On Tuesday evening (Nov. 16th) Mr. Durant had a call from McClure, Jones & Reed, brokers, for $150,000, to support his account. This amount was fixed up in some way.
On Wednesday (Nov. 17th) we inquired for the brokers' accounts and found that directions had been given to make the statement as of the close of business Wednesday, November 17th, so that nothing could be done that day. Meantime, the statements already given appeared so indefinite that Mr. Raskob and I were loath to believe the accounts in any way accurate. However, the situation seemed serious enough to warrant speculating on a plan for relief. We decided that, in order to avert a crisis, it might be possible to organize a company to take over Mr. Durant's holdings, issuing $20,000,000. of notes, which would be offered as collateral to the holder of obligations, and that the du Pont interests might invest $7,000,000., or even $10,000,000. in securities of the company in order to furnish cash to liquidate pressing accounts and make payments, in part, of others.
On Thursday, November 18th, the broker accounts started to come in, and it required all of that day to get the statement in shape that was agreed upon by Mr. Durant as correct. The statement, however, was not capable of accurate checking, excepting from the broker accounts presented. There was nothing to show that these covered all the broker accounts, and there was nothing very definite in regard to bank loans, nor to the syndicate accounts in which Mr. Durant was involved as lender of collateral. However, a summary sheet was made up from the data and given to the typist for copying late Thursday afternoon. About that time Mr. Durant called Mr. Raskob and me to his office, stating that some of the Morgan partners were to call upon him shortly and asked us to be present at the meeting. We told him that his position differed so entirely from that represented to us and to Morgan & Co. that it was impossible for us to sit in a meeting with him and the Morgan partners, unless he agreed to make a complete statement to them. He did not agree to this point and we left the room. About 6:30 p.m. we started to leave for the hotel and met Messrs. Morrow, [Thomas] Cochran and [George] Whitney, who had met Mr. Durant, with a promise on the part of Mr. Whitney to return at nine o'clock that evening. Mr. Morrow called me aside and stated that they wanted to get in touch with me for a few minutes' interview. He and his associates and I then repaired to Mr. Raskob's room and, after a few preliminaries, I asked whether Mr. Durant had made a complete statement to them. To this Mr. Morrow replied "yes," and produced a copy of the typed summary which I had prepared but which I had not yet myself seen in finished form. Then ensued a discussion of the whole subject, in which the Morgan partners outlined their opinion of the extreme seriousness of the situation and the panic that might result, in the event of Mr. Durant's failure, which might possibly involve the failure of several brokers and some of the banks, particularly as there were two large and critically weak accounts in the street. Mr. Morrow stated that he would give up an engagement and return at nine o'clock and I agreed to break an engagement and do likewise. Our conversation occupied not much more than a half hour. I returned to the hotel and, together with Mr. Raskob, went to the office at the appointed time, where three Morgan partners had assembled. Mr. Raskob outlined to Mr. Morrow our rough plan of giving assistance, in which it appeared that, we representing the du Pont interest, were willing to help materially in this very desperate situation. Mr. Morrow stated that he thought the plan impossible of execution because of the very critical condition in the market and recommended that we endeavor to place a loan of $20,000,000. among the banks, in order that an offer of cash for all Mr. Durant's indebtedness might be made. Mr. Raskob and I agreed on part of the du Pont interests that we could furnish $7,000,000.00, and sufficient additional collateral toward the project. The Morgan partners were very complimentary as to the willingness of du Pont to help in the situation, Mr. Cochran using the expression that "there are two firms in this country who are real sports, viz., du Pont and Morgan."
Discussion ensued as to the treatment of Mr. Durant, Mr. Morrow making the suggestion that one-fourth of the equity in the shares should remain with Durant and that some portion of this equity might have to be used in order to help place the notes. He stated in the beginning that Morgan & Company would ask no commission or payment of any kind for their services in the deal. This division of the equity was discussed with careful consideration of justice to Mr. Durant and those carrying the load. After this preliminary discussion, the Morgan partners stated that they must go as carefully as possible into Mr. Durant's accounts before any attempt was made to float a loan. This investigation they proposed to start upon immediately and, therefore, went to Mr. Durant's room, and checking of the accounts was carried forward and the proposition of relief presented to Mr. Durant by Mr. Morrow. Mr. Durant thought that one-fourth of the equity returned to him was harsh. Mr. Morrow then moved to one-third. Mr. Durant suggested to me that 40% to him and 60% to the du Pont interests would be more nearly fair. This part of the negotiations was all in good spirit and with apparent endeavor on all sides to be just in a difficult situation. Checking of accounts and discussion of the subject continued without interruption until about 5:30 o'clock Friday morning, about which time Mr. Durant and I signed a memorandum, agreeing to the general proposition of a $20,000,000 note issue and issue of stock to support the $7,000,000 furnished by the du Pont interests; also, the loan of additional collateral, estimated at 1,300,000 shares. Memorandum also agreed that the equity in the stock representing the selling price above $9.50 per share, plus costs and interest, should be divided one-third to Durant and two-thirds to du Pont. Even at this date the total indebtedness was uncertain and the syndicate accounts still involved.
