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The General Of General Motors
"Billy" Durant typified the courage of American business. He was charismatic, arbitrary and impenetrable.
August 1973 | Volume 24, Issue 5
Despite the age difference, or maybe in part because of it, Durant found an ideal mate in Catherine. Her devotion to him was constant through a hectic career that involved as many failures as successes. The marriage was childless but otherwise idyllic. Catherine never had to fear that Durant’s affections would stray: his life was amazingly free from any breath of scandal. That he practiced a strait-laced morality was learned the hard way by a Los Angeles Durant Motors dealer who gave a party to honor the founder’s visit to southern California. When Durant entered the railroad car that had been rented for the occasion and saw that liquor and women were prominently aboard, he muttered a few caustic remarks and left. The dealer’s franchise was cancelled. Durant’s main diversion when travelling was playing checkers on the small checkerboard he carried around in his pocket.
By the time he married Catherine, Durant had built Buick into the leading automobile producer in the United States. In 1908 the company built 8,487 cars, had a net worth of $3.5 million, and occupied the largest automobile plant in the world. Nevertheless Durant was worried about the immediate future. So was Benjamin Briscoe, president of the Maxwell-Briscoe Motor Company, one of Buick’s chief competitors.
Whereas Henry Ford was confident by 1908 that his Model T was the “car for the great multitude,” Billy Durant was more uncertain than ever about the best bet in automotive technology. So he decided to play the field. His rationale was revealed in a later lament, “They say I shouldn’t have bought Cartercar. Well, how was anyone to know that Cartercar wasn’t to be the thing? It had the friction drive and no other car had it. … And then there’s Elmore with its two-cycle engine … maybe a two-cycle motor was going to be the thing. … I was for getting every kind ofthing in sight, playing it safe all along the line.”
Benjamin Briscoe also found conditions in the spring of 1908 “somewhat ominous, especially for such concerns as had large fixed investments in plants, machinery, tools, etc.” Briscoe was worried about “concerns which did not have a worthy car or any manufacturing ability, but with large stock issues to sell, and by ingenious exploitation would succeed in stirring up the trade and the public. … “He was afraid such companies would force “even the sanest among the manufacturers … into business risks which they would not have entered had they not been fearful that some other concern would gain a few points on them.”
Briscoe and Durant conceived that the answer to these problems was a horizontal and vertical trust. They decided to try “to form a combination of the principal concerns in the industry … 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. ” The easiest way to accomplish this was to merge their own firms, Buick and Maxwell-Briscoe, with several other leading producers of gasoline automobiles. But the merger plan failed when Henry Ford and Ransom E. Olds each demanded three million dollars in cash to sell out, instead of the securities Briscoe and Durant offered.
Undaunted, Briscoe and Durant hatched another consolidation scheme. They secured a New Jersey charter for an International Motors Company, with J. P. Morgan & Company to underwrite the stock issue. This plan fell through, too, when the House of Morgan withdrew its support. During the negotiations Durant correctly prophesied that soon a half million automobiles would be sold annually in the United States. George W. Perkins, who represented the Morgan interests, curtly suggested that when Durant wanted to borrow money, he had better keep such crazy notions to himself. By this time Briscoe had had enough. He and Durant parted company.
Working alone now, Durant moved quickly to form the General Motors Company as a New Jersey holding company with a nominal capitalization of only two thousand dollars on September 16, 1908. The holding-company structure allowed Durant, who was short of both cash and bank credit, to finance his combination mainly through exchange of stock. Cadillac, purchased for a premium $4.5 million, was the most notable of the few companies for which cash had to be paid. General Motors soon acquired control of thirteen motor-vehicle and ten partsand-accessories manufacturers that varied considerably in strength, prominence, and potential. Its capitalization reached an astonishing sixty million dollars within a year.
But General Motors was in trouble from the start. Durant’s attempt at “getting every thing in sight, playing it safe all along the line” turned out to be catastrophic. He bought too many weak units that drained off the profits from a few strong companies. The most spectacular error was purchasing the Heany Lamp Company for seven million dollars in General Motors stock to obtain a patent on an incandescent lamp that turned out to be fraudulent. Only two of the thirteen automobile manufacturers in the combination he threw together, Buick and Cadillac, were making money. And as Durant dispersed his energies Buick began to decline, threatening to leave Cadillac alone among the automobile-manufacturing units to support the heavily overcapitalized holding company. Durant was so optimistic about demand that he failed to build up cash reserves, to get adequate information about the combination’s financial condition, and to achieve economies through coordinating and integrating the constituent units of General Motors.