!DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Strict//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-strict.dtd"> Streamline Training & Documentation: Alfred Sloan's Memoir VIII: The Great Depression

Thursday, February 25, 2010

Alfred Sloan's Memoir VIII: The Great Depression

The trauma of the Great Depression was intense in the auto industry. Alfred Sloan's response was to re-emphasize the importance of having a strong and agile central policy-making capability, even as policy execution remained the responsibility of the individual GM divisions.

As Sloan recalls in Chapter 10 of My Years with General Motors,

The automobile industry in the United States and Canada dropped from a production of about 5.6 million cars and trucks, worth about $5.1 billion at retail, in 1929, to about 1.4 million units, worth about $1.1 billion in 1932. That was lower than any year since the war year 1918.

Thanks to the financial and operating controls, the development of which I have described in earlier chapters, General Motors did not approach disaster as it had in the 1920-21 slump. We made an orderly step-by-step retreat in all matters, including wage and salary reductions. Sales by our United States and Canadian plants dropped to 526,000 cars and trucks in 1932 as compared with about 1.9 million in 1929, a tremendous drop (72 per cent) when you consider the many expenses that are fixed. That we fared relatively better than the industry is shown by the fact that our share of the market increased from 34 per cent in 1929 to 38 per cent in 1932, the trough year of the depression. Our profits dropped from about $248 million in 1929 to $165,000 in 1932, still in the black, thanks mainly to our financial-control procedures. In 1932 we were operating at less than 30 per cent of capacity.

[. . .]

... Inevitably when an industrial enterprise is shaken with such a force as we met at the onset of the great depression, there has to be confusion. In November 1933 I began to write again on the subject of new policies, beginning at the beginning, on the subject of policy itself. I said:
I feel that this [policy] phase of the general organization problem is of particular importance to General Motors, not because of its size particularly but on account of the nature of its business, subject as it is, to what I might term "rapid changes". In other words, I contend a unit of the automotive industry has far less "coasting ability", I might term it, than units in most any other industry that might be selected for comparison. As I analyze our picture, looking forward into the future, our success or, let me say, the maintenance of our position, absolutely depends upon the ability of our organization to lay down a strategy as will enable us to forecast the rapid changes that are taking place and will continue to take place in the various activities in which we are interested, involving all the functional divisions within such activities, and to provide for those changes with sufficient rapidity.

In making this statement I am not minimizing in any sense, the importance of effectively and economically carrying out such policies as may be adopted — I am simply trying to emphasize the point that the policy phase is of vital concern because, unless we can, with reasonable intelligence, meet this issue — no matter how able an administrative set-up [i.e., policy execution set-up] we may have, it is limited in its opportunity to function. I might add further, that looking forward I feel that we have got to more aggressively deal with that phase of our problems than we have in the past. It is going to be harder to maintain both our competitive position and our profit position. We can not afford to take the time in the future that we have in the past to make up our minds what we should do with respect to changes in trends which are having an influence on our position ...
My main purpose in the memorandum from which the above passages are taken was to reassert the purely policy-making role of the Executive Committee.

[pp. 176-178, 1990 edition]


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