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 operat
ion 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.
Chapter 2 - The Great Opportunity — II
To tell how I came into General Motors it is necessary to begin with smaller matters than those I have described. I was born in New Haven, Connecticut, on May 23, 1875, a time when, to say the least, the style of the United States was quite different from what it is today. My father was in the wholesale tea, coffee, and cigar business, with a firm called Bennett-Sloan and Company. In 1885 he moved the business to New York City, on West Broadway, and from the age of ten I grew up in Brooklyn. I am told I still have the accent. My father's father was a schoolteacher. My mother's father was a Methodist minister. My parents had five children, of whom I am the oldest. There is my sister, Mrs. Katharine Sloan Pratt, now a widow. There are my three brothers—Clifford, who was in the advertising business; Harold, a college professor; and Raymond, the youngest, who is a professor, writer, and expert on hospital administration. I think we have all had in common a capability for being dedicated to our respective interests.
I came of age at almost exactly the time when the automobile business in the United States came into being. In 1895 the Duryeas, who had been experimenting with motor cars, started what I believe was the first gasoline-automobile manufacturing company in the United States. In the same year I left the Massachusetts Institute of Technology with a B.S. in electrical engineering, and went to work for the Hyatt Roller Bearing Company of Newark, later of Harrison, New Jersey. The Hyatt antifriction bearing was later to become a component of the automobile, and it was through this component that I came into the automotive industry. Except for one early and brief departure from it, I have spent my life in the industry.
Hyatt then was a tiny enterprise, employing about twenty-five people. A ten-horsepower motor drove all of its plant machinery. Its product was a special kind of antifriction bearing, invented by John Wesley Hyatt, who also invented celluloid, the first of the modern plastic materials, intended but never realized as a substitute for ivory in billiard balls. At that time antifriction bearings were not well developed or well known. But the Hyatt bearing was no cruder than other mechanical parts made in those days; and we were able to put some of our bearings on traveling cranes, paper-mill equipment, mine cars, and other machinery. We were doing a business, when I went with the company, of under $2000 a month. I was a kind of office boy, draftsman, salesman, and general assistant to the enterprise at a salary of $50 a month.
I did not then see much future in Hyatt and soon left it to become associated with a household electric-refrigerator enterprise which seemed to offer better prospects. It was making one of the early efforts to supply centrally located electric refrigeration in apartment houses. After about two years I came to believe that its particular product could not develop because of its complicated mechanism and high cost.
Meanwhile, affairs of the Hyatt Roller Bearing Company had not progressed very well—the company had never been on a profitmaking basis—and it came to the point where the individual who was promoting it, John E. Searles, was not willing to put up any more money to cover the losses. In 1898 it appeared that the com
pany would have to liquidate. But my father and an associate of his combined to put $5000 into Hyatt with the understanding that I would go back for six months and see what I could do with it. I accepted the proposition and teamed up with a young man, Peter Steenstrup, who was then the bookkeeper, later the sales manager. At the end of six months we had made some advances in volume and economy, and a $12,000 profit, and that put the business in a position where we recognized that it might be made successful. I assumed the high title of general manager. I could not know then that through Hyatt I had entered one of the headwaters of General Motors.
For the next four or five years at Hyatt we had growing pains. It was difficult to get business, and when we got it and expanded, we needed working capital that we could not get outside the company. It was easier at that time, however, to build a business from scratch, because the government did not tax away the profits as it does now. In five years we made progress. Our profits got up to about $60,000 a year, and the prospects improved as the young automobile industry opened up a new market.
My Years With General Motors Page 3
