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Profile of General Motors
By Samuel Romer
January 23, 1937
Vol. 144, No. 4, P. 96
When sitdown strikes in five General Motors automobile and parts plants resulted in a practical paralysis of production operations and forced direct negotiations between national officers of both the corporation and the union, few of the workers involved realized that they were participating in the first important battle of a civil war which will largely determine the industrial progress of America during the next decade. For the attack on General Motors was basically an attack on one of the important sectors of Wall Street; other sectors are steel, oil, aluminum, and rubber. And the defense of the General Motors Corporation was the beginning of a nation-wide strategic defense in the coming struggle.
When the United Automobile Workers and the Committee for Industrial Organization with which the union is affiliated chose the automobile industry as their first base of operations, they did not pick a weak link in the national set-up of Wall Street. For G. M. is one of the giant corporations of Americaits assets of $1,268,532,025.85 being topped in the field of manufacturing enterprise only by those of the American Telephone and Telegraph and United States Steel. General Motors stands by itself in the automobile industry; its assessed value equals that of Ford, Chrysler, and Studebaker combined, with a few of the lesser shops thrown in for good measure. Ten years ago it challenged the invincible Ford and licked him. Fifty-five per cent of the nation's 320,000 automobile workers are located in the sixty-nine G. M. plants in the United States; thousands of others are bossed by G. M. throughout the world. G. M. manufactures and sells not only automobiles but household appliances, gasoline, airplanes, and even air rides.
It began its existence in 1908 with the goal of absolute domination of the industry. In the early hectic days, when every first-class mechanic who could raise a few thousand dollars opened his own plant, Wall Street took alarm at the spectacle of more than 600 competing firms. Ward, Hayden, and Satterlee (the latter a Morgan inlaw), a New York law firm, began negotiations with Benjamin Briscoe of the Maxwell-Briscoe Company, an early pioneer, and William C. Durant, whose Buick then led the field, and suggested a meeting. They met, Briscoe later wrote, for "the purpose of having one big concern of such dominating influence in the automobile industry as, for instance, the United States Steel Corporation exercises in the steel industry, so that its very influence would prevent many of the abuses that we believed existed." The projected combination would have included the big four of that timeBuick, Ford, Reo, and Maxwell-Briscoewith all checks countersigned by Morgan. This plan fell through when the late Senator Couzens, acting for Ford, and R. E. Olds of Reo each demanded $3,000,000 cash before they would enter the combination. The idea was then discarded; Morgan wasn't ready to spend $6,000,000 to bottle-neck automobilesit was too great a speculation!
Durant and Briscoe, aided by George W. Perkins, a Morgan partner, continued conferences on a further proposal to form International Motorswith the same object in view. But when Stetson, the Morgan attorney, accused Durant of double-crossing the others by privately purchasing stock during the conferences, the Buick manufacturer broke off negotiations and began the organization of his own holding company, the General Motors Company of New Jersey. He immediately set about to achieve domination of the industry: his first important act was to take an option on the Ford Motor Company for an $8,000,000 sale price with $2,000,000 cash as down payment. He was dealing with badly scared men in Henry Ford and James Couzensthe Selden patent decision had just been handed down and it spelled ruin for those manufacturers who, like Ford, wouldn't play ball with the rest of the crowd. But if Ford and Couzens were scared, they still retained enough of their business acumen to demand a 25 per cent down payment. Durant couldn't raise the money and Ford continued making automobiles.
But there were many manufacturers, large and small, who weren't worried about the cashand these Durant bought by giving them huge blocks of stock. In two years G. M. had the entire or controlling interest in twenty automobile and parts plants and was producing ten makes21 per cent of the entire United States output. Durant ran wild in his expansion; his exaggerated stock issues and "gifts" of huge blocks of promotion stocks to friendly executives created whispers of "water." He was running heavily in debt to suppliers and commercial banks without the liquid capital to balance. A final inexplicable flier in the worthless stock of the Heany Lamp Company for $7,000,000 completed the rout, and late in 1910 the Wall Street wolves dosed in on their prey.
For a $15,000,000 debt refunding, a syndicate headed by Lee, Higginson and Company and the J. and W. Seligman and Company forced Durant to agree to voting-trust control of the corporation, with the bankers retaining four of the five votes of the trust. Durant was throughtwo years after he had founded G. M. with grandiose hopes.
There is something likable about Durant. For one thing, he is one of the few who didn't come from Wall Street to run the industry; instead he came from the industry to run Wall Street ragged during the boom years of the twenties. Although he later became known, thanks to the American Magazine, as one of the Wall Street bulls, he always had an open contempt for the vested crowd and delighted in beating them at their own game. From them he learned the technique of the double-cross, and he applied it to them with a vengeance. That today he is a beaten man is a tribute to the power of organization; that it took "the crowd" more than two decades to beat him is a tribute to his shrewdness and pugnacity.
When he was forced out in 1910 he scornfully disdained to ride along while the bankers took the wheel. Even as the reorganization of G. M. was begun, and by a stroke of a pen five of the less profitable makes were eliminated, Durant set about organizing the Chevrolet Motor Company. In New York he met John J. Raskob, secretary to Pierre S. du Pont, who was seeking a market for the stupendous war profits of the munitions concern. Durant talked; Raskob became convinced. Together with Louis G. Kaufman, an independent New York banker and capitalist, they paved the road for Durant's return by buying General Motors stock on the open market.
