My Years With General Motors

by Alfred P. Sloan Jr.

  Our over-all record of success in meeting production schedules, and in maintaining a high quality of production, was attained in the face of severe manpower problems. During the war we had to hire and train in the United States a staggering number of new workers: 244,000 in 1942, 332,000 in 1943, and 156,000 in 1944. During the war period more than 750,000 new workers were hired. The sheer numbers involved were distressing enough; but in addition, the workers we got were generally at a very low level of industrial skill. Many of them were not physically fit; many, especially the women, had no prior industrial experience at all. Between the end of 1941 and the end of 1943 the proportion of women hourly employees working for General Motors rose from about 10 per cent to about 30 per cent of total hourly employees.

  To work with this volatile and largely unskilled labor force, we were obliged to rationalize our production techniques as much as possible. For example, when the M-24 tank went into production at Cadillac, the division developed a "merry-go-round" type of conveyor which made it possible for each of the welders to perform one specialized, relatively simple task, instead of a difficult series of welding operations. By 1944 skilled manpower was in such short supply that its availability at a particular plant often became a controlling reason for performing certain jobs there—even when other plants had superior machinery for the jobs.

  The basic financial policies which underlay our operations during the war had much to do with our performance. Early in 1942 the Policy Committee of the corporation adopted a new policy on wartime prices and profits. As we described this policy to the War Department's Price Adjustment Board, it was designed "to limit the over-all rate of profits from manufacturing operations, before provision for income and excess profits taxes but after all other charges including reserve provisions, to 10% or approximately one-half the profit margin, expressed as a percentage of sales, secured in the year 1941 largely under the conditions of a competitive market." In other words, we voluntarily halved our pre-tax profit margin—even though it was clear that taxes would be substantially higher than they had been in 1941.

  Related to this policy of profit limitation was another policy of taking war-production contracts on a fixed-price basis, wherever possible. We preferred the fixed-price contract because of the greater incentive which it provided for efficient operation (as compared with the cost-plus-fixed-fee type of contract). We realized, of course, that in undertaking the production of many war materials which were new to us—which had not, in fact, been manufactured by anyone on a mass-production basis—there was always a possibility that our cost estimates might turn out to be higher than actual costs. We therefore stipulated to the War Department's Price Adjustment Board that we would reduce prices as we got the cost down.

  As we foresaw, our costs did go down significantly on most contracts after we had some production experience and achieved high volume. The example below, which shows the pricing history of Frigidaire's .50-caliber aircraft machine gun, suggests the close relationship between high volume and low sales price. Early in 1945, due to a decrease in schedule, it was necessary to raise the price of the gun slightly.

  By making price reductions of this character on most of our military production, by voluntary refunds, and through renegotiation, our pre-tax operating profits were held to about 10 per cent of sales subject to renegotiation in 1942-44. In 1945 pre-tax profits on sales related to the war were less than 10 per cent, due in part to heavy cancellations after the war ended, and the added costs of reconverting to peacetime operations.

  It is an unshakable article of left-wing doctrine that wars are immensely profitable to "big business." So far as General Motors is concerned, this notion is wildly erroneous. Our limitation on pretax profits, combined with heavy corporate taxes, reduced our net income substantially during the war. Our income was lower in every one of the war years than it had been in 1940 or 1941. Our average net income for the years 1942-45 was lower, in fact, than our average income during the years 1936-39, which included the recession year 1938.

  We began, earlier than any other corporation I know of, to think seriously about our place in the postwar world, and to develop specific and comprehensive programs for action. Indeed, I delivered an address on "Industry's Postwar Responsibilities" to the National Association of Manufacturers on December 4, 1941—three days before Pearl Harbor. As the war years went by, and it became possible to discern some of the outlines of the postwar world, we faced the necessity of planning for commercial production again. Specifically, we had to decide whether to figure on an expanding economy, or to pull in our horns for the "postwar depression," which many economists—and businessmen—took for granted. I am proud to say that we planned for expansion. Indeed, I think it is fair to state that our plans, which I announced in a speech to the N.A.M. in December 1943, were themselves a force for an expanding economy, a positive inducement to other businessmen to plan for growth. I quote from the speech in order to show some of our specific calculations:

  Here is the General Motors approach: We start with the conviction that the prewar standards of national income passed with the prewar period itself. Our increased productive capacity as a nation, our broader distribution of know-how, our improved techniques, the acceleration of our technical knowledge resulting from the stimulation of the war— all justify a reasonable demand on the part of our people for an advanced order of things. Our enormous public debt and the constantly increasing costs of Government, legitimate and otherwise, demand a greater volume of production and a higher national income base. Otherwise, the burden of Government on enterprise and on the individual will seriously prejudice the possibility of an expanding economy.

