#121 Billy Durant and Alfred Sloan General Motors

Summary Notes


In the early 20th century, the contrasting legacies of Billy Durant and Alfred Sloan shaped the future of General Motors and set precedents in the business world that resonate to this day. Durant, the visionary dropout, founded GM with a gambler's spirit, expanding through financial speculation. In contrast, Sloan, the meticulous MIT engineer, transformed GM into a corporate titan with a focus on management science and corporate vision. Despite Durant's spectacular fall, losing GM twice and declaring bankruptcy, his initial achievements laid the groundwork for Sloan's three-decade reign, which saw GM's market share rise from 12% to 52%. William Pelfrey's book "Billy, Alfred, and General Motors" delves into the intertwined stories of these two men, revealing how their differing philosophies on leadership, risk, and management continue to impact modern enterprises and their leaders' pursuit of innovation and resolution of core business issues.

Summary Notes

Key Themes: Billy Durant and Alfred Sloan's Contrasting Legacies

  • Billy Durant, a high school dropout, created General Motors with a focus on personal relationships and risk.
  • Alfred Sloan, an MIT engineer, transformed GM into a highly successful enterprise with a focus on data, logic, and profit.
  • The legacies of both men have had lasting impacts on global business practices.
  • Durant's financial manipulation led to his downfall, while Sloan's lack of understanding in employee relations caused resentment.
  • The book "Billy, Alfred, and General Motors" by William Pelfrey highlights the contrasting lives and legacies of Durant and Sloan.

"Billy Durant, the high school dropout, was the flamboyant dreamer and gambler focused on personal relationships and risk. Alfred Sloan, the MIT engineer, was the stern organizer and manager focused on data, logic and profit."

This quote contrasts the different management styles of Durant and Sloan, emphasizing Durant's risk-taking and relationship-focused approach versus Sloan's data-driven and profit-oriented methods.

Key Themes: The Founding and Transformation of General Motors

  • Durant's bold creation of General Motors challenged the industrial and financial powers of his time.
  • Sloan's management and organizational skills led to the expansion and success of GM.
  • The book explores the intertwined lives of Durant and Sloan, and how their interactions shaped the company.

"Billy managed to create General Motors in bold defiance of the industrial and financial powers of his day. Alfred went on to transform it into the largest and most successful enterprise the world has ever seen."

The quote highlights Durant's entrepreneurial spirit in founding GM and Sloan's transformative leadership that turned GM into a leading global enterprise.

Key Themes: The End of Billy Durant's Life

  • Durant amassed and lost several fortunes, ultimately declaring bankruptcy with only $250 to his name.
  • His obituaries focused on his fall rather than his contributions to the auto industry.
  • The New York Times' obituary failed to fully acknowledge Durant's role in creating GM.

"When he finally declared bankruptcy after losing all his money in the stock market crash of 1929 and the Great Depression, he listed his total assets at $250."

This quote illustrates the dramatic fall of Billy Durant from a multimillionaire to bankruptcy, emphasizing the volatility of his financial ventures.

Key Themes: Alfred Sloan's Legacy and Business Philosophy

  • Sloan's obituaries praised his leadership and the growth of GM's market share.
  • He criticized Durant for acting on instinct rather than facts, yet Durant's actions enabled Sloan's success.
  • Sloan's management style is considered more professional and less risk-prone than Durant's.

"Sloan's most constant criticism of Durant was that he acted on instinct and whim rather than facts. Yet the achievements and decisions of Durant the dreamer were what made Sloan the manager's spectacular career possible."

This quote encapsulates the paradox of Sloan's criticism of Durant's instinctual approach, despite it laying the groundwork for Sloan's subsequent success at GM.

Key Themes: Challenges in Modern Business and Legacy of Durant and Sloan

  • Business leaders today still grapple with issues that Durant and Sloan faced.
  • Sloan's structures and policies are being reevaluated for their relevance in the current business landscape.
  • The story of Durant and Sloan provides valuable lessons for modern executives and entrepreneurs.

"Business theorists, executives and investors alike are questioning whether the structures and policies established by Alfred Sloan have become barriers rather than enablers of speed and innovation in the 21st century."

