From the 1948 book, The Legend of Henry Ford.
Alex Malcomson, a prosperous Detroit area coal dealer was on the point of investing a modest fortune in the automobile business. He had studied the rise of the Olds Motor Works. What Malcomson lacked for fulfillment of his plans in the fall of 1902 was some trustworthy automotive inventor and shop man who was still without a backer.
After several meetings, Malcomson and Ford decided to join forces permanently. They resolved to enter the automobile business, acting as co-founders of the Ford Motor Co., and spent the next seven months laying the groundwork for their project. In the meantime it was Ford’s job to build a suitable specimen car, one that would enable the company to gauge its first business commitments, and one that could stand up in competition with Cadillac, Oldsmobile and the other favorite models of the day. In this endeavor, Ford collaborated once more with his friend C. H. Wills. Malcomson was busy, meanwhile, with the financial and organizational problems of the proposed corporation.
The two founders of the Ford organization were hampered at the outset by a lack of capital. The “Ford” articles of incorporation as drafted by Malcomson’s lawyers, called for an issue of stock with a par value of $100,000. Such an investment greatly exceeded the combined personal wealth of Ford and his patron. Ford had little money. Malcomson, though the owner of a flourishing coal business, was only moderately well-to-do, and after he had mustered all the cash he could spare from his own business, additional funds had to be raised from outside sources.
The job of soliciting some minority shareholders fell, naturally, to Malcomson. The coal dealer had the necessary financial connections. He was an able and magnetic businessman. He, rather than Ford, had something to offer in the way of security. In his quest for investors he had an established business which he was willing to pledge to the limit.
So far as their own interests were concerned, Ford and Malcomson agreed to share and share alike in the fortunes of their venture. Each was to get 25% per cent of the company’s stock. Both were to sit on the board of directors, and the two men arrived at an understanding as to their administrative functionsonce the company became a going concern. Malcomson, as holder of the purse strings, was to serve as treasurer. Ford, as top man in the factory, was to be vice-president and general manager at a salary of $3000 a year or $250 per month.
Among the outsiders for whom a place had to be made in the Ford organization, the largest investor was John S. Gray, a Detroit banker and manufacturer. Wholly on the strength of his confidence in Malcomson, Gray consented to make a loan of $10,000 to the Ford Motor Co. In return for his risk, the banker was named director and president of the corporation. Ten per cent of the Ford stock was issued in his name. The security for his loan was a personal note signed by Malcomson.
|Left to right: Gray, Malcomson and Couzens.|
A second, and very minor, interest in the company went to Albert Strelow, a carpenter who ran a small wood-working business in a two-story frame building on Mack Avenue, close to the central business district of Detroit. Carried away by Malcomson’s glowing account of the future prospects of the automobile business, Strelow agreed to exchange his property for a small block of Ford shares. The result of this arrangement was that the Ford Motor Company got a plant witbout having to pay for it in cash. Such as it was, the Strelow shop became the first Ford factory.
It was in his negotiations with John and Horace Dodge that Malcomson did most to give the Ford Motor Company an auspicious beginning. The Dodge brothers were retained by him to serve as the chief suppliers of the Ford business. It was to be their job to build the motors and other key parts of the first Ford car. By entering into such an arrangement, Malcomson not only enlarged the plant facilities of the Ford company without having to spend his own funds, but he succeeded, as well, in capturing two top-notch executives who were already seasoned hands in the business.
Up until the time they combined their interests with Ford’s, the Dodges had been making parts for Olds in a good-sized machine shop of their own. Under the terms of their contract with the Ford Motor Company, they were to retain the ownership of their machine shop, John Dodge was to become a Ford director, and each of the brothers was awarded 5 per cent of the Ford shares. In breaking off their former connections, the Dodges, like banker Gray, were giving a vote of confidence to Malcomson, content with the fact that their contract bore Malcomson’s signature. With that guarantee, they began to retool their shop to meet the specifications of the Ford-Wills car, a full month before the actual incorporation of the Ford Motor Company.
|Machine shop operators John and Horace Dodge. In 1914 they started their own motor company.|
In the course of mortgaging his former business in order to found a new one, Malcomson was nettled by the fact that any direct supervision of the daily affairs of the Ford venture on his part would be out of the question. By the nature of things, his function was to protect his own credit and to look to the credit of the Ford Motor Company by concentrating on the coal business as never before. He determined, therefore, to make himself felt in the front office of the Ford company by proxy. For this purpose he selected James Couzens, one of his own employees whom he considered bright and energetic. By the time the Ford organization was ready to start operating, Couzens was installed as its secretary and business manager. His salary was set at $208 a month. While he was at it, Malcomson contrived to give his young “watchdog” of thirty-one, a personal stake in the business. At his instigation, Couzens was allotted 2½ per cent of the company’s stock.
