The Journey of General Motors

The Journey of General Motors

From a $2000 startup to a billion-dollar empire, General Motors is the uncrowned king of automobiles. Its story is etched in the history books forever. Let’s take a look…

The story of General Motors is one of America’s oldest titans. The company has stood through the tests of time from its creation more than 100 years back, and its journey has gone full circle – through the good, the bad, the worse, and well, the recovery.

However, General Motors has always risen from its downfalls, stronger than ever before. It was the developer of some of the first-ever luxury vehicles, was the largest motor-vehicle manufacturer in the world for most of the 20th and early 21st century, and conducts production in more than 37 countries across the globe.

A few recent statistics shed light on the might of General Motors, going 100+ years steady in the world of motor vehicles:

From Chevrolet to Buick, GMC, and Cadillac, General Motors has been a symbol of class, luxury, and quality automobile production for years. In fact, if you turn your heads to view the roads today, it is highly likely that you’ll find at least one General Motors car cruising along.

Therefore, it comes as no surprise that General Motors enjoys a high, 18th position on the Fortune 500 list (2020), and continues to make waves in the automobile industry with newer upgrades and models.

Are you curious how such an enterprise lay its roots in the 1900s but has still managed to remain on top more than 100 years later? Let’s walk down memory lane to track the journey of General Motors.

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The Founding Of General Motors

It was the 20th century. The streets were brimming with the latest invention – cars. Either steam-run or electric, there were about 4000 cars on the streets of the United States, and that was when one man, the founder of General Motors Mr. William C. Durant, came up with an idea - an idea that would change the world.

From Horses To Cars

William C. Durant was a high school dropout who began his professional journey as a Cigar Salesman in Flint, Michigan.

william-durantSource

However, he soon realized that being a mere employee was not his cup of tea. Thereafter, in 1886, he partnered with Josiah Dallas Court to establish the Flint Road Cart Company – an enterprise featuring horse-drawn vehicles. Beginning with an initial capital of merely $2000, he was able to transform his company into a $2 million empire – the largest horse-drawn vehicle manufacturer in the U.S.

While Durant had realized his prowess as an entrepreneur, he also soon realized that demand for horse-drawn carriages was decreasing. The people did not like the high sounds of the engine nor the bad smell of burnt fuels, and there was a public outcry by 1900. Durant, as an opportunist, took this industrial change in his grip by creating a company that ushered in a new, safe class of transportation – General Motors.

GM Makes A Splash

At the time, Ford believed in its one-car-for-everyone model. However, General Motors was created to offer different types of cars to people of different demands. On 16th September 1908, General Motors was capitalized as a holding company, and the next day it purchased Buick Motor Company – a local car company that had meager sales and large debts.

In the same year, the company acquired Oldsmobile, and the streak of buying other automobile companies only grew. A year later, General Motors had Cadillac, Elmore, Oakland, Pontiac, McLaughlin, and many other enterprises under its belt. Such strategic moves made Durant the pioneer of the conventional system of automobile dealer franchises.

Striving To Be Apart

At the time, General Motors was simply an amalgamation of other automobile companies that stood in competition with Ford and its Model T. Once the demand for the car rose, General Motors decided to offer what its competition didn't attract a major proportion of the market.

  • Model T came in Black because it dried the fastest off the assembly line. General Motors brought a myriad of color combinations.
  • Model T had one, 4-cylinder engine. General Motors' vehicles had a range of wheelbases and engine displacements.

model-tSource

By analyzing the gap in the market and catering to effective demand, General Motors made itself known in the industry from the get-go, garnering a huge clientele from various income bands.

Takeaway 1: Diversity Is Good

Numerous sellers offering the same goods create a perfectly competitive market, and consequently, normal profits in the long term. The homogeneity of products only helps businesses cover their costs and break-even to keep the cycle running, but never more than that.

Durant realized this when the consumers moved away from horse-drawn carriages because they saw a viable alternative in Ford. But, he also knew to regain his clientele and generate profits, he had to bring something different to the table.

Partnering with other competitors to create General Motors gave him the resources, skills, and a combined consumer base ready to take over Ford’s Model T with a distinct class of cars.

