WEBVTT - How GM Beat Ford 0:00:17.560 --> 0:00:19.040 Pushkin too quick. 0:00:19.240 --> 0:00:34.320 No, it's perfect push kid stuff, you got it. 0:00:36.720 --> 0:00:39.120 Henry Ford had a dream, a dream we talked about 0:00:39.159 --> 0:00:41.600 last week on the show. His dream was to make 0:00:42.000 --> 0:00:45.360 a car that was cheap enough and reliable enough for 0:00:45.440 --> 0:00:50.560 the masses, and amazingly he did it. Created the Model T. 0:00:50.760 --> 0:00:54.840 He invented mass production, the modern assembly line, and by 0:00:55.000 --> 0:00:58.360 nineteen twenty most of the cars on the road in 0:00:58.400 --> 0:01:01.720 America were Model TS. Ford was world famous. He was 0:01:01.760 --> 0:01:03.880 on his way to becoming the richest man in the world. 0:01:04.759 --> 0:01:08.280 But he was also about to get beat within just 0:01:08.319 --> 0:01:10.240 a few years. He was going to get beat by 0:01:10.240 --> 0:01:15.080 a company that realized something that he never did. Americans 0:01:15.120 --> 0:01:19.720 don't just want a simple, cheap, utilitarian car. We want fashion, 0:01:20.319 --> 0:01:22.800 we want status, we want the new thing, and we 0:01:22.840 --> 0:01:26.080 are not afraid to borrow money to get it. I'm 0:01:26.120 --> 0:01:28.720 Jacob Boltstein and I'm Robert Smith, and this is business History, 0:01:28.760 --> 0:01:31.400 a show but that actually visits. Last week on the show, 0:01:31.480 --> 0:01:34.840 Pitcha talked about the rise of Ford. It is a 0:01:34.840 --> 0:01:36.840 show about the history of business. Today on the show, 0:01:37.200 --> 0:01:41.440 we're talking about General Motors GM, the company that came 0:01:41.480 --> 0:01:45.880 along and beat Forard. The story of General Motors starts 0:01:45.920 --> 0:01:50.800 with one Billy Durant, high school dropout, door to door 0:01:51.000 --> 0:01:57.200 cigar salesman. I like him already, wildly charismatic. Walter Chrysler, 0:01:57.920 --> 0:02:01.320 That Chrysler, the guy who started Chrysler said Billy Durant 0:02:01.320 --> 0:02:04.040 could talk the birds down out of the trees. Sounds 0:02:04.040 --> 0:02:08.880 like orpheus. Billy Durant grew up in Flint, Michigan, and 0:02:09.120 --> 0:02:11.720 in eighteen eighty six, when he was in his mid twenties, 0:02:12.320 --> 0:02:16.280 the Flint Road Cart Company built it into the biggest 0:02:16.519 --> 0:02:19.919 like horse drawn cart company. These are cars you hook 0:02:19.959 --> 0:02:22.040 up to a horse? Cars? Yes, eighteen eighty six. Sure 0:02:22.240 --> 0:02:27.720 it's the horse full carriage. Yes. And once he basically 0:02:27.720 --> 0:02:30.120 got rich from his cart business, he went off to 0:02:30.200 --> 0:02:33.360 New York to live the high life and play the 0:02:33.360 --> 0:02:34.120 stock market. 0:02:34.400 --> 0:02:37.600 This was no Henry Ford toiling away tinkering with the 0:02:37.639 --> 0:02:38.200 next big thing. 0:02:38.360 --> 0:02:41.000 Nah. He just wanted to be a rich guy in 0:02:41.000 --> 0:02:44.120 New York. So that's what he did until nineteen oh four, 0:02:45.080 --> 0:02:48.959 when a local wagon business back in Flint, Michigan, had 0:02:49.040 --> 0:02:53.560 just purchased the Buick Motor Company founded by one David Buick. 0:02:53.720 --> 0:02:56.120 All these guys named after cars, these guys, what a 0:02:56.160 --> 0:03:00.679 crazy coincidence. Bwick was a great engineer and a terrible businessman. 0:03:02.200 --> 0:03:07.880 Familiar founder Combo Buick had told just thirty seven cars 0:03:07.919 --> 0:03:10.120 in nineteen oh three, not three hundred and seventy, but 0:03:10.280 --> 0:03:13.880 thirty seven. And so this cart company that has bought 0:03:13.919 --> 0:03:18.280 Buick recruits Billy Durant to come back and make this 0:03:18.360 --> 0:03:21.440 company work. Billy Durant's not a car guy. He's a 0:03:21.440 --> 0:03:25.000 finance guy. He's smoking cigars in the club in Manhattan 0:03:25.080 --> 0:03:27.680 from Flint. He's a hometown guy. And so he comes 0:03:27.760 --> 0:03:29.880 back from New York to Flint just to see what's 0:03:29.919 --> 0:03:32.920 going