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About this Episode
Ford was the pre-eminent American car maker and Henry Ford was the king of modern manufacturing, until a Michigan cigar salesman decided to consolidate a bunch of small auto companies into a single firm to defeat the Colossus of Detroit.
General Motors united the likes of Oldsmobile, Buick, Cadillac and decided to live by "the laws of Paris dressmakers" to make cars that were more stylish and fashionable than the austere, black-painted Model T that was coming out of the Ford plant.
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Transcript
Every small business owner has that one moment that could have broken them, but remarkably,
it didn't.
Hi, I'm Ben Walter, CEO of Chase for Business, and on Season 3 of The Unshakeables, my
co-host Kathleen Griffith and I are bringing you more incredible stories of overcoming
the impossible.
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2020-26 I Heart Podcast Awards.
Listen to The Unshakeables wherever you get your podcasts and learn more at Chase.com-slash-podcast.
JP Morgan Chase Bank and a member FDIC, copper-820-26, JP Morgan Chasing Company.
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Henry Ford had a dream, a dream we talked about last week on the show.
His dream was to make a car that was cheap enough and reliable enough for the masses.
And amazingly, he did it.
Created the Model T, he invented mass production, the modern assembly line, and by 1920, most
of the cars on the road in America were Model T's.
Ford was world famous, he was on his way to becoming the richest man in the world, but
he was also about to get beat within just a few years.
He was going to get beat by a company that realized something that he never did.
Americans don't just want a simple cheap utilitarian car.
We want fashion, we want status, we want the new thing, and we are not afraid to borrow
money to get it.
I'm Jake Goldstein.
And I'm Robert Smith, and this is business history, a show about the history of business.
Last week on the show, we talked about the rise of Ford, he does a show about the history
of business.
So we're talking about General Motors GM, the company that came along and beat Ford.
The story of General Motors starts with one Billy Durant, high school dropout, door-to-door,
cigar salesman, like him already, wildly charismatic.
Walter Chrysler, that Chrysler, the guy who started Chrysler, said Billy Durant could
talk the birds down out of the trees, sounds like Orpheus.
Billy Durant grew up in Flint, Michigan.
And in 1886, when he was in his mid-20s, he started the Flint road cart company, built
it into the biggest horse-drawn cart company.
These are carts that you hook up to a horse.
Yes, 1886.
Sure.
It's the horse-full carriage.
Yes.
And once he basically got rich from his cart business, he went off to New York to live
the high life and play the stock market.
This was no Henry Ford, toiling away, tinkering with the next big thing.
No.
He just wanted to be a rich guy in New York, so that's what he did.
Until 1904, when a local wagon business back in Flint, Michigan had just purchased the
Buick Motor Company, founded by one David Buick, all these guys named after cars.
He's got a lot of crazy coincidence.
Buick was a great engineer and a terrible business man, a familiar founder, combo.
Buick had told just 37 cars in 1903, about 370, but 37.
And so this cart company that has bought Buick recruits Billy Durant to come back and make
this company work.
Billy Durant's not a car guy.
He's a finance guy.
He's smoking cigars in the club in Manhattan.
He's from Flint.
He's a hometown guy.
So he comes back from New York to Flint just to see what's going on.
And he goes for a ride in a Buick, possibly the third time in his life that he's been in
a car.
But he likes it.
He's a smooth ride.
He decides he's going to drive it around for two months and see how this whole car thing
works.
And it works.
He drives it through, you know, creek beds, on dirt roads, and he thinks, yes, this is
a good car.
Cars are going to be big.
I will take over Buick and I will make it succeed.
I can sell this thing.
I can sell this.
Yes, that is Billy Durant's worldview.
And in fact, there is this lovely description of Durant at this time written later by his
daughter, Marjorie, about what it was like, please, there were men at dinner.
There were men at the front door.
The parlor was often full of men.
And behind closed doors, there were other men.
They talked and they listened, but my father mostly listened.
When he did talk, it was like a violin beginning to play.
Durant's present had to listen.
I know.
They all said the same thing then that they do now.
Durant is the greatest salesman I ever knew.
It's a lovely piece of writing, isn't it?
The repetition of live.
Like a violin.
Yeah.
So Durant knows how to sell cars and Buick is growing.
In fact, it becomes the biggest car manufacturer in America.
But as we talked about last week, there are lots of little car manufacturers in America
in the early 1900s.
