From war profiteering to undermining electric mass transit (part III in a series)
By EDWIN BLACK / JTAevil gm car makers 298(photo credit: Library of Congress)
During the late 1930s, Hitler's persecution of Jews was building to a frenzy even as fears of a war escalated. Nevertheless, General Motors' German automotive subsidiary, Opel, remained a loyal corporate citizen of the Third Reich - content to obediently do the Nazi regime's bidding, and unstintingly supporting Hitler's program on many fronts. These included economic and employment recovery, anti-Jewish persecution, war preparedness and domestic propaganda. In return, Opel prospered.
Hitler was pleased - very pleased. In 1938, just months after the Nazis' annexation of Austria, James D. Mooney, head of GM's overseas operations, received the German Eagle with Cross, the highest medal Hitler awarded to foreign commercial collaborators and supporters.
On November 9-10, 1938, shortly after Mooney's decoration, nationwide pogroms broke out in Germany against the Jews - Kristallnacht. The American public was finally shocked onto its heels by the night of officially orchestrated burning, looting and mob action again Jews.
President Roosevelt recalled America's ambassador, plunging German-American relations to their lowest point since Hitler assumed power. All things American came under special scrutiny in Germany.
By now, the truth about GM's ownership of the Opel car and truck operation was out in the open among Germans. Reich armament officials increasingly directed Opel's output, including mandating that nearly all vehicles be devoted to military use.
These are among the many findings of a JTA investigation. Thousands of pages of decades'-old documents were scrutinized and reexamined to produce this series, which sheds new light on GM's relationship with the Third Reich - and on the company's activities in America. They reveal that even as GM was helping jump-start the resurgent German military, it was undermining America's electric mass transit, and in doing so helped spawn America's unquenchable thirst for oil. GM has declined comment for this story. The company has steadfastly denied for decades that it actively assisted the Nazi war effort or that it simultaneously subverted mass transit in the United States.
Laissez faire, Sloan-style
In the months leading up to the feared 1939 invasion of Poland, Alfred P. Sloan, GM's president, defended his close collaboration with Hitler. Brushing off attacks for his partnership with a Nazi regime already notorious for filling concentration camps, taking over Austria and now threatening to install the Master Race across Europe, Sloan was stony and proud.
He stated, in a long April 1939 letter to an objecting stockholder, that in the interests of making a profit, GM shouldn't risk alienating its German hosts by intruding in Nazi affairs. "In other words, to put the proposition rather bluntly," Sloan said in the letter, "such matters should not be considered the business of the management of General Motors." Indeed, in August of 1939, the world wondered when Hitler might invade Poland. During those days, Opel, under the direct day-to-day supervision of GM's senior executive, Cyrus Osborn, played its role in Germany's fast-paced military plans. The company was already manufacturing thousands of Blitz trucks that would become a mainstay of the Reich's upcoming Blitzkrieg.
The German military in early August urgently ordered Blitz truck spare parts to be delivered to Reich bases near the Polish border. Days later in August, nearly 3,000 Opel employees, from factory workers to senior managers, were drafted into the Wehrmacht. Moreover, at about that time, GM's Osborn began evacuating most of the American employees and their families to the Netherlands.
Soon, virtually all Opel civilian passenger car sales were eliminated in favor of military orders.
At 6 a.m. on September 1, 1939, Germany launched its Blitzkrieg against Poland, with troops arriving in Blitz trucks manufactured by GM's Opel. The night before, Sloan reportedly told stockholders that GM was "too big" to be impeded by "petty international squabbles," according to a congressional investigation.
Shortly after war broke out in Europe, however, GM executives in Germany tried to distance the American company from its involvement in the brutal German war machine. The Opel board was restructured to ensure that GM executives maintained a controlling presence on the board of directors but continued invisibility in daily management. This was accomplished in part by bringing in GM's reliable Danish chief, Albin Madsen, and maintaining two Americans on that board.
The company's 1939 annual report, released in April 1940, stated: "With full recognition of the responsibility that the manufacturing facilities of Adam Opel A.G. must now assume under a war regime, the Corporation has withdrawn the American personnel formerly in executive charge… and has turned the administrative responsibilities over to German nationals."
