Before Toyota, the U.S. threatened mighty GM

In early 1956, the U.S. Justice Department of the Eisenhower administration began thinking about the unthinkable: breaking up General Motors.

Public opinion in the 1950s was leery of concentrated corporate power. GM, U.S. Steel Corp., AT&T Corp. and others dominated America.

Stanley Barns, an assistant attorney general in charge of antitrust, saw GM's 50 percent share of the market as a threat to the industry. His staff labored for years to prepare an antitrust case against the automaker.

But in the end, it was the market — not government regulation — that defanged GM. Toyota Motor Corp., Honda Motor Co. and other Asian automakers relentlessly chipped away at GM's dominance.

In the first half of this year, GM's U.S. market share was 21.3 percent. Its bonds are rated as junk. It has lost more than $12 billion in the past two years. And Toyota is now the world's largest automaker.

You might say that the government didn't have to dilute GM's power. GM did it all by itself.

Under the microscope
GM acquisitions that were scrutinized by the Justice Department
• Fisher Body
• New Departure Manufacturing
• United Motors

Market dominance

Existence of a draft complaint against GM accusing it of violating antitrust laws was disclosed by The Wall Street Journal in October 1967.

The complaint alleged that GM's acquisition of suppliers enabled the corporation to control its costs and fatten its profit margins by forcing other automakers to buy its parts.

GM's dealership strategy also was anti-competitive, argued government lawyers. "After GM achieved a dominant position in about 1919, it adopted the policy of requiring its dealers to drop competitive lines and sell only GM cars."

The complaint also alleged that GM imposed "planned obsolescence" on the auto industry through annual product redesigns begun in the late 1920s. "The effect upon competitors is obvious and dramatic."

GM's market share increased from 23.6 percent in 1920 to 49.2 percent in 1967, the year GM produced its 100-millionth vehicle.

The government also accused GM of illegally monopolizing the diesel locomotive business. But the suit was dropped for lack of evidence.

Still another suit sought to force GM to divest itself of its bus manufacturing operations. It was settled without trial — and without divestiture.

Price leader

Gerald Meyers, who became CEO of American Motors in 1977, knew GM's tactics well.

GM, he says, dictated to the market the terms of design, vehicle content and pricing. "They were the pricing leader," he says, so "when GM announced prices, everyone followed."

But Meyers, now a visiting professor of organizational behavior at the University of Michigan Business School in Ann Arbor, Mich., gives GM its due.

GM had a powerful global operation well before it became necessary. Its dealer network was "so strong they could sell the mistakes, like the Corvair."

And GM's executive team was extraordinary, he says. "I never met a GM executive who was not outstanding; they had outgunned the industry."

While GM was a colossus, breaking it up posed a huge problem for Eugene Metzger, an antitrust department lawyer who prepared the draft complaint.

He found that the 40 or so acquisitions that the government objected to were thoroughly integrated into GM.

And no one knew exactly how a new GM would be set up. One option the feds examined was to split off Chevrolet along with other assembly operations and parts-making plants. But how would you split off Chevrolet when Chevrolet had no assembly plants of its own? All Chevys were put together by the General Motors Assembly Division.

Government backs off

In the end, bigness may have saved GM from the government in the 1960s.

GM was the nation's biggest taxpayer, accounting for about 4 percent of all corporate-profit taxes collected. It employed 750,000 people, about 600,000 in the United States and Canada.

President Lyndon Johnson, meanwhile, was struggling with inflation, a ballooning balance of payments, high interest rates and the enormous cost of the war in Vietnam. It was not a good time to take on GM.

By mid-1967, the antitrust investigation was returned to the Justice Department's staff. The break-up-GM suit was never filed. Trustbuster Metzger quit the department.

But while GM eluded antitrust laws, it couldn't escape from Toyota, Honda and Nissan.

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