Finally, and again at Malcomson’s insistence, two Detroit lawyers, John W. Anderson and Horace H. Rackham, were admitted into the circle of Ford shareholders. Rackham and Anderson were the attorneys who had drawn up the “Ford” papers of incorporation, having received for this service a fee of $25. Each was awarded a 5 per cent interest in the Ford Motor Company, and apparently neither man had to pay cash for his shares at the time they were set aside in his name. In using his influence to arrange such a concession, Malcomson may have been making only a friendly gesture, dropping a plum in the laps of two of his old business acquaintances. Rackham and Anderson were his personal attorneys. By giving preference to this pair, he was at the same time assured of getting free legal advice and of consolidating his I own position at the Ford Motor Company, for Anderson was promptly elected to a seat on the board.
Inasmuch as Malcomson paid the piper, he also seems to have called the tune in that the plans of the Ford corporation made no provision for rewarding any of Ford’s friends or business associates. Thus no stock interest and no key executive post was reserved either for Tom Cooper, who had subsidized the “999” race car and helped to establish Ford’s reputation by taking the “999” on tour, or for C. H. Wills, the co-designer of the car which Ford and Malcomson were about to manufacture. In the latter case, Ford had cause for some alarm. He was particularly anxious to retain Wills’ services as a draftsman and engineer. Wills was eager to work for him, but only on condition that he be given a stake in the company. What Ford hit on eventually, either out of necessity or as a matter of choice, was a private profit-sharing agreement. By word of mouth, he offered to split with Wills on a fixed percentage basis whatever personal profits he was to take out of the business. On the strength of this oral assurance, Wills agreed to go along.
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|When Ford was designing race cars, Barney Oldfield drove Henry Ford’s “999” race car.|
Largely at Malcomson’s dictation, then, the executive roster of the Ford Motor Company was drawn up in full shortly after the company’s incorporation in June, 1903. The directors of the corporation were Gray, Anderson, John Dodge, Ford and Malcomson. The company’s principal officers were Gray, president; Couzens, secretary and business manager; Malcomson, treasurer; and Ford, vice-president and general manager.
When the company finally opened its doors for business, its cash on hand was but a fraction of the $100,000 that represented the full nominal worth of the Ford securities. This discrepancy had several explanations. Fifteen per cent or more of the shares of the corporation had been withheld for future sale. Little or no cash had come from the minority stockholders who obtained their shares on credit, or for whom stock was set aside with the understanding that it could be paid for out of future earnings. Another set of Ford investors had paid for their holdings in kind rather than in cash. Strelow had given the corporation a factory; the Dodge brothers provided the benefit of their experience and the use of their machine shop; Ford gave his name, certain patent rights and the working model of a car. Thus it was chiefly from Gray and Malcomson that the company recruited its only liquid capital. This investment, representing the bulk of the issued Ford shares that were paid for in actual cash at the outset, was only $28,000.
In January 1904, Ford underwent his last and most famous trial as a racer. This time, however, he was no longer the amateur mechanic on the lookout for a financial sponsor, but rather, an established manufacturer who wanted to advertise his wares after the fashion of the period. The car Ford chose for the purpose was, again, the “999.” The course over which he proposed to race against time was a straight, cindered path laid out on the ice of Lake St. Clair. On this occasion Ford arranged to carry a passenger. He had had mechanical trouble with the device that controlled the supply of gasoline, and he was afraid that the throttle might freeze in position with the motor wide open, so he had Ed (Spider) Huff, one of his employees, lie on the running board with instructions to shut off the carburetor by hand once the car had passed the finish mark.
