My Years with General Motors by Alfred P Sloan Jr

“My Years with General Motors” is a memoir by long time GM executive Alfred Sloan. He was the fourth president and chief executive of GM (After William Durant, Charles Nash and Pierre du Pont - these three are legends btw) until 1946. Since I’m someone who isn’t familiar with General Motors (GM’s cars weren’t successful in India, so they ceased selling here by 2017), I didn’t know all the car brands mentioned in this book. But still its so detailed and inspiring. In simple words, The Ford Motor Company literally owned the market share of automotives until the 1920s. Through this book, we can see how General Motors strategized itself to become one of the most influential automobile corporation.

We can see the history of GM through the eyes of its Cheif Executive. Let me divide that history into four phases: Chaos Under Durant, Strategy and Expansion Under Newbies, World War II, Post War Corporation.

1. Chaos Under Durant

William Durant was a visionary. He’s the man who founded General Motors and two of its famous brands like Chevrolet and Buick. Mr Durant’s vision was simple. He wanted to create a holding company which will consist everything related to automobiles - from entire car manufacturers to laboratories creating new inventions. But this vision’s execution was abrupt and unplanned. Mr Durant had to borrow a ton of money, which led the bankers who backed him to oust him from GM. This is when Charles Nash became the president and brought better control and structure into The General Motors Corporation (He later left to create Nash Motors). But Mr Durant wasn’t done with automobile business. He founded Chevrolet, and it became successful leading GM to acquire it and with the backing of financiers like Pierre du Pont (The du Pont Company), Mr Durant once again was the head of General Motors Corporation.

Alfred Sloan was part of a company called Hyatt which was producing rollar bearings for automobiles. Mr Durant acquired it, created a company called United Motors that included Hyatt, and Sloan was made the Cheif Executive of United Motors. This was how Sloan became a part of General Motors family. He was seeing all the chaos happening under Durant. Mr Durant’s approach to automobile business was the exact opposite of The Ford Motor Company. While Ford had very centralized structure, General Motors was decentralized. This meant that every car division within GM, be it Chevrolet or Cadillac, was working on their own. All the divisions has problems such as over spending, excess inventory, over optimistic projections and over production. Imagine a team of basketball players, but everyone is so focused about themselves that they are putting the whole team in jeopardy.

The economic conditions and losses of General Motors, along with the stock market gamble Durant took, made the board of his own company to oust him the second time. Pierre du Pont became the President of GM.

2. Strategy and Expansion Under Newbies

You have to understand the situation of General Motors in the early 1920s. There were too many things happening, too many divisions and no control. The experienced automobile people like William Durant, Charles Nash and Walter Chrysler had already left. It was upto the “newbies” in GM to figure everything out. du Pont and Sloan was at the helm of the company at this time. An Executive Committee was created and they worked tirelessly to figure out the problems. They also came up with the innovative strategy of “pricing models”.

Lets talk about the long term strategy General Motors developed to compete with Ford. GM can never compete directly with Ford. This was due to Ford perfecting the art of creating a high volume-mass manufactured vehicle with a very low price. But what if General Motors could create different quality products at different pricing levels targetting different customers? When the economy flourishes, people would want better quality and features. For example, lets say a customer called Shreya existed. She checked Model T of Ford and it costs ₹10,000. Everyone is buying this Model T. It has been the same for 5 years. Her dad, uncle and neighbors has it. She saw that GM is selling Chevrolet for ₹20,000. But this Chevrolet has better quality and features. Looking further, Shreya saw that GM’s Pontiac costing ₹30,000 has more quality and features compared to Chevrolet. She cannot afford that, so buys Chevrolet for now. 5 years later, Shreya is promoted at her job (thanks to the economy). She wants to buy a new car. She sees that Buick is there which costs ₹50,000 but its a premium vehicle with great features. Shreya goes ahead and purchases that. She also realizes that there is Cadillac offering more luxury, Shreya wants to buy it next in 10 years. This was General Motors. They had a car for every pricing category. This was the early order of GM: Chevrolet -> Pontiac -> Olds -> Buick -> Cadillac

By 1923, Sloan succeeded du Pont as the President and Chief Executive of General Motors. In order to bring stability, they started centralizing more. This meant even though the divisions have freedom, they had to obey the financial and executive policies of the management. Sloan believes that a balance between centralization and decentralization is the way ahead to achieve great success.