There were 123 different companies by one count that I saw.
And these are little shops with guys building cars one by one.
This is before Henry Ford brings mass production and economy of scale to cars.
And it's clear already that there's going to be consolidation in the industry.
This is the era of JP Morgan, you know, US steel, general electric.
And JP Morgan, the great consolidator, decides it's time to create an automotive trust.
Get the car industry by merging the biggest players together.
And early in 1908, Morgan's son-in-law gets Billy Durant of Buick and Henry Ford of Ford
to come to a meeting in New York, along with the heads of a couple other big car companies.
By the way, this is JP Morgan's whole day is everyone comes from an industry.
He melds them together and then takes on the next industry the next hour.
I mean, there is anti-trust law at this point.
There's not anti-trust enforcement quite yet.
And so they get to the meeting, they get to New York.
And Henry Ford is skeptical.
He's already dreaming of selling a car to the masses, selling a cheap car.
And you know, the point of consolidation of forming a trust is to sell a car for more
money.
He doesn't want to make fewer cars and charge more, which is the monopolist's playbook.
But you know, everybody has their price.
And he says, I will sell you my share of the Ford Motor Company.
For cash, three million dollars, which was clearly a huge sum.
Yeah, nobody was going to pay it too much.
And the deal falls apart.
It's fun to think of what could have been though.
And importantly for our story, this meeting gives Billy Durant an idea.
Oh, somebody is going to consolidate the car market.
This deal didn't work, but some deal will work.
Somebody's going to win.
I'm Billy Durant.
Why shouldn't it be me?
So instead of calling the birds from the trees, he's calling the companies to him.
Yes.
And he's literally calling the companies to him.
There is this story that he gets back to Flint in the middle of the night one time.
And he calls at three in the morning, this little struggling car company called Olesmobile.
And tells the head of Olesmobile, look, consolidation is coming.
And I'm going to create a holding company.
And together, we'll have the holding company start by acquiring Olesmobile and Buick.
Apes together strong.
Diamond hands.
Diamond hands.
And the head of Olesmobile is in.
And so in September of 1908, Durant creates his holding company.
And he gives it one of those great old-school generic company names like U.S. Steele or
National Lead.
General Motors.
Such a boring name.
In this industry where everyone is making bespoke cars named after themselves.
I think it's because he knows the brand is not going to be General Motors, right?
He already knows there's going to be Buick and Olesmobile and everything else he can
get his hands on.
So Durant has this big idea, this holding company idea.
And crucially from his years on Wall Street, he knows how stocks work.
He knows that stocks are a tool.
You start a company.
You can issue pieces of paper, this time it was literal pieces of paper, stock certificates,
and use the proceeds from selling those pieces of paper to buy real companies.
He is about to do this to go on one of the greatest buying sprees in business history.
Over the next year and a half GM will acquire majority control of a major company every
month, month after month.
Buick and Olesmobile, a few months later in early 1909, he buys a struggling car company
called Oakland, which will later be renamed for the town where it's headquartered in Michigan,
Pontiac.
A few months after that, he buys a company focused on the high end of the market, Cadillac.
Remember from last week was founded by Henry Ford, buys a couple little truck companies
that eventually become GMC trucks.
So he's going hard at horizontal integration, right?
Which is buying up companies that do the same thing.
You're just like, everyone makes a car, makes a car, sells a car.
But Billy is also getting into vertical integration, right?
Different parts of the supply chain.
So he buys companies that make axles, rims, engines, buys a company that makes spark plugs,
becomes AC spark plugs, buys Fisher Body, which becomes this famous part of GM.
It's been $7 million to buy a company that makes electric headlamps.
It turns out to be a fraud, no fake innovation, like they had backdated their patents or
something, and GE on the patents and Durant had to write down the entire investment.
But he's Billy Durant.
By 1910, General Motors is selling 21 different models made by 10 different manufacturers.
And just to be clear, there is no synergy here.
It's not one giant factory with everyone working together.
No, it is a total mess assembled by this manic salesman who just wants to make deals.
And this is around the time that the Model T Ford starts to take off.
The price is getting cheaper, it's the best-selling car in the country, it's one car getting
more and more efficient every time while Billy Durant is creating an empire, an inefficient
empire.
Yes.
And Ford is winning and GM is losing very clearly at this point.
So by the middle of 1910, GM owes millions of dollars to its suppliers.
They've got all this inventory on hand.
