General Motors' Greatest Innovation? Not Cars, Credit

Sorry to disappoint all of you who think that the two-person Segway is the most innovative thing GM has produced in its long history — it seems that the company’s most important new idea was consumer credit. More specifically, convincing a nation of thrifty debt-averse tightwads that taking on debt was socially acceptable. Yes, it’s true. We weren’t always a bunch of debt junkies.

From Marketplace Money:

Here’s how GM helped spawn the America way of debt. In 1919 GM was trying to catch up with the world’s No. one automaker.

Music: The little old Ford, it rambled right along, the little old Ford rambled right along…

Henry Ford’s Model-T was plain, simple and relatively cheap. It came in one color: black. To buy one, you paid cash up front. GM cars were more colorful, and more stylish and more expensive. David Farber says GM gained on Ford by starting a credit war.

FARBER: General Motors creates automobile loans. 1919, 1920, they create the General Motors Acceptance Corporation. And that allows people to buy more expensive cars — by going into debt.

Henry Ford didn’t like the idea of offering cars on credit, and resisted.

Henry Ford thought he knew the American consumer better than executives at GM. But David Farber says Ford couldn’t quite see that attitudes about credit and debt were changing.

Farber: You had a country in some ways based on the virtues of avoiding luxury, avoiding debt, of being thrifty, and then suddenly in the 20th century as manufacturers are able to produce so many goods they begin to wrestle with the possibility that well, maybe it’s good to go into debt. Maybe it’s good to have luxury items

Autos spurred the credit boom [Marketplace Money]
(Photo:alyates44)