History of General Motors

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General Motors Corporation (GM) is the world’s largest full-line vehicle manufacturer and marketer. Its arsenal of brands includes Chevrolet, Pontiac, GMC, Buick, Cadillac, Saturn, Hummer, and Saab. Opel, Vauxhall, and Holden comprise GM’s international nameplates. Through its system of global alliances, GM holds stakes in Isuzu Motors Ltd., Fuji Heavy Industries Ltd., Suzuki Motor Corporation, Fiat Auto, and GM Daewoo Auto & Technology. Other principal businesses include General Motors Acceptance Corporation and its subsidiaries, providers of financing and insurance to GM customers and dealers. In the early 2000s, struggling under the weight of escalating healthcare and pension costs, GM sought to shed some of its less profitable activities. Toward that end, among other moves, the company sold its stake in Hughes Electronics, phased out production of the Oldsmobile, and discontinued the Chevrolet Camero and Pontiac Firebird. Facing a tough economic climate, GM has nevertheless retained its position as the world’s leading automaker.

19th-Century Origins

The beginning of General Motors Corporation can be traced back to 1892, when R.E. Olds collected all of his savings to convert his father’s naval and industrial engine factory into the Olds Motor Vehicle Company to build horseless carriages. For several years, however, the Oldsmobile (as the product came to be known) did not get beyond the experimental stage. In 1895 the first model, a four-seater with a petrol engine that could produce five horsepower and reach 18.6 mph, went for its trial run.

Olds proved himself not only an innovative engineer but also a good businessman and was very successful with his first model, of which relatively few were built. As a result of his success, he founded the first American factory in Detroit devoted exclusively to the production of automobiles. The first car was a luxury model costing $1,200, but the second model was introduced at a list price of $650 and was very successful. At the turn of the century, Olds had sold more than 1,400 cars.

Also during this time, the Cadillac Automobile Company was established in Detroit, founded by Henry Leland, who built car engines with experience gained in the Oldsmobile factory, where he worked until 1901. By the end of 1902 the first Cadillac had been produced–a car distinguished by its luxurious finish. In the following year, tiller steering was replaced by the steering wheel, the reduction gearbox was introduced, and some cars were fitted with celluloid windscreens. Oldsmobile also reached its projected target of manufacturing 4,000 cars in one year. A third player, engineer David Buick, founded his own factory in Detroit during this time as well.

By 1903, a time of market instability, so many different manufacturers were operating that the financially weakest disappeared and some of the remaining companies were forced to form a consortium. William Durant, a director of the Buick Motor Company, was the man behind the merger. The nephew of a Michigan governor, and a self-made millionaire, Durant believed that the only way for the automobile companies to operate at a profit was to avoid the duplication that occurred when many firms manufactured the same product. General Motors Corporation was thus formed, bringing together Oldsmobile and Buick in 1903, and joined by Cadillac and Oakland (renamed Pontiac) in 1909. Positive financial results were immediately seen from the merger, although the establishment of the company drew little attention.

Other early members of the GM family were Ewing, Marquette, Welch, Scripps-Booth, Sheridan, and Elmore, together with Rapid and Reliance trucks. GM’s other U.S. automotive division, Chevrolet, became part of the corporation in 1918. Only Buick, Oldsmobile, Cadillac, and Oakland continued making cars for more than a short time after their acquisition by GM. By 1920 more than 30 companies had been acquired through the purchase of all or part of their stock. Two were forerunners of major GM subsidiaries, the McLaughlin Motor Company of Canada (which later became General Motors of Canada Limited) and the Fisher Body Company, in which GM initially acquired a 60 percent interest.

By 1911 the company set up a central staff of specialists to coordinate work in the various units and factories. An experimental or “testing” laboratory also was established to serve as an additional protection against costly factory mistakes. GM’s system of administration, research, and development became one of the largest and most complex in private industry.

About the same time that GM was establishing itself in Detroit, an engineering breakthrough was taking place in Dayton, Ohio: the electric self-starter, designed by Charles F. Kettering. GM introduced Kettering’s invention in its 1912 Cadillacs, and with the phasing out of the dangerous and unpredictable hand crank, motoring became much more popular. Kettering’s Dayton Engineering Laboratories were merged into GM during 1920 and the laboratories were relocated in Detroit in 1925. Kettering later became the scientific director of GM, in charge of its research and engineering programs.

During World War I GM turned its facilities to the production of war materials. With no previous experience in manufacturing military hardware, the U.S. automobile industry completed a retooling from civilian to war production within 18 months. Between 1917 and 1919, 90 percent of GM’s truck production was for the war effort. Cadillac supplied army staff cars, V-8 engines for artillery tractors, and trench mortar shells, while Buick built Liberty airplane motors, tanks, trucks, ambulances, and automotive parts.

