General Dynamics Corporation

Pierre Laclede Center
St. Louis, Missouri 63105
U.S.A.
(314) 889-8200

Public Company
Incorporated: 29 May 1925 as Electric Boat Company
Employees: 92,600
Sales: $8.892 billion
Market value: $3.273 billion
Stock Index: New York

General Dynamics is one of several American companies that manufacture aircraft. It is one of two submarine builders and the only manufacturer of battle tanks in the United States. The company has a long history in weapons production, a history that originates with an Irish-American inventor named John Holland.

Holland was associated with the Fenians, a secret organization founded in New York City which was sympathetic to Irish nationalists trying to end British domination of Ireland. The Fenians commissioned Holland to construct a submarine capable of destroying British naval vessels. Previous submarine designs had been attempted by other inventors, but none were effective warships. Several of Holland’s first submarines sank. Before long his ill-conceived attempts at secrecy alerted American law enforcement authorities who prevented Holland from achieving his mission for the Fenians. In order to continue his work, Holland sought and later won support from various members of Congress. He arranged financial backing and on February 7, 1899 founded the Electric Boat Company.

Despite Holland’s good relationship with government officials, Electric Boat was unable to interest the U.S. Navy. Then a lawyer-financier and battery and electronics magnate named 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. 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 both Japan and Russia, who were at war. Holland submarines were sold to the British Royal Navy through the English armaments company Vickers (ironic, considering the company’s Fenian beginnings). Submarines, which had once been denounced in Britain as “damned un-English,” as too sly and cowardly for a proper gentleman’s war, were now legitimized as genuine naval weapons by the world’s most powerful navy.

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 afterward 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. Spear, who never liked Rice, was given greater control over the company’s operations under Carse. 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. Then, having realized his mistake, he began to retool for submarine production, but before the process could be completed the war had ended—as a result, the company lost a great deal of money. Then, the Navy decided to devote most of its reduced post-war 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 a number of independent groups; it 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 10 years, Electric Boat had been forced to deal with foreign governments (many of which were corrupt) in order to remain financially solvent.

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 a man named John Jay Hopkins. Hopkins was 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.

Electric Boat and its Elco Yacht and Electro Dynamic subsidiaries mobilized for production at full capacity following the American declarations of war against the Axis powers. The sudden expansion in output caused a serious labor shortage which necessitated the hiring of women as welders and riveters.

The Electric Boat companies produced hundreds of submarines, surface ships and PT boats during the war, 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 4000 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.

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 in importance 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 1950’s, Canadair’s importance overshadowed Electric Boat; their 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. 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% share of the new company’s stock. The proposal was accepted in 1959.

In the early 1960’s the U.S. Defense Department invited American defense contractors to bid for the production of a new aircraft, the F-111, with which the Department intended to replace its 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 the Boeing F-III was considered to be 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 of 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. The F-111’s utility as a replacement for the B-52 was greatly diminished. When the aircraft’s role was reassessed, the project was identified by congressional critics as an example of gross mismanagement, organizational incompetency, 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.

Under Roger Lewis, whom Crown had appointed chairman in 1961, General Dynamics purchased the Quincy shipbuilding works from Bethlehem Steel in 1963 for five million dollars. Quincy was an outdated facility requiring costly improvements, but held promise as a builder of surface ships.

Despite his having been appointed by Crown, Lewis removed Crown from the company in 1966 by repossessing his 18% 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. Thereafter, over a period of 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. Roger 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 of 1971.

In 1971 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 a successful but ruthless businessman named Takis Veliotis to take charge of the Quincy 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 much 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%. Management lost control over inventories, and poor workmanship resulted in costly reconstruction. In October of 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 board of directors, and to serve as international salesman and “company ambassador.” Later that year, however, Veliotis resigned in protest over a dispute with David Lewis, who Veliotis claimed had promised him the position of chief executive officer. The dispute deteriorated until Veliotis was indicted by government prosecutors for illegal business practices. He fled to Greece; he still claims to have 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, a number of basic design flaws were noticed by Pentagon officials. Exhaust from the engine was so hot that infantry could not come near the tank for cover under fire. 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 cancelled 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.

David Lewis and other company officials were called to testify before a congressional subcommittee about their alleged overcharges for simple items, such as hammers and coffee pots, as well as about billings for 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 proteges. Pace made a number of 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.

The future of General Dynamics under Pace is hard to predict. The company’s position as one of the world’s largest defense contractors guarantees for it some degree of stability. Although the company may lose money under adverse conditions, the United States government views General Dynamics as an indispensable resource, essential to national security.

Principal Subsidiaries

Datagraphix Inc.; Material Service Corp.; General Dynamics (hereafter “GD”) Manufacturing Ltd.; GD Export Sales Corp.; GD International Corp.; GD International Services Inc.; GD Services Co.; Pantheon Inc.; Electrocom Inc.; Fore River Railroad Corp.; GD Financial Corp.; GD Credit Corp.; Braintree Equity and Maritime Corp.; Patriot Shipping Corp.; General Dynamics Land Systems, Inc.; Mines SNA, Inc.

Further Reading

The Illusion of Choice: The F-111 and the Problem of Weapons Acquisition Reform by Robert F. Coulam, Princeton, Princeton University Press, 1977; Brotherhood of Arms by Jacob Goodwin, New York, Random House, 1985; The Defender: The Story of General Dynamics by Roger Franklin, New York, Harper, 1986; Running Critical: The Silent War, Rickover and General Dynamics by Patrick Tyler, New York, Harper, 1987.