My Years With General Motors

by Alfred P. Sloan Jr.

  North American Aviation had been organized as a holding company in 1928. Although it had some substantial investments in aircraft manufacturing companies even before it was joined with General Aviation, its primary concern had been the airline business. It owned all of Eastern Air Transport (later called Eastern Air Lines) , 26.7 per cent of Transcontinental Air Transport, and 5.3 per cent of Western Air Express Corporation. General Aviation had also owned 36.6 per cent of Western Air Express stock. Afterward, therefore, North American owned 41.9 per cent of Western Air Express stock. Furthermore, Western Air Express and Transcontinental Air Transport each owned 47.5 per cent of the stock of Transcontinental and Western Air, Inc. (now Trans World Airlines). The upshot of the arrangement, then, was that General Motors held a 30 per cent interest in North American, and North American held about a 33 per cent interest in TWA. North American was thereby enabled to co-ordinate the transcontinental operations of TWA with the East Coast system of its own Eastern Air Lines.

  The Air Mail Act of 1934 prohibited the ownership of stock in an airline company by companies engaged either directly or through a subsidiary in aircraft manufacturing. North American therefore distributed its holdings in TWA to its shareholders. As a shareholder of North American, General Motors received some 13 per cent of TWA's stock, which we sold in 1935.

  For a time North American operated Eastern Air Lines as a division, and then disposed of this airline in March 1938. As the largest single shareholder in North American, General Motors had several representatives on its board of directors. One day, during the period when North American was negotiating the sale of Eastern Air Lines to some Wall Street interests, I received a telephone call from Eddie Rickenbacker, the United States' great World War I flying ace. He had been active in the Eastern Air management and was now interested in bidding to buy control of the airline. He complained that he was not being given a chance, however, and asked if I would intervene in his behalf.

  I had always considered Eddie to be a capable operator, and I naturally wanted him to have an equal opportunity to bid for Eastern; I felt that he could be counted on to develop an efficient operation. I told him I would see what I could do. The next morning I looked into the matter and found that the Eastern Air stock had not yet been sold. I made a plea in Eddie's behalf, and as a result he was given thirty days to get the backing which would enable him to bid.

  He did not get his backing very easily, however, and as the deadline approached he became understandably nervous about the outcome. The next to the last day fell on a Saturday. Eddie called me at my apartment as I was preparing for bed, and inquired if he could come over for a few minutes. When he arrived he indicated that his prospects for getting the money were still excellent, but that he might need more time. He wondered if he could have a few days' extension. I told him not to worry, and he left in good spirits. But as it turned out, he did not need the extension. His backers called him the next morning and told him that they were prepared to go through with the deal. This disposal by North American of its Eastern Air Lines operation was a transaction that gave us all a great deal of satisfaction.

  In the reorganization that followed the Air Mail Act of 1934, North American became an operating company. Its manufacturing operations were consolidated and moved to a new plant in Inglewood, California. During the ensuing years, the company placed emphasis on the development of military aircraft and made some notable strides in that direction. In the late 1930s the company won several military design competitions, and these successes established it as one of the nation's leading aircraft manufacturers.

  A number of aircraft which evolved from this early development work played a vital part in World War II. Among the more famous of the North American planes were the P-51 Mustang fighter—perhaps the most highly regarded fighter plane employed by the Allied forces during the war; the B-25 Mitchell bomber used by General Doolittle in his historic raid on Tokyo; and the ubiquitous AT-6 Texan trainer, which became virtually standard equipment at Air Corps and Navy training bases and was used extensively by other Allied countries.

  The AT-6, by the way, reflected the General Motors influence on North American. As automobile men, we naturally thought in terms of "standardized" production models which could realize the inherent economies of volume production. North American began looking for a plane that could be marketed this way and soon decided that a good basic-training plane was the best bet. Even before the war the AT-6 became its "bread and butter" model.

  General Motors was continuously represented on North American's board of directors from 1933 until we finally disposed of our interest in 1948. During that time—and especially in the earlier years—we provided a considerable amount of policy and administrative guidance through our representatives on the board, and we were instrumental, I believe, in developing an efficient, systematic approach to management in the company. North American's corporate organization and its financial, production, and cost controls were our special contributions. It appears that in 1939 North American was the only aircraft-manufacturing company with production and cost-control systems like those used in the automobile industry.

  A major share of the credit for introducing General Motors' management techniques at North American, and at Bendix, too, must go to Ernest R. Breech. Mr. Breech was originally a financial man in General Motors (he was general assistant treasurer from 1929 to 1933), but when he moved over to North American he soon showed a great talent for operations as well. He was chairman of the board of North American Aviation from 1933 to 1942—the years during which the holding company was converted into a large manufacturing operation. In addition, he became a director of Bendix in 1937. I had always considered Mr. Breech to be an excellent prospect for top management, and had tried for some time to bring him into a good operating position in General Motors. I was opposed in this effort by William S. Knudsen, executive vice president and later president of General Motors, who still regarded Mr. Breech as a financial man. But finally, in 1937, I found a spot for him as group executive in charge of General Motors' household appliance operations. He filled this post with distinction while continuing to serve as chairman of North American and as a Bendix director.

