1 00:00:17,560 --> 00:00:19,040 Speaker 1: Pushkin too quick. 2 00:00:19,240 --> 00:00:34,320 Speaker 2: No, it's perfect push kid stuff, you got it. 3 00:00:36,720 --> 00:00:39,120 Speaker 1: Henry Ford had a dream, a dream we talked about 4 00:00:39,159 --> 00:00:41,600 Speaker 1: last week on the show. His dream was to make 5 00:00:42,000 --> 00:00:45,360 Speaker 1: a car that was cheap enough and reliable enough for 6 00:00:45,440 --> 00:00:50,560 Speaker 1: the masses, and amazingly he did it. Created the Model T. 7 00:00:50,760 --> 00:00:54,840 Speaker 1: He invented mass production, the modern assembly line, and by 8 00:00:55,000 --> 00:00:58,360 Speaker 1: nineteen twenty most of the cars on the road in 9 00:00:58,400 --> 00:01:01,720 Speaker 1: America were Model TS. Ford was world famous. He was 10 00:01:01,760 --> 00:01:03,880 Speaker 1: on his way to becoming the richest man in the world. 11 00:01:04,759 --> 00:01:08,280 Speaker 1: But he was also about to get beat within just 12 00:01:08,319 --> 00:01:10,240 Speaker 1: a few years. He was going to get beat by 13 00:01:10,240 --> 00:01:15,080 Speaker 1: a company that realized something that he never did. Americans 14 00:01:15,120 --> 00:01:19,720 Speaker 1: don't just want a simple, cheap, utilitarian car. We want fashion, 15 00:01:20,319 --> 00:01:22,800 Speaker 1: we want status, we want the new thing, and we 16 00:01:22,840 --> 00:01:26,080 Speaker 1: are not afraid to borrow money to get it. I'm 17 00:01:26,120 --> 00:01:28,720 Speaker 1: Jacob Boltstein and I'm Robert Smith, and this is business History, 18 00:01:28,760 --> 00:01:31,400 Speaker 1: a show but that actually visits. Last week on the show, 19 00:01:31,480 --> 00:01:34,840 Speaker 1: Pitcha talked about the rise of Ford. It is a 20 00:01:34,840 --> 00:01:36,840 Speaker 1: show about the history of business. Today on the show, 21 00:01:37,200 --> 00:01:41,440 Speaker 1: we're talking about General Motors GM, the company that came 22 00:01:41,480 --> 00:01:45,880 Speaker 1: along and beat Forard. The story of General Motors starts 23 00:01:45,920 --> 00:01:50,800 Speaker 1: with one Billy Durant, high school dropout, door to door 24 00:01:51,000 --> 00:01:57,200 Speaker 1: cigar salesman. I like him already, wildly charismatic. Walter Chrysler, 25 00:01:57,920 --> 00:02:01,320 Speaker 1: That Chrysler, the guy who started Chrysler said Billy Durant 26 00:02:01,320 --> 00:02:04,040 Speaker 1: could talk the birds down out of the trees. Sounds 27 00:02:04,040 --> 00:02:08,880 Speaker 1: like orpheus. Billy Durant grew up in Flint, Michigan, and 28 00:02:09,120 --> 00:02:11,720 Speaker 1: in eighteen eighty six, when he was in his mid twenties, 29 00:02:12,320 --> 00:02:16,280 Speaker 1: the Flint Road Cart Company built it into the biggest 30 00:02:16,519 --> 00:02:19,919 Speaker 1: like horse drawn cart company. These are cars you hook 31 00:02:19,959 --> 00:02:22,040 Speaker 1: up to a horse? Cars? Yes, eighteen eighty six. Sure 32 00:02:22,240 --> 00:02:27,720 Speaker 1: it's the horse full carriage. Yes. And once he basically 33 00:02:27,720 --> 00:02:30,120 Speaker 1: got rich from his cart business, he went off to 34 00:02:30,200 --> 00:02:33,360 Speaker 1: New York to live the high life and play the 35 00:02:33,360 --> 00:02:34,120 Speaker 1: stock market. 36 00:02:34,400 --> 00:02:37,600 Speaker 3: This was no Henry Ford toiling away tinkering with the 37 00:02:37,639 --> 00:02:38,200 Speaker 3: next big thing. 38 00:02:38,360 --> 00:02:41,000 Speaker 1: Nah. He just wanted to be a rich guy in 39 00:02:41,000 --> 00:02:44,120 Speaker 1: New York. So that's what he did until nineteen oh four, 40 00:02:45,080 --> 00:02:48,959 Speaker 1: when a local wagon business back in Flint, Michigan, had 41 00:02:49,040 --> 00:02:53,560 Speaker 1: just purchased the Buick Motor Company founded by one David Buick. 42 00:02:53,720 --> 00:02:56,120 Speaker 1: All these guys named after cars, these guys, what a 43 00:02:56,160 --> 00:03:00,679 Speaker 1: crazy coincidence. Bwick was a great engineer and a terrible businessman. 44 00:03:02,200 --> 00:03:07,880 Speaker 1: Familiar founder Combo Buick had told just thirty seven cars 45 00:03:07,919 --> 00:03:10,120 Speaker 1: in nineteen oh three, not three hundred and seventy, but 46 00:03:10,280 --> 00:03:13,880 Speaker 1: thirty seven. And so this cart company that has bought 47 00:03:13,919 --> 00:03:18,280 Speaker 1: Buick recruits Billy Durant to come back and make this 48 00:03:18,360 --> 00:03:21,440 Speaker 1: company work. Billy Durant's not a car guy. He's a 49 00:03:21,440 --> 00:03:25,000 Speaker 1: finance guy. He's smoking cigars in the club in Manhattan 50 00:03:25,080 --> 00:03:27,680 Speaker 1: from Flint. He's a hometown guy. And so he comes 51 00:03:27,760 --> 00:03:29,880 Speaker 1: back from New York to Flint just to see what's 52 00:03:29,919 --> 00:03:32,920 Speaker 1: going on. And he goes for a ride in a Buick, 53 00:03:33,639 --> 00:03:35,960 Speaker 1: possibly the third time in his life that he's been 54 00:03:36,000 --> 00:03:40,640 Speaker 1: in a car, but he likes it. It's a smooth ride. 55 00:03:40,880 --> 00:03:42,680 Speaker 1: He decides he's going to drive it around for two 56 00:03:42,720 --> 00:03:45,480 Speaker 1: months and see how this whole car thing works. And 57 00:03:45,520 --> 00:03:48,320 Speaker 1: it works. He drives it through you know, creek beds 58 00:03:48,360 --> 00:03:50,600 Speaker 1: on dirt roads, and he thinks, yes, this is a 59 00:03:50,600 --> 00:03:52,960 Speaker 1: good car. Cars are going to be big. I will 60 00:03:53,000 --> 00:03:55,920 Speaker 1: take over Buick and I will make it succeed. I 61 00:03:55,920 --> 00:03:58,760 Speaker 1: can sell this thing. I can sell this Yes, that 62 00:03:58,960 --> 00:04:01,720 Speaker 1: is Billy Durant's worldview. And in fact, there is this 63 00:04:02,360 --> 00:04:06,440 Speaker 1: lovely description of Durant at this time written later by 64 00:04:06,440 --> 00:04:11,280 Speaker 1: his daughter Marjorie, about what it was like. Please. There 65 00:04:11,280 --> 00:04:13,840 Speaker 1: were men at dinner, There were men at the front door. 66 00:04:13,920 --> 00:04:16,520 Speaker 1: The parlor was often full of men, and behind closed 67 00:04:16,560 --> 00:04:19,400 Speaker 1: doors there were other men. They talked and they listened, 68 00:04:19,600 --> 00:04:22,599 Speaker 1: but my father mostly listened. When he did talk, it 69 00:04:22,720 --> 00:04:26,480 Speaker 1: was like a violin beginning to play. Those present had 70 00:04:26,520 --> 00:04:27,800 Speaker 1: to listen. I know. 71 00:04:28,120 --> 00:04:30,640 Speaker 3: They all said the same thing then that they do now. 72 00:04:30,760 --> 00:04:33,839 Speaker 3: Durant is the greatest salesman I ever knew. It's a 73 00:04:33,880 --> 00:04:36,920 Speaker 3: lovely piece of writing, isn't it the replication word men? 74 00:04:37,040 --> 00:04:41,320 Speaker 1: Yeah, so Durant knows how to sell cars, and Buick 75 00:04:41,960 --> 00:04:45,560 Speaker 1: is growing. In fact, it becomes the biggest car manufacturer 76 00:04:45,600 --> 00:04:49,120 Speaker 1: in America. But as we talked about last week, there 77 00:04:49,160 --> 00:04:51,760 Speaker 1: are lots of little car manufacturers in America in the 78 00:04:51,760 --> 00:04:55,479 Speaker 1: early nineteen hundreds, four hundred and twenty three different companies 79 00:04:55,480 --> 00:04:58,120 Speaker 1: by one count that I saw, And these are little 80 00:04:58,160 --> 00:05:00,440 Speaker 1: shops with guys building cars one by one. This is 81 00:05:00,480 --> 00:05:03,679 Speaker 1: before Henry Ford brings mass production and economy of scale 82 00:05:03,720 --> 00:05:06,800 Speaker 1: to cars, and it's clear already that there's gonna be 83 00:05:06,920 --> 00:05:10,760 Speaker 1: consolidation in the industry. This is the era of GP Morgan. 