“The whole picture of co-ordination in 1925 and for a number of years thereafter was as follows: The inter-divisional relations committees gave a measure of co-ordination to the functions of purchasing, engineering, sales, and the like. The Operations Committee, including the general managers, appraised the performance of the divisions. The Executive Committee, with contacts in all directions, made policy. It sat at the head of operations, responsible to the board of directors”

Sloan describes in detail how they discovered and subsequently improved the coordination issues while also maintaining freedom of divisions. One major example of divisions being ‘selfish’ is about Buick. Buick and Cadillac were profitable early (since they were focusing on luxury market) and Buick always delayed transferring the excess cash of profit to the corporation. They didn’t want other divisions taking a cut of their own profits. The strong divisions were feeling cheated out of their hard work, while weak divisions were becoming liability to strong divisions. These problems were solved using centralizing, ie, creating various committees to allocate budget and resources. The excessive production was another problem since all divisions tended to be overly optimistic. This was controlled by gathering data of sales from dealers and better forecasting methods.

Furthermore, Sloan talks about the major factors that transformed automobile from a hobbyst product to an essential consumer commodity. These were: installment selling, the used-car trade-in, the closed body, and the annual model. It felt surreal when he described these four factors as its ubiquitous right now. Installment selling is the selling of a car on credit. General Motors established their own banking/mortgage company to enable this. Used-Cars trade-in was a new concept, so was Closed body. If you look at the cars of early 1920s, you can see that they lack the top cover. Giving a closed body was a radical change back then. Annual Model is something that has been conduited into other consumer products. Every year, the company will release either a better version of current model or an entirely new model (I’m thinking AI models and mobile phones). Even though this annual model does make a recently purchased car obsolete, it did pushed the automobile industry forward.

3. World War II

When World War II began, General Motors rapidly converted itself from the nation’s largest manufacturer of automobiles to the nation’s largest producer of war materials. And when the war ended, General Motors rapidly reconverted to peacetime production, a capability, in both instances, that derived from our scheme of management and a great deal of planning.

Before reading Alfred Sloan’s memoir, I didn’t know that manufactoring companies had such a huge role in making war time products. General Motors was involved in the manufacture of war materials in World War I, Korean War etc, but their full involvement was in World War II. A lot of other manufacturers were heavily involved in WWII production. All the automobile manufacturers entirely ceased making consumer products during this time.

Due to the heavy decentralization and annual model policy (Annual model policy meant that GM had to develop newer models and features at a faster rate, so they can offer something new to the consumer every year), they were able to quickly equip themselves to manufacture products related to the war. Their long term vision made them make plans for how they will reconvert and produce for the post war economy.

4. Post War Corporation

During WW2, there were a lot of debates going inside and outside GM of what the economy is going to be like after the war. A lot of people predicted a slump whereas optimists like Sloan predicted a boom. Alfred Sloan went ahead and announced a $500 million post war expansion policy.

We can read about the effort General Motors put for the overall efficiency and improvement of automobiles. One of that is the Duco paint developed by the du Pont company and GM, which gave better finish to the colors of car body as well as made painting of a car possible within a day instead of weeks.

An important person related to the R&D of GM is Charles Kettering, who is credited with the development of starter, two stroke diesel engine for locomotives, and better engine designs. Sloan also discusses the automatic transmission development within GM, and many more engineering marvels that are so common in the cars of today.

Along with the features of a car, they also made sure the cars had better designs. General Motors was the only company for a long time to maintain a designing team for cars. Harley Earl, the lead designer of General Motors, later became a Vice President, the first designer to get that title in any corporation.

General Motors was also involved in the development of various non-automotive businesses. This included aviation, refrigerators, and locomotive to name a few.

I believe, that these were relatively new products at the time we first invested in them. There was no diesel locomotive capable of providing mainline service on American railroads; the electric refrigerator was only an impractical gadget, and the future of aviation was anybody’s guess. In other words, we did not simply use our financial and engineering resources to “take over” new products outside the automobile business. We got in early—as long as forty-five years ago—and helped develop them.

The book covers in detail about how General Motors got into each of these non-automotive businesses and what their contributions were. Sloan also talks about the expansion of GM outside the America and Canada, through the acquistion of Vauxhall and Opel. The business insights he shared about the pre-war reconfiguration of factories for military production, and then the post-war re-reconfiguration and expansion are really worth learning about. He also talks about the mistakes they made. One of them was the development of the fiverr planes. A lot of people believed at one point that after consumer cars, consumer airplanes were the next step, and GM actively worked towards that. Another story is how GM believed blindly that an efficient air cooled engine was possible even though the division engineers were against it. The over optimizing thought that the R&D department will come up with a practical air cooled engine, and the subsequent failure of this engine led GM to callbacks and cumulatives loss in sales.

One last thing Sloan shares is this insight about management style of group decision making:

Group decisions do not always come easily. There is a strong temptation for the leading officers to make decisions themselves without the sometimes onerous process of discussion, which involves selling your ideas to others. The group will not always make a better decision than any particular member would make; there is even the possibility of some averaging down. But in General Motors I think the record shows that we have averaged up. Essentially this means that, through our form of organization, we have been able to adapt to the great changes that have taken place in the automobile market in each of the decades since 1920.