The biggest lesson from the story of General Motors (My years at GM by Alfred Sloane)

Henry Ford completely dominated the motorcar industry for almost two decades, from 1907 onwards. His vision of bringing raw basic transport to the masses was epitomized by the Model T.

His 70% market share entrenched economies of scale that no competitor could match, resulting in the Model T being the cheapest car on the road.

Where he went wrong is not noticing that from about 1923 onwards the demand for raw basic transport was being satisfied by used-car sales, and there was no longer a demand for brand new Model T’s.

When first-time car buyers returned to the market for the second time, they were selling their “basic transport” and demanding something more in their new car.

That’s where General Motors stepped into the gap, offering different colours, different brands, different performance and difference prices.

Henry Ford finally realized that the Model T (only available in black) was outdated and in 1928 he closed the famous River Rouge factory for almost three years of retooling. When it reopened he managed to capture over 50% of new car sales for two years. But that turned out to be an anomaly.

GM caught up and pulled away, and by the 50’s General Motors was the world’s biggest car company.

The lesson is that consumers are always looking for something new, something to better satisfy their needs, and cost is not the most important factor in the decision-making process.