My years with general motors

The initial task tackled by General Motors' new executive committee was to overhaul its administrative structure. Historically, GM operated as a decentralized conglomerate of independent units, a legacy of William Durant's management style. The committee introduced a semi-centralized governance model, organizing GM into divisions each led by a CEO responsible for its performance, while also establishing a central body for advisory and support services.

During the early 1920s, General Motors was exploring innovative technologies under the new executive committee's guidance, aiming to strengthen its position against Ford.

One such innovation was an air-cooled engine developed by Charles Kettering of the Dayton Metal Products Company, which GM acquired in 1919. This engine, designed to reduce production costs by eliminating the radiator and plumbing system, was seen as a potential game-changer for GM's lower-end market competition. However, the technology faced setbacks when test cars failed engineering tests, leading to a delay in launching the new model.

Alfred Sloan, in his efforts to harness General Motors' vast resources effectively, introduced a novel organizational structure in late 1924 to enhance coordination among the company's diverse operating divisions.

This structure comprised six interdivisional coordinating committees, each tasked with specific operational responsibilities. These included an operations committee for evaluating divisional performance, a general sales committee to oversee sales and advertising, and a general purchasing committee aimed at optimizing costs through centralized purchasing and standardization.

General Motors, in the early 1920s, faced a critical need for financial controls as divisional managers had unchecked power over financial requests, funded by stock sales and bank loans without merit evaluation. To strengthen its competitive position, GM established an appropriations committee to scrutinize funding requests and monitor project progress, a novel practice at the time. A centralized cash control system was also implemented, pooling divisional capital for controlled withdrawals and enabling short-term investment strategies to boost profitability.

In the 1920s, the automobile market in the United States underwent significant changes, with General Motors positioning itself to capitalize on these shifts. Initially, automobiles were luxury items for the upper class, but by 1908, Henry Ford revolutionized the market with the Model T, making cars affordable basic transportation.

However, by the mid-1920s, the market evolved again into a mass-class market, where consumers began purchasing cars as a reflection of personal taste and preference, beyond just basic transportation. This shift was facilitated by several factors including the availability of installment selling, the emergence of the used car trade-in market, the popularity of motor vehicles with closed bodies, and the concept of annual model changes.

In the wake of the Great Depression, General Motors (GM) faced a significant downturn, with sales plummeting from 1.9 million vehicles in 1929 to just 526,000 in 1932. Despite holding 38% of the new car market, GM's profits also fell drastically. However, the company's management, under the guidance of Alfred Sloan Jr., used this challenging period to enhance efficiency and implement a decentralized yet coordinated control system.

This approach involved the creation of policy groups that specialized in various aspects of the corporation's operations, such as engineering, distribution, and overseas activities.

In the early stages of the automobile industry, the primary focus was on making cars reliable enough to travel without needing a horse to pull them back. American consumers, eager for personal transportation, supported this innovation by purchasing cars regardless of their reliability, thus funding further experimentation and production. This customer support was unique to the automobile industry and within two decades, cars became a reliable mode of transport, marking a significant advancement in human progress.

Alfred Sloan Jr. once reflected on the immense effort and management that goes into producing new car models annually, a practice deeply ingrained in American culture. This tradition, he noted, has been a driving force in the automotive industry's evolution since its inception.

The development cycle for a new car model typically spans two years. In the first year, the focus is on establishing the car's fundamental engineering and design. The subsequent year is largely dedicated to resolving the engineering challenges associated with mass production. This process is intensive and costly, as it involves predicting consumer preferences two years ahead and investing heavily before a tangible product is available for market feedback.

General Motors, an engineering powerhouse, prides itself on its expertise in metalwork, thereby enhancing its value. The company employs around 19,000 engineers and scientists, with the majority stationed across various divisions and a smaller contingent in general technical roles. The leadership, including myself, often comes from an engineering background, underscoring our belief in the critical role of technological advancement for progress.

At the heart of our research and engineering efforts is the goal to push the boundaries of technology, ensuring that new scientific discoveries are swiftly integrated into both our products and manufacturing processes. This ambition led us to establish distinct staff and operational functions to streamline our pursuit of innovation.

Harley Earl, the president of General Motors, once remarked that designing a car could provide a sense of relief and a brief vacation for its driver. This sentiment captures the essence of how automobile styling has evolved to become a paramount aspect of the car industry.

Initially, engineering dominated car design until the late 1920s, when styling began to emerge as a critical factor due to the engineering excellence achieved by that time. Alfred Sloan Jr. noted that as cars became more technically refined, consumers started to value style more in their purchasing decisions.

A stable dealer organization is crucial for the success and stability of an enterprise in the automotive industry. The significance of the dealer in automobile distribution is two-fold. Firstly, the dealer is the one who makes direct personal contact with the customer, establishing and closing the sale of the car. The manufacturer's contact, on the other hand, is primarily with the dealer, with the exception of public communication through advertising and automotive shows.

Secondly, in the automotive industry, the dealer is franchised and not an agent of the manufacturer. They are identified with the manufacturer's product in their local community and often interact with customers as neighbors, providing service and support for the cars they sell.

Alfred Sloan Jr. once explained the origins of General Motors owning a major financial institution, the General Motors Acceptance Corporation (GMAC), as a necessity born from the automotive industry's early days.

Over forty years ago, the advent of mass production in automobiles created a demand for consumer financing that banks were reluctant to fulfill. This gap led to the establishment of GMAC to support the distribution and sale of cars by offering financing options.

Reflecting on the past forty years, the expansion of the Overseas Operations Division at General Motors (GM) was not a straightforward extension of its domestic success. The journey into international markets required strategic decisions between exporting or producing overseas, establishing or acquiring local companies, and navigating restrictive regulations.

By the 1960s, GM's international presence boasted assets over $1.3 billion and employed around 135,000 people globally. GM's strategy focused on building assembly operations in countries with developed industrial bases to support economic nationalism and exporting vehicles to less industrialized nations either as fully assembled units or in parts for local assembly.

Alfred Sloan Jr. highlights that General Motors, beyond its core automotive business, has ventured into various industries such as diesel electric locomotives, household appliances, and aviation engines, attributing these diversifications to chance and strategic decisions rather than a coherent plan.

He emphasizes the company's significant role in national defense, producing a vast amount of military goods during World War II and other conflicts, and stands ready to contribute to national defense.