Of the corporate giants born in the U.S. in the years after World War II, none grew so fast or so far as General Dynamics, now the 15th largest U.S. industrial company and the world's biggest privately owned military manufacturer. Big as it was, General Dynamics never really fused into a cohesive managerial or financial unity. And last week the fledgling giant was in sore trouble.
Barely four years ago, General Dynamics seemed the paragon of the U.S. defense business, a precocious infant that had come from nowhere to rack up earnings of $44 million on sales of $1.6 billion —figures that put it neck and neck with long-established Boeing. But by 1960, the company's once respectable profits had turned into a $27 million loss, and in 1961 the company's net losses hit $40 million in the first nine months alone. But the most staggering statistic about General Dynamics was that in its efforts to break into the commercial jet market, the company had suffered the biggest single product loss—$425 million—in the history of U.S. business.
The Inheritor. General Dynamics was put together in barely five years by John Jay Hopkins, an audacious, hard-living lawyer turned financial genius, who started off in 1947 with Connecticut's venerable submarine-building Electric Boat Co. as his base. Acquiring companies left and right in an effort to span the entire range of military hardware from submarines to missiles, Hopkins ran General Dynamics with scant organization and largely by the force of his own personality. This month, in the first of two articles called "How a Great Corporation Got Out of Control," FORTUNE relates how Hopkins, aware that his reputation as a hard drinker had lost him the Pentagon's confidence, brought in as his operating deputy a fellow lawyer who had made his career in government: Arkansas-born Frank Pace, previously Director of the Budget and Harry Truman's Secretary of the Army.
In April 1957, four days before Hopkins died of cancer, General Dynamics' directors, in defiance of Hopkins' wishes, elected Pace chairman of the company. When Pace took over, Hopkins had already committed General Dynamics to enter the commercial jet market with its Convair 880. Pace was enthusiastic about the plane too. "When the Government is awarding military contracts," he explains, "it looks with favor on a company with successful commercial accomplishments."
A Matter of Tailoring. Economically, the 880 was an ill-starred plane. Convinced that it would be first on the market with a medium-range jet, General Dynamics' Convair Division tailored the plane to the specifications of its first customer, unpredictable Industrialist Howard Hughes, who ordered 30 of the 880s for TWA. But when the planes were ready, it took Hughes a year to raise the money to pay for them. In the meantime, Convair lost an order for eleven more 880s from United Air Lines, which switched to a plane that Boeing had hastily tailored to United's own wishes, the 720.