Part One

Chapter 1

The Great Opportunity—I

Two events occurred in 1908 that were to be of lasting significance in the progress of the automobile industry: William C. Durant, working from his base in the Buick Motor Company, formed the General Motors Company—predecessor of the present General Motors Corporation—and Henry Ford announced the Model T. Each of these things represented more than a company and its car. They represented different points of view and different philosophies. History was to assign these philosophies to leading roles in the automobile industry in successive periods. Mr. Ford's was to come first, to last nineteen years—the life of the Model T— and to bring him immortal fame. Mr. Durant's pioneer work has yet to receive the recognition it deserves. His philosophy was an emerging one in the Model T era and was afterward to be realized not by him but by others, including myself.

No two men better understood the opportunity presented by the automobile in its early days than Mr. Durant and Mr. Ford. The automobile was then widely regarded, especially among bankers, as a sport; it was priced out of the mass market, it was mechanically unreliable, and good roads were scarce. Yet in 1908, when the industry produced only 65,000 "machines" in the United States, Mr. Durant looked forward to a one-million-car year to come— for which he was regarded as a promoter of wildcat ideas—and Mr. Ford had already found in the Model T the means to be the first to make that prediction come true. The industry produced more than a half-million cars in the United States in 1914. In 1916 Mr. Ford alone produced more than a half-million Model Ts and at his high point in the early 1920s he produced more than two million in one year. The downfall of that great car in later years, after it had served its historic purpose, is one of the pivotal facts of this story.

Both Mr. Durant and Mr. Ford had unusual vision, courage, daring, imagination, and foresight. Both gambled everything on the future of the automobile at a time when fewer were made in a year than are now made in a couple of days. Both created great and lasting lines of products whose names have been assimilated into the American language. Both created great and lasting institutions. They were of a generation of what I might call personal types of industrialists; that is, they injected their personalities, their "genius," so to speak, as a subjective factor into their operations without the discipline of management by method and objective facts. Their organizational methods, however, were at opposite poles, Mr. Ford being an extreme centralizer, Mr. Durant an extreme decentralizer. And they differed as to products and approach to the market.

Mr. Ford's assembly-line automobile production, high minimum wage, and low-priced car were revolutionary and stand among the greatest contributions to our industrial culture. His basic conception of one car in one utility model at an ever lower price was what the market, especially the farm market, mainly needed at the time. Yet Mr. Durant's feeling for variety in automobiles, however undefined it was then, came closer to the trend of the industry as it evolved in later years. Today each major American producer makes a variety of cars.

Mr. Durant was a great man with a great weakness—he could create but not administer—and he had, first in carriages and then in automobiles, more than a quarter century of the glory of creation before he fell. That he should have conceived a General Motors and been unable himself in the long run to bring it off or to sustain his personal, once dominating position in it is a tragedy of American industrial history.

It may not be generally known that at the turn of the century Mr. Durant—who had started from scratch—was the leading wagon and carriage producer in the United States; that he entered and reorganized the failing Buick Motor Company in 1904 and by 1908 was the leading motorcar producer in the country. He built 8487 Buicks in 1908, as compared with a production in that year of 6181 Fords and 2380 Cadillacs.

Mr. Durant incorporated the General Motors Company on September 16, 1908. Into it he brought first Buick, on October 1, 1908; then Olds, on the following November 12, and then, in 1909, Oakland and Cadillac. The old companies retained their corporate and independent operating identities in the new one, which was a holding company—that is, a central office surrounded by autonomously operating satellites. By various means, mainly exchanges of stock, Mr. Durant between 1908 and 1910 brought into General Motors about twenty-five companies. Eleven were automobile companies; two were electrical-lamp companies, and the remainder were autoparts and accessory manufacturers. Of the automobile companies, only four, Buick, Olds (now Oldsmobile), Oakland (now Pontiac), and Cadillac, were to have a permanent place— first as companies, later as divisions—in the evolution of the corporation. The other seven early automobile companies were only shadow enterprises; they had principally engineering designs and little plant or production.