They lay off a third of their workforce and Billy has to go to the bankers for loans.
And the bankers look at GM and the whole company is a mess.
They can't even tell who's doing what each sub company has its own books.
And the bankers are like, look, we are not going to put money into Billy Durant.
Yes, GM is a real company, they're making cars.
But if we're going to put money into this, Billy Durant has got to go.
So now Billy Durant is out at GM.
We're going to take a break and we're going to come back.
And then Billy Durant is going to create a company to compete against GM.
I can't stop this guy.
In fact, because he's Billy Durant, he's actually going to create four companies to compete
against GM.
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It's sort of become a fun side hobby, right?
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That means they want to help you win, not just window shop.
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When the bankers fired Billy Durant from his job running GM, they also stopped production
of GM's low end Buick.
That low end Buick was GM's strongest competitor to the Ford Model T. I guess the bankers
were like, let's not even try and compete on that one.
Ford is clearly winning there.
Let's leave that end of the market to him.
Billy Durant was like opportunity low end of the market.
I can compete there.
Like a lot of founders today, he was still this charismatic guy.
We were talking about this.
Our producer Gabriel was like, yes, Adam Newman started, we worked, blew up, and got
more money to start some new thing.
Billy Durant was like that.
He was a gifted salesman.
People still wanted to invest in him.
He started issuing stock and creating companies, created four companies, and there was one
that we really care about.
He started it with a famous Swiss race car driver named Louis Chevrolet.
Amazing.
I thought it was like an explorer, something Chevrolet.
Yeah, I don't know.
Town and Michigan or something.
No.
It was a Swiss race car driver.
It started out badly and Durant ended up buying out Louis Chevrolet for $10,000 and rolled
up all of these companies he had started into one company into Chevrolet.
With one mission, create a car that can compete with the Ford Model T.
And he can't quite compete on price.
Like Ford is just too far ahead.
But he builds slightly nicer and slightly more expensive cars.
Because if you're competing with a car for the poor, as Henry Ford put it, maybe there
are people who think of themselves as not quite as poor as my neighbor and want to show
it off.
Yeah.
And big markets get a lot of niches.
There are, in fact, a lot of niches.
I think of the Galapagos and all the finches with each little beak.
As the car market is growing, there are more profitable niches and Durant finds one in
the slightly more expensive than a Model T niche.
In 1915, he launches a car called the Ford 90, the Chevy Ford 90, which is supposed to
cost $490, the price of a Model T around this time.
Yes.
Actually cost $550, most Billy Durant ever, total sales would move.
But is he in any way?
Well, you pull him in with this and then show him a larger number.
It's called the Ford 90, but let me talk to the guy in the backroom.
Yeah, the manager says we just can't make that deal.
We're giving him away.
So now Durant is making money.
People are actually buying this car anyways.
Who is it doing with the money he's making?
He is secretly buying up stock in GM, company started and then got kicked out of.
And he has this dream of taking back his baby, taking back GM.
He goes to the people who sold him their companies when he was at GM.
They of course still have GM stock.
They agreed to back him.
And he also gets to know Pierre DuPont, very important to him.
The chemical family.
Of the chemical family, DuPont, he is the chairman of the board of GM also at this time.
And he is running DuPont.
And at the time, DuPont was largely in the explosives and gunpowder business.
This is 1915, World War I.
All of a sudden his products are very popular.
It's a good time to be in the explosives and gunpowder business.
So DuPont's taking his blood money basically and investing it in GM.
And Billy Durant gets DuPont on his side.
And a few months later, Billy Durant goes to a GM board meeting and drops the bomb.
He says, I and Chevrolet now control a majority of the shares of General Motors.
And there is nothing you can do about it.
I'm back.
Charm Beath's organization.
I guess so.
I guess so.
He charmed his way back, at least for now.
And he does the thing again.
He does the thing again.
That issuing stock by factories, by companies, borrowing money, making more cars again.
There is a downturn.
This time it's the recession of 1920.
And Billy Durant is in trouble again.
And he's in trouble personally because very much in keeping with his character, Billy
Durant has been busy borrowing money to buy GM stock.
And the collateral he uses for those loans is the GM stock he already owns.
And so now that the stock price is falling, the lenders are like, we need our money back.
And in order to give them their money back, he's got to sell the stock.
And this is a bad situation to be in.
This happens in every recession.
The people who have borrowed the most, who are the most extended are the ones that go
under.
