Speaker 1: Pushkin too quick.
Speaker 2: No, it's perfect push kid stuff, you got it.
Speaker 1: Henry Ford had a dream, a dream we talked about
Speaker 1: last week on the show. His dream was to make
Speaker 1: a car that was cheap enough and reliable enough for
Speaker 1: the masses, and amazingly he did it. Created the Model T.
Speaker 1: He invented mass production, the modern assembly line, and by
Speaker 1: nineteen twenty most of the cars on the road in
Speaker 1: America were Model TS. Ford was world famous. He was
Speaker 1: on his way to becoming the richest man in the world.
Speaker 1: But he was also about to get beat within just
Speaker 1: a few years. He was going to get beat by
Speaker 1: a company that realized something that he never did. Americans
Speaker 1: don't just want a simple, cheap, utilitarian car. We want fashion,
Speaker 1: we want status, we want the new thing, and we
Speaker 1: are not afraid to borrow money to get it. I'm
Speaker 1: Jacob Boltstein and I'm Robert Smith, and this is business History,
Speaker 1: a show but that actually visits. Last week on the show,
Speaker 1: Pitcha talked about the rise of Ford. It is a
Speaker 1: show about the history of business. Today on the show,
Speaker 1: we're talking about General Motors GM, the company that came
Speaker 1: along and beat Forard. The story of General Motors starts
Speaker 1: with one Billy Durant, high school dropout, door to door
Speaker 1: cigar salesman. I like him already, wildly charismatic. Walter Chrysler,
Speaker 1: That Chrysler, the guy who started Chrysler said Billy Durant
Speaker 1: could talk the birds down out of the trees. Sounds
Speaker 1: like orpheus. Billy Durant grew up in Flint, Michigan, and
Speaker 1: in eighteen eighty six, when he was in his mid twenties,
Speaker 1: the Flint Road Cart Company built it into the biggest
Speaker 1: like horse drawn cart company. These are cars you hook
Speaker 1: up to a horse? Cars? Yes, eighteen eighty six. Sure
Speaker 1: it's the horse full carriage. Yes. And once he basically
Speaker 1: got rich from his cart business, he went off to
Speaker 1: New York to live the high life and play the
Speaker 1: stock market.
Speaker 3: This was no Henry Ford toiling away tinkering with the
Speaker 3: next big thing.
Speaker 1: Nah. He just wanted to be a rich guy in
Speaker 1: New York. So that's what he did until nineteen oh four,
Speaker 1: when a local wagon business back in Flint, Michigan, had
Speaker 1: just purchased the Buick Motor Company founded by one David Buick.
Speaker 1: All these guys named after cars, these guys, what a
Speaker 1: crazy coincidence. Bwick was a great engineer and a terrible businessman.
Speaker 1: Familiar founder Combo Buick had told just thirty seven cars
Speaker 1: in nineteen oh three, not three hundred and seventy, but
Speaker 1: thirty seven. And so this cart company that has bought
Speaker 1: Buick recruits Billy Durant to come back and make this
Speaker 1: company work. Billy Durant's not a car guy. He's a
Speaker 1: finance guy. He's smoking cigars in the club in Manhattan
Speaker 1: from Flint. He's a hometown guy. And so he comes
Speaker 1: back from New York to Flint just to see what's
Speaker 1: going on. And he goes for a ride in a Buick,
Speaker 1: possibly the third time in his life that he's been
Speaker 1: in a car, but he likes it. It's a smooth ride.
Speaker 1: He decides he's going to drive it around for two
Speaker 1: months and see how this whole car thing works. And
Speaker 1: it works. He drives it through you know, creek beds
Speaker 1: on dirt roads, and he thinks, yes, this is a
Speaker 1: good car. Cars are going to be big. I will
Speaker 1: take over Buick and I will make it succeed. I
Speaker 1: can sell this thing. I can sell this Yes, that
Speaker 1: is Billy Durant's worldview. And in fact, there is this
Speaker 1: lovely description of Durant at this time written later by
Speaker 1: his daughter Marjorie, about what it was like. Please. There
Speaker 1: were men at dinner, There were men at the front door.
Speaker 1: The parlor was often full of men, and behind closed
Speaker 1: doors there were other men. They talked and they listened,
Speaker 1: but my father mostly listened. When he did talk, it
Speaker 1: was like a violin beginning to play. Those present had
Speaker 1: to listen. I know.
Speaker 3: They all said the same thing then that they do now.
Speaker 3: Durant is the greatest salesman I ever knew. It's a
Speaker 3: lovely piece of writing, isn't it the replication word men?
