Ideas on how to become rich - How to become a billionaire, part 5

Ideas on how to become rich - How to become a billionaire, part 5

So far, we have examined the basic principles of how to become a billionaire and we have also examined various companies that made a lot of money, and how they did in, in terms of their history and what they do to make money, and what they did in their rise to eminence. In this post on how to become a billionaire, we will be examining the history of Ford and General Motors. The resources for this research came from Forbes.com, Wikipedia as well as newspaper resources on the rich and famous. A quick reminder - my research methodology for the topic on "how to become a billionaire" was simply to see how we can emulate billionaires and billion-dollar companies and businesses, and the research methodology for my past few posts have been documented here:

Ideas on how to become rich: research methodology for the billionaire series

Without further ado, the history of Ford and GM, for you to glean insights into the power and virtue of making and creating great and powerful businesses that can generate income and huge amounts of earnings for shareholders and managers alike.

Case study: History of GM and ideas on how to become rich

General Motors was founded on Wednesday, September 16, 1908 in Flint, Michigan, as a holding company for Buick, then controlled by William C. Durant, and acquired Oldsmobile later that year. The next year, Durant brought in Cadillac, Elmore, Oakland and several others. In 1909, General Motors acquired the Reliance Motor Truck Company of Owosso, Michigan, and the Rapid Motor Vehicle Company of Pontiac, Michigan, the predecessors of GMC Truck. Durant lost control of GM in 1910 to a bankers’ trust, because of the large amount of debt taken on in its acquisitions around $1 million.

Durant left the firm and helped establish the Chevrolet Motor Company in 1911 with brothers Gaston and Louis Chevrolet. After a brilliant stock buy back campaign, he returned to head GM in 1916, with the backing of Pierre S. du Pont. Chevrolet entered the General Motors fold in 1917; its first GM car was 1918's Chevrolet 490. Du Pont removed Durant from management in 1920, and various Du Pont interests held large or controlling share holdings until about 1950.

In 1918 GM purchased the McLaughlin Motor Car Company of Oshawa, Ontario, Canada, manufacturer of the McLaughlin-Buick automobile, and renamed it General Motors of Canada Ltd., with R.S. "Colonel Sam" McLaughlin as its first president. In 1925, GM bought Vauxhall Motors of England, and then in 1929 went on to acquire an 80% stake in German automobile manufacturer Adam Opel AG. Two years later this was increased to 100% and the company remains the core of GM Europe to this day.

GM surpassed Ford Motor Company in the late 1920s thanks to the leadership of Alfred Sloan. While Ford continued to refine the manufacturing process to reduce cost, Sloan was inventing new ways of managing a complex worldwide organization, while paying special attention to consumer demands. Car buyers no longer wanted the cheapest and most basic model; they wanted style, power, and prestige, which GM offered them. Thanks to consumer financing, easy monthly payments allowed far more people to buy GM cars, while Ford was moralistically opposed to credit. Guess which idea was better for making money?

During the 1920s and 1930s, General Motors assumed control of the Yellow Coach bus company, and helped create Greyhound bus lines. They replaced intercity train transport with buses, and established subsidiary companies to buy out streetcar companies and replace the rail-based services as well with buses. GM formed United Cities Motor Transit in 1932.

In 1930, GM also began its foray into aircraft design and manufacturing by buying Fokker Aircraft Corp of America and Berliner-Joyce Aircraft, merging them into General Aviation Manufacturing Corporation. Through a stock exchange GM took controlling interest in North American Aviation and merged it with its General Aviation division in 1933, but retaining the name North American Aviation. In 1948, GM divested NAA as a public company, never to have a major interest in the aircraft manufacturing industry again.

General Motors bought the internal combustion engine inside the railcar builder Electro-Motive Corporation and its engine supplier Winton Engine in 1930, renaming both as the General Motors Electro-Motive Division. Over the next twenty years, diesel-powered locomotives — the majority built by GM — largely replaced other forms of traction on American railroads. Electro-Motive was sold in early 2005.

General Motors produced vast quantities of armaments, vehicles, and aircraft during World War II for both Allied and Axis customers, and made a lot of money. By the spring of 1939, the German Government had assumed day-to-day control of American owned factories in Germany, but decided against nationalizing them. During the war, the U.S. auto companies continued to be concerned Nazi Germany would nationalize American-owned factories.

GM's William P. Knudson served as head of U.S. wartime production for President Franklin Roosevelt, who called Detroit as the Arsenal of Democracy. The General Motors UK division, Vauxhall Motors, manufactured the Churchill tank series for the Allies. The Vauxhall Churchill tanks were instrumental in the UK campaigns in North Africa. Bedford Vehicles manufactured logistics vehicles for the UK military, all important in the UK's land campaigns.

