General Dynamics Corporation
Address:
3190 Fairview Park Drive
Falls Church, Virginia 22042-4253
U.S.A.
Telephone: (703) 876-3000
Fax: (703) 876-3125
Statistics:
Public Company
Incorporated: 1925 as Electric Boat Company
Employees: 30,500
Sales: $3.19 billion
Stock Exchanges: New York Chicago Pacific
SICs: 3721 Aircraft; 3761 Guided Missiles and Space Vehicles; 3728 Aircraft Parts and Equipment, Nec.; 3812 Search and Navigation Equipment; 3483 Ammunition, Except for Small Arms, Nec; 3731 Ship Building and Repairing; 3795 Tanks and Tank Components
Company History:
General Dynamics' contribution to the defense industry, through the production of nuclear submarines and armored vehicles, was identified by the federal Department of Defense as crucial to the U.S. Defense Industrial Base. The company also maintained interests in coal mining, ship management, and ship financing.
General Dynamics has a long history in weapons production, originating in the late nineteenth century with an Irish-American inventor named John Holland. Associated with the Fenians, a secret New York City organization sympathetic to the struggles of the Irish nationalists, Holland was commissioned to construct a submarine capable of destroying British naval vessels. While previous submarine designs had been attempted by other inventors, none were effective warships, and, in fact, several of Holland's first submarines sank. Moreover, his ill-conceived attempts at secrecy soon drew the attention of American law enforcement authorities, who prevented Holland from achieving his mission for the Fenians. Nevertheless, Holland remained interested in building a viable submarine, and, toward that end, he founded the Electric Boat Company in 1899, with financial backing from investors that later would include various members of Congress.
Once he developed a prototype, Holland had difficulty finding a market for his submarine, as the U.S. Navy wasn't initially interested in the project. Then, lawyer, financier, and battery and electronics magnate Isaac Leopold Rice offered to finance the development of subsequent Holland submarines in return for an interest in Electric Boat. Holland was persuaded to relinquish his patent rights and management authority to Rice, who successfully made sales to the U.S. Navy and several other foreign naval services. However, Holland effectively lost control of the company and found himself earning a salary of $90 per week as chief engineer, while the company he founded was selling submarines for $300,000 each.
Electric Boat gained a reputation for unscrupulous arms dealing in 1904-05, when it sold submarines to Japan and Russia, who were then at war. Holland submarines were also sold to the British Royal Navy through the English armaments company Vickers. Submarines, which had once been denounced in Britain as "damned un-English"--considered too sly and cowardly for use in a proper gentleman's war--were now legitimized as genuine naval weapons by the world's most powerful navy.
During this time, Holland lost patience with Rice and resigned in protest at being excluded from his company's affairs. A frail man plagued by a respiratory condition since birth, Holland died shortly thereafter in 1914. He was replaced as chief engineer by Lawrence Spear who, in close association with Vickers, redesigned the Holland submarine. Speed was improved, a conning tower and periscope replaced the Holland observation dome, and torpedo tubes were incorporated for the first time. The full potential of the submarine, however, was not fully recognized until World War I, when German U-boats caused serious disruptions in British shipping.
Isaac Rice died in 1915 and was replaced by his associate Henry Carse. Under Carse, Spear was given greater control over the company's operations. Electric Boat had a substantial backlog of profitable orders and was financially strong enough to purchase several companies, including Electro Dynamics (involved in ship propulsion), Elco Motor Yacht (builders of pleasure boats), and New London Ship & Engine of Groton, Connecticut (manufacturers of diesel engines and civilian ships). The company's name was changed to the Submarine Boat Corporation.
When the United States became involved in World War I, Carse made the crucial decision to devote the company's resources to the construction of disposable cargo vessels rather than submarines. Eventually realizing his mistake, Carse began to retool for submarine production; however, before the process could be completed, the war had ended, and the company had lost a great deal of money. Moreover, the U.S. Navy then decided to devote most of its reduced postwar budget to surface ships. Faced with bankruptcy, Carse reorganized the company, emphasized production of surface ships, and brought back the Electric Boat name.
On the eve of World War II, the business practices of Electric Boat came under investigation by the U.S. government and several independent groups; the company was accused of being a "financial beneficiary" of foreign wars. Electric Boat was also found to have inadvertently given design secrets to officials of the increasingly hostile government of Japan. In an investigation led by Senator Gerald Nye, Electric Boat was accused of profiteering, graft, and unethical business practices. Carse responded that, because the U.S. Navy had suspended all major contracts for ten years, Electric Boat had been forced to deal with foreign governments--many of which were corrupt--in order to remain financially solvent.
