Robert Smith (3:40)

And I'm Robert Smith. And this is Business History. A show up at the History of Business.

Jacob Goldstein (3:43)

Last week on the show talked about the rise of Ford. It is a show about the history of business. Today on the show, 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.

Robert Smith (4:05)

I like him already.

Jacob Goldstein (4:06)

Wildly charismatic. Walter Kreisler. 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 like Horse Drawn Cart Company.

Robert Smith (4:32)

These carts that you hook up to a horse.

Jacob Goldstein (4:33)

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.

Robert Smith (4:47)

This was no Henry Ford toiling away, tinkering with the next big thing.

Jacob Goldstein (4:51)

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.

Robert Smith (5:06)

All these guys named after cars.

Jacob Goldstein (5:08)

All these guys. What a crazy coincidence. Buick was a great engineer and a terrible businessman. Familiar founder combo. Buick had sold just 37 cars in 1903. Not 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.

Robert Smith (5:35)

He's smoking cigars in the club in Manhattan.

Jacob Goldstein (5:38)

But he's from Flint. He's a hometown guy. And 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. It'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.

Robert Smith (6:08)

I can sell this thing.

Jacob Goldstein (6:10)

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.

Robert Smith (6:24)

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. Those 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.

Jacob Goldstein (6:46)

It's a lovely piece of writing, isn't it? The reputation, the word men. 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. 423 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, consolidate 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, of Ford to come to a meeting in New York, along with the heads of a couple other big car companies.

Robert Smith (7:51)

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.

Jacob Goldstein (7:59)

I mean, there is antitrust law at this point. There's not antitrust 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.

Robert Smith (8:18)

He doesn't want to make Fewer cars

Jacob Goldstein (8:19)

and charge more, which is the monopolist playbook, but, you know, everybody has their price. And he says, I will sell you my share of the Ford Motor company for cash.

Robert Smith (8:32)

$3 million, which was clearly a huge sum.

Jacob Goldstein (8:39)

Yeah, nobody was gonna 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's gonna consolidate the car market. This deal didn't work, but some deal will work. Somebody's gonna win. I'm Billy Durant. Why shouldn't it be me?

Robert Smith (9:00)

So instead of calling the birds from the trees, he's calling the companies to him.

Jacob Goldstein (9:04)

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 3 in the morning, this little struggling car company called Oldsmobile, and tells the head of Oldsmobile, look, consolidation is coming, and I'm going to create a holding company. And together we'll have the holding company start by acquiring Oldsmobile, and Buick apes

Robert Smith (9:34)

together strong diamond hands.

Jacob Goldstein (9:36)

Diamond hands. And the head of Oldsmobile 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. steel or national lead, General Motors.

Robert Smith (9:53)

Such a boring name, especially in this industry where everyone is making bespoke cars named after themselves.

Jacob Goldstein (9:59)

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 Oldsmobile and everything else he can get his hands on. So Duran 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, starts with Buick and Oldsmobile. 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, which, 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?

Robert Smith (11:16)

Which is buying up companies that do the same thing. You're just like, everyone makes a car,

Jacob Goldstein (11:20)

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. Spends $7 million to buy a company that makes electric headlamps. Company turns out to be a fraud. No, fake innovation. Like they had backdated their patents or something and GE owned 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.

Robert Smith (12:03)

It's not one giant factory with everyone working together.

Jacob Goldstein (12:06)

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.

Robert Smith (12:23)

It's one car getting more and more efficient every time. While Billy Durant is creating an empire, an inefficient empire.

Jacob Goldstein (12:30)

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 A 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, 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.

Robert Smith (13:21)

Can't stop this guy.

Jacob Goldstein (13:22)

In fact, because he's Billy Durant, he's actually going to create four companies to compete against gm.