A Shifting Control

While expansion and acquisitions were some of Durant’s many primary strategies, his main corporate vision was to see General Motors become the largest automotive company.

One Acquisition Too Many

From 1908, General Motors had begun acquiring companies. So many acquisitions in a limited time resulted in a diminished cash flow.

As budgetary concerns took over, a deal to purchase Ford for $8 million in 1910 also fell through due to the $1 million debt already faced by General Motors owing to its previous acquisitions.

Consequently, Sam McLaughlin left the company, and Durant was forced out by the stockholders. However, instead of backing down, he reinstated his entrepreneurial streak and founded Chevrolet, which later became a part of General Motors when he rejoined to head the company in 1916. This was also the year when the company was incorporated as General Motors Corporation.

cadillac-1912Source

During the time, General Motors did not reduce in might. Instead, it invented the electric self-starter automobile, the timeless Cadillac in 1912, which made the hand crank obsolete and put General Motors on the map!

A New Leader Emerges

Durant had a lot to offer to General Motors. Following Chevrolet, Fisher Body and Frigidaire also joined the portfolio of the company.

However, by 1920, Durant was losing control again. This was when Du Pont, a primary shareholder in Chevrolet, and McLaughlin joined together to force him out again, having to repay $21,000,000 and leave General Motors – for good.

This was when Alfred P. Sloan Jr. took over the reins of the company. He was President and Owner of Hyatt Roller Bearing, yet another brand to join General Motors Corp. in 1916. As he rose to the position of Vice President of General Motors, Durant’s exile gave his career its next big move – straight to Presidency of General Motors.

He was to serve as President from 1923 to 1937 and later gain the position of Chairman of the Board of Directors in 1937, where he would maintain his role until 1956.

General Motors Corp. Gains Strength

When Sloan joined the company, he soon realized the uncoordinated and holistic acquisitions had left the company with an over-exhausted budget. In fact, the corporation had turned into merely a collection of several unorganized business units.

Transforming the hierarchical structure, Sloan’s model of central leadership did wonders for the company’s future, inducing a never-before-seen level of change.

The enterprise was divided into 5 automotive divisions:

  1. Cadillac,
  2. Buick,
  3. Oldsmobile,
  4. Pontiac, and
  5. Chevrolet

A central corporate office was established that coordinated the activities of these 5 divisions. However, instead of following a completely centralized structure, much of the decision-making power was delegated to operating divisions that remained autonomous to conduct their everyday business, while remaining within a certain framework.

general-motors-officeSource

As the company gained success, such a decentralized model became the ideal for large-scale industrial corporations across the U.S. and was often seen as a benchmark for other enterprises.

Takeaway 2: Take Calculated Risks

In the business world, taking risks is important. However, all such decisions require a SWOT analysis or careful deliberation.

The decision by Durant to continue taking over multiple automotive companies without having enough funds in the bank meant General Motors was in a losing battle uphill. Therefore, it came as no surprise when the founder lost control and was instead replaced by a more vigilant and organized head like Alfred P. Sloan Jr.

The immediate decisions by Sloan to decentralize the organization and increase coordination between its multiple divisions meant which Sloan was in favor of acquisitions and expansion. He had decided calculated risk-taking to be the company’s next strategy.

The Rise Of General Motors Corporation

The changes brought by Sloan touched every sector and division of General Motors Corp. The sales were organized, and additional style changes were introduced yearly in the latest car models.

The consumers and their convenience also remained a top priority for the company, which continued to introduce innovations for consumer financing – making their products easily affordable for many.

The Decades Of Wins

Just 2 years after Sloan became President, the company bought Vauxhall of England. In the next year, Pontiac was created as a companion to the Oakland branch of the company. When Oakland eventually dissolved over time, Pontiac replaced its position as another important division of the company.

In the same year, the company also gained control of the Hertz Corporation, the Yellow Cab Manufacturing Company, and its subsidiaries. The Yellow Coach Bus was also acquired which eventually paved the way to the creation of Greyhound Bus Lines – the inter-city bus carrier serving 3800+ destinations across North America.  