Speaker 1: Yeah, so Durant knows how to sell cars, and Buick
Speaker 1: is growing. In fact, it becomes the biggest car manufacturer
Speaker 1: in America. But as we talked about last week, there
Speaker 1: are lots of little car manufacturers in America in the
Speaker 1: early nineteen hundreds, four hundred and twenty three different companies
Speaker 1: by one count that I saw, And these are little
Speaker 1: shops with guys building cars one by one. This is
Speaker 1: before Henry Ford brings mass production and economy of scale
Speaker 1: to cars, and it's clear already that there's gonna be
Speaker 1: consolidation in the industry. This is the era of GP Morgan.
Speaker 1: You know US Steel, General Electric, and JP Morgan, the
Speaker 1: great consolidator, decides it's time to create an automotive trust,
Speaker 1: consolidate the car industry by merging the biggest players together.
Speaker 1: And early in nineteen oh eight, Morgan's son in law
Speaker 1: gets Billy Durant of Buick and Henry Ford of Ford
Speaker 1: to come to a meeting in New York, along with
Speaker 1: the heads of a couple other big car companies.
Speaker 3: By the way, this is JP Morgan's whole day is
Speaker 3: everyone comes from an industry, he melds them together and
Speaker 3: then takes on the next industry the next hour.
Speaker 1: I mean, there is anti trust law at this point,
Speaker 1: there's not anti trust enforcement quite yet. And so they
Speaker 1: get to the meeting. They get to New York and
Speaker 1: Henry Ford is skeptical. He's already dreaming of selling a
Speaker 1: car to the masses, selling a cheap car. And you know,
Speaker 1: the point of consolidation, of forming a trust is to
Speaker 1: sell a car for more money. Is a one to
Speaker 1: make fewer cars and charge more, which is the monopolist playbook.
Speaker 1: But you know, everybody has their price, and he says,
Speaker 1: I will sell you my share of the Ford Motor
Speaker 1: Company for cash three million dollars, which was clearly a
Speaker 1: huge sum. Yeah, nobody was going to pay it too much,
Speaker 1: and the deal falls apart. It's fun to think of
Speaker 1: what could have been, though, and importantly for our story,
Speaker 1: this meeting gives Billy Durant an idea, Oh, somebody is
Speaker 1: going to consolidate the car market. This deal didn't work,
Speaker 1: but some deal will work. Somebody's going to win. I'm
Speaker 1: Billy Durant. Why shouldn't it be me? So instead of
Speaker 1: calling the birds from the trees, he's calling the companies
Speaker 1: to him. Yes, and he is literally calling the companies
Speaker 1: to him. There is this story that he gets back
Speaker 1: to Flint in the middle of the night one time
Speaker 1: and he calls at three in the morning this little
Speaker 1: struggling car company called Oldsmobile and tells the head of Oldsmobile, Look,
Speaker 1: consolidation is coming, and I'm going to create a holding
Speaker 1: company and together we'll have the holding company start by
Speaker 1: acquiring Oldsmobile and Buick Apes together strong diamond hands, diamond hands,
Speaker 1: and head of Oldsmobile is in and so in September
Speaker 1: of nineteen oh eight, Durant creates his holding company, and
Speaker 1: he gives it one of those great old school generic
Speaker 1: company names like USDL or National Led. General Motors such
Speaker 1: a boring name, especially in this industry where everyone is
Speaker 1: making bespoke cars named after themselves. I think it's because
Speaker 1: he knows the brand is not going to be General Motors, right.
Speaker 1: He already knows there's going to be Buck and Oldsmobile
Speaker 1: and everything else he can get his hands on. So
Speaker 1: Duran has this big idea, this holding company idea, and crucially,
Speaker 1: from his years on Wall Street, he knows how stocks work.
Speaker 1: He knows that stocks are a tool. You start a company.
Speaker 1: You can issue pieces of paper this time it was
Speaker 1: literal pieces of paper stock certificates, and use the proceeds
Speaker 1: from selling those pieces of paper to buy real companies.
Speaker 1: He is about to do this to go on one
Speaker 1: of the greatest buying sprees in business history. Over the
Speaker 1: next year and a half, GM will acquire majority control
Speaker 1: of a major company every month, month after month. Starts
Speaker 1: with Buick and Oldsmobile. A few months later, in early
Speaker 1: nineteen oh nine, he buys a struggling car company called Oakland,
Speaker 1: which will later be renamed for the town Word's headquartered
Speaker 1: in Michigan Pontiac. A few months after that, he buys
Speaker 1: a company focused on the high end of the market, Cadillac,
Speaker 1: remember from last week was founded by Henry Ford. Buys
Speaker 1: a couple little truck companies that eventually become GMC Trucks.
Speaker 1: So he's going hard at horizontal integration, right.
Speaker 3: Which is buying up companies that do the same thing.
Speaker 3: You're just like everyone makes.