on. And he goes for a ride in a Buick, 0:03:33.639 --> 0:03:35.960 possibly the third time in his life that he's been 0:03:36.000 --> 0:03:40.640 in a car, but he likes it. It's a smooth ride. 0:03:40.880 --> 0:03:42.680 He decides he's going to drive it around for two 0:03:42.720 --> 0:03:45.480 months and see how this whole car thing works. And 0:03:45.520 --> 0:03:48.320 it works. He drives it through you know, creek beds 0:03:48.360 --> 0:03:50.600 on dirt roads, and he thinks, yes, this is a 0:03:50.600 --> 0:03:52.960 good car. Cars are going to be big. I will 0:03:53.000 --> 0:03:55.920 take over Buick and I will make it succeed. I 0:03:55.920 --> 0:03:58.760 can sell this thing. I can sell this Yes, that 0:03:58.960 --> 0:04:01.720 is Billy Durant's worldview. And in fact, there is this 0:04:02.360 --> 0:04:06.440 lovely description of Durant at this time written later by 0:04:06.440 --> 0:04:11.280 his daughter Marjorie, about what it was like. Please. There 0:04:11.280 --> 0:04:13.840 were men at dinner, There were men at the front door. 0:04:13.920 --> 0:04:16.520 The parlor was often full of men, and behind closed 0:04:16.560 --> 0:04:19.400 doors there were other men. They talked and they listened, 0:04:19.600 --> 0:04:22.599 but my father mostly listened. When he did talk, it 0:04:22.720 --> 0:04:26.480 was like a violin beginning to play. Those present had 0:04:26.520 --> 0:04:27.800 to listen. I know. 0:04:28.120 --> 0:04:30.640 They all said the same thing then that they do now. 0:04:30.760 --> 0:04:33.839 Durant is the greatest salesman I ever knew. It's a 0:04:33.880 --> 0:04:36.920 lovely piece of writing, isn't it the replication word men? 0:04:37.040 --> 0:04:41.320 Yeah, so Durant knows how to sell cars, and Buick 0:04:41.960 --> 0:04:45.560 is growing. In fact, it becomes the biggest car manufacturer 0:04:45.600 --> 0:04:49.120 in America. But as we talked about last week, there 0:04:49.160 --> 0:04:51.760 are lots of little car manufacturers in America in the 0:04:51.760 --> 0:04:55.479 early nineteen hundreds, four hundred and twenty three different companies 0:04:55.480 --> 0:04:58.120 by one count that I saw, And these are little 0:04:58.160 --> 0:05:00.440 shops with guys building cars one by one. This is 0:05:00.480 --> 0:05:03.679 before Henry Ford brings mass production and economy of scale 0:05:03.720 --> 0:05:06.800 to cars, and it's clear already that there's gonna be 0:05:06.920 --> 0:05:10.760 consolidation in the industry. This is the era of GP Morgan. 0:05:10.920 --> 0:05:15.000 You know US Steel, General Electric, and JP Morgan, the 0:05:15.040 --> 0:05:19.239 great consolidator, decides it's time to create an automotive trust, 0:05:19.720 --> 0:05:23.680 consolidate the car industry by merging the biggest players together. 0:05:24.000 --> 0:05:27.320 And early in nineteen oh eight, Morgan's son in law 0:05:27.400 --> 0:05:32.279 gets Billy Durant of Buick and Henry Ford of Ford 0:05:32.800 --> 0:05:35.400 to come to a meeting in New York, along with 0:05:35.400 --> 0:05:37.839 the heads of a couple other big car companies. 0:05:38.240 --> 0:05:40.520 By the way, this is JP Morgan's whole day is 0:05:40.760 --> 0:05:44.400 everyone comes from an industry, he melds them together and 0:05:44.440 --> 0:05:46.240 then takes on the next industry the next hour. 0:05:46.360 --> 0:05:48.360 I mean, there is anti trust law at this point, 0:05:48.360 --> 0:05:52.160 there's not anti trust enforcement quite yet. And so they 0:05:52.160 --> 0:05:54.080 get to the meeting. They get to New York and 0:05:54.160 --> 0:05:57.240 Henry Ford is skeptical. He's already dreaming of selling a 0:05:57.279 --> 0:06:00.479 car to the masses, selling a cheap car. And you know, 0:06:00.560 --> 0:06:03.880 the point of consolidation, of forming a trust is to 0:06:03.880 --> 0:06:05.360 sell a car for more money. Is a one to 0:06:05.400 --> 0:06:09.280 make fewer cars and charge more, which is the monopolist playbook. 