My Years With General Motors

by Alfred P. Sloan Jr.

  It was around the turn of the century that the automobile business began to break out in numerous small enterprises. Antifriction bearings came into the picture then and we began to get a few orders from those who were experimenting with automobiles. A letter I wrote to Henry Ford on May 19, 1899, asking for his business, is said by Allan Nevins in his biography of Ford to be on file in the Ford archives. Mr. Ford at that time was experimenting with automobiles, and was about to go into the business. But in the first decade of this century the application of our bearings in the mechanical arts expanded slowly. Most of the hundreds of automobile companies organized in that period made only sample cars and then expired. My partner, Mr. Steenstrup, did a great deal of traveling to make sales contacts with these embryo producers. When he saw or heard of someone who was going to make a new car, I would get in touch with the person and go into the problems from the engineering point of view. I would design Hyatt bearings into the axle or perhaps some other part, and in doing so facilitate the sale of our roller bearings in any subsequent production.

  As our work became better known, I succeeded in getting myself into a position where I was a kind of consulting sales-engineer to a good many of those companies and their suppliers on bearing problems to which our particular product was applicable. I would be called in when any change of design or new design was contemplated and this gave me the opportunity to get our bearings incorporated into the rear axle or the transmission, or both.

  This sales-engineering of ours continued at an increasing pace, especially from 1905 to 1915 when some of the manufacturers, such as Ford, Cadillac, Buick, Olds, Hudson, Reo, Willys, and others, began to develop important volume. Hyatt's business flowed logically wherever we had customers like these that stayed in business and grew. Our business became so good that it got to be a question of how rapidly we could expand our production, with new buildings, new machinery, new methods, and the like, to keep up with the rapidly expanding automobile business.

  My first personal experience with automobiles was much like that of others at the time. I wanted one but couldn't afford it. Only about 4000 cars were made in the year 1900, and they were expensive. My father bought one of the early Wintons as a family car. Around 1903 I bought for the Hyatt Company a car called the Conrad, which we got for company purposes, and incidentally used to go from the plant in Harrison into Newark for lunch and errands. It had a two-cycle engine with four cylinders, and was a good-looking car, painted red. But it was a lemon. The Conrad was manufactured from 1900 to 1903, and then passed out of the picture. We got another car, called the Autocar. This one worked better and I used it to some extent on business trips, and sometimes went to Atlantic City in it. Like the Winton and the Conrad, it was discontinued, but an Autocar truck was developed and became a factor in the automotive industry; Autocar was consolidated with the White Motor Company in 1953. The first car I bought for myself was a Cadillac, about 1910. As was the custom then, I got a Cadillac chassis and had the body made to order.

  Early Cadillac engineering had an important influence on the industry and upon my operations in Hyatt. This was largely due to Henry Leland, who, I believe, was one of those mainly responsible for bringing the technique of interchangeable parts into automobile manufacturing. His first work in the industry was for Olds, around 1900. He was at the head of Cadillac when it went into General Motors in 1909, and he remained at the head of it until 1917, when he retired. Afterward he created the Lincoln car, which he sold to the Ford Motor Company.

  Mr. Leland was one of my early acquaintances in the industry. He was a generation older than I and I looked upon him as an elder not only in age but in engineering wisdom. He was a fine, creative, intelligent person. Quality was his god. I had trouble at first, in the early 1900s, in selling Mr. Leland our roller bearings. He then taught me the need for greater accuracy in our products to meet the exacting standards of interchangeable parts. Mr. Leland came to the industry with a mature experience in general engineering and in gasoline engines, which he had long made for boats. One of his specialties was precision metalwork, which went back to his experience in toolmaking for a federal arsenal during the Civil War, and which he afterward developed in the Brown and Sharpe Company, machine-tool makers of Providence, Rhode Island. It has been called to my attention that Eli Whitney, long before, had started the development of interchangeable parts in connection with the manufacture of guns, a fact which suggests a line of descent from Whitney to Leland to the automobile industry.