Speaker 1: A car, makes a car, sells a car. But Billy
Speaker 1: is also getting into vertical integration right, different parts of
Speaker 1: the supply chain. So he buys companies that make axles,
Speaker 1: Rims Engines, buys a company that makes spark plugs, becomes
Speaker 1: AC Spark Plugs, Buys Fisher Body, which becomes this famous
Speaker 1: part of GM. Spends seven million dollars to buy a
Speaker 1: company that makes electric headlamps. Company turns out to be
Speaker 1: a fraud, no fake innovation, like they had backdated their
Speaker 1: patents or something, and GEO on the patent send and
Speaker 1: Durant had to write down the entire investment. But he's
Speaker 1: Billy Durant. By nineteen ten, General Motors is selling twenty
Speaker 1: one different models made by ten different manufacturers and Just
Speaker 1: to be clear, there is no synergy here. It's not
Speaker 1: one giant factory with everyone working together. No, it is
Speaker 1: a total mess assembled by this manic salesman who just
Speaker 1: wants to make deals. And this is around the time
Speaker 1: that the model t Ford starts to take off. The
Speaker 1: price is getting cheaper. It's the best selling car in
Speaker 1: the country. It's one car getting more more efficient every time,
Speaker 1: while Billy Durant is creating an empire, an inefficient empire. Yes,
Speaker 1: and Ford is winning and GM is losing very clearly
Speaker 1: at this point. So by the middle of nineteen ten,
Speaker 1: GMO's millions of dollars to suppliers. They've got all this
Speaker 1: inventory on hand. They lay off a third of their workforce,
Speaker 1: and Billy has to go to the bankers for loans.
Speaker 1: And the bankers look at gim and the whole company
Speaker 1: is a mess. They can't even tell who's doing what.
Speaker 1: Each sub company has its own books, and the bankers
Speaker 1: are like, look, we are not going to put money
Speaker 1: into Billy Durant. Yes, GM is a real company, they're
Speaker 1: making cars. But if we're going to put money into this,
Speaker 1: Billy Durant has got to go. So now Billy Durant
Speaker 1: is out at GM. We're going to take a break
Speaker 1: and we're going to come back, and then Billy Durant
Speaker 1: is going to create a company to compete against GM.
Speaker 1: Can't stop this guy. In fact, because he's Billy Durant,
Speaker 1: He's actually going to create companies to compete against GM.
Speaker 1: That's the end of the ads. When the bankers fired
Speaker 1: Billy Durant from his job running GM, they also stopped
Speaker 1: production of GM's low end Buick, and that low end
Speaker 1: Buick was GM's strongest competitor to the Ford Model T
Speaker 1: and I guess the bankers were like, let's not even
Speaker 1: try and compete on that one. Ford is clearly winning there.
Speaker 1: Let's leave that end of the market to him. And
Speaker 1: Billy Durant was like opportunity, Yeah, low end of the market.
Speaker 1: I can compete there. And like a lot of founders today,
Speaker 1: he was still this charismatic guy. We were talking about this.
Speaker 1: Our producer Gabriel was like, yes, like Adam Newman, Yeah,
Speaker 1: he started, we were blew up and got more money
Speaker 1: to start some new thing. Billy Grant was like that.
Speaker 1: He was a gifted salesman. People still wanted to invest
Speaker 1: in him, so he started issuing stock and creating companies.
Speaker 1: Created four companies, and there's one that we really care about.
Speaker 1: He started it with a famous Swiss race car driver
Speaker 1: named Louis Chevrolet. Amazing. I thought it was like an
Speaker 1: explorer or something town in Michigan or something. No, it
Speaker 1: was a Swiss race car driver. It started out badly,
Speaker 1: and Durant ended up buying out Louis Chevrolet for ten
Speaker 1: thousand dollars and rolled up all of these companies he
Speaker 1: had started into one company, into Chevrolet with one mission,
Speaker 1: create a car that can compete with the Ford Model T.
Speaker 1: And he can't quite compete on price, like Ford is
Speaker 1: just too far ahead. But he builds slightly nicer and
Speaker 1: slightly more expensive cars because if you're competing with a
Speaker 1: car for the poor, as Henry Ford put it, maybe
Speaker 1: there are people who think of themselves as not quite
Speaker 1: as poor as my neighbor and want to show it off. Yeah.
Speaker 1: And you know, big markets get a lot of niches.
Speaker 1: There are, in fact a lot of niches. I think
Speaker 1: of like the Galapagos and like all the finches with
Speaker 1: each little beak. As the car market is growing, there
Speaker 1: are more profitable niches and a Durant finds one in
Speaker 1: the slightly more expensive than a model T Niche. In
Speaker 1: nineteen fifteen, he launches a car called the four ninety,
Speaker 1: the Chevy four ninety, which is supposed to cost four
Speaker 1: hundred and ninety dollars, the price of a model Tea
Speaker 1: around this time. Yes, actually cost five hundred and fifty dollars.
Speaker 1: Most Billy Durant thing ever, total salesman move. But it's
Speaker 1: a hit anyway. Well, you pull them in with this
Speaker 1: and then show them a larger number. It's called the
Speaker 1: four ninety. But let me talk to the guy in
Speaker 1: the background. Sicher says, we just can't make that deal.
