A Brief History of
The First 100 Years of the Automobile Industry
in the United States
Chapter 5 - Chrysler leaves GM and makes it the Big Three
by Richard A. Wright
Among the many auto companies which William Durant bought for General Motors in its first few years was one owned by Byron T. Carter, who designed the friction-drive Cartercar.
In December, 1910, Carter stopped to help a woman whose car had stalled on Detroit's Belle Isle Bridge. As Carter hand-cranked her engine, it backfired, spinning the crank backward. The crank broke Carter's arm and shattered his jaw. Two Cadillac engineers passing by on the way to work took Carter to a hospital, where he developed pneumonia and died.
Cranking engines by hand was the way to start them in those early years and it was a hazardous undertaking. It took considerable strength to turn the engine with the crank and if the cqar backfired, the crank could suddenly turn with great force. Broken arms and other injuries were not uncommon.
Henry Leland, head of GM's Cadillac Division, knew Carter and was horrified when he heard of his death. He assigned a group of Cadillac engineers to find a solution to the problem of cranking engines to start them. They did: Charles F. Kettering.
While an engineer at National Cash Register Co. in Dayton, Ohio, Kettering had invented a small, high-torque electric motor to replace the hand crank on cash registers. Kettering and Edward Deeds, who had been sales manager at NCR, set up their own company, Dayton Engineering Laboratories Co. (Delco) to make and market an automotive ignition system Kettering had designed. One customer was Cadillac.
Two months after Kettering and his associate, William A. Chryst, began work on the auto starter, they gave a demonstration of it and Cadillac bought it. In fact, Cadillac bought more than a starter, because Kettering had integrated the starter -- adapted from the cash register motor -- into a complete ignition and electrical system which included a battery recharged by a generator run by the engine and electric headlights to replace acetylene lamps The system was installed on Cadillac's 1912 model, one of those very few cars that was truly an automotive milestone.
Kettering's system -- basically still used by every maker in the world -- opened motoring to a vastly greater public.
Upon regaining control of General Motors in 1916, William Durant's first act was to fire Charles W. Nash, who was president of GM during its period of control by the Eastern bankers. Nash took over the ailing Jeffery Motors (which became Nash, then Nash-Kelvinator and in 1954 merged with Hudson to form American Motors). His second was to give Walter P. Chrysler a raise. Chrysler was head of Buick, a job for which Nash, no spendthrift, had paid him $50,000 a year. Durant had heard that Chrysler was making a bid to take over Packard and he offered him $500,000 a year to continue at Buick. Chrysler stayed.
That same year, Durant made one of GM's most important acquisitions: United Motors Corp., a combination of parts and accessories makers which included Delco, New Departure and Hyatt Roller Bearing Co. In addition to the products it brought into the GM fold, it also brought in Delco's Kettering and the president of Hyatt, Alfred P. Sloan Jr.
Part of the deal when Durant regained GM was a division of the board of directors -- six named by Durant, six by the bankers and three to be neutral. Pierre S. du Pont, head of the chemical giant, became chairman, nominated by Durant and trusted by all. One of the neutrals was John Jacob Raskob, a close du Pont aide. In the years ahead, Johnny Raskob turned out to be Durant's most powerful ally in his empire-building spree.
When the United States entered World War I, Henry Leland, along with his son and close associate at Cadillac, Wilfred, told Durant they wanted to convert a new Cadillac body plant to production of airplane engines to help the war effort. The Lelands were anglophiles, Durant was not. He told them no GM facility would produce war goods.
The Lelands wrestled with their feelings for weeks, then on July 3, 1917, they quit GM. Six weeks later, they organized Lincoln Motor Co. to build airplane engines. In 1920, they built the first Lincoln car to challenge Cadillac in the luxury-car field.
With the end of the war came boom times for the auto business. Durant began buying companies, including a 60 percent interest in Fisher Body. In 1919, GM of Canada and General Motors Acceptance Corp. were created. Encouraged by Raskob, who was able to secure financing with du Pont money and connections, Durant continued to expand GM's empire, ignoring more cautious voices.
Durant ordered construction of the General Motors Building on West Grand Blvd. in Detroit, to be the largest office building in the world. (In fact, it was to be called the Durant Building and it has the initial "D" at its corners near the top in the manner of Napoleon, who decreed the letter "N" be put on buildings erected in Paris during his reign.)
Irked by Durant's management style, Chrysler quit. The action shook GM, particularly Sloan.
Car sales declined, inventories began mounting, the bond market was weakening and GM was in a financial bind. GM's stock price slid, despite heavy buying by Durant with his personal fortune in an effort to prop up the stock. He bought on margin, often only 10 percent.