Putting together organizations in that period often involved "stock watering" and other manipulations, and this financial alchemy sometimes changed water into gold. I doubt whether that can be said to be the case when the General Motors Company was formed, for Buick was a very profitable enterprise before it became the cornerstone of General Motors. It earned about $400,000 on about $2 million in sales in 1906; about $1.1 million on $4.2 million in sales in 1907, a year of national economic "panic"; and an estimated $1.7 million on $7.5 million in sales in 1908—clearly a nice growth and profitability.

But Mr. Durant was interested in consolidation, through the extension of his product lines and through integration. He was advanced for his time in his general methods of production. Unlike most early motorcar producers, who merely assembled components made by the parts manufacturers, Mr. Durant already had Buick making many of its own parts, and he expected to bring about increasing economies in this direction. A prospectus of his for an unrealized consolidation of Buick with Maxwell-Briscoe Motor Company in 1908 specifies economies expected in purchasing, sales, and integrated production. It notes that one of Buick's plants in Flint "is situated in the midst of a group of 10 independent factories which manufacture bodies, axles, springs, wheels and castings" and reports that options were held on some of them. Mr. Durant thus showed a considerable sophistication in economic matters, very different from the popular image of him as a mere stock-market plunger. I cannot say that he was precise in the application of his economic philosophy; but he emerged prominently from a period that saw the birth and death of a great many automobile companies.

I see three simultaneous patterns in the way Mr. Durant set up General Motors. The first was variety in cars for a variety of tastes and economic levels in the market. That is evident in Buick, Olds, Oakland, Cadillac, and, later, Chevrolet.

The second pattern was diversification, calculated, it seems, to cover the many possibilities in the engineering future of the automobile, in search of a high average result instead of an all-or-none proposition. Among the nonsurvivors in General Motors, there was, for example, the Cartercar, which had a "friction drive" that was then considered a potential rival of the sliding-gear transmission; and also the Elmore Manufacturing Company, an outgrowth of a bicycle-manufacturing enterprise, which had a two-cycle motor that looked as if it might have a chance for a demand of some kind. There were a number of other random gambles which I*shall only name: the Marquette Motor Company, the Ewing Automobile Company, the Randolph Motor Car Company, the Welch Motor Car Company, the Rapid Motor Vehicle Company, and the Reliance Motor Truck Company. The last two were combined and named Rapid Truck, which was absorbed by the General Motors Truck Company, organized on July 22, 1911.

The third pattern in Mr. Durant's arrangements was his effort, mentioned in connection with Buick, to increase integration through the manufacture of the parts and accessories that make up the anatomy of the motorcar. Mr. Durant brought into the original company a number of component manufacturers: the Northway Motor and Manufacturing Company, an enterprise producing motors and parts for passenger cars and trucks; the Champion Ignition Company of Flint, Michigan, a manufacturer of spark plugs, later renamed the AC Spark Plug Company; the Jackson-Church-Wilcox Company, a manufacturer of parts for Buick; the Weston-Mott Company of Utica and later of Flint, a producer of wheels and axles; and others. He also brought in the McLaughlin Motor Car Company, Ltd., of Canada, which had been a fine-carriage maker. This company bought Buick parts and manufactured the McLaughlin-Buick car in Canada. This move brought into association with General Motors the talents of R. Samuel McLaughlin, who was to be largely responsible for the development of General Motors in Canada.

Not all of these additions were companies acquired by Mr. Durant. He created Champion Ignition, for example, by putting up all the money, and gave Albert Champion 25 per cent for his knowhow. It remained a partially owned subsidiary until 1929, when General Motors purchased the minority interest from Mr. Champion's widow.