Speaker 1: We're giving them away. So now Durant is making money.
Speaker 1: People are actually buying this car. Anyways, you who he's
Speaker 1: doing with the money he's making. He is secretly buying
Speaker 1: up stock in GM, company started and then got kicked
Speaker 1: out of. And he has this dream of taking back
Speaker 1: his baby, taken back GM. He goes to the people
Speaker 1: who sold him their companies when he was at GM.
Speaker 1: They of course still have GM stock. They agree to
Speaker 1: back him, and he also gets to know Pierre DuPont,
Speaker 1: very important the chemical family. Of the chemical family DuPont.
Speaker 1: He is the chairman of the board of GM also
Speaker 1: at this time, and he is running DuPont And at
Speaker 1: the time DuPont was largely in the explosives and gunpowder business.
Speaker 1: This is nineteen fifteen World War One. All of a sudden,
Speaker 1: his products are very popular. Good time to be in
Speaker 1: the explosives and gunpowder business. So DuPont's taking his blood
Speaker 1: money basically and investing it in GM, and Billy Durant
Speaker 1: gets DuPont on his side, and a few months later,
Speaker 1: Billy Durant goes to a GM board meeting and drops
Speaker 1: the bomb. He says, I and Chevrolet now control a
Speaker 1: majority of the shares of General Motors and there's nothing
Speaker 1: you can do about it. I'm back. Charm beats organization.
Speaker 1: I guess so, I guess. So he charmed his way back,
Speaker 1: at least for now, and he does the thing again.
Speaker 1: He does the thing again, issuing stock building factories, buying companies,
Speaker 1: borrowing money, making more cars. Again. There's a downturn. This
Speaker 1: time it's the recession of nineteen twenty and Billy Durant
Speaker 1: is in trouble again. And he's in trouble personally because
Speaker 1: very much in keeping with his character, Billy Durrant has
Speaker 1: been busy borrowing money to buy GM stock, and the
Speaker 1: collateral he uses for those loans is the GM stock
Speaker 1: he already owns. And so now that the stock price
Speaker 1: is falling, the lenders are like, we need our money back,
Speaker 1: and in order to give them their money back, he's
Speaker 1: got to sell the stock.
Speaker 3: And this is a situation to be in. This happens
Speaker 3: in every recession. The people who have borrowed the most,
Speaker 3: who are the most extended, are the ones that go under.
Speaker 1: And you have this cyclical fire sale potential where you
Speaker 1: got to sell the asset to pay back the loan,
Speaker 1: and that makes the price go down, and that's extremely bad.
Speaker 1: And so Pierre DuPont, chairman of the board, decides to
Speaker 1: figure out what's going on with Billy Durant, the man
Speaker 1: he backed. He says, Okay, how much money have you
Speaker 1: borrowed and who have you borrowed it from? And Durant's like, um.
Speaker 1: He starts looking around his desk. He's got all these papers,
Speaker 1: like handwritten notes. It's worse than DuPont thought. DuPont writes
Speaker 1: a letter to his brother just after this. Read this
Speaker 1: line from this letter, mister Durant stated that he had
Speaker 1: no personal books or accounts and was unable to give
Speaker 1: definitive statements. He doesn't know how much he owns or
Speaker 1: who he owes it to. So somebody got all Durant's
Speaker 1: papers together and edited up, and in fact he owed
Speaker 1: thirty million dollars and he has again yes to pond At.
Speaker 1: Some other bankers bail him out and they fire him.
Speaker 1: But there was this one key thing Billy Durant had
Speaker 1: done a few years earlier when he was a vertically
Speaker 1: integrating back when he was buying up all those parts company.
Speaker 1: This is the engine motor company you talked about. It's
Speaker 1: actually even more boring than that. It's a company that
Speaker 1: sold roller bearings. These things that are kind of like
Speaker 1: ball bearings, are cylindrical. Maybe they're just they go between
Speaker 1: the axle and the wheel to reduce friction. And the
Speaker 1: company is not important because of the roller bearings, but
Speaker 1: because of the guy who was running the roller bearing company,
Speaker 1: guy named Alfred Sloane. He is kind of also like
Speaker 1: a human roller bearing. He is not exciting, not flashy,
Speaker 1: but very good at reducing friction. Oh nice, Yeah, he's
Speaker 1: good at making things more efficient, and Billy had brought
Speaker 1: Sloan into GM to run those parts companies that he
Speaker 1: bought up. And once Billy is gone, Alfred Sloan, the
Speaker 1: human roller bearing, is going to turn GM into the
Speaker 1: efficient machine that's going to beat Henry Ford. And also
Speaker 1: he will create the model that is going to transform
Speaker 1: corporations around the world in the twentieth century. In fact,
Speaker 1: it's going to create what we think of as a corporation.