Speeding over the ice together, Ford and Huff established an unofficial world’s record. Traveling faster than 90 miles per hour they covered the distance of one mile in 39 2/5ths seconds. Ford and his companions then celebrated their feat on the spot. They built a fire on the ice, cooking and devouring with relish, a muskrat dinner.
Meanwhile the Ford Motor Co. had introduced its first product, the automobile designed by Ford and Wills. This car, unlike the racing models that Ford had fancied earlier, was eminently practical and relatively inexpensive. It was priced at $850. Its make-up was pictured in a piece of advertising matter which Couzens inserted in Motor World late in 1903. “The most reliable machine in the world,” read Couzens’ advertisement. “A two-cylinder car of ample power for the steepest hills and the muddiest roads, built to stand the severest strains. The same genius which conceived the world’s record maker—the ‘999’—has made possible the production of a thoroughly practical car at a moderate price.”
|Early Ford Motor Company ad.|
According to plan it was the Dodge brothers who were responsible for the actual construction of the first Ford cars. The motors and most of the parts that went into these models were assembled in their machine shed and then loaded into hay wagons for delivery to the Ford plant on Mack Avenue. All that was added at the Ford Motor Company proper for a year or more, were the tires and the finishing touches on the body.
In the meantime, Ford and Couzens hewed to the business pattern which Olds had laid down. They made every effort to shorten the process of final assembly, while working insofar as possible on the other fellow’s money. Like Olds, they took full advantage of a thirty to sixty-day credit extended by their suppliers. Before long, while waiting for their suppliers’ bills to fall due, they were in a position to meet their labor costs with the funds provided by their customers and dealers. So great was the demand for every make of car and for the Ford car in particular, that salesmen began to place their orders by flocking to the very doors of the Ford Motor Company, in many cases making cash deposits with the company in advance of actual delivery.
One of these enthusiastic dealers who became Ford’s first sales agent in New York City, was John Wanamaker, the department store magnate. Though no offense was intended, when Wanamaker first introduced the Ford car to his customers he put the new line of merchandise under the supervision of a clerk who up until that time had served the Wanamaker store as manager of its toy department.
Operating intelligently in a seller’s market and offering the public a reasonably priced and well-made car, the Ford Motor Company succeeded from the very beginning. In the first fifteen months of its existence, the company sold more than 1700 cars. At this point, after allowing for taxes and for such sums as were needed to expand the business, the Ford directors declared a cash dividend of $100,000. Their first profits, consequently, represented a return of more than 100 per cent on an original issue of stock, two-thirds of which had never been paid for in cash originally.
One result of such unforeseen prosperity was that two of Ford’s stockholders promptly lost their heads. First it was Strelow, the carpenter who had provided the company with its original factory site. Seized by a desire to speculate, Strelow disposed of his Ford holdings in 1905. He sold out to Couzens for $25,000 and reinvested his money in a gold mine in British Columbia.
Then Malcomson, reputedly a sage man of affairs, went off the deep end. He was so excited by his first quick success that, while retaining his Ford connection and continuing to operate a coal business with one hand, he tried to promote still another automobile simultaneously. He failed in the attempt. He overreached himself to a point where his creditors closed in.
Under duress and in order to stave off bankruptcy, in 1906 Malcomson had to sacrifice his Ford holdings. Ford and Couzens bought out his quarter-interest at a price of $175,000. In its fourth year, the Ford business was so highly regarded that the buyers had no difficulty in financing the transaction. At the bank where they borrowed the amount of the purchase price, Couzens and Ford endorsed one another’s notes. Dipping into profits, they retired their loan within the next nine months.
Thus, largely as a result of the Malcomson deal, control of the Ford Motor Co. passed into the hands of Ford and Couzens. Having raised his share from 25½ to 58½ per cent, Ford was now the company’s dominant stockholder. During the same process of readjustment, Couzens’ minority interest in the corporation had increased fourfold, from 2½ to 10 per cent.
This shift of power was accentuated, meanwhile, by the removal of still another of the original Ford investors. The year of Malcomson’s withdrawal was marked by the death of John S. Gray. None of the remaining stockholders was able to absorb Gray’s share at the time, and the banker’s heirs had no desire to sell. But in the course of filling Gray’s vacancy, Ford and Couzens tightened their hold on the managerial reins of the company. The presidency went to Ford. John Dodge was moved up to take Ford’s place as vice-president. Couzens, taking over the post vacated by Malcomson, was named secretary-treasurer.
