GM Hughes Electronics Corporation

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GM Hughes Electronics Corporation

3044 West Grand Boulevard
Detroit, Michigan 48202
U.S.A.
(313) 556-2025

Wholly-owned subsidiary of General Motors
Incorporated: 1985
Employees: 97,000
Sales:$l 1.2 billion

GM Hughes Electronics was established in 1985 when General Motors (GM) purchased the Hughes Aircraft Company. At that time, GM reorganized its Delco Electronics subsidiary, and together Hughes and Delco became GM Hughes Electronics (GMHE). GMHE’s business is the business of its two subsidiaries, which are still independently managed.

HUGHES AIRCRAFT COMPANY

Hughes Aircraft is one of America’s leading defense-electronics manufacturers. Despite its name, it hasn’t built an airplane in over 40 years, but instead has concentrated on developing advanced radar and navigation systems.

The man behind Hughes Aircraft was, of course, Howard Hughes, perhaps the world’s best-known billionaire. Hughes inherited a family fortune when he was 19. He dropped out of school and gained control of the Hughes Tool Company, an extremely profitable manufacturer of patented drill bits for the oil industry founded by his father in 1913. Hughes then turned to movie making. His only real achievement in Hollywood was a film about World War I British aviators, called Hell’s Angels. Dissatisfied with the performance of his stunt pilots—several of whom died in crashes—Hughes performed numerous stunts himself.

Soon bored with filmmaking, Hughes turned to aviation in 1932. It was at this time that his friend, a Los Angeles accountant named Noah Dietrich, set up the Hughes Aircraft Company as a vehicle for Hughes’s whims. Hughes, however, was determined to learn the business from the bottom up and took a job as a copilot for American Airways. Six months later, Hughes and Dick Palmer, an engineer who had worked for Dquglas and Lockheed, began work on a race plane, the H-l. On September 13, 1935 Hughes set a new speed record; he later broke transcontinental and world speed records. The heroism of his feats, a New York ticker-tape parade, and a whirlwind romance with Katherine Hepburn made Hughes a national celebrity. It was Hughes’ money, however, that attracted the interest of Jack Frye, president of TWA.

Fyre invited Hughes to buy into his airline. Hughes viewed the investment as an opportunity to test vigorously the newest aircraft in the hope of designing a superior version of his own for sale to the military. With $1.6 million of Hughes’ money, Frye purchased a small fleet of Boeing 307 Stratoliners, which at once made TWA a world-class airline.

Hughes then involved himself in the secret development of the Lockheed Constellation. Before the aircraft could be completed and introduced however, military priority during World War II exposed the project.

At the time, German U-boats were extremely effective in sinking convoys of American supply ships en route to Europe, so the government planned to airlift supplies, using Boeing flying boats. Consolidated Vultee developed an alternative large-cargo airplane—the PB2Y—and then Martin Aircraft entered the field with its mammoth 80-ton Mars. Hughes began work on a much larger marine aircraft, a third larger than a 747. During its development, however, small reconnaissance aircraft equipped with radar became effective antisubmarine weapons, and the greater economy of waterborne transport prevailed. Hughes Aircraft was nonetheless contractually obligated to complete the new flying boat. Made of plywood and powered by eight engines, the Spruce Goose became an antique the moment it was completed in 1947—two years after the war ended. Hughes felt obligated to prove it airworthy, but took it only 70 feet into the air before setting it down again. The aircraft was docked in Long Beach, California, and remains there under guard to this day.

Howard Hughes suffered a severe concussion in 1946 when he crashed an experimental airplane into a golf course during a test flight. The crash is believed to have been the cause of a gradual deterioration of Hughes’ sanity that rendered the compulsive perfectionist thoroughly disagreeable and irrational. Difficult as he was, he remained in charge of Hughes Aircraft, controlled over 78% of TWA, and continued to make more money than ever from the Hughes Tool Company.

During the war, Hughes Aircraft was managed by Noah Dietrich and its engineer directors and remained free of Hughes’ influence. Hughes was preoccupied with another investment: RKO Pictures. But Hughes Aircraft did not emerge from the war with an essential niche in either the civilian or military market. Indeed, it had yet to produce a commercially successful aircraft. Instead, the company’s managers emphasized the development of new, advanced avionics and control mechanism. They assembled a team of leading scientists and engineers to lead product development, while still receiving funding from Hughes Tool Company.

