How GM Betrayed Its Founding Genius
As GM staggers towards either bailout or bankruptcy, I am reminded that the big financial meltdown of this Autumn began just around the 100th anniversary of its founding, September 16th. Some birthday gift! The giant corporation's present misery has a personal resonance for me because thirty years ago I completed a biography of its founder, William C. Durant, who was the very antithesis of the GM leadership of recent years--unimaginative, stodgy, wedded to old ways of doing things, fiercely resisting for the last 20 years all efforts to nudge it in the direction of smaller, fuel-efficient, pollution-reducing cars instead of heavyweight gas-guzzlers.Durant was no ordinary entrepreneur, but a strange combination of supersalesman, visionary and risk-loving long shot gambler. Already a millionaire carriage builder in 1904 he saw the revolutionary potential of the dawning auto age and got into the motor game by buying into and reorganizing a struggling little Flint, Michigan concern called the Buick Corporation, then dashing off to a New York auto show and securing immediate orders for some 1,100 Buicks, or thirty times more than the company's entire previous year's production. In 1908 he started GM by combining Buick with the merry Oldsmobile, which he bought, and soon thereafter added what became the Pontiac and Cadillac lines--along with a long list of companies that made various experimental cars that were flops.
Durant foresaw that in a few years there would be two million cars on America's roads--for which he was considered crazy--and looked beyond that, correctly and virtually alone, to the day when the mere possession of an auto would be commonplace, and buyers would want variety. He meant to produce cars for every purse and preference--"getting every car in sight." As he put it in explaining one of the bad acquisitions, an outfit named Cartercar: "how was anyone to know that Cartercar wasn't going to be the thing? It had the friction drive and nobody else had it." He financed these purchases by paying the buyers with newly issued GM stock each time, absolutely always convincing them that with their addition to the firm, the stock was certain to rise.
A chaotic manager, and always short of operating cash, he had GM drowning in unpaid bills by 1910, and his board of directors removed him from the chairmanship and installed a cautious, creditor-friendly regime much to his disgust. He then went out and created the Chevrolet Company, turned it into Number One on auto sales charts, and used his winnings to buy back control of "his baby," GM in 1916. Another four year wild ride of sprawling growth and frenzied financing ensued, and when Durant got himself into a personal hole that also threatened a catastrophic fall in the value of GM stock, his corporate partners threw him out again. He started a rival company but had lost his touch; then turned increasingly to Wall St. operations as one of the biggest bulls in the Great Bull Market. When the crash came he lost everything and died broke. Meanwhile his successor at GM's helm, Alfred P. Sloan, successfully rationalized and reorganized the corporation until it became, by the 1950s, a thriving empire, the monarch of the Big Three American automakers, who together accounted for a gigantic share of America's industrial profit and prowess.
There's no knowing how Durant would have reacted to the collapse of his brain-child. But as an incorrigible optimist and rock-ribbed believer in the free market, I suspect he would have disapproved of the automakers' rush to Washington with the begging bowls extended. What I am relatively certain of, however, is that given his almost childlike excitement over new technologies, if he had been running GM for the last thirty years, there would been a heavier investment in experiments with at least a few companies making hybrid cars, electric cars, biofuel-run cars, and for all I know, cars run by sails or pedals. And one of those cars might have been "the thing." Durant was not one to sit on a lead. That kind of boldness might have given GM's bookkeepers temporary headaches--and might also have saved the entire industry more lasting ones.