  In 1942 he became president of Bendix, relinquishing his other assignments. At Bendix again, he performed brilliantly all during the war years and more than justified my faith in him. But the story of his career has an ironic twist, as many persons know. In performing so well in all his General Motors assignments, he attracted the attention of Henry Ford II, who wanted someone to head the rebuilding program of the Ford Motor Company. Mr. Breech got that job in 1946, and introduced General Motors' management and financial techniques into the new modern Ford organization.

  When Mr. Breech was chairman of North American, he induced J. H. ("Dutch") Kindelberger, who had been chief engineer for Douglas Aircraft, to head up operations. Mr. Kindelberger was elected president and chief executive officer of North American at the end of 1934. He was an extremely capable engineer and demonstrated great technical competence in aircraft design and manufacture. He developed into a fine administrator, and came to be recognized as a man who could produce outstanding military planes at low cost. But he had had very little general administrative experience before coming to North American, and, recognizing his own limitations, he relied at first on the General Motors directors for advice and counsel. Messrs. Breech and Kindelberger, together with Henry M. Hogan, then assistant general counsel of General Motors, constituted a sort of informal executive committee and regularly consulted each other on all the important company problems which arose between meetings of the board of directors. Messrs. Breech and Hogan in turn reported to Albert Bradley or C. E. Wilson, who, in addition to their regular duties as executive officers in General Motors, had group responsibility for our investments in associated companies.

  Our relations with Bendix were much the same as with North American. We were represented on the Bendix board of directors from 1929 until 1937 by
Messrs. Wilson and Bradley; the latter was also chairman of the Bendix Finance Committee throughout that period. In 1937 the press of other duties forced these two to give up their Bendix directorships, and they were succeeded on the board by Mr. Breech and by A. C. Anderson, the comptroller of General Motors. Our representatives on the Bendix board took a direct interest in the internal management of Bendix and were instrumental, I believe, in improving management effectiveness. They were responsible for some organizational changes and for a new and effective system of co-ordinating the semi-autonomous divisions. Our representatives also had a direct hand in the elevation of Malcolm Ferguson to the important post of general manager of the South Bend automotive parts plant of that company. He later became president of Bendix.

  By the end of the 1930s our perspective on North American and Bendix had changed considerably. Our original motive for investing in the aviation industry—the feeling that the industry might somehow produce a flivver plane which could compete with the automobile—came to seem less relevant as the years passed. No plane suitable for "family use" was ever developed; indeed, the whole commercial-aviation field remained a small one during the years of the depression. North American and Bendix continued to grow, but both companies discovered that their greatest opportunities lay in the military field. By 1940 each company had annual sales running around $40 million, and the great bulk of this was defense work done under government contracts. In 1944 at the peak of wartime production, North American's sales were about $700 million, and Bendix's sales came to more than $800 million. These huge figures suggest the far-reaching consequences for us of our original concern about the flivver plane.

  The Allison Engineering Company, which we also acquired in 1929, has had a growth history no less spectacular than North American and Bendix. As I have mentioned, we purchased Allison outright for only $592,000. By our standards, it was a small operation: the company had fewer than 200 employees in 1929, and its manufacturing facilities occupied only about 50,000 square feet of floor space. We considered it to be of only minor importance in our plans to enter the aviation industry. Yet as events turned out, we were to make Allison our principal link to the industry.

  When we acquired Allison in 1929 the company had been in existence for fourteen years. In its early years it was not in the aviation field; it was primarily a supporting machine shop for racing cars at the Indianapolis Speedway. Its founder, James A. Allison, gradually shaped an organization of skilled mechanics, machinists, and engineers, and began to produce a few marine engines and reduction gears for boats and aircraft. In the early 1920s Allison was able to accept a contract for the modification of World War I Liberty aircraft engines. Chronic failures in the crankshaft and connecting-rod bearings had seriously limited the durability of these engines. But Allison was able to develop a steel-backed, lead-bronze, crankshaft main bearing that was capable of supporting higher horsepower loads without failure. The company also developed an ingenious method of casting lead-bronze on both the inner and outer surfaces of a steel shell, which could be used in making connecting-rod bearings of great durability. These developments were the basis for the highly regarded Allison bearing that came to be used extensively in high-horsepower engines throughout the world. The production of this bearing, and the contracts to modify Liberty engines, accounted for the principal business of the company during the 1920s.

  When Mr. Allison died in 1928 the company was put up for sale, on the condition that operations must continue in Indianapolis. Several prospective buyers were approached, but none was willing to accept this stipulation. Fortunately, C. E. Wilson had become well acquainted with the Allison organization while he was general manager of the Delco-Remy Division in Anderson, Indiana. He knew that the organization possessed valuable mechanical skills that we could use. We had no objection to continuing operations in Indianapolis, and on Mr. Wilson's recommendation we approved the purchase in early 1929. Norman H. Gilman, who had been president and chief engineer under Mr. Allison, continued in charge as general manager after our acquisition.