And you have this cyclical fire sale potential where you got to sell the asset to pay
back the loan and that makes the price go down.
And that's extremely bad.
And so Pierre DuPont, chairman of the board, decides to figure out what's going on with
Billy Durant.
And he backed, he says, okay, how much money have you borrowed and who have you borrowed
it from?
And Rant's like, he starts looking around his desk.
He's got all these papers or like handwritten notes.
It's worse than DuPont thought.
DuPont writes a letter to his brother just after this.
Read this line from this letter.
Mr. Durant stated that he had no personal books or counts and was unable to give definitive
statements.
He doesn't know how much he owes or who he owes it to.
So somebody got all Durant's papers together and ended it up.
And in fact, he owed $30 million.
And he gets fired again.
Yes.
DuPont and some other bankers, they'll amount and they fire him.
But there was this one key thing Billy Durant had done a few years earlier when he was
a vertically integrating back when he was buying up all those parts company.
This is the engine motor company you talked about.
It's actually even more boring than that.
It's a company that sold roller bearings.
These things that are kind of like ball bearings that go-
Are they like cylindrical?
I think so.
Maybe they're a disc.
They go between the axle and the wheel to reduce friction.
And the company is not important because of the roller bearings.
But because of the guy who was running the roller bearing company, guy named Alfred Sloan,
he is kind of also like a human roller bearing.
He is not exciting, not flashy, but very good at reducing friction.
Oh nice.
He's good at making things more efficient.
And Billy had brought Sloan in to GM to run those parts companies that he bought up.
And once Billy is gone, Alfred Sloan, the human roller bearing, is going to turn GM into
the efficient machine that's going to beat Henry Ford.
And also he will create the model that is going to transform corporations around the
world in the 20th century.
In fact, it's going to create what we think of as a corporation.
Kind of.
That's after the break.
Running a business is hard enough.
So why make it harder with a dozen different apps that don't talk to each other?
One for sales, another for inventory, a separate one for accounting.
Before you know it, you're drowning in software instead of growing your business.
This is where Odo comes in.
Odo is the only business software you'll ever need.
It's an all-in-one fully integrated platform that handles everything.
CRM, accounting, inventory, e-commerce, HR, and more.
No more app overload, no more juggling log ins.
Just one seamless system that makes work easier.
And the best part, Odo replaces multiple expensive platforms for a fraction of the cost.
It's built to grow with your business, whether you are just starting out or already scaling
up.
Plus, it's easy to use, customizable, and designed to streamline every process.
So you can focus on what really matters, running your business.
Thousands of businesses have made the switch.
So why not you try Odo for free at odu.com.
That's odo.com.
Let's talk about modern home shopping.
It's sort of become a fun side hobby, right?
Scrolling listings at night, dreaming about kitchens you've never seen, or backyards you haven't
stepped foot in, all from the comforts of pretty much anywhere.
Redfin knows a lot of people like you want to own, but are stuck in this browsing mode loop.
That's where Redfin flips the script.
With listings that update within minutes, and tours you can book right from the Redfin app,
you can see your dream home the moment it appears.
Now liking a listing is easy, but actually landing it, that's where Redfin comes in.
Redfin has over 2200 agents with local expertise.
And Redfin agents close twice as many deals as other agents.
That means they want to help you win, not just window shop.
Redfin is built to help you go from just looking to wait.
This could actually be home, so become the newest neighbor on the block.
Visit redfin.com to start finding and start owning.
That's redfin.com.
Do you ever feel like you're drinking from a firehouse?
Paycore's intelligent HR solution empowers leaders to turn down the pressure.
Their unified platform includes payroll, talent management, compliance software, and a lot more,
connecting you to the people, data, and expertise you need to drive long-term business results.
Visit paycore.com slash leaders and go from work flood to work flow.
That's paycore.com slash leaders.
Okay, we're back from the break.
Billy Durant is out, and Alfred Sloan is in.
And there are these opposites, but they're these just beautiful form of opposites
that you often see in corporate life these days.
You first of all have the cowboy, the charismatic founder, right?
Great salesman has the dream, can't really add up debts, but that doesn't matter
because he's selling people on what it can be, you know, constantly future focused.
And then when the cowboy gets in trouble, story old is time.
The board brings in the roller bearing.
The human roller bearing to count things.
Put things in files, in file cabinets.
Yeah, make things more efficient, more orderly.