Speaker 1: Kind of that's after the break. Okay, we're back from
Speaker 1: the break. Billy Durant is out and Alfred Sloan is in,
Speaker 1: and they're these opposites, but they are these just beautiful.
Speaker 3: Form of opposites that you often see in incorporate life
Speaker 3: these days. You first of all have the cowboy, the
Speaker 3: charismatic founder, right, great salesman has the dream. Can't really
Speaker 3: add up debts, but that doesn't matter because he's selling
Speaker 3: people on what it can be, you know, constantly future focused.
Speaker 3: And then when the cowboy gets in trouble story oldest time,
Speaker 3: the board brings in the roller bearing, the human roller
Speaker 3: bearing to count things, put things in files in file cabinets.
Speaker 1: Yeah, make things more efficient, more orderly, and a really
Speaker 1: interesting thing about this story is the broader historical context,
Speaker 1: because this is the nineteen twenties when Sloan is coming in.
Speaker 1: This is the moment when the boring guys, the managers,
Speaker 1: are ascendant. You know, if you think about it, if
Speaker 1: you go back a few decades, it was all cowboys.
Speaker 1: It was Carnegie and Ford and Billy Durant. But then
Speaker 1: once you get into the twenties and thirties, things have
Speaker 1: settled down. You know, the country has ended up realized
Speaker 1: you don't have all these new companies coming along doing
Speaker 1: things nobody's ever done before. And in fact, when I was,
Speaker 1: you know, working on today's episode, I looked at a
Speaker 1: list of the most valuable companies in nineteen ninety five,
Speaker 1: right before the dot com boom. The most valuable companies
Speaker 1: in America at that time were ge Exon originally part
Speaker 1: of Standard Oil, AT and T, Coca Cola, and Philip Morris.
Speaker 1: These companies are one hundred years old at that point.
Speaker 1: They were started in the late eighteen hundred. They were so, yeah,
Speaker 1: they're all one hundred year old companies. Yeah yeah, yeah.
Speaker 1: So they had been run by this managerial class for
Speaker 1: decades and very different than today. You know, today, if
Speaker 1: you look at the biggest companies, a lot of them
Speaker 1: were started by people who are still alive, in many
Speaker 1: cases still running the company, you know, Elon Musk, Jensen,
Speaker 1: wang Mark Zuckerberg. But for most of the twentieth century,
Speaker 1: American business was not dominated by entrepreneurial cowboys. It was
Speaker 1: dominated by managers, by people like Alfred Sloan.
Speaker 3: This is a deep idea, this back and forth between
Speaker 3: the cowboy era and the managerial era, seeing that perhaps
Speaker 3: ten twenty years in the future will have another managerial
Speaker 3: era where.
Speaker 1: They'll clean up the messages. Maybe maybe, So I think
Speaker 1: it depends on sort of the rate of technological change.
Speaker 1: And you know, you have this Second Industrial Revolution in
Speaker 1: the late eighteen hundreds that gives all these cowboys this
Speaker 1: opportunity which they take, and then you have a kind
Speaker 1: of stable era. So we'll see, but we might get
Speaker 1: back to a manager era. All right. Our manager hero,
Speaker 1: Alfred Sloan rides in on his boring, slow but safe
Speaker 1: horse in the early twenties and he is about to
Speaker 1: invent the model for how managers are going to control
Speaker 1: American business for essentially the rest of the twentieth century.
Speaker 1: Becomes president of GM in nineteen twenty three, inherits this
Speaker 1: total mess from Billy Durant. All these companies have their
Speaker 1: own bookkeeping systems. They're all doing their own thing. It's
Speaker 1: hard even to come pair, like is Cadillac making more money?
Speaker 1: Is you know, Chevy doing doing better? Under Billy Durant.
Speaker 1: There is no real GM headquarters. It's just Durant and
Speaker 1: a few assistants running around calling people and making deals.
Speaker 1: And Sloan clearly sees that there needs to be more centralization,
Speaker 1: needs you know, GM needs to be a unified company.
Speaker 1: But it's it's interesting and subtle because he also realizes
Speaker 1: that Cadillac needs to still be Cadillac, and Chevy needs
Speaker 1: to still be Chevy. They are at some level different
Speaker 1: with loyalty, with loyalty, even with creativity, Like it is
Speaker 1: a creative business making cars, there's some style involved. They're
Speaker 1: going to bring in more style. And so Sloan comes
Speaker 1: up with this system that is gonna shape big companies
Speaker 1: around the US and around the world. And again, it's
Speaker 1: one of those ideas that seems obvious to us now
Speaker 1: because it's ubiquitous, but it wasn't obvious at the time,
Speaker 1: and that is this. Sloan makes each car brand, you know, Chevy, Cadillac, Oldsomobile,
Speaker 1: its own division, with its own profit and loss line.