During this time, the German re-militarization and hostile Japanese activities forced the Roosevelt Administration to reassess its position on military preparedness. Consequently, the government placed orders for submarines and PT (patrol/torpedo) boats from Electric Boat facilities at Groton and the Elco plant in New Jersey. The new orders led to the revitalization of Electric Boat, now led by John Jay Hopkins, appointed by the retiring Lawrence Spear, who himself had taken over when Henry Carse retired. While Spear continued to offer advice from his retirement, Hopkins was thoroughly in charge and fully responsible for the company's strong re-emergence.
Following the American declarations of war against the Axis powers, Electric Boat and its Elco Yacht and Electro Dynamic subsidiaries mobilized for production at full capacity. This sudden expansion in output caused a serious labor shortage, which was filled by women, who took jobs as welders and riveters. During the war, the Electric Boat companies produced hundreds of submarines, surface ships, and PT boats, contributing greatly to the success of island fighting in the Pacific. When the war ended in 1945, the Navy reduced its orders for new vessels. Only 4,000 of the company's 13,000 wartime employees were retained after the war, and Electric Boat stock fell in value from $30 per share to $10.
As a result, Hopkins initiated another reorganization of Electric Boat, which included a diversification into related commercial and defense industries. Electric Boat purchased Canadair from the Canadian government for $22 million. Canadair produced flying boats and modified DC-4s during the war, but had greatly diminished sales during peacetime. A series of events, including the Berlin Blockade, Soviet detonation of an atomic bomb, and the war in Korea, stimulated demand for new aircraft, including the T-33 trainers, F-86 Sabres and DC-6's built under contract by Canadair. By the early 1950s, Canadair's success began overshadowing that of Electric Boat; some business advisers even suggested that Canadair purchase Electric Boat and operate it as a subsidiary.
With substantial profits from its Canadair subsidiary, Electric Boat purchased Convair from the Atlas Corporation. Convair manufactured a variety of civilian and military aircraft, including the 440 passenger liner, F-102 and F-106 fighters, Atlas and Centaur rockets, and the B-24, B-36, and B-58 Hustler bombers. On February 21, 1952, a new parent company called General Dynamics was established to manage the operations of Convair, Canadair, and Electric Boat.
Convair led the development of the American nuclear aircraft program, enthusiastically supported by the Pentagon. CEO Hopkins was a strong advocate of nuclear power and its numerous applications, but the nuclear airplane, or "N-bomber," was later found to be impractical, and the project was abandoned. Electric Boat enjoyed greater success with nuclear power; in 1955 it launched the first nuclear submarine, the Nautilus.
The company's development of commercial jetliners came near the end of Hopkins' tenure. While Douglas and Boeing were developing their DC-8 and 707 passenger jets, Convair was unable to introduce its jetliner because the company was delayed by contractual obligations to TWA and its eccentric and intrusive majority shareholder Howard Hughes. Specifically, Convair was bound to incorporate numerous design changes suggested by Hughes. As the result of a financial crisis that postponed TWA's purchase of jetliners, and eventually forced Hughes out of TWA, Convair was unable to recover from the delayed entry of its 680 and 880 models into the jetliner market. General Dynamics was forced to write off the entire passenger liner program with a $425 million loss.
The financial position of General Dynamics was so seriously weakened by the Convair jetliner program that the company was targeted for a takeover by Henry Crown, a Chicago construction materials magnate. Crown offered to merge his profitable Material Services Corporation with General Dynamics in exchange for a 20 percent share of the new company's stock, and the proposal was accepted in 1959. Two years later, Crown appointed Roger Lewis as chairperson of General Dynamics. Under Lewis, General Dynamics purchased the Quincy shipbuilding works from Bethlehem Steel in 1963 for $5 million. Quincy was then an outdated facility requiring costly improvements but held promise as a builder of surface ships.
In the early 1960s, the U.S. Defense Department invited American defense contractors to bid for the production of a new aircraft, the F-111, slated to replace the Department's aging fleet of B-52 bombers. General Dynamics entered the competition in partnership with the Grumman Corporation, against a design submitted by Boeing. Even though many regarded the Boeing F-111 as the better built and the more capable plane, the General Dynamics/Grumman version was consistently declared superior by Pentagon officials and industry experts. An investigation of impropriety in the selection process was interrupted when President Kennedy was assassinated in November 1963 and was not concluded until 1972.
