Number
14
General Motors Corp.
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On the surface, it would seem that G. Richard Wagoner Jr. and Alfred P. Sloan have little in common. Sloan, the long-time leader at automotive giant General Motors, began his storied reign in 1923 when both industry and product were relatively new, competitors numbered in the dozens, and management had undergone a major upheaval. Wagoner, the most recent to assume control at GM, took over in June 2000 when both industry and product were quite mature, competitors were few and rapidly dwindling, and management had been stable for nearly a decade.
Nonetheless, Wagoner shares more with his legendary predecessor than the fact that he is the youngest person since Sloan to lead the world’s largest automaker. Both, after all, took over a sprawling company that sported an impressive pedigree along with an immediate need for a good swift kick in the transmission. And both found themselves facing a confluence of surprisingly similar problems—ongoing corporate arrogance and an archaic administrate approach that was regularly unable to meet the ever-changing needs of its constituents and times, chief among them.
The ascension of Wagoner to GM’s top spot may have been unusually smooth for this often tumultuous operation, but it will undoubtedly prove no less critical than Sloan’s momentous tenure as the firm prepares for its future. For while the company’s extensive product lines and vast global reach and impressive statistical data remain quite formidable (taken together, they make it the world’s largest corporation in terms of sales) without the innovation and drive that marked Sloan’s 33year term in office they simply may not be enough to help Wagoner move it successfully from the 20th century into the 21st.
General Motors was the brainchild of William Crapo Durant, a brilliant salesman who was born in Boston in 1861. After his father’s foray into the stock market ended badly, Durant’s mother moved the family to the upper Midwest. There, her own father had made a fortune in the lumber business before serving as the mayor of Flint and the governor of Michigan. And there, Bill Durant also found his calling.
High school held little appeal for the ambitious youngster, and Durant dropped out long before graduation. He immediately took a job as a salesman for a local cigar manufacturer, and proved a natural in the field by selling 22,000 cigars on his very first sales trip. In 1885, he took a spin in a friend’s wagon and the particularly smooth ride changed his life—convincing him, then and there, that better business opportunities lay in the fledgling field of transportation. Durant offered the manufacturer $1,500 for patent rights to his unique suspension system, and he hooked up with a partner. By 1900, he had built the Durant-Dort carriage company into America’s largest.
Durant quickly grew rich but bored. So, when he was able to drive an early horseless carriage around Flint, he knew it held the key to his future. In 1904 he purchased the Buick Motor Company, which was turning out decent vehicles but was in constant financial trouble. His sales savvy immediately translated into orders for some 1,100 cars, which was more than 25-times the total that Buick had produced during its entire three-year history. To meet this demand, Durant sold stock in the firm to everyone he knew. In 1905, he had Buick building 725 vehicles a year. By 1908, annual production hit 8,820 and it became the number-one car manufacturer in the United States, outselling numbers two and three combined.
Durant, however, felt that big ger would be better—even in a business that was dependent upon the fickle tastes of the public. So, on September 16, 1908, he formed the General Motors Corporation to bring numerous auto types and styles together under one roof. His new venture absorbed Buick, and then bought Olds Motor Vehicle, Cadillac Automobile, and some 20 smaller firms including Ewing, Marquette, and Elmore. Durant also believed that producing his own parts would be more efficient and save money, so he expanded vertically as well and bought companies that could supply his manufacturers with glass, paint, sheet metal and other critical components.
In its first year, GM sold an astonishing 25,000 cars and trucks and reported net sales of $29 million. But many of Durant’s deals were ill-conceived and he soon proved far more adept at building a business than operating one. Within two years, GM was in serious financial trouble. Durant had to turn to a syndicate of bankers for a loan to save it from ruin. One of the loan’s conditions barred him from the company for five years, but Durant could not sit still. While the bankers were righting General Motors with a more conservative approach, he founded the Chevrolet Motor Company and quickly made it a huge success. By 1915—the year his banishment from GM was to end—Durant had built Chevy into the country’s biggest car maker.