Nevertheless, while General Motors has claimed its German (Opel) operations were outside its control during World War II, this assertion appears to be contradicted by available evidence. General Motors was not just a car company that happened to have factories in Germany; GM management from the top down had extensive connections with the NSDAP, both on a business and personal level. American GM Vice President (later Colonel) Graeme K. Howard was a committed Nazi, and expressed such views in his book, America and a New World Order. Adolf Hitler awarded GM boss James D. Mooney the Order of Merit of the Golden Eagle for his services to Nazi Germany. General Motors’ internal documents show a clear strategy to profit from their German military contracts even after Germany declared war against America. Defending the German investment strategy as “highly profitable” and making a lot of money, Alfred P. Sloan told shareholders in 1939 GM’s continued industrial production for the Nazi government was merely sound business practice.

At one point GM had become the largest corporation registered in the United States, in terms of its revenues as a percent of GDP. In 1953, Charles Erwin Wilson, then GM president, was named by Eisenhower as Secretary of Defense. When he was asked during the hearings before the Senate Armed Services Committee if as secretary of defense he could make a decision adverse to the interests of General Motors, Wilson answered affirmatively but added that he could not conceive of such a situation "because for years I thought what was good for the country was good for General Motors and vice versa". Later this statement was often misquoted, suggesting that Wilson had said simply, "What's good for General Motors is good for the country." At the time, GM was one of the largest employers in the world – only Soviet state industries employed more people. In 1955, General Motors became the first American corporation to pay taxes of over $1,000 million. Now one can guess how much money that corporation made, if the money it made allowed it to pay that much in taxes!


Case study: History of Ford and ideas on how to become rich

Ford was launched in a converted factory in 1903 with $28,000 in cash from twelve investors, most notably John and Horace Dodge, who would later found the Dodge Brothers Motor Vehicle Company. Henry Ford was 40 years old when he founded the Ford Motor Company, which would go on to become one of the largest and most profitable companies in the world, as well as being one of the few to survive the Great Depression. The largest family-controlled company in the world, the Ford Motor Company has been in continuous family control for over 100 years.

During its early years, the company produced a range of vehicles designated, chronologically, from the Model A in 1903 to the Model S in 1908. That year, Henry Ford introduced the Model T. Earlier models were produced at a rate of only a few a day at a rented factory on Mack Avenue in Detroit, Michigan with groups of two or three men working on each car from components made to order by other companies. The first Model Ts were built at the Piquette Road Manufacturing Plant, the first company-owned factory. In its first full year of production, 1909, about 18,000 Model Ts were built. By 1913, the company had developed all of the basic techniques of the assembly line and mass production. Ford introduced the world's first moving assembly line that year, which reduced chassis assembly time.

These innovations were hard on employees, and turnover of workers was very high, while increased productivity actually reduced labour demand. Turnover meant delays and extra costs of training, and use of slow workers. In January 1914, Ford solved the employee turnover problem by doubling pay to $5 a day, cutting shifts from nine hours to an eight hour day for a 5 day work week (which also increased sales; a line worker could buy a T with under four months' pay), and instituting hiring practices that identified the best workers, including disabled people considered unemployable by other firms. Employee turnover plunged, productivity soared, and with it, the cost per vehicle plummeted. The increase in wages led to Ford making more money. Ford cut prices again and again and invented the system of franchised dealers who were loyal to his brand name. He made yet more money. Wall Street had disagreed with Ford's generous labour practices when he began paying workers enough to buy the products they made.

While Ford attained "international" status in 1904 with the founding of Ford of Canada, it was in 1911 that it began to rapidly expand overseas, with the opening of assembly plants in England and France, followed by Denmark (1923), Germany (1925) and Austria (1925) and also in Australia (1925) as a subsidiary of Ford of Canada. By the end of 1919, Ford was producing 50 percent of all cars in the United States, and 40% of all British ones; by 1920, half of all cars in the U.S. were Model Ts. The assembly line transformed the industry; soon, companies without it risked bankruptcy.

In 1915, Henry Ford went on a peace mission to Europe aboard a ship, joining other pacifists in efforts to stop World War I. This led to an increase in his personal popularity. Ford would subsequently go on to support the war effort with the Model T becoming the underpinnings for Allied military vehicles.

In 1919, Edsel Ford succeeded his father as president of the company, although Henry still kept a hand in management. Although prices were kept low through highly efficient engineering, the company used an old-fashioned personalized management system, and neglected consumer demand for improved vehicles. So, while four wheel brakes were invented by Arrol-Johnson (and were used on the 1909 Argyll), they did not appear on a Ford until 1927. Ford steadily lost market share to GM and Chrysler, as these and other domestic and foreign competitors began offering fresher automobiles with more innovative features and luxury options. GM had a range of models from relatively cheap to luxury, tapping all price points in the spectrum, while less wealthy people purchased used Model Ts. The competitors also opened up new markets by extending credit for purchases, so consumers could buy these expensive automobiles with monthly payments. Ford initially resisted this approach, insisting such debts would ultimately hurt the consumer and the general economy. Ford eventually relented and started offering the same terms in December 1927, when Ford unveiled the redesigned Model A, and retired the Model T after producing 15 million units.