  Let us assume, as a prewar base, a national income of 65 to 70 billion dollars. Under the postwar circumstances, a new base of 100 billion of the same dollars should be a reasonable objective. We then determine the potential volume of each of our products or services, both old and new, on the basis of the expanded production opportunity, recognizing that each item of necessity has a different elasticity of demand. The result is a measure of the new operating base and determines the needed economic resources of production, such as manpower, organization, plant, and machinery. In terms of such a projection in General Motors, including the cost of reconversion, the advancement of present equipment to the latest standards of technology and retooling for postwar products, there will be involved an aggregate expenditure of approximately $500,000,000. That is the contribution we are prepared to make to help preserve the free competitive enterprise system as the keystone of the American economy.

  I might note that the national income forecasts in this passage, which were considered wildly optimistic when I made them, actually proved to be conservative. In 1946 our national income (measured in 1939 dollars) was around $125 billion—not $100 billion. Since then, the figure has increased to about $200 billion (in 1939 dollars).

  Immediately after V-J Day we received, of course, an avalanche of contract terminations amounting to approximately $1.75 billion of war orders. The suddenness with which the war ended made an orderly transition to peacetime operations impossible, and ensured that we would be snowed under by paper work—the bulk of it connected with termination claims—for many months. We were also confronted, suddenly, with the vast job of physical reconstruction that had to be done on General Motors' plants throughout the country. I am informed that it required 9000 freight-car loads to haul away our military inventories, and another 8000 to dispose of government-owned machinery and equipment. Meanwhile, we were rushing to equip our plants for commercial production. Altogether, there was a mess but no confusion. The planning which had been done, and the co-operation of the armed services, cut down the period of plant clearance and reconversion so that our first automobile was produced and shipped about forty-five days after V-J Day.

  In General Motors, reconversion after World War II did not mean simply getting plants back into the shape they had been in before the war. The postwar program was carefully
planned for expansion and improvement. It included the organizing and balancing of existing production facilities, new machines and equipment, and some completely new plants. Much of it was aimed at improved working conditions for our employees—for example, providing new cafeterias and better medical facilities. The result was a production plant which was much more efficient in several different respects.

  The Korean War confronted us with another complex planning problem, its peculiarity being that it involved partial mobilization. The military effort during this war, as I have said, was in no way comparable to our mobilization during World War II. The total volume involved in 1952, for example—some $1.4 billion of defense production—was less than 40 per cent of the volume of armaments we had produced in 1944. We knew, soon after the war broke out, that we would be expected again to take on about 10 per cent of the nation's armament manufacture. We were also being encouraged by the government to expand our facilities—to build new plants that could be converted to defense production if the armaments requirements should grow. We wanted to accommodate the government, but we certainly did not want to be "stuck" with a lot of excess capacity. On the other hand, we did not want to be short of capacity in the future. It gradually became clear, as the year 1950 wore on, that some serious planning about expansion was called for. On November 17, 1950, I addressed a memorandum to Mr. Bradley, then chairman of the Financial Policy Committee, in which I stated my own beliefs:

  1. That the long term economic activity of the country will continue to increase in the future as it has in the past, stimulated by scientific knowledge and technological progress related thereto, and an expanding population. This will be reflected in expanding demands for General Motors products.

  2. That the economic consequences of having too little capacity as measured by loss in competitive position, prestige and reduced profits, is entirely out of relation to the cost of carrying surplus capacity. Surplus capacity, within reason, is always temporary as judged by the past and, I believe, the future. For my purpose here I am defining "demand" as not only normal demand but abnormal demand, such as results from arbitrary curtailment of production, providing such abnormalities are reasonably consequential and can be expected to continue over even a restricted period.

  3. Notwithstanding our ambitious postwar program, we have lost position by not having sufficient capacity to meet our sales potentiality. Hence we have strengthened competition at our own cost . . .

  4. It does not appear that our effective capacity as a percentage of that of the industry has moved up in relation to the gains made as a percentage of the business during the late prewar years.

  I then went on to suggest that we make a serious effort to gauge the demand over the next five to ten years, and make plans to meet that demand. In building new facilities, I suggested that we "use corporation funds for such new plants needed for armament if that gives us better control over same from the long term position in relation to the master plan." Accelerated depreciation made the use of corporate funds all the more feasible, and relieved the government of the necessity of providing capital for the plants.

  Our market forecasts suggested that expansion was indeed called for. In February and March 1951 we decided on a program, of which these were the main elements:

  We would plan in the circumstances to retain about 80 per cent of our capacity for commercial production.

  We would expand our capacity in the United States and Canada by about 24 per cent—from 14,500 cars and trucks per day to 18,000. (Figuring on a 250-day work year, which would include some overtime days, this would enable us to produce 4,500,000 cars and trucks a year.)

  The expansion would not be uniform, however. Chevrolet would gain 21 per cent; Pontiac, 31 per cent; Oldsmobile, 25 per cent; Buick, 15 per cent; Cadillac, 35 per cent. These figures were, of course, modified in the ensuing years.

  We would need some fifteen to twenty million additional square feet of plant (an increase of 25 per cent in the floor space used for car and truck production) for production of military products for the Korean War, costing about $300 million. We estimated that the machinery and equipment required to outfit these new plants for commercial production after the emergency would cost an additional $450 million.

