Editor's note: From The Deal Maker: How William C. Durant Made General Motors, John Wiley & Sons Inc. Copyright 1999 by Axel Madsen. Printed by permission.
This chapter, 'Into the Roaring Twenties,' examines some of the turmoil that led up to William Durant being deposed as GM president in November 1920.
The automobile transformed everything - the economy, courtship habits, family living. It was the most desired possession, striking deep roots in the 1920s psyche.
'To George Babbitt,' wrote Sinclair Lewis in his 1922 novel, Babbitt, 'as to most prosperous citizens of Zenith, his motorcar was poetry and tragedy, love and heroism ... a family's motor indicated its social rank and where Babbitt as a boy had aspired to the presidency, his son Ted aspired to a Packard Twin Six.'
Carmaking was the biggest industry - the largest single consumer of steel, lead, rubber, nickel and oil. Men bought cars on reputations of technical excellence, but women took a hand in choosing them. Ford continued to say, 'Let 'em have black,' and the result of his color blindness was that thousands chose colored Chevrolets.
Cars acquired hydraulic, four-wheel brakes in 1920, balloon tires two years later. The invention of fast-drying pyroxylin varnishes allowed carmakers to turn out cars in a rainbow of hues. Next came enclosed bodies and sweeping, rakish fenders that made Ford's canvas tops and flapping curtains look unattractive. 'Cars were never handsomer - and they were making changes in the way Americans lived,' a Time-Life publication, This Fabulous Century, would note; 'changes that would never be reversed.' The numbers said it all. Americans bought 1,650,000 cars in 1919 and 1,905,000 in 1920, and sales reached the 2 million mark in 1923.
59 AND FRISKY
Durant was 59 at the dawn of the 1920s, heavier but still a handsomely attractive man. He was in the driver's seat at GM, gunning for new hilltops and still ready to veer through a ditch to get ahead of hay wagons. The flat-out growth was fully endorsed by the DuPont family and, more important, by John Raskob (who had helped found General Motors Acceptance Corp.).
Pierre S., Irenee and Henry F. DuPont owned almost a third of GM, but their minds were less than focused. Henry DuPont lacked interest in GM affairs. Irenee had his hands full running DuPont Co. Pierre was devoting much of his time to plant research and Delaware public affairs.
They had approved the decision to increase the capital stock to $200 million for the takeover of Chevrolet in May 1918, followed by the $44 million soaking up of United Motors Corp., the company Durant had set up in 1916 with Louis Kaufman's bank loans to absorb Delco, Hyatt Roller Bearings and several other component manufacturers.
Kaufman thought GM paid too little, and the deal led to a falling out between him and Durant. Acquisitions continued - a steel plant in Lancaster, Pa., and the remainder of the McLaughlin-owned Canadian firms. The year-end reports amply justified the growth; the 1918 figures showed sales of just under $270 million, and defense procurement neatly canceled out the slump in civilian production.
'We feel fortunate in our partnership with Mr. William C. Durant, president of the General Motors Corporation and the father and leader of the motor industry not only in the United States but in the world today,' said the 1918 DuPont Co. annual report.
After Durant asked for, and investment bankers sold, 5 million shares of common stock, 5 million debentures and 200,000 shares of preferred stock, General Motors was a billion-dollar corporation. Only one other company, United States Steel, lived at this rarefied height.
For the first time, GM's net sales surpassed the half-billion mark ($509,676,000), while net earnings reached $60 million. It employed 86,000 people.
In late January 1920, Raskob folded copies of the balance sheets since 1916 into an envelope and sent them to Durant. Over the last 31/2 years, they had spent $58 million, but the company now held assets worth $452 million. In a note, he added: 'In other words, the General Motors Corporation of today is eight times as large as the company that the bankers were managing. This is indeed a fine tribute to your foresight.'
What slowly dawned on everybody, however, was that the ruthless contraction of the auto industry into two giants made GM and Ford Motor Co. too big for one-man rule. No night of long knives in the boardroom could topple Henry Ford. Suspicious and self-willed, he had bought out his original partners, turning his half-billion-dollar company into a family property. His iron grip was increasingly tyrannical.
Cowardly, he asked underlings to get rid of William S. Knudsen, the Danish immigrant who built the Ford assembly plants in North America and Europe and managed a boat-building program at Ford during the war. Henry Ford continued to rule by decree, but, imperceptibly at first, his company retreated from its earlier position of leadership. With the exception of the low-cost V-8 engine, Ford Motor Co. no longer introduced innovations.
At GM, the distance widened
between Durant and Pierre S. Du-Pont and, more ominously, between Billy and the DuPonts' brilliant Talleyrand. What drove finance committee head Raskob and executives like Alfred Sloan and Walter Chrysler to distraction was not being able to get decisions out of Durant. They were summoned to New York City, Flint, Detroit, or wherever Billy was from Ontario to California, but had to wait hours, even days, for a meeting. In disgust, they sometimes went home without seeing him.
Once, Raskob pleaded for a meeting 'at some hotel where we can talk without being interrupted by telephone and otherwise.' On other occasions, Raskob complained he had tried all afternoon to reach Durant by telephone or pleaded for a Saturday meeting.