In 1929, the company added Adam Opel of Germany to its brands, the first non-American subsidiary for the company. In the same year, General Motors surpassed the Ford Motor Company.

By 1931, General Motors Corporation had become the world’s largest auto conglomerate. 10 years later, it was still on the same, upward trajectory, producing a whopping 44% of all cars in the United States!

Durant’s goal to see General Motors become the largest automotive company in the world had been accomplished by his successor, who took the company to the greatest of heights – to become the largest industrial corp. in the world.

A Strategy That Worked

The years of the successes were full of correlated, specialist decisions focused on making General Motors Corporation a company for the masses.

As time would tell, the categorization in 5 distinct divisions was not merely for organizational prowess. Instead, each facet was targeted to suit a specific demographic and socio-economic segment in the consumer base.

Every division was distinct from the other in terms of styling, technology, and therefore – pricing. Since bulk, similar production in each division paved the way for economies of scale and reduced costs, the benefit was transferred to the consumers in terms of better prices.

So, beginning from the basic transport of Chevrolet, the company’s class catering rose through Pontiac and Buick (etc.) to eventually reach the timeless Cadillac. Consequently, everybody from a middle-class car enthusiast to a classics-lover had a GM car model within their reach and demand.

Sloan also realized that the consumers needed more than options, they needed the ability to transform their demand into effective demand. Therefore, while offering prestige, style, and class in its newest car models, it also offered consumer financing (through GMAC, founded in 1919). Consequently, it was easier for people to purchase GM cars than those of its competitor Ford, who refused to introduce any credit scheme due to clashing principles.

Although, Ford did realize its mistake in the later years and created Ford Credit to regain some of its lost consumers in 1959. But that was too little too late.

World War II

When the war hit in 1939, the General Motors Corporation was enjoying its high position in the automobile industry. Consequently, the company also became a prominent player in these troublesome times.

The company received the most wartime production contracts in the United States. While Knudsen was heading the U.S. division for President Franklin Roosevelt, the UK division of General Motors, i.e., Vauxhall, manufactured the Churchill tank for the Allies.

It is estimated that about 500,000 logistical vehicles were produced for the UK Military and their land campaigns. In addition to land mobiles, General Motors also entered the world of aircraft production.

wwii-general-motors-armored-carSource

Slowly and gradually, General Motors became a huge player for the American industry, bearing a huge share of the GDP and national income, and also becoming one of the largest employers in the world at the time. The only companies that surpassed General Motors in the workforce were those of Soviet origins.

Such was the might of General Motors Corp. for the U.S. that in 1953, Charles Erwin Wilson, the then President of GM, was made Secretary of Defense by Eisenhower.

When asked if Wilson could decide the best interests of General Motors, he replied: “…for years I thought what was good for the country was good for General Motors, and vice versa…”. By 1955, General Motors was a shining star for the U.S. economy, and the first American organization to pay taxes that exceeded a whopping $1 billion.

Takeaway 3: Know Your Clientele

At the time of General Motors, there was already another major player in the industry – Ford. However, instead of succumbing to competition or creating strategies to downplay their competitor, the management of General Motors Corp. focused on building upon their product portfolio.

For this, they leveraged the knowledge of their clientele – their likes, dislikes, demands, and income – and sub-divided the brands into a hierarchy of most-to-least prestigious; thereby capturing the gap in the market. During World War II, the GM management realized the need for wartime vehicles and immediately shifted production to suit the new needs – aircraft and tanks.

From the 1930s to the 1950s, General Motors stuck to one all-encompassing strategy: Give the consumer what they want. Consequently, the company surpassed Ford to become the largest auto conglomerate in the world.

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The Road Gets Bumpy

Once World War II ended, General Motors Corporation resumed its activities of producing civilian vehicles.

The First Of Many

The 1960s was the decade of many firsts for the company. As research and development reached an all-time high, the company began producing high-performance engines in its popular brands – i.e., Chevrolet and Pontiac.