Before the year 1906 had run its course, the remaining stockholders of the Ford Motor Co. had every reason for hugging their investment. With Ford in the shop and Couzens in the front office, the business was excellently managed.
The demand for the Ford product was so great that the company had been forced to expand its plant, moving into a new three-story building located at the intersection of Piquette Street and Beaubien. Having sold more than 5000 cars in a single season, the corporation had entrenched itself as one of the leading producers of the trade. It was fast becoming, in addition, a prodigious money-maker. Taken at their face value, the Ford securities had shown a net return of 310%. Within a four-year period they had yielded cash dividends amounting to $310,000.
As yet, however, the Ford Motor Co. was only on the fringes of its great success. For the company was still undecided as to the type of car which it considered best suited for the market. It was here that Henry Ford was to make his fortune as well as his greatest single contribution to modern times.
In the process of choosing between this or that possible model, the Ford management had to reckon with the customs of the period. It was the tradition of the trade at this time to cater, almost exclusively, to the relatively well-to-do. As a result the new automobile of 1906 was, without exception, a “luxury” product. It was heavy and cumbersome, often custom-built, and too expensive for the average person. With such a market, every automobile manufacturer in Europe and America seemed content. Dozens of motor car companies were rolling in money. To all appearances, there were enough wealthy buyers to go around.
During the first five years of its existence, the Ford Company experimented with eight different models. Each was designated by a different letter of the alphabet. Diverse in design, these cars were equally dissimilar in price. The original Ford model of 1903 sold, as Couzens had advertised, “at a modest price.” It had cost a hundred dollars more than the cheapest Oldsmobile.
Three years later, however, the company ordered an about-face. It tried its fortunes in the “luxury” field. During the season of 1905-1906, the cheapest Ford car cost $1000; the most expensive one, $2000. The effect on sales was disastrous. Business fell away sharply. The season’s profits dropped to $100,000, to one-third of the figure they had reached the previous year.
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Alarmed by this falling off of trade, the company hurriedly reversed its course. It lowered prices the following year. The effect on the business was magical. In the second half of 1906 and throughout the year 1907—despite the onset of a nation-wide panic—there were more Ford buyers than ever before. When other businesses had to close their doors, Ford made a net profit of one and one-quarter million dollars. Most of the credit for ordering such a successful and timely retreat from the “luxury” field must go to Ford. At any rate, the directors of the company were so gratified by their prosperity during a year of business depression that, in December 1907, they voted to raise the salary of their president and general manager from $300 to $3000 a month.
Early the following year Ford had the great inspiration of his life. At his insistence the company announced that henceforth it would limit its efforts to the production of a single, standardized, relatively inexpensive car. As Couzens was to relate years later, this epochal decision at the Ford Motor Company—to take up where Olds and Renault had left off—was Ford’s own. According to Couzens, Ford arrived at the idea on impulse and was just as abrupt in demanding its adoption as future company policy.
Actually, however, the new program had been taking shape in Ford’s mind for months, if not for years. For one thing it had already proved itself in dollars and cents. From 1905 through 1907 the company had demonstrated beyond any question that the lower the price, the higher would be the earnings. The shift to a uniform, popularly-priced model was fundamentally, therefore, common sense; it was an attempt to make a permanent thing of a combination that had worked best in the past from the standpoint of sales and profits.
In grasping this point ahead of his associates, Ford was not only the astute merchant; he was at the same time giving expression to his temperament both as a mechanic and as a one-time farmer. Here the best commentary comes from John Anderson, one of the cofounders of the company. Testifying at the Couzens’ tax hearings of 1927, Anderson read into the record some excerpts from a diary that he had kept during the formative years of the Ford Motor Company. Among other things this journal was a record of what Ford talked about when his plans for a “universal” automobile were coming to a jell.
From these notes it appears that the concept of a standardized car of relatively simple design, developed as a matter of course during Ford’s struggle to bring order out of chaos in the shop. Well before 1908 he told Anderson that their company could never hope to make a go of large-scale production until all its products were made as much alike as “pins or matches.”
