My Years With General Motors

by Alfred P. Sloan Jr.

  The financial story of General Motors is a story of growth—in goods and services, in the number of people involved, in physical facilities, and in financial resources. Between August 1, 1917, when the old General Motors Company became the General Motors Corporation, and December 31, 1962, the number of employees increased from 25,000 to over 600,000 and the number of shareholders from less than 3000 to more than one million. The corporation expanded its sales of cars and trucks produced in the United States and Canada from 205,000 units in 1918 to 4,491,000 in 1962, and, in addition, sales of cars and trucks manufactured in General Motors' plants overseas totaled 747,000 units. Dollar sales rose even faster, from $270 million in 1918 to $14.6 billion in 1962, and total assets grew from $134 million to $9.2 billion. This is a measure of the significance of General Motors as an institution in American economic life.

  The measure of the worth of a business enterprise as a business, however, is not merely growth in sales or assets but return on the shareholders' investment, since it is their capital that is being risked and it is in their interests first of all that the corporation is supposed to be run in the private-enterprise scheme of things. The record shows, I believe, that we have done a very creditable job for the shareholders, without neglecting our responsibilities to our employees, customers, dealers, suppliers, and the community.

  I described my philosophy of financial growth in the annual report for 1938, as follows:

  Due to the force of economic necessity and through a process of evolution, the units of industry have become larger and larger. This is because of the continuously broadening market for industry's products and services resulting from the production of more useful things at continually lowered prices. There is superimposed upon this evolutionary process the additional influence of an increasing integration of manufacturing processes involved in mass production. The effect of such an evolution on the capital structure is to require ever increasing amounts of capital.

  The financial growth of General Motors has followed that course. The total capital employed in the business has grown from about $100 million in 1917 to about $6.9 billion today without unduly burdening the corporation or its shareholders with debt, primarily by plowing back earnings. Of the $6.8-billion growth in capital, about $800 million, after subsequent repayments, was raised by resorting to the capital market. An additional $600 million was raised through the issuance of new stock, of which $250 million was for the acquisition of existing companies and $350 million for employee programs. All the rest of the growth in capital—a total of nearly $5.4 billion—came from reinvestment of earnings. And yet, unlike the situation in some rapidly growing companies, the reinvestment of earnings was not at the expense of dividend payments to the shareholders. Over this forty-five-year period, dividend payments totaled nearly $10.8 billion, or 67 per cent of total earnings. This growth in the capital employed in General Motors reflects the progress of the corporation. In an economy based on competition, we have operated as rational businessmen, a fact I have tried to demonstrate with a close description of the development of our approach to management. The result has been an efficient enterprise. It should be noted that a rising successful economy like that of the United States is not only an opportunity, it is also very demanding on those whose ambition is to excel in it. Our performance has been demonstrated day by day in our production and distribution of goods useful to the community. I shall be glad for General Motors to be judged by this performance.

  Part Two

  Chapter 12 - Evolution Of The Automobile

  During the early years of the automobile industry, the immediate goal of the engineers and inventors was simply reliability—to get a car to go somewhere and come back under its own power. Many bright automotive ideas ended with a horse, a towline, and laughter. Although progress was expensive, American motorists cheerfully paid the bills for it. In their enthusiasm for individual transportation, they bought the cars, reliable or unreliable, and thus provided the source of a substantial portion of the risk capital for experiment and production. Not many industries have been so well favored by their customers. In twenty years the reliability of the motorcar in relation to the street and road conditions of the time was pretty well established. Individual mechanized transportation, one of the great achievements in the progress of mankind, was a commonplace fact of life, and everyone could enjoy it.

  Great as have been the engineering advances since 1920, we have today basically the same kind of machine that was created in the first twenty years of the industry. We still deal with a vehicle moved by a gasoline engine. The heart of the engine is still a piston in a cylinder, moved by the burning of a mixture of gasoline and air, which is fired at regular intervals by an electrical spark from a spark plug. The resultant power of the thrust of the piston turns a crankshaft, which, by way of a transmission mechanism, turns the rear wheels. Springs and rubber tires cushion the driver and passengers from the effects of bumps, and brakes stop the car by applying retarding force at the wheels.

  But since 1920 enormous improvements have been made at every point: Engines are far more efficient, delivering more power more smoothly from the same amount of fuel—and the fuel has also been enormously improved. The transmission has undergone a complex evolution until it is now fully automatic. The suspension system has gone through an equivalent evolution, as have the tires, and together they provide a ride that was unimaginable forty years ago. The driver can call upon extra power sources for braking and steering and to operate windows, seats, and radio antennas. The body shines in a variety of hues, is usually entirely made of steel, and has safety glass. With the development of the automobile, its importance in everyday use has enormously increased and also the demand for better roads and highways has come. It is hard to imagine what effect roads such as those of today might have had on the development of the automobile of the early 1920s.