Speaker 1: It's responsible for its own p and L. And then
Speaker 1: he creates this small team of senior executives at GM
Speaker 1: who don't have day to day operating responsibility and whose
Speaker 1: job is to think big yes, to keep track of
Speaker 1: the finances, but maybe more importantly, to think about GM's
Speaker 1: long term strategy, which sounds extremely boring and manager but
Speaker 1: it is extremely effective. It works, and they start teaching
Speaker 1: this in schools. This is the rise of the manager class.
Speaker 1: You went to business school. I have a master's in
Speaker 1: business administration. You are the descendant of Alfred Sloan. Right.
Speaker 1: Part of the reason I think it works so well
Speaker 1: at GM is because Sloan and the other top managers
Speaker 1: he brings in as these senior executives, are really good
Speaker 1: at understanding what's happening in America in the nineteen twenties
Speaker 1: and at taking that understanding and using it to push
Speaker 1: the country further, to shape the country in a way.
Speaker 1: Of course, that is going to be good for GM,
Speaker 1: but that has a profound effect on America, on American culture.
Speaker 1: So I want to point to three key moves it's
Speaker 1: GM makes around this time. Yes, deren what I've prepared
Speaker 1: for you this presentation. Okay, three key moves Sloane makes
Speaker 1: at GM around this time. Move number one. Maybe you
Speaker 1: have one of those big pointers. This is actually Sloan's
Speaker 1: language here. This headline for this one, A Car for
Speaker 1: Every Purse and Purpose Beautiful, comes from the nineteen twenty
Speaker 1: four Annual Report. And the idea is GM is going
Speaker 1: to clearly differentiate its division so that one they're not
Speaker 1: competing with each other. And two, more interestingly, if you
Speaker 1: are a car buyer, whatever you need, however much you
Speaker 1: want to pay, there is a clear GM brand for you.
Speaker 3: And one of the problems with having one price, as
Speaker 3: Henry Ford wanted to have one cheap price, is there's
Speaker 3: a lot of people who actually want to pay more
Speaker 3: and if you charge them a low price, while they
Speaker 3: get to keep the money in their pocket, but they
Speaker 3: were going to give it to you if you just
Speaker 3: gave them a reason, don't leave money on the table.
Speaker 3: Price discrimination.
Speaker 1: So the suite of GM brands that that Durant has
Speaker 1: built is perfect for this. You know, if you want
Speaker 1: a cheap car, buy Chevy. You want something sporty and
Speaker 1: moderately priced, Pontiac. If you're like a middle class dad
Speaker 1: looking for a family car, I'm listening Polsmobile. Or if
Speaker 1: you get a promotion, upgrade to a Buick. Oh, mister Smith,
Speaker 1: I see you're doing well. Yeah, congratulations. If you've really
Speaker 1: made it, join the country club. You know what it
Speaker 1: is you buy a catalgy. I wouldn't know personally, but
Speaker 1: I admire those who do a car for every purse
Speaker 1: and purpose for every wallet and want move number one.
Speaker 1: The boardroom's taking notes. They're looking next slide move number two.
Speaker 1: Keep the customer dissatisfied, Jadles. Nineteen twenties, Chevrolet started bringing
Speaker 1: out new models of its cars every year, and within
Speaker 1: a few years this had spread to all of GM.
Speaker 1: So every brand is bringing out a new model every year.
Speaker 1: And to be clear, it's not like they were re
Speaker 1: engineering the car on the inside every year. This always
Speaker 1: confused me.
Speaker 3: It really did when I was a kid, and even
Speaker 3: to this day, Like, why would you care about the
Speaker 3: difference between a nineteen eighty eight and a nineteen eighty
Speaker 3: nine model of a car.
Speaker 1: I'm gonna give you a line from Alfred Sloan around
Speaker 1: this time he said, we need to bring the laws
Speaker 1: of Paris dressmakers to the automobile industry. It's fashion. This
Speaker 1: is such an insight. These cars are very expensive and
Speaker 1: they could have treated these cars like buying a house.
Speaker 1: You know, you buy a house, you fix it up,
Speaker 1: but you you don't change your house every year every
Speaker 1: three years. Instead, what an insight that this is something
Speaker 1: that is essentially disposable. Yes, Sloan was so committed to
Speaker 1: this idea of cars in fashion that he actually created
Speaker 1: a whole department called Art and Color. Remember this is
Speaker 1: like an heavy industry industry. This is big factories. This
Speaker 1: is not a thing people thought of as fashion. And
Speaker 1: so often the new model would be like, oh yeah,
Speaker 1: the new model. It has some chrome here that the
Speaker 1: headlamp is a different shape. You don't want that old
Speaker 1: headlamp shape. Did Henry Ford have an art and color department?
Speaker 1: Was black? It was one guy who was like, how
Speaker 1: about if we had Hardy Foord, It's like keep it black.
