General Motors

"In fact, the period of greatest Japanese success was the following decade. During the 1980s, for example, General Motors’ US market share went from 52% to around 30%, with most of this lost to the Japanese. What happened? Ask anyone who bought a Honda, Toyota, or Datsun (as Nissan products were known until 1984) back then. They came expecting to get great gas mileage, which they did, but, “Surprise!” The things ran like a Swiss watch, fit together like a Rolls Royce, and seemed to last forever. In the language of strategy, the Japanese engaged with the expected (cheng)—gas mileage—but won with the unexpected (ch’i): fit and finish, driveability, longevity. Contrast this with GM’s economy offerings of the period, the Vega and Chevette. Their gas mileage was as good as the Japanese, but in all other aspects, they were pretty ordinary. All cheng; no ch’i. Market share cut by 40%."

"These higher purposes are sometimes called “overarching goals”97 or “unifying vision”98. Some businesses have this sense of purpose, above making enough profit to survive, or adding a few more million to the CEO’s compensation package. So Alfred Sloan’s famous description of General Motors’ mission as, “We don’t make cars, we make money,” worked fine—until…"

"In their influential, widely read study, In Search of Excellence, Thomas J. Peters and Robert H. Waterman, Jr., traced managerial development in several dozen of the “best-run” American corporations. In many examples drawn from the 1960s and 1970s, they observed that the most effective corporate leaders were highly visible and practiced “hands-on,” personal guidance of their operations. 1 Similar examples could have been drawn from Kaiser’s managerial activities decades earlier. Kaiser’s approach to management was hardly original or unique. His respect for his “associates” could have been borrowed from James Cash Penney, founder of the chain stores bearing his name, or from many other astute entrepreneurs. His skill in challenging bright young men to compete with each other might similarly have been patterned after that of Alfred P. Sloan, who created General Motors’ famed “decentralized” system of separate automotive divisions. In refusing to permit important decisions to become trapped by “study” committees, in abhorring bureaucratic red tape, in sensing instinctively who in his organization could provide immediate assistance in a crisis, Kaiser resembled many successful industrial leaders."

"Raskob then talked Pierre du Pont into replacing Durant as GM president. In the early 1920s, they partnered with Alfred Sloan to rebuild General Motors. It was Raskob who fi gured out how to beat Henry Ford at his own game by betting on a consumer credit revolution and creating GM’s installment buying arm, GMAC, which allowed car dealers to fi ll their showrooms and millions of people to aff ord GM’s more expensive and stylish cars. Th en, to motivate and maintain the loyalty of GM’s extraordinary management team, most especially the irreplaceable Alfred Sloan, Raskob devised one of the fi rst corporate stock option plans. Th e business press dubbed it Raskob’s “millionaires’ club.” Th e press was not exaggerating; dozens of GM managers would accrue GM stock worth millions (including Raskob); Sloan, who took over as GM president in 1923, eventually made hundreds of millions of dollars. Th e business elite saw Raskob as a visionary who had fi gured out how to get managers of corporate America to act like owners; instead of working only for salary they were working for a share of the company’s profi ts. Raskob’s stock option plan for top managers became conventional wisdom in corporate America."

"When Geneen began picking up the pieces at ITT in 1959, he used a lifelong study of General Motors as his model. GM’s organizer, Alfred Sloan, was his personal hero; and the job of remaking ITT became a casting job in the General Motors’ mold. Finance was made a direct reporting function throughout ITT, engineering respon- sibility was centralized, and a large technical staff began to grow into dominance. ITT managers made in-depth studies of the policies under which General Motors op- erated. “If it’s good enough for General Motors, it’s good enough for ITT,” was the new anthem; and the Geneen- directed juggernaut began to roll on that high-octane formula."

"How could mergers depress an economy? Davis explained as follows. Big companies combined to make bigger companies, until a few names (General Electric, DuPont, GeneralMotors, and U.S. Steel) dominated their respective industries. With these giants throwing their weight around, smaller, more innovative enterprises scrambled to survive. In the auto industry alone, a procession of car makers (Stutz, Reo, Auburn, Hupmobile, Willys-Overland, Hudson, Packard, Studebaker, and others) went bankrupt or were consumed by more powerful rivals."

