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GM needs second revelation

As General Motors CEO Rick Wagoner steers his beater of a company along the precipice of bankruptcy in a stormy recession, he must pine for the good old days.

As General Motors CEO Rick Wagoner steers his beater of a company along the precipice of bankruptcy in a stormy recession, he must pine for the good old days.

I’m not talking here about the 1950s, when GM, with its chrome and fin-encrusted lineup, was one of the world’s most dominant corporations. I mean the Great Depression, the gold standard of economic misery, a period when GM somehow managed to stay profitable despite nose-diving sales.

Between 1929 and 1932, GM’s North American car and truck production fell 75 per cent and sales revenues dropped 78 per cent. Nevertheless, the company still managed to earn profits of $248 million US and pay out dividends of $343 million US. Working capital was trimmed only by $26 million US and holdings of cash and short-term securities actually grew by $45 million US.

Obviously, it helped that GM didn’t have to deal with unionized labour in the worst of the Depression.

The United Auto Workers didn’t come along until 1935 and, a year after that, kick-started the certification process with sit-down strikes at GM plants in Atlanta and Flint, Mich.

Still, the company had a remarkable triumph in adversity because it was brilliantly managed. GM was a nimble operator, combining innovation with a highly developed system of financial controls and manufacturing processes. Much of the credit for this goes to Alfred P. Sloan Jr., the MIT-trained electrical engineer who assumed GM’s presidency in 1923 and didn’t let go for nearly a quarter century.

GM’s strength in adversity, Sloan said in his memoirs, was simply that it could “react quickly” to changing business conditions.

GM revolutionized the fledgling auto industry through the 1920s. Henry Ford may have been the genius of mass production, but it was Sloan and his management team that shaped the market. GM developed the broad model line — “a car for every purse and purpose” — annual model changes, instalment buying (through the 1919 creation of General Motors Acceptance Corp.), and the trade-in.

But in a company that built cars in semi-autonomous divisions, they also introduced stringent cash controls and extreme due diligence when making investments in new products. Sloan’s crew also implemented modern inventory and production controls along with regular sales and earnings forecasts.

The result, as Sloan described it, was the transformation of a “formless aggregation” into “an integrated, effective enterprise” that ran on the principle of decentralization with co-ordinated control.

GM’s Depression-era management structure was a revelation. The company dearly needs another one.

 
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