It was at this time that Alfred Sloan, Jr., who went on to guide GM as president and chairman until 1956, first became associated with the company. In 24 years, Sloan had built a $50,000 investment in the Hyatt Roller Bearing Company to assets of about $3.5 million. When Hyatt became part of GM, Sloan joined the corporate management, becoming president in 1923. Overseas expansion soon commenced, with the 1925 purchase of U.K. automaker Vauxhall Motors and the 1931 acquisition of Germany’s Adam Opel.

The Depression and World War II Era

GM suffered greatly under the effects of the Great Depression, but it emerged with a new, aggressive management. Coordinated policy control replaced the undirected efforts of the prior years. As its principal architect, Sloan was credited with creating not only an organization that saved GM, but a new management policy that was adopted by countless other businesses. Fundamentally, the policy involved coordination of the enterprise under top management, direction of policy through top-level committees, and delegation of operational responsibility throughout the organization. Within this framework management staffs conducted analysis of market trends, advised policy committees, and coordinated administration. For a company comprised of many varied divisions, such a system of organization was crucial to its success.

By 1941 GM accounted for 44 percent of the total U.S. automotive sales, compared with 12 percent in 1921. In preparation for America’s entry into World War II, GM retooled its factories. After Japan struck at Pearl Harbor in 1941, the industrial skills that GM had developed were applied with great effectiveness. From 1940 to 1945 the company produced defense material valued at a total of $12.3 billion. Decentralized and highly flexible local managerial responsibility made possible the almost overnight conversion from civilian production to wartime production. GM’s contribution included the manufacture of every conceivable product from the smallest ball bearing to large tanks, naval ships, fighting planes, bombers, guns, cannons, and projectiles. The company manufactured 1,300 airplanes and one-fourth of all U.S. aircraft engines.

Postwar Expansion

Car manufacturing resumed after the war, and postwar expansion resulted in increased production. The decade of the 1950s was characterized by automotive sales records and innovations in styling and engineering. The public interest in automatic gears convinced GM to concentrate their research in this field; by 1950, all of the models built in the United States were available with an automatic gearbox. Car body developments proceeded at the same time and resulted in better sight lines and improved aerodynamics.

During the Korean war, part of the company’s production capacity was diverted into providing supplies for the United Nations forces (although to a smaller extent than during World War II). The reallocation reached 19 percent and then leveled off at about 5 percent from 1956 onward. Between 1951 and 1955 the five divisions of GM–Buick, Chevrolet, Pontiac, Oldsmobile, and Cadillac–all began to feature a new V-8 engine with a higher compression ratio. Furthermore, the electrical supply was changed from six to the more reliable 12 volts. Power-assisted steering and brakes appeared on all car models and the window dimensions were increased to further enhance visibility. Interior comfort was improved by the installation of the first air conditioning systems. Also during this period GM completely redesigned its classic sedans and introduced front seat safety belts.

The period between 1950 and 1956 was particularly prosperous in the United States, with a rise in demand for a second car in the family. Americans, however, were beginning to show real interest in smaller European cars. By 1956, a year of decreasing sales, Ford Motor Company, Chrysler Corporation, and GM had lost some 15 percent in sales while imports were virtually doubling their market penetration. The longer Detroit’s automobiles grew, the more popular imports became. In 1957 the United States imported more cars than it exported, and despite a recession, imports accounted for more than 8 percent of U.S. car sales. Although GM promised that help was on its way in the form of smaller compact cars, the new models failed to generate much excitement; the company’s market share slipped to just 42 percent of 1959’s new car sales.

The 1960s were difficult years in Detroit. The 1967 riot in the neighborhoods surrounding GM’s facilities forced management to recognize the urban poverty that had for so long been in their midst, and they began to employ more workers from minority groups. Much of the new hiring was made possible by the expansionist policies of the Kennedy and Johnson administrations. GM prospered and diversified; its interests now included home appliances, insurance, locomotives, electronics, ball bearings, banking, and financing. By the late 1960s after-tax profits for the industry in general reached a 13 percent return on investment, and GM’s return increased from 16.5 percent to 25.8 percent.

Remaining Competitive in the 1970s-80s

Like the rest of the industry, GM had ignored, in large part, the importance of air pollution control. However, new, costly federal regulations were mandated, and GM had to invest in developing devices to control pollution. By the early 1970s, this issue was temporarily overshadowed by the impact of the oil embargo. GM’s luxury, gas-guzzling car sales were down by 35 percent in 1974, but the company’s compacts and subcompacts rose steadily to attain a 40 percent market share. Ford, Chrysler, and GM had been caught unaware by a vast shift in consumer demand, and GM suffered the greatest losses. The company spent $2.25 billion in 1974 and 1975 to meet local, state, and federal regulations on pollution control. By the end of 1977 that figure had doubled.

