Chapter 24
It is clear from the events and ideas I have described that my generation had an opportunity unique in the history of American industry. When we started in business, the automobile was a new product, and the large-scale corporation was a new type of business organization. We knew that the product had a great potential, but I can hardly say that any of us, at the beginning, realized the extent to which the automobile would transform the United States and the world, reshape the entire economy, call new industries into being, and alter the pace and style of everyday life. It was our satisfaction to assist in the development of the industry which in this century made individual units of transportation available to almost everyone. It was my personal satisfaction to be associated in a business way, as a supplier or a competitor, with a large number of the able citizens who created and contributed to the development of this industry. The names of a few of them, by their association with cars and companies, stand for a new American legend. For me, because of my age and past associations, it is natural to think as well as speak in terms of Mr. Ford, Mr. Buick, Mr. Chevrolet, Mr. Olds, Mr. Chrysler, Mr. Nash, Mr. Willys, and so on. Involved with thousands of others in the destiny of this industry, they conducted the prosaic operations of running a business without being aware of the revolution they were making.
Most successful enterprises in American industry have tended to grow. General Motors obviously is a successful enterprise. It is successful because it is efficient, and it has grown accordingly. It is not surprising that the large corporation should have become a feature of an economy with as much vitality as ours. Yet it has its critics, of course. To rational critics, let me say this. General Motors has become what it is because of its people and the way they work together, and because of the opportunity afforded those people to participate in an enterprise which combined their activities efficiently. The field was open to all; technical knowledge flows from a common storehouse of scientific progress; the techniques of production are an open book, and the related instruments of production are available to all. The market is world-wide, and there are no favorites except those chosen by the customers.
I should like to point out that today's large successful enterprises have not always been large. This book has shown that when we started on this great adventure in the early 1900s the whole automotive industry was searching for ways and means to find itself. In those early days we along with the industry lacked the techniques that today are taken for granted. Things just seemed to happen—to us, and to the industry. The number of sales by dealers was unknown. The number of cars held by dealers was unknown. Trends in consumer demand were unknown. There was no awareness of the importance of the used-car market. There were no statistics on the different cars' market penetration; no one kept track of registrations. Production schedules, therefore, were set with no real relationship to final demand. Our products had no planned relation to one another or to the market. The concept of a line of products to meet the full challenge of the market place had not been thought of. The annual model change as we know it today was still far in the future. The quality of the products was sometimes good, sometimes bad.
We had to start from that beginning. It was our task to find out what forms of organization were suitable to our company. This meant, above all, an organization that could adapt to great changes in the market. Any rigidity by an automobile manufacturer, no matter how large or how well established, is severely penalized in the market—as we have seen was the case with Mr. Ford in the 1920s, when he stayed too long with his old and once dominantly successful concept of the business. We had a different concept of the business, which we put into competition with his. It could have happened that he was right, but for that to have occurred, one would have to postulate the continuation of the kind of national economy that supported his concept of the automobile. As it happened, our concept was more in accord with the economy, the progress of the automobile art, and the changing interests and tastes of consumers. But after our first success, we too might have failed. There have been and always will be many opportunities to fail in the automobile industry. The circumstances of the ever-changing market and ever-changing product are capable of breaking any business organization if that organization is unprepared for change —indeed, in my opinion, if it has not provided procedures for anticipating change.
In General Motors these procedures are provided by the central management, which is in a position to appraise the broad long-term trends of the market. This is well illustrated by the changes in our product over the years. The gradual evolution of our product line during the 1920s started with a passive adaptation to the problems of the market and proceeded to the policy which we defined simply as "a car for every purse and purpose." As the industry has grown and evolved, we have adhered to this policy and have demonstrated an ability to meet competition and the shifts of customer demand. I want, in this connection, to sketch the evolution of our products.
Four million cars and trucks were sold in 1923, and the market remained more or less at this level throughout the 1920s. During this time our product was improved continuously in many ways, the most important being the development of the closed body. The sale of higher-priced cars rose with national prosperity. In the early thirties, during the depression, the demand reversed itself and became concentrated in the low-price area. In 1933 and 1934 almost three quarters of the cars sold in the United States were in the low-price group. We adjusted to that demand. With the recovery of the economy, consumers again sought a higher proportion of higher-priced lines, and in the years 1939-41, immediately before the U.S. entry into the war, the low-price group was accounting for only 57 per cent of the over-all market, or about the same proportion as in the year 1929. We responded accordingly.
With the resumption of production after World War II, it was necessary because of shortages, particularly of steel, for the industry to operate under material controls. These allocations favored the smaller manufacturers (Kaiser-Frazer, Nash, Hudson, Studebaker, and Packard) whose product representation at that time was concentrated in the medium-price ranges, with the result that the proportion of the market accounted for by their cars increased sharply. Competition, in this period, was largely confined to production—that is, whatever a manufacturer could make, customers were waiting to purchase. By 1948, when registrations of new cars approached the prewar peaks established in 1929 and 1941, the medium-price group was accounting for 45.6 per cent of the over-all market, and nearly equaled the share (46.6 per cent) accounted for by the low-price group.
