ALFRED P. SLOAN and GENERAL MOTORS by Peter F. Drucker

“As I sat in more GM Effective Executive meetings with Sloan, I began to notice something else in addition to his emphasis on people and his treatment of them: his way of making decisions. I think I noticed it first in the heated discussions about the postwar capacity of GM’s accessory divisions.

One group in GM management argued stridently and with lot of figures that accessory capacity should be expanded. Another group, equally strident, argues in favor of keeping it low. Sloan listened for a long time without saying anything.

Then he turned off his hearing aid and said, ‘What is this decision really about? Is it about accessory capacity? Or is it about the future shape of the American automobile industry? You,’ and he turned to the most vocal advocate of accessory expansion, ‘argue that we need to be able to supply independent automobile manufacturers with accessories they cannot make, and that this is our most profitable business—and so it has always been. And you,’ turning to an opponent of accessory expansion, ‘argue that we need to confine our capacity to what our own automotive divisions and our dealers in the automotive after-market need. It seems to me that you argue over the future of the automobile industry in this country and not about the accessory business, do you agree?’

‘Well then’, said Sloan, ‘we all agree that we aren’t likely to sell a lot of GM accessories to our big competitors, to Chrysler and Ford. Do we know whether to expect the independents—Studebaker, Hudson, Packard, Nash, Willys—to grow and why? I take it we are confident that they will give us their business if they have any to give.’

‘But Mr. Sloan,’ said the proponent of accessory expansion, ‘we assume that automobile demand will be growing, and then the independents will surely do well.’

‘Sounds plausible to me,’ said Sloan, ‘but have we tested the assumption? If not, Let’s do so.’

A month later the study came in, and to everybody’s surprise it showed that small independents did poorly and were being gobbled up by the big companies in times of rapidly growing automobile demand, and that they only did well in times of fairly stable replacement demand and slow market growth.

‘So now,’ Sloan said, ‘The question is really whether we can expect fast automobile growth, once we have supplied the deficiencies the war has created, or slow growth. Do we know what new automobile demand depends on?’

‘Yes, we do know, Mr. Sloan,’ someone said; ‘demand for new automobiles is a direct function of the number of young people who reach the age of the first driver’s license, buy an old jalopy, and thereby create demand for new cars among the older and wealthier population.’

‘Just so,’ said Sloan – ‘we learned that twenty years ago. And what do population figures look like five, ten, fifteen years out?’

And when it turned out that they showed a fairly rapid growth of the teen-age population for some ten years ahead, Sloan said: ‘The facts have made the decision – and I was wrong.’

For then, and only then, did Sloan disclose that the proposal to increase accessory capacity had originally been his.

Sloan rarely made a decision by counting noses or by taking a vote. He made it by creating understanding.”