Dynamic Obsolescence

Pierre du Pont resigned as president of General Motors in 1923, in part at least, as a result of the copper-cooled engine affair. And the first crisis Alfred P. Sloan Jr. faced as president was also a result of that debacle. Research wizard Charles Kettering, discouraged by the failure and rejection of his engine, resigned.

Sloan knew that du Pont, still chairman of the board, would be upset by Kettering's departure. He also knew that Kettering was a genius and Sloan did not want to lose him. So Sloan proposed to Kettering that he head a new GM Research Corp. to be established in Dayton. Kettering would be paid $120,000 a year, $20,000 more than Sloan was being paid.

Kettering accepted the offer. The copper-cooled engine issue faded quickly. The hard feelings cooled and soon they were "Alfred" and "Ket" again. (Kettering and Chrysler were the only colleagues to call Sloan by his first name; to everyone else, he was "Mr. Sloan.")

The research operation paid for itself many times over through the years. And Sloan turned to a more enjoyable and absorbing task: taking advantage of the auto sales boom just getting under way and making sure that GM made a profit, good times or bad.

Sloan had organized GM management along the lines of the German Army under Bismarck, using a staff-line concept. With only minor changes, that organization served GM for 50 years. Business administration students studied it and most major American corporations adopted some form of it.

After losing $38.6 million in 1921, the first annual loss sustained by the corporation, two financial whizzes brought in by du Pont -- Donaldson Brown and Albert Bradley -- developed plans to assure that it would not happen again.

Du Pont had brought Brown from the chemical company to GM, where he served as treasurer and later vice president in charge of finance. Brown was a gifted executive, although his financial jargon, pedantic lectures and charts and graphs did not endear him to his colleagues, one of whom is said to have complained that Brown "didn't speak any known language."

Brown worked out the "standard volume" concept, a financial strategy that has endured with little change to the present. GM would set its prices to produce a 20 percent return on investment based on what it sells in an average year. When sales were above average, profits soared. When they slumped, the company would still make a profit.

The theory got a quick test. In 1924, the anticipated spring upsurge in sales did not materialize. Dealers had heavy inventories of cars. Sloan ordered divisions to cut production and lay off workers.

The result was that the workers bore much of the hardship of the downturn. This would become the general pattern: when times were bad, dealers and workers bore most of the brunt. Donaldson Brown's concept worked. GM sales in 1924 were way off from the preceding year, but GM earned a 20 percent return on investment.

All through the Great Depression of the '30s, GM never had a losing year. In fact, it would never lose money again until 1980.

The recession of 1924 put severe financial pressure on Oakland Motor Car Co., which had never been one of GM's stronger divisions. Sloan ordered design of a car using as many Chevrolet parts as possible and priced between Chevrolet and Oldsmobile. Charles Mott suggested the name for the new car: Pontiac.

GM had been running well behind Ford in sales, but had been slowly closing the gap. In 1924, GM accounted for about 19 percent of U.S. new-car sales, Ford for just over 50 percent. The next year, GM cut Ford's lead to 42-20, then the next year to 35-28.

When Chevrolet introduced a new model in 1925, it was competing with a Ford Model T so old in its design and so different from its contemporaries that some states required a special license to drive it. The handwriting was on the wall. The days of the Model T, the most successful car in history, were numbered.

If any year had to be picked as the dividing line between the old auto industry and the modern, 1924 is a likely candidate. When Sloan ordered design of the car that became the Pontiac, it was the first to be fitted to a particular market slot and the first to use parts from a sister car.

He also wanted cars that would offer new features to bring in customers and convince them to change cars. Almost everyone owned a car by 1925. Now cars would have to be sold almost entirely to current car owners.

This last factor, which developed into what was benignly called annual model changes and which critics termed "planned obsolescence," was perhaps the most far-reaching in its implications for the auto industry. Sloan preferred to call it "dynamic obsolescence." But the concept of changes or "improvements" -- many of them were -- every model year gave GM an unbeatable edge in the market. GM's only rival in size was Ford Motor Co. and Henry didn't like the concept of annual model changes. They went against his philosophy of simplicity of design and its resulting economies. Smaller makers could not afford the constant engineering and later styling changes they had to make to keep competitive with GM. Sloan's annual model change, more than any other factor, cast the die for GM to become the biggest auto maker in the world.

In addition to ordering the car that became the 1926 Pontiac, Sloan also assigned Cadillac to come up with a family car to fill the gap between Buick and Cadillac. The LaSalle, introduced in 1927, was another of those rare landmark cars that change the industry forever. But its innovation was not technological, as was the 1912 Cadillac's; it was designed not by engineers and body builders, but by a new automotive breed, a stylist.

Lawrence Fisher, one of the brothers of Fisher Body fame who became head of Cadillac Division, had noticed that the best-looking Cadillacs at the New York Auto Show had bodies designed by Harley J. Earl, a Hollywood customizer of cars for the stars.

Fisher hired Earl to act as consultant on the LaSalle, which was to be lower-priced and less conservative than the Cadillac. The Hollywood designer, who sometimes appeared in the staid Detroit automotive studios in jodhpurs and riding boots, seemed eccentric to GM brass, but they liked his work.

After the '27 LaSalle, Earl designed the '28 Cadillac, then went back to Hollywood. But not for long. Sloan made him an offer he couldn't refuse: a newly formed Art and Color Section, which he would head, to style all of GM's car lines.

In 1927, Ford Motor Co. halted production of the Model T after more than 15 million had been built. It was truly the car that had put the United States and the world on wheels, but it was out of date. Henry Ford went to work on a new car, which he called the Model A.

Henry's son, Edsel, was now president of Ford Motor Co. and had been pushing to expand Ford's offerings to meet the GM challenge and wanted more elegant styling. But the Model A was still Henry's. Edsel would get his elegant styling later, in the '30s. Ford was out of production for much of 1927 while the Model A was being readied and GM beat it in sales for the first time.

The Model A was an overnight sensation and Ford recovered the lead in 1928. Henry did not like the new approach GM was taking to styling and annual model changes, but the die was cast. It quickly became apparent the Model A would not be built for 19 years as the Model T had been. GM passed Ford in sales in 1931 and Ford never regained the lead.

In 1932, Ford tried to stem the challenge of established GM and upstart Chrysler by introducing the first low-priced car powered by a V-8 engine. Ford sales improved, but GM was still No. 1.

In 1933, Chrysler Corp. also passed Ford in sales. The sales race was on.