Altogether, from the standpoint of potential integration, Mr. Durant brought into General Motors in the beginning an important group of component enterprises. On the other hand, he also paid more for a property called the Heany Lamp Companies, which became worthless, than he did for Buick and Olds combined. The Heany shares were purchased at a cost of about $7 million, paid for principally in General Motors securities. Heany's main asset consisted of an application for a patent for tungsten lamps, which the Patent Office later threw out.

Mr. Durant's approach, whatever its validity might have been in the long run, was in the short run his undoing. For Buick and Cadillac, especially Buick with its combination of quality and volume, were about all the substance there was to the original General Motors. They accounted for most of its car production, which in 1910 represented about 20 per cent of the automobile output in the United States. The rest of the company's cars were of little consequence. And so, as it turned out, General Motors was soon overextended and in financial difficulties. In September 1910, just two years after he created the General Motors Company, Mr. Durant lost control of it.

An investment banking group, headed by James J. Storrow of Lee Higginson and Company of Boston and Albert Strauss of J. and W. Seligman and Company of New York, came in to refinance General Motors and in this connection took over its operation through a voting trust. A loan was obtained on stiff terms, through a $15million five-year note issue, from which the proceeds to General Motors were $12,750,000. The note issue carried a "bonus" to the lenders in the form of common stock which would eventually be vastly more valuable than the notes. Mr. Durant, a large shareholder in General Motors, was still a vice president and member of the board of directors, but he was forced to step aside in matters of management.

For five years thereafter, from 1910 to 1915, the banking group ran the General Motors Company efficiently though conservatively. They liquidated the unprofitable units, writing off about $12.5 million—a huge amount at that time—in the value of inventories and other assets. They organized the General Motors Export Company, on June 19, 1911, to sell General Motors products overseas. The automobile industry as a whole expanded rapidly during this period, from about 210,000 units in 1911 to about 1.6 million units in 1916, due mainly to Ford's operations in the low-price field. General Motors increased its sales from about 40,000 units in 1910 to about 100,000 in 1915 but lost in relative position—down from 20 per cent to 10 per cent of the market in units—owing to Ford's rise. General Motors was not then represented in the low-price field. The company, however, was in good shape financially. Its efficiency in operations was due largely to its then president, Charles W. Nash.

Mr. Nash came to General Motors in this way. He had been with Mr. Durant in the Durant-Dort Carriage Company for about twenty years and had stayed on as manager there when Mr. Durant first went into the automobile business. He was as steady and careful as Mr. Durant was brilliant and daring—or reckless, as you may choose to call it. In 1910 Mr. Nash had had little experience in automobiles, but he had demonstrated talent in the art of manufacturing and administration. It was, I understand, at Mr. Durant's suggestion that the banker, Mr. Storrow, engaged Mr. Nash to take over the management of Buick. In any event, Mr. Nash became president of the Buick subsidiary in 1910 and did so well there that he went on to become president of the General Motors Company in 1912. (Note 1-1.)

It was no accident that Buick remained the mainstay of General Motors throughout its early years. It had a management of stars. Mr. Storrow, a director of American Locomotive, discovered Walter P. Chrysler in one of that company's shops and recommended him to Mr. Nash. Mr. Nash hired Mr. Chrysler in 1911, I believe, as works manager of Buick. In 1912, when Mr. Nash moved up to be president of General Motors, Mr. Chrysler remained at Buick, where he was later to be president and general manager. Between 1910 and 1915, the period of banking control, Buick together with Cadillac continued to make just about all the profits of the General Motors Company.