0:06:09.760 --> 0:06:12.960 But you know, everybody has their price, and he says, 0:06:13.760 --> 0:06:16.839 I will sell you my share of the Ford Motor 0:06:16.880 --> 0:06:24.560 Company for cash three million dollars, which was clearly a 0:06:24.680 --> 0:06:28.239 huge sum. Yeah, nobody was going to pay it too much, 0:06:29.240 --> 0:06:31.680 and the deal falls apart. It's fun to think of 0:06:31.720 --> 0:06:34.720 what could have been, though, and importantly for our story, 0:06:34.920 --> 0:06:40.000 this meeting gives Billy Durant an idea, Oh, somebody is 0:06:40.040 --> 0:06:42.240 going to consolidate the car market. This deal didn't work, 0:06:42.279 --> 0:06:44.960 but some deal will work. Somebody's going to win. I'm 0:06:44.960 --> 0:06:48.039 Billy Durant. Why shouldn't it be me? So instead of 0:06:48.040 --> 0:06:50.440 calling the birds from the trees, he's calling the companies 0:06:50.440 --> 0:06:53.560 to him. Yes, and he is literally calling the companies 0:06:53.600 --> 0:06:56.560 to him. There is this story that he gets back 0:06:56.880 --> 0:06:59.679 to Flint in the middle of the night one time 0:06:59.960 --> 0:07:03.400 and he calls at three in the morning this little 0:07:03.400 --> 0:07:08.520 struggling car company called Oldsmobile and tells the head of Oldsmobile, Look, 0:07:08.960 --> 0:07:12.560 consolidation is coming, and I'm going to create a holding 0:07:12.640 --> 0:07:17.400 company and together we'll have the holding company start by 0:07:17.400 --> 0:07:23.720 acquiring Oldsmobile and Buick Apes together strong diamond hands, diamond hands, 0:07:24.520 --> 0:07:27.800 and head of Oldsmobile is in and so in September 0:07:27.920 --> 0:07:30.840 of nineteen oh eight, Durant creates his holding company, and 0:07:30.880 --> 0:07:34.080 he gives it one of those great old school generic 0:07:34.120 --> 0:07:40.200 company names like USDL or National Led. General Motors such 0:07:40.200 --> 0:07:43.560 a boring name, especially in this industry where everyone is 0:07:43.600 --> 0:07:46.960 making bespoke cars named after themselves. I think it's because 0:07:47.840 --> 0:07:51.160 he knows the brand is not going to be General Motors, right. 0:07:51.200 --> 0:07:55.680 He already knows there's going to be Buck and Oldsmobile 0:07:55.760 --> 0:07:58.200 and everything else he can get his hands on. So 0:07:58.320 --> 0:08:01.800 Duran has this big idea, this holding company idea, and crucially, 0:08:01.840 --> 0:08:05.559 from his years on Wall Street, he knows how stocks work. 0:08:06.360 --> 0:08:10.040 He knows that stocks are a tool. You start a company. 0:08:10.160 --> 0:08:12.840 You can issue pieces of paper this time it was 0:08:12.880 --> 0:08:17.360 literal pieces of paper stock certificates, and use the proceeds 0:08:17.360 --> 0:08:20.480 from selling those pieces of paper to buy real companies. 0:08:20.640 --> 0:08:22.880 He is about to do this to go on one 0:08:22.920 --> 0:08:27.240 of the greatest buying sprees in business history. Over the 0:08:27.240 --> 0:08:30.960 next year and a half, GM will acquire majority control 0:08:31.160 --> 0:08:35.800 of a major company every month, month after month. Starts 0:08:35.800 --> 0:08:38.679 with Buick and Oldsmobile. A few months later, in early 0:08:38.760 --> 0:08:42.400 nineteen oh nine, he buys a struggling car company called Oakland, 0:08:42.839 --> 0:08:46.560 which will later be renamed for the town Word's headquartered 0:08:46.600 --> 0:08:49.760 in Michigan Pontiac. A few months after that, he buys 0:08:49.760 --> 0:08:52.559 a company focused on the high end of the market, Cadillac, 0:08:52.920 --> 0:08:56.160 remember from last week was founded by Henry Ford. Buys 0:08:56.160 --> 0:08:59.360 a couple little truck companies that eventually become GMC Trucks. 0:08:59.920 --> 0:09:03.000 So he's going hard at horizontal integration, right. 0:09:02.880 --> 0:09:05.240 Which is buying up companies that do the same thing. 0:09:05.360 --> 0:09:06.720 You're just like everyone makes. 