84 00:05:10,920 --> 00:05:15,000 Speaker 1: You know US Steel, General Electric, and JP Morgan, the 85 00:05:15,040 --> 00:05:19,239 Speaker 1: great consolidator, decides it's time to create an automotive trust, 86 00:05:19,720 --> 00:05:23,680 Speaker 1: consolidate the car industry by merging the biggest players together. 87 00:05:24,000 --> 00:05:27,320 Speaker 1: And early in nineteen oh eight, Morgan's son in law 88 00:05:27,400 --> 00:05:32,279 Speaker 1: gets Billy Durant of Buick and Henry Ford of Ford 89 00:05:32,800 --> 00:05:35,400 Speaker 1: to come to a meeting in New York, along with 90 00:05:35,400 --> 00:05:37,839 Speaker 1: the heads of a couple other big car companies. 91 00:05:38,240 --> 00:05:40,520 Speaker 3: By the way, this is JP Morgan's whole day is 92 00:05:40,760 --> 00:05:44,400 Speaker 3: everyone comes from an industry, he melds them together and 93 00:05:44,440 --> 00:05:46,240 Speaker 3: then takes on the next industry the next hour. 94 00:05:46,360 --> 00:05:48,360 Speaker 1: I mean, there is anti trust law at this point, 95 00:05:48,360 --> 00:05:52,160 Speaker 1: there's not anti trust enforcement quite yet. And so they 96 00:05:52,160 --> 00:05:54,080 Speaker 1: get to the meeting. They get to New York and 97 00:05:54,160 --> 00:05:57,240 Speaker 1: Henry Ford is skeptical. He's already dreaming of selling a 98 00:05:57,279 --> 00:06:00,479 Speaker 1: car to the masses, selling a cheap car. And you know, 99 00:06:00,560 --> 00:06:03,880 Speaker 1: the point of consolidation, of forming a trust is to 100 00:06:03,880 --> 00:06:05,360 Speaker 1: sell a car for more money. Is a one to 101 00:06:05,400 --> 00:06:09,280 Speaker 1: make fewer cars and charge more, which is the monopolist playbook. 102 00:06:09,760 --> 00:06:12,960 Speaker 1: But you know, everybody has their price, and he says, 103 00:06:13,760 --> 00:06:16,839 Speaker 1: I will sell you my share of the Ford Motor 104 00:06:16,880 --> 00:06:24,560 Speaker 1: Company for cash three million dollars, which was clearly a 105 00:06:24,680 --> 00:06:28,239 Speaker 1: huge sum. Yeah, nobody was going to pay it too much, 106 00:06:29,240 --> 00:06:31,680 Speaker 1: and the deal falls apart. It's fun to think of 107 00:06:31,720 --> 00:06:34,720 Speaker 1: what could have been, though, and importantly for our story, 108 00:06:34,920 --> 00:06:40,000 Speaker 1: this meeting gives Billy Durant an idea, Oh, somebody is 109 00:06:40,040 --> 00:06:42,240 Speaker 1: going to consolidate the car market. This deal didn't work, 110 00:06:42,279 --> 00:06:44,960 Speaker 1: but some deal will work. Somebody's going to win. I'm 111 00:06:44,960 --> 00:06:48,039 Speaker 1: Billy Durant. Why shouldn't it be me? So instead of 112 00:06:48,040 --> 00:06:50,440 Speaker 1: calling the birds from the trees, he's calling the companies 113 00:06:50,440 --> 00:06:53,560 Speaker 1: to him. Yes, and he is literally calling the companies 114 00:06:53,600 --> 00:06:56,560 Speaker 1: to him. There is this story that he gets back 115 00:06:56,880 --> 00:06:59,679 Speaker 1: to Flint in the middle of the night one time 116 00:06:59,960 --> 00:07:03,400 Speaker 1: and he calls at three in the morning this little 117 00:07:03,400 --> 00:07:08,520 Speaker 1: struggling car company called Oldsmobile and tells the head of Oldsmobile, Look, 118 00:07:08,960 --> 00:07:12,560 Speaker 1: consolidation is coming, and I'm going to create a holding 119 00:07:12,640 --> 00:07:17,400 Speaker 1: company and together we'll have the holding company start by 120 00:07:17,400 --> 00:07:23,720 Speaker 1: acquiring Oldsmobile and Buick Apes together strong diamond hands, diamond hands, 121 00:07:24,520 --> 00:07:27,800 Speaker 1: and head of Oldsmobile is in and so in September 122 00:07:27,920 --> 00:07:30,840 Speaker 1: of nineteen oh eight, Durant creates his holding company, and 123 00:07:30,880 --> 00:07:34,080 Speaker 1: he gives it one of those great old school generic 124 00:07:34,120 --> 00:07:40,200 Speaker 1: company names like USDL or National Led. General Motors such 125 00:07:40,200 --> 00:07:43,560 Speaker 1: a boring name, especially in this industry where everyone is 126 00:07:43,600 --> 00:07:46,960 Speaker 1: making bespoke cars named after themselves. I think it's because 127 00:07:47,840 --> 00:07:51,160 Speaker 1: he knows the brand is not going to be General Motors, right. 128 00:07:51,200 --> 00:07:55,680 Speaker 1: He already knows there's going to be Buck and Oldsmobile 129 00:07:55,760 --> 00:07:58,200 Speaker 1: and everything else he can get his hands on. So 130 00:07:58,320 --> 00:08:01,800 Speaker 1: Duran has this big idea, this holding company idea, and crucially, 131 00:08:01,840 --> 00:08:05,559 Speaker 1: from his years on Wall Street, he knows how stocks work. 132 00:08:06,360 --> 00:08:10,040 Speaker 1: He knows that stocks are a tool. You start a company. 133 00:08:10,160 --> 00:08:12,840 Speaker 1: You can issue pieces of paper this time it was 134 00:08:12,880 --> 00:08:17,360 Speaker 1: literal pieces of paper stock certificates, and use the proceeds 135 00:08:17,360 --> 00:08:20,480 Speaker 1: from selling those pieces of paper to buy real companies. 136 00:08:20,640 --> 00:08:22,880 Speaker 1: He is about to do this to go on one 137 00:08:22,920 --> 00:08:27,240 Speaker 1: of the greatest buying sprees in business history. Over the 138 00:08:27,240 --> 00:08:30,960 Speaker 1: next year and a half, GM will acquire majority control 139 00:08:31,160 --> 00:08:35,800 Speaker 1: of a major company every month, month after month. Starts 140 00:08:35,800 --> 00:08:38,679 Speaker 1: with Buick and Oldsmobile. A few months later, in early 141 00:08:38,760 --> 00:08:42,400 Speaker 1: nineteen oh nine, he buys a struggling car company called Oakland, 142 00:08:42,839 --> 00:08:46,560 Speaker 1: which will later be renamed for the town Word's headquartered 143 00:08:46,600 --> 00:08:49,760 Speaker 1: in Michigan Pontiac. A few months after that, he buys 144 00:08:49,760 --> 00:08:52,559 Speaker 1: a company focused on the high end of the market, Cadillac, 145 00:08:52,920 --> 00:08:56,160 Speaker 1: remember from last week was founded by Henry Ford. Buys 146 00:08:56,160 --> 00:08:59,360 Speaker 1: a couple little truck companies that eventually become GMC Trucks. 147 00:08:59,920 --> 00:09:03,000 Speaker 1: So he's going hard at horizontal integration, right. 148 00:09:02,880 --> 00:09:05,240 Speaker 3: Which is buying up companies that do the same thing. 149 00:09:05,360 --> 00:09:06,720 Speaker 3: You're just like everyone makes. 