The General Of General Motors


The crunch came when sales unexpectedly dropped as a result of a slight business recession in IQlO. Durant was unable to meet his payroll and bills from suppliers. The First National Bank of Boston, to whom Buick was indebted for seven million dollars, called in a banking syndicate that agreed to save the General Motors combination—but only after receiving assurances of feasibility and support from Henry M. Leland and Wilfred C. Leland of Cadillac and extracting stiff concessions. They received over six million dollars in General Motors stock plus fifteen million in five-year, 6 per cent notes for a $l2.75-million cash loan. Durant was to remain as vice president and a member of the board of directors of General Motors. But he was forced to retire from active management, and the banking syndicate gained control of the combination through a five-year voting trust. Durant’s power as one of the trustees was negated by the other four, who represented the bankers.

To the leadership of General Motors the bankers appointed James J. Storrow, a senior partner in the Boston house of Lee, Higginson, who served first as the temporary president and then directed operations as chairman of the finance committee. Charles W. Nash, who had succeeded Durant as head of Buick in 1910, was moved to the presidency in 1912. Walter P. Chrysler, manager of the American Locomotive Works, was then brought in to take over Nash’s position at Buick.

The Storrow-Nash regime followed a conservative policy of retrenchment during their five-year period of control. Only five companies were allowed to continue to manufacture motor vehicles—Buick, Cadillac, General Motors Truck, Oakland, and Oldsmobile. A centralized research and testing program was initiated, and internal administration was improved. But they made the crucial error of withholding common-stock dividends. This increased the propensity of General Motors stockholders to sell their shares to Durant, who, down but by no means out, was anxious to regain control of the combination.

Within a year after the bankers took control of General Motors, Durant started his comeback. While still a substantial stockholder in General Motors, in 1911 he formed two new companies to manufacture automobiles: the Little Motor Company in Flint, to build a small, fourcylinder runabout that sold for only $650, and the Chevrolet Motor Car Company in Detroit, to build a light, moderately priced car designed by Louis Chevrolet, a Swiss mechanic who had been one of Buick’s racing drivers. After forming and folding two other companies, Durant then abandoned Little and concentrated his energies on Chevrolet. The Chevrolet manufacturing operations were transferred to Flint—and Louis Chevrolet was arbitrarily fired the third time he walked into Durant’s office with a cigarette dangling from his lips. Durant had abruptly quit smoking and could no longer tolerate the habit in anyone else.

Nearly sixteen thousand cars that bore Chevrolet’s name were sold in the two years ending August 14, 1915. Durant announced that he would bring out a new $490 model to compete with the Ford Model T; and in September, 1915, he organized the Chevrolet Motor Company of Delaware as a holding company for all Chevrolet activities. Raising its capitalization to eighty million dollars, all common stock, Durant offered to trade five shares of Chevrolet for one share of General Motors. There were so many takers that the offer was closed on January 26, 1916.

Durant’s return to control was imminent by the time the General Motors voting trust expired on October 1, 1915. Early that year Durant and Pierre S. du Pont began buying up General Motors stock in the open market with the aid of Louis G. Kaufman, president of the Chatham and Phoenix Bank of New York City. Du Pont and John J. Raskob, treasurer of E. I. du Pont de Nemours and Company, saw General Motors as an ideal place to reinvest their huge profits from World War I munitions sales. Some twenty-seven million dollars of du Pont’s money helped push General Motors common stock from a quotation of 82 on January 2, 1915, to a high for the year of 558. It was summer before the banker-dominated management at General Motors realized what was happening.

At a meeting of the General Motors directors and large stockholders on September 16, 1915, Kaufman and du Pont were elected to the board of directors, du Pont as its chairman. A belated attempt by Durant’s opponents to mobilize stockholder support for another three-year voting trust failed. With the votes of about 40 per cent of the General Motors common stock in his pocket, Durant proceeded to announce calmly: “Gentlemen, I now control this company.”

With the resignation of Charles W. Nash on June 1, 1916, Durant regained the presidency of General Motors. He took over a much stronger combination than he had left five years before. The du Pont alliance eased the problem of obtaining working capital. Chevrolet was a moneymaking addition to the General Motors manufacturing units. Strength was also added by the acquisition of the United Motors Corporation, a Durant-created holding company owning the securities of five leading automobile-accessory manufacturers. With United Motors came Charles F. Kettering, the engineering genius, and Alfred P. Sloan, Jr. Recognizing the need to integrate and consolidate his impressive new empire, Durant reincorporated the General Motors Company, a New Jersey holding company, as the General Motors Corporation of Delaware, an operating company, on October 13, 1916.