The Ghosts of GM's Past: Origins of today's crisis

by Joshua Davidson
Publisher, MyYearsWithGM.com and the GM Centennial AUDIOBOOK Edition of My Years with General Motors

GM'S 2008 CENTENNIAL CRISIS STEMS DIRECTLY FROM THE CORPORATION'S 1958 SEMI-CENTENNIAL YEAR, WHEN THE CORPORATION'S GOVERNANCE STRUCTURE EXPERIENCED A SEISMIC SHIFT THAT ENDED A DECADE-LONG INTERNAL WAR, AND ATOMIZED GM'S OWNERSHIP.

1958: TURMOIL AT THE MILESTONE Despite a deep national economic recession and sales slump, GM was far and away the worldwide industry leader. So, while 1958 sales were poor following a decade-long boom, General Motors the corporation ostensibly never looked better, gifting the nation with a two-hour 50th Anniversary TV extravaganza starring dozens of contemporary celebrities. Of course, the real stars were the all-new 1958 Cadillacs, Buicks, Oldsmobiles, Pontiacs and Chevrolets – considered by many to be the ugliest GM lineup ever. The company that innovated the very idea of production car design had excreted a lineup whose unifying theme seemed to be a Jell-O mould amalgamation of all the tailfins, chromed castings and saturated pastel colors. The ‘58’s were the pinnacle of planned obsolescence, which was never a GM policy, but in fact the signal failure of GM’s policy-making principles.

The paradox between the slick, Emmy-nominated TV Gala Celebration and the egregious new line-up was emblematic of the corporate carnage that had afflicted GM for a decade. Externally, anti-trust rulings against DuPont Company, and rumblings of action against GM itself, had contorted the governance structure that had made GM such a dynamic enterprise. Internally, a rift had long polarized GM’s New York governance and Detroit operating staffs.

GM’s War with Itself
Du Pont had rescued GM from bankruptcy in 1920, taking a commanding stock position, and setting the young company on the course to industrial ascendancy as the first truly modern large enterprise. As GM chairman, Pierre du Pont recognized Alfred Sloan’s brilliant management innovations, and the steady Du Pont dominance in the boardroom backed Sloan’s methods of managing for the long term. While the government’s 1946 anti-trust suit against du Pont had not proven a restriction of trade in the automobile industry, the courts nonetheless determined to end the relationship between the industrial giants. In 1953, DuPont was ordered to divest itself of GM stock by 1958.

Following World War II, GM underwent a series of expansions which had yielded record sales and earnings results, which Sloan had initially supported, but the growth of which had thrown his carefully balanced relationship between finance and operations out of balance. The Detroit product men saw in the post-War era an opportunity to quench demand that had been building since 1929. They itched to commercialize wartime technology and design innovations. The Depression-bred finance staff saw only an uncertain economic outlook and a threatening legal environment that demanded prudent use of scarce capital.

Detroit was right, and sales of GM cars soared, generating huge profits that effectively liberated Detroit from New York’s grasp of GM’s purse strings. But after a peak year in 1955, the runaway train was going off the rails. Price wars and a natural decline from a new sales peak hit earnings, and hasty cost savings took a toll on product quality.

At the same time, GM’s management was undergoing a generational turnover that was remarkable not so much for the new executives it installed, but for the older ones whom it eclipsed. Alfred Sloan retired as Chairman in 1956 at 81 years-old (he acted as Honorary Chairman until his death in 1966). Sloan’s basic achievement – making GM the most powerful and admired company in the world – seemed set to simply accelerate on the course he had set it. But his absence was an incalculable loss at the top.

And while the company kept Sloan as long as God allowed, knives were drawn behind another of the corporation’s “founding fathers.” Harley Earl had essentially invented production automobile design in 1927, giving General Motors its most compelling long-term market advantage. By 1956, he had forged among the untethered production side an unofficial policy of complete yearly redesigns – seen by New York as the embodiment of the out-of-control Detroit operations.

Coup de Corporation
It all came to a head in 1958. Milestones often compel organizations to make symbolic changes, and perhaps that got the ball rolling. But the sales slump, along with an objective decline in product quality gave the New York governance staffs the ammunition they needed to move against the Detroit operations. With Sloan no longer in position to act as referee, and as the DuPonts abdicating their anchoring presence on Board of Directors, the time was perfect for a Coup de Corporation.

The 1958 reorganization effectively subordinated operations to a regime composed of finance staff and general counsel, backed up by like-minded new board-members. They were in no position to stop the 1959 model line – considered iconic today, but over-the-top when they bowed. But they immediately started nibbling costs at the edges, leading to such decisions as deleting a chassis stabilizer-bar on the upcoming Corvair model.

To the public eye, GM was largely unchanged. It produced some of it most memorable products in the 1960s, but the product side was riding on past glory. Declining investment led to technical stagnation and badge-engineering. Most importantly, increasing centralization gave non-automotive staff control of product, resulting in platform proliferation that destroyed GM’s defining brand-differentiation policy. By 1968, central management was imposing designs, production methods and technical restrictions upon the divisions, resulting in the disastrous Chevy Vega, chronically eroding quality, and inability to respond to the 1974 gasoline crisis.

Finally, Progress
There have been some successes in the last 50 years at GM, but they were never built upon, and GM lost it industry leadership in terms of offering advanced products and meaningful brands decades before falling to second place in worldwide sales in 2007. Rick Wagoner, alone among all of the GM CEOs since 1958, has restored product to the top of the priority list, mainly by recruiting Bob Lutz and giving him real authority. The results are apparent in a new generation of competitive GM products. Thus GM’s survival into a second century begins not with removing today’s management, but with continuing the Wagoner policy of restoring balance within GM management.