This quote reflects the ongoing debate about the applicability of Sloan's business principles in today's fast-paced and innovative business environment.

Key Themes: Walter P. Chrysler's Resignation and Critique of Durant's Leadership

  • Walter P. Chrysler, a key GM executive, resigned due to his disdain for Durant's leadership style.
  • Chrysler's rapid salary growth from $6,000 to $600,000 illustrates the non-linear progression in the auto industry.
  • Durant's micromanagement and lack of respect for others' time contributed to Chrysler's resignation.

"More than once, Chrysler had been summoned by Durant, only to be kept waiting, then to discover that the urgent matter that needed to be discussed was nothing that couldn't have been resolved quickly at the plant level, rather than wasting top management's time and brain power."

The quote provides insight into Durant's inefficient and disrespectful management style, which ultimately led to Chrysler's resignation and highlighted one of Durant's significant weaknesses as a leader.

Key Themes: Alfred Sloan's Self-Perception and Management Philosophy

  • Sloan viewed himself as a manufacturer with a focus on creating a grand manufacturing enterprise.
  • He prioritized the company's success over personal limelight.
  • Sloan's approach to avoiding ruin and maintaining high standards is contrasted with Durant's pursuit of temporary success.

"I was a manufacturer, and this could be the grandest manufacturing enterprise the world had ever seen."

Sloan's self-description as a manufacturer emphasizes his dedication to the craft and his vision for GM's potential as a leading manufacturing company.

Importance of Control in Business

  • Controlling production and supply chain is crucial to avoid bottlenecks.
  • Billy Durant learned the hard way when he was cut out of a deal by his manufacturer.
  • Henry Ford and the Dodge brothers also recognized the importance of control in the auto industry.
  • Control ensures timely delivery of products and prevents loss of time and energy.

"Billy Durant would never forget the bitter lesson of what he calls Patterson's treachery... So the lesson here is always control your own production and whenever possible, all the links in the supply chain."

This quote highlights the significance of controlling production and supply chain as learned by Billy Durant through a negative experience with a manufacturer who betrayed him.

Alfred Sloan's Personality and Business Approach

  • Alfred Sloan was a quiet, behind-the-scenes operator.
  • Sloan had his own demons and was known for not tolerating fools and prioritizing the bottom line.
  • He controlled GM's messaging and was the first to have an in-house public relations staff.
  • Sloan's focus was solely on General Motors, leading to his immense wealth but lack of hobbies or personal indulgences.

"Through it all, Alfred remained the quiet, virtually unseen master planner and operator. Silent Sloan was what many of his colleagues had called him."

This quote describes Alfred Sloan's discreet and strategic approach to business management and his reputation among his colleagues.

Sloan's Singular Focus on General Motors

  • Sloan's life revolved around General Motors, showing a singular focus.
  • He avoided personal publicity and corrected what he perceived as Billy Durant's obsession with fame.
  • Sloan's dedication to GM was so intense that he rarely indulged in hobbies or leisure activities.

"By the early 1930s, Alfred Sloan was widely considered to be one of the richest men in the world. But he had no known hobbies and never sold a single share of General Motors stock."

This quote emphasizes Sloan's singular focus on General Motors, his wealth, and his lack of interest in anything beyond his work.

Henry Singleton's Influence and Strategy

  • Henry Singleton was highly regarded by Warren Buffett and Charlie Munger.
  • Singleton read Sloan's book and applied the lessons to his conglomerate, Teledyne.
  • Singleton's approach to ownership and financial institutions was influenced by Sloan's experiences.

"The failure of business schools to study people like Henry Singleton is a crime."

This quote from Charlie Munger underscores the significance of learning from successful business figures like Henry Singleton.

Alfred Sloan's Education and Early Career

  • Sloan was an excellent student and graduated from MIT with high honors.
  • He observed and learned from the mismanagement at his first job at Hyatt roller bearing.
  • Sloan turned around Hyatt roller bearing, emphasizing no excuses and achieving results.

"Sloan had a keen interest in mechanics and engineering. After high school, he was admitted to the Massachusetts Institute of Technology."

This quote highlights Sloan's early interest in engineering and his exceptional academic performance at MIT.