Legend has it that on October 1, 1915, when the voting-trust agreement expired, the anti-Durant conspirators were startled by the entrance of their foe into the G. M. conference room. Slowly, confidently he walked to the head of the table and flinging down his proxies declared, "Gentlemen, I control." Legend, as usual, is probably wrong in the exact details of the proceedings, but the story undoubtedly expresses Durant's feeling when he regained domination of G. M. Durant was again kingeven if the du Ponts were parliament. A last-minute attempt by the anti-Durant block to mobilize the stockholders was of no avail; after a weak fight Charles W. Nash, who had built up the net income from $2,474,177 in 1910 to more than ten times that in 1915, sought new fields to conquer and subsequently began Nash Motors. Durant was again running the workssubject to the qualified control of the du Ponts. He was later to discover that he had jumped from the frying pan into the fire.
Things ran smoothly for a while. In 1919 G. M. acquired 60 per cent interest in Fisher Body; later it made the latter a unit of its empire. (As an example of the complete victory of finance over manufacturing in G. M. control, Fisher Body is almost perfect. There were seven Fisher brothers at the time of the merger; today only two are left on the G. M. board of directorsand they don't say much.) In 1919 a 1,000 per cent stock dividend was declared for all share-holders, and a tremendous debenture stock issue of more than $217,000,000 was ordered. The issue was undersubscribed, however, and when Durant used his entire personal fortune to try and bolster the falling market of 1921G. M. shares fell from $376 in March to $13.25 in Decemberthe du Ponts decided that they were through playing with the automobile magnate. Along with Morgan they closed in; and Durant was again through. The du Ponts still were parliament, but Morgan was now king.
Today Lammot du Pont, president of du Pont de Nemours, is chairman of the board; Alfred P. Sloan, Jr., who rode in on Pierre du Pont's coat tails in 1920 as operating vice-president, succeeded Pierre as president in 1923. Other du Pont men on the board of thirty-five are three more du Ponts, Donaldson Brown, a du Pont in-law who acts as riding boss in his capacity as chairman of the powerful finance committee; Walter S. Carpenter, Jr., and Raskob. Morgan is represented by Junius S. himself, George F. Baker, Owen D. Young, Clarence M. Woolley, George Whitney, and Seward Prosser. Seven du Ponts and four Morgans sit on the finance committee of fourteen. Other interesting members of the board are Sir Harry McGowan of the Imperial Chemical Industries of England (the British du Ponts), Fritz Opel of the Adam Opel A. G. of Russelsheim, Germany, and Arthur B. Purvis and R. Samuel McLaughlin of Canadian Industries. A cross-section of the interlocking directorates (229 seats) represented on the G. M. board would make even Mrs. Dillon quail.
General Motors began as a holding company but it soon became an operating enterprise. Its affiliates are divided into the following groups: eight passenger and commercial car companies with eighteen plants, twenty body and parts companies with thirty-seven plants, a national service company, Delco Appliance and Frigidaire, two airplane plants, Eastern, Western, and Transcontinental air lines, Ethyl gasoline, four members of its own financial group, four real-estate corporations, three research companies, and an impressive worldwide network of sales and assembly companies. The corporation has never passed a dividend since 1916when Durant returned to power; before that time it reinvested in itself its entire net income. Even in 1932, when it operated at an enormous deficit, it paid dividends of $53,993,330 from its surplus. In 1934 it divided a $64,443,490 melon; in 1935 its net income of $167,226,510 was exceeded in its enormity only by its 1926 to 1929 incomes. (It is in comparison with these figures that the importance of the 1936 bonus of $10,000,000 can be measured.) Its officials rank among the highest-paid men in the country, and their salaries are supplemented by dividends and generous bonuses. From the $348,841,524 invested in the corporation since its formation, G. M. paid cash dividends of $1,299,700,081 through 1935, part of the net income for that year of $2,031,044,988.
But although G. M. has been more than generous with the top Livers, ordinary workers have received an average yearly wage of $1,525, according to the 1935 report. This figure is, of course, too highit includes the non-automobile worker and the highly skilled craftsman along with the men on the assembly line and at the punch presses. Independent reports have established something under $900 as closer to the annual wage of the average automobile worker. G. M. has been no shining exception to the rule in the automobile industry that "high wages" may be a fine-sounding slogan to sell cars but nothing to worry about in actual manufacturing operation. G. M. boasts of the wide diffusion of its stock ownership: there are 337,218 share-holders, the financial report declares. But nearly half of these, or about 140,000, hold ten shares or less. The du Ponts themselves hold only about 10 per cent of the stock, but nevertheless retain control by pyramiding their holdings into nearly 33 per cent.
G. M. has followed the orthodox tradition of the automobile barons in its dealings with its employees. The men, even their private lives, are considered company property. Its espionage organization is almost as highly developed as the feared Ford service; cities like Flint and Pontiacand Detroitare completely under its thumb. Long before the notorious Black Legion appeared in the down-river Ford area, G. M. workers in Pontiac dreaded the "Bullet Club," a secret political organization whose officials practically displaced the formal employment agencies in hiring and firing.
The importance of the skirmish victory won by the union when the corporation agreed to meet with the union officers in an effort to settle the strike may well be overemphasized. G. M. has always followed a flexible policy in its labor relations. Even during the open-shop heyday of 1922-25, when its executives boasted that not a union man worked in their plants, unions were tolerated in the highly skilled crafts, such as the metal polishers, and verbal agreements were often reached. G. M. shapes its labor policy in relation to the question of nuisance value; it has not hesitated to meet and bargain with groups when it would have been expensive to do otherwise. With production almost completely shut off by the sitdowns, while Ford and Plymouth sales are reaching top marks, G. M. may well decide that a temporary settlement is its best strategy. But such a settlement will decide nothing in the larger battle; it will only mark a truce as both sides prepare for the next drive.