General Dynamics continued to develop its version of the F-111 at its Convair facility in Fort Worth, Texas. The Air Force and Navy amended their design specifications and requested the addition of so many devices that the prototype could barely fly. With its utility as a replacement for the B-52 greatly diminished, the aircraft's role was reassessed, and the project was eventually identified by congressional critics as an example of gross mismanagement, organizational incompetence, and financial irresponsibility. The F-111 project consumed an inordinate amount of the defense budget and delayed by six years the introduction of Grumman's similar--and in many ways superior--F-14 Tomcat.
In 1966, Lewis removed Crown from the company by repossessing his 18 percent share of non-voting company stock. Crown was paid $120 million for his shares, but lost control of both General Dynamics and Material Services Corporation. Over the next few years, Crown continued to purchase substantial numbers of shares of voting stock, expanding his interest until he emerged in 1970 with control over the board of directors. Lewis was summarily fired and replaced by David Lewis (of no relation). Crown subsequently moved the company from New York to St. Louis in February 1971.
That year, the Electric Boat division of General Dynamics and its chief competitor, Newport News Shipbuilding, were awarded contracts to manufacture a new submarine, the 688, or Los Angeles class. Two years later, General Dynamics hired Takis Veliotis to take charge of the Quincy shipbuilding yard. Once in charge at Quincy, Veliotis concluded an agreement to build liquified natural gas tankers in conjunction with a cold storage engineering firm called Frigitemp.
During this period, the Defense Department announced a $200 million competition for the production of a new jet fighter. Careful to avoid the problems which plagued the F-111, General Dynamics initiated its development of the F-16. The F-16 program closely followed its development and budget schedules, and the first prototype exceeded specifications.
Although it was apparently chosen over the Northrop F-17 Cobra, the F-16 faced an unexpected challenge from McDonnell Douglas' independently developed F-15 Eagle. The lower-priced F-15 took a significant portion of the fighter market away from General Dynamics. However, the U.S. government compensated General Dynamics by promoting sales of the F-16 to NATO countries and other American allies. Canadair, which manufactured aircraft for Commonwealth countries, was sold back to the Canadian government in 1976 for $38 million.
The following year, Admiral Rickover publicly berated Electric Boat for poor workmanship and cost overruns on 18 Los Angeles class submarines. Rickover was particularly upset about the U.S. Navy's contractual obligation to absorb a large portion of the overruns, which were running as high as $89 million per vessel. A dispute then arose between the Defense Department and Electric Boat, wherein Electric Boat threatened to halt production of the submarines unless its share of the losses were covered as well. General Dynamics sought the protection of Public Law 85-804, which was originally intended to protect "strategic assets," such as Lockheed and Grumman, from bankruptcy due to cost overruns.
General Dynamics won a settlement from the Pentagon but soon realized that its problems at Groton were not merely financial. Productivity was seriously compromised by absenteeism and an employee turnover rate of 35 percent. Management lost control over inventories, and poor workmanship resulted in costly reconstruction. In October 1977, David Lewis transferred Takis Veliotis from Quincy to Groton, with instructions to reform the operation. Within months Veliotis had restored discipline, efficiency, and financial responsibility at Electric Boat.
Veliotis left Electric Boat in 1981 to take a seat on the General Dynamics board of directors and to serve as international salesperson and "company ambassador." Later that year, however, Veliotis resigned in protest over a dispute with David Lewis, whom Veliotis claimed had promised him the position of chief executive officer. Soon thereafter, Veliotis was indicted by government prosecutors for illegal business practices. He fled to Greece, maintaining that he had possession of damaging evidence of fraudulent overcharges made by General Dynamics.
In 1982, General Dynamics purchased the Chrysler battle tank division, with plants located in Warren, Michigan, and Lima, Ohio. The division, renamed Land Systems, had already secured a government contract to build the Army's next main battle tank, the M-1. Developed in response to newer Soviet tanks such as the T-72, the M-1 was to be powered by a jet turbine and capable of speeds of up to 50 miles per hour. The M-1 also included a computer-guided gun-aiming mechanism designed to assure a high degree of accuracy while the tank was traveling over rough terrain at high speeds.
When the first M-1 prototypes were delivered from Land Systems, several basic design flaws were noticed by Pentagon officials. First, exhaust from the engine was so hot that infantry could not come near the tank for cover under fire. Moreover, the M-1 was fast but prone to breakdown, and it required so much fuel that logistical support became questionable. Finally, the M-1's ammunition bay was too small to carry more than 40 shells. Critics recommended that the M-1 project be canceled in favor of its predecessor, the durable, battle-tested M-60. During this same period, General Dynamics won a government contract to service and maintain TAKX supply ships for the American Rapid Deployment Force.