However, GM was still masquerading. By the summer of 1940, a senior GM executive wrote a more honest assessment for internal circulation only. He explained that while "the management of Adam Opel A.G. is in the hands of German nationals," in point of fact, GM is still "actively represented by two American executives on the Board of Directors."
The construction and German-American balance of the many management entities created in the facade of control was constantly shifting during the Hitler years. But regardless of the number of members - German or American - on the various directing, managing or executive boards and committees, GM in the United States controlled all voting stock and could veto or permit all operations.
For all intents and purposes, though, once war began, Wehrmacht requirements and orders determined the specifics of military manufacturing at Opel. Like any nation at war, including the United States itself, the Reich alone determined what weapons would be made by its militarized factories. That said, it was GM's decision to remain operating in Germany, to continue to subject itself to Reich military orders, and answer the Reich's call for ever more lethal weapons.
As anticipated, Opel's Brandenburg facilities were conscripted and converted to an airplane-engine plant supplying the Luftwaffe's JU-88 bombers.
Later, Opel's plants also built land mines and torpedo detonators. The factories and infrastructure that GM built during the 1930s were in fact finally used for their intended purpose - war. Opel-built trucks on the ground, Opel-powered bombers in the sky and Opel-detonated torpedoes in the seas brought terror to Europe.
Back in the United States, Sloan tried to obstruct FDR's war preparedness planning. The GM chief tried to dissuade GM executives with needed manufacturing and production experience from helping Washington's early mobilization plans. In one typical 1940 case, Sloan asked Danish-born William Knudson, who had ascended to become president of GM, not to leave the company and help Washington's war efforts. Sloan, who had become chairman of the company in 1937, warned his friend that the Roosevelt administration would make a "monkey out of you." Knudson replied, "That isn't important, Mr. Sloan. I came to this country [from Denmark] with nothing. It has been good to me.
Rightly or wrongly, I feel I must go." Sloan retorted, "That's a quixotic way of looking at it." By mid-1940, with or without Sloan's acquiescence, GM had been drafted by Washington to become a major war supplier for the Allies. Sloan had no choice but to comply, and GM and its employees would ultimately make enormously valuable contributions to the Allied war effort.
In June 1940, Sloan brought Mooney back to America to head up GM's key participation in America's crash program to prepare for war. He was installed as an assistant to the new GM president to take "full charge of all negotiations [with Washington] involving defense equipment …" Mooney's mere appointment sent shivers through the anti-Nazi boycott and protest committee, which well remembered his 1938 medal for what the Nazis had termed "service to the Reich."
Collusion but no disloyalty
In June 1940, about the same time Mooney returned to America, Sloan wrote to a colleague, expressing disdain for FDR's democracy while grudgingly acknowledging his admiration for Hitler's fascist drive, even if that drive had become criminal.
"It seems clear that the Allies are outclassed on mechanical equipment," Sloan wrote, "and it is foolish to talk about modernizing their Armies in times like these, they ought to have thought of that five years ago. There is no excuse for them not thinking of that except for the unintelligent, in fact, stupid, narrow-minded and selfish leadership which the democracies of the world are cursed with." Sloan added a poignant contrast: "… But when some other system develops stronger leadership, works hard and long, and intelligently and aggressively - which are good traits - and, superimposed upon that, develops the instinct of a racketeer, there is nothing for the democracies to do but fold up. And that is about what it looks as if they are going to do." When at the end of 1940 the White House began to insist that GM break off relations with Latin American car dealers suspected of being pro-Nazi, Sloan defiantly refused. He lashed out at Washington, accusing it of protecting Communists at home while focusing on GM dealers in South America. "I have flatly declined to cancel dealers," Sloan wrote in April 1941 to Walter Carpenter, a GM board member and vice president of du Pont.
Days later, on April 18, 1941, Carpenter retorted, "I think that General Motors has to consider this problem from three standpoints; first, from the commercial, second, the patriotic and, third, the public relations standpoint....We are definitely a part of the nation here and our future is very definitely mingled with the future of this country. The country today seems to be pretty well committed to a policy opposite to Germany and Italy." Carpenter continued with a blunt warning.
"If we don't listen to the urgings of the State Department in this connection," he said, "it seems to me just a question of time... The effect of this will be to associate the General Motors with Nazi or Fascist propaganda against the interests of the United States...The effect on the General Motors Corporation might be a very serious matter and the feeling might last for years."