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Jacob Goldstein (16:31)

That's the end of the ads. When the bankers fired Billy Durant from his job running GM, they also stopped production of GM's low end Buick. And that low end Buick was GM's strongest competitor to the Ford Model T. And 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. And Billy Durant was like, opportunity, low end of the market. I can compete there. And like a lot of founders today, he was still this charismatic guy. We were talking about this. Our producer Gabriel was like, yes, like Adam Newman. I started. Wework, 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. So he started issuing stock and creating companies. Created four companies, and there's one that we really care about. He started it with a famous Swiss race car driver named Louis Chevrolet.

Robert Smith (17:36)

Amazing. I thought it was like an Explorer or something.

Jacob Goldstein (17:39)

Chevrolet or a town in 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.

Robert Smith (18:06)

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.

Grainger Advertiser (18:15)

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Jacob Goldstein (18:15)

And, you know, big markets get a lot of niches. There are, in fact, a lot of niches. I think of like the Galapagos and like 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 490. The Chevy 490, which is supposed to cost $490. The price of a Model T around this time, yes. Actually cost $550. Most Billy Durant thing ever. Total salesman move, but it's a hit anyway.

Robert Smith (18:52)

You pull them in with this and then show them a larger number.

Jacob Goldstein (18:55)

It's called the 490. But let me talk to the guy in the background.

Robert Smith (18:59)

The manager says, we just can't make that deal. We're giving.

Jacob Goldstein (19:02)

Durand is making money. People are actually buying this car anyways. You know what he's doing with the money he's making? He is secretly buying up stock in gm, company he 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 agree to back him. And he also gets to know Pierre dupont, very important. 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.

Robert Smith (19:47)

All of a sudden, his products are very popular.

Jacob Goldstein (19:49)

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's nothing you can do about it. I'm back.

Robert Smith (20:18)

Charm beats organization.

Jacob Goldstein (20:20)

I guess so. I guess so. He charmed his way back, at least for now.

Robert Smith (20:24)

And he does the thing again.

Jacob Goldstein (20:25)

He does the thing again.

Robert Smith (20:26)

Issuing stock, building factories, buying companies, borrowing money, making more cars again.

Jacob Goldstein (20:33)

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.

Robert Smith (21:06)

This happens in every recession. The people who have borrowed the most, who are the most extended, are the ones that go under.

Jacob Goldstein (21:12)

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 the Billy Durant, the man he backed. He says, okay, how much money have you borrowed and who have you borrowed it from? And Durant's like, um, he starts looking around his desk. He's got all these papers with, 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.

Robert Smith (21:44)

Mr. Durant stated that he had no personal books or accounts and was unable to give definitive statements.

Jacob Goldstein (21:52)

He doesn't know how much he owes or who he owes it to. So somebody got all Durant's Papers together and edited up. And in fact, he owed $30 million. And he gets fired again. Dupont and some other bankers bail him out and they fire him. But there was this one key thing Billy Durant had done a few years earlier when he was vertically integrating, back when he was buying up all those parts companies.

Robert Smith (22:20)

This is the engine motor company you talked about.

Jacob Goldstein (22:22)

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.

Robert Smith (22:30)

Are they like cylindrical? And they go.

Jacob Goldstein (22:32)

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, a 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.

Robert Smith (22:54)

Oh, nice.

Jacob Goldstein (22:55)

Yeah, 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.

Robert Smith (23:21)

In fact, it's going to create what we think of as a corporation, kind of.

Jacob Goldstein (23:26)

That's after the break.

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Jacob Goldstein (25:41)

Okay, we're back from the break. Billy Durant is out and Alfred Sloan is in.

Robert Smith (25:47)

And they're 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. Constantly future focused. And then when the cowboy gets in trouble, story old as time. The board brings in the roller bearing, the human roller bearing to count things, put things in files, in file cabinets.

Jacob Goldstein (26:21)

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 dot 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.

Robert Smith (27:27)

These companies are 100 years old at that point. They were started in the late 1800s.

Jacob Goldstein (27:31)

Yeah, they're all 100 year old companies.

Robert Smith (27:33)

Yeah, yeah, yeah.

