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Legacy Lost: How Toyota Beat GM

hej0305

Updated: Jun 16, 2024

Insights on Leadership, Market Share, Consumer Focus, and Planning




General Motors reigned as the world's top automaker for seven decades. It was a behemoth born from the vision, ambition, and drive of pioneers like William C. Durant and Alfred P. Sloan. These visionaries mastered the art of market dominance, navigating wars and seismic global shifts to mold GM into an archetype of international business.


Their strategies of market share conquest, pursuit of every market segment, delighting their customers, and disciplined financial and demand planning spurred GM to unmatched heights. Later executives strayed from these founding principles, prioritizing short-term profits over competitive vigor, setting GM on a path to decline that culminated in a 2009 bankruptcy.


Meanwhile, in post-war Japan, Toyota emerged from the brink of failure, fueled by the relentless ethos of Sakichi Toyoda, often dubbed the "Thomas Edison of Japan." Embracing core strategies akin to GM’s early days, Toyota ascended to global preeminence.


How did this saga of ambition and rivalry play out and what fundamental truths can we glean from this epic contest?




Table of Contents

 










 

 




I.  DURANT


A Dream to be The Largest

William C. Durant, known affectionately as Billy, was more than an entrepreneur; he was a visionary. By age 25, he had already excelled as a top cigar salesman, revitalized a failing Flint waterworks, and founded a thriving insurance agency. In 1886, a single ride in an innovative horse-drawn carriage sparked his ambition. He bought the company and transformed the newly named Durant-Dort Carriage Company into a powerhouse.





He expanded aggressively, buying factories, launching diverse brands, and creating an international sales network. By 1900 Durant-Dort was the largest carriage company in the US.


In 1901, Durant moved to New York City to master finance and the stock market. He wanted to emulate J.P. Morgan by combining carriage and wagon firms into a trust. A call to save a struggling automobile company led him back to Flint in 1904. After rigorously testing a Buick for two months, Billy set his sights on an even grander vision—to become the world's largest automaker.


He was given full control of Buick and his Durant-Dort company bought one third of Buick’s shares. Leveraging his financial savvy, he brought fresh capital to Buick and improved the car with a powerful new engine. He promoted the Buick brand by sponsoring racing teams that dominated competitions, securing hundreds of trophies, and building a robust network of high-caliber distributors.



Billy Durant in the Buick He Would Test in 1904



His relentless drive increased orders and transformed Flint into an industrial hub. He built the largest automotive production complex of the time. He enticed his vendors to build factories in Flint and created a just-in time inventory well before Japan’s Kanban system was introduced a half a century later. The complex employed over 2,000 workers, and ran around the clock, vastly outpacing Buick's entire 1904 production in a single day.

In four years with Billy’s leadership, Buick became America's top car manufacturer.



1908 Billy Buys Competitors

In 1908, the car industry was poised for explosive growth, with sales increasing by 50% annually and only 1% of the U.S. population owning cars. Amidst this booming market, a protégé of J.P. Morgan recruited Durant to help consolidate the industry. Durant set up a high stakes meeting with Henry Ford and other major automakers, aiming to unite the largest companies with J.P. Morgan's financial backing. Despite initial agreement, the deal crumbled when Ford demanded cash and Morgan pushed for a stock swap.


Undeterred, Durant took matters into his own hands. On September 16, 1908, he founded General Motors (GM), quickly merging it with his own Buick and then Oldsmobile. This marked the start of an ambitious expansion fueled by public stock sales. Durant set about buying a new company every 30 days. By September 1909, with acquisitions like Cadillac, GM was half of the industry’s sales and reported an amazing net income of 31% of sales revenue.


Durant's vision of scale was clear. He pursued Ford again, seeking a merger that would have created an unprecedented automotive giant. Ford agreed but insisted on a substantial cash payment, which Durant couldn't secure.


General Motors stumbled in 1910. There was a severe drop in auto demand which created a cash crisis throughout the industry, but especially at fast-growing GM. To secure the future of General Motors, Durant agreed to leave the company in return for a syndicated loan.


The bank syndicate appointed a new management team which the bankers controlled. The new management produced excellent growth, profitability, and cash flow. However, the excellent financial results lead to a steep decline in GM’s competitive stature. GM’s market share went from 21% in 1910 to less than 10% in 2015.



Success Is Having the Largest Market Share

William Durant's intuitive grasp of scale economics—years before consultants coined terms like "the experience curve effect" where doubling units produced cuts costs by 25%—showed his pioneering vision. The experience curve means the largest producer’s costs decrease at a faster rate than smaller producers resulting in an accumulating advantage over time.


Scale economies and cumulative experience go beyond manufacturing to distribution strength, effectiveness in marketing, reduced overhead cost and research and development prowess. The competitor with the largest market share has increasing advantages reflected in higher profit margins, and a higher availability of capital at a lower cost.



