Profit Phenomenon

In a free economy, profit has always been the essential measure of business success. Lately, U.S. business has been finding it harder and harder to keep its profits up, and rare indeed is the firm that can boast of raising its profits faster than its sales. Last week, reporting the largest sales and earnings ever made by a corporation, General Motors astounded the business world with its profits increase. While its sales climbed a respectable 28% over 1961 to $14.6 billion, its earnings rose an extraordinary 63%, to $1.459 billion. The question in many an impressed businessman's mind: How in the world does G.M. do it?

G.M.'s secret is as simple as it is difficult to duplicate: the corporation is one of the tightest-run, most cost-conscious firms in all of industry, and it budgets for profit. Like the rest of the industry, G.M.'s small army of economists and statisticians had no sooner emerged from one model year 20 months ago than it focused on a hard look at upcoming 1962. While competitors talked in terms of 6,400,000 or 6,700,000 autos, G.M.'s massive research staff deduced from their studies that industry sales would be about 7,000,000. They turned out to be just about right; sales were 7,100,000. One result was that G.M. early geared its assembly line to a heavier flow of autos and trucks, avoiding the costly process of slowing down or speeding up assembly lines to meet changing demands.

Delicate Science. For 40 years, G.M. has been practicing a beady-eyed system of cost accounting that has been adopted by the rest of the auto industry only since World. War II, has had ample time to perfect it into a delicate science. G.M. plots its operations department by department four months in advance, budgets man-hours and unit parts down to a fraction of a penny. Under this system, G.M.'s financial men also dog the designers, figure the cost of every bolt, chrome strip and screw, and have unit costs tallied well in advance of final pricing. G.M. thus knows its break-even point precisely: when it sells 2,500,000 units or achieves $7 billion in net sales. In 1962 it sold 2,739,000 beyond that point--and the profit on each additional vehicle soared to $540.

Made for Each Other. In a week when another giant of U.S. industry, U.S. Steel, reported the lowest profit in ten years despite an increase in sales, G.M.--with many of the same problems that steel complains of, and with workers earning wages about $20 a week more than steel--proved the inestimable value of good management. It has one of the best executive teams in the U.S., headed by Chairman Frederic Donner, 60, and President John Gordon, 62, two sharp-eyed, tough-minded men who seem to have been made to work together.

Though the Justice Department glared at the 54.7% of the autotruck market captured by G.M. (it already has seven antitrust suits pending against G.M.) and the United Auto Workers chided the corporation for not lowering car prices, G.M.'s management took its history making in stride, devoted as professional managers to the dictum once voiced by another great manager, General Electric's Philip Reed: "Profits are a measure of effective, efficient operation and should be worn as a badge of accomplishment and of honor."

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