"The desire to give the individual branch manager the power to respond to local conditions moves us toward a mission-oriented organization. But a similarly legitimate desire to take advantage of the obvious economies of scale and to increase the leverage of the expertise we have in each operational area across the entire corporation would push us toward a functional organization. In the real world, of course, we look for a compromise between the two extremes. In fact, the search for the appropriate compromise has preoccupied managers for a long, long time. Alfred Sloan summed up decades of experience at General Motors by saying, “Good management rests on a reconciliation of centralization and decentralization.” Or, we might say, on a balancing act to get the best combination of responsiveness and leverage."

"TESLA: 7 FOR 7 Tesla is one of the few cleantech companies started last decade to be thriving today. They rode the social buzz of cleantech better than anyone, but they got the seven questions right, so their success is instructive: TECHNOLOGY. Tesla’s technology is so good that other car companies rely on it: Daimler uses Tesla’s battery packs; Mercedes-Benz uses a Tesla powertrain; Toyota uses a Tesla motor. General Motors has even created a task force to track Tesla’s next moves. But Tesla’s greatest technological achievement isn’t any single part or component, but rather its ability to integrate many components into one superior product. The Tesla Model S sedan, elegantly designed from end to end, is more than the sum of its parts: Consumer Reports rated it higher than any other car ever reviewed, and both Motor Trend and Automobile magazines named it their 2013 Car of the Year. TIMING. In 2009, it was easy to think that the government would continue to support cleantech: “green jobs” were a political priority, federal funds were already earmarked, and Congress even seemed likely to pass cap-and-trade legislation. But where others saw generous subsidies that could flow indefinitely, Tesla CEO Elon Musk rightly saw a one-time-only opportunity. In January 2010—about a year and a half before Solyndra imploded under the Obama administration and politicized the subsidy question—Tesla secured a $465 million loan from the U.S. Department of Energy. A half-billion-dollar subsidy was unthinkable in the mid-2000s. It’s unthinkable today. There was only one moment where that was possible, and Tesla played it perfectly. MONOPOLY. Tesla started with a tiny submarket that it could dominate: the market for high-end electric sports cars. Since the first Roadster rolled off the production line in 2008, Tesla’s sold only about 3,000 of them, but at $109,000 apiece that’s not trivial. Starting small allowed Tesla to undertake the necessary R&D to build the slightly less expensive Model S, and now Tesla owns the luxury electric sedan market, too. They sold more than 20,000 sedans in 2013 and now Tesla is in prime position to expand to broader markets in the future. TEAM. Tesla’s CEO is the consummate engineer and salesman, so it’s not surprising that he’s assembled a team that’s very good at both. Elon describes his staff this way: “If you’re at Tesla, you’re choosing to be at the equivalent of Special Forces. There’s the regular army, and that’s fine, but if you are working at Tesla, you’re choosing to step up your game.” DISTRIBUTION. Most companies underestimate distribution, but Tesla took it so seriously that it decided to own the entire distribution chain. Other car companies are beholden to independent dealerships: Ford and Hyundai make cars, but they rely on other people to sell them. Tesla sells and services its vehicles in its own stores. The up-front costs of Tesla’s approach are much higher than traditional dealership distribution, but it affords…"

"Big corporations do better than the DMV, but they’re still prone to misalignment, especially between ownership and possession. The CEO of a huge company like General Motors, for example, will own some of the company’s stock, but only a trivial portion of the total. Therefore he’s incentivized to reward himself through the power of possession rather than the value of ownership. Posting good quarterly results will be enough for him to keep his high salary and corporate jet. Misalignment can creep in even if he receives stock compensation in the name of “shareholder value.” If that stock comes as a reward for short-term performance, he will find it more lucrative and much easier to cut costs instead of investing in a plan that might create more value for all shareholders far in the future."

"In their influential, widely read study, In Search of Excellence, Thomas J. Peters and Robert H. Waterman, Jr., traced managerial development in several dozen of the “best-run” American corporations. In many examples drawn from the 1960s and 1970s, they observed that the most effective corporate leaders were highly visible and practiced “hands-on,” personal guidance of their operations.1 Similar examples could have been drawn from Kaiser’s managerial activities decades earlier. Kaiser’s approach to management was hardly original or unique. His respect for his “associates” could have been borrowed from James Cash Penney, founder of the chain stores bearing his name, or from many other astute entrepreneurs. His skill in challenging bright young men to compete with each other might similarly have been patterned after that of Alfred P. Sloan, who created General Motors’ famed “decentralized” system of separate automotive divisions. In refusing to permit important decisions to become trapped by “study” committees, in abhorring bureaucratic red tape, in sensing instinctively who in his organization could provide immediate assistance in a crisis, Kaiser resembled many successful industrial leaders."