A few weeks later, in May 1941, a year-and-a-half after World War II broke out, with newspapers and newsreels constantly transmitting the grim news that millions had been displaced, murdered, or enslaved by Nazi aggression and that London was decimated by the Blitz bombing campaign, Sloan, then in his mid-60s, told his closest executives during a Detroit briefing: "I am sure we all realize that this struggle that is going on though the World is really nothing more or less than a conflict between two opposing technocracies manifesting itself to the capitalization of economic resources and products and all that sort of thing." He then continued in a rambling, incoherent fashion, trying to further justify the company's Nazi business dealings.
By now, Assistant Secretary of State Adolf Berle, whose portfolio included the investigation of Nazi fronts and sympathizers in Latin America, had had enough of Sloan and GM executives. Berle circulated a memo asserting "that certain officials of General Motors were sympathetic to or aligned with some pro-Axis groups....That this is [a] 'real Fifth Column' and is much more sinister than many other things which are going on at the present time." Berle called for an FBI investigation.
The FBI's probe of GM senior executives with links to Hitler found collusion with Germany by Mooney, but no evidence of any disloyalty to America. The Aug. 2, 1941, summary of the investigation clearly listed Sloan in the title of the report, but Mooney's was the only name mentioned in the investigative results. However, in a separate report to FBI director J. Edgar Hoover, the agent stated, "No derogatory information of any kind was developed with respect to Alfred Pritchard Sloan Jr."
Opel's friendly Nazi custodian
On December 7, 1941, Pearl Harbor was bombed. The United States declared war on Japan. On December 11, German diplomats in Washington called at the State Department to deliver Germany's declaration of war against America. All direct communications between GM and its Opel subsidiary in Germany were necessarily severed, although historians have always wondered about indirect links through Denmark where GM operated a longtime subsidiary. Ranking GM men from Denmark were also in ranking positions both in Opel in Germany and GM in America.
After Germany declared war on America, all American corporate interests in Germany or under German control were systematically placed under the jurisdiction of a Reich-appointed "custodian" for enemy-owned property. In practice, the "custodian" was akin to a court-appointed receiver. Generally, the Reich custodian's duty was not to dismember the firm or Aryanize it, but to continue to run the enterprise as efficiently and profitably as possible, holding all assets and profits in escrow until matters would be resolved after the war. This generally meant reappointing members of the pre-existing management team, although these managers no longer reported directly to their American masters in the United States.
In the case of Opel, Carl Luer, the longtime member of the Opel Supervisory Board, company president and Nazi Party stalwart, was appointed by the Reich to run Opel as custodian, but only some 11 months after America entered the war. In anticipation of the outbreak of hostilities, GM had appointed Luer to be president of Opel in late 1941, just before war broke out.
In other words, the existing GM-approved president of Opel continued to run Opel during America's war years. The company continued as a major German war profiteer, and GM knew its subsidiary was at the forefront of the Nazi war machine. An August 27, 1944, New York Times article detailed that Opel was the principal target of a 1,400-plane RAF bombing mission because its 35,000-worker plant was turning out crucial military transport and was known to be developing rocket technology.
In the wartime months and years that ensued, 1941-1945, GM built and operated some $900 million worth (about $120 billion in today's dollars) of defense manufacturing facilities for the Allies. Almost all of the company's undertakings were propped up by federal programs that guaranteed profit and "cost-plus" contracts, various subsidies, tax benefits and other incentives then available to defense contractors to produce goods for the war effort. Secretary of War Henry Stimson later explained that when a capitalist country wages war, "you have got to let business make money out of the process, or business won't work." Gen. Lucius Clay, who oversaw war materiel contracts, confessed, "I had to put into production schedule the largest procurement program the world had ever seen. Where would I find somebody to do that? I went to General Motors."
GM also reaped the financial benefits of its relationship with the Third Reich. During the pre-war Hitler years, GM entered its Opel proceeds under "reserves" instead of listing the profits as ordinary income. Then during America's war years GM declared it had abandoned its Nazi subsidiary, and took a complete tax write-off under special legislation signed by Roosevelt in October 1942. The write-off of nearly $35 million created a tax reduction of "approximately $22.7m." or about $285b. in 21st-century money, according to an internal Opel document.
