1) In the early 20th century, William Durant tried to form an automotive monopoly by merging several leading producers, including Henry Ford. However, the deal fell through when Ford demanded cash instead of stock in the new company. 2) In 1908, Durant incorporated General Motors as a holding company instead. Over subsequent decades, GM acquired many brands through purchases led by Durant, though some were later scrapped. 3) In the 1920s, Alfred Sloan implemented a restructuring of GM that positioned different brands at various price points to appeal to different classes of consumers. This strategy helped GM become the top seller of second cars.

1. Automotive industry
From crisis to restructuring
Rewriting the rules of
automotive industry

2. The second revolution
The rise of
General Motors
By Masters Division - Facoltà di
Economia di Torino

3. Trying to create an automotive monopoly
or trust
William C. Durant organized a
series of secret meeting in Detroit
and New York attended by Henry
Ford and other leading producers to
discuss a giant merger, in 1908.
1908.
JP Morgan & Co was interested in
financing an automotive industry
trust “to save it from death by
competition”
competition”.
By Masters Division - Facoltà di
Economia di Torino

4. General Motors
Negotiation reached a final stage when Ford
demanded cash instead of stock in the new
company.
company.
He would sell for 3 million $ but would not
merge.
merge.
Having reached a stalemate, the deal died.
died.
A few days later, on September 8 1908, W.
later, 1908,
Durant incorporated a holding company,
selecting the name General Motors
By Masters Division - Facoltà di
Economia di Torino

5. GM had no choice
Ford held nearly half of the market during the
1910s
1910s.
With most first time buyer still attracted to Ford’s
low-
low-priced Model T, GM had no choice but to
look for consumers considering the
replacement of older vehicles with newer
one.
one.
Rich people could be counted on to buy the
latest, most luxurious, most powerful cars, but
those customers amounted to perhaps 20.000 a
20.
year, and GM had plenty of competitors for
their business.
business.
By Masters Division - Facoltà di
Economia di Torino

6. BUICK GENERAL MOTORS (1920)
By Masters Division - Facoltà di
Economia di Torino

7. A change was needed
GM future was especially shaky in 1921. GM
1921.
sold only 200.000 cars and trucks, only the 12%
200. 12%
of the market.
market.
Worse, the outlook was discouraging: the
discouraging:
number of first time buyer in US seemed to be
stabilized at a bit over 500.000 a year and
500.
appeared likely to slip.
slip.
Besides, Ford had secured a lock on first
time buyers by pricing its vehicles much lower
than any other company included GM.
GM.
By Masters Division - Facoltà di
Economia di Torino

8. CHEVROLET GENERAL MOTORS (1920)
By Masters Division - Facoltà di
Economia di Torino

9. The turnaround
While other companies floundered and failed in
the 1920s and 1930s, GM figured out how to sell
more cars, a lot more.
The turnaround started when GM president
Pierre du Pont hired engineering consultants
in 1921 to independently evaluate the
company’s eleven models, which were marketed
under seven nameplates.
Their conclusion was devastating: quality was
poor and pricing illogical.
By Masters Division - Facoltà di
Economia di Torino

10. Outmoded pre-war designs
pre-
Only two of the company’s
seven nameplates – Buick and
Cadillac – had favourable
consumer recognition for high
quality.
quality.
Chevrolet, Oakland and
Oldsmobile were selling
outmoded pre-war designs
pre-
with poor reputation.
reputation.
By Masters Division - Facoltà di
Economia di Torino

11. CADILLAC GENERAL MOTORS (1933)
By Masters Division - Facoltà di
Economia di Torino

12. Many misguided acquisitions
GM had to many nameplates because its
first president, W Durant, bought every
company he could and then granted
each of them nearly total autonomy in
setting prices.
prices.
Two weeks after incorporating GM (1908)
1908)
Durant began a buying binge, believing
that diversification minimized risk.
risk.
By Masters Division - Facoltà di
Economia di Torino

13. Alfred P. Sloan
When Du Pont took control of GM in 1921,
1921,
Alfred P. Sloan was placed in charge to
implement the consultant’s
recommendations.
recommendations. Sloan
- scrapped two brands,
- repositioned the prices of the
surviving models to eliminate overlap,
- selected prices to “place GM at the
top of each price range”.
range”
By Masters Division - Facoltà di
Economia di Torino

14. ALFRED SLOAN (CEO GM)
By Masters Division - Facoltà di
Economia di Torino

15. …their second car.
Within a few years, Sloan strategy had
been proved correct. Ford sold most
people their first cars, but GM – offering
more features at somewhat higher prices -
sold most people their second car.
By Masters Division - Facoltà di
Economia di Torino