Another Dreamer Beats GM

Henry Ford founded the Ford Motor Company in 1903 with a grand vision: to build an affordable car for everyone. He believed that by building affordable reliable cars he would become the world’s largest car manufacturer. Ford introduced the Model T in 1908 priced at $825 drastically underpricing rivals.



A day’s output at the Ford Model T Piquette Plant 1908



With his main competitor, Durant, constrained by bankers, Ford was free to implement his groundbreaking ideas. From 1910 to 1915, Ford’s annual sales soared from twenty thousand to an astonishing four hundred thousand cars.


Ford Motor Company became the largest vehicle manufacturer in the world by 1913 and produced half of all cars in the United States built on the superiority of Ford’s Model T and his revolutionary moving assembly line production method.



Henry Ford at his office at the Model T Plant - 1908



Henry Ford intuitively knew that manufacturing leadership and scale would give him the advantage needed to become the largest automobile company.

 


Visionaries: The Driving Force Behind Phenomenal Success

Visionary leaders have an insatiable hunger to become number one in the market. These rare individuals have a grand vision that often seems crazy to everyone else. Their drive creates the need for large investments, new contrarian strategies, a willingness to take outsize risks and an innate ability to overcome hurdles and survive.


When Apple's board played it safe and ousted Steve Jobs, the company nearly died. When Jobs returned with his unwavering drive, Apple soared to new heights and dominated several new markets.


It's this potent mix of sheer willpower and insightful strategies with leaders like Jobs, Billy Durant, and Henry Ford that propels companies to achieve the extraordinary.

 


The Unstoppable Force: Billy Durant's GM Comeback

Durant never lost sight of his dream to dominate the auto industry. When GM scrapped the affordable Buick that could take on Ford's Model T, Durant pounced. By 1912, he had snapped up a Buick plant and joined forces with racing superstar Louis Chevrolet to build a new brand and a car that would leave the Model T in its wake.


Durant's audacious plan? Building a Chevrolet factory in the middle of New York City to get brand awareness and distribution efficiency in the US’s largest city. Chevrolet would have a celebrity endorsement, modern advertising, and cars with better features. The new Chevrolets boasted superior engines, electric lights, and self-starters – all for just a touch more than the Model T. Orders poured in, and Durant rapidly expanded production nationwide and into Canada.


As this played out, Pierre DuPont was quietly scooping up GM stock, sensing an imminent upheaval. Durant, still a GM director with a hefty stake, deftly maneuvered to install DuPont and his allies on the board. They wasted no time, unleashing a $50 per share dividend when the stock cost $100. That catapulted GM's stock to $558 by year's end.


Durant's next move was a masterstroke. His Chevrolet company issued an eye-popping $100 million in new stock that investors fell over themselves to buy. Then, he dropped the hammer: Chevrolet would offer to swap 5 Chevrolet shares for every GM share. Despite the bankers' desperate bid to sabotage him, Durant was triumphant. In May 1916, his Chevrolet owned 54% of GM.


The unstoppable force had reclaimed his kingdom.

 


Billy Durant's Tragic Downfall

Billy Durant was a master at growing companies, but his relentless expansion of General Motors and Chevrolet came at a steep price. The breakneck pace demanded a constant flow of cash to support new factories, technologies, and resources. Durant's tried-and-true method? Selling stock to eager investors, always confident in his ability to deliver explosive growth.


But Pierre DuPont sensed danger lurking beneath the surface. GM's over-reliance on new capital and lack of financial controls set off warning bells in his mind. Despite DuPont's pleas to introduce better systems, Durant obstinately refused.


As World War I raged on, DuPont's munitions business was generating massive cash flow, and Pierre used some of it to buy more GM stock diluting Durant’s ownership stake. In 1917 a stock market panic sent GM's shares into a nosedive, and Durant found himself desperately trying to stop the hemorrhaging, buying GM stock on margin.


With GM's stock in free fall and Durant facing margin calls, DuPont had to come to Durant's rescue. Durant was forced to merge Chevrolet and his other companies into GM and cede financial control. But Durant's woes were just beginning.


In 1920, a brutal recession battered GM. Durant, still clinging to his old habits, bought more stock on margin, only to watch in shock as GM's shares cratered to $20. A cash crisis loomed for GM and for Durant. DuPont, along with J.P. Morgan, had to intervene once more, paying off Durant's eye-popping $30 million personal debt. On December 1, 1920, Billy Durant, the once-invincible titan, resigned from GM, never to return. The empire he had built was crumbling beneath his feet.