And a really interesting thing about this story is the broader historical context
because this is the 1920s when Sloan is coming in.
This is the moment when the boring guys, the managers are ascendant.
You know, if you think about it, if you go back a few decades, it was all cowboys.
It was Carnegie and Ford and Billy Durant.
But then once you get into the 20s and 30s, things have settled down.
You know, the country has industrialized.
You don't have all these new companies coming along, doing things nobody's ever done before.
And in fact, when I was, you know, working on today's episode,
I looked at a list of the most valuable companies in 1995, right before the .com boom.
The most valuable companies in America at that time were GE, Exxon,
originally part of Standard Oil, AT&T, Coca-Cola, and Philip Morris.
These companies are 100 years old at that point.
They were started in the late 1800s.
They were saying, yeah, they're all 100 year old companies.
Yeah, yeah, yeah.
So they had been run by this managerial class for decades.
And very different than today.
You know, today, if you look at the biggest companies,
a lot of them were started by people who are still alive.
In many cases, still running the company.
You know, Elon Musk, Jensen Wang, Mark Zuckerberg.
But for most of the 20th century, American business was not dominated by entrepreneurial cowboys.
It was dominated by managers, by people like Alfred Sloan.
This is a deep idea.
This back and forth between the cowboy era and the managerial era.
Seeing that perhaps 10, 20 years in the future
will have another managerial era where they'll clean up the messes.
Maybe, maybe so.
I think it depends on sort of the rate of technological change.
And you know, you have this second industrial revolution in the late 1800s
that gives all these cowboys this opportunity, which they take.
And then you have a kind of stable era.
So we'll see, but we might get back to a manager era.
All right. Our manager, hero, Alfred Sloan.
Rides in on his boring, slow, but safe horse in the early 20s.
And he is about to invent the model for how managers are going to control American business
for essentially the rest of the 20th century.
Becomes president of GM in 1923.
Inherits this total mess from Billy Durant.
All these companies have their own bookkeeping systems.
They're all doing their own thing.
It's hard even to compare like is Cadillac making more money?
Is, you know, Chevy doing, doing better under Billy Durant?
There is no real GM headquarters.
It's just Durant and a few assistants running around calling people and making deals.
And Sloan clearly sees that there needs to be more centralization.
You know, GM needs to be a unified company.
But it's interesting and subtle because he also realizes that Cadillac needs to still be Cadillac.
And Chevy needs to still be Chevy.
They are at some level different with loyalty.
With loyalty, even with creativity, like it is a creative business making cars.
There's some style involved.
They're going to bring in more style.
And so Sloan comes up with this system that is going to shape big companies around the US and around the world.
And again, it's one of those ideas that seems obvious to us now because it's ubiquitous.
But it wasn't obvious at the time.
And that is this.
Sloan makes each car brand, you know, Chevy Cadillac Ultimobile, its own division with its own profit and loss line.
It's responsible for its own P&L.
And then he creates this small team of senior executives at GM who don't have day-to-day operating responsibility.
And whose job is to think big, yes, to keep track of the finances, but maybe more importantly to think about GM's long-term strategy.
Which sounds extremely boring and manager, but it is extremely effective.
It works.
And they start teaching this in schools.
This is the rise of the manager class.
You went to business school.
I have a Masters in Business Administration.
You are the descendant of Alfred Sloan, right?
Part of the reason I think it works so well at GM is because Sloan and the other top managers he brings in as these senior executives
are really good at understanding what's happening in America in the 1920s.
And at taking that understanding and using it to push the country further, to shape the country in a way, of course, that is going to be good for GM.
But that has a profound effect on America, on American culture.
So I want to point to three key moves.
It's very Sloan of field.
GM makes around this time.
Yes.
I heard for you this presentation.
Okay.
Three key moves Sloan makes at GM around this time.
Move number one.
Maybe you have one of those big pointers.
This is actually Sloan's language here.
This headline for this one.
A car for every purse and purpose.
Beautiful.
Comes from the 1924 annual report.
And the idea is, GM is going to clearly differentiate its division.
So that one, they're not competing with each other.
And two, more interestingly, if you are a car buyer,
whatever you need, however much you want to pay, there is a clear GM brand for you.
And one of the problems with having one price, as Henry Ford wanted to have, one cheap price,
is there's a lot of people who actually want to pay more.
And if you charge them a low price, well, they get to keep the money in their pocket.