When the cold war erupted after World War II, the defense-electronics industry boomed, and Hughes Aircraft led the way. It grew to become one of the nation’s largest defense contractors as a supplier of weapons systems, missiles, satellites, and lasers. Housing a greater concentration of technicians than any other company except Bell Labs, Hughes became the primary source of aerial-interception systems for the defense of North America.

Hughes became active at the company again in the early 1950s. He refused, however, to allow any of the directors to buy shares in the company, and used his power as sole owner to override key decisions. As he exerted more influence in the company, directors began to quit. First to resign were Vice-Presidents Dean Wooldridge and Simon Ramo (who later founded TRW) and General Manager Harold George, then Henry Singleton (who founded Teledyne), and Assistant Manager Charles Thornton, and Assistant Controller Roy Ash (who founded Litton). All were leading scientists. Fearing the disintegration of an important strategic resource, Air Force Secretary Harold Talbott flew to California and told Hughes personally, “You’ve made a hell of a mess of a great property” He then threatened to cancel the company’s contracts until Hughes himself restored order.

Hughes attempted to sell the company to Westinghouse, Convair, and Lockheed, but in the end rejected all offers. Instead, he created a chairty, the Howard Hughes Medical Institute, and donated all of his shares in the Hughes Aircraft Company as a gift. It was a highly controversial move that won Hughes comparison to Henry Ford for his resourcefulness and determination to save face.

But it also denied Hughes an important source of money two years later when TWA badly needed cash to purchase passenger jets and the Tool Company, the original Hughes money tree, was in the depths of a bottomed-out oil market. Hughes had exhausted his resources and for the first time in his life came up short. He was eventually forced to turn to a group of New York financiers, who denied him voting rights at TWA but did provide funding for jet acquisition.

The Hughes Aircraft Company, meanwhile, had rebuilt its management and research staffs. Hughes personally chose Lawrence Hyland, a former Bendix Aviation executive and co-inventor of radar, to be general manager while Hughes himself retained the title of president. As sole trustee of the Miami-based Medical Institute, Hughes determined what portion of Hughes Aircraft’s profits—and they were substantial—would be turned over to the charity. Hughes, perhaps learning a lesson from his harsh treatment of previous executives, gave Hyland, a self-taught engineer like Hughes himself, complete authority over Hughes Aircraft.

Hyland reassembled a top-flight engineering-and-research group and successfully brought down employee turnover. Although Hughes turned his attention to his Las Vegas casino properties, he continued to monitor Hughes Aircraft’s performance through regular situation reports and telephone conversations with Hyland. He was in constant contact with Hyland in 1966 when the Surveyor spacecraft, manufactured by Hughes Aircraft, made its successful soft landing on the moon, and he made certain that the company fully exploited the event in institutional advertising.

As Hughes sank into almost total reclusion, Hyland led the company into advanced missile technologies. In 1974, at the insistence of the Internal Revenue Service, Hughes authorized an increase in the company’s contributions to the Medical Institute from $2.5 million to $3.5 million. Two years later, Howard Hughes died. Through its association with the Medical Institute, Hughes Aircraft was insulated from the confusion that came in trying to settle Hughes’ estate. Hyland remained in control of the company, and a board of Medical Institute trustees was formed to take Hughes’ place.

Hyland, however, left Hughes Aircraft in 1978. He was replaced by Allen Puckett, a 30-year company veteran. Under Puckett’s leadership, Hughes Aircraft enjoyed 25% annual growth. Much of this growth directly resulted from increased military budgets that began in the last years of the Carter Administration and continued during the Reagan Administration. The company’s expansion, however, was poorly managed. Hughes Aircraft overemphasized its small-scale-weapons development at the expense of production. A third factor involved the unmonitored performance of executives entering the company from top-level positions in the Pentagon. By and large, these executive were regarded as deal makers and Washington influence peddlers who had only a minimal commitment to quality or cost control.

Suddenly, early in 1984, the Defense Department, citing a near-complete lapse of quality control and severe cost overruns, refused to take delivery of any more Hughes Aircraft TOW, Phoenix, or Maverick missiles. The air force dispatched a highly effective production auditor named A. Ernest Fitzgerald to investigate Hughes, though a second oversight committee, the Defense Contract Audit Agency, was already on the job. The Audit Agency, which Fitzgerald called a “rubber-toothed, barkless, blind watchdog,” was accused of covering up Hughes’ deficiencies. It even attempted to prevent Fitzgerald from delivering incriminating testimony to Congress.