But Opel's friendly Nazi custodian, Carl Luer, kept on making profits for the company during those war years. Opel produced trucks, bomber engines, land mines, torpedo detonators and other war materiel, a significant amount of it by the sweat of thousands of prisoner laborers or other coerced workers; some of those workers were tortured if they did not meet expectations. Those profits and GM's 100 percent stock ownership were preserved by the Reich custodian, even though GM and Opel ostensibly severed ties with each other after America entered the war.
During the Hitler years, many of those excess profits were used to acquire other companies and properties, only increasing Opel's assets in Germany. After the war, starting in 1948, GM began regaining control over Opel operations and eventually its monumental assets as well as blocked dividends. GM also collected some $33m. in "war reparations" because the Allies had bombed its German facilities.
After the defeat of Berlin, GM and its executives, including those who joined the government in Washington, then steered America toward its gargantuan postwar boom. That boom was in large measure powered by the constellation of direct and indirect economic benefits delivered by the US automobile industry.
The Transit Scam
Ironically, while GM was mobilizing the Third Reich, the company was also leading a criminal conspiracy to monopolistically undermine mass transit in dozens of American cities that would help addict the United States to oil.
The war in Europe had only been over for 16 months when on October 2, 1946, a memo from the Department of Justice landed on the desk of J. Edgar Hoover, outlining the elements of the GM conspiracy.
At the center of the conspiracy was National City Lines, an Enronesque company that suddenly arose in 1937, ostensibly run by five barely educated Minnesota bus drivers, the Fitzgerald brothers. Yet the Fitzgeralds miraculously marshaled millions of dollars to buy up one failing trolley system after another. Soon, through a patchwork of subsidiaries, the brothers owned or controlled transit systems in more than 40 cities. Generally, when National City Lines acquired the system, the tracks were pulled from the street, the beloved electric trolleys were trashed or burned, and the whole system was replaced with more expensive, unpopular and environmentally hazardous motor buses that helped addict America to oil.
The Justice Department discovered that National City Lines was just a front company for General Motors, in league with Mack Truck, Phillips Petroleum, Standard Oil of California and Firestone Tires - all petroleum interests. The companies became the major preferred stockholders of National City Lines, but operated behind the scenes.
The scheme worked this way: The manufacturers purchased NCL preferred stock to acquire transit lines on condition that when the systems were acquired, the trolleys would be dismantled and replaced with motor buses. That is exactly what happened. All the conspirators gained immensely when non-polluting electric systems were replaced by oil-burners. Phillips and Standard sold oil products. Firestone sold the tires. GM and Mack divvied up the bus manufacturing and sales market according to an agreed-upon formula.
Transit systems in 16 states were converted, adversely affecting millions of Americans, who had to pay higher fares for lesser, more unpopular service. Dozens more cities were targeted in the $9.5m. scheme.
In April 1947, indictments alleging two counts of criminal conspiracy were handed down against General Motors, Mack Truck, Phillips Petroleum, Standard Oil of California and Firestone Tires, as well as against numerous key executives of the companies.
The defendants were found guilty on one of the two counts: conspiring to monopolize the bus business by creating a network of petroleum-based transit companies that were forbidden to use transportation or technology products other than those supplied by the defendants themselves. The jury found the defendants not guilty on the count alleging a conspiracy to actually control those transit systems. On April 1, 1949, the judge handed down his sentence: a $5,000 fine to each corporate defendant except Standard, which was fined $1,000. As for National City Lines, president E. Roy Fitzgerald and his co-conspirators at GM and the other companies, they too were fined. Each was ordered to "forfeit and pay to the United States of America a fine in the amount of one dollar." The cases were appealed - even the one-dollar penalties - all the way to the United States Supreme Court, which allowed the convictions to stand. The government filed a civil action against the same circle of companies trying to stop their continued conduct. But the government was unsuccessful. Undaunted, National City Lines and its many subsidiaries continued into the 1950s to acquire, convert and operate urban transit systems using evolved methods.
Edwin Black is the author of the award-winning IBM and the Holocaust and the recently published Internal Combustion: How Corporations and Governments Addicted the World to Oil and Derailed the Alternatives.