  Early in the 1930s Allison embarked upon a project which proved to be of great military significance. This was the V-1710 engine project, and it was initiated by Mr. Gilman. After a careful survey of all the military aircraft engines then in existence, Mr. Gilman concluded that the armed services would one day require a reciprocating engine of 1000 horsepower; he also concluded that the engine should be liquid cooled (which would give it a slimmer shape than an air-cooled engine).

  Only very meager funds for such projects were available from the military in the early 1930s, but Mr. Gilman did win a small contract, and Allison set to work designing the engine. A partial success was achieved in 1935 with a 1000-horsepower engine that functioned well for about fifty hours. However, the engineers could not get the engine to function for 150 hours—which army specifications required. To speed up development work on the engine we assigned Ronald M. Hazen, an outstanding engineer with the General Motors Research Laboratories, to work at Allison. Mr. Hazen's efforts were successful, and on April 23, 1937, the V-1710 passed all the tests required by the Army Air Corps. It was the first airplane engine in the United States to qualify at 1000 horsepower and the nation's first really successful high-temperature, liquid-cooled engine.

  Until the V-1710 engine was developed the Air Corps had taken for granted the superiority of the air-cooled engine. But the Allison engine quickly proved its worth: In March 1939 a Curtiss P-40, powered by a V-1710 engine, won the Air Corps fighter aircraft race with a clear speed advantage of forty miles per hour over the previous winner. There was, naturally, a sudden great surge of interest in the Allison engine after that event. Not only the U. S. Air Corps, but the armed forces of Britain and France began to look closely at our product.

  Allison now had a serious problem. Though we had built it up somewhat since 1929, the year of our acquisition, it was still essentially a small engineering firm, geared mainly to experimental work with no facilities at all for quantity production. And quantity production at the end of the 1930s was being desperately demanded by the government.

  The Assistant Secretary of War, Louis Johnson, personally visited Mr. Knudsen, who was then president of General Motors, to see what could be done about producing Allison engines. At that time there were firm orders for only 836 engines; and, as Mr. Johnson conceded, he was in no position to assure us that more orders would be forthcoming. Viewed simply as a business proposition, building a factory to make 836 engines seemed to be a bad risk; indeed, there was the risk that some new turn in the international situation or some new technological breakthrough might wipe out even tins small demand before our factory was built. Nevertheless, we decided, after weighing the matter closely, to establish a new Allison plant in Indianapolis. This decision was based on a feeling that the V-1710 engine would probably be in great demand. Moreover, one does not lightly turn down any government request having to do with national security.

  And so, on May 30, 1939, we broke ground in the shadow of the Indianapolis Speedway for a new plant to build the Allison engine. As it happened, more orders for the V-1710 did follow: the French government ordered 700 of the engines in February 1940, and the British ordered another 3500 a few months later. By December 1941 Allison was producing engines at the rate of 1100 a month. During the war we forced this rate still higher—even though the engine was being continually redesigned and repowered until it finally attained a combat rating of some 2250 horsepower. By December 1947, when we stopped making the V-1710 engine, total production was up to 70,000 engines. They had performed brilliantly all during the war and were used on such famous fighter planes as the Curtiss P-40 Warhawk, the Bell P-39 Aircobra, the Bell P-63 King Cobra, and the Lockheed P-38 Lightning.

  Early in the war it became apparent that our involvement in aviation was so large as to raise a question about our permanent place in the industry. Accordingly, we made an effort to redefine our thinking about aviation and the part we should play in
it. The principal statement on this important matter is a report which I made in 1942 to the Postwar Planning Group in General Motors. The recommendations in this report were eventually adopted by the corporation's Policy Committee, and they became the basis for our postwar aviation program.

  In the report I indicated that there would be three major markets in the postwar aircraft industry—military, commercial air transport, and private civilian flying. I then raised the question whether we wanted to participate in any or all of these markets as producers of complete aircraft. I pointed out that the manufacture of military aircraft would involve a large amount of engineering and development work with continuous modification of low-volume models. Moreover, there would undoubtedly be excess capacity in the industry, resulting in severe competition for whatever business did exist, with little prospect for anything more than a small margin of profit.

  In the commercial transport field I foresaw a rapid acceleration of transportation by air, not only for passengers but for freight as well. Even in this expanded market, however, the potential sales volume available to a manufacturer would be limited. I assumed that there would be something on the order of a tenfold increase in the number of transport planes in use—roughly 4000 planes altogether. But with an average life span of perhaps five years for each plane, the potential volume available to a single producer in any one year would not be great.

  I was also dubious about the advisability of our manufacturing small private planes. While I believed that there would be some postwar expansion in the market for these planes—for both business and personal use— I felt that growth in this area would be limited until technology had advanced to a point where a far greater degree of safety could be attained. I stated that, unless there was some revolutionary breakthrough on safety, the private plane would not become a serious competitor of the motorcar in the foreseeable future.