Suffering from a public-relations nightmare, Hughes Aircraft began a critical period of introspection and quality control. It was critical because Hughes had reached a point where it could no longer satisfy IRS requirements for contributions to the Medical Institute while maintaining industry-competitive internal research-and-development expenditures. Hughes Aircraft would soon have to be sold, and its reputation as a pariah in the defense industry could only damage the Medical Institute.

After some discussion about taking the company public, the Medical Institute began to entertain the more lucrative possibility of selling the company to an established defense contractor. Interested parties like Boeing, however, became discouraged by antitrust legislation. The Ford Motor Company expressed a desire to fold Hughes into its new aerospace division. But the company that offered the highest bid, $5 billion, was General Motors.

GM formed a new subsidiary, GM Hughes Electronics, to manage the affairs of Hughes Aircraft and its Delco Electronics division. This arrangement, it was hoped, would preserve each company’s independence but facilitate a two-way assimilation of advanced technologies.

Hughes continued to win military contracts on the basis of its technological strengths, but was known to be a non-competitive bidder. As budget pressures fell on the Pentagon, Hughes began to lose vitally important contracts. Worse yet, Hughes’ chairman, Albert Wheelon, was forced to resign amid allegations that illegal bribes were paid to the Radiotourismo satellite consortium. Wheelon was replaced by Malcolm Currie, a career Hughes man who had served as under secretary of defense from 1973 to 1977.

In 1988, Hughes Aircraft began to see a turnaround in its business as a three-year plant-modernization program that dramatically improved profitability at the company’s Tucson, Arizona missile complex was completed.

Today Hughes Aircraft remains one of America’s most important electronics manufacturers and research organizations. It conducts approximately 80% of its business with the Defense Department. But because its broad exposure to the Pentagon may become problematic in the future as the government struggles to bring spending into line, Currie hopes to bring this figure down to 60%. It has successfully applied aerospace technologies to automotive systems, and is a major manufacturer of satellites.

DELCO ELECTRONICS CORPORATION

Delco has been a “captive” manufacturer of car radios and automotive-electronics systems for General Motors for more than 50 years. The company was completely reorganized in 1985, however, when it was nominally merged with Hughes Aircraft, which had recently been acquired by GM. Both companies were made independent divisions of a new company called GM Hughes Electronics.

Delco was originally founded in 1912 by C.F. Kettering as a manufacturer of electronic starters for Cadillacs. The company, located in Kokomo, Indiana, was acquired by General Motors on May 1, 1936, after which it added radios as a new product line. GM had tried once before to establish a radio factory; in 1929 it entered into a joint venture with RCA primarily for home-radio production. The venture failed in 1932, but not before the popularity of car radios was discovered. Since the economy was in severe distress, however, GM decided to wait until demand had recovered to re-enter the radio business.

As America emerged from the Depression, demand for automobiles recovered, and, with it, demand for car radios. The first radios to emerge from Delco were built for Chevrolets. They were strictly “aftermarket” items, installed as dealer options. By 1937 Delco was manufacturing several radio designs for GM, as well as control panels for installing Delco radios in most other American-made cars. By the end of the year, Delco had begun construction on a second plant and added antennae and carburetor production. During this period the company introduced two product innovations: the push-button tuner in 1938, and the elliptical speaker, which improved tone, in 1940.

Clare Swayzee became general manager of Delco in January, 1939. He succeeded Ray Ellis, who had led the division since its inception in 1936.

After four years of often-bitter resistance to organization by labor unions, Delco assented to representation of its employees by a United Auto Workers local in May, 1940. Hostilities in Europe and the sudden declaration of war against Japan, however, turned the company’s attention to mobilization for war. Largely through its association with General Motors, Delco was selected to produce a variety of military equipment. With civilian production on hold, Delco manufactured antiradar devices, aircraft and tank radios, ignition testers, oxygen-flow indicators, and the famous two-way field radio.

Delco was awarded the army-navy “E” for excellence in 1943. In great favor with the government, Delco expanded its production by taking over the Malleable Iron Works for a third plant, and later the Continental Can Company facilities in Terre Haute, Indiana. Even after the war ended in 1945, Delco retained a great many military contracts. When civilian production resumed, however, Delco again found rapidly expanding markets in both automotive and home electronics. The company began production of home radios in 1946, but abandoned the market only two years later. By 1948, the company had taken over an RCA facility in Chicago and several naval-air-station buildings in Kokomo, Indiana and had constructed a major new factory adjacent to its original plant.

