My Years with General Motors Paperback – October 1, 1990

"My Years with General Motors," by Alfred P. Sloan, Jr, Doubleday, NY, 1963, with introduction by Peter Drucker, 1990. Sloan was President/CEO/Chairman of the Board of General Motors from 1923 to 1956. He created the systems and organization that made GM a great corporation. That organization was studied as the model for large corporations for decades. The book also provides a look into the history of GM and its various strategies.General Motors was created by William C. Durant in 1908. Beginning with Buick, he acquired a series of auto companies including Olds, Oakland, and Cadillac, with the idea of competing with the then market leader, Henry Ford's Model T. Durant was the visionary who brought together much of the modern GM, but his organizational style was hands on-producing delays in decision making. He also lacked adequate financial controls. He was forced to resign as President in 1920 when the slowdown of 1921 forced financial difficulties on the company and later on Durant himself caused by margin calls due to speculation in company stock.The Dupont Company was a major investor in General Motors until forced to divest its shares in the 1950s. Dupont's investment began in 1917, when they saw GM as a growth opportunity. They hoped to supplement earnings that might otherwise decline after World War I. In addition, Dupont made the transition from an explosives company to a chemical company after World War I based on surplus nitrocellulose capacity. Plants had been constructed for the Allies during the war to make smokeless powder and later were sold at distress prices. Nitrocellulose proved suitable in auto paint and in the fabric coatings used on auto tops. The investment gave Dupont access to the chemical needs of the auto industry during a major growth phase. Initially Dupont personnel staffed the GM Finance Department.Pierre S. Dupont came out of retirement to succeed Durant as President of GM. He brought experience in the management of a large corporation. Sloan, meanwhile, came up through a manufacturer of roller bearings acquired by GM. He rose steadily through the ranks and succeeded PS Dupont as President after his resignation in 1923.A strategy had evolved to compete with Ford on styling and quality. Ford had over 50% market share; no one could compete with his costs on much smaller volume. But he kept prices low by making the same model with little or no change year after year. That made Ford slow to adopt improvements. GM planned to compete with Chevrolet, which was to have similar costs based on an air-cooled, copper-clad engine. Air cooling avoided the need for a water jacketed engine block, water pump, radiator, and associated plumbing-a considerable savings. GM Research under Charles Kettering was confident the engine would perform, but the operating divisions were uncomfortable with this unproven engine design. Overheating was a problem which Research worked to resolve, but then 1923 proved to be a strong sales year, and a decision was needed. PS Dupont had put his faith in the copper-clad engine, but it was dropped soon after his resignation. Some say Corvair is the only air-cooled GM model to reach the market (after the VW Beetle established practicality).Sloan makes clear that GM is primarily an engineering company. Most executives have engineering backgrounds. The company is heavily committed to developing new technologies and bringing improvements to market. Sloan pioneered decentralized management to allow divisions to make their own decisions promptly. Headquarter's role was to set policy. He then used corporate committees to promote interactions where appropriate such as in purchasing. He created a return on invested capital system to measure performance of the divisions. This is presumably the system that favored production of SUVs rather than small fuel efficient vehicles.It was Sloan who came up with the pricing brackets that differentiate the GM divisions. (Pontiac was created in 1925 to fill in a gap in the line as a low priced six cylinder model.) He also instituted installment selling (and GMAC to finance it), used car trade-ins, the closed auto body (and added Fisher Body to the GM family), and the annual model change. The annual model was intended to leverage the trend toward comfort, convenience, power, and style in selling new cars.Sloan took pride in the steady improvement in auto technology during his tenure. He mentions the development of ethyl gasoline and high compression engines, improved transmissions-eventually automatic transmissions, balloon tires and improved suspensions, and in 1923, Duco lacquers that made it possible to finish an automobile in an 8 hr shift rather than the two to four weeks once required. Duco was also available in a variety of colors. The first production vehicle was the "True Blue" Oakland in 1924.Styling was not ignored. Harley Earl was brought in as stylist in 1926, initially to assist the Cadillac division. His focus was to lengthen and lower the American automobile.Strong dealers were considered essential to success. GM helped its dealers implement accounting methods to better manage their businesses. Financing was available to assist promising dealer candidates who lacked capital.GM was a major factor in the development of diesel locomotives for railroads. The business was a logical extension of internal combustion engines, but also a diversification should recovery of auto sales be slow after the Great Depression. GM's Electromotive Division was the leading manufacturer of diesel locomotives for over 50 years.GM's venture into household appliances, later Frigidaire, began in 1918, when Mr. Durant acquired Guardian Refrigerator Company of Detroit, a home refrigerator company. The initial machines were large and cumbersome. The 1922 model weighed 834 lb. Weight was reduced with an air cooled compressor and air cooled coils in 1926. GM Research in co-operation with Dupont invented Freon-12 as a non-toxic, non-flammable refrigerant gas in 1931. In 1929 they had made 1MM units; in 1932, 2.225MM. Competitors included Kelvinator (1914), GE (1927), Norge (1927), and Westinghouse (1930). Frigidaire was expanded to include a full line of household appliances after World War II.GM ventured into aviation in the days when the piston engines used were not unlike those in motor vehicles. GM had an interest in Bendix Corporation, North American Aviation, TWA, and Eastern Air Lines. Soon after the 1927 Lindbergh flight, some thought personal airplanes, called flivvers, might be in the future. The initial investment was the US division of Fokker Aircraft, the famous Dutch aircraft maker. GM bought a 40% interest while they made planes for the US military and commercial airlines. Later Fokker US was renamed General Aviation and merged into North American Aviation. North American was a holding company that owned Eastern Airlines and stock in TAT, predecessor to TWA, and Western Air Express. The Air Mail Act of 1934 prohibited airplane manufacturers from owning airlines. TWA stock was sold in 1935; Eastern in 1938 (when Eddie Rickenbacker arranged backing to buy the airline). In 1937, Allison Div. of GM completed development of a 1000 hp reciprocating aircraft engine that was widely used in fighter aircraft in World War II. By 1947, 70,000 engines had been made at the plant in Indianapolis.During World War II, the company rapidly converted to production of military equipment. A major problem was the shortage of skilled manpower. Tanks were welded in a merry-go-round system that required learning only one simple weld rather than full scale training.In his later years Sloan created the Alfred P. Sloan foundation to fund basic research, but especially to support talented researchers. He also participated in formation of the Sloan Kettering Cancer Hospital.The book ends with a discussion of labor relations and incentive programs. The appendix includes sales by division for 1909 to 1962, and staff organizational charts. Indexed.This is a highly readable account of the GM story. Sloan omits some unpleasantries. He does not mention the death of workers in the development of leaded gasoline, GM's role in supplying Nazi Germany through its Opel division in World War II, or the violence of some auto strikes. Most will find it fascinating reading.