Billy's management style reached the wartime Congressional Record when Sloan complained, with some bitterness, about how he spent hours outside the GM president's office:
'We scarcely felt like doing anything else until he rang the bell, so tempers soured. I was constantly amazed by his daring way of making decisions. My business experience had convinced me facts are precious things, to be eagerly sought and treated with respect. But Mr. Durant would proceed on a course of action guided solely, as far as I could tell, by some intuitive flash of brilliance. He never felt obliged to make an engineering hunt for facts.'
The structure and size of General Motors bore little resemblance to the shape and proportions of the holding company Durant had hammered together in 1908. Billy seemed to sense that Raskob wanted to tie him up in bureaucracy because he (Durant) resisted flattering pressures to build new GM headquarters on Detroit's Grand Boulevard and to name the command center the Durant Building. Everything in Billy's experience told him he was successful when he made the big decisions, not when a centralized bureaucracy made them. When Raskob's finance committee raised $150 million by stock sales, he objected to the cost of the proposed headquarters and to naming it after him, although he and Sloan had picked the site.
In June 1919, ground was broken for the $20 million, 15-story building, the largest office structure in the world.
The architect was Albert Kahn. Born and educated in Germany, Kahn was an innovator who, instead of building factories with bricks, used reinforced concrete. His first reinforced concrete factory in Detroit, the 1905 Packard plant, allowed for more open floor space and expanses of windows, which instantly turned every other factory into a Dickensian prison shop. In 1909, Kahn's huge Ford plant in Highland Park had been dubbed Detroit's own Crystal Palace because it had 50,000 square feet of side and overhead windowpanes.
Over the year's construction of the Durant Building, Sloan could not get any input from the boss. On Nov. 18, 1920, Herbert R. Lewis and his Harrison Radiator staff became the first division to conduct business in the four-winged building, which featured 30 acres of floor space.
When DuPont Co. assigned E.L. Bergland, an efficiency expert, to evaluate GM's operations, the dry, terse report was devastating.
'Mr. Durant, apparently, has complete charge of all of the planning and dictates largely the policies to be followed,' the report said. 'His opinion is consulted for final decision in a great many cases as there seems to be no one else in the organization that is the final arbitrator for the various plans or for new developments. ...
'When new plants are to be built, Mr. Durant often personally supervises the letting of the contract and the engineering details with the engineering and contracting firm, but the details of the design receive very little attention and very little detailed information is apparently known by the members of the organization. ...
'There is no system similar to our work-order system for making suggestions, or no central engineering organization,' the report continued.
'There is, I think, also a certain lack of cooperative spirit between the different plants. These plants are practically independent as regards their purchasing, accounting and other organization, and as they were independent organizations before General Motors was formed and have been more or less functioning ever since as independent organizations, it is very easy to understand a feeling of this kind as there is no central organization directing them, except in the most general way.'
Bergland concluded that GM's future demanded planning and could benefit from a solid dose of the DuPont corporate culture. An expert from Delaware was sent to New York to teach the rudiments of centralized bookkeeping and unified assignment and supervisory procedures to the Durant staff.
AN OUTSIDE PERSPECTIVE
DuPont Co. dug deeper into its pool of talent and assigned John Lee Pratt, another engineering graduate, to make monthly trips to New York and Detroit. Durant welcomed the appointment. He liked Pratt and asked if he could have him on a permanent basis.
Pratt disarmed a lot of people by dressing simply and calling himself a 'dirt farmer.' He was impressed by the breadth of Durant's knowledge, and readily looked into the GM president's requests for figures on why aluminum was so expensive, what impact the automobile would have on oil reserves and questions of whether the company should go into manufacturing plate glass and storage batteries. But Pratt also came to realize that 40 or 50 individuals went directly to Du-rant for decisions.
A creeping unease over this one-man show set in, starting with the DuPont ally, J.P. Morgan & Co. The investment bankers at 23 Wall Street had maintained a position in General Motors and, in private, told the DuPonts that the Durant regime was positively dangerous for an organization of GM's size.
If there was one division that brought in half the GM earnings, it was the Buick works under Walter Chrysler's leadership. But Chrysler was getting exasperated with the two sides of the Durant coin: his well-meaning interventions in Buick's affairs and his inaccessibility. Billy was congenitally incapable of keeping his word not to interfere in Walter's management.
After Chrysler was told the boss had OK'd a 'branch operation' of Buick in Detroit, Walter left messages for Billy, pleading for new ground rules. A few months later, Walter was seated at a Flint Chamber of Commerce luncheon when Dallas Dort read a telegram from Durant authorizing $6 million to construct a GM plant to make body frames in Flint.
At a board meeting in Detroit the next day, Walter grilled Durant. What was the cost estimate for the new plant? Who had made the calculation? How long would it take to bring the plant on line? And did Billy know that he, Chrysler, had just made a deal for frames with a Milwaukee firm? Billy backed down. No frame factory was built in Flint, and the two men seemed to patch up their differences.
But the incident was the straw that broke the camel's back. On March 25, 1920, Walter resigned and walked off with $1.5 million in accumulated stock options.
Sloan almost followed. With his wife, he took a month's vacation in Europe, and while in London he decided to leave GM. Back in New York, he was ready to submit his resignation, but Billy and Cath-erine Durant were on vacation. Sloan sensed something that was new, gathering storm clouds perhaps, and decided to wait.