On February 4, 1922 Ford expanded its reach into the luxury auto market through its acquisition of the Lincoln Motor Company, named for Abraham Lincoln whom Henry Ford admired, and the Mercury division was established in 1938 to serve the mid-price auto market. Ford Motor Company built the largest museum of American History in 1928, The Henry Ford. Henry Ford would go on to acquire Abraham Lincoln's chair, which he was assassinated in, from the owners of the Ford Theatre.Abraham Lincoln's chair would be displayed along with John F. Kennedy's Lincoln limousine in the Henry Ford Museum & Greenfield Village in Dearborn, known today as The Henry Ford. Kennedy's limousine was leased to the White House by Ford. President Franklin Roosevelt referred to Detroit as the "Arsenal of Democracy." The Ford Motor Company played a pivotal role in the allied victory during World War I and World War II. As a pacifist, Henry Ford had said war was a waste of time, and did not want to profit from it. He was concerned the Nazis during the 1930s might nationalize his factories in Germany. During the Great Depression Ford's wages may have seemed great to his employees but many of the rules of the factories were very harsh and strict. Those were tense times for American companies doing business in Europe. In the spring of 1939, the Nazis assumed day to day control of Ford factories in Germany.

With Europe under siege, Henry Ford's genius would be turned to mass production for the war effort. After Bantam invented the Jeep, the War Department handed production over to Ford. When Consolidated Aircraft could at most build one B-24 Liberator a day, Ford would show the world how to produce one an hour, at a peak of 600 per month in 24 hour shifts. The specially-designed Willow Run plant broke ground in April 1941. Edsel Ford, under severe stress, died in the Spring of 1943 of stomach cancer, prompting his grieving father to resume day-to-day control of Ford. Mass production of the B-24 began by August 1943.

At the behest of Edsel Ford's widow Eleanor and Henry's wife Clara, Henry Ford would make his oldest grandson, Henry Ford II, President of Ford Motor Company. Henry Ford II served as President from 1945–1960, and as Chairman and CEO from 1960–1980. "Hank the Deuce" led Ford to become a publicly traded corporation in 1956. However, the Ford family maintains about 40 percent controlling interest in the company, through a series of Special Class B preferred stocks. In 1947, Henry Ford passed away. Perhaps an estimated 7 million people mourned his death.

In 1946 Robert McNamara joined Ford Motor Company as manager of planning and financial analysis. He advanced rapidly through a series of top-level management positions to the presidency of Ford on 9 November 1960, one day after John F. Kennedy's election. The first company head selected outside the Ford family, McNamara had gained the favor of Henry Ford II, and had aided in Ford's expansion and success in the postwar period. Less than five weeks after becoming president at Ford, he accepted Kennedy's invitation to join his cabinet, as Secretary of Defense.

Lee Iacocca was involved with the design of several successful Ford automobiles, most notably the Ford Mustang. He was also the "moving force," as one court put it, behind the notorious Ford Pinto. He promoted other ideas which did not reach the marketplace as Ford products. Eventually, he became the president of the Ford Motor Company, but he clashed with Henry Ford II and ultimately, on July 13, 1978, he was famously fired by Henry II, despite Ford posting a $2.2 billion dollar profit for the year. In 1979 Phil Caldwell became Chairman, succeeded in 1985 by Don Petersen. Harold Poling served as Chairman and CEO from 1990-1993. Alex Trotman was Chairman and CEO from 1993-1998, and Jacques Nasser served at the helm from 1999-2001. Henry Ford's great-grandson, William Clay Ford Jr., is the company's current Chairman of the Board and was CEO until September 5, 2006, when he named Alan Mulally from Boeing as his successor. As of 2006, the Ford family owns about 5 percent of Ford's shares and controls about 40 percent of the voting power through a separate class of stock.

(The latest before the recession of late 2008) In December 2006, Ford announced that it would mortgage all assets, including factories and equipment, office property, intellectual property, and its stakes in subsidiaries, to raise $23.4 billion in cash – the need to raise huge sums of money. The secured credit line is expected to finance product development during the restructuring through 2009, as the company expects to burn through $17 billion in cash before turning a profit and making money in future. The action was unprecedented in the company's 103 year history.


What can we learn from the history of these two major companies that have made money and lost money, and still managed to become major billion dollar companies? These are good questions that we should ask ourselves.

More to come in the next post on Ideas on How to Become Rich, stay tuned! Cheers.

Ideas on how to become rich!