  The cluster of men who made the industry in the beginning was not large. As a supplier of an important component of the automobile, I came to know most of them over the period of the first twenty years of the business, and I learned a great deal from them as business associates and friends. In the early days I sometimes sold direct to automobile producers—Cadillac, Ford, and others— but more often I sold to a supplier, who, in turn, sold a component of the automobile to the assembler. One of the most important of these suppliers for me was the Weston-Mott Company of Utica, maker of axles; a rear axle would take six bearings, some of which were Hyatt types. After Charles Stewart Mott moved his company from Utica to Flint in 1906 to be close to the area where the automobile industry was developing, I made it a practice to visit him there once a month. I recall that both sides of Saginaw Street, the main street of Flint, were lined with hitching posts, and on Saturday night the street was crowded with the horses, wagons, and carriages that brought the farmers into town for their weekly shopping and night out. In that setting a small society of automobile and parts producers met socially and on business for several years: Mr. Mott, Charles Nash, Walter Chrysler, Harry Bassett, myself, and others, all of whom, except myself, were then in General Motors. I must have seen Mr. Durant there, too, but I can only recall seeing him on the train between New York and Detroit, and our saying "Good evening" and "Good morning." My real connection with General Motors then was through Mr. Mott, who had taken his company into General Motors in 1909, and was a supplier of axles to Buick, Oakland, and Olds. To be exact, General Motors acquired 49 per cent of his company's stock in 1909 and the balance in 1912. Through Weston-Mott I succeeded in getting Hyatt roller bearings into General Motors cars.

  I first knew Walter Chrysler in Flint. As works manager and then head of Buick, he would pass judgment on my product when the axle designs came in from Weston-Mott. We saw a lot of each other in the course of time, in General Motors and out of it, and were personal friends throughout his life. In later years, when we were rival heads of our respective enterprises, Chrysler and General Motors, we sometimes took a vacation trip together, with business taboo on those occasions. Mr. Chrysler was a man of high ambition and imagination. He was a practical man with broad capabilities; Ins genius I think was in the organization of automobile production. Like Mr. Nash, he recognized the opportunity offered by the young and promising automobile business. They both were true leaders of its early development and became heads of great enterprises.

  Over at the Ford Motor Company in Detroit, I—as a Hyatt salesman—used to see Mr. Ford and occasionally have lunch with him, but I conducted my business there mainly through C. Harold Wills, his chief engineer, and later the creator of the fine but short-lived Wills-Sainte Claire automobile. Mr. Ford owed much to Mr. Wills' talent in engineering, especially metallurgy. Because of our ability at Hyatt to produce and deliver reliably, we were eventually favored with 100 per cent of the Ford business to the extent that our bearings were applicable to the Ford design. As Mr. Ford's company grew, he became our best customer, with General Motors second. The development of Hyatt's volume caused me to open a sales office in Detroit on West Grand Boulevard. In later years, through an unpredictable chain of events, this office was to become the nucleus of the site of the General Motors Building in Detroit.

  One day in the spring of 1916 I received a call from Mr. Durant, asking me to come in to see him. As the founder of General Motors and Chevrolet, Mr. Durant was a celebrated figure in the a
utomobile and financial worlds. I have described how he had been out of General Motors for a number of years and was about to return at that time as president. I found Mr. Durant a very persuasive man, soft-spoken and ingratiating. He was short, conservatively and immaculately dressed, and had an air of being permanently calm—though he was continuously involved in big and complicated financial deals—and he inspired confidence in his character and ability. He asked me if the Hyatt Roller Bearing Company was for sale.

  After all those years of building up the Hyatt business the idea of selling it was a shock to me, but it opened up a new vista in my thinking and caused me to analyze the situation at Hyatt. Mr. Durant's offer brought forcibly to my mind a combination of three factors that were developing in the business.