The Chevrolet Corvair came to contend the release of the Volkswagen Beetle, Chevy II was produced to match the Falcon by Ford, and Chevrolet Camaro and Pontiac Firebird were countermeasures for the famous Ford Mustang. While 1971 was the year of the Chevrolet Vega, another automobile that garnered great attention.

chevy-vega-1971 Source 

3 years later, General Motors became the first corporation to offer airbags in its cars. It was then called the “Air Cushion Restraint System”. Although this safety addition did not match consumer preferences at the time and was discontinued by 1976, the airbags made a comeback in the 1990s when the Federal Government made them mandatory in automobiles.

It seems the decisions of General Motors were mostly accurate – even if suited a little further in the future.

The Japanese Enter The Picture

The 1950s and 60s were incredible times for General Motors as the company boomed along with the economy. However, the next decade brought foreign competition with itself.

Japanese automakers, such as Toyota, began making waves across the globe with their cheaper yet high-quality car options. When the cars reached the United States, GM along with other U.S. automobile manufacturers was highly affected.

In response, General Motors Corporation created a new automotive division called “Saturn”. This division used automated plants to create cheaper, better cars that could compete with the now-popular Japanese imports.

general-motors-saturnSource

While the response was satisfactory, it was slow, and the damage had been done. By the 1990s, the company incurred huge losses and had to let go of tens of thousands of employees in addition to closing several plants.

The decision was taken by then-President Jack Smith, who was sad at deviating from the consumer and employee-friendly legacy of Sloan. However, tough times called for difficult decisions, and cost-cutting via employee redundancies was one way.

General Motors Strides Head On

Just as the company was known to make vigilant, carefully thought-out decisions in the past, it continued with the same prowess. Instead of obsessing over recent losses, the management was already on their toes, creating a new strategy for the 1980s.

In 1984, General Motors bought a large data-processing company called the Electronic Data Systems Corporation. Two years later, they also diversified into producing weapon systems and satellites for communication by way of Hughes Aircraft Company.

Unfortunately, these attempts at modernization and diversification did not bode well for the company. The 1990s were hit by an economic recession, and so the company incurred heavy losses. Consequently, it sold the data processing enterprise in 1996 and distanced itself from the defense units of Hughes by making a sale with Raytheon Company the next year.

The focus had been shifted to General Motor’s original aim again – Automotive businesses.

The Wrath of the 2000s

By the end of the 1990s, the economic situation had become better – or so it seemed.

General Motors, therefore, decided to expand into the new, flourishing market of SUVs. Consequently, it acquired Saab automobile in 2000.

Unfortunately, the attacks of September 11 a year later and the subsequent stock market decline created a crisis. While the company lowered prices with a Keep America Rolling campaign, gross profit margins diminished. A few years later, fuel prices increased by about 50%, a whopping high amount. Although General Motors claimed for its hybrid trucks to depict great fuel efficiency (as much as 25%), the consumers were not buying it now.

general-motors-1980sSource

Rising fuel prices and exceeding debts pushed General Motors to the edge, and by 2005, the company declared a loss of $10.6 billion. A year later, dividends were slashed from $1 to $2 – the last breaths of a dying man, it would seem.

The company sold 51% of GMAC (its financial service), its mortgage and real estate units, its 8% stake in Isuzu, and its Allison Transmission division. It also offered buyouts to workers.

As the company began to sell off assets to raise capital and decrease its liabilities, it seemed nothing was working in their favor. In February 2008, the company declared an operating loss of $2 billion, and a monthly billion loss was stated thereafter. However, the shock came in August 2008, when the company announced a loss of a whopping $15.5 billion. Toyota took over its place as the world’s largest car company.

As if they required a last nail in the coffin, when the 2009 financial crisis hit, the company filed for bankruptcy of $100+ billion. Eventually, the U.S. government had to help out General Motors Corporation, among many other automotive companies, to put them on the map again.

Takeaway 4: Make Provisions For External Factors

General Motors was known for impeccable strategies and a clear vision. So much so that when World War II ended, the management knew they immediately had to shift gears and restart production of civilian vehicles.

However, the journey of General Motors indicates that sometimes, many elements occur beyond our control that bear a massive impact on business decisions. The entry of the Japanese, the increased fuel prices, and eventual financial crises were prominently beyond the control of the GM management.