Jacob Goldstein (27:34)

And 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 Huang, 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.

Robert Smith (28:01)

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 we'll have another managerial era where they'll clean up the messes.

Jacob Goldstein (28:12)

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.

Robert Smith (28:27)

So we'll see.

Jacob Goldstein (28:28)

But we might get back to a manager era.

Robert Smith (28:30)

All right. Our manager hero, Alfred Sloan, rides in

Jacob Goldstein (28:33)

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 Chevy 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. 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

Robert Smith (29:32)

loyalty, with loyalty, even with creativity.

Jacob Goldstein (29:35)

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, and that is this. Sloan makes each car brand, you know, Chevy, Cadillac, Oldsmobile, its own division with its own profit and loss line. It's responsible for its own P and 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.

Robert Smith (30:34)

And they start teaching this in schools. This is the rise of the manager class.

Jacob Goldstein (30:37)

You went to Business school.

Robert Smith (30:38)

I have a master's in Business administration.

Jacob Goldstein (30:41)

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, 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 gonna be good for gm, but that has a profound effect on America, on American culture. So I wanna point to three key

Robert Smith (31:14)

moves that's very Sloan of you that

Jacob Goldstein (31:16)

GM makes around this time. Yes, gentlemen, I've prepared for you this presentation, okay? Three key moves Sloan makes at GM around this time.

Robert Smith (31:24)

Move number one, maybe have one of those big pointers.

Jacob Goldstein (31:27)

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.

Robert Smith (31:56)

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.

Jacob Goldstein (32:15)

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.

Robert Smith (32:28)

I'm listening.

Jacob Goldstein (32:28)

Oldsmobile. Or if you get a promotion, upgrade to a Buick.

Robert Smith (32:32)

Oh, Mr. Smith, I see you're doing well.

Jacob Goldstein (32:33)

Hey, congratulations. If you've really made it, join the country club. You know what it is?

Robert Smith (32:39)

You buy a Cadillac, you buy a Cadillac. I wouldn't know personally, but I admire those who do.

Jacob Goldstein (32:44)

A car for every purse and purpose, for every wallet and want. Move number one.

Robert Smith (32:48)

The boardroom's taking notes. They're looking. Next slide.

Jacob Goldstein (32:52)

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 re engineering the car on the inside every year.

Robert Smith (33:15)

This always confused me. It really did when I was a kid. And even to this day, like, why would you care about the difference between a 1988 and a 1989 model of a car?

Jacob Goldstein (33:25)

I'm going to give you a line from Alfred Sloan around this time. He said, we need to bring the laws of Paris dressmakers to the automobile industry. It's fashion.

Robert Smith (33:36)

This is such an insight. These cars are very expensive. And they could have treated these cars like buying a house. You know, you buy a house, you fix it up, but you don't change your house every year, every three years instead. What an insight that this is something that is essentially disposable.

Jacob Goldstein (33:56)

Yes. Sloan was so committed to this idea of car and fashion that he actually created a whole department called art and color. Remember, this is like a heavy 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, it has some chrome here. The headlamp is a different shape. You don't want that old headlamp shape.

Robert Smith (34:18)

Did Henry Ford have an art and color department was black.

Jacob Goldstein (34:21)

It was one guy who was like, how about if we had heard before, it'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.

Robert Smith (34:40)

Around the boardroom table, there is a murmur and a stroking of beards.

Jacob Goldstein (34:44)

Move number three. Buy now, pay later.

Robert Smith (34:48)

This guy's inventing America.

Jacob Goldstein (34:50)

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, you know, in their bank account to just go buy 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 you know, if you zoom out and think about the 1920s, yeah, it's

Robert Smith (35:40)

coming at the perfect time because people have money. People are obsessed with fashion. This is the rise of America. We're post war, everyone wants to spend, spend time.

Jacob Goldstein (35:49)

It's kind of making it happen, right? It is coming at the right time and it is creating this consumerist, debt driven 1920s culture that we know because

Robert Smith (35:58)

we also have the radio at this point and advertising and selling these things.