0:09:06.520 --> 0:09:08.520 A car, makes a car, sells a car. But Billy 0:09:08.600 --> 0:09:12.320 is also getting into vertical integration right, different parts of 0:09:12.320 --> 0:09:15.280 the supply chain. So he buys companies that make axles, 0:09:15.440 --> 0:09:18.880 Rims Engines, buys a company that makes spark plugs, becomes 0:09:18.920 --> 0:09:21.840 AC Spark Plugs, Buys Fisher Body, which becomes this famous 0:09:21.880 --> 0:09:26.280 part of GM. Spends seven million dollars to buy a 0:09:26.280 --> 0:09:29.720 company that makes electric headlamps. Company turns out to be 0:09:29.720 --> 0:09:33.080 a fraud, no fake innovation, like they had backdated their 0:09:33.120 --> 0:09:35.720 patents or something, and GEO on the patent send and 0:09:35.800 --> 0:09:39.199 Durant had to write down the entire investment. But he's 0:09:39.240 --> 0:09:43.640 Billy Durant. By nineteen ten, General Motors is selling twenty 0:09:43.679 --> 0:09:48.280 one different models made by ten different manufacturers and Just 0:09:48.320 --> 0:09:50.839 to be clear, there is no synergy here. It's not 0:09:50.960 --> 0:09:54.200 one giant factory with everyone working together. No, it is 0:09:54.520 --> 0:09:58.880 a total mess assembled by this manic salesman who just 0:09:58.880 --> 0:10:02.840 wants to make deals. And this is around the time 0:10:03.080 --> 0:10:06.680 that the model t Ford starts to take off. The 0:10:06.720 --> 0:10:09.840 price is getting cheaper. It's the best selling car in 0:10:09.880 --> 0:10:13.040 the country. It's one car getting more more efficient every time, 0:10:13.080 --> 0:10:17.720 while Billy Durant is creating an empire, an inefficient empire. Yes, 0:10:17.800 --> 0:10:21.400 and Ford is winning and GM is losing very clearly 0:10:21.440 --> 0:10:24.440 at this point. So by the middle of nineteen ten, 0:10:24.960 --> 0:10:28.160 GMO's millions of dollars to suppliers. They've got all this 0:10:28.320 --> 0:10:32.280 inventory on hand. They lay off a third of their workforce, 0:10:32.760 --> 0:10:35.000 and Billy has to go to the bankers for loans. 0:10:35.640 --> 0:10:38.640 And the bankers look at gim and the whole company 0:10:38.679 --> 0:10:41.280 is a mess. They can't even tell who's doing what. 0:10:41.440 --> 0:10:44.720 Each sub company has its own books, and the bankers 0:10:44.720 --> 0:10:48.320 are like, look, we are not going to put money 0:10:48.360 --> 0:10:52.480 into Billy Durant. Yes, GM is a real company, they're 0:10:52.520 --> 0:10:54.679 making cars. But if we're going to put money into this, 0:10:55.280 --> 0:10:59.040 Billy Durant has got to go. So now Billy Durant 0:10:59.080 --> 0:11:02.200 is out at GM. We're going to take a break 0:11:02.920 --> 0:11:05.520 and we're going to come back, and then Billy Durant 0:11:05.600 --> 0:11:08.240 is going to create a company to compete against GM. 0:11:08.360 --> 0:11:10.480 Can't stop this guy. In fact, because he's Billy Durant, 0:11:10.480 --> 0:11:38.000 He's actually going to create companies to compete against GM. 0:11:38.520 --> 0:11:42.600 That's the end of the ads. When the bankers fired 0:11:42.600 --> 0:11:46.520 Billy Durant from his job running GM, they also stopped 0:11:46.640 --> 0:11:52.160 production of GM's low end Buick, and that low end 0:11:52.160 --> 0:11:55.480 Buick was GM's strongest competitor to the Ford Model T 0:11:56.160 --> 0:11:58.240 and I guess the bankers were like, let's not even 0:11:58.240 --> 0:12:01.160 try and compete on that one. Ford is clearly winning there. 0:12:01.600 --> 0:12:04.600 Let's leave that end of the market to him. And 0:12:04.679 --> 0:12:08.720 Billy Durant was like opportunity, Yeah, low end of the market. 0:12:09.080 --> 0:12:13.240 I can compete there. And like a lot of founders today, 0:12:13.360 --> 0:12:16.880 he was still this charismatic guy. We were talking about this. 0:12:16.920 --> 0:12:19.640 Our producer Gabriel was like, yes, like Adam Newman, Yeah, 0:12:19.640 --> 0:12:21.880 he started, we were blew up and got more money 0:12:21.960 --> 0:12:24.000 to start some new thing. Billy Grant was like that. 0:12:24.679 --> 0:12:27.559 He was a gifted salesman. People still wanted to invest 0:12:27.600 --> 0:12:31.960 in him, so he started issuing stock and creating companies. 0:12:32.000 --> 0:12:35.400 Created four companies, and there's one that we really care about. 