In the years after 1948, normal competitive influences began to reassert themselves in some areas of the market and the sales of the smaller manufacturers in the medium-price group declined. On the surface, it appeared that customer demand was returning to the prewar pattern; by 1954 the traditional low-price group seemingly again accounted for about 60 per cent of all sales. Actually, however, a significant change was taking place in the industry's product offerings in the low-price group. The producers in this group along with others were offering more and more optional equipment to attract the increased consumer purchasing power of the fifties. The character of the market at that time was well expressed in Fortune in September 1953 ("A New Kind of Car Market"), as follows: "In the postwar sellers market, it [the car industry] has found itself selling more car per car—more accessories, luxuries, improvements and innovations. Now it has to plan it that way . . . The widening spread between unit demand and purchasing power will create a powerful drive to sell still more car per unit." With the "new look" the 1955 cars grew larger and more powerful and many accessories became standard equipment. The whole automobile market became further variegated with the increasing popularity of such relatively expensive models as hardtops, convertibles, and station wagons. Sales were strong in what had been known as the medium-price area and Ford, for example, in efforts to broaden its representation there, expanded its Mercury line and in 1957 brought out an entirely new car, the Edsel. But cars in the former low-price group meanwhile were being upgraded both in size and quality; Ford, Chevrolet, and Plymouth all added to the top grade of their respective lines new, more expensive series of cars which were, in effect, part of the medium-price group in everything but name. (Note 24-1.) In principle this was simply a recognition by the industry of the consumer's new purse and a catering to his new desires.
It is interesting to note that, in the middle fifties, so-called "stripped" models, that is, the cars in the low-price group with a minimum of equipment, did not attract many customers. In view of this fact, the upsurge of demand for the so-called compact or economy car, which gathered momentum in the years after 1957, at first sight may seem confusing. On looking closer, however, it is evident that this demand was essentially a further expression of the customer's desire for greater variety. Throughout its history, the industry has been faced with the problem of trying to anticipate changes in customer preference. Even though it takes years to develop a new product, it is our job to be ready with it when there is an effective demand. Mr. Donner, chairman and chief executive officer of General Motors, recently put it this way:
. . . To meet the challenge of the market place, we must recognize changes in customer needs and desires far enough ahead to have the right products in the right places at the right time and in the right quantity.
We must balance trends in preference against the many compromises that are necessary to make a final product that is both reliable and good looking, that performs well and that sells at a competitive price in the necessary volume. We must design, not just the cars we would like to build, but more importantly, the cars that our customers want to buy.
The dramatic events in the market of the late 1950s and early 1960s are a good example of how rapidly consumer tastes can change—and also an example of the industry's ability to respond to such changes. In 1955, when car sales reached a new high, 98 per cent of the industry's volume was accounted for by standard size domestic cars. The balance of 2 per cent, representing fewer than 150,000 cars, included some forty-five foreign and smaller domestic lines. By 1957 foreign imports and the domestic smaller cars had increased to 5 per cent of the total. In 1957 it still appeared far from certain that the demand for smaller cars would continue to grow, but the possibility had been recognized by General Motors for some time, and the designs for such cars had already been initiated. As early as 1952, Chevrolet had, with the approval of central management, set up a research and development group charged with the task of developing such a car, which would be ready if and when demand rose sufficiently to justify volume production. To some extent, this activity was a projection of work done prior to 1947, when the development of a small car had been actively considered by General Motors.
The design of the Corvair was made final in late 1957, and the car was introduced in the fall of 1959. Other manufacturers introduced new small cars at about the same time. Later, we added other lines, including the Buick Special, the Oldsmobile F-85, and the Pontiac Tempest, all introduced in i960, the Chevy II, introduced in 1961, and the Chevelle in 1963. While the smaller cars were designed to appeal to the economy-minded customer who wanted lower initial cost and lower costs of operation, it soon became apparent, somewhat contradictorily, that the customer had not lost his taste for the comfort, convenience, and styling of the regular-size cars; he was ordering his smaller car with better interior appointments, convenient and useful accessories, and equipment such as automatic transmissions, power steering, and power brakes, which he had previously specified on the regular-size car. The Corvair Monza, featuring automatic transmission, bucket seats, special upholstery, and deluxe trim, was brought out in i960, and almost from its introduction accounted for well over half the Corvair sales. Moreover, it soon became evident that the customers wanted the smaller cars in the same range of models and body styles that were available in the regular cars—that is, they wanted hardtops, convertibles, and station wagons as well as two and four-door sedans. The addition of these smaller cars to the wide range of standard size cars has provided the customer with an unprecedented variety of models from which to choose.
