Freedom's Forge (5 page)

But Knudsen didn’t want a rest. He wanted out of Ford. The old man stormed out, and although he sent Knudsen’s mentor William Smith back to try to dissuade him, Knudsen could not be moved. On April 1, 1921, Knudsen left the Ford Motor Company and his salary of fifty thousand dollars a year—plus the 21 percent bonus. He had almost no savings. Most of his money went to various Detroit charities or to his family back in Denmark. His wife knew their situation was precarious but also knew that tensions with Ford had been steadily mounting. She simply hugged him and said, “Now we can have some peace around this place.”
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The auto industry was stunned. Knudsen never told Ford why he had decided to leave, but Ford told friends at a dinner party why he had finally decided to accept the resignation of his wizard of production—the man who had propelled Ford sales from $90 million to more than $680 million.

“I woke up one morning to the realization that I was exhausting my energy fighting Mr. Knudsen,” he said, “instead of fighting the opposition. Now I can concentrate my energies.”
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What was Ford’s loss, however, was about to become General Motors’ opportunity.

News of Knudsen’s resignation came as a surprise to everyone. But one man took particular notice. He was Alfred P. Sloan, the new executive vice president of General Motors. Sloan had a hell of a mess on his hands, and wondered if Knudsen might be the man to help out.

Sloan was something of an anomaly in the rough-and-tough world of self-made automobile men. He came from a bookish and genteel family, with a father who owned a successful coffee-roasting company
on Hudson Street in New York and a brother who was a professor. But early on, young Alfred became fascinated with machinery. Like Knudsen, he started with bicycles (his one childhood photograph shows him astride a high-wheel 1886 Columbia Light Roadster). He ended with the noisy, oil-smeared but reliably rhythmic workings of the automobile.
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His company, Hyatt Roller Bearings, had been bought up by Billy Durant in one of his last great waves of acquisitions for General Motors (another was Dayton Engineering Laboratories, better known later as Delco). Sloan’s twin devotion to superior engineering and the bottom line had turned it into one of the smoothest-running companies in the Northeast, and a major supplier of roller bearings to Ford. When Durant asked him in the spring of 1916, “Is Hyatt for sale?” Sloan had been shocked. He had always imagined if anyone made a bid, it would be Ford.
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Sloan liked Billy Durant. As Walter Chrysler said, “Billy could charm the birds off the trees.” There was no doubt the man also had a gift for the automobile business. It was Durant, not Henry Ford, who first asked himself the crucial question, What if everyone in America wanted an automobile? It was Durant who set himself the task of making that possible. “I look forward to the day when we’ll make and sell a million cars a year,” he would tell his friends, and meant it.
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To make his dream come true, Durant bought up every company connected with making automobiles he could and made them part of General Motors. They ranged from those of Ransom Olds and David Dunbar Buick to Cadillac of Detroit, which Durant bought from founder Henry M. Leland for $4.75 million in cash. He bought Chevrolet, a company founded by strapping, handlebar-mustached Swiss immigrant Louis Chevrolet, who learned to build cars in France and loved to race his own machines, beating the famed Barney Oldfield three times.
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Then there was a car-body-making plant in Flint owned by the four Fisher brothers, and another called Pontiac Body, which Durant merged with Oakland Motors. There was also former bicycle enthusiast Albert Champion’s company, which made a spark plug that suited Buick’s
high-speed, high-compression valve-in-head engine so well Durant bought the entire operation and moved it to Flint, where it became AC Spark Plugs. There was a company in Saginaw that made steering wheel mechanisms, called Saginaw Steering Gear. There was even a refrigerator company called Frigidaire.
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But while Billy Durant could create, he could not administer. Although GM had a financial department, the boss never paid attention to the numbers it generated. Sitting on GM’s Executive Committee, Sloan watched as Durant’s foibles and mercurial temper drove out first Walter Chrysler as president (“He banged the door on the way out,” Sloan wrote in his autobiography, “and out of that bang came the Chrysler Corporation”), and then William Nash, who, like Chrysler, set up his own company in direct competition with GM.
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Twice powerful outside investors had to save General Motors from going under. Then the 1920 economic downdraft that almost swept away Ford, the best-selling automobile company in the world, toppled Durant’s awkward conglomerate like a cardboard garage.

