MY YEARS WITH GENERAL MOTORS BY Alfred P. Sloan, Jr. Edited by JOHN McDONALD with CATHARINE STEVENS Garden City, New York DOUBLEDAY & COMPANY, ING. 1963agd oo MY YEANS WITH GENEMAL Morons the sales price established in a competitive market, That is, profit represents the difference between the price which can be obtained in the competitive market, and total cost. And it is substantially affected by volume. We can estimate very closely what our profit per unit should be at standard volume, but this is not the same as knowing what our actual profit will be when actual volume is real- ized. Profit is a variable, and a volatile one, in the automobile busi- rere need for financial controls grew out of crises. Controls were brought in to ensure that crises did not recur. Their effectiveness was demonstrated particularly in the depression year 1932. The corpo- ration’s U.S. and Canadian unit volume in that year was 50 pet cent less than that of 1931, and 72 per cent below the high of 1929. But the corporation was not demoralized as it had been in 1920 and it stayed in the black. Not many corporations did as well. Financial control as worked out by General Motors gave the cor- poration a review of operations that reduced the need to administer operations from the top. Central-office management was able to know whether the decentralized management was operating well or poorly and had a factual basis for a judgment regarding the future of any particular part of the business. We had the fundamentals of this system worked out just in time for one of the greatest changes that has ever taken place in the automobile market. Chapter 9 TRANSFORMATION OF THE AUTOMOBILE MARKET ¥ the middle of the xg20s General Motors had accomplished B some things, but apart from survival and reorganization, they were more in the realm of the mind than of reality. We knew, as I have related, the strategy with which we proposed to approach the car business, how we proposed to manage the enterprise finan- cially, and the relationships we wanted to establish among persons in different roles. But by the end of 1924 little of this was reflected in our activities in the automobile market. That our volume of business had increased after the slump of 1g21—and especially in 1923-could be attributed less to our own wits than to the im- provement in the general economy and the rising demand for au- tomobiles. While internally we had made much progress, externally we had marked time. But the time had come to act. Now it so happened—luckily for us—that during the first part of the 1920s, and especially in the years 1924 to 1926, certain changes took place in the nature of the automobile market which trans- formed it into something different from what it had been all the years up to that time, (Seldom, perhaps at only one other time in the history of the industrythat is, on the occasion of the rise of the Model T after 1g08—has the industry changed so radically as it did through the middle twenties.) I say luckily for us because as a challenger to the then established position of Ford, we were fa- vored by change. We had no stake in the old ways of the automo- bile business; for us, change meant opportunity. We were glad toigo MY YEARS WITH GENENAL MOTORS end our efforts to go with it and make the most of it. We were prepared, too, with the various business concepts which 1 have de- scribed, though J must say we saw them as merely our way of doing business and not as having any general application or logical in volvement in the future of the industry. To set the scene, let me divide the history of the automobile, from a commercial standpoint, into three periods. There was the period before 1go8, which with its expensive cars was entirely that of a class market; then the period from 1908 to the mid-twenties, which was dominantly that of a mass market, ruled by Ford“and his concept of basic transportation at a low dollar price;/and, after that, the period of the’ inass market served by better and better cars, or what might be thought of as the mass-class market, with increasing diversity, This last I think I may correctly identify as the General Motors concept, All three of these periods have in common the long-expanding American economy, the horizon of each period having been formed by the respective degrees of that rise and its spread through the population. The willingness of the relatively few who could afford them to buy expensive though unreliable cars—by today’s stand- ards—enabled the industry to get going. Then when a large number of individuals were able to afford a few hundred dollars of ex- penditure, they made possible the development of the inexpensive Model T ‘(it is possible that such a market was long waiting for the offering of a car like the Model T). As the economy, led by the automobile industry, rose to a new high level in the twenties, a complex of new elements came into existence to transform the market once again and create the watershed which divides the present from the past. ‘These new elements I think I can without significant loss reduce to four: installment selling, the used-car trade-in, the closed body, and the annoal model, (I would add improved roads if T were to take into account the environment of the automobile.) So imbedded are these elements in the nature of the industry today that to con- ceive of the market without them is almost impossible. Before 1920 and for a while thereafter the typical car buyer was in the situation of buying his first car; he would buy it for cash or with some special Joan arrangement; and the car would be a roadster or touring car, most likely of a model which was the same as last year’s and could be expected to be the same as next year's. This situation was not to TRANSPORMATION OF THE AUTOMONILE MARKET 151 change for some years and the change would not be sudden except at its climax, For each of the new elements of change had a separate beginning and rate of development before they all interacted to ‘cause complete transformation Installment selling of automobiles in regularized form first ap- peared in a small way shortly before World War I. This form of borrowing, or inverse saving, when placed on a routine basis, en- abled large numbers of consumers to buy an object as expensive as an automobile, The statistics of installment selling in those days were very poor, but it is clear that it grew from some very low level in 1915 to around 65 per cent for new cars in 1ga5, We be- lieved that with rising incomes and the expectation of a continuance of that rise, it was reasonable to assume that consumers would lift their sights to higher levels of quality. Installment selling, we thought, would stimulate this trend. As the first car buyers came back for the second round and brought their old cars as down payments, the custom of trading was established. That the industry was engaged in a trading business had revolutionary significance not only for dealer arrangements but for manufacturing and the whole character of production, since dealers usually had to sell to a man who already had a car with mileage left in it. The statistics for used-car trade-ins before 1ge5 are as poor as those for installment selling. It stands to reason, however, that there was some kind of upward curve in used cars traded ftom World War I on, if only because there were relatively few cars in exist- ence before that time, Until some unknown date in the early 1g20s, the majority of car buyers were buying their first car. The total number of passenger cars in operation in the United States from 4919 through 1g29 rose by years in millions approximately as fol- lows: 6, 7.3, 83, 96, 11.9, 13.7, 15.7, 168, 17.5, 18.7, 19.7. The ine dustry, on the other hand, produced in those years passenger cars for domestic and export markets in approximate millions as follows: 17,19, 1.5, 2.3, 36, 32, 3:7, 37, 2.0, 38, 452 This production was enough to cover both the growth in numbers and the scrappage. The used car was traded perhaps two or three times on the way to 2 The figures above are for passenger cats only. The fll production of all vile, cars and tricks, for 191g through agag, was as follows: 14, 2.2, 1.6, 2, 456, 43,43, 5-4 44, 53.