Further, when Ford arrived at the idea of making a car for the masses, he was unquestionably influenced by his origins; he was thinking of his product, not from the standpoint of rich and sporting patrons, but in terms of his own people. Some time before 1908 he confided to Anderson how he hoped to make a motor car that the farmer could afford, a vehicle with a removable engine that could be applied “universally.” As Ford then envisioned the automobile, it was to be an all-purpose machine, capable of getting the farmer to market and of being used incidentally to saw wood, pump water, run farm machinery and do the churning.
|Later year Model T doing what Henry Ford intended it to do.|
Such was the Model T, the end-product of Ford’s dreams and of his company’s quest for a market. As Norval Hawkins, Ford’s first sales manager, described the vehicle in the course of testifying at the Couzens’ tax hearings, it was “practically a farmer’s car.” There was nothing ornate or fancy about the T. It was what Ford had hoped for, 100 per cent utility. It was light and sturdy, built for performance rather than looks, a tough, plain, black oblong box mounted on wheels, and the commoner could afford to own one. Stripped of all accessories, the original Model T’s, almost as much alike as “pins or matches,” sold for $850.
In designing his all-purpose machine, Ford relied to some extent on the experience of other manufacturers. His engineers had borrowed from the Oldsmobile and the Cadillac. As early as 1905 they had imported one of Renault’s models and “torn it down” for inspection.* But by and large, the Model T was an original Ford product.
The over-all concept of the car was Ford’s. This or that Ford technician had worked up the details of the machine. The car’s ignition system, which consisted of a magneto built in as an integral part of the motor, was perfected by “Spider” Huff, the man who had helped to pilot the “999” over the ice of Lake St. Clair. Other mechanics in the Ford organization gave the T its system of “splash” lubrication, its rear axle of unique design and its principle of three-point suspension. From C. H. Wills, Ford’s foremost early designer, the car got its planetary transmission and the alloy steel for which it was to become justly famous. It was also Wills who at this time had Ford’s name written out in longhand and adopted as the company’s trademark. The script used for the purpose was not, as many have since believed, a copy of Ford’s signature. On the contrary, it had been made from a childhood printing set which Wills found stored away in his attic.
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Once in production, the Model T won immediate favor. It sold itself, and the reasons for its popularity were self-evident. More than any automobile in circulation at the time, it matched the farmer’s purpose and the pocketbook of the man in the street. Its mechanical principles were so simple that with a little time and patience they could be readily mastered by any amateur. And no contemporary car was so well adapted to what the world in general and the United States in particular had to offer in the way of roads and thoroughfares.
In its native environment, the first Model T and every other motor car of the period had to conquer a roadbed that had been handed down from the horse age. Few tougher proving grounds can be imagined. Vast sections of the American hinterland were without well-defined highways of any kind. Treacherous passes were the rule in the Rocky Mountain states. In the settled farming sections of the Mississippi Valley, the typical roadway was a narrow, unimproved dirt track, ground to powder in the dry season, and all but impassable when it rained or snowed.
But whereas the perilous back-road and the gumbo of the plain states were too much for the average car, they were the making of the Model T. By contrast with other models of the day, Ford’s car of 1908 was tough, compact and feather-light. Because of its high-riding chassis, it could pass over stretches of rock and quagmire like a man on stilts. To be sure, the vehicle shook and rattled with the rest. It was all bone and muscle with no fat on its frame. But as soon as it took to the road, it proceeded to prove that it was built to get there, despite hell and high water.
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One of the first notable demonstrations of the fact that the American highway had found its master occurred in the summer of 1909 when the Ford Motor Company entered a car in the transcontinental race from New York to Seattle. The contest was sponsored by the Automobile Club of America. The Ford driver who made the trip had no picnic. It took him twenty-two hours to cover a single four-mile stretch of open country in the state of Utah. But after an exhausting, drive that lasted twenty days and fifty-two minutes, he came in first. Five months later, however, the winner’s prize was awarded to another contestant. On second thought the judges of the contest decided that, Ford’s man had violated one of the rules. Having motor trouble somewhere along the way, he had changed engines on the sly. But despite this particular dubious performance, the evidence was overwhelming that as master of sand and muck and mudhole, the Model T had no peer.