  The first of these was that, because of the way Hyatt's business had evolved, it had come to depend upon a limited number of customers. Ford alone represented about half of the sales. This business if lost could not be replaced because no new customer of such magnitude existed: a complete reorganization would have to be undertaken.

  Second, I recognized that the kind of roller bearing we made at that time was destined through the evolution of automobile design to be supplemented and perhaps superseded by other types. And what then? Another reorganization, a different product, in effect a new business. I have always been interested in improving a product; but this was a special-product business and the choice was whether to proceed independently or within an integrated enterprise. I may say that in the past forty-five years what I thought would happen to the product has happened. Hyatt's old type of antifriction bearing has gone out of automobile design along with other types of then existing antifriction bearings.

  Third, I had spent my working life — I was forty years old then — developing a property and I had a large plant with a great deal of responsibility, but I never got much yield out of it in dividends. Mr. Durant's offer presented an opportunity to convert Hyatt's profits into readily salable assets.

  Of the three factors, I think the second, the potential changes in the old Hyatt roller bearing, was decisive in my mind. Thus, the way I added it up was that, while Hyatt's short-term profit position was good, the long-term position would benefit from the proposed association; and Mr. Durant's offer promised a conversion of assets. I decided to take the offer, got my four directors together, and recommended that we tell Mr. Durant that we were prepared to sell at a price of $15 million. A couple of the directors thought the price was high, but I did not think so considering our strength and the growth potential of the automobile industry. I entered negotiations with two of Mr. Durant's associates, John Thomas Smith, his lawyer, and Louis G. Kaufman, the banker, and after a lot of dickering back and forth settled on a proposition to sell the property for $13.5 million.

  When the question of payment came up, I agreed to take half in cash and half in the stock of a new enterprise that Mr. Durant proposed to organize, called United Motors Corporation. But when it came to closing the deal, I found that some of my Hyatt associates were unwilling to take stock in the new company. This led to my having to take more than my share of the stock and give up the equivalent in cash. Since my father and I owned a substantial part of Hyatt, I finished with an important position in the stock of United Motors Corporation.

  Mr. Durant set up United Motors in 1916 to buy Hyatt and four other parts and accessory manufacturers. These properties were, besides Hyatt, the New Departure Manufacturing Company of Bristol, Connecticut, a producer of ball bearings; the Remy Electric Company of Anderson, Indiana, a producer of electrical starting, lighting, and ignition equipment; Dayton Engineering Laboratories Company of Dayton, known as Delco, a producer of electrical equipment using a system different from Remy's, and the Perlman Rim Corporation of Jackson, Michigan.

  For the first time my business horizon widened beyond a single component of the automobile. I became president and chief operating officer of United Motors with a board of directors made up of the people who put their properties into the enterprise. Mr. Durant did not come on the board and did not concern himself with the affairs of this corporation, but left the management entirely up to me. On my own initiative, and with the approval of my board, I afterward brought into United Motors the Harrison Radiator Corporation and the Klaxon Company, then a well-known producer of horns; I organized the United Motors Service, Inc., which sold and serviced throughout the United States the parts made by the various United Motors companies. The combined group had net sales of $33,638,956 in its first year. Hyatt was the best earner.

  For many years the United Motors group sold to manufacturers outside General Motors; but the leaders of General Motors foresaw that as a car producer it would eventually require most of the output of United Motors. Hence, in 1918, by mutual agreement, and largely through negotiations between John J. Raskob, then chairman of the Finance Committee of General Motors, and myself, United Motors' assets were acquired by General Motors.

  The space I have given here to the Hyatt story is not a measure of its relative position in the General Motors scheme of things. It just gets me into the story in a logical way. I joined General Motors as vice president in charge of the same accessory companies that I had operated in United Motors. I also became a director of General Motors and a member of its Executive Committee, of which Mr. Durant was then chairman.