II.  SLOAN


Sloan’s Turn to Steer

When Billy Durant resigned, Pierre DuPont stepped up as GM's President, determined to get the company back on track. But his efforts were a mixed bag. Trusting consultants too much nearly spelled the end for Chevrolet, and DuPont even supported a disastrous new engine. Enter Alfred Sloan, a trusted advisor who risked it all to save Chevrolet and keep the engine's brilliant creator on the team. Sloan's bold actions convinced DuPont to hand Sloan the keys to GM on May 10, 1923.



Sloan at his desk in 1924 after being elected president of General Motors



Just like Durant and Ford, Sloan was a driven visionary obsessed with being number one. He would be GM's rocket fuel for the next 33 years, not only propelling the company to new heights but also building a rock-solid foundation with a smart organizational structure and healthy culture. Sloan recognized the brilliance in Durant's strategies and polished them, adding his own touch of sophistication and reliability.


But Sloan also saw Durant's fatal flaws: his inability to raise cash when it counted and his vulnerability to sudden drops in sales caused by external forces like recessions. As an engineer, Sloan believed that long-term planning and data-driven decisions were the secret weapons to solve these problems and secure GM's future. With Sloan in the driver's seat, GM was about to take off on its most exhilarating journey yet.

 


Respect Investors and Lenders

Billy Durant attracted equity investors with promises of extraordinary returns based on his larger-than-life persona and history of successes. Sloan realized that GM was outgrowing investors who accepted promises.


Large institutional investors and bankers demanded a higher level of proof that their investment would have an adequate return supported by forecasts and rigorous financial analysis. If a company consistently achieved a superior return on capital invested, it would always be able to raise capital to be used in the business.


Luckily, F. Donaldson Brown at DuPont had already come up with a powerful tool to measure a company's financial performance and calculate the return on invested capital. Sloan jumped on it, using Brown's framework to make sure every part of GM was pulling its weight and generating attractive returns. He cracked the whip on his managers, demanding firm commitments to deliver superior cash returns on every dollar they used.


Sloan's tough budget discipline was a game-changer. With Sloan at the helm GM was a well-oiled machine, built to generate consistent profits and deliver solid returns.

 


Managing for Demand

Alfred Sloan was also determined to protect GM from wild swings in demand, like GM’s 70% sales drop in 1920. As an engineer, he believed that with enough planning, even the most unpredictable forces could be managed.


Sloan and his new VP, F. Donaldson Brown, devised a brilliant system called "standard volume" leading to the perfect production level to keep profits steady, no matter what. Brown's mathematical formula could adjust production and resources on the fly, using up-to-the-minute sales forecasts.


The results were stunning. During the Great Depression, when everyone else was bleeding cash, GM posted profit margins of at least 10% every year. They didn't just survive - they thrived, undercutting rivals, and grabbing market share.


Sloan and Brown had cracked the code on building an unstoppable business that could weather any storm. As the Depression raged on, GM kept right on rolling, leaving the competition in the dust.


 

A Team with Decentralized Responsibilities and an Inspiring Boss

Sloan knew he needed a dream team of executives who were just as passionate about the company's success as he was. These leaders had to deliver budget results while also working seamlessly with their colleagues for the greater good of GM.


Billy Durant and Henry Ford had a knack for recruiting top talent, but their ego-driven, my-way-or-the-highway approach often drove away brilliant minds like Walter Chrysler and William Knudsen, who went on to become industry legends.


Sloan was a different breed of leader. He was demanding yet always willing to listen. He created committees where key players would hash out ideas. Decisions were made based on hard evidence and rigorous analysis and all voices were heard.


Sloan wanted his executives to feel like owners. He showered them with generous bonuses and made sure the top brass had skin in the game with significant GM stock holdings.


The result was a company-wide culture of ownership and pride. People weren't just working to hit their numbers - they were working to make GM great. Sloan's inspiring leadership tapped into something deep within his team, unleashing a passion and drive that extended from the executive suite all the way down to the factory floor.


With Sloan's guidance, GM became more than just a company - it became a movement. A movement fueled by the tireless dedication of a team that believed in something greater than themselves.



A Car for Every Purse and Every Purpose

Rising to the top was about mastering the market, one segment at a time. Securing a segment meant holding a fortress against rivals. William C. Durant saw that the automobile market consists of many consumer segments, and he wanted to satisfy them all. Sloan embraced Durant’s strategy and called it a “Car for Every Purse and Every Purpose”.


Sloan would assign each independent division/brand a target price range and customers with specific needs, which was an early form of brand management. Chevrolet would compete with Ford at the low end, while Cadillac would have the highest price range, and other divisions would fall in between.

 

This was part of Sloan’s organization design which he called "decentralized operations and responsibilities, with coordinated control”. By pushing responsibility to the lowest level, he would achieve better decisions by the people facing the challenges and minimize corporate overhead.


Sloan also knew that Ford was leaving most of the profit on the table. While the lowest end of the automobile market was 75% of the unit volume, more than half of the profits were in higher priced vehicles with higher margins.