0:12:36.240 --> 0:12:39.839 He started it with a famous Swiss race car driver 0:12:40.200 --> 0:12:45.240 named Louis Chevrolet. Amazing. I thought it was like an 0:12:45.280 --> 0:12:48.000 explorer or something town in Michigan or something. No, it 0:12:48.080 --> 0:12:50.640 was a Swiss race car driver. It started out badly, 0:12:50.880 --> 0:12:54.200 and Durant ended up buying out Louis Chevrolet for ten 0:12:54.240 --> 0:12:56.959 thousand dollars and rolled up all of these companies he 0:12:57.000 --> 0:13:00.120 had started into one company, into Chevrolet with one mission, 0:13:00.480 --> 0:13:03.920 create a car that can compete with the Ford Model T. 0:13:04.800 --> 0:13:07.480 And he can't quite compete on price, like Ford is 0:13:07.559 --> 0:13:11.120 just too far ahead. But he builds slightly nicer and 0:13:11.160 --> 0:13:14.600 slightly more expensive cars because if you're competing with a 0:13:14.640 --> 0:13:17.880 car for the poor, as Henry Ford put it, maybe 0:13:17.920 --> 0:13:19.760 there are people who think of themselves as not quite 0:13:19.800 --> 0:13:22.440 as poor as my neighbor and want to show it off. Yeah. 0:13:22.480 --> 0:13:25.720 And you know, big markets get a lot of niches. 0:13:25.760 --> 0:13:28.240 There are, in fact a lot of niches. I think 0:13:28.280 --> 0:13:31.000 of like the Galapagos and like all the finches with 0:13:31.120 --> 0:13:33.679 each little beak. As the car market is growing, there 0:13:33.720 --> 0:13:37.960 are more profitable niches and a Durant finds one in 0:13:38.000 --> 0:13:41.840 the slightly more expensive than a model T Niche. In 0:13:41.960 --> 0:13:45.720 nineteen fifteen, he launches a car called the four ninety, 0:13:45.840 --> 0:13:48.319 the Chevy four ninety, which is supposed to cost four 0:13:48.400 --> 0:13:50.520 hundred and ninety dollars, the price of a model Tea 0:13:50.559 --> 0:13:53.959 around this time. Yes, actually cost five hundred and fifty dollars. 0:13:54.400 --> 0:13:57.439 Most Billy Durant thing ever, total salesman move. But it's 0:13:57.440 --> 0:13:59.760 a hit anyway. Well, you pull them in with this 0:13:59.960 --> 0:14:03.160 and then show them a larger number. It's called the 0:14:03.200 --> 0:14:05.319 four ninety. But let me talk to the guy in 0:14:05.320 --> 0:14:07.720 the background. Sicher says, we just can't make that deal. 0:14:07.720 --> 0:14:10.160 We're giving them away. So now Durant is making money. 0:14:10.160 --> 0:14:12.640 People are actually buying this car. Anyways, you who he's 0:14:12.760 --> 0:14:15.960 doing with the money he's making. He is secretly buying 0:14:16.040 --> 0:14:19.520 up stock in GM, company started and then got kicked 0:14:19.520 --> 0:14:22.640 out of. And he has this dream of taking back 0:14:22.680 --> 0:14:25.480 his baby, taken back GM. He goes to the people 0:14:25.480 --> 0:14:27.440 who sold him their companies when he was at GM. 0:14:27.720 --> 0:14:30.600 They of course still have GM stock. They agree to 0:14:30.720 --> 0:14:35.080 back him, and he also gets to know Pierre DuPont, 0:14:35.600 --> 0:14:38.520 very important the chemical family. Of the chemical family DuPont. 0:14:38.560 --> 0:14:41.560 He is the chairman of the board of GM also 0:14:41.600 --> 0:14:45.240 at this time, and he is running DuPont And at 0:14:45.240 --> 0:14:50.080 the time DuPont was largely in the explosives and gunpowder business. 0:14:50.600 --> 0:14:54.440 This is nineteen fifteen World War One. All of a sudden, 0:14:54.440 --> 0:14:56.400 his products are very popular. Good time to be in 0:14:56.440 --> 0:15:01.440 the explosives and gunpowder business. So DuPont's taking his blood 0:15:01.480 --> 0:15:05.440 money basically and investing it in GM, and Billy Durant 0:15:05.440 --> 0:15:09.200 gets DuPont on his side, and a few months later, 0:15:09.720 --> 0:15:13.760 Billy Durant goes to a GM board meeting and drops 0:15:13.800 --> 0:15:18.240 the bomb. He says, I and Chevrolet now control a 0:15:18.320 --> 0:15:22.400 majority of the shares of General Motors and there's nothing 0:15:22.440 --> 0:15:26.880 you can do about it. I'm back. Charm beats organization. 