150 00:09:06,520 --> 00:09:08,520 Speaker 1: A car, makes a car, sells a car. But Billy 151 00:09:08,600 --> 00:09:12,320 Speaker 1: is also getting into vertical integration right, different parts of 152 00:09:12,320 --> 00:09:15,280 Speaker 1: the supply chain. So he buys companies that make axles, 153 00:09:15,440 --> 00:09:18,880 Speaker 1: Rims Engines, buys a company that makes spark plugs, becomes 154 00:09:18,920 --> 00:09:21,840 Speaker 1: AC Spark Plugs, Buys Fisher Body, which becomes this famous 155 00:09:21,880 --> 00:09:26,280 Speaker 1: part of GM. Spends seven million dollars to buy a 156 00:09:26,280 --> 00:09:29,720 Speaker 1: company that makes electric headlamps. Company turns out to be 157 00:09:29,720 --> 00:09:33,080 Speaker 1: a fraud, no fake innovation, like they had backdated their 158 00:09:33,120 --> 00:09:35,720 Speaker 1: patents or something, and GEO on the patent send and 159 00:09:35,800 --> 00:09:39,199 Speaker 1: Durant had to write down the entire investment. But he's 160 00:09:39,240 --> 00:09:43,640 Speaker 1: Billy Durant. By nineteen ten, General Motors is selling twenty 161 00:09:43,679 --> 00:09:48,280 Speaker 1: one different models made by ten different manufacturers and Just 162 00:09:48,320 --> 00:09:50,839 Speaker 1: to be clear, there is no synergy here. It's not 163 00:09:50,960 --> 00:09:54,200 Speaker 1: one giant factory with everyone working together. No, it is 164 00:09:54,520 --> 00:09:58,880 Speaker 1: a total mess assembled by this manic salesman who just 165 00:09:58,880 --> 00:10:02,840 Speaker 1: wants to make deals. And this is around the time 166 00:10:03,080 --> 00:10:06,680 Speaker 1: that the model t Ford starts to take off. The 167 00:10:06,720 --> 00:10:09,840 Speaker 1: price is getting cheaper. It's the best selling car in 168 00:10:09,880 --> 00:10:13,040 Speaker 1: the country. It's one car getting more more efficient every time, 169 00:10:13,080 --> 00:10:17,720 Speaker 1: while Billy Durant is creating an empire, an inefficient empire. Yes, 170 00:10:17,800 --> 00:10:21,400 Speaker 1: and Ford is winning and GM is losing very clearly 171 00:10:21,440 --> 00:10:24,440 Speaker 1: at this point. So by the middle of nineteen ten, 172 00:10:24,960 --> 00:10:28,160 Speaker 1: GMO's millions of dollars to suppliers. They've got all this 173 00:10:28,320 --> 00:10:32,280 Speaker 1: inventory on hand. They lay off a third of their workforce, 174 00:10:32,760 --> 00:10:35,000 Speaker 1: and Billy has to go to the bankers for loans. 175 00:10:35,640 --> 00:10:38,640 Speaker 1: And the bankers look at gim and the whole company 176 00:10:38,679 --> 00:10:41,280 Speaker 1: is a mess. They can't even tell who's doing what. 177 00:10:41,440 --> 00:10:44,720 Speaker 1: Each sub company has its own books, and the bankers 178 00:10:44,720 --> 00:10:48,320 Speaker 1: are like, look, we are not going to put money 179 00:10:48,360 --> 00:10:52,480 Speaker 1: into Billy Durant. Yes, GM is a real company, they're 180 00:10:52,520 --> 00:10:54,679 Speaker 1: making cars. But if we're going to put money into this, 181 00:10:55,280 --> 00:10:59,040 Speaker 1: Billy Durant has got to go. So now Billy Durant 182 00:10:59,080 --> 00:11:02,200 Speaker 1: is out at GM. We're going to take a break 183 00:11:02,920 --> 00:11:05,520 Speaker 1: and we're going to come back, and then Billy Durant 184 00:11:05,600 --> 00:11:08,240 Speaker 1: is going to create a company to compete against GM. 185 00:11:08,360 --> 00:11:10,480 Speaker 1: Can't stop this guy. In fact, because he's Billy Durant, 186 00:11:10,480 --> 00:11:38,000 Speaker 1: He's actually going to create companies to compete against GM. 187 00:11:38,520 --> 00:11:42,600 Speaker 1: That's the end of the ads. When the bankers fired 188 00:11:42,600 --> 00:11:46,520 Speaker 1: Billy Durant from his job running GM, they also stopped 189 00:11:46,640 --> 00:11:52,160 Speaker 1: production of GM's low end Buick, and that low end 190 00:11:52,160 --> 00:11:55,480 Speaker 1: Buick was GM's strongest competitor to the Ford Model T 191 00:11:56,160 --> 00:11:58,240 Speaker 1: and I guess the bankers were like, let's not even 192 00:11:58,240 --> 00:12:01,160 Speaker 1: try and compete on that one. Ford is clearly winning there. 193 00:12:01,600 --> 00:12:04,600 Speaker 1: Let's leave that end of the market to him. And 194 00:12:04,679 --> 00:12:08,720 Speaker 1: Billy Durant was like opportunity, Yeah, low end of the market. 195 00:12:09,080 --> 00:12:13,240 Speaker 1: I can compete there. And like a lot of founders today, 196 00:12:13,360 --> 00:12:16,880 Speaker 1: he was still this charismatic guy. We were talking about this. 197 00:12:16,920 --> 00:12:19,640 Speaker 1: Our producer Gabriel was like, yes, like Adam Newman, Yeah, 198 00:12:19,640 --> 00:12:21,880 Speaker 1: he started, we were blew up and got more money 199 00:12:21,960 --> 00:12:24,000 Speaker 1: to start some new thing. Billy Grant was like that. 200 00:12:24,679 --> 00:12:27,559 Speaker 1: He was a gifted salesman. People still wanted to invest 201 00:12:27,600 --> 00:12:31,960 Speaker 1: in him, so he started issuing stock and creating companies. 202 00:12:32,000 --> 00:12:35,400 Speaker 1: Created four companies, and there's one that we really care about. 203 00:12:36,240 --> 00:12:39,839 Speaker 1: He started it with a famous Swiss race car driver 204 00:12:40,200 --> 00:12:45,240 Speaker 1: named Louis Chevrolet. Amazing. I thought it was like an 205 00:12:45,280 --> 00:12:48,000 Speaker 1: explorer or something town in Michigan or something. No, it 206 00:12:48,080 --> 00:12:50,640 Speaker 1: was a Swiss race car driver. It started out badly, 207 00:12:50,880 --> 00:12:54,200 Speaker 1: and Durant ended up buying out Louis Chevrolet for ten 208 00:12:54,240 --> 00:12:56,959 Speaker 1: thousand dollars and rolled up all of these companies he 209 00:12:57,000 --> 00:13:00,120 Speaker 1: had started into one company, into Chevrolet with one mission, 210 00:13:00,480 --> 00:13:03,920 Speaker 1: create a car that can compete with the Ford Model T. 211 00:13:04,800 --> 00:13:07,480 Speaker 1: And he can't quite compete on price, like Ford is 212 00:13:07,559 --> 00:13:11,120 Speaker 1: just too far ahead. But he builds slightly nicer and 213 00:13:11,160 --> 00:13:14,600 Speaker 1: slightly more expensive cars because if you're competing with a 214 00:13:14,640 --> 00:13:17,880 Speaker 1: car for the poor, as Henry Ford put it, maybe 215 00:13:17,920 --> 00:13:19,760 Speaker 1: there are people who think of themselves as not quite 216 00:13:19,800 --> 00:13:22,440 Speaker 1: as poor as my neighbor and want to show it off. Yeah. 217 00:13:22,480 --> 00:13:25,720 Speaker 1: And you know, big markets get a lot of niches. 218 00:13:25,760 --> 00:13:28,240 Speaker 1: There are, in fact a lot of niches. I think 219 00:13:28,280 --> 00:13:31,000 Speaker 1: of like the Galapagos and like all the finches with 220 00:13:31,120 --> 00:13:33,679 Speaker 1: each little beak. As the car market is growing, there 221 00:13:33,720 --> 00:13:37,960 Speaker 1: are more profitable niches and a Durant finds one in 222 00:13:38,000 --> 00:13:41,840 Speaker 1: the slightly more expensive than a model T Niche. In 223 00:13:41,960 --> 00:13:45,720 Speaker 1: nineteen fifteen, he launches a car called the four ninety, 224 00:13:45,840 --> 00:13:48,319 Speaker 1: the Chevy four ninety, which is supposed to cost four 225 00:13:48,400 --> 00:13:50,520 Speaker 1: hundred and ninety dollars, the price of a model Tea 226 00:13:50,559 --> 00:13:53,959 Speaker 1: around this time. Yes, actually cost five hundred and fifty dollars. 227 00:13:54,400 --> 00:13:57,439 Speaker 1: Most Billy Durant thing ever, total salesman move. But it's 228 00:13:57,440 --> 00:13:59,760 Speaker 1: a hit anyway. Well, you pull them in with this 229 00:13:59,960 --> 00:14:03,160 Speaker 1: and then show them a larger number. It's called the 230 00:14:03,200 --> 00:14:05,319 Speaker 1: four ninety. But let me talk to the guy in 231 00:14:05,320 --> 00:14:07,720 Speaker 1: the background. Sicher says, we just can't make that deal. 232 00:14:07,720 --> 00:14:10,160 Speaker 1: We're giving them away. So now Durant is making money. 