Sloan was a pioneer in promoting the used car market. He saw an untapped opportunity to provide quality, affordable cars to those with less to spend. His strategy was a game-changer: reconditioned cars sold through GM dealerships gave people a practical alternative to Ford’s basic Model T.


Moreover, Sloan aggressively expanded GM’s financing arm, the General Motors Acceptance Corporation (GMAC), making higher priced car ownership accessible through manageable monthly payments. GM also challenged Ford dominance at the low end by offering reconditioned Chevrolets with attractive financing options.

 


Win Global Market Segments

Durant was a wizard of geographic segmentation. He built strong regional networks and pioneered local production to slash costs and cater to regional preferences. Building on this groundwork, Sloan ventured boldly into global markets, launching nineteen new assembly plants worldwide between 1923 and 1928.


GM’s strategic acquisition of Europe’s Opel in 1929 was a masterstroke, blending GM’s innovations with local flavors to dominate the European market. Later, GM even outpaced its U.S. market share in Japan, claiming over 42% of the Japanese market.


By 1931, this savvy pursuit of price, demographic and geographic segments catapulted GM to the top, as the world's largest car manufacturer.


 

Revving Up Innovation to Delight Customers

In the race to win customers, automotive giants like Durant, Ford, and Sloan knew the key to success was building better cars than anyone else. As technology advanced, it spurred rapid enhancements in quality and features, giving carmakers who innovated a distinct edge.


Henry Ford focused on perfecting a single model and cutting costs. In contrast, Durant and later Sloan pushed the envelope in car design, features, and customer support. Sloan took Durant's passion for innovation further, creating specialized supply divisions that became hotbeds of groundbreaking ideas.


Sloan didn't shy away from exploring bold new technologies to stay ahead. He fostered close collaboration between car divisions and design teams, ensuring that each model catered uniquely to its target audience with fresh, exciting features. Many features taken for granted today were GM innovations.




The Cadillac V-16 not only showcased Alfred Sloan's vision of combining engineering excellence with luxury but solidified Cadillac's reputation as a leader in the luxury automotive market during the early 20th century.

1937 Cadillac Hartmann Cabriolet V16  - Brian Sims




More than just outpacing rivals, Sloan introduced a game-changing annual update cycle, setting a new standard: expect a better car every year. This strategy not only encouraged customers to upgrade frequently but also supported Sloan’s vision for a thriving used car market. Used car sales boosted GM dealers’ profitability, making GM dealerships more attractive and fostering enduring brand loyalty.


This relentless pursuit of innovation shaped GM’s culture and set consumer expectations sky-high, compelling competitors to adopt the practice of rolling out new models annually.



Captivating the Market: GM's Advertising Revolution

In the 1920s, while Ford rested on its laurels, believing its reputation alone would draw customers, GM was busy changing the game. They were pioneers in color advertising and lifestyle marketing, connecting with consumers on a new, emotional level.



GM didn't just promote their cars; they showcased superior technology and a lifestyle to aspire to, using targeted ads for each brand to foster deep brand loyalty. They enlisted celebrities, who amplified their message and allure, and GM was a preeminent user of public relations and event marketing.


As GM's market share expanded, so did their advertising budget, giving them a massive edge over the competition. By the 1950s, GM wasn't just a leading car manufacturer; they were the biggest advertiser in the U.S.


Under Sloan’s leadership, GM didn’t just produce cars; they produced desires. Their investment in cutting-edge advertising and innovative technologies not only attracted customers but made them fall in love with the brand. This strategic brilliance allowed GM to outspend and outshine its rivals, dominating the market and the hearts of consumers.



III.  TOYODA


Rising Innovator: Sakichi Toyoda's Legacy in Japan

In the late 1800s, Japan saw the rise of a visionary inventor, Sakichi Toyoda. Inspired by the potential of the Patent Monopoly Act of 1885, Toyoda set his sights on revolutionizing textile machinery. By 1890, he secured his first patent, and in 1926, he started the Toyoda Automatic Loom Works. Celebrated as the "King of Inventors" and often dubbed the Thomas Edison of Japan, Toyoda's innovations significantly modernized the nation.





Following in his father's footsteps, Kiichiro Toyoda continued the family legacy of innovation. After visiting the U.S. in 1921 and seeing the societal impact of automobiles, Kiichiro dreamed of dominating Japan's car industry. His determination deepened after studying automakers in Detroit in 1929. By 1933, he persuaded his father to start an Automotive Production Division, which soon produced a passenger car and a truck inspired by Dodge and Chevrolet.


In 1937, the division transformed into the Toyota Motor Company, rapidly growing to 2,000 units a month with 5,000 employees under Kiichiro’s leadership. Like Alfred Sloan, Kiichiro focused meticulously on planning and organizational culture.