Fearful that his personal failure would be tied to GM, which itself owed $80 million to the banks, the bankers demanded that Durant resign. Raskob and du Pont came up with a proposal to buy Durant out. Forced to sell at $9.50, he had lost about $100 million of his own money.
The deal was consummated and he resigned on a Friday. Monday, GM opened at $16.50. What Durant had failed to do with his millions of dollars, he finally did by resigning. GM was turned around.
Durant had wanted nothing in the world so much as to run GM, but that was not the case with the man who succeeded him. Pierre S. du Pont was only 50, but had retired from running the family chemical firm because he had more important projects in mind: cultivating plants at his greenhouse on Longwood, his estate near Wilmington, Del., and pushing educational reforms in the Delaware schools.
He had become chairman of GM in 1915 to help the company he and his friends had invested in, but Durant had run the company. But by the time Durant resigned in 1920, the DuPont Co. owned 43 percent of GM and du Pont could not just walk away.
While president and chairman, du Pont managed to get involved in one of Kettering's few ideas which didn't work out, an air-cooled engine with copper fins to pass off heat. Du Pont thought it would be just the thing to power a low-priced car to compete with Ford's Model T. Sloan was cool to the idea, because there were serious manufacturing problems.
In a curious way, Henry Ford set in motion a chain of events that would lead to Chevrolet's ill-fated production of the copper-cooled engine and the elevation of Sloan to the presidency of General Motors.
Signius Wilhelm Poul Knudsen was a big, beefy Dane who arrived in the United States at age 20. He took a job at the John R. Keim Mills in Buffalo, where a timekeeper decided he was "William S. Knudsen," because he was not going to fool around with any name like "Signius."
Knudsen developed a method for forming and drawing steel and Keim Mills became a major supplier of pressed steel parts. Ford bought the company and gave Knudsen a raise. Knudsen got married, one of his better moves, because his wife, Clara Euler, proved to be a civilizing influence on the hard-driving, hot-tempered, blaspheming Knudsen.
Knudsen organized 14 Model T assembly plants in two years and then three more in Europe, including one in his native Denmark. He became one of Ford's top executives and, as was so often the case, this led directly to his departure from the company.
Ford did not like to surround himself with strong men, or with men who smoked, drank and swore. Knudsen was guilty on all counts. In February, 1921, stung by public rebukes from Ford, Knudsen quit.
Ten months later, he was hired by Charles S. Mott, vice president of GM's accessories division, for $6,000 a year (he had been making $50,000 a year at Ford). A month later, Sloan made him Chevrolet production vice president at $30,000 a year.
When Knudsen, a can-do kind of guy, said he could produce 500 copper-cooled Chevrolets a month, the scale was tipped to du Pont. The copper-cooled Chevrolet went into production and 250 were built in time for the New York Auto Show in January, 1923.
Knudsen admitted production problems were greater than anticipated, but Kettering's engine required less maintenance, weighed less and got better mileage than conventional water-cooled engines.
The cars had not been in the hands of the public long before complaints started. The engine overheated, causing all sorts of problems. Kettering's design was not as efficient as other air-cooled units, such as the Franklin's.
The decisive Knudsen recalled all the copper-cooled cars and had many of them dumped into Lake Erie.
Du Pont brooded about the episode and his role in it. That he had made an error in judgment was not so bad. That he had become emotionally involved to the extent that his judgment was impeded was, he felt, inexcusable. Du Pont resigned as president and recommended that Sloan succeed him.
In 1923, the Sloan era began at GM, an era that would transform the corporation, the American auto industry and American industry in general.
After Chrysler resigned from GM in 1920, he agreed to manage the financially troubled Willys-Overland. While there, he put together an engineering team under Fred Zeder, who had been with Studebaker, which developed an advanced, high-compression engine.
As Willys-Overland returned to financial health, the bankers who had drafted Chrysler for the job asked him to do the same for Maxwell, a Detroit auto maker which was in serious difficulty. Chrysler bought the Willys engine plant and Zeder's engine for Maxwell and began building a new car at the old Chalmers plant in Detroit.
Several models of this Maxwell, which had the name "Chrysler" on it, were shipped to New York for the 1924 auto show. But because the car had never been sold as a production model, it was not eligible for exhibition.
This was bad news, because Chrysler was not only looking for sales orders, he needed financing. He showed the cars in the lobby of the Hotel Commodore and manned the exhibit himself, selling a number of cars and securing from Ed Tinker, president of Chase Securities, the financing he needed.
"It was the only way I could get away from him," Tinker later joked of his wise investment in the supersalesman and his car.
Later that year, Maxwell-Chalmers was reorganized into Chrysler Corp. Detroit had its Big Three.
Copyright 1996, Richard A. Wright
Published by Wayne State University's Department of Communications