But they were going to give it to you if you just gave them a reason.
Don't leave money on the table.
Price discrimination.
So this suite of GM brands that Durant has built is perfect for this.
You know, if you want a cheap car, buy Chevy.
You want something sporty and moderately priced.
Pontiac.
If you're like a middle-class dad looking for a family car.
Are listening.
Oldsmobile.
Or if you get a promotion, upgrade to a Buick.
Oh, Mr. Smith, I see you're doing well.
Congratulations.
If you've really made it to join the Country Club, you know what it is.
You buy a Cadillac.
You buy a Cadillac.
I wouldn't know personally, but I admire those who do.
A car for every purse and purpose for every wallet and want.
Move number one.
The boardroom's taking notes.
They're looking next slide.
Move number two.
Keep the customer dissatisfied, gentlemen.
In the 1920s, Chevrolet started bringing out new models of its cars every year.
And within a few years, this had spread to all of GM.
So every brand is bringing out a new model every year.
And to be clear, it's not like they were reengineering the car on the inside every year.
This always confused me.
It really did when I was a kid.
And even to this day, why would you care about the difference between a 1988 and a 1989 model of a car?
I'm going to give you a line from Alfred Sloan around this time.
He said, we need to bring the laws of Paris dress makers to the automobile industry.
It's fashion.
This is such an insight.
These cars are very expensive.
And they could have treated these cars like buying a house.
You buy a house, you fix it up, but you change your house every year, every three years.
Instead, what an insight that this is something that is essentially disposable.
Sloan was so committed to this idea of car in fashion that he actually created a whole department called art and color.
Remember, this is like a heavy industry industry.
This is big factories.
This is not a thing people thought of as fashion.
And so often the new model would be like, oh, yeah, the new model that has some chrome here.
The headlamp is a different shape.
You don't want that old headlamp shape.
Did Henry Ford have an art and color department?
It was black.
It was one guy who was like, how bad if we had Henry Ford's like, keep it black.
So there is this key line from Charles Kettering, the head of research at GM around the time.
He was the one who had this phrase, keep the customer dissatisfied.
He wrote, if everyone were satisfied, no one would buy the new thing because no one would want it.
Around the boardroom table, there is a murmur and a stroking of beards.
Move number three.
Buy now, pay later.
This guy's inventing America.
This one actually really is.
This one actually we got a credit to Billy Durant.
This one started when Durant was running the company.
GM created its own finance arm.
GMAC financing the General Motors Acceptance Corporation.
Because then as now, most people don't have enough money in their bank account to just go by a car.
You might be able to get a bank loan.
You might not.
And GMAC meant that somebody without enough money in the bank could walk in off the street,
get a loan at the dealership, and drive off in a brand new car.
To summarize, gentlemen, we have a car for every person purpose.
We have new models every year, and we have financing so people can pay for it.
And if you zoom out and think about the 1920s.
Yeah, it's coming at the perfect time because people have money.
People are obsessed with fashion.
This is the rise of America, or post-war.
Everyone wants to spend time.
It's kind of making it happen.
It is coming at the right time.
And it is creating this consumerist debt-driven 1920s culture that we know.
Because we also have the radio at this point, and advertising, and selling these things.
So now, think about Henry Ford, who, at the time, I don't feel that bad for him,
who at the beginning of the decade was on top of the world, right?
Like all three of these moves from GM are like anti-forward moves.
You know, a car for every person purpose?
No.
For Ford, the car for every person purpose is the Model T.
There is one car for every person.
It is the car.
A new model every year.
Absolutely not.
In fact, you know, they sold the Model T for, what, for well over a decade.
But it did change on the inside over that time.
They kind of played down the changes.
Because, and I'm reading a quote from him,
we believe that when a man buys one of our cars,
we should keep it running for him as long as we can, and at the lowest upkeep cost.
Oh, how naive.
I mean, kind of nice in its way.
So yeah, so that's the Ford quote.
Compare that with this famous quote from a GM exec named Harley Earl.
Actually, the guy they brought in to start that art and color department in the 20s.
In the 50s, here's the thing he said in the 50s.
Here you take it.
In 1934, the average car ownership was a span of five years.
Now it's two years.
When it is one year, we will have a perfect score.
I kind of hate that.
Well, the average car ownership now is much longer, interestingly.
We are both the kind of people who buy things and want to keep them forever.
Yeah.
Anti-American, if you will, at this time.
We were not on board with the GM.