Kiichiro dreamt of Toyota as a market leader. In 1937, he expanded into a massive manufacturing center in Koromo providing a tenfold increase in production capacity. His detailed financial plan projected early losses turning into profitability and full debt repayment by the fifth year, a plan he achieved.


Kiichiro also introduced a groundbreaking "just in time" manufacturing system at Koromo, maximizing efficiency and minimizing asset use. He authored a detailed 400-page manual on the system, now known as Kanban, and invested heavily in training to ensure its success. This system, challenging yet transformative, is still a cornerstone of Toyota’s culture today.



Kiichiro’s Quest for Excellence and Unstoppable Growth

Kiichiro Toyoda did more than build cars; he built a culture of constant improvement at Toyota. His mantra, "Genchi Genbutsu," meant seeing problems firsthand. This wasn't about quick fixes; it was about understanding deeply to find the best solutions.


Kiichiro led by empowering his team, always asking questions that made them think and solve problems on their own. This hands-on method, now known as the "Toyota DNA," creates leaders through real-world experience.


Under Kiichiro, Toyota always put the customer first, aiming to offer better experiences than any competitor. The motto, "Good Thinking, Good Products," has proclaimed this philosophy.


As Japan militarized, Kiichiro and his father, Sakichi, saw a chance. In 1936, they pushed for laws that limited foreign automakers like GM and Ford, ensuring new entrants were mostly Japanese owned. This move not only gave Toyota an edge but also secured big military contracts, boosting their growth, and cementing their place in the industry.

 


Kiichiro's Bold Gamble: The Failed Alliance

On December 19, 1939, a groundbreaking deal was on the table: Toyota, Nissan, and Ford-Japan were set to join forces. Toyota and Nissan would each invest 30%, while Ford would contribute 40%. The Japanese government, eager for unity among its top car makers, saw this as the perfect solution. It would not only please the government but also lift Ford's production limits and strategically align Ford with its Japanese rivals.


But Kiichiro Toyoda had other ideas. Fiercely independent, he believed in Toyota's potential to succeed on its own. Kiichiro's unwavering faith in Toyota's future led him to walk away, setting the stage for Toyota to carve its own path in the automotive world.

 


From Crisis to Comeback: Toyota's Tumultuous War

On December 7, 1941, as Japan declared war on the United States, the fate of Toyota, along with American giants GM and Ford, was thrown into chaos. The war's end brought strict controls to Japan. Toyota was only allowed to manufacture trucks and buses, and it was forced to shed its profitable textile arm. Japan plunged into a severe recession.


By January 1950, Toyota was on the brink of bankruptcy. The Bank of Japan's Nagoya office intervened to save it but demanded tough sacrifices, including the dismissal of 1,600 workers. The workforce erupted with strikes and stoppages. Kiichiro Toyoda, taking responsibility for Toyota's dire straits, resigned as president, and handed over control to a turnaround team from the family's loom business. This marked a period of deep personal depression for Kiichiro, as his dream of leading the car industry seemed shattered.


However, a new hope was rising within the Toyoda family. Kiichiro had been preparing his cousin, Eiji Toyoda, for leadership. With strong technical skills and deep respect within the company, Eiji was poised to take the helm.


Shortly after being named Managing Director, Eiji was sent to the United States for an intensive three-month study of the auto industry, sponsored by Ford. He gained unprecedented access to Ford’s operations and visited many machine tool makers across the U.S.


Eiji Toyoda in 1958


Returning to Japan, when asked how long it would take to catch up to Ford, Eiji confidently replied that Ford wasn't doing anything Toyota didn't already know. Despite Ford's overwhelming size, Eiji was certain: surpassing Ford was only a matter of time. This bold vision set the stage for Toyota's dramatic rise.


Toyota's Bold Leap: The 1950s Surge

In the 1950s, as Toyota was revamping its factories, the Korean War erupted, opening a lucrative opportunity with high-volume orders from the US military. Positioned in Japan, Toyota capitalized on its proximity to the conflict and the depressed local economy, gaining a significant cost and delivery edge. The substantial profits and prompt payments from these deals were crucial, fueling Toyota's recovery and expansion post-war. This vital US military business continued until 1962 when US legislation mandated buying American-made trucks.


In 1954, Toyota revolutionized the market with the introduction of the SKB, a small four-wheeled truck. Developed in just two months with minimal investment, it rapidly dominated the market, outpacing the ubiquitous three-wheeled trucks in developing countries.

  

1955 marked the debut of Toyota's first true passenger car, the Crown, with Eiji Toyoda playing a pivotal role in its development. The Crown was a hit in Japan. In 1957, Toyota was ready to tackle the US market, setting up a sales subsidiary despite knowing the challenges ahead. Eiji pressed forward, eager to create a foothold in the US before potential import restrictions could take effect.