  In General Motors from 1918 through 1920 my operating responsibility continued to be with the accessory group, but as a member of the Executive Committee of the corporation, my horizon again widened. Also, I had proprietary as well as professional reasons for taking an interest in the corporation as a whole, since most of my personal assets had been converted into General Motors shares. It was not long therefore before I began to take a close look at Mr. Durant's general policies.

  I was of two minds about Mr. Durant. I admired his automotive genius, his imagination, his generous human qualities, and his integrity. His loyalty to the enterprise was absolute. I recognized, as Mr. Raskob and Pierre S. du Pont had, that he had created and inspired the dynamic growth of General Motors. But I thought he was too casual in his ways for an administrator, and he overloaded himself. Important decisions had to wait until he was free, and were often made impulsively. Two examples from my personal experience:

  My office was next door to his in the old General Motors Building on New York's Fifty-seventh Street. I would sometimes go in to see him. One day in 1919 I went in and told him that I thought that, in view of the large public interest in the corporation's shares, we should have an independent audit by a certified public accountant. Our books were not then being so audited, though they had been earlier under the bankers' regime. Mr. Durant did not have a sound concept of accounting as such and did not realize its great significance in administration. However, when I spoke to him about it, he said at once that he agreed with me and told me to go and get one. That was the way he worked. He had a financial department to handle affairs of that kind, but since I had made the suggestion I got the assignment. I brought in the firm of Haskins & Sells, which had audited the accounts at United Motors. This firm still audits General Motors' accounts.

  Another time I found Mr. Durant in his office with some people talking about the new office building that was to be put up in Detroit. It was to be called the Durant Building, but is now known as the General Motors Building. They were inspecting a map of Detroit. Mr. Durant, as usual, invited me to come into the discussion. They were considering a location in the Grand Circus Park area downtown. The United Motors sales office on West Grand Boulevard was uptown, north a couple of miles. I knew the location well and it was natural that I should think of it. There were good reasons for considering it for the new building: it was closer for everyone who lived on the north side of the city, and at that time the traffic there was lighter than downtown. I mentioned these things to Mr. Durant, whereupon he turned to me and said that the next time we went to Detroit we would all go up and take a look at it, and we did. I can see Mr. D
urant now. He started at the corner of Cass Avenue, paced a certain distance west on West Grand Boulevard past the old Hyatt Building, which had become the United Motors Building. Then he stopped, for no apparent reason, at some apartment houses on the other side of the building. He said that this was about the ground we wanted, and turned to me and said, as well as I can remember, "Alfred, will you go and buy these properties for us and Mr. Prentis will pay whatever you decide to pay for them." I wasn't in the real-estate business. I didn't even live in Detroit. But I went ahead and organized the assembly of the properties and if I do say so myself, I think we did a good job. I assigned Ralph S. Lane, president of the United Motors Service Corporation, to handle the purchases of property. It is an interesting piece of business to buy up a block of small parcels of real estate. If you disclose your intention you influence the price. When we got the half block that Mr. Durant wanted, he said we ought to buy the rest of it. So we went back to work and bought the whole block. I don't know that he intended to use all of it immediately, but it was soon used. The General Motors Building which was built there started a new business district in Detroit. Mr. Durant's informal ways of doing business were often effective in that formative period, and for the confidence he placed in me on these and other occasions I had reason to feel well disposed toward him. The criticisms I make of him are purely from the viewpoint of basic business administration. I was particularly concerned that he had expanded General Motors between 1918 and 1920 without an explicit policy of management with which to control the various parts of the organization.

  A distinction should be made between the expansion itself and the need for organization which grew out of it. There may have been disagreement at the time over the soundness of the expansion program, responsibility for which was shared by Mr. Durant and Mr. Raskob. But time in the long run has shown that the major part of the program, at least so far as the automobile developments were concerned, was sound and desirable. Since the automobile is a high value product made for a mass market, the industry needed an extensive capital structure. Mr. Durant and Mr. Raskob anticipated this need.