Sloan vs. Durant Ideological Differences

  • Sloan and Durant had different approaches to business growth.
  • Sloan preferred reinvestment of company profits, while Durant favored acquisition and stock market strategies.
  • These differences were central to the General Motors crisis of 1920.

"What Alfred didn't mention in his letter was that Hyatt's growth had come from reinvestment of the company's own profits rather than the acquisition and stock market strategy mastered by Billy Durant."

This quote delineates the strategic divergence between Sloan and Durant, which had significant implications for General Motors.

The Early Automobile Industry and Predictive Inability

  • The automobile industry was initially seen as a novelty.
  • Sloan recognized the potential in supplying bearings to automobile manufacturers.
  • The inability to predict the future is a recurring theme in business history.

"The automobile industry in America was no more than the strange and wild obsession of a few tinkerers and an amusing diversion for the wealthy investors who backed them."

This quote reflects the early perception of the automobile industry and the lack of foresight regarding its potential.

Alfred Sloan's Admiration for Henry Leland

  • Sloan admired Henry Leland for his high standards and perfectionism.
  • Leland's approach to quality and precision influenced Sloan's business practices.
  • Sloan learned the importance of mass production and precision from his interactions with Leland.

"A genuine conception of what mass production should really mean grew in me with that conversation."

This quote from Sloan captures the transformative impact of Henry Leland's emphasis on quality and precision on Sloan's understanding of mass production.

Visionaries and Eccentrics in Business

  • Visionaries like Billy Durant are necessary for driving innovation.
  • Durant's bold predictions for car sales were seen as crazy at the time but proved to be prescient.
  • Eccentric personalities can be as crucial to business success as disciplined operators like Sloan.

"Billy told his two friends that day that the day would soon come when a single car company would sell 10,000 and even 100,000 vehicles in a single year."

This quote shows Billy Durant's visionary outlook on the automobile industry, which was initially met with skepticism by his contemporaries.

Management Style of Billy Durant

  • Billy Durant had a management style that was later labeled as micromanagement.
  • He was known for pushing his workers hard, leading to burnout.
  • Durant valued time immensely, viewing it as one of life's most precious elements.
  • Despite his view on the importance of time, he was known to waste others' time but was intolerant of others wasting his.
  • This behavior was seen as a negative trait and was not appreciated by his peers.

"He'd burn people out, just like Henry Ford, just like a lot of these hard charging people." This quote explains Durant's intense management style and its impact on his employees, leading to burnout similar to other notable industry leaders like Henry Ford.

"Time, to him, was one of life's most precious elements." This quote highlights Durant's philosophy on time, considering it extremely valuable and a fundamental component of life.

"The waste of a minute was in his eyes an affront to the divine creator." This quote reflects Durant's extreme view on the importance of time, equating wasting time to an offense against a higher power.

Drive and Focus

  • Billy Durant was recognized for his energy and drive, but lacked focus.
  • Durant, unlike early automobile industry figures, was not technically skilled in making cars but excelled in recognizing customer satisfaction.
  • He tested cars from a non-technical perspective, emphasizing the customer experience.
  • Durant's success correlated with his focus, as seen when he managed Buick with full commitment.
  • His speculative tendencies led to repeated mistakes and eventual troubles.

"You need drive, but you also need focus." This quote captures the essence of the lesson that while having drive is important, without focus, it can lead to misdirection and inefficiency.

"Durant officially assumed manager responsibility of Buick, and he was fully committed, fully focused and fully energized." This quote describes the period when Durant dedicated himself completely to Buick, leading to significant success due to his focused approach.

Vertical Integration and Industry Insight

  • Alfred Sloan credited Billy Durant for early recognition of the importance of vertical integration in the automobile industry.
  • Durant and Sloan realized that a dependable supply of parts was crucial for success in the industry.
  • Both Durant and Ford were early visionaries of the automobile's potential despite its initial unreliability and limited market.

"A dependable supply of parts might well make the difference between success and failure." This quote by Alfred Sloan emphasizes the critical nature of having a reliable supply of parts to avoid production halts which could lead to business failure.