IV.  MONEY MEN


The Rise and Stall of GM: From Sloan to Stagnation

When Alfred Sloan, the visionary leader behind GM's explosive growth, retired in 1956, he left a company at the peak of its powers, set to dominate the market well into the 1970s. However, the relentless drive and innovative spirit of Sloan was not passed on to his successors. The formidable business structure and market share advantage he built allowed GM to remain financially successful, despite a slow erosion of its market dominance.


As GM enjoyed record sales and profits during the post-World War II economic boom in America, the company's approach shifted. GM’s prosperity bred a level of arrogance and a narrow-minded focus unique to Detroit. This was a time when GM's stock soared, outperforming all its U.S. rivals.

  

Frederick G. Donner became CEO in 1958. Profit driven Donner, an accountant by training, emphasized short-term profitability over strategic market engagement.




GENERAL MOTORS STOCK ADJUSTED FOR SPLITS AND SPINOFFS 1926 TO 2009

 CRSP Database Booth School of Business, The University of Chicago




This was especially true in foreign markets where GM began to rapidly lose ground. His policy of requiring a 25% return on investment led to missed opportunities in rapidly growing markets like Japan and Southeast Asia.



Data from “The World-wide Industrial Enterprise” by FG Donnor and U.S. DOT



This period marked the beginning of a slow decline for GM, as bureaucratic growth and labor concessions made it less competitive internationally. Celebrated as one of GM's best CEOs, Donner's focus on financial metrics over consumer satisfaction and market expansion signaled the start of a long-term erosion of GM's global position.


Donner's attempt to compete in the small car segment with the Corvair ended disastrously. The car, plagued by safety issues and engineering flaws, became a public relations nightmare. This episode exemplified the broader shift at GM from innovation-driven leadership under Sloan to a more financially oriented approach that gradually moved away from the commitment to constantly improve and compete. This shift underscored the delicate balance between rewarding shareholders and investing in future growth—a balance that post Sloan GM struggled to keep.



Transforming Labor Relations: Toyota’s Strategic Shift

Unlike its American counterparts, Toyota took a groundbreaking approach to labor relations in 1962. While the auto industry was notorious for its labor unrest, Toyota forged a path of cooperation, negotiating a labor management declaration that fostered trust and mutual respect between workers and management—a tradition that endures to this day. This culture of inclusivity at Toyota rallied all employees towards shared success.


The U.S. auto industry, by contrast, had a turbulent history with labor. The National Labor Relations Act of 1935, which legalized unionization in the U.S., led to significant strikes, some marked by management’s use of violence. Notable incidents included GM's plant occupation in Flint, Michigan during 1936-37, and Ford's violent "Battle of the Overpass" in 1937. These events cemented a long-standing mistrust between blue-collar workers and management.



Police firing tear gas at Chevrolet Plant 9 in Flint, Michigan 1937



Post-war, labor disputes continued. In 1950, GM’s "Treaty of Detroit" with the UAW set a precedent for substantial company concessions. Over the years, labor contracts ballooned, creating dense bureaucracies, stifling future benefit payments and intricate work rules that hampered productivity and stifled innovation.


U.S. management practices often exacerbated tensions, with visible segregation like separate parking and dining facilities for factory workers and white-collar workers. During a recession in the early 1980s, as workers took pay cuts to aid their struggling company, GM executives received enhanced bonuses.

  

In contrast, Toyota recognized labor as a vital part of its team and business strategy, avoiding the adversarial culture that plagued many American firms. This commitment to unity and respect within its workforce became a cornerstone of Toyota's enduring global success, without the entanglements of entitlement and disjointed corporate culture that often hindered its competitors.

 


Toyota's Rise in the 1960s: Seizing Opportunities

In the 1960s, Japan's economic boom fueled an unprecedented surge in its automotive industry. This explosive domestic growth was a golden ticket for Toyota, positioning it to dominate the global market. Success in such a rapidly expanding market required agility, risk-taking, and fierce competition.


Toyota held a commanding lead in Japan, bolstered by government barriers that shielded it from powerful foreign rivals like GM and Ford. Despite opportunities with post-war American oversight, US manufacturers underestimated Japan, ignoring the potential of its market and the capabilities of its car makers.

I

n 1960, Toyota reached out to Ford, seeking a joint venture to create a national car, championed by the Japanese government. By 1962, Ford abruptly exited the talks, leaving without explanation—another missed opportunity for the American giant. (Ford was also offered ownership of Volkswagen for free in 1948)



Henry Ford II with Eiji Toyoda during his visit to Toyota in 1978.

Talks between the two companies took place four times without results.



In 1966, Toyota launched the Corolla, a direct challenge to Nissan’s Sentra. The Corolla outperformed its rival and quickly became a sensation, making significant inroads into the US market. By 1967, Eiji Toyoda, steeped in decades of Toyota's strategies and culture, took over as president. Reflecting on his tenure from 1967 to 1982, he described it as "smooth sailing".


