STOP. Think we can buy all certificates of common stock Austin million pounds sterling leaving outstanding million six hundred thousand pounds cumulative preferred stock requiring 130,000 pound[s] sterling 3,000 [or 133,000] pounds sterling dividend [total in dollars: $5,495,050]. Think we can earn at least 20% on our investment in addition to protection and increased earnings on our American Manufacturers. STOP. Conservative estimate net assets after deduction liability two million pounds sterling plus 600 thousand pounds sterling goodwill [total: $12,610,000]. STOP. Are we authorized to close in the event of unanimous agreement among ourselves.
On the same day I cabled this answer:
Finance Committee stated meeting June 18th would approve any recommendation Executive Committee. STOP. Assuming your Committee unanimously agree without reservation desirability purchase and fairness price we satisfied go ahead and authorize you do so. STOP. Impossible we here pass any judgment propriety of purchase or amount proposed pay. STOP. When deal actually made kindly cable so I can make suitable announcement. STOP. Conditions here continue very satisfactory, all well, regards.
The deal never was consummated. I will not recapitulate here all the obstacles which arose in the course of negotiations, except to say that the principal disagreement concerned the manner in which Austin valued its assets. On September 11 Mr. Mooney cabled me that our offer had been withdrawn.
As I recall the incident, I was actually relieved to hear this news. For it seemed to me that Austin had largely the same disadvantages that had bothered me about Citroen six years earlier; its physical plant then was in poor condition and its management was weak. And I still had some doubts whether our own management was strong enough to make up for Austin's deficiencies; indeed, the continued dilution of our management strength as we expanded overseas and at home was a problem all during the 1920s.
The reader may wonder why, in these circumstances, I had ever authorized our team in England to close the Austin deal in the first place. The answer, essentially, is that I always tried to run General Motors by a policy of conciliation rather than coercion; and when a majority was opposed to my thinking, I was often disposed to give way. I might add that the top officers of General Motors who were involved in this situation were men of unusual talents and strong convictions, and as president I felt I should respect their judgments. But notice, in my cable to our group in England, that I placed the responsibility for the deal squarely on their shoulders. They would have to validate it.
Soon after the Austin deal fell through, we entered into negotiations to purchase Vauxhall Motors, Ltd., a much smaller concern in England. This acquisition in the latter part of 1925 was a much less controversial matter in General Motors. Vauxhall manufactured a relatively high-priced car, roughly comparable in size to our Buick, and had an annual volume of only about 1500 units. It was in no sense a substitute for Austin; indeed, I looked on it only as a kind of experiment in overseas manufacturing. The experiment seemed appealing, however; and the investment required of us was only $2,575,291.
Vauxhall lost money in the first few years after we took it over, and it gradually became clear to us that we would have to develop a smaller car if we hoped to capture a much larger share of the British market. Mr. Mooney was eager to begin this development as rapidly as possible. He also saw Vauxhall as a precedent for expansion of our production operations in other countries. My own feelings about the future of our overseas operations were much less clear than his at this time, and in general I took the line in the next few years that we should move slowly and cautiously until we had worked out a clear policy for overseas operations.
The peculiar fact is that, although we had made the gestures I have described toward producing abroad, and had taken on Vauxhall, the Executive Committee had not yet crystallized an overseas policy. The decisive debate on this subject in the corporation began in 1928. In January 1928, while I was still concerned with keeping our position flexible, I offered to the Executive Committee a preliminary formulation as follows:
THAT recognizing the desirability of employing additional capital for the purpose of increasing the Corporation's profits and developing its business, the Executive Committee will consider favorably, as to principle, the employment of capital for manufacturing purposes in overseas manufacturing countries, either in the form of employment of such capital on its own account or through association with foreign manufacturers.
Thus I expressed my opinion as to the desirability of overseas manufacturing in principle. This view of mine was considered at length by the Executive Committee on January 26 and ordered filed without any concrete action. It was clear that we were still in search of a policy. By this time, the broad policy issues had come to center on several specific issues: Should we expand Vauxhall, or should we write it off as a bad investment? Was it really necessary to manufacture in Europe? Or could a modified Chevrolet, exported from the United States, compete with European cars in the European market? We were especially uncertain what to do in Germany. If we decided to produce there, should we expand our Berlin assembly plant into a manufacturing operation, or should we affiliate with some other producer? Our overseas operations men, especially Mr. Mooney, were inclined to favor expansion of existing facilities, while I rather preferred affiliation with a German producer. There were certainly substantial reasons for supporting either approach.