This is a true business classic. In this book Alfred Sloan shares his years of wisdom - while heading General Motors - in a variety of areas including planning, strategy, finance, leadership, innovation and management. Alfred was a true pioneer of his time in building the discipline of management and his approach is just as applicable now as it was in the early 1900s.Below are key lessons in the form of excerpts that I found particularly insightful from this must read classic.1- "I feel that a proper balance can and must necessarily be established in the course of time between the activities of any particular Operation and that of all our Operations together and as I see the picture at the moment no better way or even as good a way has yet been advanced as to ask those members of each organization who have the same functional relationship to get together and decide for themselves what should be done where coordination is necessary, giving such a group the power to deal with the problem where it is felt that the power can be constructively applied. I believe that such a plan properly developed gives the necessary balance between each Operation and the Corporation itself and will result in all the advantages of co-ordinated action where such action is of benefit in a broader way without in any sense limiting the initiative of independence of action of any component part of the group."2- "I am not going to say that rate of return is a magic want for every occasion in business. There are times when you have to spend money just to stay in business, regardless of the visible rate of return...Nevertheless, no other financial principle with which I am acquainted serves better than rate of return as an objective aid to business judgment."3- "The 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 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. "4- "I believe that the franchise system (dealerships), which has long prevailed in the automobile industry, is the best one for manufacturers, dealers, and consumers."5- "The potential rewards of the Bonus Plan to ego satisfaction generate a tremendous driving force within the Corporation...To the recipient it is also an evaluation of his personal contribution to the success of the business. It is a means of conveying to the executive a form of recognition which he prizes independently of his monetary compensation."6- "It has been a thesis of this book that good management rests on a reconciliation of centralization and decentralization, or "decentralization with coordinated control." Each of the conflicting elements brought together in this concept has its unique results in the operation of a business. From decentralization we get initiative, responsibility, development of personnel, decisions close to the facts, flexibility - in short, all the qualities necessary for an organization to adapt to new conditions. From coordination we get efficiencies and economies It must be apparent that c-oordinated decentralization is not an easy concept to apply."7- "...To meet the challenge of the market place, we must recognize changes in customer needs and desires far enough ahead to have the right products in the rights places at the right time and in the right quantity. We must balance trends in preference against the many compromises that are necessary volume. We must design, not just the cars we would like to build, but more importantly, the cars that our customers want to buy."8- "I also hope I have not left an impression that the organization runs itself automatically. An organization does not make decisions; its function is to provide a framework, based upon established criteria, within which decisions can be fashioned in an orderly manner. Individuals make decisions and take the responsibility for them."

I thought that My Years With General Motors presented great information about how General Motors was created, managed, and grew into the enormous successful business it is now. The book explains how they evaluated and efficiently planned the financial controls of the corporation to overcome difficult times and continue growing. I enjoyed the detailed explanations of the financial growth of the company and how it fared before, during, and after the Great Depression. I found it most interesting and beneficial the manner in which their management was able to reduce inventories and control costs so that operations remained profitable despite rapidly declining sales. They were able to make critical adjustments to improve the company and implemented financial strategies to overcome difficult times. I also found it interesting to learn about the formation and operations General Motors Acceptance Corporation (GMAC), General Motors subsidiary. Mass production of vehicles along with high demand led to a broad approach of consumer financing for purchasing cars. Banks were unwilling to take so many loans, so the GMAC was formed to facilitate the process of financing vehicle purchases.The slight downside to this book is the author states some of the financial information like net income, invested capital, common stock, and new investments so often that becomes somewhat difficult to keep track of and retain; this tends to cause dry areas in the book, but it is very educational none the less. I think My Years at General Motors is a good read and informational for anyone interested in corporate finance and strategies proven to be successful in growing an outstanding business.