Certainly the late 1950s and early 1960s saw the most dramatic change in the car market since the 1920s, when the closed body rose to dominance, the Model T came to an end, and the upgrading of cars began. The events of the past few years in the car market, I believe, have validated the General Motors product policy that we formulated in 1921. John Gordon, president of General Motors, recently observed that our slogan of "a car for every purse and purpose" is as appropriate as ever; indeed, we have never offered our customers greater variety and choice than we do today. In the 1963 model year the industry offered 429 models of domestically produced cars, compared with 272 in 1955; General Motors alone had 138 models in 1963, compared with 85 in 1955. Of this, Mr. Gordon said: "Taking into account all of the colors available and all of the optional equipment and accessories we now offer—power assists, air conditioning, tilt steering wheels, autronic eyes and so on—we could, in theory at least, go through a whole year's production without making any two cars exactly alike. Our objective is not only a car for every purse and purpose but, you might say, a car for every purse, purpose and person."
The trend toward the smaller car was clearly visible after 1957, and by 1959 foreign imports were accounting for 10 per cent of industry sales in the United States, while domestically produced smaller cars accounted for an additional 10 per cent. The foreign imports declined in relative importance after 1959, and in 1963 were accounting for about 5 per cent of the total market. However, sales of the domestically produced smaller cars continued to increase, and after i960 accounted for about one third of the entire market. Meanwhile, part of the formerly low-price group has become established in the medium group.
In the face of these trends, some of the domestic manufacturers reduced their offerings in what were traditionally called the medium-price ranges. The Edsel, introduced late in 1957, was discontinued in 1959; the De Soto, which had a long history at Chrysler, was discontinued in i960; and the Mercury, certain Dodge models, and American Motors' Ambassador were reduced in size and appointments. In General Motors, we elected to maintain our regular size cars in the medium-price group at about the same weight, size, and number of models, while at the same time adding smaller cars to these lines.
The automobile constitutes 90 per cent of our business, but each operation or potential operation is considered as a separate problem. We have no inflexible policy on products that we might manufacture, but motors are at the center of the business. Our product decisions must, of necessity, be in part empirical, and actual experience with some products may suggest that they are not well suited to our managerial skills. In such cases we withdraw from the activity.
For example, in 1921 we found it best to withdraw from the agricultural tractor business, because we did not believe that we could make a special contribution in that field. Since then we have built up and subsequently disposed of interests in companies which manufactured airplanes, household radios, glass, and chemicals. We entered the aviation-engine and diesel-engine fields to put our know-how in engineering and mass production to work and create new values. We developed a new concept of the diesel—the two-cycle engine—put it into a locomotive, and revolutionized the American railroads. We poured many millions of dollars into this unproven product at a time when many of the customers for it were in serious financial condition or bankrupt and the majority of them appeared to be totally uninterested in innovation; and we thereby helped the railroads back to solvency—a fact that is acknowledged by railroad management today.
In none of our product markets did we achieve a prominent place by buying out a company. In general we entered each of our related activities at a very early stage and then labored to develop the market for our product, whether automobiles, household refrigerators, diesel locomotives, or aircraft engines. We have not bought our way into operations, we have built them up.
In describing the General Motors organization I hope I have not left an impression that I think it is a finished product. No company ever stops changing. Change will come for better or worse. I also hope I have not left an impression that the organization runs itself automatically. An organization does not make decisions; its function is to provide a framework, based upon established criteria, within which decisions can be fashioned in an orderly manner. Individuals make the decisions and take the responsibility for them. The men who have made General Motors' decisions in the years since I retired from active management have had a remarkable record of success in tackling some very complex problems. In no instance was the answer explicitly provided by the automatic operation of the organization. The task of management is not to apply a formula but to decide issues on a case-by-case basis. No fixed, inflexible rule can ever be substituted for the exercise of sound business judgment in the decision-making process.
The end product of what I have described in this book is efficiency, using that concept in its broadest sense. I hold that General Motors' efficiency and growth are interrelated in our highly competitive economy. And I hold that if companies are attacked simply because they are big then an attack on efficiency must be a corollary of that attack. If we penalize efficiency, how can we as a nation compete in the economy of the world at large?
So far as I am concerned, my work is done. Long ago, in 1946, at seventy-one, I reduced my commitments when I retired as chief executive officer of the corporation, though I continued as chairman of the board. In 1956 I became honorary chairman. Since then my active participation has been limited to service on the Finance Committee, on the Bonus and Salary Committee, and on the board of directors. In the board, time is taking its toll. Great changes have been under way, affecting its composition. The du Ponts, who accounted for about 25 per cent of the corporation's shares in the past, and who served the corporation so well, have already passed out of the board. Many of the old generation of members have died. The remaining older members from management, who have been and continue to be large individual shareholders, among them Messrs. Mott, Pratt, Bradley, Hunt, McLaughlin, Fisher, and myself, cannot be expected to serve many more years on the board and its committees. The responsibilities we have discharged for so long, in intimate association as operating executives, have been or soon must be assumed by others. Each new generation must meet changes—in the automotive market, in the general administration of the enterprise, and in the involvement of the corporation in a changing world. For the present management, the work is only beginning. Some of their problems are similar to those I met in my time; some are problems I never dreamed of. The work of creating goes on.