It seemed like a good idea at the time: Take General Motors' massive profits and invest in tangential industries to help GM develop world-beating cars more efficiently.
It was 1978. GM had been hit hard by the gasoline crunch and stagflation, but it was on top of the U.S. car market. GM had just earned $3.5 billion on $63 billion in sales. Money was burning a hole in its pocket.
Richard Gerstenberg, who was CEO from 1972 to 1974, had wanted GM to be less dependent on vehicles and to diversify but achieve synergies, said F. Alan Smith, GM executive vice president during the 1980s.
GM looked at prefabricated housing, then clothing. But neither had the size or scale of the car business. GM even studied buying General Electric but saw no synergies.
The automaker looked inward. It was struggling with the rising power of computers as a business tool. Its information technology networks were chaotic and unconnected. Rising star Roger Smith saw leaps in technology as a way to gain a competitive edge over the Japanese automakers.
But rather than hire companies to do the grunt work, GM bought them outright.
In 1984, GM paid $2.5 billion for Electronic Data Systems to computerize GM's operations. GM shelled out another $5.2 billion — five times book value — in 1985 to try to integrate Hughes Aircraft's high-tech aerospace technology into GM cars. By then, Roger Smith was chairman and CEO.
GM also created a subsidiary with Fujitsu Fanuc to develop robots and automate its assembly lines. And it entered into costly alliances with Saab, Suzuki and Isuzu to expand its capacity and global reach.
GM number crunchers had pegged the investments in EDS, Hughes and Fanuc at $40 million in the long run. Instead, they cost $66 billion. In the end, GM's plants were no more efficient, and sales plummeted as money was spent on conglomeration rather than developing products Americans wanted to buy.
In 1987, GM had become so inefficient that it was outearned by Ford, even though Ford sold just two-thirds as many vehicles.
"GM was an organization that didn't know what it didn't know," said former GM executive Jim Hall, now managing director of the 2953 Analytics consulting firm. "These were not people with imagination. They thought they had the answers."
Another problem: Melding different corporate cultures into GM's plodding bureaucracy of 750,000 employees.
EDS was used to lightning-quick decisions by founder Ross Perot. Hughes was used to the military procurement model. GM didn't truly understand why Fanuc clients used robots.
Saab's Swedish business model was baffling. Isuzu merely rolled over for whatever GM wanted, even if it was the wrong path. Suzuki was too small to make an impact in the boardroom. In short, none was a good fit with GM.
In a 1987 interview with BusinessWeek, retired GM executive Alex Mair said, "GM bit off more than it could chew. But nobody was used to saying, 'You can't do that.' "