  Today's driver, of course, would find the typical car of 1920 completely unsatisfactory. It had a four-cylinder engine whose crankshaft and associated connecting rods and pistons were inherently unbalanced. Ordinarily this car had two-wheel brakes with braking confined to the rear wheels; it had no independent springing of the front wheels; it had a sliding-gear transmission, and an engine of low power. It vibrated and often shimmied; it veered and sometimes skidded when the brakes were applied; it rode hard and rough; the clutch grabbed; the gears often clashed in the shifting, and, owing to the low power available, they always had to be shifted on hills of substantial gradient. But the car usually got somewhere and back; fortunately it was unable to go fast or far enough for many of its deficiencies to become serious drawbacks. It was roughly adapted to its environment—and its major parts were reasonably adapted to each other, at however low a level of integration and efficiency.

  The problem of development of the automobile was to raise its level of efficiency, and this often meant raising the level of its integration. The automobile today, instead of the loose assemblage of parts and mechanisms of fifty-odd years ago, is a very complex and closely integrated piece of machinery. It is only in recent years that the mechanical arts have made possible the combined effect of high performance, operating convenience, and comfort that characterizes the modern motorcar.

  General Motors' research laboratories and the engineering staffs have played a major role in the development of the automobile during the past fifty years, and continue to be in the forefront of engineering development. It would be impossible to describe everything of importance General Motors and the industry have done: that would require another book. Only a few important and interrelated advances in this development are discussed here.

  Ethyl Gasoline and High-Compression Engines

  The central problem in automotive engineering has been to develop a more satisfactory relationship between the fuel and the engine. The efficiency of a piston engine— its ability to make an effective use of fuel, and thus to get the greatest power from a given quantity of fuel—depends on its compression.
The concept of compression is a simple one, but the general reader will need a few words about it. The piston has one position in which it is as far down in the engine's cylinder as it can go, and another in which it is as far up in the cylinder as it can go. When it is at the bottom of its stroke, the cylinder is filled with fuel—a mixture of atomized gasoline and air. When it is at the top of its stroke, the fuel charge is compressed. The fuel begins to burn as a result of the spark, and the hot gases produced will expand and push the piston down. The down movement then turns the crankshaft, which transmits power to the wheels. The compression ratio is the ratio between the volume of the cylinder when the piston is as far down as it can go and the volume that remains when it is as far up as it can go. This ratio merely compares the volume of the fuel charge in its uncompressed state with that in its compressed state. In the early twenties, the average compression ratio was about four to one.

  As I have said, to design a more efficient and powerful engine of a given size means to increase the compression ratio. But here a serious problem stood in the way—engine knock. The gasoline-and air mixture should burn relatively slowly in order to push the piston down. If it detonated—burned too fast—the piston could not move rapidly enough to take advantage of the force generated. Indeed, not only was energy lost in engine knock, but the sudden force introduced severe strains on the engine parts, winch could, and did, damage the engine.

  The key to higher compression was to find some way of reducing engine knock. But what was the cause of engine knock? In the early days of motorcar use, it was discovered that one could reduce engine knock by adjusting the time of the spark jump. Most cars, for many years, had a hand-operated spark-adjustment lever convenient to the driver for choosing the best spark setting for different driving conditions. People learned to retard the spark setting by hand when driving uphill, to prevent engine knock as the engine labored under the strain.

  The man who began General Motors' important studies in engine knock and who was largely responsible for our breakthrough to a solution of the problem was Charles F. Kettering, who had long been interested in the whole question of ignition, fuels, and the like. No automobile runs and no airplane with a reciprocating engine flies today without benefit of the antiknock fuel developments pioneered by Mr. Kettering. He brought his early knowledge of this problem to General Motors, and he was research chief of General Motors when the solution was found. The solution, in the main, was Ethyl gasoline, made with the additive tetraethyl lead.

  Up to the time of World War I, knock was thought to be caused by too early ignition when the spark was too far advanced. Soon after World War I it was discovered that there was another kind of knock which was called "fuel knock," for by changing only the fuel and fuel setting without adjusting the spark, this knock could be lessened or eliminated. One of the people working on this problem was the late Thomas Midgley, Jr. He had come up through the Dayton Engineering Laboratories, where he was an assistant to Mr. Kettering, to become in the early 1920s the chief of the fuel section of the General Motors Research Corporation. In the words of Dr. Robert E. Wilson, formerly chairman of Standard Oil of Indiana, and a close friend of Mr. Midgley:

  . . . [Mr. Midgley] had definitely proven that, contrary to general belief, knocking and preignition were different things, and that knocking was a chemical characteristic of the fuel. He pointed out that benzol and cyclohexane, which latter he had succeeded in making in his Dayton laboratory, knocked much less than gasoline, and gasoline much less than kerosene.

  Almost every time I saw Tom he had some new theory regarding the mechanism of detonation or of antiknock action, on which I was the professional skeptic. While successive theories were usually discredited by further experimental work, they were always stimulating and frequently led to discoveries of importance. The most striking example of this was in his early work when he was trying to theorize as to why kerosene knocked worse than gasoline. He seized upon the obvious difference in volatility, and postulated that possibly most of the kerosene remained in droplets until after combustion started and then vaporized very suddenly with a resultant too-rapid explosion. If this explanation were correct, he reasoned that by dyeing the kerosene it might be possible to make the droplets absorb radiant heat from the combustion chamber and hence vaporize sooner.