0:15:27.520 --> 0:15:30.280 I guess so, I guess. So he charmed his way back, 0:15:30.360 --> 0:15:32.320 at least for now, and he does the thing again. 0:15:32.360 --> 0:15:36.560 He does the thing again, issuing stock building factories, buying companies, 0:15:36.680 --> 0:15:41.120 borrowing money, making more cars. Again. There's a downturn. This 0:15:41.160 --> 0:15:45.560 time it's the recession of nineteen twenty and Billy Durant 0:15:45.600 --> 0:15:48.880 is in trouble again. And he's in trouble personally because 0:15:49.280 --> 0:15:52.240 very much in keeping with his character, Billy Durrant has 0:15:52.280 --> 0:15:57.680 been busy borrowing money to buy GM stock, and the 0:15:57.680 --> 0:16:01.000 collateral he uses for those loans is the GM stock 0:16:01.040 --> 0:16:04.400 he already owns. And so now that the stock price 0:16:04.480 --> 0:16:07.520 is falling, the lenders are like, we need our money back, 0:16:07.800 --> 0:16:10.120 and in order to give them their money back, he's 0:16:10.120 --> 0:16:11.080 got to sell the stock. 0:16:11.160 --> 0:16:13.880 And this is a situation to be in. This happens 0:16:13.880 --> 0:16:16.200 in every recession. The people who have borrowed the most, 0:16:16.360 --> 0:16:19.000 who are the most extended, are the ones that go under. 0:16:19.040 --> 0:16:22.240 And you have this cyclical fire sale potential where you 0:16:22.320 --> 0:16:24.120 got to sell the asset to pay back the loan, 0:16:24.160 --> 0:16:26.760 and that makes the price go down, and that's extremely bad. 0:16:27.200 --> 0:16:29.800 And so Pierre DuPont, chairman of the board, decides to 0:16:29.840 --> 0:16:32.560 figure out what's going on with Billy Durant, the man 0:16:32.600 --> 0:16:36.040 he backed. He says, Okay, how much money have you 0:16:36.120 --> 0:16:39.560 borrowed and who have you borrowed it from? And Durant's like, um. 0:16:39.840 --> 0:16:42.280 He starts looking around his desk. He's got all these papers, 0:16:42.520 --> 0:16:46.880 like handwritten notes. It's worse than DuPont thought. DuPont writes 0:16:46.880 --> 0:16:49.640 a letter to his brother just after this. Read this 0:16:49.720 --> 0:16:52.440 line from this letter, mister Durant stated that he had 0:16:52.480 --> 0:16:56.720 no personal books or accounts and was unable to give 0:16:56.840 --> 0:17:01.240 definitive statements. He doesn't know how much he owns or 0:17:01.280 --> 0:17:04.720 who he owes it to. So somebody got all Durant's 0:17:04.760 --> 0:17:07.399 papers together and edited up, and in fact he owed 0:17:08.159 --> 0:17:13.960 thirty million dollars and he has again yes to pond At. 0:17:13.960 --> 0:17:17.120 Some other bankers bail him out and they fire him. 0:17:17.720 --> 0:17:20.640 But there was this one key thing Billy Durant had 0:17:20.720 --> 0:17:24.040 done a few years earlier when he was a vertically 0:17:24.040 --> 0:17:26.480 integrating back when he was buying up all those parts company. 0:17:26.720 --> 0:17:29.680 This is the engine motor company you talked about. It's 0:17:29.760 --> 0:17:33.119 actually even more boring than that. It's a company that 0:17:33.320 --> 0:17:36.639 sold roller bearings. These things that are kind of like 0:17:36.680 --> 0:17:41.240 ball bearings, are cylindrical. Maybe they're just they go between 0:17:41.280 --> 0:17:44.119 the axle and the wheel to reduce friction. And the 0:17:44.119 --> 0:17:46.720 company is not important because of the roller bearings, but 0:17:46.800 --> 0:17:49.680 because of the guy who was running the roller bearing company, 0:17:50.080 --> 0:17:54.080 guy named Alfred Sloane. He is kind of also like 0:17:54.480 --> 0:17:59.040 a human roller bearing. He is not exciting, not flashy, 0:17:59.119 --> 0:18:02.920 but very good at reducing friction. Oh nice, Yeah, he's 0:18:02.960 --> 0:18:05.879 good at making things more efficient, and Billy had brought 0:18:05.920 --> 0:18:09.240 Sloan into GM to run those parts companies that he 0:18:09.320 --> 0:18:14.159 bought up. And once Billy is gone, Alfred Sloan, the 0:18:14.240 --> 0:18:18.080 human roller bearing, is going to turn GM into the 0:18:18.119 --> 0:18:21.359 efficient machine that's going to beat Henry Ford. And also 0:18:21.640 --> 0:18:25.160 he will create the model that is going to transform 0:18:25.560 --> 0:18:28.600 corporations around the world in the twentieth century. In fact, 0:18:28.600 --> 0:18:30.920 it's going to create what we think of as a corporation. 