Jacob Goldstein (36:02)

So now think about Henry Ford, who at the. 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 Ford moves. You know, a car for every purse and purpose. No, for Ford, the car for every purse and purpose is the Model T. There is one car. 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

Robert Smith (36:37)

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. And at the lowest upkeep cost. Oh, how naive.

Jacob Goldstein (36:49)

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 Earle. Actually the guy they brought in to start that art and color department in the 20s, in the 50s. Here's a thing he said in the 50s. Here you take it.

Robert Smith (37:05)

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.

Jacob Goldstein (37:15)

I kind of hate that. I kind of hate that. Well, average car ownership now is much longer.

Robert Smith (37:19)

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.

Jacob Goldstein (37:28)

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 where before that people were much more scared of debt. They thought debt was bad.

Robert Smith (37:52)

Well, he was checking his workers to make sure that they were wise with their money and not in debt and saving.

Jacob Goldstein (37:58)

Yeah, and there was this thing at Ford where you could like save money every week. You like 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, okay, we're going to do something more modern. They're going to call this new car the Model A.

Robert Smith (38:52)

Back to the beginning.

Jacob Goldstein (38:53)

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.

Robert Smith (39:43)

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, and 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 gm.

Jacob Goldstein (40:25)

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 wanted to 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 carmaker in the world for the rest of the 20th century.

Robert Smith (41:44)

Boom.

Jacob Goldstein (41:48)

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 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.

Robert Smith (42:38)

The Soviets did it. We can do it, too.

Jacob Goldstein (42:39)

Thank you, professor, for writing to us. Everybody should write to us. I love getting emails. We're at BusinessHistoryUshkin FM. I'm also AcobGoldstein on X. And I'm on LinkedIn as well.

Robert Smith (42:52)

I'm RadioSmith. All the places that matter.

Jacob Goldstein (42:55)

Today's show was produced by Gabriel Hunter Chang. It was engineered by Sarah Bruguer. And our showrunner and editor is Ryan Dilley. My name is Jacob Goldstein.

Robert Smith (43:05)

I'm Robert Smith. Thanks for listening.

Liberty Mutual Advertiser (Doug) (43:09)

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Podcast Trailer Narrator (43:19)

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Charlamagne Tha God (43:22)

Oh, no.

Liberty Mutual Advertiser (Doug) (43:23)

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Jacob Goldstein (43:29)

Yeah, the bird looks out of your league anyways.

Liberty Mutual Advertiser (Doug) (43:31)

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Apple Card Advertiser (43:35)

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Charlamagne Tha God (43:38)

Peace to the planet. Charlamagne Tha God here. And listen, we are back. The Black Effect Podcast Festival is back in Atlanta on April 25th at Pullman Yard. Yeah, and the full lineup is nuts. We got the Grits and Eggs podcast, Deontay Kyle and Big Ice cup. We got Club 520 with Jeff Teague and the gang. Don't call Me White Girl. Mona will be there. Keep it positive, sweetie. With Crystal Renee. We got Reality with the King with Carlos King. And yes, drink champs will be in the building. Plus, you know we gonna have a lot of guests, so you need to join us. And we got the Black Effect Marketplace, the picture podcast and everything you expect from the Black Effect Podcast Festival. Tickets are on sale right now. Go get yours@blackffect.com podcast festival. Don't play yourself. Okay, pull up.

Podcast Trailer Narrator (44:28)

When a group of women discover they've all dated the same prolific con artist, they take matters into their own hands.

iHeartRadio Advertiser (44:36)

I vowed I will be his last target.

Grainger Advertiser (44:38)

He is not going to get away with this. He's going to get what he deserves.

Apple Card Advertiser (44:42)

We always say that.

Jacob Goldstein (44:44)

Trust your girlfriends.

Podcast Trailer Narrator (44:47)

Listen to the girlfriends. Trust me, babe. On the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.