Therefore, while the company was trying to stay afloat with reduced price campaigns and newer inventions, it knew that the decision had spiraled out of its control. Consequently, instead of hanging onto a tumbling empire, they began sales of their divisions for a leaner company structure and filed for bankruptcy to gain support from the authorities.

The management did all that they could and did not shy down from asking for help when they required it the most.

General Motors Corp. Rises From The Ashes - & Conquers!

The years of the Financial Crisis displayed the worst economic conditions since the Great Depression. In fact, by the time that the company closed its books by the end of 2008, it was incurring a loss of $30.9 billion.

Such was the case for most major American automobile companies at the time. So, Rick Wagoner of General Motors, Bob Nardelli of Chrysler, and Alan Mulally of Ford combined to ask Congress for a bailout.

congress-automotive-bailout-hearingSource

Rescued By Bush

In 2008, George W. Bush, the U.S. President at the time, announced a rescue plan that would save the three “Big” automakers of the country – exactly those three that had asked for a bailout.

A Troubled Assets Relief Program (TARP) was created that granted loans of $13.4 billion to the struggling companies, while a $700 billion fund was approved by the government to facilitate the falling industry post the mortgage crisis.

The purpose of the loans was simple. It would help the companies stay afloat throughout March 2009, following which they were to either display an upward trajectory and financial viability, or return the money within 30 days.

However, there is no money as free money, and the attached string with the loan displayed exactly that. General Motors Corporation was instructed to undergo restructuring – and so they did.

General Motors Strives To Make A Comeback

While its competitor, Ford, claimed to not require additional government relief, the situation for General Motors was vastly different. As the financial troubles continued to pile on, the company – roughly $173 billion in debt now – filed for bankruptcy protection and began its restructuring.

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Instead of continuing with its 6 divisions that had accumulated up till now (5 + Saab), the company decided to focus on its core brands. On 27th April 2009, Pontiac was discontinued, Oldsmobile had already been phased out, and by the end of the year, the company also sold Hummer, Saab, and Saturn. It seemed the divisions that had saved General Motors earlier, were now the first ones to go.

The company was now leaner and more focused. Its downsizing left the emphasis on 4 distinct General Motors brands:

  1. Buick,
  2. Chevrolet,
  3. Cadillac, and
  4. GMC

However, did this mean that the company would halt its research and development and instead continue with what it had achieved till now? Not at all.

In June of the next year, General Motors Corp. created a new subsidiary by the name of General Motors Ventures. This would help research for the company to bring in new, modern ideas for the automotive and transport sector.

The company continued forward, now shrunken in size and focused on operations, and as predicted – it made a splash in the market yet again. In November, General Motors entered the Stock Market with a new benchmark in U.S. history – a massive IPO. The next year, General Motors was back to its rank of many decades – the largest Automaker in the world.

General Motors Today

While the bankruptcy was a major stumble in the journey of General Motors, it marched on. In 2012, it allied with French multinational automotive company Peugeot S.A. of the PSA Group. By 2013, the alliance was already generating gross proceeds up to $0.25 billion – GM was back!

In the next year, the company made headlines for another reason: Appointing the first-ever female CEO of a major automaker – Mary Barra. Barra began her role with an unprecedented move – making amends. For decades the company had covered up the faulty ignition switches in its various car models that had led to as many as 120 deaths. Barra decided on a multi-billion dollar ignition switch recall, which bode well with the consumers.

From 2014-16, the company experienced staggering high profits, and Barra continues to keep GM in a high position with the right strategies and timely decisions.

Presently, General Motors focuses on 5 core brands: Buick, Cadillac, GMC, Chevrolet, and Wuling. However, most of its revenue remains confined to truck and SUV sales.

While the world continues to progress towards modern, fuel-efficient vehicles such as Electric cars or hybrid models, General Motors stands at a crossroad – to innovate and invest in electric or look for a new path altogether. Nonetheless, the path for General Motors has only one road today – Up.

Takeaway 5: Always Consider All Options

After the 1990s, General Motors was required to face the worst of industrial hardships. As businesses around the world struggled to remain afloat, GM turned to one of its biggest alliances of the past – the U.S. government.