In 1919 GM had been selling at one hundred dollars a share. By November 10, 1920, it hit fourteen dollars.
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In a brutal all-night session, Durant’s key investors—bankers from J. P. Morgan and Pierre S. du Pont, scion of the famous munitions firm—negotiated a buyout of Durant, who agreed to quit as president of GM. Du Pont agreed to take his place, and brought Sloan in as his assistant.

The situation was dire. Du Pont and Sloan had to turn the company around in a down market. They did have an inventory they could write off as a tax loss, and enough remaining cash to stay solvent for at least a year. Still, the livelihood of 85,000 workers was at stake—not to mention the portfolios of investors large and small. Alfred Sloan’s entire personal fortune was wrapped up in GM stock.
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The solution they came up with revolutionized American business. At its heart was a paradox. The best way to make General Motors a single integrated company, they decided, was to give each separate division, from Buick and Chevrolet to Pontiac and Oakland Trucks, as much freedom as possible. Let each division’s chief executive produce the products he saw as best suited to his share of the market, and best
suited to his factories and engineers and workers. Then keep overall control strictly limited to coordinating the different divisions and making sure everyone was staying profitable.

In effect, Thomas Jefferson had been as right about business as he had been about political constitutions. The best corporate government was the one that governed least. “Decentralization [is] analogous to free enterprise,” Sloan later wrote, “Centralization, to regimentation”
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The best way to run a complex corporation was to have the boss at the top providing only an overall direction and oversight, while turning the entrepreneurial instincts of his top executives loose on the problem of how to produce cars and bring them to market. Meanwhile, the chief executive’s job was not to give orders but gather information, in order evaluate the company’s overall progress, anticipate problems, smooth out bottlenecks, and, as Bill Knudsen might have said, keep all noses pointed in the right direction.
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On New Year’s Day, 1922, Sloan presented his plan to the board of GM, which enthusiastically endorsed it.
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There was only one question. Would it work?

That depended on getting the right man to put the new GM corporate culture to the test. Sloan decided that was Big Bill Knudsen.

Almost as soon as he had finished sorting out the final details of the General Motors reorganization, he picked up the phone. A few days later, Knudsen was in his office. Sloan explained that he had no particular job at GM in mind for Knudsen, but that he needed someone good on his staff—“someone who can help the operating units do a better job. If you would like that job, we would like to have you here.”

“All right,” Knudsen said.

“How much shall we pay you, Mr. Knudsen?”

“Anything you like,” Knudsen replied with a shrug. “I’m not here to set a figure.”

“What were you getting at Ford?”

“Fifty thousand dollars a year,” came the answer.
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So Sloan started him on February 23, 1922, at six thousand dollars a year.

Knudsen didn’t care. It wasn’t where he started, but where he’d finish, that mattered.

As Sloan soon discovered, Knudsen could make almost anything out of metal. Since leaving Ford, he had already developed his own design of muffler that could be assembled from its simple parts in less than two minutes. He had taken it to the parts department at Chevrolet, where the purchasing agent, Donald O’Keefe, asked him what made it different. Knudsen picked it up and said, “It’s strong!” Then he smashed it bodily against the shop floor with a resounding clang. Chevrolet still turned him down.
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But a more enduring link between the Dane and the company was about to be forged.

Chevrolet was Sloan’s problem child. It was GM’s lowest-priced, but also least profitable, division. In 1921 Chevrolet had lost more than $8 million—the equivalent of almost $140 million today. Many doubted it would ever turn a profit again. Expert consultants Sloan had brought in argued that the line should simply be shut down. Sloan argued forcefully to Du Pont that this would be a mistake. With better engineering and a new head, Sloan believed Chevrolet could ultimately replace Ford as America’s choice for a low-cost, high-quality car. “Forget the reports,” Du Pont finally said. “See what we can do.”
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So in March 1922, Sloan turned the troubled company over to Knudsen.

