Politics & Policy

A Tale of Two GM CEOs

The contrast between the present CEO and the man who made GM great shows what’s wrong with American business today.

I’ve just spent the last nine months at the American Enterprise Institute finishing my new book, Freedom’s Forge, the story of how American business built the arsenal of democracy in World War II on free-market principles, and not only won the war but triggered the greatest economic boom in world history. It’s amazing how many lessons the story offers for understanding what’s wrong with American business today.

Consider, for example, the tale of two CEOs of what was once the greatest automobile company in the world. One is General Motors’ current CEO, Dan Akerson, who last Monday told the Detroit News that Congress needs to slap a dollar-a-gallon tax on gasoline. That way Americans won’t buy as many gasoline-powered cars and will be forced to turn to alternative vehicles instead. That’ll be good for the environment, he claimed. But it will also be good for sales of his Chevy Volt, which, despite a hefty government subsidy, has more wheels than buyers.

The idea of an automaker proposing ways for Washington to squeeze his customers’ wallets raised a lot of eyebrows. Of course, what can we expect from the CEO of a company still one-quarter owned by the government after the 2009 bailout? (Akerson, by the way, thinks Obama has “done a pretty good job on the economy” and wants him to “increase taxes on everybody — including the middle class and the rich people.”)

But Akerson’s remarks are also a sad commentary on where the heads of too many business leaders are these days, and on a corporate culture that was all too willing to let General Motors turn into Government Motors. That’s why the story of former GM CEO Bill Knudsen makes such a refreshing contrast — the story of the man who made General Motors the greatest automobile company in the world.

William Signius Knudsen arrived in this country as a Danish immigrant and started work with a gang of Irish riveters in a Brooklyn shipyard. Then he moved to Buffalo to work in a bicycle factory, making parts for Henry Ford’s Model T. Ford was so impressed with Knudsen’s skill in organizing the shop floor that he brought him to his Detroit Highland Park plant in 1913, where Knudsen turned the mass-production technique Ford had created there into a flexible system that could be set up anywhere. Knudsen built more than 20 Ford plants around the country and in Europe. Then in 1922 he moved to GM, where he used the same flexible mass production to introduce the idea of annual model changes for cars.

Knudsen’s idea revolutionized the American auto industry. It turned Chevrolet from GM’s biggest money-loser into its lead division, surpassing Ford in sales in 1931. Knudsen’s success enabled GM to weather the Great Depression; even after Knudsen stepped down as CEO in 1940, Chevy continued to beat Ford every year but two until 1986. If any single person made GM the greatest corporation in the world, it was Bill Knudsen.

He did it all with no government subsidies or loans. He saw his duty as making a better car at a lower cost, not asking Washington to raise his customers’ costs. During a long and punishing strike by the United Auto Workers in 1937, what impressed UAW attorney Lee Pressman most about Knudsen was not his understated negotiating manner, or the fact that he was the one GM executive who seemed anxious to end the strike.

It was how the sight of his beloved auto plants and machines sitting silent gave Knudsen almost physical pain.

“We build things in America,” Knudsen said. “That’s why most of the world is looking toward us.” He also said, “The foundation of any company is its ability to make money.” He saw that the way to do that was by beating his fellow carmakers, not the American consumer.

The contrast with Akerson couldn’t be more striking, or more instructive about where we once were — and where we need to go again.

— Arthur Herman is a visiting scholar at AEI. His previous book, Gandhi and Churchill: The Epic Rivalry That Destroyed an Empire and Forged Our Age, was a finalist for the Pulitzer Prize in 2009.

            

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