16. GM understood consumer
preferences
GM became the world’s largest
manufacturer because it understood
consumer preferences better than any
other corporation, and it shaped and
manipulated these preferences
successfully for more than a half-century.
half-century.
By Masters Division - Facoltà di
Economia di Torino

17. Highly emotional product
Consumers in US and other rich countries hold
onto stoves and washing machines as long as
they operate reliably, perhaps for decades, but
dispose of perfect serviceable motor
vehicles every few years and replace them
with others that perform not much differently.
The decision to buy a new vehicle, as well as the
selection of the model to purchase, is highly
emotional.
By Masters Division - Facoltà di
Economia di Torino

18. A ladder of consumption
GM’s marketing structure worked because
both reflected and shaped the American
class structure.
It had created a ladder of consumption in
which a person who owned a Buick was
instantly identified as belonging to
higher social class than a person who
owned a Chevrolet.
By Masters Division - Facoltà di
Economia di Torino

19. Chevy for the masses…
GM’s strategy reflected brilliantly the
realities and the aspirations of the
American families and corporate
advertisement listed products by price.
price.
Chevrolet was the car for the masses,
Cadillac for the aristocrats and the other
three cars for the growing middle classes
in between.
between.
By Masters Division - Facoltà di
Economia di Torino

20. DuPont formula
When it took control of GM, DuPont
installed its accounting system. The
system.
fundamental measure of performance in
GM was rate of return on invested capital
ROE = (Profit margin)*(Asset turnover)*(Equity multiplier)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)= (Net
Profit/Equity)
By Masters Division - Facoltà di
Economia di Torino

21. Profits, not volumes
Under DuPont management,
GM was not committed to sell a large
number of cars per year
By Masters Division - Facoltà di
Economia di Torino

22. Return on investment (ROI)
For the next several decade GM used the
rate of return on investment to monitor
the performance of its many divisions as
well as those of competitors.
Each operating unit was required to
demonstrate each month that its rate of
return met the companywide target of
20%.
By Masters Division - Facoltà di
Economia di Torino

23. “Standard price”
GM established the so called “standard price”
that wished to receive for each of its product,
including 20 percent return on investment.
investment.
The corporation then forecast the number of
vehicle that could sell the coming year at the
standard price and ordered only that number to
be built.
built.
The approach gave GM a high rate of return
year in and year out regardless of sales were
up or down in a particular year.
year.
By Masters Division - Facoltà di
Economia di Torino

24. Let them compete
Had it engaged in aggressive price cutting,
GM might have driven every other carmaker
out of business.
business.
Instead, GM used its dominant position in the
market to raise prices.
prices.
Having decided as early as 1937 that it could not
let its market share exceed 50 percent without
running in antitrust problems, GM was content
problems,
to let the other companies share the other 50
percent of the market.
market.
By Masters Division - Facoltà di
Economia di Torino

25. GM opened door to European and
Japanese
One reason why foreign-owned companies
foreign-
successfully entered the US market in the late
1950s and again in the 1970s was that GM
opened the door to let them in.
Regarding half of the US market as it rightful
share, GM was happy to see healthy firms
competing for the other half.
By Masters Division - Facoltà di
Economia di Torino

26. Ralph Nader
GM arrogance reached its peak
during the 1960s in its handling
1960s
of the Ralph Nader.
Nader.
Nader’s book, Unsafe at any
speed,
speed, published in 1965, 1965,
argued that the Big Three,
especially GM, were more
concerned with making higher
profits than in making their
product safe.
safe.
Nader pulled examples from all
three of the major carmakers,
but most of his criticism was
directed at GM’s Chevrolet
Corvair.
Corvair.
By Masters Division - Facoltà di
Economia di Torino

27. RALPH NADER
By Masters Division - Facoltà di
Economia di Torino

28. CORVAIR GENERAL MOTORS (1960)
By Masters Division - Facoltà di
Economia di Torino

29. A smear campaign
Stung by Nader’s attack, GM officials
decided to fight back by smearing him.
Instead, they ended up making him a hero
and a potent long-term force in the
long-
consumer safety movement.
By Masters Division - Facoltà di
Economia di Torino

30. Investigation confirms Nader’s charges
Nader’s
against Corvair
The record contained ample evidence that GM
officials knew about the Corvair’s tendency to
roll over but chose to produce it anyway.
anyway.
- The first GM driver to test a Corvair
prototype rolled it over.
over.
- The first Ford driver to test a Corvair in 1960 –
companies routinely obtain early version of
competitors’ models – also rolled it over.
over.
By Masters Division - Facoltà di
Economia di Torino