"No two men better understood the opportunity presented by the automobile in its early days than Mr. Durant and Mr. Ford." This quote by Alfred Sloan acknowledges the foresight and understanding that Durant and Ford had regarding the potential of the automobile industry.

Personality and Strategies of Industry Leaders

  • Alfred Sloan disliked the limelight and focused on technical expertise rather than excitement.
  • Henry Ford had a singular idea that differentiated him from other manufacturers, focusing on the low-end market to drive costs down and demand up.
  • Durant's approach to growth was through acquisitions and using other people's money, contrasting with Sloan's methodical understanding of manufacturing and marketing.

"Alfred Sloan preferred to be in the background." This quote indicates Sloan's preference for working behind the scenes rather than seeking public attention, in contrast to some of his contemporaries.

"Henry Ford had one idea and all you need is one idea to build a life on." This quote underscores the power of a single, strong idea, which in Ford's case laid the foundation for his entire career and had a significant impact on the industry.

The Impact of Automobile Innovation

  • The automobile industry led to innovations in various sectors, including oil, chemicals, and hospitality.
  • The federal government funded the interstate highway system due to the increasing popularity of automobiles.
  • The rise of motels, roadside restaurants, and service stations can be attributed to the automobile industry's growth.

"The automobile sparked not only the great oil boom, it also spawned the motel industry as well as gasoline retailing." This quote outlines the wide-reaching impact of the automobile industry on various aspects of society and the economy.

Divergent Philosophies of Durant and Sloan

  • Sloan's decision to sell Hyatt Roller Bearing was influenced by the risk of losing major customers and the pressure to expand production capacity.
  • Durant's failure to properly manage investor relationships led to his ousting from GM.
  • The contrast between GM and Ford's strategies in the 1910s and 1920s highlights the complexity and adaptability required in business.

"When you have one or two major customers, you are extremely fragile if they change to another supplier or decide to make it in house." This quote from Alfred Sloan captures the vulnerability of businesses that rely heavily on a few major customers and the strategic thinking that led to his decision to sell his company.

"General Motors swallowed so many companies in its first two years that acute indigestion followed as a matter of course." This quote metaphorically describes the consequences of GM's rapid expansion under Durant's leadership, which led to operational difficulties.

Durant's Leadership and Weaknesses

  • Durant, the founder of General Motors, had weaknesses that concerned shareholders like Pierre Dupont and Henry Leland.
  • Dupont was assessing Durant's leadership to protect his investment.
  • Leland specifically warned about Durant's penchant for stock manipulation and speculation.
  • Durant's approach to the board was problematic; he saw it as a body to approve rather than set policy.
  • Durant's need for Dupont's financial backing conflicted with his desire for control without ownership.
  • Durant's repeated mistakes in stock speculation eventually led to his loss of control over GM.

"Henry Leland warned especially of the dangers of Billy's knack and love for stock manipulation and speculation."

This quote highlights concerns about Durant's risky financial strategies, which were seen as a threat to the company's stability.

"So Durant, in Durant's mind, the board's role was to approve policy rather than help set it."

Durant's view of the board's role was a significant misjudgment that contributed to his downfall, as he underestimated the importance of collaborative governance.

Durant's Financial Missteps

  • Durant began buying GM stock to stabilize its price, an effort doomed to fail due to lack of resources.
  • His purchase on margin, using GM shares as collateral, led to a financial crisis when the stock price fell.
  • Durant's first bailout by Dupont was a result of his inability to cover margin calls.
  • His repeat of the same mistake in 1920 led to his final ousting from GM.
  • Durant's secret stock purchases, despite agreements, showed a pattern of reckless financial behavior.

"Billy began buying large brocks of GM stock on his own in the summer of 1917 in a one man campaign to stabilize the share price and the company's market capitalization."

Durant's unilateral action to buy up GM stock illustrates his disregard for market forces and overconfidence in his financial strategy.

"When the market price of General Motors stock fell below Billy's purchase price, brokers began calling the margin and demanding full payment of the money that they had, in effect, loaned to him to buy the shares."

This quote describes the financial mechanism that put Durant in a precarious position, leading to his request for a bailout from Dupont.