Rain or shine, the car held up under the wear and tear of the farm. In 1912 a Model T won the distinction of being the first automobile to conquer the Grand Canyon of the Colorado. The driver who was responsible for this feat had coped with the heat by draping wet bags over his motor and gasoline tank. He had to use dynamite to blast the rocks out of his path. That same year the owner of another Ford car won first honors in a publicized farm-and-ranch run, driving between Dallas and San Antonio over open country. Competitive hill-climbs, one of the favorite early methods of trying out a car, were won by the Model T time and time again.
While this plain but sterling little performer was winning friends in the small towns and on the farms, it came as close as it could to fulfilling Ford’s dream of general utility. Before long, one of the trade journals began to advertise a “Ford attachment” that could be hooked up to a Model T for the purpose of operating belt-driven farm machinery.
Meanwhile the soundness of Ford’s preference for a cheap car was borne out by the earnings of the Ford Motor Co. In one year’s time the Model T established itself as the trade’s best seller and leading money-maker, and Ford sold 11,000 cars, outstripping every other producer in both sales and profits. Taking stock of such a phenomenal increase in business, the directors of the corporation decided to expand the scale of their enterprise. They increased their capitalization from $150,000 to $2,000,000 and the number of outstanding shares from 1000 to 20,000. To effect this internal reorganization, the seven remaining shareholders of the company voted themselves a stock dividend amounting to 1000 per cent.
But despite the impressive early record of the Model T, the Ford Motor Co. came within an inch of losing its separate identity in the industry, first in 1908, and again in 1909. While they were Pioneering with a cheap car, Ford and Couzens twice entered into negotiations for the purpose of selling their stock to an interested outside bidder. The buyer with whom they dealt on both occasions was W. C. Durant, the dashing and brilliant promoter of General Motors, forerunner of the General Motors Corporation.
|William Durant wanted Ford as a fifth subsidiary of General Motors.|
When Durant first raised the matter with Ford and Couzens in 1908, he was already a commanding figure in the field. He had welded together a combine that included Buick, Cadillac, Oakland and Oldsmobile. What he proposed to Ford was a merger. He wanted the Ford organization for a fifth subsidiary of General Motors. The negotiators were in accord as to the estimated value of the Ford interests. Durant I put the price at $3,000,000, and Ford agreed to sell at that figure, but not on Durant’s terms. Ford wanted cash on the line. Durant, the super-salesman, was peddling GM stock for the most part. The deal fell through.
In the following year GM came forward with a second proposal. This time, in view of the remarkable showing of the Model T, the purchase price was more attractive. It was to be $8,000,000. Ford again agreed to sell, but once more on his own terms. Speaking for himself and all his minority stockholders, he demanded immediate payment of the full $8,000,000 in hard cash. It was the opinion of the GM board at the time, however, that the Ford business was “not worth that much.” So the best Durant could offer by way of a counter-proposal was part payment in cash, the rest in securities. With Ford it was still “gold on the table” or nothing. Consequently this deal, like the negotiations of the previous year, came to nothing.
The abortive meetings with Durant revealed, incidentally, what was going on in the minds of Couzens and Ford shortly after the birth of the Model T. In consenting to step out of the picture for $8,000,000 in 1909, it would seem that both men had failed to grasp the full significance of their car for the masses, that neither was then motivated by a long-range concept of what he was about. Instead, they were following in the footsteps of their former sponsor Alex Malcomson.
They were on the point of picking the fruit before it was ripe, awed by the prospect of getting rich quick. Had the sale to General Motors gone through, Couzens would have retired a near-millionaire at the age of thirty-seven; Ford, a multi-millionaire at forty-six. But as long as the company remained in their hands (from 1906 on they owned 68½ per cent of the Ford stock between them), Ford and Couzens meant to hold their own. They gave proof of that fact from 1909 to 1911 when they collided with the rest of the industry over the merits of a famous patent.
The controversy in question revolved about the legal rights of George B. Selden, a lawyer and amateur inventor to whom the federal government had issued an automotive patent so broad in scope that it appeared to cover every type of “road locomotive” in existence. The insights embodied in the Selden patent were evidently genuine and highly original. In point of time they antedated Charles Duryea’s invention of the first American automobile. Yet for some reason Selden made no effort to apply his ideas; he never so much as built a car of his own. Instead, he simply nursed along his “paper invention” by filing one application after another at the federal patent office. When it became clear that the motor car had commercial possibilities, he signed over his rights to a group of New York financiers.