A couple of weeks later, the same Donald O’Keefe was passing through the GM building hall when he spied the familiar figure of Knudsen. “Say,” O’Keefe said, “are you still trying to find someone at Chevrolet to buy your muffler?”

Knudsen smiled. “No,” he said in a husky half whisper, “I’m now the company vice president.”
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For some, the twenties were the era of Jazz Age parties, flappers, gangsters, and bathtub gin. For Sloan and Knudsen, it was an era of nine- to ten-hour workdays six days a week, of pouring over piles of balance sheets and inventory lists, long phone calls with suppliers and distributors and short memos to subordinates, as well as painstaking inspections of assembly lines.

Sloan knew if Knudsen could turn Chevrolet around, it would prove his new business philosophy was right. He and Du Pont were now paying the big Dane $50,000 a year on that bet.
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Knudsen, meanwhile,
was determined to show that the continuous assembly line was not a Ford fluke but a way to turn any manufacturing company into a profit winner. “If we work hard,” he told Du Pont, “then we’ll get some business.”
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He became famous for wearing his hat in his Flint office because he never sat down long enough to take it off. He was always on his feet, throwing on a coat, and hurrying down to the various plants along Chevrolet Avenue to see what was happening—and to make sure his instructions were followed to the last screw, bolt, and casting.

Everyone who dealt with him noted Knudsen was a driven man, but a soft-spoken one. It went back to his days at Keim, where he had earned a reputation for a ferocious temper that, combined with his commanding figure and his skills as a boxer, made him a dangerous man to cross. One day an angry worker tried to do just that. Knudsen came back to the office after leaving the man flat on his face on the shop floor.

His mentor Bill Smith shook his head. “If you’re going to fight one,” he finally said, “are you going to be ready to fight them all?” Knudsen didn’t answer. Then Smith said something that Knudsen never forgot. He said, “From now on you’ve got to lead, not drive.”
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It was the last lesson Smith left him, and one of the most important. From that day Knudsen learned to bottle up his rage and lock it away, and deal with his employees, even the most menial, patiently as equals. “I learned when you shout at someone,” he once said, “you make him afraid. And when he’s afraid, he won’t tell you his troubles”—or tell a manager the truth about what on the assembly line wasn’t working, or what had gone wrong. An old Ford employee later put it this way. “Mr. Sorensen,” he said, meaning Knudsen’s rival Cast-Iron Charlie, “was a wild man, Mr. Knudsen a mild man.”
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Many years later, in wartime Washington, some people would mistake Knudsen’s gentle manner for meekness or a lack of conviction. It wasn’t, as employees and colleagues at Chevrolet had learned. It was the manner of a man who had learned that the price of being a true leader was self-mastery.

Knudsen kicked things off by breaking the production of Chevrolet into three stages. First came the castings, forgings, and stampings of
steel and other materials, he explained to O’Keefe and his other managers. Then came the machining and assembly divided between five principal plants, with engines and major axle subassemblies being completed at Plants No. 2 and 4 and the chassis after 1923 being formed at Fisher Body’s new plant across the street. Finally came the finishing, including painting and undercoating.
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To deal with the first stage, Knudsen put all the ordering of Chevy’s primary materials—steel, iron, zinc, rubber, copper, and the rest—into O’Keefe’s hands, with all orders to be placed six to nine months ahead. At the same time, he left the actual purchasing of those materials to the five principal plant managers, on the theory that they would know best where to buy, and find the best price. To deal with the second stage, Knudsen worked closely with machine tool manufacturers, converting the Chevrolet production line into using as many multipurpose tools as possible, in order to speed up tool ordering but also use floor space more efficiently.
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As for the final stage, when Knudsen had first come back to Buffalo to make Model T’s, he had taken away every file and hammer in the factory. He now did something similar in the Chevy plants, in order to train his workers to depend upon the machining process to make every part fit. The goal of mass production, as he never tired of explaining, was not to make things faster or to make them all look alike. It was to make them all
work
alike, so that every Chevrolet engine or transmission performed exactly like the previous one. That in turn required an
accuracy
measured down to the hundredth of an inch, which must elude even the most experienced craftsmen—and which only machines could provide.