233 00:14:10,160 --> 00:14:12,640 Speaker 1: People are actually buying this car. Anyways, you who he's 234 00:14:12,760 --> 00:14:15,960 Speaker 1: doing with the money he's making. He is secretly buying 235 00:14:16,040 --> 00:14:19,520 Speaker 1: up stock in GM, company started and then got kicked 236 00:14:19,520 --> 00:14:22,640 Speaker 1: out of. And he has this dream of taking back 237 00:14:22,680 --> 00:14:25,480 Speaker 1: his baby, taken back GM. He goes to the people 238 00:14:25,480 --> 00:14:27,440 Speaker 1: who sold him their companies when he was at GM. 239 00:14:27,720 --> 00:14:30,600 Speaker 1: They of course still have GM stock. They agree to 240 00:14:30,720 --> 00:14:35,080 Speaker 1: back him, and he also gets to know Pierre DuPont, 241 00:14:35,600 --> 00:14:38,520 Speaker 1: very important the chemical family. Of the chemical family DuPont. 242 00:14:38,560 --> 00:14:41,560 Speaker 1: He is the chairman of the board of GM also 243 00:14:41,600 --> 00:14:45,240 Speaker 1: at this time, and he is running DuPont And at 244 00:14:45,240 --> 00:14:50,080 Speaker 1: the time DuPont was largely in the explosives and gunpowder business. 245 00:14:50,600 --> 00:14:54,440 Speaker 1: This is nineteen fifteen World War One. All of a sudden, 246 00:14:54,440 --> 00:14:56,400 Speaker 1: his products are very popular. Good time to be in 247 00:14:56,440 --> 00:15:01,440 Speaker 1: the explosives and gunpowder business. So DuPont's taking his blood 248 00:15:01,480 --> 00:15:05,440 Speaker 1: money basically and investing it in GM, and Billy Durant 249 00:15:05,440 --> 00:15:09,200 Speaker 1: gets DuPont on his side, and a few months later, 250 00:15:09,720 --> 00:15:13,760 Speaker 1: Billy Durant goes to a GM board meeting and drops 251 00:15:13,800 --> 00:15:18,240 Speaker 1: the bomb. He says, I and Chevrolet now control a 252 00:15:18,320 --> 00:15:22,400 Speaker 1: majority of the shares of General Motors and there's nothing 253 00:15:22,440 --> 00:15:26,880 Speaker 1: you can do about it. I'm back. Charm beats organization. 254 00:15:27,520 --> 00:15:30,280 Speaker 1: I guess so, I guess. So he charmed his way back, 255 00:15:30,360 --> 00:15:32,320 Speaker 1: at least for now, and he does the thing again. 256 00:15:32,360 --> 00:15:36,560 Speaker 1: He does the thing again, issuing stock building factories, buying companies, 257 00:15:36,680 --> 00:15:41,120 Speaker 1: borrowing money, making more cars. Again. There's a downturn. This 258 00:15:41,160 --> 00:15:45,560 Speaker 1: time it's the recession of nineteen twenty and Billy Durant 259 00:15:45,600 --> 00:15:48,880 Speaker 1: is in trouble again. And he's in trouble personally because 260 00:15:49,280 --> 00:15:52,240 Speaker 1: very much in keeping with his character, Billy Durrant has 261 00:15:52,280 --> 00:15:57,680 Speaker 1: been busy borrowing money to buy GM stock, and the 262 00:15:57,680 --> 00:16:01,000 Speaker 1: collateral he uses for those loans is the GM stock 263 00:16:01,040 --> 00:16:04,400 Speaker 1: he already owns. And so now that the stock price 264 00:16:04,480 --> 00:16:07,520 Speaker 1: is falling, the lenders are like, we need our money back, 265 00:16:07,800 --> 00:16:10,120 Speaker 1: and in order to give them their money back, he's 266 00:16:10,120 --> 00:16:11,080 Speaker 1: got to sell the stock. 267 00:16:11,160 --> 00:16:13,880 Speaker 3: And this is a situation to be in. This happens 268 00:16:13,880 --> 00:16:16,200 Speaker 3: in every recession. The people who have borrowed the most, 269 00:16:16,360 --> 00:16:19,000 Speaker 3: who are the most extended, are the ones that go under. 270 00:16:19,040 --> 00:16:22,240 Speaker 1: And you have this cyclical fire sale potential where you 271 00:16:22,320 --> 00:16:24,120 Speaker 1: got to sell the asset to pay back the loan, 272 00:16:24,160 --> 00:16:26,760 Speaker 1: and that makes the price go down, and that's extremely bad. 273 00:16:27,200 --> 00:16:29,800 Speaker 1: And so Pierre DuPont, chairman of the board, decides to 274 00:16:29,840 --> 00:16:32,560 Speaker 1: figure out what's going on with Billy Durant, the man 275 00:16:32,600 --> 00:16:36,040 Speaker 1: he backed. He says, Okay, how much money have you 276 00:16:36,120 --> 00:16:39,560 Speaker 1: borrowed and who have you borrowed it from? And Durant's like, um. 277 00:16:39,840 --> 00:16:42,280 Speaker 1: He starts looking around his desk. He's got all these papers, 278 00:16:42,520 --> 00:16:46,880 Speaker 1: like handwritten notes. It's worse than DuPont thought. DuPont writes 279 00:16:46,880 --> 00:16:49,640 Speaker 1: a letter to his brother just after this. Read this 280 00:16:49,720 --> 00:16:52,440 Speaker 1: line from this letter, mister Durant stated that he had 281 00:16:52,480 --> 00:16:56,720 Speaker 1: no personal books or accounts and was unable to give 282 00:16:56,840 --> 00:17:01,240 Speaker 1: definitive statements. He doesn't know how much he owns or 283 00:17:01,280 --> 00:17:04,720 Speaker 1: who he owes it to. So somebody got all Durant's 284 00:17:04,760 --> 00:17:07,399 Speaker 1: papers together and edited up, and in fact he owed 285 00:17:08,159 --> 00:17:13,960 Speaker 1: thirty million dollars and he has again yes to pond At. 286 00:17:13,960 --> 00:17:17,120 Speaker 1: Some other bankers bail him out and they fire him. 287 00:17:17,720 --> 00:17:20,640 Speaker 1: But there was this one key thing Billy Durant had 288 00:17:20,720 --> 00:17:24,040 Speaker 1: done a few years earlier when he was a vertically 289 00:17:24,040 --> 00:17:26,480 Speaker 1: integrating back when he was buying up all those parts company. 290 00:17:26,720 --> 00:17:29,680 Speaker 1: This is the engine motor company you talked about. It's 291 00:17:29,760 --> 00:17:33,119 Speaker 1: actually even more boring than that. It's a company that 292 00:17:33,320 --> 00:17:36,639 Speaker 1: sold roller bearings. These things that are kind of like 293 00:17:36,680 --> 00:17:41,240 Speaker 1: ball bearings, are cylindrical. Maybe they're just they go between 294 00:17:41,280 --> 00:17:44,119 Speaker 1: the axle and the wheel to reduce friction. And the 295 00:17:44,119 --> 00:17:46,720 Speaker 1: company is not important because of the roller bearings, but 296 00:17:46,800 --> 00:17:49,680 Speaker 1: because of the guy who was running the roller bearing company, 297 00:17:50,080 --> 00:17:54,080 Speaker 1: guy named Alfred Sloane. He is kind of also like 298 00:17:54,480 --> 00:17:59,040 Speaker 1: a human roller bearing. He is not exciting, not flashy, 299 00:17:59,119 --> 00:18:02,920 Speaker 1: but very good at reducing friction. Oh nice, Yeah, he's 300 00:18:02,960 --> 00:18:05,879 Speaker 1: good at making things more efficient, and Billy had brought 301 00:18:05,920 --> 00:18:09,240 Speaker 1: Sloan into GM to run those parts companies that he 302 00:18:09,320 --> 00:18:14,159 Speaker 1: bought up. And once Billy is gone, Alfred Sloan, the 303 00:18:14,240 --> 00:18:18,080 Speaker 1: human roller bearing, is going to turn GM into the 304 00:18:18,119 --> 00:18:21,359 Speaker 1: efficient machine that's going to beat Henry Ford. And also 305 00:18:21,640 --> 00:18:25,160 Speaker 1: he will create the model that is going to transform 306 00:18:25,560 --> 00:18:28,600 Speaker 1: corporations around the world in the twentieth century. In fact, 307 00:18:28,600 --> 00:18:30,920 Speaker 1: it's going to create what we think of as a corporation. 308 00:18:31,920 --> 00:18:56,120 Speaker 1: Kind of that's after the break. Okay, we're back from 309 00:18:56,119 --> 00:18:59,919 Speaker 1: the break. Billy Durant is out and Alfred Sloan is in, 310 00:19:00,200 --> 00:19:04,600 Speaker 1: and they're these opposites, but they are these just beautiful. 