Below we see the enormous growth of Japanese produced vehicles market share (yellow) and the decline of US produced vehicles market share (deep blue) during Eiji Toyoda time as CEO of Toyota.


Motor Vehicle Production Market Share by Country

Motor vehicle production % share from 1950 in Units by country-of-origin US DOT




Down the Slippery Slope

Frederick Donner set the stage. He was followed by a parade of short-lived CEOs struggling against foreign competition. The next CEO with time to affect GM’s future was Thomas Murphy, at the helm from 1974 to 1980. Murphy kept milking profits even as GM's market share slipped. Japan overtook the US in vehicle production under his watch, signaling a seismic shift in the automotive world.


Murphy pushed GM to sell a record 9.55 million vehicles in 1978, but by 1981, GM was nearly $1 billion in the red—the first loss since the 1920’s. Then came Roger Smith (1981-1990), who launched bold but failed initiatives, further draining GM’s resources.


Meanwhile, GM was also losing ground to Ford and Chrysler. Chrysler’s CEO, Lee Iacocca, brought in Hal Sperlich, the brains behind the Mustang when Henry Ford II fired Sperlich. Together, they introduced the minivan, which tapped into America’s love for larger vehicles. Chrysler thrived, and its stock soared twentyfold.


At Ford, Don E. Patterson, a temperamental yet talented leader, developed the innovative Taurus, which became the best-selling car in the US from 1992 to 2001. Patterson transformed Ford’s culture, fostering a cooperative labor-management relationship, and emphasizing quality techniques that relied on workers' input.


Ford became a profit powerhouse. In 1986, for the first time in 62 years, Ford's $3.3 billion income surpassed GM’s, despite GM being 40% bigger. By 1988, Ford’s profits hit $5.3 billion—a record for a car company. Its stock skyrocketed fifteenfold between 1980 and 1989.


This isn’t just history; it's a cautionary tale. The successes of Iacocca and Patterson show how important a visionary leader is.  GM's downfall also came from losing sight of the principles that made it great: aggressive competition for market share, winning every segment, winning consumers' hearts, and long-term planning. When a giant forgets these, it tumbles.

 


Misunderstanding Market Demand -A Chance to Avoid Bankruptcy

Sloan and F. Donaldson Brown weathered significant fluctuations in demand with methodical demand forecasting and planning. In 2009, General Motors faced a sales drop they could have foreseen if they had understood market signals.


Total market demand includes both passenger vehicles and light trucks whether bought new, used, or leased. Used vehicle sales are twice as high as new vehicle sales.


For 30 years, US total market demand for vehicles remained stable at 55 million units per year, fluctuating no more than ±5% annually. This stability persisted despite major changes in market dynamics. For example, vehicle service life increased from 8 years in 1990 to 12.5 years today. Additionally, in 2009, average new car prices surged by nearly $10,000 (40%), and used car prices doubled, yet the trendline stayed flat.



Source: Bureau of Transportation Statics, US DOT (CNW Research, Edmunds, Manheim Consulting)



This stable trendline hides the fact that consumers can delay or accelerate their vehicle purchases. This flexibility creates an unrealized demand buffer. When consumers delay purchases (undersold) or buy sooner than expected (overbought), it signals potential future demand shifts. The more the buffer deviates from equilibrium, the more dramatic the impact will be on future vehicle sales. Economists call this the Theory of Intertemporal Choice.

  

The chart below shows cumulative unrealized demand from 1990 to 2019 compared to annual vehicle sales. In 2007, the buffer hit 27 million vehicles overbought signaling a sharp decline in future sales. This is more than six months of total vehicle sales or over two years of new vehicle production. A good demand planner, seeing a downturn in 2005 and the growing oversold buffer, would have sounded the alarm, providing a four-year warning before GM’s bankruptcy. The trendline reversal in 2007 should have been an even more serious red flag.


Source: Bureau of Transportation Statics, US DOT (CNW Research, Edmunds, Manheim Consulting)



However, GM missed these market signals and lacked the flexibility to react due to high fixed costs and restrictive labor contracts. Expensive, failed acquisitions further drained their resources. Sloan and Donaldson Brown would have been disappointed with GM’s failure to plan for demand disruptions and keep financial resilience.




V.    TOYOTA WINS - GM LOSES


Toyota's Steady Rise and GM's Costly Shift

In 2007, GM still led, selling over 9.3 million cars worldwide. But Toyota was close behind with 9 million cars. By 2008, Toyota took the lead.





In the 1990s, GM shifted its focus from the US to China, its largest market. They sold more cars in China than in the US, with 40% of their vehicles produced there. This move increased their global market share from 1980 to 2000 but cost them their US dominance. GM’s China business was very profitable, yet local manufacturers now dominate the market, and GM even trails behind Volkswagen, which holds a 14% share compared to GM's modest 5%.