  In short, the new program was even more ambitious (by $250 million) than the $500 million expansion program we undertook after World War II. We had no cause to regret this second great expansion. It served its purpose by providing facilities for military production during the Korean War, and for civilian production afterward. Indeed, our new facilities were severely strained in 1955, a year of record demand, when we sold 4,638,000 cars and trucks of United States and Canadian origin, and the entire industry was at an all-time high.

  The military products we turned out during the Korean War were essentially advanced versions of the products we had made in World War II—tanks, aircraft, trucks, guns, and so forth. Today not only has modern defense equipment changed radically but the main activity is in research and development rather than in production. This has had a considerable bearing on the role of General Motors in defense. We do research and development in our fields of competence, but we are largely a production organization, and production is not primarily what the defense establishment needs at this time. This accounts for the fact that our defense business is only 3 per cent of our total sales.

  A large part of our role in the new permanent defense industry is played by two divisions: Allison and AC Spark Plug. Allison was the first supplier of turbo-prop jet engines used in military aircraft (in 1956). These engines, designated T-56, are currently used in the Lockheed C-130, the Grumman E2A "Hawkeye," and the Lockheed P3A antisubmarine aircraft. More powerful engines of this type are being developed. A lightweight Allison 250-horsepower T-63 turbo-shaft engine, under development since 1958, was accepted in 1962 as a power plant for both military and commercial light observation helicopters. Allison was also awarded a contract in 1962 for the development, construction, and operation of a nuclear reactor for the army. At the present time it is supplying five military-type transmissions for various army vehicles. These transmissions provide full power shift, steering, and braking functions for diesel-powered battle tanks, medium recovery vehicles, and armored amphibious personnel carriers and cargo carriers. Another phase of Allison's defense business is the supplying of steel and titanium rocket-motor cases for the Minuteman missile program.

  AC-Milwaukee, which produced large quantities of bombing navigational computer systems during the Korean War, extended the range and capabilities of this system. The air force in 1957 assigned to AC Spark Plug complete systems responsibility for bombing navigational computers and for modification of the systems used in strategic air-force bombers. This division has also played the leading role in the corporation's missile work. An inertial guidance system, designated the "AChiever," was successfully flight tested in the air force's Thor long-range ballistic missile in 1957. We continued to make refinements on this system, and it was also successfully used in the Mace and Titan II missiles. In 1962, contracts for two important space guidance systems were awarded to AC-Milwaukee. The National Aeronautics and Space Administration (NASA) chose AC to assist in the design, development, and manufacture of navigation and guidance systems for the Apollo spacecraft, which is being built to carry three astronauts to the moon and back. The air force also selected AC to furnish the guidance system for its space-launch vehicle, Titan III.

  Other General Motors divisions have recently undertaken projects for the nation's new defense program and space activities. GMC Truck & Coach is manufacturing transporter-erector units for the Minuteman missile program. Detroit Diesel Engine provides various diesel turbo-charged "V" engines to the government for use in tracklaying self-propelled artillery and retriever vehicles. Silver-zinc batteries are produced by Delco-Remy for the Minuteman program and Delco Radio is providing power supplies for use in various missile programs. In 1962 the Cadillac-Cleveland Ordnance Plant, which
supplied tanks in the Korean War, began production on three new aluminum armored vehicles.

  The corporation is looking forward to the production of even newer products which are now under development in the divisions and in the recently organized GM Defense Research Laboratories. General Motors will no doubt continue to play a prominent role in the national defense program. Should we be called upon, we stand ready to be of service to national defense to the maximum.

  Chapter 21 - Personnel And Labor Relations

  At the time I write this, it is more than seventeen years since there has been an extended strike over national issues at General Motors. To those of us who recall the violent and crisis-ridden atmosphere of the mid1930s, or the long ordeal of the great postwar strike of 1945-46, the record of the past seventeen years seems almost incredible. And we have achieved this record without surrendering any of the basic responsibilities of management. It is often argued that we got labor peace only by promoting a contract which stimulates inflation. This is a matter of too great complexity for discussion here, but let me say I do not believe it.

  Before taking up our relations with labor organizations, I think it is appropriate to remind the reader that many of our personnel policies exist independently of collective bargaining. General Motors at the beginning of 1963 had, world-wide, 635,000 employees, of whom about 160,000 were salaried employees. Very few of the latter are represented by labor organizations. In addition, our approximately 350,000 union members receive a large number of benefits which are not mentioned in the contract and which, in some cases, were being provided by the corporation before modern industrial labor organizations came on the scene. Our plant recreation facilities, our payments for employees' suggestions, our arrangements for employee training, our provisions for employing handicapped workers— all of these fall outside the scope of the contract. As far back as the 1920s, General Motors was providing many benefits to its employees. Some of these were in the form of facilities —for example, our first-rate medical services, fine cafeterias, locker rooms, showers, and parking lots for our employees.