  Had Tom been a good physicist he could have doubtless found by calculation that this theory was untenable, but being a mechanical engineer he fortunately decided that it was much easier to try it out than to do the calculations. He accordingly went to the stockroom in search of some oil-soluble dye, and as usual the stockroom was just out of the desired product. However, Fred Chase suggested that iodine was oil soluble and would color the kerosene, so Tom promptly dissolved a substantial quantity of iodine in the kerosene, tested it in a moderately high-compression engine, and found to his delight that the knocking was eliminated.

  Tom immediately sent out to scour Dayton for all available samples of oil-soluble dyes and that afternoon tested out several different ones in rapid succession without getting the slightest result from any of them. To clinch the matter, he added a colorless iodine compound to the gasoline and found that this stopped the knock. Thus, the first theory of detonation went to start the graveyard, which is now fairly well filled, but along with its demise came the real birth of Tom as a chemist, and for the next few years he was an insatiable student of every branch of chemistry to aid him in endeavoring to explain his observations and to make new compounds for trial as antiknock agents . . .

  Tom was then particularly enthusiastic about the possibilities of aniline though, as always seemed to be the case when he discovered a new antiknock agent, he had to go to work to improve the methods of manufacture and lower the cost before the agent would be economically feasible. He also had some hopes then for his first ethyl compound, ethyl iodide, if he could just locate a plentiful source of iodine . . .

  It was at the annual meeting of the Society of Automotive Engineers in New York in January 1922 that Tom, with an air of great excitement and secrecy, showed me a little tetraethyl lead in a test tube and told me that that was really the answer to the whole problem. Its efficiency, he said, was very much higher than that of any previously discovered compound, and it appeared to be free from every one of the difficulties which had plagued earlier attempts to solve the problem. Of course, he did not yet appreciate either the toxicity or the deposit problems.

  So, after all the years of experiments by Mr. Kettering, Mr. Midgley, and General Motors Research Corporation, we had the invention. But having an invention is one thing and getting to market with it is another. To make a long story short, in August of 1924 a corporation was formed called the Ethyl Gasoline Corporation, for the purpose of marketing tetraethyl lead as an antiknock compound. This company was a fifty-fifty partnership between General Motors and Standard Oil of New Jersey. Initially the Ethyl fluid was manufactured by du Pont under a contract and it was not until 1948 that Ethyl began producing all of its own requirements.

  Tetraethyl lead was only one of the necessary steps in the development of high-compression engines. Despite its effects in improving the quality of the fuel, the fuel itself, in the early twenties, varied enormously in quality. Indeed, there was no known way of measuring one fuel against another to determine its relative value for use in a gasoline engine.

  General Motors made a study of that situation and developed a method for measuring the antiknock qualities of fuels, or the ability of the engine to accept a given fuel in terms of the higher compression of the engine. This measurement scaled fuels according to their "octane number." Octane is a fuel with almost no knock; in the engineering of that day a rating of 100 in octane therefore was considered, practically speaking, a perfect fuel. Dr. Graham Edgar of Ethyl conceived the octane scale in 1926 and Mr. Kettering and the research engineers developed the first single-cylinder, variable-compression test engine by which fuel quality could be measured in terms of these octane numbers. A test engi
ne utilizing the variable-compression principle was later adopted as standard by the automotive and petroleum industries.

  Of course, one way to increase octane ratings was to add tetraethyl lead, but another was through better processes for refining crude oil. Tremendous progress has been made in cracking and in "re-forming" the hydrocarbons found in crude oil both to increase the yield of gasoline from a barrel of crude and to improve its octane rating before the addition of tetraethyl lead. This is another dramatic research story in itself and one in which Mr. Kettering and his associates played a very important part in pioneering. The octane rating of commercial gasolines available at filling stations was increased from 50 to 55 in the early twenties, to 95 to somewhat over 100 at the present time. (In aviation gasolines, octane ratings are even higher.) This has had a dramatic effect on fuel economy as measured in car miles per gallon for a given standard of performance and consequently on the efficiency with which we are today using our petroleum resources. (Note 12-1.)

  Another factor in the reduction of knock was the design of the engine itself. We know today that in the engine combustion chamber a very complex shock-wave condition is produced by the explosion of the fuel. These shock waves can increase the temperature of the fuel very rapidly and contribute to detonation and knock. The study of various combustion-head shapes and contours has suggested special shapes for the least knock effect with the highest compression ratio.

  Parenthetically, I will mention here one problem of engine design, quite independent of the fuel, which had a serious limiting effect on the development of more powerful engines. General Motors engineers made an important contribution to its solution. Vibration, which was always unpleasant, became a more critical engineering problem as speed and power started to go up. Then the unbalanced rotating and reciprocating parts in the engine became the source of destructive vibration and a limiting factor on the whole progress of the automobile.