Many ordinary Delawareans today hold General Motors stock thanks to Pierre du Pont. How did that happen? Read on.
In the early 1900s, Pierre du Pont and his two cousins transformed the failing DuPont company whose basic product was obsolete black gunpowder into a modern, diversified chemical company (see posting of January 14, 2013). The variety of chemicals we rely on today was unknown then, so Pierre’s initial concern was to have a market for whatever they produced. Automobiles were the hot new commercial item with the potential for consuming high volumes of many chemicals, particularly paints and coated fabric for the roofs. Early on, he committed his own money and DuPont company’s resources into General Motors stock to lock them in as a customer (as persistently recommended by his trusty sidekick, John Raskob). By the end of WWI, the DuPont company had large wartime profits and Pierre poured much of that into even more GM stock. Soon, Pierre represented enough of the stock to give him control of GM.
(The important person in any corporation is the one who actually calls the shots. They may have the title “President,” or “Chairman of the Board,” or neither. They may not even be in the corporation at all but are the controlling shareholder or holder of the debt. Banks typically gain control through short-term loans that must be reissued every three months, and that is when they can dictate whatever changes they want.)
William Crapo Durant, the founder of General Motors, was another amazing early entrepreneur. (Crapo? His grandfather was Michigan governor Henry Crapo. Biographers use his middle initial to differentiate him from Will Durant, the better-known, but unrelated, author, historian and philosopher.) In 1900, Durant had built a company that was the leading manufacturer of horse-drawn carriages. He was successful enough to buy over time the growing, independent automobile companies such as Buick, Cadillac, and Chevrolet. He left them largely independent but under the umbrella of General Motors.
Durant was forced to leave GM in 1911 when excessive debt gave control to the banks, but he was able to regain control in 1916. Then, in 1920, he and GM were back in financial trouble. Durant, like many entrepreneurs even today, dictated every detail of the operation and could never bring himself to share the power as is necessary to efficiently run a large corporation. As one example, a minor question of wiring held up production for several weeks waiting for Durant’s decision. His outdated management practices, combined with the depression following WWI, threatened to sink the company.
Pierre, in frustration, ejected Durant and took over himself as president and chairman of the board. He never expected his positions to be anything but temporary, and in three years he turned over the day-to-day operations to Alfred P. Sloan. Antitrust pressure later forced the DuPont Company to divest itself of the GM stock, but they continued to hold an interest until the 1960s when they distributed the last of the remaining stock to their employees.
Durant had begun constructing the well-known GM headquarters in Detroit as the “Durant Building,” but once he was out it became the “General Motors Building.” A carved “D” in the stonework can still be seen in several places that many mistakenly assume stands for Detroit. Durant went on to create his own automobile company, Durant Motors, but this failed in the Great Depression, and he died in 1947 managing a Detroit bowling alley.
Moral: Don’t disappoint Pierre.