Alfred P. Sloan

• Born: May 23, 1875
• Birthplace: New Haven, Connecticut
• Died: February 17, 1966
• Place of death: New York, New York

American automobile company executive

Under Sloan’s management, General Motors became a leader in the automobile industry and the world’s largest corporation. His principles of corporate management, as described in his book My Years at General Motors, were essential to his company’s success and have been used by many other organizations.

Sources of wealth: Manufacturing; sale of products

Bequeathal of wealth: Educational institution; medical institution

Early Life

Alfred Pritchard Sloan (slohn), Jr., was the oldest of five children born to Alfred P. Sloan, Sr., and Katherine Mead in New Haven, Connecticut. Both maternal and paternal families were respectable and middle class. Sloan’s father was a machinist and a merchant, who ran a successful business selling wholesale roasted and ground imported coffee, tea, and cigars. Sloan attended Brooklyn Polytechnic at the age of eleven and graduated from Massachusetts Institute of Technology (MIT) at age twenty after studying electrical engineering.

First Ventures

Sloan went to work as a draftsman in the Hyatt Roller Bearing Company, a manufacturer of small, flexible rollers (ball bearings), after he completed his studies at MIT. His focus in school had been mechanics and engineering, and he brought his education and knowledge of science to the Hyatt Company. He soon discovered that his company faced financial crisis each payday. Sloan resigned and was hired by Hygienic Refrigerator Company, but this company folded when the owner died. About the same time, Sloan’s father and Mr. Donner, who was in the sugar refining business, partnered and purchased Hyatt Roller Bearing Company. At age twenty-four, Sloan became the company’s president. He enjoyed the challenge of running this business. Under his leadership, this almost bankrupt company garnered a profit of $12,000 in six months. Sloan’s challenge was to market the antifriction ball bearings to businesses with turning wheels. In the years to come, the automobile industry would provide excellent profits for Hyatt, and at one time, Sloan supplied Hyatt ball bearings to both Ford Motor Company and General Motors (GM).

Mature Wealth

Sloan developed the Hyatt Roller Bearing Company into a competitive and prosperous business. However, when he received a call from William Crapo Durant, an automotive guru, to discuss the purchase of Hyatt, he replied that the company was available for $15 million. After some negotiation, the company his father and business partner purchased in 1889 for $5,000 was sold in 1916 to “Billy” Durant for $13.5 million.

Sloan was invited to become part of Durant’s leadership team. Durant, known for his lucrative carriage and wagon business in the early 1900’s, reorganized the Buick Motor Company and employed Sloan as the president at United Motors from 1916 to 1918. Sloan accepted half his salary in United Motors stock. He managed to attain net sales of $33,638,956 during his first year there. In 1918, United Motors merged with GM. Sloan became a vice president and a stockholder. Although he and Durant differed in management styles, many of Sloan’s suggestions were accepted and implemented by Durant.

In 1918, GM launched an executive bonus plan. GM believed this plan would motivate its managers by rewarding them for running the company as if it were their own firm, enabling the company to decentralize operations. The plan rewarded a manager up to 12 percent of his net earnings. In 1962, some fourteen thousand employees received awards in cash and stock worth $94,102,089. In 1919, GM offered employees a savings and guaranteed investment plan in company stock, with payouts in five years. GM employees had more than $75 million credited to their accounts to draw on during the Great Depression. Sloan enjoyed healthy financial benefits as part of the executive management team.

When Durant left GM in 1923, Sloan became the president, chairman, and chief executive officer of the company until he retired in 1946. Business grew until the stock market crash, when GM stock dropped from $262 a share in 1929 to $8 a share in July, 1932. Sloan reorganized and redesigned GM. He attributed the company’s success to its use of group management with decentralized operational units, centralized financial controls, product upgrades, and the introduction of new car models every year to meet the needs of consumers. Sloan’s philosophy of corporate management contrasted with the philosophy of the Ford Motor Company, where management was centralized and the firm continued to release one basic car design, the Model-T. Within six years under Sloan’s corporate management, GM became a leader in the automobile industry, with profits of more than $260 million and a rapid increase in the price of its stock.

With Sloan at the helm, GM became the largest corporation in the world, replacing Ford as the automobile market leader. GM marketed the Pontiac, Chevrolet, Buick, Oldsmobile, and Cadillac automobile brands, as well as GMC trucks. In 1962, GM had 600,000 employees and one million shareholders, with assets of $9.2 billion; at the end of the year, the firm had sales of $14.6 billion in sales and profits of $1.46 billion.

During his tenure as president of GM, Sloan demonstrated that business growth and progress could result in a healthy, competitive environment of free enterprise. He stated that he personally believed that competition was a way of life for his company. Sloan described himself as a substantial shareholder and one of the largest individual GM company shareholders. At one point, he held as much as 1 percent of the company’s stock, a sizable share of his successful firm. Fortune magazine in 1957 included Sloan in its list of wealthy Americans, estimating his personal fortune to be between $200 and and $400 million. He owned a 235-foot yacht, the Renée, which he purchased for $1.25 million. In the early 1960’s, when he wrote his book My Years with General Motors, he stated that most of his wealth had been donated to his charitable foundations for scientific research and education. Despite Sloan’s generous philanthropy, at the age of ninety he had a personal bank account of a $250 million.

Legacy

Alfred P. Sloan believed in philanthropy. In 1934, he established the Alfred P. Sloan Foundation; three years later, he donated $10 million to the foundation in order to improve the quality of life in America through original research and education in technology, science, and economic performance. In the twenty-first century, the foundation provided grants for both scholars and practitioners who work to maintain the health and economic prosperity of the United States. Grant recipients have included thirty-eight Nobel Prize winners. In 1966, the foundation had assets of $305 million; in 2005, foundation assets had a market value of $1.5 billion.

Sloan joined GM executive Charles F. Kettering to establish the Sloan-Kettering Institute for cancer research with a donation of $4 million. Sloan also contributed freely to his alma mater, MIT, and the institute named its business school the Sloan School of Management in his honor. Sloan’s book My Years with General Motors is required reading in many graduate-level business schools.

Bibliography

Farber, David. Sloan Rules: Alfred P. Sloan and the Triumph of General Motors. Chicago: University of Chicago Press, 2002. An account of Sloan’s professional life, management practices, and decisions as chairman that led to the economic success of GM from the 1920’s to the 1940’s.

Freeman, Allyn. The Leadership Genius of Alfred P. Sloan: Invaluable Lessons on Business, Management, and Leadership for Today’s Manager. New York: McGraw-Hill, 2005. Explains why Sloan’s principles of corporate management continue to be the basis of effective leadership in organizations, and demonstrates how these innovative tenets are being used in contemporary businesses.

McDonald, John. A Ghost’s Memoir: The Making of Alfred P. Sloan’s “My Years with General Motors.” Cambridge, Mass.: MIT Press, 2002. McDonald, an editor and writer for Fortune magazine, helped Sloan write his book.

Pelfrey, William. Billy, Alfred, and General Motors: The Story of Two Unique Men, a Legendary Company, and a Remarkable Time in American History. New York: AMACOM, 2006. Describes how Sloan and William Durant created and managed GM.

Sloan, Alfred P., Jr. My Years with General Motors. Edited by John McDonald with Catherine Stevens. New York: Doubleday, 1963. Sloan provides his perspective of the development, progress, and success of GM.

Sloan, Alfred P., Jr., and Boyden Sparkes. Adventures of a White Collar Man. Reprint. New York: Doubleday, 1970. Sloan’s autobiography includes a description of the American automobile industry’s most productive era, concentrating on GM. Focuses on the importance of a scientific approach to business management.