During this time, Lewis and other company officials were called to testify before a congressional subcommittee, which suggested that the company had overcharged the government for supplies and personal expenses. The proceedings initiated separate investigations by the Justice Department and the Internal Revenue Service. Soon after Admiral Rickover was involuntarily retired by Navy Secretary John Lehman, General Dynamics was awarded a government contract to manufacture a number of new boats, including the $500 million Ohio class Trident submarine. The contract eliminated many of the company's disputed charges to the Pentagon and, as a result, led to the cessation of the congressional investigation. Wisconsin Senator William Proxmire criticized these developments by remarking that "defense contractors like General Dynamics have so much leverage against the government they can flout the laws that govern smaller companies and individuals."
David Lewis retired in 1985 and was replaced by Stanley C. Pace, formerly head of TRW. Oliver Boileau, president of General Dynamics, was passed over for the position at the insistence of the board of directors and the Crown family, all of whom wished to see an end to the policies of Lewis and his protégés. Pace made several changes at General Dynamics, even before Lewis had left the company. He sold the Quincy shipyard and founded a new division called Valley Systems, established to win contracts for the Reagan Administration's Strategic Defense Initiative. Pace also helped clean up General Dynamics' image by instituting an ethics program, which resulted in the firing of 27 employees.
Several external forces helped shape the conduct of business at General Dynamics in the late 1980s and early 1990s. The USSR's collapse revealed it a much weaker military foe than had previously been believed. The subsequent end of the Cold War soon brought Congressional and public pressure to cut domestic defense budgets. These factors compelled General Dynamics to transform itself into a smaller, more focused company with a higher concentration of international sales. The Persian Gulf conflict helped boost General Dynamics' tank and F-16 fighter sales to Turkey, Egypt, and Saudi Arabia and opened Middle East markets to the military manufacturer.
In January 1991, William A. Anders was assigned to reorganize General Dynamics according to the new market realities. He assumed the chief executive office, while Stanley Pace took a seat on the company's board of directors. Anders' strategy in the face of industry changes was to cut employees, trim research and development, divest peripheral businesses, and reduce capital spending. By June 1992, Anders had cut 25 percent of the work force (24,800 employees) and put $1.7 billion in assets up for sale. Gains from divestments were rolled back to shareholders, and, by 1993, almost $600 million in debt was paid, which helped boost the company's share price. General Dynamics, which had suffered a $578 million loss in 1990, recovered to realize a $305 million profit the following year.
Despite the improving financial picture, General Dynamics came under criticism from the Pentagon and Department of Defense for a lucrative executive Gain-Sharing plan that was tied to increases in the company's share price. In 1991 alone, as General Dynamics whittled away at its employee roster, Business Week reported that 25 top managers received $18 million in incentive bonuses.
Anders pronounced the transformation of General Dynamics complete in 1993's annual report. After selling its Texas aircraft operations to Lockheed for $1.5 billion, the company emerged with two primary business segments: nuclear submarines and armored vehicles. The corporate work force had shrunk from about 86,000 in 1991 to 30,500 in 1993, and debt decreased 94 percent during the period. Government contracts still comprised 94 percent of the company's annual sales, which remained essentially flat over the reorganization period. Operating earnings, however, increased by $98 million, from $211 million in 1991 to $309 million in 1993. That year, Anders relinquished the chief executive office to former president James Mellor and assumed General Dynamics' chair as a transitional measure through April 1994.
Principal Subsidiaries: Electric Boat Division; Land Systems Division; American Overseas Marine Corporation; Freeman Energy Corporation.
Further Reading:
Coulam, Robert F., The Illusion of Choice: The F-111 and the Problem of Weapons Acquisition Reform, Princeton, N.J.: Princeton University Press, 1977.
Ellis, James E., "Layoffs on the Line, Bonuses in the Executive Suite," Business Week, October 21, 1991, p. 34.
Franklin, Roger, The Defender: The Story of General Dynamics, New York: Harper, 1986.
Goodwin, Jacob, Brotherhood of Arms: General Dynamics and the Business of Defending America, New York: Random House, 1985.
Tyler, Patrick. Running Critical: The Silent War, Rickover and General Dynamics, New York: Harper, 1987.
Source: International Directory of Company Histories, Vol. 10. St. James Press, 1995.