The question of manufacturing abroad was discussed in the Executive Committee again on March 29, and still again on April 12; at the latter meeting we discussed particularly the question whether we should manufacture a small car in England and Germany. As a matter of fact, that question was discussed by the Executive Committee through practically the entire year of 1928. There was a strong sentiment that our export organization should be limited to selling American products abroad and should not get into overseas manufacture. Meanwhile, I was interested in a suggestion that we create in the United States an organization to design a modified "small-bore" Chevrolet—a car that would escape the heavy horsepower tax in England and Germany. I felt that if this were done, it might prove unnecessary to develop a new small car at Vauxhall or to go into production in Germany; or, if it should become necessary to produce such a car abroad, we would at least have a design available. In any case, I wanted the facts established to everyone's satisfaction before proceeding further in either country.
At a meeting of the Executive Committee on June 4, 1928, I urged that each member talk to Mr. Mooney individually, in the hope that these discussions might clarify our thinking. In July Mr. Mooney addressed a long memorandum to me, detailing his point of view on all the issues. A few weeks later I conveyed this memorandum to the Executive Committee, together with my own comments on the points raised by Mr. Mooney. Perhaps the simplest way of describing the contending views, and of re-creating some of the atmosphere of the discussion, is to quote some excerpts from his memorandum.
One of the first points made by Mr. Mooney concerned the desirability of continuing expansion by the Export Company. He pointed out that "over the past five years the Export Division has increased its dollar volume from $20,000,000. to $250,000,000. . . . Our general problem ... is to raise our total dollar volume in Export from its present level of $250,000,000. to $500,000,000. in the shortest possible time, and to provide a means that will maintain a continuing increase into the future . . ."
Mr. Mooney pointed out further that ". . . the lowest price product that we can offer for sale in the world markets today, which is the Chevrolet, costs the user approximately 75% more than it does the user in the United States, and the user in the world markets has approximately only 60% of the money of the United States user to pay for it. Therefore, the Chevrolet when put down in world markets is not in the largest volume area, and is in a relatively high price class."
Mr. Mooney made his case for the expansion of Vauxhall along these lines:
(1) We had already started on a manufacturing program which we proposed to expand by adding another car model.
(2) We had a large and growing distribution system in England, and an investment in the Vauxhall plant that had to be safeguarded.
(3) The fact that the British Empire covered 38 per cent of the world markets outside of the United States and Canada was important in the consideration of England as a source for export markets.
The discussion then turned to the question of our future dealings in Germany, on which Mr. Mooney made his case with the following salient points:
(1) We already had an established organization in the form of the General Motors assembly plant in Berlin.
(2) We proposed to manufacture a car model at this plant, rather than acquire an interest in the Opel automobile company.
(3) Since the automobile industry in Germany was in its formative state, the time was right to establish a successful manufacturing operation.
(4) Our existing investment had to be safeguarded.
(5) Not only was the domestic German market potentially large, but Germany was also in a good position to export to neighboring countries.
I agreed with some of his main points, and on some others I was, as I have already suggested, frankly undecided. The one clear point of disagreement between myself and Mr. Mooney concerned an aspect of what our policy should be in Germany. I viewed the case there something like this: If the idea was to make a very small car, much smaller than the Chevrolet—assuming that was an economic thing to do—then we might be better off dealing directly with Opel. I felt that we would get off to a better start that way than we would by trying to compete on our own in a country with which we were largely unfamiliar.
During the following six months our policy in Germany was finally established. In October 1928 I made an inspection trip to Europe, accompanied by John Thomas Smith, who was general counsel of General Motors, and Charles T. Fisher. We visited our export and assembly operations throughout Europe and also visited Adam Opel A.G. My prior interest in acquiring Opel was stimulated by this visit, so much so that I negotiated an option for General Motors to buy Opel. The option was to expire on April 1, 1929, and we agreed, subject to further examination of the company, that we would pay about $30 million if we bought it.
I reported this arrangement to the Executive Committee on November 9, 1928. The committee was generally sympathetic to the idea of buying Opel, and it was agreed that we should look further into the property. At a committee meeting on November 22, 1928, we decided to appoint a study group to do just that. The group finally agreed upon consisted of Mr. Smith, who was to be in charge, together with Albert Bradley, general assistant treasurer, C. B. Durham, the head of manufacturing at Buick, and E. K. Wennerlund, who was an expert on factory arrangement and flow of material. Before the group sailed, I gave Mr. Smith a formal memorandum outlining the situation as I saw it. I asked him to bear these questions in mind:
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 ended.
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:
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 manufacturing 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.