We were not on board.
So if you think of Ford, he's anti-fashion, anti-new car every year.
And he was also anti-finance.
I think, in fact, he thought it was morally wrong to put people into debt to buy a car.
And I do think there was a change in the way Americans thought about debt in the 20s.
Before that, people were much more scared of debt.
They thought debt was bad.
Well, he was checking his workers to make sure that they were wise with their money and not in debt.
And saving.
Yeah.
And there was this thing at Ford where you could save money every week.
You would deposit five bucks every week at the Ford dealer.
And when you have enough money, you buy a car.
Obviously, people would rather just borrow the money today and drive off in a car.
And so, for all of these reasons, GM passes Ford.
At the start of the 20s, Ford's market share was over 50%.
By 1926, Ford's market share has fallen to 30%.
And things are actually about to get worse for Ford.
In 1927, Henry Ford finally went along with all the execs who'd been telling him,
it's time to come up with a new car, the Model T.
It's a little bit old by now.
So in 27, he's finally like, OK, we're going to do something more modern.
They're going to call this new car the Model A back to the beginning.
Yeah.
They have prototype.
They know the car they're going to make.
But at this moment, the thing that made Ford great in a way is going to come back to bite them.
And that is, Ford's factories had been optimized to this wild degree to be incredibly efficient at building the Model T.
One thing.
One thing.
Like, remember, there was that machine that drilled, I think it was 24 holes all at the same time in the engine block for the Model T.
Now they got a new engine.
That machine is useless now.
And so in fact, in order to switch over from the Model T to the Model A, Ford has to shut down production entirely for six months,
six months when they're not making cars they're just changing over the factory.
This is something they teach you when you get your MBA that production lines can be too efficient.
Like, there needs to be a little bit of slack in the system for when things change or when there's a stumbling block or something.
And we saw this all the way to the super efficient supply chains during the pandemic.
People who had supply chains that were just in time, just the part they need that arrives, you know,
the morning you're about to put it in a car, those people were screwed when there were any sort of delays.
And the lesson that it comes again and again is, yes, it is a short-term view to be super, super, super efficient.
But clearly for Henry Ford, this put him way behind, yeah.
Yeah, it worked for a while.
It wasn't that short-term, but at this point, it is definitely biting him back.
And they do come out with this new Model A. And it is a great car.
It's, you know, more powerful than the Model T. It's still very cheap.
But America had fundamentally changed in a way that GM understood and helped to make happen.
Americans didn't want to drive one car anymore.
They didn't all want to rush out and buy the Model A. They wanted the newest car.
They wanted to be able to trade up to a higher status brand if they got a raise.
And if they didn't get a raise, they wouldn't be able to borrow the money to buy the higher status car.
What Alfred Sloan understood that Henry Ford never really did was that this era of mass production that Ford had created
gave rise to an era of mass consumption to the modern consumer.
And so Sloan and GM did what great companies do.
They saw this change in the world and then they pulled that change forward to their own benefit.
GM pushed Americans to become a nation of consumers.
And they capitalized on that consumerism, which is why GM and not Ford was the biggest car maker in the world for the rest of the 20th century.
Boom.
Before you go today, I just want to thank our listener, Professor Umberto Barreto, who wrote to us after he heard the episode about the origin of the world.
The episode about the origin of Silicon Valley, where we talked about Sputnik, the Soviet satellite that came as this huge surprise to America.
And he pointed out this really interesting thing that in fact I didn't know.
And that is people at the top levels of the government in the United States were apparently not so surprised by Sputnik.
They knew that the Soviets were working on a satellite.
And interestingly, like President Eisenhower and others around him were building their own spy satellite at the time.
And they kind of liked Sputnik because it was like, oh, now it's okay to shoot up a satellite and fly it over another country, which wasn't clear if that was going to be okay.
And they're like, we're going to have our spy satellite go fly over Russia and find out where their missiles are.
The Soviets did it. We can do it too.
Thank you, Professor, for writing to us.
Everybody should write to us. I love getting emails.
We're at Business History at Pushkin.fm. I'm also at Jacob Goldstein on X and I'm linked in as well.
I'm at Radio Smith, all the places that matter.
Today's show was produced by Gabriel Hunter Chang. It was engineered by Sarah Bruguer and our showrunner and editor is Ryan Dilly.
My name is Jacob Goldstein. I'm Robert Smith. Thanks for listening.
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