General Motors Summary

  • Last updated on November 10, 2022

Throughout the twentieth century, General Motors was the epitome of American big business. As the world’s largest automobile manufacturer, General Motors was looked to as a gauge of the health of both the American economy and the automotive industry in general. The company’s leaders were viewed as spokespeople for that industry as a whole.

General Motors (GM) was established by William Crapo Durant, William CrapoDurant in 1908 to manufacture Buick automobiles. During its first year in operation, the company sold over twenty-five thousand vehicles. In 1910, Durant merged several other companies into GM, including Oldsmobile, Pontiac, Cadillac, and AC Spark Plugs. Sales increased by 60 percent in 1910, but Durant was ousted by bankers because of the company’s heavy debt load. The company was incorporated as General Motors Corporation in 1916 when it merged with Chevrolet–a company that Durant had founded after his earlier ouster. Durant regained control.General Motors

Fisher Body was acquired in 1919, the same year that General Motors Acceptance Corporation (GMAC) was established to finance sales of cars. By 1921, GM accounted for 12 percent of the U.S. automotive market, thanks in part to a product scheme that aimed five main car lines at five different groups of buyers. In 1925, the company went international with its acquisition of Vauxhall Motors of Great Britain. Another international acquisition came in 1929, when Germany’s Adam Opel was acquired. Plants were opened in China and India before 1930. In 1914, the DuPontDuPont company began purchasing GM shares, because the company’s management saw a market for DuPont’s products. By 1920, Dupont owned one-third of GM’s stock. Eventually, the relationship attracted the attention of the Federal Trade Commission, which in 1949 sued DuPont and forced an end to the affiliation.

The Sloan Years

In 1923, Alfred P. Sloan, Alfred P.Sloan became GM’s president and chief executive officer–a position he was to hold until 1956. Much of the company’s growth occurred during the Sloan era. Sloan, however, did not act alone; credit can also be accorded to the company’s chief financial officer during this period, Donaldson Brown, DonaldsonBrown, who developed and applied his return-on-investment formula to every department within GM. A knowledge of the rate of return on investment was particularly important at GM, because the company was among the first to use discounted-cash-flow analysis to evaluate investment alternatives. Brown’s return-on-investment reporting compared all of GM’s operations with alternative capital investments. The result was a system that significantly decreased the cost of managing complex firms.

Brown also developed the concept of flexible budgeting, which in addition to being a financial tool was a way of communicating top management’s expectations. The entire concept of business budgeting was unknown before the 1920’s. Brown introduced a budgeting system at GM shortly after his move from DuPont in 1921. Year in and year out, despite radical fluctuations in the demand for automobiles, GM recorded a positive return on investment. During the Great Depression of the 1930’s, GM was one of the few corporations not to register a loss.

One cause of GM’s success in dealing with the problem of fluctuating demand was its accounting system. Before 1921, inventories had gotten out of control at many divisions–the result being heavy borrowing to finance unneeded inventories. Brown’s 1924 requirement that dealers report inventories every ten days was a step toward eliminating inaccurate forecasts of future sales. That policy was a lasting one, eventually adopted by all automobile manufacturers. Using these periodic reports (initially from twenty thousand dealers), management was able to base production schedules and material commitments on the trend of retail sales. The result was that GM was able to use a centralized budgeting system to control decentralized operations. Every division made its own production decisions, but the budget and accounting system were policy tools that guaranteed goal congruence throughout the decentralized structure.

A violent strike at the Flint, Michigan, plant in Sit-down strike of 1936-19371937 led to GM workers gaining collective bargaining representation by the United Auto Workers union. By the start of World War II, GM had 41 percent of the U.S. automotive market, but civilian auto production dropped to zero in 1942, when factories turned their efforts to the war. Following the war, GM’s market quickly grew; the newly designed cars of the late 1940’s and early 1950’s led the company to a 54 percent market share in 1954.

The Post-Sloan Era

In 1960, GM introduced its first small car–the Chevrolet Corvair–in response to similar offerings from European manufacturers. Safety, consumer;automotive industryThe Corvair was later criticized by Ralph Nader, RalphNader in his book Unsafe at Any Speed (Nader)Unsafe at Any Speed: The Designed-In Dangers of the American Automobile, which led to a congressional investigation of automobile safety.

During the 1970’s, GM was the largest private employer in the country, but sales declined during the decade because of a recession, an Arab oil embargo that led to higher gas prices, and competitive gains by Japanese automakers. During the 1980’s, GM overhauled its North American operations, acquired Electronic Data Systems Corporation (EDS) from H. Ross Perot, formed a subsidiary company called Saturn, and bought Hughes Aircraft. EDS was subsequently spun off as a separate company in 1996, as was Delphi Automotive Systems, a parts-manufacturing subsidiary, in 1999. In 1997, Hughes Electronics was sold.

In 2002, GM acquired a controlling interest in South Korea’s bankrupt Daewoo Motors. The GM product line was reduced in 2004, when the last Oldsmobile came off the line. The company suffered a loss of $38.7 billion in 2007, and sales declined even more in 2008. In October, 2008, General Motors joined Chrysler and Ford in appealing to the federal government for financial aid, as it and Chrysler faced possible bankruptcies. On December 19, President George W. Bush announced that $13.4 billion in emergency loans would be made available to keep the automakers afloat. However, the automakers were given the loans on condition that they make major concessions and organizational changes by March 31, 2009, to demonstrate that they could return to profitability. On February 18, 2009, General Motors and Chrysler asked for an additional $14 billion in aid.

Further Reading
  • Chandler, Alfred D. Strategy and Structure: Chapters in the History of the Industrial Enterprise. Cambridge, Mass.: Harvard University Press, 1962. Excellent history of business, with much discussion of the importance of GM.
  • General Motors, The First Seventy-Five Years of Transportation Products. Princeton, N.J.: Automobile Quarterly, 1983. Analysis of GM’s transportation products, prepared by the Princeton Institute for Historic Research with the assistance of GM.
  • Gustin, Lawrence R. Billy Durant: Creator of General Motors. Rev. ed. Ann Arbor: University of Michigan Press, 2008. Biography of the man who created the General Motors Corporation.
  • Johnson, H. Thomas, ed. System and Profits: Early Management Accounting at DuPont and General Motors. New York: Arno Press, 1980. Excellent analysis of the internal business operations of GM.
  • Sloan, Alfred P. My Years with General Motors. Garden City, N.Y.: Doubleday, 1964. Autobiography of the man who led GM for a third of a century. This volume covers much of the company history during its growth years.
  • Wright, J. Patrick. On a Clear Day You Can See General Motors: John Z. De Lorean’s Look Inside the Automotive Giant. Grosse Pointe, Mich.: Wright Enterprises, 1979. A view of GM during the 1970’s.

AFL-CIO

Automotive industry

Chrysler bailout of 1979

Henry Ford

Ford Motor Company

Multinational corporations

Petroleum industry

Sit-down strike of 1936-1937

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