Under the leadership of President F. James McDonald and Chairman Roger Smith, GM reported earnings declines from 1985 to 1992. The only respite came from an accounting change in 1987, which effected an earnings increase. McDonald and Smith attempted to place these losses in perspective by arguing that they were necessary if GM was to develop a strong and secure position on the worldwide market. Since the start of the 1980s, GM had spent more than $60 billion redesigning most of its cars and modernizing the plants that produce them. The company also acquired two major corporations, Hughes Aircraft, in 1986, and Electronic Data Systems (EDS), in 1984. Though expensive, the EDS purchase provided GM with better, more centralized communications and backup systems, as well as a vital profit center. GM also purchased a 50 percent stake in Saab Automobile AB, a Swedish maker of premium cars, in 1990. That same year Saturn Corporation was created as a subsidiary to produce compact cars in a Japanese-influenced factory in Tennessee; Saturns became popular because of their quality and the no-haggle method employed to sell them.

GM’s market share dropped steadily from 1982 to 1992. In 1987 Ford’s profits exceeded GM’s for the first time in 60 years. From 1990 to 1992, the corporation suffered successive and devastating annual losses totaling almost $30 billion. Problems were myriad. Manufacturing costs exceeded competitors’ due to high labor costs, overcapacity, and complicated production procedures. GM faced competition from 25 companies, and its market share fell from almost 50 percent to about 35 percent.

The 1990s: Regaining Ground

In 1992 Jack Smith, Jr., advanced to GM’s chief executive office. He had earned respect as the engineer of GM Europe’s late 1980s turnaround, and he quickly applied those strategies to the parent, focusing on North American Operations (NAO). During 1993, Smith simplified the NAO, cut the corporate staff, pared product offerings, and began to divest GM’s parts operations. He was also hailed for his negotiations with the United Auto Workers (UAW). In 1993 he pledged $3.9 billion in jobless benefits, which raised the blue-collar payroll costs about 16 percent over three years. At the same time the contract gave Smith the ability to cut 65,000 blue-collar jobs by 1996 in conjunction with the closure of nearly 24 plants. Salaried positions were not exempted from Smith’s job-cutting plan; staffing at the corporate central office was slashed from 13,500 to 2,300 in 1992.

In the early 1990s GM began to recapture the automotive vanguard from Japanese carmakers, with entries in the van, truck, and utility vehicle markets and the launch of Saturn. GM also gained an advantage in the domestic market because the weak dollar caused the price of imported cars to increase much faster than domestics. Market conditions along with Smith’s strategies effected a stunning reversal in 1993, when GM recorded net income of $2.47 billion on sales of $138.22 billion. Riding the booming economy, the company recorded record profits of $6.88 billion on record sales of $163.86 billion in 1995. Despite the improved financial performance, GM’s share of the U.S. car market continued its steady decline, falling to slightly more than 31 percent by 1995. The company’s North American operations continued to be criticized by observers for its inability to produce innovative models, the glacial speed of its new product development, and the inefficiencies inherent in running six separate car divisions and a GMC truck division.

The mid-to-late 1990s saw a number of important initiatives in GM’s non-automaking operations. In 1994 the renamed Hughes Electronics unit introduced Direct TV, a satellite-based direct-to-home broadcast service. The 1995 sale of the company’s National Car Rental business was followed by the spinoff of EDS the following year. One year later, Hughes Electronics was revamped through the sale of its defense electronics operations to Raytheon Company and the merging of its automotive electronics activities (Delco Electronics) into GM’s auto parts subsidiary, Delphi Automotive Systems. Hughes began concentrating on digital entertainment, information, and communications services and made a key acquisition in 1999 when it paid $1.3 billion for the direct-to-home satellite business of Primestar. In early 2000 Hughes would make a further divestment of a then noncore unit, selling its satellite manufacturing operations to the Boeing Company for about $3.75 billion. Delphi, meanwhile, would be completely separated from GM through a May 1999 spinoff to shareholders.