Dupont's Financial Power

  • Pierre Dupont's wealth came from his company's profits from selling chemicals and gunpowder during World War I.
  • Dupont's company had a history dating back to the 1600s, initially selling gunpowder in Britain.
  • Dupont's financial strength allowed it to gain significant control over GM.

"Think about World War I. They sold chemicals and gunpowder to all the people in the war, so they're printing."

The Dupont company's financial success during the war is cited as a reason for its ability to influence GM's future.

"Dupont's company had an unanticipated cash surplus of $50 million."

This quote emphasizes the vast financial resources at Dupont's disposal, which played a crucial role in the power dynamics at GM.

Durant's Paradoxical Talent

  • Despite Durant's flaws, he was recognized for his exceptional talent and success in American business.
  • He built the world's largest carriage empire and revived Buick, leveraging it to create GM.
  • Durant's creation of Chevrolet and regaining control of GM showcased his entrepreneurial spirit.
  • Ed Thorp's advice on avoiding ruin contrasts with Durant's risk-taking approach.

"Durant was extremely talented, and I think that's a good reminder. Nobody is a perfect person."

This quote acknowledges Durant's significant contributions to the automotive industry despite his imperfections.

"He had built the world's largest carriage empire from an investment of one, $500."

Durant's ability to create successful businesses from modest beginnings is highlighted as evidence of his talent.

The Financial Crisis of 1920 and GM vs. Ford

  • The financial crisis of 1920 had different impacts on GM and Ford due to their distinct financial strategies.
  • Ford, having gone private and reinvesting profits, was able to weather the crisis better than GM.
  • Durant's reliance on stock issuance for capital made GM vulnerable during the crisis.
  • Ford's decisive actions and shared sacrifice among its constituents contrasted with GM's sluggish response and rising debt.
  • The crisis led to a restructuring at GM that halted its momentum, while Ford surged ahead.

"Ford did not have a Pierre Dupont or an Alfred Sloan looking over his shoulder when the market for vehicles abruptly disappeared in the spring of 1920."

Ford's independence from external financial oversight is contrasted with GM's situation, which was complicated by shareholder involvement.

"General Motors couldn't do that. So it says, General Motors total vehicle sales for 1920 actually slightly exceeded the 1919 level, thanks to strong sales in the first five months of the year."

This quote illustrates GM's initial resilience in sales but foreshadows the severe challenges that would lead to a need for drastic restructuring.

Sloan's Management and the Transformation of GM

  • Alfred Sloan's management style was the antithesis of Durant's, emphasizing decentralized operation with coordinated control.
  • Sloan introduced professional management and a culture of teamwork and accountability at GM.
  • His strategies included a product strategy of "a car for every purse and purpose," avoiding internal competition.
  • Sloan implemented tight financial controls and feedback loops to identify and address problems early.
  • Sloan's engagement with dealers and his hands-on approach were key to GM's transformation.
  • Under Sloan, GM saw unprecedented growth in sales and profits, becoming an industrial icon.

"Sloan's idea for reorganizing GM he called decentralized operation with coordinator control."

Sloan's management philosophy focused on balancing autonomy with centralized oversight, which was crucial for GM's success.

"Sloan developed a product strategy targeted buyers specific aspirations."

Sloan's strategy of market segmentation and targeted products was a significant factor in GM's market dominance.

Durant and Sloan's Contrasting Legacies

  • Durant's later life included financial support from GM executives and recognition for his foundational role.
  • Sloan and Durant's differing approaches are encapsulated in a metaphorical story comparing their military strategies.
  • Durant's letter to Sloan acknowledges the necessity of Sloan's management style post-creation phase.
  • The story of General Durant and Major Sloan highlights the value of unconventional thinking and action.

"I do wish, Mr. Sloan, that you had known me when we were laying the foundation, when speed and action seemed necessary."

Durant reflects on the early days of GM, suggesting that his approach was suitable for the company's creation phase, while Sloan's was necessary for its administration.

"General Durant said, right up on that hill there is where a company of infantry captured a troop of cavalry."

This allegorical quote illustrates Durant's belief in the power of audacity and initiative, traits that defined his early success but also contributed to his eventual downfall.

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