During the Korean War, Delco developed a lighter-weight field version of the Walkie-Talkie, a Motorola invention. When that conflict ended, in 1953, Delco began production of an antiaircraft-gun-control system called the Skysweeper.

The company’s most important development in years, the high-power transistor, came in January, 1956. In its first application, the transistor eliminated radio buzz from the vibrator coil, and later it replaced vacuum tubes. It enabled the development of experimental products including an in-dash portable radio and a 45-rpm automobile record player that, understandably, was never brought to market.

In 1958 Martin J. Caserio replaced Barry Cooper as general manager of Delco. Cooper had been in charge of Delco for 16 years and is credited with overseeing the company’s massive wartime expansion. Caserio was a 21-year GM veteran and had managed Delco’s AC spark-plug division in Milwaukee.

Delco’s ready market for automotive components and radio grew with GM automobile sales. By and large, this remained a stable and profitable source of income. The company’s greatest expansion, however, occurred in defense electronics. In October, 1960, Delco was awarded a contract to manufacture components for the Minuteman missile. Delco was singled out by the government for its leading position in solid-state devices.

After seeing Delco into AM/FM stereo-radio production, among other things, Caserio was succeeded as general manager in February, 1964 by Gus Riggs, a former works manager at the Delco Remy facility in Anderson, Indiana. During Riggs’ tenure, Delco continued to refine its existing product line and introduced new power and automotive-control systems.

Delco’s AC division, with plants in Milwaukee, Wisconsin and Santa Barbara, California, was consolidated with Delco Radio in 1970 and renamed the Delco Electronics division. The reorganization eliminated redundant managers and provided better production economies. The division also held many government contracts, including one to supply components for the Apollo Mission lunar rovers. In 1973 Delco won a British contract to manufacture inertial navigation systems for the Concorde aircraft. The company became a major INS manufacturer after developing subsequent INS lines as a retrofit item for 747, KC-135, and C-141 aircraft.

Donald J. Atwood, a former director of the GM transportation systems division, became general manager of Delco Electronics in September, 1974. Under his leadership, Delco continued to respond to fads, and marketed an in-dash CB radio. The product was phased out some years later when the public fascination with CB radios ended. Another more successful product, the trip computer (a gadget that, among other things, calculated mileage) was introduced in 1978. In the defense sector, Delco developed a fire-on-the-move control system for the M-I tank in 1976, and the Magic computer, for use in F-16 fighter jets.

In 1978, in search of less expensive labor and fewer union restrictions, Delco broke ground for a 100,000-square-foot complex in Singapore for manufacturing parts and subassemblies. The plant also gave the company greater access to foreign markets. That same year, Edward Czapor was appointed general manager of Delco. Atwood, like his predecessors, was promoted into GM management. He is best remembered for establishing an enduring cooperation between management and labor.

Delco, whose aluminum-nickel-cobalt speaker magnets had made it the world’s largest consumer of cobalt, was forced to develop a ceramic-magnet speaker in 1979 when a world cobalt shortage forced prices up. This became the least of Delco’s problems, however, as the following year the combined effects of recession and competition from Japanese companies forced it to lay off thousands of workers. An increase in military budgets that began in 1979, however, bolstered Delco’s overall earnings enough to justify recalling several hundred laid-off employees. The company began manufacturing servos and gunsights for the M-48 tank’s DIVAD gun system and the nighttime low-altitude navigation-and-targeting LANTIRN system for F-16 and A-10 aircraft.

A second foreign plant was opened at Matamoros, Mexico, just south of Brownsville, Texas, in August, 1980. Three months later, the four-year-old Shreveport, Louisiana plant was closed.

Despite intense competition from Japanese radio manufacturers and upmarket German manufacturers such as Blaupunkt, Delco landed a contract to build an electronically tuned radio, or ETR, for the luxury Opel Senator automobile. Delco, however, was unable to compete with high-end manufacturers, so instead concentrated on traditional markets. Still, Rolls-Royce chose a Delco spark-control system as standard equipment for its new Bentley line.