311 00:19:04,080 --> 00:19:07,040 Speaker 3: Form of opposites that you often see in incorporate life 312 00:19:07,080 --> 00:19:09,320 Speaker 3: these days. You first of all have the cowboy, the 313 00:19:09,400 --> 00:19:13,879 Speaker 3: charismatic founder, right, great salesman has the dream. Can't really 314 00:19:13,920 --> 00:19:16,560 Speaker 3: add up debts, but that doesn't matter because he's selling 315 00:19:16,600 --> 00:19:20,080 Speaker 3: people on what it can be, you know, constantly future focused. 316 00:19:20,840 --> 00:19:24,720 Speaker 3: And then when the cowboy gets in trouble story oldest time, 317 00:19:25,200 --> 00:19:28,919 Speaker 3: the board brings in the roller bearing, the human roller 318 00:19:28,960 --> 00:19:34,840 Speaker 3: bearing to count things, put things in files in file cabinets. 319 00:19:34,960 --> 00:19:38,560 Speaker 1: Yeah, make things more efficient, more orderly, and a really 320 00:19:38,600 --> 00:19:44,919 Speaker 1: interesting thing about this story is the broader historical context, 321 00:19:45,040 --> 00:19:48,680 Speaker 1: because this is the nineteen twenties when Sloan is coming in. 322 00:19:49,880 --> 00:19:54,840 Speaker 1: This is the moment when the boring guys, the managers, 323 00:19:55,280 --> 00:19:58,720 Speaker 1: are ascendant. You know, if you think about it, if 324 00:19:58,720 --> 00:20:01,320 Speaker 1: you go back a few decades, it was all cowboys. 325 00:20:01,680 --> 00:20:06,040 Speaker 1: It was Carnegie and Ford and Billy Durant. But then 326 00:20:06,080 --> 00:20:09,359 Speaker 1: once you get into the twenties and thirties, things have 327 00:20:09,440 --> 00:20:12,520 Speaker 1: settled down. You know, the country has ended up realized 328 00:20:12,560 --> 00:20:16,480 Speaker 1: you don't have all these new companies coming along doing 329 00:20:16,520 --> 00:20:19,840 Speaker 1: things nobody's ever done before. And in fact, when I was, 330 00:20:20,000 --> 00:20:23,879 Speaker 1: you know, working on today's episode, I looked at a 331 00:20:24,000 --> 00:20:27,080 Speaker 1: list of the most valuable companies in nineteen ninety five, 332 00:20:27,200 --> 00:20:30,880 Speaker 1: right before the dot com boom. The most valuable companies 333 00:20:30,880 --> 00:20:36,040 Speaker 1: in America at that time were ge Exon originally part 334 00:20:36,040 --> 00:20:40,360 Speaker 1: of Standard Oil, AT and T, Coca Cola, and Philip Morris. 335 00:20:40,800 --> 00:20:43,080 Speaker 1: These companies are one hundred years old at that point. 336 00:20:43,119 --> 00:20:45,080 Speaker 1: They were started in the late eighteen hundred. They were so, yeah, 337 00:20:45,080 --> 00:20:47,440 Speaker 1: they're all one hundred year old companies. Yeah yeah, yeah. 338 00:20:47,480 --> 00:20:51,119 Speaker 1: So they had been run by this managerial class for 339 00:20:51,280 --> 00:20:54,479 Speaker 1: decades and very different than today. You know, today, if 340 00:20:54,520 --> 00:20:56,760 Speaker 1: you look at the biggest companies, a lot of them 341 00:20:56,760 --> 00:20:59,040 Speaker 1: were started by people who are still alive, in many 342 00:20:59,080 --> 00:21:02,720 Speaker 1: cases still running the company, you know, Elon Musk, Jensen, 343 00:21:02,720 --> 00:21:06,400 Speaker 1: wang Mark Zuckerberg. But for most of the twentieth century, 344 00:21:06,720 --> 00:21:10,639 Speaker 1: American business was not dominated by entrepreneurial cowboys. It was 345 00:21:10,640 --> 00:21:14,480 Speaker 1: dominated by managers, by people like Alfred Sloan. 346 00:21:14,600 --> 00:21:17,080 Speaker 3: This is a deep idea, this back and forth between 347 00:21:17,119 --> 00:21:21,400 Speaker 3: the cowboy era and the managerial era, seeing that perhaps 348 00:21:21,600 --> 00:21:23,760 Speaker 3: ten twenty years in the future will have another managerial 349 00:21:23,800 --> 00:21:24,800 Speaker 3: era where. 350 00:21:24,600 --> 00:21:27,320 Speaker 1: They'll clean up the messages. Maybe maybe, So I think 351 00:21:27,320 --> 00:21:30,640 Speaker 1: it depends on sort of the rate of technological change. 352 00:21:31,160 --> 00:21:34,159 Speaker 1: And you know, you have this Second Industrial Revolution in 353 00:21:34,160 --> 00:21:36,959 Speaker 1: the late eighteen hundreds that gives all these cowboys this 354 00:21:37,040 --> 00:21:39,640 Speaker 1: opportunity which they take, and then you have a kind 355 00:21:39,680 --> 00:21:42,280 Speaker 1: of stable era. So we'll see, but we might get 356 00:21:42,280 --> 00:21:44,920 Speaker 1: back to a manager era. All right. Our manager hero, 357 00:21:45,119 --> 00:21:48,679 Speaker 1: Alfred Sloan rides in on his boring, slow but safe 358 00:21:48,680 --> 00:21:52,800 Speaker 1: horse in the early twenties and he is about to 359 00:21:52,960 --> 00:21:56,760 Speaker 1: invent the model for how managers are going to control 360 00:21:56,880 --> 00:21:59,960 Speaker 1: American business for essentially the rest of the twentieth century. 361 00:22:00,920 --> 00:22:05,560 Speaker 1: Becomes president of GM in nineteen twenty three, inherits this 362 00:22:05,760 --> 00:22:08,800 Speaker 1: total mess from Billy Durant. All these companies have their 363 00:22:08,840 --> 00:22:11,320 Speaker 1: own bookkeeping systems. They're all doing their own thing. It's 364 00:22:11,359 --> 00:22:14,760 Speaker 1: hard even to come pair, like is Cadillac making more money? 365 00:22:14,359 --> 00:22:20,040 Speaker 1: Is you know, Chevy doing doing better? Under Billy Durant. 366 00:22:20,520 --> 00:22:24,119 Speaker 1: There is no real GM headquarters. It's just Durant and 367 00:22:24,160 --> 00:22:27,199 Speaker 1: a few assistants running around calling people and making deals. 368 00:22:27,840 --> 00:22:31,560 Speaker 1: And Sloan clearly sees that there needs to be more centralization, 369 00:22:31,800 --> 00:22:35,360 Speaker 1: needs you know, GM needs to be a unified company. 370 00:22:35,800 --> 00:22:39,159 Speaker 1: But it's it's interesting and subtle because he also realizes 371 00:22:39,520 --> 00:22:42,040 Speaker 1: that Cadillac needs to still be Cadillac, and Chevy needs 372 00:22:42,080 --> 00:22:44,800 Speaker 1: to still be Chevy. They are at some level different 373 00:22:45,119 --> 00:22:48,720 Speaker 1: with loyalty, with loyalty, even with creativity, Like it is 374 00:22:48,760 --> 00:22:52,400 Speaker 1: a creative business making cars, there's some style involved. They're 375 00:22:52,400 --> 00:22:55,200 Speaker 1: going to bring in more style. And so Sloan comes 376 00:22:55,280 --> 00:22:59,760 Speaker 1: up with this system that is gonna shape big companies 377 00:22:59,840 --> 00:23:02,680 Speaker 1: around the US and around the world. And again, it's 378 00:23:02,720 --> 00:23:05,960 Speaker 1: one of those ideas that seems obvious to us now 379 00:23:06,000 --> 00:23:08,720 Speaker 1: because it's ubiquitous, but it wasn't obvious at the time, 380 00:23:09,520 --> 00:23:15,320 Speaker 1: and that is this. Sloan makes each car brand, you know, Chevy, Cadillac, Oldsomobile, 381 00:23:15,720 --> 00:23:20,040 Speaker 1: its own division, with its own profit and loss line. 382 00:23:20,080 --> 00:23:22,560 Speaker 1: It's responsible for its own p and L. And then 383 00:23:22,600 --> 00:23:25,800 Speaker 1: he creates this small team of senior executives at GM 384 00:23:25,840 --> 00:23:29,920 Speaker 1: who don't have day to day operating responsibility and whose 385 00:23:30,040 --> 00:23:33,760 Speaker 1: job is to think big yes, to keep track of 386 00:23:33,760 --> 00:23:38,360 Speaker 1: the finances, but maybe more importantly, to think about GM's 387 00:23:38,359 --> 00:23:44,040 Speaker 1: long term strategy, which sounds extremely boring and manager but 388 00:23:44,160 --> 00:23:48,119 Speaker 1: it is extremely effective. It works, and they start teaching 389 00:23:48,160 --> 00:23:50,560 Speaker 1: this in schools. This is the rise of the manager class. 