0:18:31.920 --> 0:18:56.120 Kind of that's after the break. Okay, we're back from 0:18:56.119 --> 0:18:59.919 the break. Billy Durant is out and Alfred Sloan is in, 0:19:00.200 --> 0:19:04.600 and they're these opposites, but they are these just beautiful. 0:19:04.080 --> 0:19:07.040 Form of opposites that you often see in incorporate life 0:19:07.080 --> 0:19:09.320 these days. You first of all have the cowboy, the 0:19:09.400 --> 0:19:13.879 charismatic founder, right, great salesman has the dream. Can't really 0:19:13.920 --> 0:19:16.560 add up debts, but that doesn't matter because he's selling 0:19:16.600 --> 0:19:20.080 people on what it can be, you know, constantly future focused. 0:19:20.840 --> 0:19:24.720 And then when the cowboy gets in trouble story oldest time, 0:19:25.200 --> 0:19:28.919 the board brings in the roller bearing, the human roller 0:19:28.960 --> 0:19:34.840 bearing to count things, put things in files in file cabinets. 0:19:34.960 --> 0:19:38.560 Yeah, make things more efficient, more orderly, and a really 0:19:38.600 --> 0:19:44.919 interesting thing about this story is the broader historical context, 0:19:45.040 --> 0:19:48.680 because this is the nineteen twenties when Sloan is coming in. 0:19:49.880 --> 0:19:54.840 This is the moment when the boring guys, the managers, 0:19:55.280 --> 0:19:58.720 are ascendant. You know, if you think about it, if 0:19:58.720 --> 0:20:01.320 you go back a few decades, it was all cowboys. 0:20:01.680 --> 0:20:06.040 It was Carnegie and Ford and Billy Durant. But then 0:20:06.080 --> 0:20:09.359 once you get into the twenties and thirties, things have 0:20:09.440 --> 0:20:12.520 settled down. You know, the country has ended up realized 0:20:12.560 --> 0:20:16.480 you don't have all these new companies coming along doing 0:20:16.520 --> 0:20:19.840 things nobody's ever done before. And in fact, when I was, 0:20:20.000 --> 0:20:23.879 you know, working on today's episode, I looked at a 0:20:24.000 --> 0:20:27.080 list of the most valuable companies in nineteen ninety five, 0:20:27.200 --> 0:20:30.880 right before the dot com boom. The most valuable companies 0:20:30.880 --> 0:20:36.040 in America at that time were ge Exon originally part 0:20:36.040 --> 0:20:40.360 of Standard Oil, AT and T, Coca Cola, and Philip Morris. 0:20:40.800 --> 0:20:43.080 These companies are one hundred years old at that point. 0:20:43.119 --> 0:20:45.080 They were started in the late eighteen hundred. They were so, yeah, 0:20:45.080 --> 0:20:47.440 they're all one hundred year old companies. Yeah yeah, yeah. 0:20:47.480 --> 0:20:51.119 So they had been run by this managerial class for 0:20:51.280 --> 0:20:54.479 decades and very different than today. You know, today, if 0:20:54.520 --> 0:20:56.760 you look at the biggest companies, a lot of them 0:20:56.760 --> 0:20:59.040 were started by people who are still alive, in many 0:20:59.080 --> 0:21:02.720 cases still running the company, you know, Elon Musk, Jensen, 0:21:02.720 --> 0:21:06.400 wang Mark Zuckerberg. But for most of the twentieth century, 0:21:06.720 --> 0:21:10.639 American business was not dominated by entrepreneurial cowboys. It was 0:21:10.640 --> 0:21:14.480 dominated by managers, by people like Alfred Sloan. 0:21:14.600 --> 0:21:17.080 This is a deep idea, this back and forth between 0:21:17.119 --> 0:21:21.400 the cowboy era and the managerial era, seeing that perhaps 0:21:21.600 --> 0:21:23.760 ten twenty years in the future will have another managerial 0:21:23.800 --> 0:21:24.800 era where. 0:21:24.600 --> 0:21:27.320 They'll clean up the messages. Maybe maybe, So I think 0:21:27.320 --> 0:21:30.640 it depends on sort of the rate of technological change. 