Speaker 1: So there is this key line from Charles Kettering, the
Speaker 1: head of research at GM around the time. He was
Speaker 1: the one who had this phrase, keep the customer dissatisfied.
Speaker 1: He wrote, if everyone were satisfied, no one would buy
Speaker 1: the new thing because no one would want it. Around
Speaker 1: the boardroom table, there is a murmur and a stroking
Speaker 1: of beards. Move number three by now pay later. This
Speaker 1: guy's inventing America. This one actually really is this one.
Speaker 1: Actually we got a credit to Billy Durant. This one
Speaker 1: started when Durant was running the company. GM created its
Speaker 1: own finance arm GMAC Financing, the General Motors Acceptance Corporation,
Speaker 1: because then, as now, most people don't have enough money,
Speaker 1: you know, in their bank account to just go buy
Speaker 1: a car. You might be able to get a bank loan,
Speaker 1: you might not. And GMAC meant that somebody without enough
Speaker 1: money in the bank could walk in off the street,
Speaker 1: get a loan at the dealership, and drive off in
Speaker 1: a brand new car. To summarize, gentlemen, we have a
Speaker 1: car for every person purpose. We have new models every year,
Speaker 1: and we have financing so people can pay for it.
Speaker 1: And you know, if you zoom out and think about
Speaker 1: the nineteen twenties, yeah, it's coming at the perfect time
Speaker 1: because people have money, people are obsessed with fashion. This
Speaker 1: is the rise of America or post war everyone wants
Speaker 1: to spend. Sing's kind of making it happen, right is
Speaker 1: it is coming at the right time, and it is
Speaker 1: creating this consumerist, debt driven nineteen twenties culture that we
Speaker 1: know because we also have the rate at this point
Speaker 1: and advertising and selling these things. So now think about
Speaker 1: Henry Ford, who that I don't feel that bad for him,
Speaker 1: who at the beginning of the decade was on top
Speaker 1: of the world. Right, Like, all three of these moves
Speaker 1: from GM are like anti Ford moves. You know, a
Speaker 1: car for every purse and purpose. No, for Ford, the
Speaker 1: car for every person purpose is the Model T. There
Speaker 1: is one car. It is the car, a new model
Speaker 1: every year. Absolutely not. In fact, you know, they sold
Speaker 1: the Model T for what for well over a decade,
Speaker 1: but it did change on the insight over that time.
Speaker 1: They kind of played down the changes because, and I'm
Speaker 1: reading a quote from him, we believe that when a
Speaker 1: man buys one of our cars, we should keep it
Speaker 1: running for him as long as we can and at
Speaker 1: the lowest upkeep cost. Oh how nive? Oh, I mean
Speaker 1: kind of nice in its way. So yeah, so that's
Speaker 1: the Ford quote. Compare that with this famous quote from
Speaker 1: a GM exec named Harley Earl, actually guy they brought
Speaker 1: in to start that art and color department in the twenties.
Speaker 1: In the fifties, here's the thing he said. In the fifties,
Speaker 1: here you take it. In nineteen thirty four, the average
Speaker 1: car ownership was a span of five years. Now it's
Speaker 1: two years. When it is one year, we will have
Speaker 1: a perfect score. I kind of hate that. I kind
Speaker 1: of hate that. Well, Marge, car ownership now is much longer.
Speaker 3: Interestingly, we are both the kind of people who buy
Speaker 3: things and want to keep them forever. Yeah, anti American,
Speaker 3: if you will. At this time we were not on
Speaker 3: board with the GF.
Speaker 1: We were not on board. So if you think of Ford,
Speaker 1: he's anti fashion, anti new car every year. And he
Speaker 1: was also anti finance. I think, in fact, he thought
Speaker 1: it was morally wrong to put people into debt to
Speaker 1: buy a car. And I do think there was a
Speaker 1: change in the way Americans thought about debt in the twenties,
Speaker 1: where before that people were much more scared of debt.
Speaker 1: They thought debt was bad. Well, he was checking his
Speaker 1: workers to make sure that they were wise with their
Speaker 1: money and not in debt and saving. Yeah, and there
Speaker 1: was this thing at Ford, where you could like save
Speaker 1: money every week, you like a deposit five bucks every
Speaker 1: week at the Ford dealer, and when you have enough money,
Speaker 1: you buy a car. Obviously people would rather just borrow
Speaker 1: the money today and drive off in a car. And
Speaker 1: so for all of these reasons, GM passes Ford. At
Speaker 1: the start of the twenties, Ford's market share was over
Speaker 1: fifty percent. By nineteen twenty six, fords market share has
Speaker 1: fallen to thirty percent, and things are actually about to
Speaker 1: get worse for Ford. In nineteen twenty seven, Henry Ford
Speaker 1: finally went along with all the execs who'd been telling
Speaker 1: him it's time to come up with a new car.
