The General Of General Motors

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By 1919 Walter P. Chrysler was worried that “Buick was making about half the money [earned by General Motors], but the corporation was spending much faster than we could earn.” Insult was added to injury when Durant sold the lucrative Detroit Buick branch house to a crony without consulting Chrysler. The end came when Durant promised the city of Flint a six-million-dollar frame plant. Chrysler was convinced that Flint lacked adequate facilities, and knew that the plant would “cost more in five years than we would pay for frames in ten.” Though Durant later backed down, Chrysler soon left, saying to Sloan, who tried to talk him into staying: “No, I’m washed up. I just can’t stand the way the thing is being run. All I’m anxious about now is to sell my stock. ”

Sloan was soon on the verge of resigning himself. He could no longer tolerate the one-man rule of an inveterate gambler who ignored facts to make decisions on the basis of “some intuitive flash of brilliance.” His ideal executive was the security-oriented technician who, sensitive to the opinions of others, worked well as a member of an entrepreneurial team. Sloan took a vacation abroad to think things over early in the summer of 1920. When he returned in August, he “sensed something unusual” and decided “I’ll ride along awhile and see what happens.” What Sloan “sensed” was that Durant’s days at General Motors were numbered.

Almost sixty, Durant did not recognize adequately that the business environment was changing rapidly in the automobile industry. An incurable optimist, he was also banking on an uninterrupted post-World War i boom in automobile sales. He was unprepared, as were Henry Ford and many others, for the sharp recession that accompanied conversion to a peacetime economy. General Motors was caught in the midst of an expansion program that could not have been more ill-timed. The working capital of the corporation had been dissipated. So an issue of sixty-four million dollars in common stock was offered for underwriting. Thirty-six million of the issue was picked up by an English-Canadian banking syndicate at twenty dollars a share, but that still left twenty-eight million dollars to be disposed of in a declining market. And the crisis deepened as the stock issue quickly became essential to the survival of General Motors.

The expansion program, initiated in 1918, was not Durant’s error alone. By 1919 the du Pont interests owned 28.7 per cent of the General Motors common stock, and Pierre S. du Pont, chairman of the corporation’s board of directors, had supported the expansion without objection. John J. Raskob, the du Pont treasurer, who was chairman of the General Motors finance committee, was at least as responsible as Durant for enthusiastically promoting the program. But wherever the fault lay, other large General Motors stockholders, concerned about what was happening, began to unload their holdings. Durant saw that this could collapse the price of General Motors stock, with the disastrous result that it might be impossible to dispose of the remaining twenty-eight million dollars of the new issue. He also wanted to protect the value of his personal holdings, which on paper were worth $105 million. But despite Durant’s attempt to snap up large blocks as they were offered for sale, the stock slid from $38.50 to under thirty dollars a share before a syndicate headed by J. P. Morgan & Company agreed to underwrite the remaining twenty-eight million of the new issue.

On July 15, 1920, the Morgan interests announced that the twenty-eight million dollars in stock had been disposed of. But Durant’s troubles were just beginning. There was either a misunderstanding or a conflict with the House of Morgan and its financial allies. In either case the Morgan men dumped a hundred thousand shares of General Motors stock on the market, driving the price down to $20.50. As the stock continued to tumble, Durant bought frantically in a desperate attempt to salvage something. Operating heavily on margin, he supported the stock down to twelve dollars a share before he admitted he was licked. Durant’s cash resources were wiped out, and he owed over twenty million dollars to twenty-one brokers and three banks.

The du Ponts, Raskob, and the House of Morgan became afraid that if Durant declared bankruptcy, he might drag down with him the brokers, banks, and General Motors. At a series of meetings in November, 1920, they worked out an alternative. They would bail Durant out of the mess on the condition that he hand over to them control of General Motors. Durant came out of the deal with about three million dollars of General Motors stock plus a personal loan of five hundred thousand from Pierre S. du Pont.

Durant resigned as president on November 30, 1920. “You knew he was grief-stricken, but no grief showed in his face. He was smiling pleasantly, as if it were a routine matter, when he told us he was resigning,” remembered Sloan. The following day Durant cleaned out his desk. When he was leaving the building, he turned to remark: “Well, May first is usually the national moving day, but we seem to have changed it into December first. ”

To allay fears in Flint about Durant’s resignation and the “take-over” of General Motors by eastern bankers, the new management built a three-hundred-thousanddollar hotel in Flint and named it the Hotel Durant—the impersonal corporation’s final tribute to a founder who had outlived his usefulness to the firm.