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Posted by: Matthew Boyle on June 01, 2009
Reading all the hand-wringing stories today about General Motors’ bankruptcy, one wonders how such a corporate titan could fall so far, so fast. But what most of these stories don’t mention is that GM would never have become the world’s biggest company were it not saved from the brink of collapse after World War I by DuPont.
The postwar recession devastated the nation’s fledgling auto industry, and GM’s autonomous divisions soon spiraled out of control, making products for which there was no demand (sound familiar?). DuPont had sunk $25 million into GM in 1918, a sizable chunk of its capital in those days, and Pierre duPont, GM’s chairman, was understandably worried about that investment, which eventually rose to $50 million.
After the departure of GM’s mercurial founder, William Durant, Pierre duPont reluctantly stepped in to run the company as president in 1920. DuPont tried to have GM adopt DuPont’s more stringent financial controls. He also looked to foster innovation, specifically searching for a product that could match Henry Ford’s Model T.
Perhaps DuPont’s smartest move was seeing the potential of a young GM vice president, a 45-year-old electrical engineer by the name of Alfred P. Sloan. Sloan’s sensible turnaround plan for GM was approved by its board in 1920, and Sloan, as we know, went on to take GM to great heights as its CEO and chairman. He even prompted DuPont’s senior management to restructure the company based on its major products. Many of those products found their way into GM cars, of course, cementing ties between the two firms that lasted long after DuPont sold its GM stake, for a tidy profit. Even today, a good chunk of DuPont’s sales go to the reeling auto industry, which has forced the chemical giant to rethink its own future.
How can you manage smarter? BusinessWeek writers Nanette Byrnes, Patricia O’Connell, Emily Thornton, Matthew Boyle, Michelle Conlin and Diane Brady synthesize insights from the brightest business thinkers, critique the latest management trends, and comment on leaders in the news.