""These kids have gotten the cockeyed idea into their heads that there's something wrong with profits, when profits and other incentives are the engine. And they seem to think that there's something sinister about bigness—just bigness in it- self. Have they stopped to think that if you didn't have a General Motors or Ford or Chrysler we'd still be driving horse carriages over dirt roads? You can't do the big jobs without big companies. The bigger the company, the bigger the jobs it can do and must do, it's as simple as that. And another fallacy. Youngsters seem to think that opportunity is dead, that you have to become a company man in a giant corpora- tion. Nuts. If a fellow wants to be his own boss, opportunities are busting out all over the place like they never have before.""

"If business is war, and it certainly feels like it sometimes, I was thrilled we had a new weapon in digital compression, but it was not ours alone. Soon others would exploit its power, too. And as I looked at the broader North American battle map, our flank was exposed. The most immediate threat was the satellite companies—not the makers of the big ten-foot C-band dishes, but a new generation of smaller dishes and powerful satellites that could leverage digital compression from space—without the need for wires. One early gambit, called Sky Cable, promised 108 channels, twice as many channels as most cable systems back then, to a dish a mere eighteen inches in diameter—about the size of a pizza pan. The venture drew deep-pocketed backers, including General Motors’ Hughes Communications; General Electric’s NBC; News Corp., owner of 20th Century Fox Studios; and Cablevision Systems Corporation. Lucky for us, just a year later, the high-cost Sky Cable partnership imploded."

"Now on BIL’s board, Heatley’s radar was still pinging, especially for big investment opportunities. Paul Collins remembers sitting in his office with Bruce Hancox before the sharemarket crash when Heatley walked in. ‘Craig said, “I think we actually need to do something bold. I think what we need to do is buy General Motors.”’ Collins was dumbstruck. ‘I know it’s available,’ he recalls Heatley adding, ‘because I’ve been talking to some investment bankers in the United States.’ At that time Brierley’s market capitalisation was somewhere between $6 billion and $8 billion, Collins recalls, and General Motors was many times larger. ‘And here he was talking about us buying a company that at that time was probably capitalised at a multiple considerably larger than BIL’s. I said, “Well, where would we even start, assuming we found the money?”’ Heatley replied, ‘We’d just all relocate over there.’ He went on to explain what they could sell and split up to make it work and concluded by saying that Brierley’s should make $50 billion out of it."

"⁠Heatley walked in and said, ‘I think we actually need to do something bold. I think what we need to do is buy General Motors.’⁠"

"BIL made its first bid for Equity & Law in early September 1987 and Brierley was proved correct when the French giant Compagnie du Midi quickly overbid. BIL now stood to make a £20 million profit on its 30 per cent stake. Then, Heatley recalls, Brierley said, ‘Oh, they’ll pay more than that.’ Brierley’s upped its bid for the company it did not want, to 450p per share, valuing the company at £453 million. There was a nervous wait before Compagnie du Midi came back and overbid again at 455p per share. Brierley’s brinkmanship had made his company a £42.9 million ($NZ106 million) profit. But just five days after the binding offer was made, sharemarkets around the world crashed. Brierley’s timing had been impeccable but far too close for comfort. ‘If Brierley’s had not been overbid they would have been in massive strife right then,’ Heatley recalls. ‘The French must have felt sick, although they ended up owning the company, and Brierley’s looked like heroes while I was left just thinking, Wow, these guys are cowboys.’ It seems ironic that Heatley’s General Motors suggestion had BIL thinking that he was too great a risk-taker for its taste just at the point where Heatley was reaching the same conclusion about Brierley’s. They were destined to part and, given their history, perhaps that should have been no surprise. Very soon there was a lot more on everyone’s minds than investment possibilities, though. In mid-October 1987, stock markets around the world began to slide. For many investors, executives, workers and companies, catastrophe was coming."