0:21:31.160 --> 0:21:34.159 And you know, you have this Second Industrial Revolution in 0:21:34.160 --> 0:21:36.959 the late eighteen hundreds that gives all these cowboys this 0:21:37.040 --> 0:21:39.640 opportunity which they take, and then you have a kind 0:21:39.680 --> 0:21:42.280 of stable era. So we'll see, but we might get 0:21:42.280 --> 0:21:44.920 back to a manager era. All right. Our manager hero, 0:21:45.119 --> 0:21:48.679 Alfred Sloan rides in on his boring, slow but safe 0:21:48.680 --> 0:21:52.800 horse in the early twenties and he is about to 0:21:52.960 --> 0:21:56.760 invent the model for how managers are going to control 0:21:56.880 --> 0:21:59.960 American business for essentially the rest of the twentieth century. 0:22:00.920 --> 0:22:05.560 Becomes president of GM in nineteen twenty three, inherits this 0:22:05.760 --> 0:22:08.800 total mess from Billy Durant. All these companies have their 0:22:08.840 --> 0:22:11.320 own bookkeeping systems. They're all doing their own thing. It's 0:22:11.359 --> 0:22:14.760 hard even to come pair, like is Cadillac making more money? 0:22:14.359 --> 0:22:20.040 Is you know, Chevy doing doing better? Under Billy Durant. 0:22:20.520 --> 0:22:24.119 There is no real GM headquarters. It's just Durant and 0:22:24.160 --> 0:22:27.199 a few assistants running around calling people and making deals. 0:22:27.840 --> 0:22:31.560 And Sloan clearly sees that there needs to be more centralization, 0:22:31.800 --> 0:22:35.360 needs you know, GM needs to be a unified company. 0:22:35.800 --> 0:22:39.159 But it's it's interesting and subtle because he also realizes 0:22:39.520 --> 0:22:42.040 that Cadillac needs to still be Cadillac, and Chevy needs 0:22:42.080 --> 0:22:44.800 to still be Chevy. They are at some level different 0:22:45.119 --> 0:22:48.720 with loyalty, with loyalty, even with creativity, Like it is 0:22:48.760 --> 0:22:52.400 a creative business making cars, there's some style involved. They're 0:22:52.400 --> 0:22:55.200 going to bring in more style. And so Sloan comes 0:22:55.280 --> 0:22:59.760 up with this system that is gonna shape big companies 0:22:59.840 --> 0:23:02.680 around the US and around the world. And again, it's 0:23:02.720 --> 0:23:05.960 one of those ideas that seems obvious to us now 0:23:06.000 --> 0:23:08.720 because it's ubiquitous, but it wasn't obvious at the time, 0:23:09.520 --> 0:23:15.320 and that is this. Sloan makes each car brand, you know, Chevy, Cadillac, Oldsomobile, 0:23:15.720 --> 0:23:20.040 its own division, with its own profit and loss line. 0:23:20.080 --> 0:23:22.560 It's responsible for its own p and L. And then 0:23:22.600 --> 0:23:25.800 he creates this small team of senior executives at GM 0:23:25.840 --> 0:23:29.920 who don't have day to day operating responsibility and whose 0:23:30.040 --> 0:23:33.760 job is to think big yes, to keep track of 0:23:33.760 --> 0:23:38.360 the finances, but maybe more importantly, to think about GM's 0:23:38.359 --> 0:23:44.040 long term strategy, which sounds extremely boring and manager but 0:23:44.160 --> 0:23:48.119 it is extremely effective. It works, and they start teaching 0:23:48.160 --> 0:23:50.560 this in schools. This is the rise of the manager class. 0:23:50.640 --> 0:23:52.960 You went to business school. I have a master's in 0:23:53.040 --> 0:23:56.960 business administration. You are the descendant of Alfred Sloan. Right. 0:23:57.600 --> 0:24:00.159 Part of the reason I think it works so well 0:24:00.320 --> 0:24:04.639 at GM is because Sloan and the other top managers 0:24:04.680 --> 0:24:08.199 he brings in as these senior executives, are really good 0:24:08.320 --> 0:24:11.720 at understanding what's happening in America in the nineteen twenties 0:24:12.400 --> 0:24:16.119 and at taking that understanding and using it to push 0:24:16.119 --> 0:24:19.119 the country further, to shape the country in a way. 0:24:19.480 --> 0:24:21.119 Of course, that is going to be good for GM, 0:24:21.520 --> 0:24:24.919 but that has a profound effect on America, on American culture. 0:24:24.960 --> 0:24:28.600 So I want to point to three key moves it's 0:24:29.520 --> 0:24:31.800