General Motors at that time needed the prestige which the banking group gave it. The proceeds of the $i5-million five-year note issue enabled the company to liquidate its past-due obligations, but working capital still was needed. This made necessary large borrowings from banks, which at one period rose to about $9 million. By 1915, however, General Motors was in such good financial condition that the directors, at a meeting on September 16 of that year, declared a cash dividend of fifty dollars a share on the common stock, the first cash dividend since the founding of the company seven years earlier. This action involved a distribution of over $8 million divided among the then 165,000 shares, and it amazed the financial community, for it was the largest cash dividend per share ever declared on a stock listed on the New York Stock Exchange up to that time. The minutes of the board meeting say that the motion to declare this dividend was made by Mr. Nash and supported by Mr. Durant. However, the period of the voting trust was running out and a momentous conflict between Mr. Durant on the one hand, and the banking group and the Nash management on the other, was brewing as Mr. Durant sought to regain control of the company.

After being forced to step aside from the management of General Motors in 1910, Mr. Durant once again showed his enterprising spirit in the automobile industry. He backed Louis Chevrolet in experiments with a light car. In 1911 Mr. Durant and Mr. Chevrolet together started the Chevrolet Motor Company. Within four years Mr. Durant had built it into a nationwide organization, with several assembly plants and wholesale offices across the country and in Canada. At some time or other in this period he also began increasing the amount of stock of the Chevrolet Company and offering it in exchange for General Motors stock. He hoped thus through Chevrolet to regain a controlling interest in General Motors.

It was about this time that the du Ponts came into the picture and began their significant role in the story of General Motors.

The man chiefly responsible for bringing the du Ponts into General Motors was John J. Raskob, then treasurer of the du Pont Company and personal financial adviser to Pierre S. du Pont, then president of that company. Mr. du Pont, testifying in 1953 in a suit brought by the government attacking the relationship between the du Pont Company and General Motors, said that he had bought about 2000 shares of General Motors around 1914 as a personal investment. One day in 1915, he said, Louis G. Kaufman, president of the Chatham and Phenix National Bank, of which Mr. du Pont was a director, explained to him the situation in General Motors. Mr. Kaufman described the history of the company and the forthcoming expiration of the bankers' voting trust. There was to be a meeting in September 1915 to propose a new directorate for election in November. Mr. du Pont said that he was informed that Mr. Durant and the Boston bankers were in harmony. Mr. du Pont and Mr. Raskob accepted an invitation to attend the meeting. This was the first time that Mr. du Pont remembered meeting Mr. Durant.

Mr. du Pont also said:

Instead of a harmonious meeting as Kaufman had expected to find, the two factions were at loggerheads; the Boston bankers on one side, Durant on the other. They failed to come to an agreement as to what the new directorate slate would be

. . . . After much conversation, Mr. Kaufman drew me aside. Then we returned to the meeting and it was announced that if I would name three neutral directors for the company, they would make up the slate from that, each faction having seven directors and I would name three.

In the meantime, they had appointed me chairman of the meeting...

The slate was agreed upon and elected by the shareholders at the annual meeting on November 16, 1915. At the organization meeting of the board on the same day, Pierre S. du Pont was elected chairman of the General Motors Company and Mr. Nash was reelected president. The Boston bankers and Mr. Durant, however, continued to be in deadlock over control of the company, and it was widely rumored then that Mr. Durant held the upper hand. He asserted a claim to control and a proxy contest loomed up, but did not materialize. The bankers chose not to fight and abdicated in 1916. Through his control of Chevrolet, Mr. Durant had control of General Motors. (Note 1-2.)

After Mr. Durant's victory, inducements were offered to Mr. Nash to stay with General Motors. But on April 18, 1916, he resigned from the presidency of the company, and, with the backing of Mr. Storrow of the Boston banking group, started the Nash Motors Company. In July 1916 he bought the Thomas B. Jeffery Company of Kenosha, Wisconsin, a former bicycle manufacturer which was producing an automobile called the Rambler. I bought some of the Nash Motors stock at the time. It was very profitable. When Mr. Nash died some years ago he was reputed to have left an estate of between $40 million and $50 million, an impressive record for a conservative businessman.