390 00:23:50,640 --> 00:23:52,960 Speaker 1: You went to business school. I have a master's in 391 00:23:53,040 --> 00:23:56,960 Speaker 1: business administration. You are the descendant of Alfred Sloan. Right. 392 00:23:57,600 --> 00:24:00,159 Speaker 1: Part of the reason I think it works so well 393 00:24:00,320 --> 00:24:04,639 Speaker 1: at GM is because Sloan and the other top managers 394 00:24:04,680 --> 00:24:08,199 Speaker 1: he brings in as these senior executives, are really good 395 00:24:08,320 --> 00:24:11,720 Speaker 1: at understanding what's happening in America in the nineteen twenties 396 00:24:12,400 --> 00:24:16,119 Speaker 1: and at taking that understanding and using it to push 397 00:24:16,119 --> 00:24:19,119 Speaker 1: the country further, to shape the country in a way. 398 00:24:19,480 --> 00:24:21,119 Speaker 1: Of course, that is going to be good for GM, 399 00:24:21,520 --> 00:24:24,919 Speaker 1: but that has a profound effect on America, on American culture. 400 00:24:24,960 --> 00:24:28,600 Speaker 1: So I want to point to three key moves it's 401 00:24:29,520 --> 00:24:31,800 Speaker 1: GM makes around this time. Yes, deren what I've prepared 402 00:24:31,800 --> 00:24:36,080 Speaker 1: for you this presentation. Okay, three key moves Sloane makes 403 00:24:36,920 --> 00:24:39,240 Speaker 1: at GM around this time. Move number one. Maybe you 404 00:24:39,240 --> 00:24:42,240 Speaker 1: have one of those big pointers. This is actually Sloan's 405 00:24:42,280 --> 00:24:44,920 Speaker 1: language here. This headline for this one, A Car for 406 00:24:45,000 --> 00:24:49,560 Speaker 1: Every Purse and Purpose Beautiful, comes from the nineteen twenty 407 00:24:49,600 --> 00:24:53,399 Speaker 1: four Annual Report. And the idea is GM is going 408 00:24:53,480 --> 00:24:57,040 Speaker 1: to clearly differentiate its division so that one they're not 409 00:24:57,080 --> 00:25:01,199 Speaker 1: competing with each other. And two, more interestingly, if you 410 00:25:01,240 --> 00:25:05,520 Speaker 1: are a car buyer, whatever you need, however much you 411 00:25:05,560 --> 00:25:09,160 Speaker 1: want to pay, there is a clear GM brand for you. 412 00:25:09,840 --> 00:25:13,639 Speaker 3: And one of the problems with having one price, as 413 00:25:13,720 --> 00:25:16,400 Speaker 3: Henry Ford wanted to have one cheap price, is there's 414 00:25:16,400 --> 00:25:18,640 Speaker 3: a lot of people who actually want to pay more 415 00:25:19,040 --> 00:25:20,919 Speaker 3: and if you charge them a low price, while they 416 00:25:20,960 --> 00:25:22,600 Speaker 3: get to keep the money in their pocket, but they 417 00:25:22,640 --> 00:25:24,439 Speaker 3: were going to give it to you if you just 418 00:25:24,480 --> 00:25:26,800 Speaker 3: gave them a reason, don't leave money on the table. 419 00:25:26,920 --> 00:25:27,840 Speaker 3: Price discrimination. 420 00:25:28,280 --> 00:25:31,320 Speaker 1: So the suite of GM brands that that Durant has 421 00:25:31,320 --> 00:25:33,640 Speaker 1: built is perfect for this. You know, if you want 422 00:25:33,640 --> 00:25:36,240 Speaker 1: a cheap car, buy Chevy. You want something sporty and 423 00:25:36,280 --> 00:25:40,360 Speaker 1: moderately priced, Pontiac. If you're like a middle class dad 424 00:25:40,400 --> 00:25:43,119 Speaker 1: looking for a family car, I'm listening Polsmobile. Or if 425 00:25:43,119 --> 00:25:46,120 Speaker 1: you get a promotion, upgrade to a Buick. Oh, mister Smith, 426 00:25:46,160 --> 00:25:49,120 Speaker 1: I see you're doing well. Yeah, congratulations. If you've really 427 00:25:49,160 --> 00:25:52,399 Speaker 1: made it, join the country club. You know what it 428 00:25:52,440 --> 00:25:55,480 Speaker 1: is you buy a catalgy. I wouldn't know personally, but 429 00:25:55,880 --> 00:25:58,399 Speaker 1: I admire those who do a car for every purse 430 00:25:58,480 --> 00:26:01,640 Speaker 1: and purpose for every wallet and want move number one. 431 00:26:02,080 --> 00:26:06,640 Speaker 1: The boardroom's taking notes. They're looking next slide move number two. 432 00:26:06,960 --> 00:26:13,879 Speaker 1: Keep the customer dissatisfied, Jadles. Nineteen twenties, Chevrolet started bringing 433 00:26:13,920 --> 00:26:18,200 Speaker 1: out new models of its cars every year, and within 434 00:26:18,240 --> 00:26:20,480 Speaker 1: a few years this had spread to all of GM. 435 00:26:20,600 --> 00:26:23,760 Speaker 1: So every brand is bringing out a new model every year. 436 00:26:23,760 --> 00:26:25,720 Speaker 1: And to be clear, it's not like they were re 437 00:26:25,920 --> 00:26:29,080 Speaker 1: engineering the car on the inside every year. This always 438 00:26:29,200 --> 00:26:29,879 Speaker 1: confused me. 439 00:26:30,160 --> 00:26:31,880 Speaker 3: It really did when I was a kid, and even 440 00:26:31,920 --> 00:26:34,119 Speaker 3: to this day, Like, why would you care about the 441 00:26:34,119 --> 00:26:37,080 Speaker 3: difference between a nineteen eighty eight and a nineteen eighty 442 00:26:37,200 --> 00:26:38,639 Speaker 3: nine model of a car. 443 00:26:39,119 --> 00:26:41,399 Speaker 1: I'm gonna give you a line from Alfred Sloan around 444 00:26:41,400 --> 00:26:44,680 Speaker 1: this time he said, we need to bring the laws 445 00:26:44,760 --> 00:26:49,800 Speaker 1: of Paris dressmakers to the automobile industry. It's fashion. This 446 00:26:50,000 --> 00:26:55,000 Speaker 1: is such an insight. These cars are very expensive and 447 00:26:55,359 --> 00:26:57,520 Speaker 1: they could have treated these cars like buying a house. 448 00:26:57,600 --> 00:26:59,439 Speaker 1: You know, you buy a house, you fix it up, 449 00:26:59,440 --> 00:27:01,840 Speaker 1: but you you don't change your house every year every 450 00:27:01,920 --> 00:27:07,439 Speaker 1: three years. Instead, what an insight that this is something 451 00:27:07,480 --> 00:27:10,919 Speaker 1: that is essentially disposable. Yes, Sloan was so committed to 452 00:27:10,960 --> 00:27:13,679 Speaker 1: this idea of cars in fashion that he actually created 453 00:27:13,720 --> 00:27:17,639 Speaker 1: a whole department called Art and Color. Remember this is 454 00:27:17,720 --> 00:27:21,199 Speaker 1: like an heavy industry industry. This is big factories. This 455 00:27:21,280 --> 00:27:23,439 Speaker 1: is not a thing people thought of as fashion. And 456 00:27:23,520 --> 00:27:26,520 Speaker 1: so often the new model would be like, oh yeah, 457 00:27:26,520 --> 00:27:28,520 Speaker 1: the new model. It has some chrome here that the 458 00:27:28,560 --> 00:27:30,680 Speaker 1: headlamp is a different shape. You don't want that old 459 00:27:30,720 --> 00:27:33,480 Speaker 1: headlamp shape. Did Henry Ford have an art and color department? 460 00:27:34,200 --> 00:27:35,919 Speaker 1: Was black? It was one guy who was like, how 461 00:27:35,960 --> 00:27:37,840 Speaker 1: about if we had Hardy Foord, It's like keep it black. 462 00:27:38,680 --> 00:27:41,520 Speaker 1: So there is this key line from Charles Kettering, the 463 00:27:41,560 --> 00:27:43,680 Speaker 1: head of research at GM around the time. He was 464 00:27:43,720 --> 00:27:47,080 Speaker 1: the one who had this phrase, keep the customer dissatisfied. 