Management Gurus: Alfred Sloan. Part 3.
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But, of course, one thing can always stop a car: a crash. But the crash that stopped General Motors in 1929 wasn’t a car crash; it was a financial crash.
On 24 October 1929, the prices of shares on the Wall Street Stock Exchange in New York started falling… and they fell… and fell… and fell. People who had been rich the day before, woke up and found that they were poor. People who had been poor the day before, found that they had nothing to eat and nowhere to live. Businesses failed. Bankers killed themselves.
Millions of workers lost their jobs. In that kind of situation, who’s going to spend a lot of money on a new car?
The years that followed were tough for every business, everywhere in the world. Sales of General Motors’ cars fell by 70 per cent. Sloan knew he had to make some tough decisions. But before Sloan took a decision, he believed that it was his duty to think about all possibilities. For him a manager was not just a business person who was interested only in profit. In Sloan’s eyes, a manager was a professional, like a doctor or a dentist, and professionals always kept an open mind and always listened to the facts. So, even in the middle of the most difficult times, Sloan always wanted the opinions of his managers.
In 1932, GM’s Cadillac company was having real problems. Cadillacs were very expensive cars and the crash of the American economy had hit their sales especially hard. Cadillac was losing large amounts of money. At the meeting to decide Cadillac’s future, Sloan and all his managers had reached agreement.
‘The facts in this case are quite clear,’ said Sloan. ‘Cadillac must be closed. So, now our only decision is – do we keep the Cadillac name and put it on another car or do we just forget about it?’
At that moment, there was a knock on the door and one of Cadillac’s young middle managers, Nick Dreystadt, walked into the room. Dreystadt was an untidy man who spoke with a strong German accent. Nervously, he looked around at Sloan and the other top GM managers.
‘I’m sorry to interrupt,’ said Dreystadt, ‘but I know that you are thinking of closing Cadillac. Before you take any decision, I’d like you to listen to my plan. With this plan, I am sure that Cadillac will be back in profit within eighteen months.’
Several of the top managers were very angry with Dreystadt. How did this middle manager dare to interrupt their meeting with his ideas? But Alfred Sloan stayed calm and polite.
‘Please continue, Mr Dreystadt,’ he said.
‘Well,’ said Dreystadt, ‘I have noticed that Cadillacs are the most popular car with rich black people.’
‘What do you mean?’ said one of the top managers. ‘That’s impossible. We don’t sell Cadillacs to black people. It’s against our rules.’
‘I know,’ said Dreystadt, ‘but rich black people are paying white people to buy Cadillacs for them.’
‘I don’t understand,’ said the manager, ‘why are they doing this?’
‘Well,’ continued Dreystadt, ‘as we all know it’s difficult for black people to do many things in the USA. Rich black people are not allowed to buy expensive houses in the areas where rich white people live. But, of course, if you’re a successful black doctor, or a black businessman, or a black sportsman, you still want to show people that you’re rich and successful. A Cadillac is one of the few ways that these people can do this.’
‘Very interesting, Mr Dreystadt,’ said Alfred Sloan. ‘So what exactly are you suggesting?’
‘I want us to change our ideas about Cadillac. We shouldn’t stop black people from buying them. Instead, they should be our main market.’
Alfred Sloan and the other top managers discussed Dreystadt’s idea for a few minutes and then Alfred Sloan switched off his hearing aid and looked at Dreystadt.
‘OK, Mr Dreystadt,’ said Sloan. ‘We’d like to go ahead with your idea. We won’t close Cadillac. Not yet, at least.’
Dreystadt thanked Sloan. He was just leaving the room, when one of GM’s top managers spoke to him: ‘You realize that if you fail, there won’t be a job for you at GM, don’t you?’
‘Of course, I do,’ replied Dreystadt.
‘But I don’t,’ interrupted Alfred Sloan quickly. ‘If you fail, Mr Dreystadt, there won’t be a job for you at Cadillac. There won’t be a Cadillac. But as long as there is a General Motors and as long as I run it, there will always be a job for a man who takes responsibility. There will always be a job for a man who has the right attitude and imagination.’
Alfred Sloan looked calmly at Dreystadt.
‘Mr Dreystadt, you worry about the future of Cadillac. I’ll worry about your future at General Motors.’
Dreystadt and Sloan didn’t need to worry. Thanks to Dreystadt’s plan Cadillac stopped losing money within a year and it was soon making a healthy profit.