On the day Mr. Nash's resignation was formally accepted by the board, June 1, 1916, Mr. Durant took over the presidency of General Motors and the big show was on again. He soon transformed the General Motors Company—a New Jersey corporation—into the General Motors Corporation—a Delaware corporation—and increased its capitalization from $60 million to $100 million. (Note 1-3.) The car manufacturing subsidiary companies—Buick, Cadillac, and the others—were made operating divisions, so that the General Motors Corporation became an operating company, as distinguished from the old holding company. In August 1917 the new corporation and its operating divisions were formally joined.

Mr. Durant, it appears, then sought a substantial financial partner and looked to the du Pont group. The question arose in the du Pont Company whether they should come in. Mr. du Pont outlined the events as follows:

He [Raskob] believed it [General Motors] was a very good investment for du Pont, and gave the reason that the du Pont Company needed an investment of good earning power and good dividend power in order to supplement its current dividend. Du Pont had lost the military business, or we knew it would be lost very shortly, and in the interim between the earnings of the military business and what might come after that, we needed something to support the dividends of the du Pont Company.

. . . General Motors was already in full swing. They had established a good line of cars, and they were very popular, and there was every promise that their dividends would continue at the then rate which was good, or maybe would be higher. That was the attractive point to Raskob and it also became my idea that it was a very good investment, and one that could not be duplicated, so far as we knew, anywhere else.

Mr. du Pont stated further:

The General Motors Corporation and the industry itself had not advanced to a general acceptance. It was regarded as being something very risky, and consequently the stock was selling at about par at that time, which was a very good investment apparently from the actual earnings, but the public hadn't learned to believe that, so that the investment that was possible to make was extremely interesting, and that was the starting of the proposition to the du Pont Company . . . We had been through a great many financial arrangements in relation to the military business of the du Pont Company, and Durant needed financing or financial management in his corporation. He acknowledged that he wanted that, and he was very glad to take on du Pont interest to run that part of his business...

In a memorandum to the Finance Committee of the du Pont Company dated December 19, 1917, Mr. Raskob, with extraordinary insight into the future of the automobile industry, argued for du Pont Company participation in General Motors. Mr. Raskob wrote:

The growth of the motor business, particularly the General Motors Company, has been phenomenal as indicated by its net earnings and by the fact that the gross receipts of the General Motors-Chevrolet Motor Companies [sic] for the coming year will amount to between $350,000,000.00 and $400,000,000.00. The General Motors Company today occupies a unique position in the automobile industry and in the opinion of the writer with proper management will show results in the future second to none in any American industry. Mr. Durant perhaps realizes this more fully than anyone else and is very desirous of having an organization as perfect as possible to handle this wonderful business . . . Mr. Durant's association with . . . [the du Pont group] has been such as to result in the expression of the desire on his part to have us more substantially interested with him, thus enabling us to assist him, particularly in an executive and financial way, in the direction of this huge business. The evolution of the discussion of this problem is that an attractive investment is afforded in what I consider the most promising industry in the United States, a country which in my opinion holds greater possibilities for development in the immediate future than any country in the world; that rather than have a coterie of our directors taking advantage of this in a personal way, thus diverting their time and attention (to some degree at least) from our affairs, it would be far preferable for the Company to accept the opportunity afforded, thus giving our directors the interest so desired through their stock ownership in the du Pont Company. (Note 1-4.)

Mr. Raskob summarized his views in favor of the investment in five points, as follows: The first was that with Mr. Durant the du Pont Company would have joint control. The second was that the du Pont people would "assume charge and be responsible for the financial operation of the Company." The third was a forecast of expected return. The fourth was that the purchase would be made on better than an asset basis. The fifth I quote: "Our interest in the General Motors Company will undoubtedly secure for us the entire Fabrikoid, Pyralin, paint and varnish business of those companies, which is a substantial factor." (Note 1-5.)