GM remained profitable through the end of the decade, but its U.S. market share dipped below 30 percent by 1999; at times GM’s share was less than that of the combined share of all Asian automakers, an unprecedented development. While continuing to attempt to reverse the now three-decades-long fall, GM began looking for future growth from Asia, where early 21st-century growth in car sales was expected to surpass both North America and Europe. Instead of attempting to directly sell its own models, GM began assembling a network of alliances with key Asian automakers for its push into that emerging continent, aiming to increase its market share across Asia from its late 1990s level of 4 to 10 percent by 2005. The company already had a 34 percent stake in Isuzu Motors Ltd., which it had bought in 1971, and a 3 percent stake in Suzuki Motor Corporation, obtained in 1981. In 1998 GM increased its stake in Suzuki to 10 percent and agreed to build cars with the Japanese automaker. The following year GM increased its stake in Isuzu to 49 percent; acquired a 20 percent stake in Fuji Heavy Industries Ltd., maker of Subaru all-wheel-drive vehicles; and entered into an alliance with Honda Motor Co., Ltd. involving Honda producing low-emissions gasoline engines for GM and Isuzu producing diesel engines for Honda.

2000 and Beyond

In May 2000 GM, Fuji, and Suzuki agreed to develop compact cars for the European market. Another deal involving Europe was reached in early 2000, when GM agreed to acquire a 20 percent stake in the Fiat Auto S.p.A. unit of Fiat S.p.A., the number six automaker in the world, in exchange for Fiat taking a 5.1 percent stake in GM. Through this deal, GM aimed to grab a larger share of the market for the small vehicles popular in Europe and Latin America but shunned in the United States. In mid-2000 GM and Fiat jointly bid to acquire troubled South Korean carmaker Daewoo Motor Company but were outbid by Ford. Also in 2000, GM acquired the 50 percent of Saab Automobile that it did not already own.

Closer to home, GM began building a factory in Lansing, Michigan, its first new plant in 15 years. In another key early 2000 development, the company agreed to join with DaimlerChrysler AG and Ford to create an Internet-based global business-to-business supplier exchange, Covisint LLC, that would be open to all suppliers and automakers. This would create the world’s largest virtual marketplace. Although the Federal Trade Commission (FTC) quickly opened a preliminary antitrust inquiry into the plan, clearance was eventually gained and the Covisint venture went forward.

In June 2000 G. Richard Wagoner was promoted from president to CEO, with Smith remaining chairman. At the age of 47, Wagoner became the youngest CEO in GM history and faced the daunting task of running what was still considered by many observers to be an excessively bureaucratic and overly complex organization, which was extremely resistant to change and seemingly unable to anticipate most market trends.

The focus on strengthening its foothold in the Asian market continued into 2001. Ford suddenly announced that it was dropping its offer for Daewoo, leaving GM wide open to relaunch its bid. Negotiations began that year and were finalized in 2002. GM ended up acquiring a majority interest in Daewoo Motor, renaming it GM Daewoo Auto & Technology. At the same time, the company purchased an additional 10 percent of Suzuki, increasing its stake to 20 percent, and signed a deal with AvtoVAZ to build sports utility vehicles (SUVs) for the Russian market.

GM chalked up a solid performance during this period. While its competitors struggled with recalls, and quality and merger integration issues, the automaker appeared to have overcome the problems of its past. An April 2002Fortunearticle noted that “some of what’s driving GM is very basic: improvements in quality and productivity, the pruning of unprofitable vehicles, and frankly, weakness at its crosstown rivals Ford and Chrysler.” GM’s market share rose in 2001 and by early 2002 had reached 30.9 percent in the U.S. market. Chevrolet had also started to outsell Ford. This was due in part to the successful zero percent financing plans it introduced after the terrorist attacks in September 2001. The financing plan was advertised under the “Keep America Rolling” slogan. Sales of GM cars increased by 31 percent one month after its launch.

The company did face one major hurdle however–its $76 billion pension fund. Deals struck with the UAW in past years left GM forced to pay out costly health and retirement benefits. The company was the largest purchaser of health care in the United States, spending nearly $5 billion on healthcare alone in 2003. Word spread quickly that GM’s pension fund was underfunded by nearly $18 billion at the start of 2003. The company was able to generate cash for the fund by selling off its Hughes Electronics stake to News Corporation in 2003 for approximately $3.1 billion. It also jettisoned its armored vehicles business in a $1.1 billion deal. The sale of its noncore assets, global debt offerings, and income from its automotive operations allowed to the company to fully fund its U.S. salaried and hourly employee pension plans by the end of 2003. Its automotive earnings, however, felt the crunch. Overall, the company’s net income for 2003 reached $3.8 billion. The majority of earnings stemmed from its GMAC and Asian operations.

Smith retired in May 2003, leaving Wagoner at the helm. GM’s management team continued to focus on controlling costs while phasing out car lines–including Oldsmobile, the Camero, and the Firebird–and launching such new products as the Cadillac CTS, the Hummer H2, and the Opel Vectra in Europe. GM faced a challenging road ahead. Rising healthcare costs, intense competition, and having to shore up its North American auto sales were just some of its obstacles. GM was, however, in the top position in its industry and was no stranger to adversity.

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