465 00:27:47,320 --> 00:27:50,840 Speaker 1: He wrote, if everyone were satisfied, no one would buy 466 00:27:50,880 --> 00:27:53,959 Speaker 1: the new thing because no one would want it. Around 467 00:27:53,960 --> 00:27:56,280 Speaker 1: the boardroom table, there is a murmur and a stroking 468 00:27:56,320 --> 00:28:02,119 Speaker 1: of beards. Move number three by now pay later. This 469 00:28:02,160 --> 00:28:06,160 Speaker 1: guy's inventing America. This one actually really is this one. 470 00:28:06,200 --> 00:28:08,200 Speaker 1: Actually we got a credit to Billy Durant. This one 471 00:28:08,240 --> 00:28:12,320 Speaker 1: started when Durant was running the company. GM created its 472 00:28:12,320 --> 00:28:18,440 Speaker 1: own finance arm GMAC Financing, the General Motors Acceptance Corporation, 473 00:28:19,359 --> 00:28:22,919 Speaker 1: because then, as now, most people don't have enough money, 474 00:28:23,400 --> 00:28:25,400 Speaker 1: you know, in their bank account to just go buy 475 00:28:25,440 --> 00:28:27,720 Speaker 1: a car. You might be able to get a bank loan, 476 00:28:27,760 --> 00:28:32,880 Speaker 1: you might not. And GMAC meant that somebody without enough 477 00:28:32,880 --> 00:28:35,879 Speaker 1: money in the bank could walk in off the street, 478 00:28:36,080 --> 00:28:39,160 Speaker 1: get a loan at the dealership, and drive off in 479 00:28:39,200 --> 00:28:42,400 Speaker 1: a brand new car. To summarize, gentlemen, we have a 480 00:28:42,520 --> 00:28:46,000 Speaker 1: car for every person purpose. We have new models every year, 481 00:28:46,040 --> 00:28:48,959 Speaker 1: and we have financing so people can pay for it. 482 00:28:49,960 --> 00:28:52,120 Speaker 1: And you know, if you zoom out and think about 483 00:28:52,160 --> 00:28:54,920 Speaker 1: the nineteen twenties, yeah, it's coming at the perfect time 484 00:28:54,960 --> 00:28:58,520 Speaker 1: because people have money, people are obsessed with fashion. This 485 00:28:58,680 --> 00:29:01,840 Speaker 1: is the rise of America or post war everyone wants 486 00:29:01,880 --> 00:29:04,600 Speaker 1: to spend. Sing's kind of making it happen, right is 487 00:29:04,640 --> 00:29:06,040 Speaker 1: it is coming at the right time, and it is 488 00:29:06,120 --> 00:29:10,680 Speaker 1: creating this consumerist, debt driven nineteen twenties culture that we 489 00:29:10,760 --> 00:29:12,800 Speaker 1: know because we also have the rate at this point 490 00:29:13,240 --> 00:29:17,440 Speaker 1: and advertising and selling these things. So now think about 491 00:29:17,520 --> 00:29:21,000 Speaker 1: Henry Ford, who that I don't feel that bad for him, 492 00:29:21,040 --> 00:29:22,840 Speaker 1: who at the beginning of the decade was on top 493 00:29:22,880 --> 00:29:25,840 Speaker 1: of the world. Right, Like, all three of these moves 494 00:29:25,840 --> 00:29:29,640 Speaker 1: from GM are like anti Ford moves. You know, a 495 00:29:29,640 --> 00:29:33,680 Speaker 1: car for every purse and purpose. No, for Ford, the 496 00:29:33,720 --> 00:29:36,960 Speaker 1: car for every person purpose is the Model T. There 497 00:29:37,000 --> 00:29:39,720 Speaker 1: is one car. It is the car, a new model 498 00:29:39,720 --> 00:29:43,320 Speaker 1: every year. Absolutely not. In fact, you know, they sold 499 00:29:43,360 --> 00:29:45,800 Speaker 1: the Model T for what for well over a decade, 500 00:29:46,400 --> 00:29:48,880 Speaker 1: but it did change on the insight over that time. 501 00:29:48,920 --> 00:29:51,840 Speaker 1: They kind of played down the changes because, and I'm 502 00:29:51,880 --> 00:29:54,400 Speaker 1: reading a quote from him, we believe that when a 503 00:29:54,440 --> 00:29:56,520 Speaker 1: man buys one of our cars, we should keep it 504 00:29:56,600 --> 00:29:58,920 Speaker 1: running for him as long as we can and at 505 00:29:58,960 --> 00:30:02,720 Speaker 1: the lowest upkeep cost. Oh how nive? Oh, I mean 506 00:30:02,880 --> 00:30:05,080 Speaker 1: kind of nice in its way. So yeah, so that's 507 00:30:05,120 --> 00:30:09,120 Speaker 1: the Ford quote. Compare that with this famous quote from 508 00:30:09,280 --> 00:30:12,560 Speaker 1: a GM exec named Harley Earl, actually guy they brought 509 00:30:12,560 --> 00:30:15,320 Speaker 1: in to start that art and color department in the twenties. 510 00:30:15,720 --> 00:30:18,000 Speaker 1: In the fifties, here's the thing he said. In the fifties, 511 00:30:18,000 --> 00:30:20,840 Speaker 1: here you take it. In nineteen thirty four, the average 512 00:30:20,840 --> 00:30:24,040 Speaker 1: car ownership was a span of five years. Now it's 513 00:30:24,120 --> 00:30:26,840 Speaker 1: two years. When it is one year, we will have 514 00:30:26,880 --> 00:30:30,000 Speaker 1: a perfect score. I kind of hate that. I kind 515 00:30:30,000 --> 00:30:32,760 Speaker 1: of hate that. Well, Marge, car ownership now is much longer. 516 00:30:32,840 --> 00:30:36,200 Speaker 3: Interestingly, we are both the kind of people who buy 517 00:30:36,320 --> 00:30:39,480 Speaker 3: things and want to keep them forever. Yeah, anti American, 518 00:30:39,520 --> 00:30:41,160 Speaker 3: if you will. At this time we were not on 519 00:30:41,240 --> 00:30:42,080 Speaker 3: board with the GF. 520 00:30:42,120 --> 00:30:44,640 Speaker 1: We were not on board. So if you think of Ford, 521 00:30:44,960 --> 00:30:48,400 Speaker 1: he's anti fashion, anti new car every year. And he 522 00:30:48,480 --> 00:30:51,880 Speaker 1: was also anti finance. I think, in fact, he thought 523 00:30:51,880 --> 00:30:54,480 Speaker 1: it was morally wrong to put people into debt to 524 00:30:54,520 --> 00:30:56,600 Speaker 1: buy a car. And I do think there was a 525 00:30:56,720 --> 00:31:00,600 Speaker 1: change in the way Americans thought about debt in the twenties, 526 00:31:01,400 --> 00:31:04,680 Speaker 1: where before that people were much more scared of debt. 527 00:31:04,720 --> 00:31:07,120 Speaker 1: They thought debt was bad. Well, he was checking his 528 00:31:07,160 --> 00:31:09,960 Speaker 1: workers to make sure that they were wise with their 529 00:31:09,960 --> 00:31:12,760 Speaker 1: money and not in debt and saving. Yeah, and there 530 00:31:12,880 --> 00:31:15,600 Speaker 1: was this thing at Ford, where you could like save 531 00:31:15,760 --> 00:31:17,960 Speaker 1: money every week, you like a deposit five bucks every 532 00:31:17,960 --> 00:31:19,600 Speaker 1: week at the Ford dealer, and when you have enough money, 533 00:31:19,640 --> 00:31:23,400 Speaker 1: you buy a car. Obviously people would rather just borrow 534 00:31:23,440 --> 00:31:25,840 Speaker 1: the money today and drive off in a car. And 535 00:31:25,920 --> 00:31:32,920 Speaker 1: so for all of these reasons, GM passes Ford. At 536 00:31:32,920 --> 00:31:35,320 Speaker 1: the start of the twenties, Ford's market share was over 537 00:31:35,400 --> 00:31:39,560 Speaker 1: fifty percent. By nineteen twenty six, fords market share has 538 00:31:39,600 --> 00:31:43,680 Speaker 1: fallen to thirty percent, and things are actually about to 539 00:31:43,720 --> 00:31:48,080 Speaker 1: get worse for Ford. In nineteen twenty seven, Henry Ford 540 00:31:48,440 --> 00:31:51,240 Speaker 1: finally went along with all the execs who'd been telling 541 00:31:51,280 --> 00:31:52,880 Speaker 1: him it's time to come up with a new car. 542 00:31:52,960 --> 00:31:55,840 Speaker 1: The Model T. It's a little bit old by now, 543 00:31:55,920 --> 00:31:59,200 Speaker 1: so in twenty seven he's finally like, okay, we're gonna 544 00:31:59,240 --> 00:32:02,720 Speaker 1: do something more modern. They're going to call this new 545 00:32:02,760 --> 00:32:08,520 Speaker 1: car the Model A. Back to the beginning. Yeah, they 546 00:32:08,560 --> 00:32:11,560 Speaker 1: have a prototype, they know the car they're gonna make. 547 00:32:12,240 --> 00:32:16,840 Speaker 1: But at this moment, the thing that made Ford great 548 00:32:16,960 --> 00:32:19,320 Speaker 1: in a way is going to come back to bite them, 549 00:32:19,640 --> 00:32:23,840 Speaker 1: and that is Ford's factories had been optimized to this 550 00:32:24,160 --> 00:32:29,680 Speaker 1: wild degree to be incredibly efficient at building the Model 551 00:32:29,720 --> 00:32:32,200 Speaker 1: T one thing one thing like Remember there was that 552 00:32:32,280 --> 00:32:34,680 Speaker 1: machine that drilled I think was twenty four holes all 553 00:32:34,720 --> 00:32:36,480 Speaker 1: at the same time in the engine block for the 554 00:32:36,520 --> 00:32:39,720 Speaker 1: Model T. Now they got a new engine, that machine 555 00:32:39,760 --> 00:32:43,840 Speaker 1: is useless now and so in fact, in order to 556 00:32:43,920 --> 00:32:46,480 Speaker 1: switch over from the Model T to the Model A, 557 00:32:47,600 --> 00:32:52,360 Speaker 1: Ford has to shut down production entirely for six months. 558 00:32:53,160 --> 00:32:55,760 Speaker 1: Six months when they're not making cars, they're just changing 559 00:32:55,800 --> 00:32:56,560 Speaker 1: over the factory. 560 00:32:56,680 --> 00:32:58,320 Speaker 3: This is something they teach you when you get your 561 00:32:58,440 --> 00:33:02,280 Speaker 3: MBA that production lines can be too efficient, like there 562 00:33:02,320 --> 00:33:04,040 Speaker 3: needs to be a little bit of slack in the 563 00:33:04,080 --> 00:33:07,080 Speaker 3: system for when things change or when there's a stumbling 564 00:33:07,120 --> 00:33:10,160 Speaker 3: block or something. And we saw this all the way 565 00:33:10,240 --> 00:33:15,040 Speaker 3: to the super efficient supply chains during the pandemic. People 566 00:33:15,040 --> 00:33:18,080 Speaker 3: who had supply chains that were just in time, just 567 00:33:18,160 --> 00:33:20,680 Speaker 3: the part they need that arrives, you know, the morning 568 00:33:20,720 --> 00:33:23,000 Speaker 3: you're about to put it in a car. Those people 569 00:33:23,280 --> 00:33:26,760 Speaker 3: were screwed when there were any sort of delays. And 570 00:33:27,520 --> 00:33:30,720 Speaker 3: the lesson and it comes again and again, is yes, 571 00:33:31,080 --> 00:33:33,520 Speaker 3: it is a short term view to be super super 572 00:33:33,560 --> 00:33:37,120 Speaker 3: super efficient. But clearly for Henry Ford this put him 573 00:33:37,160 --> 00:33:38,240 Speaker 3: way behind GM. 574 00:33:38,800 --> 00:33:42,080 Speaker 1: Yeah it worked for a while, it wasn't that short term, 575 00:33:42,080 --> 00:33:44,480 Speaker 1: but at this point it is definitely biting him back. 576 00:33:45,000 --> 00:33:47,040 Speaker 1: And they do come out with this new Model A, 577 00:33:47,240 --> 00:33:49,880 Speaker 1: and it is a great car. It's, you know, more 578 00:33:49,880 --> 00:33:53,040 Speaker 1: powerful than the Model T. Is still very cheap, but 579 00:33:54,120 --> 00:33:58,440 Speaker 1: America had fundamentally changed in a way that GM understood 580 00:33:58,560 --> 00:34:02,719 Speaker 1: and helped to make happen. Americans didn't want to drive 581 00:34:03,280 --> 00:34:05,720 Speaker 1: one car anymore. They didn't all want to rush out 582 00:34:05,760 --> 00:34:08,439 Speaker 1: and buy the Model A. They wanted the newest car. 583 00:34:08,480 --> 00:34:10,200 Speaker 1: They wanted to be able to trade up to a 584 00:34:10,279 --> 00:34:13,080 Speaker 1: higher status brand got a raise, and if they didn't 585 00:34:13,080 --> 00:34:14,880 Speaker 1: get a raise, they want to be able to borrow 586 00:34:14,960 --> 00:34:17,759 Speaker 1: the money to buy the higher status car. What Alfred 587 00:34:17,800 --> 00:34:22,640 Speaker 1: Sloane understood that Henry Ford never really did was that 588 00:34:22,760 --> 00:34:27,520 Speaker 1: this era of mass production that Ford had created gave 589 00:34:27,640 --> 00:34:32,360 Speaker 1: rise to an era of mass consumption to the modern consumer. 590 00:34:33,360 --> 00:34:37,520 Speaker 1: And so Sloan and GM did what great companies do. 591 00:34:37,680 --> 00:34:40,160 Speaker 1: They saw this change in the world, and then they 592 00:34:40,360 --> 00:34:44,040 Speaker 1: pulled that change forward to their own benefit. GM pushed 593 00:34:44,040 --> 00:34:48,480 Speaker 1: Americans to become a nation of consumers, and they capitalized 594 00:34:48,520 --> 00:34:52,560 Speaker 1: on that consumerism, which is why GM and not Ford, 595 00:34:53,200 --> 00:34:55,759 Speaker 1: was the biggest carmaker in the world for the rest 596 00:34:55,800 --> 00:35:03,120 Speaker 1: of the twentieth century. Boom before you go today, I 597 00:35:03,360 --> 00:35:08,200 Speaker 1: just want to thank our listener, Professor Umberto Barreto, who 598 00:35:08,239 --> 00:35:11,239 Speaker 1: wrote to us after he heard the episode about the 599 00:35:11,280 --> 00:35:14,560 Speaker 1: Origin of Silicon Valley where we talked about Sputnik, the 600 00:35:14,680 --> 00:35:17,560 Speaker 1: Soviet satellite that came as this huge surprise to America, 601 00:35:18,120 --> 00:35:20,400 Speaker 1: and he pointed out this really interesting thing that in 602 00:35:20,400 --> 00:35:24,080 Speaker 1: fact I didn't know, and that is people at the 603 00:35:24,120 --> 00:35:26,839 Speaker 1: top levels of the government in the United States were 604 00:35:26,840 --> 00:35:30,319 Speaker 1: apparently not so surprised by Sputnik. They knew that the 605 00:35:30,360 --> 00:35:34,120 Speaker 1: Soviets were working on a satellite, and interestingly, like President 606 00:35:34,160 --> 00:35:37,600 Speaker 1: Eisenhower and others around him were building their own spy 607 00:35:37,640 --> 00:35:40,080 Speaker 1: satellite at the time, and they kind of liked Sputnik 608 00:35:40,120 --> 00:35:42,680 Speaker 1: because it was like, oh, now it's okay to shoot 609 00:35:42,719 --> 00:35:45,359 Speaker 1: up a satellite and fly it over another country, which 610 00:35:45,640 --> 00:35:47,120 Speaker 1: wasn't clear if that was going to be okay, and 611 00:35:47,160 --> 00:35:49,160 Speaker 1: they're like, we're going to have our spy satellite go 612 00:35:49,200 --> 00:35:51,680 Speaker 1: fly over Russia and find out where their missiles. Soviets 613 00:35:51,680 --> 00:35:53,800 Speaker 1: did it, we can do it too. Thank you, professor 614 00:35:53,880 --> 00:35:56,719 Speaker 1: for writing to us. Everybody should write to us. I 615 00:35:56,760 --> 00:36:00,600 Speaker 1: love getting emails. We're at Business History at Pushkin dot FM. 616 00:36:00,640 --> 00:36:04,720 Speaker 1: I'm also at Jacob Goldstein on x and I'm on 617 00:36:04,760 --> 00:36:08,000 Speaker 1: LinkedIn as well. I'm at Radiosmith All the Places That Matter. 618 00:36:08,239 --> 00:36:11,560 Speaker 1: Today's show was produced by Gabriel Hunter Chang. It was 619 00:36:11,760 --> 00:36:15,280 Speaker 1: in engineered by Sarah Bruguer and Our showrunner and editor 620 00:36:15,719 --> 00:36:19,360 Speaker 1: is Ryan Dilly. My name is Jacob Goldstein. I'm Robert Smith. 621 00:36:19,400 --> 00:36:20,160 Speaker 1: Thanks for listening.