Robert J. Shultz was named general manager of Delco in November, 1981. Shortly after he took office, Delco furloughed several hundred employees at Kokomo, a result of poor GM sales. Later that year, Delco abandoned its speaker business, choosing instead to tie in with Bose, an established leader in the field. Bose was a well-respected name that did much to improve the marketability of Delco ETRs. Delco also improved its position in European automotive technology by opening a new engineering center in Luxembourg.

Delco’s Santa Barbara facility won a lucrative military contract for gun-stabilization units on U.S. Army light armored vehicles. Six months later, in April, 1983, the entire Santa Barbara operation was transferred to GM’s new power products and defense operations group. A reorganization was under way at Delco as well that year. Three business units were created, including automotive electronics, semiconductor products, and entertainment and comfort products. The company also inaugurated a $204 million expansion-and-modernization program aimed at bolstering the business of its new operating divisions.

General Motors’ acquisition of the Hughes Aircraft Company from the Howard Hughes Medical Institute in 1985 promised to greatly enhance the company’s position. Hughes was regarded as a technological powerhouse, with engineering applications for both military and automotive electronics. GM decided that Hughes’ vast resources could best be assimilated by grouping the company with Delco under a new GM subsidiary called GM Hughes Electronics. The two companies were to maintain their independence—preserving company loyalty—but GM decided the two companies would be most productive if coordinated.

As a technological resource, GM Hughes Electronics is an essential resource for General Motors (its newly inaugurated Saturn division, for example, is dependent on advanced automotive-electronics systems). This factor, it was hoped, would enable GM to compete more effectively with Japanese manufacturers, against whom it had already lost on labor costs. The extent to which Delco will benefit from Hughes’ technologies remains to be seen. Its greatest impact has been in defense-related markets; Hughes’ operations increased GM’s government business from 1.5% to 7% of sales.

Delco is the largest manufacturer of automotive-electronics systems in the United States. It is a world leader in on-board digital-control computers, and produces a variety of other systems that enable GM automobiles to operate efficiently and safely. And though it is best known for making car radios, Delco remains a major defense contractor. With the backing of GM, Delco promises to maintain a leadership role in both markets.

Principal Subsidiaries:

Hughes Aircraft Company: Advanced Electronics Systems International; Atlantic Satellites Ltd. (80%) (Ireland); AZ Engineering Co., Inc.; DCC Limited (U.K.); ELBAC Leasing Company; Ensambladores Electronicos de Mexico S.A.; ESAL Company; HESP Company; HNS-Italia, S.r.l.; Hughes Advanced Systems Company; Hughes Aircraft-Alabama; Hughes Aircraft Company (Inc.); Hughes Aircraft International Service Company; Hughes Aircraft Mississippi, Inc.; Hughes Aircraft-South Carolina; Hughes Aircraft Systems International; Hughes Automation Systems Corporation; Hughes Communications Carrier Services, Inc.; Hughes Communications Galaxy, Inc.; Hughes Communications, Inc.; Hughes Communications International, Inc.; Hughes Communications Japan, Inc.; Hughes Communications Mobile Satellite Services, Inc.; Hughes Communications Satellite Services, Inc.; Hughes Communications Services, Inc.; Hughes do Brasil-Eletronica e Communicacoes Ltda.; Hughes Energy Corporation; Hughes Foreign Sales Corporation (U.S. Virgin Islands); Hughes Georgia, Inc; Hughes Information Systems (The Netherlands); Hughes International Sales Corporation; Hughes International Sales Corporation 2; Hughes Investment Management Company; Hughes Space Defense, Inc.; Hughes Microelectronics Limited (U.K.); Hughes Missiles Electronics, Inc.; Hughes Nadge Corporation; Hughes Network Systems, Inc.; Hughes Optical Products, Incorporated; Hughes Systems Management International; Hughes Technical Services Company; Husint S.A. (Switzerland); Interaz, S.A. de C.V. (Mexico); International Electronics Systems, Inc.; MDP, Ltd.; National Satellite Services, Inc.; Santa Barbara Research Center; Spectrolab, Inc.; Systems Building Corp.; XMC Holdings, Ltd.; XMC Management Company; XMC Properties, Inc.

Delco Electronics Corporation: Delco Electronics Overseas Corporation; Delco Electronics Service Corporation; Delnosa, S.A. de C.V. (Mexico); Deltronicos de Matamoros, S.A. de C.V. (Mexico); GM Singapore Pte. Ltd.