On December 21, 1917, the du Pont board, on the recommendation of Pierre S. du Pont and Mr. Raskob, authorized the purchase of $25 million worth of the common stock of General Motors and Chevrolet. Whereupon, at the beginning of 1918, the du Pont Company took a position in General Motors amounting to 23.8 per cent of General Motors common stock, which was purchased in the open market and from individuals. The du Pont Company investment in General Motors was increased to $43 million, or 26.4 per cent, at the end of 1918.

The period of co-operation between the du Pont Company and Mr. Durant began when the first investment was made. Du Pont representatives took over the responsibility of the General Motors Finance Committee, John J. Raskob becoming its chairman. Mr. Durant was the only member of the Finance Committee not from the du Pont Company. Financial affairs were assigned exclusively to this committee; it also set compensation for top executives. The Executive Committee, on the other hand, took complete charge of all operations, except matters assigned to the Finance Committee. Its chairman was Mr. Durant, and J. A. Haskell, who served as liaison man for du Pont in operations, was a member. Mr. Haskell, like Mr. Durant, sat on both the Executive Committee and the Finance Committee.

By the end of 1919, with the further expansion of General Motors, the du Pont Company increased its investment in the corporation to about $49 million, giving it ownership of 28.7 per cent of the General Motors common. Then, Pierre S. du Pont has said, "they made a declaration that that would be the end of their investment, and they would take no more." But events dictated otherwise.

In the period 1918 through 1920 Mr. Durant took General Motors through a large expansion of operations, in which he was enthusiastically supported by Mr. Raskob and the Finance Committee, which obtained the capital for the expansion.

The acquisition of Chevrolet in 1918 gave the corporation a car that was potentially competitive with Ford in the low-price class, although it could not compete with Ford at that time in quality and was priced above it. Along with Chevrolet came Scripps-Booth, a small car company owned by Chevrolet.

The important association with Fisher Body was begun in 1919 with the acquisition of a 60 per cent interest in that company and a contract for the manufacture of bodies.

The Sheridan car, made by a small outfit, was purchased in 1920, giving the corporation for a time a line of seven cars. The Cadillac, the Buick, the Olds, the Oakland, and the Chevrolet, along with the General Motors Truck, were already established, although the Cadillac and the Buick were still the only worthwhile cars in the line.

Two special projects, one in tractors and the other in refrigeration, were brought into the corporation on the personal initiative of Mr. Durant. On occasion, when out in the field, he would make informal deals to get something started, and this sometimes caused uneasy moments in the general office. But in the end his intuitive and impulsive moves were supported.

So it was that in February 1917 he caused General Motors to buy into a small enterprise called the Samson Sieve Grip Tractor Company of Stockton, California, which had an invention for driving a tractor like a horse—"the Iron Horse" it came to be called. And to this he later added the Janesville Machine Company of Janesville, Wisconsin, and the Doylestown Agricultural Company of Doylestown, Pennsylvania, to form in General Motors the Samson Tractor Division—a very unprofitable venture, as it turned out. In June 1918, on the other hand, Mr. Durant bought a small company in Detroit, called the Guardian Frigerator Company, and made out his own check for it in the amount of $56,366.50, for which he was repaid by General Motors on May 31, 1919. This embryo enterprise took on importance later as the Frigidaire Division.

A number of other enterprises were started or taken into the corporation in the period 1918-20: General Motors of Canada, Ltd.; the General Motors Acceptance Corporation, which was organized to finance the sale of General Motors cars and trucks; a group of Dayton companies in which Charles F. Kettering was interested; a number of manufacturing divisions which were set up to supply axles, gears, crankshafts, and the like for General Motors' automobile divisions, and a group of parts and accessory companies called United Motors, of which I was president.

Thanks mainly to Mr. Durant, General Motors had then the makings of a great enterprise. But it was in good part physically unintegrated and in management uncoordinated; the expenditures for new companies, plants and equipment, and inventories were terrific —some of them not to bring a return for a long time, if ever—and as they went up, the cash went down. General Motors was heading for the crisis from which the modern General Motors Corporation would emerge.

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