After a hurried breakfast we all retired for a couple hours' sleep and returned to business at 9:30 o'clock that morning. Messrs. Morgan & Co. arranged a loan of $20,000,000. with the principal banks in New York before five o'clock that evening (Nov. 19th). In the meantime, the plan was suggested that the du Pont interests take 8% Preferred stock for their cash, and for the loan of collateral, 80% of the Common stock, the latter representing the equity in the selling price of the stock above $9.50, plus costs and interest. Twenty per cent, of this common stock was set aside for the bank interests furnishing the loan of $20,000,000. On that day the du Pont Finance Committee met and agreed to divide the 80% Common stock equally with Mr. Durant, leaving the proportions 40% Durant, 40% du Pont and 20% bankers. This is the plan that has been finally consummated. While rumors of the deal were active on Saturday (Nov. 20th), announcement was not made until Monday (Nov. 22nd), when Morgan & Company started to gather in the stock. Throughout the whole transaction the Morgan partners have appeared to greatest advantage. They threw themselves into the situation wholeheartedly, stating at the start that they asked no compensation. They have acted with remarkable speed and success, the whole deal involving $60,000,000. or more, having been planned and practically completed in less than four days, in which are included a Saturday and Sunday.
On November 30, 1920, Mr. Durant resigned as president of General Motors.
With all I have said in appraising Mr. Durant's methods, he was no more responsible than was Mr. Raskob for the collision between General Motors' expansion and the business cycle. Mr. Raskob went ahead pushing the expansion and paying the bills. Mr. Durant's management methods let things get out of control. I have heard that Mr. Durant became pessimistic about the national economy in late 1919, but I can find no record of it. On the record, both Mr. Durant and Mr. Raskob were strong, optimistic expansionists. They seemed to disagree on occasion only on what to put the money into.
I think that Mr. Durant's personal stock-market operations were motivated essentially by his great pride in General Motors and everything relating to it, and by his unbounded confidence in its future, a judgment that has been well vindicated over the years. I think also that the arrangement the Morgans and du Ponts made with him to take over his stock obligations in such a critical period was a generous one.
Consider the following: Mr. Durant
in 1921 sold back to the du Ponts his interest in the company formed to bail him out. He received for his interest 230,000 shares of General Motors stock, whose market value at the time of acquisition was $2,990,000. Mr. Durant's disposition of those shares is not part of this story. However, their market value if he had held them to the time of his death, March 19, 1947, would have been $25,713,281, on which he would have received an aggregate of $27,033,625 in dividends and from the sale of rights.
To return to the events of 1920, the slump in the national economy and its impact on the corporation, the lack of control of operations, and Mr. Durant's resignation shook the enterprise to its foundation and started an entirely new period in its history—which is where the main part of my story begins.
Chapter 3 - Concept Of The Organization
At the close of the year 1920 the task before General Motors was reorganization. As things stood, the corporation faced simultaneously an economic slump on the outside and a management crisis on the inside.
The automobile market had nearly vanished and with it our income. Most of our plants and those of the industry were shut down or assembling a small number of cars out of semi-finished materials in the plants. We were loaded with high-priced inventory and commitments at the old inflated price level. We were short of cash. We had a confused product line. There was a lack of control and of any means of control in operations and finance, and a lack of adequate information about anything. In short, there was just about as much crisis, inside and outside, as you could wish for if you liked that sort of thing.
We were not alone among automobile companies. Others were also in trouble. That was no particular comfort, for economic declines have a way of shaking out the weak ones in business, and we had weaknesses. Some people cannot see beyond a slump, but I have never yielded to economic pessimism and in times of decline have kept in mind the eventual upturn of the business cycle and the long-range dynamics of growth. Confidence and caution formed my attitude in 1920. We could not control the environment, or predict its changes precisely, but we could seek the flexibility to survive fluctuations in business.