The company had done a lot for the U.S. economy and knew asking for a bailout would bode well for its future. This was, however, one option. There was another way to go too – cutting its workforce and many divisions loose. While this would considerably reduce the market share of General Motors, the resultant leaner, shrunken organization would be easier to coordinate and manage.

Therefore, the management of General Motors decided on combining both options, and the result worked out in its favor. Similarly, when the ignition-switch crisis came up later, Barra considered all options and knew confessing and requesting a recall would keep GM’s goodwill intact while fulfilling their purpose.

General Motors has always trodden smartly in the face of success and adversity alike, and this is primarily due to considerate, real-time decision-making.

Key Strategic Takeaways

General Motors is one of the top producers of motor vehicles across the globe. From a corporation that began as a horse-drawn carriage enterprise with only a few billion in the pocket to becoming a multi-billion-dollar behemoth in the world of automobiles, General Motors has come a long way. As an organization that ruled the automotive industry for most of the 20th and 21st centuries, the story of General Motors is nothing less than inspirational.

Let’s have a look at some of the key takeaways we can extract from the GM journey.

Be Different.

The story began for General Motors when it embraced diversity and change. While the consumers seeking cars were already getting a certain type with Ford, the management for General Motors knew their chance at success lay in identifying market gaps and providing consumers what they desired. By creating a diverse portfolio – from cars to tanks and aircraft – the company had an expanded clientele that kept the cash flow running even in economically distressing times, such as World War II.

Success Favors The Smartly Brave

Entrepreneurial success depends upon strategy, focus, and execution. However, businesses that grow to become massive global conglomerates do have a little luck on their side. Some decisions are based purely on instinct, such as the addition of airbags in GM cars (that went on to become popular in the future), while others are backed by data – such as the venture into producing electric cars and obsoleting the hand crank.

The formula for success for General Motors management was an amalgamation of risk-taking and carefully researched decisions. While Durant may have founded the company, Sloan knew to take the risk and have him exiled to take GM to the top. On another occasion, General Motors knew exactly when to step into SUV production to keep themselves afloat, when their other product ranges were not doing so well. Even currently, the piling profits of SUV production has meant GM keeps them at a priority, although the future does seem to be electric.

Cater To Everyone

Some businesses identify a gap in the market to produce specific, streamlined products. Some cater to a niche consumer base only. However, the objective of the senior management at General Motors – from Durant to Sloan and Barra – had always been to appeal to the masses and gain a position as the top automotive company in the world.

To achieve this, they created a wide range of vehicles catering to low and high budgets alike, appealing to multiple tastes, and belonging to different origins too. Instead of confining themselves to a U.S.-only brand, GM added Opal of Germany and the French Peugeot S.A. to its list of affiliations, and the alliances continue to increase.

Cautiously Navigate Storms – Foreseen and Unforeseen

The management of General Motors had always been aware of their competitors (like Ford and Chrysler) and therefore developed responsive strategies to timely curb the impact of foreseen competition. When they knew Ford was against presenting credit policies, General Motors offered GMAC – a way for people to purchase their cars with budget-friendly options. When Ford created Falcon, GM immediately curbed its impact through Chevy II. Such instantaneous decisions ensured they remained one step ahead of their competition at most times.

For unforeseen circumstances, such as the taking of control by Sloan, World War II, and financial crisis; GM’s management stayed on their toes and steered the company out of distress. Whether this meant taking the company away from Durant, putting a break on civilian vehicles to produce army logistical automobiles in the war, or asking the government for a bailout in ’09, GM was ready for the unforeseen too.

Present Losses Can Make Way For Future Wins

Some businesses make the mistake of being too cautious. With General Motors, we understand sometimes losses must be endured to regain footing, initiate restructuring, and make a lasting comeback.

When the company almost went bankrupt, it had to let go of much of its workforce, which was a first for a company that prided on consumer/employee-friendly principles. When the ignition switch incident resulted in numerous deaths, Barra was ready to endure some loss through recall than risk having a reputation of a company that worked against consumer interests.

Throughout its journey, General Motors has taken a stumble, fallen, but then risen again with a new spirit to conquer the world of automotive.

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