Toyota understood the importance of long-term market leadership. While GM chased short-term profits and lost its edge, Toyota steadily climbed to the top. GM's focus on quick gains led to bankruptcy in 2009, while Toyota's patient strategy paid off.



Fundamentals and Courage: The Rise and Fall of GM

General Motors' century-long journey offers a fascinating glimpse into a giant's rise and fall, showing how four fundamental factors resulted in success. These factors and, more importantly, the courage to act amid fierce competition and financial pressures led to GM’s early success, and later allowed Toyota to become number one.

 

Visionary Leader

Great companies often have visionary leaders. These rare individuals see the future, make bold strategies, and inspire others to follow. They achieve the impossible with a clear purpose, decisive actions, and a relentless drive. Visionaries embrace change, take risks, and stand by tough decisions, creating a lasting culture. Sakichi and Kiichiro Toyoda did this for Toyota, passing their values to Eiji Toyoda, transforming Toyota into a global leader that outperformed GM.

 

Largest Share of The Market

William Durant targeted markets with huge growth potential. He knew being the largest producer gave GM competitive advantages like higher margins and cheaper capital. He fought for every market segment, making GM the biggest producer.

However, GM later focused only on the most profitable segments, missing new opportunities. In the late 50s and early 60s, GM could have dominated low-priced cars and international markets. By the 70s and 80s, competitors had grown strong.

GM could have reversed its decline by targeting growing segments much like Steve Jobs did by pivoting Apple into music players and phones. Instead, GM bought companies in unrelated businesses that were outside of their expertise like Hughes Aircraft and Electronic Data Systems wasting resources.

 

Delivering a Better Product

Leaders like Durant, Ford, and Toyoda were passionate about great products and exceptional customer experiences. Eiji Toyoda honored Toyota's customer-first culture shown by the motto "Good Thinking, Good Products." They put the customer first and took risks to deliver outstanding products. Steve Jobs and Elon Musk followed this path, creating "magical" products.

GM, however, took customer loyalty for granted, producing "good enough" cars, suffering in quality and reputation. Centralized leadership weakened divisions, and cost-cutting led to inferior products and eroded trust. Marketing and promotion investments were cut.

 

Disciplined Demand and Financial Planning 

Alfred P. Sloan's systems for managing demand and financial planning ensured GM had enough capital during tough times. Accurate sales forecasts and flexible production were key. Toyota's meticulous planning and bold moves helped it survive and thrive through crises like World War II. Mature GM was weak in predicting demand fluctuations and had built up fixed costs that prevented adjustments to large swings in sales. A steep sales drop led to its 2009 bankruptcy. Today, GM is fifth in global market share, a shadow of its former self.






1.       Visionary Leader

2.       Largest Share of the Market

3.       Delivering a Better Product

4.       Disciplined Demand and Financial Planning

 

Reflecting on the fundamentals that made GM great, we can see how straying from them led to GM's downfall. Staying true to these principles is crucial for long-term success in any business.







“Here’ s to the crazy ones”

Steve Jobs, Commencement Speech at Harvard University 2005__

 

The misfits. The rebels. The troublemakers. The round pegs in the square holes.

The ones who see things differently.

They’ re not fond of rules. And they have no respect for the status quo.

 

You can quote them, disagree with them, glorify or vilify them.

About the only thing you can’ t do is ignore them.

 

Because they change things. They invent. They imagine. They heal. They explore. They create. They inspire. They push the human race forward.

 

Maybe they have to be crazy.

 

How else can you stare at an empty canvas and see a work of art?

Or sit in silence and hear a song that’ s never been written?

Or gaze at a red planet and see a laboratory on wheels?

 

While some see them as the crazy ones, we see genius.

 

Because the people who are crazy enough to think they can change the world,

are the ones who do.”



REFERENCES:

The following are my major sources of information for this article. They are great books that I would encourage you to read.



  • Willaim Pelfrey - Billy, Alfred, and General Motors: The Story of Two Unique Men, a Legendary Company, and a Remarkable Time in American History - HarperCollins Christian Publishing

  • Alfred P. Sloan, Jr. - Adventures of a White Collar Man – Doubleday, Doran and Company, Inc.

  • Eiji Toyoda – Toyota Fifty Years in Motion – Kodansha International

  • Paul Ingrassia - Crash Course - Random House Publishing Group.

  • Fredric G. Donner – The World-Wide Industrial Enterprise, It’s Challenge and Promise McGraw-Hill Book Company

  • Richard M. Langworth & Jan P. Norbye – The Complete History of General Motors 1908-1986 – Beekman House

  • J. Patrick Wright – On a Clear Day You Can See General Motors – Avon Publishers

  • Albert Lee - Call Me Roger – Contemporary Books

 

 

 


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