Speaker 1: The Model T. It's a little bit old by now,
Speaker 1: so in twenty seven he's finally like, okay, we're gonna
Speaker 1: do something more modern. They're going to call this new
Speaker 1: car the Model A. Back to the beginning. Yeah, they
Speaker 1: have a prototype, they know the car they're gonna make.
Speaker 1: But at this moment, the thing that made Ford great
Speaker 1: in a way is going to come back to bite them,
Speaker 1: and that is Ford's factories had been optimized to this
Speaker 1: wild degree to be incredibly efficient at building the Model
Speaker 1: T one thing one thing like Remember there was that
Speaker 1: machine that drilled I think was twenty four holes all
Speaker 1: at the same time in the engine block for the
Speaker 1: Model T. Now they got a new engine, that machine
Speaker 1: is useless now and so in fact, in order to
Speaker 1: switch over from the Model T to the Model A,
Speaker 1: Ford has to shut down production entirely for six months.
Speaker 1: Six months when they're not making cars, they're just changing
Speaker 1: over the factory.
Speaker 3: This is something they teach you when you get your
Speaker 3: MBA that production lines can be too efficient, like there
Speaker 3: needs to be a little bit of slack in the
Speaker 3: system for when things change or when there's a stumbling
Speaker 3: block or something. And we saw this all the way
Speaker 3: to the super efficient supply chains during the pandemic. People
Speaker 3: who had supply chains that were just in time, just
Speaker 3: the part they need that arrives, you know, the morning
Speaker 3: you're about to put it in a car. Those people
Speaker 3: were screwed when there were any sort of delays. And
Speaker 3: the lesson and it comes again and again, is yes,
Speaker 3: it is a short term view to be super super
Speaker 3: super efficient. But clearly for Henry Ford this put him
Speaker 3: way behind GM.
Speaker 1: Yeah it worked for a while, it wasn't that short term,
Speaker 1: but at this point it is definitely biting him back.
Speaker 1: And they do come out with this new Model A,
Speaker 1: and it is a great car. It's, you know, more
Speaker 1: powerful than the Model T. Is still very cheap, but
Speaker 1: America had fundamentally changed in a way that GM understood
Speaker 1: and helped to make happen. Americans didn't want to drive
Speaker 1: one car anymore. They didn't all want to rush out
Speaker 1: and buy the Model A. They wanted the newest car.
Speaker 1: They wanted to be able to trade up to a
Speaker 1: higher status brand got a raise, and if they didn't
Speaker 1: get a raise, they want to be able to borrow
Speaker 1: the money to buy the higher status car. What Alfred
Speaker 1: Sloane understood that Henry Ford never really did was that
Speaker 1: this era of mass production that Ford had created gave
Speaker 1: rise to an era of mass consumption to the modern consumer.
Speaker 1: And so Sloan and GM did what great companies do.
Speaker 1: They saw this change in the world, and then they
Speaker 1: pulled that change forward to their own benefit. GM pushed
Speaker 1: Americans to become a nation of consumers, and they capitalized
Speaker 1: on that consumerism, which is why GM and not Ford,
Speaker 1: was the biggest carmaker in the world for the rest
Speaker 1: of the twentieth century. Boom before you go today, I
Speaker 1: just want to thank our listener, Professor Umberto Barreto, who
Speaker 1: wrote to us after he heard the episode about the
Speaker 1: Origin of Silicon Valley where we talked about Sputnik, the
Speaker 1: Soviet satellite that came as this huge surprise to America,
Speaker 1: and he pointed out this really interesting thing that in
Speaker 1: fact I didn't know, and that is people at the
Speaker 1: top levels of the government in the United States were
Speaker 1: apparently not so surprised by Sputnik. They knew that the
Speaker 1: Soviets were working on a satellite, and interestingly, like President
Speaker 1: Eisenhower and others around him were building their own spy
Speaker 1: satellite at the time, and they kind of liked Sputnik
Speaker 1: because it was like, oh, now it's okay to shoot
Speaker 1: up a satellite and fly it over another country, which
Speaker 1: wasn't clear if that was going to be okay, and
Speaker 1: they're like, we're going to have our spy satellite go
Speaker 1: fly over Russia and find out where their missiles. Soviets
Speaker 1: did it, we can do it too. Thank you, professor
Speaker 1: for writing to us. Everybody should write to us. I
Speaker 1: love getting emails. We're at Business History at Pushkin dot FM.
Speaker 1: I'm also at Jacob Goldstein on x and I'm on
Speaker 1: LinkedIn as well. I'm at Radiosmith All the Places That Matter.
Speaker 1: Today's show was produced by Gabriel Hunter Chang. It was
Speaker 1: in engineered by Sarah Bruguer and Our showrunner and editor
Speaker 1: is Ryan Dilly. My name is Jacob Goldstein. I'm Robert Smith.
Speaker 1: Thanks for listening.