The immediate future of the automobile market was, to say the least, uncertain. However, we believed in the future of the product as well as of the economy. I mention this because confidence is an important element in business; it may on occasion make the difference between one man's success and another's failure. It was our settled belief that the automobile was then in the course of creating a new transportation system in the United States, and that the market for it therefore was bound in time to return with strength. We stated this in the annual report for 1920, along with a review of the progress of the automobile industry up to that time; and gave our attention to the problems at hand.
Before anything else, we had to have a new president to take the place of Mr. Durant. I did not have to think twice to decide who I thought should be the new president. I knew Pierre S. du Pont in a personal way only slightly. But it was apparent that he was the one individual in General Motors who had the prestige and respect that could give confidence to the organization, to the public, and to the banks, and whose presence could arrest the demoralization that was taking place. He was chairman of the corporation, and he represented the largest shareholder interest. He had shown his capability for business leadership in the du Pont Company and in his financial association with General Motors. The only other man in the corporation who might have been considered for president was John J. Raskob, Mr. du Pont's close and influential adviser, and chairman of General Motors' Finance Committee.
Mr. Raskob's Alger-boy career has been told many times. I do not personally know his early years, but the story is that he went to work as a typist and secretary to Pierre S. du Pont around the turn of the century. Mr. du Pont was impressed with his lively imagination and financial capabilities. As Mr. du Pont moved up to be treasurer of the du Pont Company, Mr. Raskob moved with him as his assistant and adviser, succeeding him as treasurer of the du Pont Company. Mr. du Pont and Mr. Raskob were very close business associates for many years. But they did not at all have the same kind of temperaments.
Mr. Raskob was brilliant and imaginative where Mr. du Pont was steady and conservative. Mr. du Pont was tall, well built, and reticent. He would not put himself forward. Mr. Raskob was short and not reticent. He was very friendly, a fine fellow to talk with, and a man of big ideas. I remember his often coming into my office with an idea and wanting to get it into action by waving a magic wand; he would want the whole organization to come to a meeting right off. His faults, if they should be called that, were those that go with an aggressive, impatient intelligence—the very thing that made him good. Not many men foresaw the future of the automobile industry as well as he did.
Both Mr. Raskob and Mr. du Pont thus had their strong points, but on balance it seemed to all of us who were concerned that Mr. du Pont was the man we needed. No one else at the time could qualify in so many particulars.
There was only one drawback. Mr. du Pont had no intimate knowledge of the automobile business. I happen to be one of the old school who thinks that a knowledge of the business is essential to a successful administration. But in the situation that existed then, the immediate needs for a general constructive leadership in administration and a re-establishment of confidence in the future were more important than intimate knowledge of the business. Other men were available or could be obtained who had that knowledge. Hence I urged in the informal discussions that took place that Mr. du Pont was the logical choice.
Not that my urging had much or anything to do with the decision. Other persons were more influential, and Mr. du Pont had reasons of his own for allowing himself to be persuaded to accept management as well as financial responsibility in General Motors. The du Pont Company had taken over the Durant stock in the crisis, and by 1921 would increase its ownership to about 36 per cent of the total common stock of the General Motors Corporation. Mr. du Pont had an obvious responsibility in the situation. He later said: "I was very loath to accept the position [of president]. I had recently retired from business, but I said that I would do whatever they thought best, and I was put in as president with the distinct understanding that I was only to stay there until a better posted man could be found to take the job."
When Pierre S. du Pont accepted the presidency, Mr. Raskob continued as chairman of the Finance Committee and for several years served as the public spokesman of the corporation. J. Amory Haskell and I became Mr. du Pont's right-hand left-hand men, so to speak. In a letter distributed at the board meeting of December 30, 1920, Mr. du Pont stated that Mr. Haskell and I were "competent to settle executive questions, acting for the Executive Committee between meetings, and for the President in his absence." The Executive Committee was re-formed and reduced temporarily to four men: Mr. du Pont, Mr. Raskob, Mr. Haskell, and myself. This new committee took charge of operating policy and of a certain amount of administration as well. The old Executive Committee, made up in large part of division managers, was made an advisory operations committee.
My Years With General Motors Page 6