He was itching to get back to his baby, though, and began buying up shares of GM stock. In 1918, he regained control and brought Chevrolet—along with other properties such as the Hyatt Roller Bearing Company—into its fold. He began expanding once more, too, enlarging existing plants, starting construction on a new research laboratory as well as a 15-story Detroit headquarters, and acquiring more companies, such as Fisher Body. He also moved GM into the finance business by creating the General Motors Acceptance Corporation in 1919, the same year GM made more than $60 million in profits on sales of nearly 400,000 cars and trucks. Once more, Durant’s big plans resulted in big-time fiscal disaster. GM’s stock price tumbled from $42 to $14 in just seven months, and Durant was financially destroyed. Bankers were again summoned to bail out the company, and in 1920 he was again forced to resign.
One good thing that came out of this was the appointment of Alfred Sloan as executive vice president. Sloan, a Hyatt manager joined GM after its acquisition. He instantly set about implementing a revolutionary administrative system that essentially called for centralized management and budget control, decision-making by committee, and the delegation of day-to-day responsibilities to appropriate divisions. He also separated the various automotive operations so that each would create specific cars for specific consumers, who then would move from one to another. Chevrolet became the car for the masses; Cadillac, the standard-bearer among luxury vehicles; Oldsmobile and Buick built their own distinct audiences; and Oakland, which later was renamed Pontiac, found its niche as a performance machine.
In 1923, Sloan was named GM’s president. Eight years later, the company began its uninterrupted reign as the world’s leader in car and truck sales. Sloan retained his top spot in the company until 1956; he then became honorary chairman until his death in 1966 at age 91.
General Motors flourished as the automobile became ingrained in society. Its total vehicle sales hit 25 million in 1940. However, World War II hit, and GM’s factories were refit to support the U.S. effort. More than $12.3 billion worth of airplane parts, trucks, tanks, guns, shells, and other items rolled out of GM plants during the following years. When regular production resumed in 1946, new automakers like Packard, Studebaker and Nash joined the fray. Most, though, didn’t last very long.
Aided by technical innovations like power steering and power brakes, along with design advances (that led, among other things, to the introduction of the Corvette) GM recorded its first billion-dollar profit in the 1950s. A decade later it had produced over 100 million vehicles. The company was also still atop the automotive pack in the 1970s, although Japanese competitors Toyota and Nissan had climbed to numbers two and three. When these companies passed U.S. firms in total production for the first time in 1980, General Motors struck back by linking up. It signed an agreement to jointly make Toyotas in California, invested heavily in Isuzu, and arranged for Suzuki to produce small cars for sale in America.
Still, during the 1980s, GM’s market share dropped from 44 percent to 35 percent. It remained the world’s largest motor vehicle manufacturer, with 700,000 employees in 149 U.S. plants, 13 Canadian facilities, and operations in 29 other countries. But the writing was on the wall, and the tradition-bound management team did not know how to respond. Although some of their ideas held promise—such as the Saturn line, and an electric vehicle called the Impact—factory inefficiencies began taking their toll, vehicle designs grew unimaginative, product quality declined, and consumers turned away in drives.
GM was forced to close plants in order to maintain a profitable edge. This was a PR disaster, and one Michael Moor poignantly exploited in his 1989 film Roger & Me (1989). The clever documentary followed Moore’s attempt to track down GM chairman Roger Smith and hold him accountable for the company’s actions. Called a “revenge comedy” by noted critic Roger Ebert (who gave it four stars), the movie helped GM’s reputation decline…along with its sales.
GM sales remained far ahead of its nearest rivals, but the company suffered multibillion dollar losses in 1990 and 1991. Its board rebelled by dumping the chairman, president, vice chairman and executive vice president. Jack Smith was picked to fill the top posts. By 1995, he had begun turning things around. That year, GM reported its highest-ever net income.
A costly 1998 strike and continued assault from foreign competitors knocked GM’s U.S. market share down to 27.7 percent—the lowest it had been since Sloan’s arrival. Smith voluntarily stepped into the board suite to make way for Wagoner, a well-regarded up-and-comer who had filled a variety of roles at GM during 23 of his 47 years. Wagoner’s mission was immediately made clear: Continue cutting costs and upgrading vehicle designs for today’s consumers, and do it fast.
Can he succeed, and make this industrial-age behemoth a winner in the leanand-mean technology era? History may be with him, but only time will tell.