Selden’s assignees set out at once to exploit what looked like a sure thing. They organized the Association of Licensed Automobile Manufacturers. This trade body in turn proposed to limit the manufacture of motor cars in the United States only to those producers who acknowledged the validity of the Selden patent. Each manufacturer who applied for a license was expected to pay into the ALAM treasury an annual royalty amounting to 1 per cent of the retail value of his total sales for the year.
By the time the Ford Motor Co. introduced the Model T, 90 per cent of the trade’s producers were doing business as licensees of the ALAM. As yet, none had dared to make a court test of the sweeping Selden claims, nor had the practices of the ALAM given special cause for any such action. No manufacturer who applied for a license had been turned away. Aside from having to pay a royalty, each licensee had been free to go his own way. Moreover, the ALAM had actually given its members something for their money. To a large extent it had functioned like the present-day Automobile Manufacturers Association. The bulk of its income had been devoted to promoting the interests of the trade as a whole. Only a fraction of its funds had been drained off at the top by the ALAM promoters.
Among the few concerns which were still outside the fold in 1908, the largest and the most successful was the Ford Motor Company. As Ford and Couzens took stock of the ALAM, it was a budding trust, nurtured by Wall Street for the sole purpose of getting something for nothing. From the start they simply ignored its existence. Eventually, however, they did consent to sit in on an ALAM conference held at the old Russell House in Detroit. What took place at this gathering was later described by Theodore F. MacManus, one of the reliable early chroniclers of the trade.
According to MacManus, the conversations at the Russell House were brief and fiery. A spokesman for the ALAM began to stress the merits of “getting together.” He went on to assert that in order to enforce the Selden claims his organization was prepared to go the limit. Couzens, very much in character, is supposed to have cut the speaker short by retorting, “Selden can take his patent and go to hell with it.” All Ford said was, “Couzens has answered you.” An ALAM official promptly declared that he would file suit at once. In the meantime, he vowed, his colleagues would do their utmost to put the Ford Motor Company out of business. Then Ford hit the ceiling. He jumped out of his chair, shook a finger at his threatener and shouted “Let them try it!” At this point the conferees stalked out of the room.
Their next meeting occurred in a Federal courtroom where Ford, had to answer the charge that he was guilty of patent infringement. In the first round of the battle, Ford was the loser. Passing on the dispute in 1909, the bench ruled that the Selden patent was valid and, therefore, applicable to the Ford Motor Company and to all other companies engaged in the production of motor cars. Ford counsel met this reverse by taking the case into a court of appeal.
While the appeal was pending, the litigants waged war in the public prints. For its part, the ALAM tried to browbeat Ford by running advertisements in which it threatened to prosecute any and all persons who dared to buy Ford cars. Couzens fought back with counter-publicity. One of his retaliatory advertisements which appeared in 1910 dubbed the ALAM “a Divine Executive Committee”; it ridiculed the Selden patent as “a freak among alleged inventions. While he was at it, Ford’s belligerent but clever business manager put in a word for the Model T. With such a car on the market, he said in the same copy, was it possible for any person who enjoy the full use of his faculties to “fall” for the inferior models turned out by other manufacturers in some “71 varieties” and at “extravagant prices?”
To reassure the customer who might have shied away from a Model T for fear of “buying a lawsuit,” Ford’s legal advisers thought up a shrewd expedient. With every sale the company offered to post a bond to protect the buyer in the event of future prosecution by the ALAM. John Wanamaker, who was handling Ford sales in New York City and Philadelphia, made a similar standing offer to all his personal customers.
In the end, Ford managed to beat the ALAM without any outside assistance, other than the supporting action of John Wanamaker. In 1911 a federal court of appeal declared that the Selden patent did, not apply to the Model T, nor to any other type of car made in the United States. Emboldened by this turn of events, most of the manufacturers who had never questioned the Selden claim bolted from the ranks. And for want of funds and a supporting membership, the ALAM promptly went to pieces.
As it worked out, the Selden suit was a blessing in disguise for all concerned, except for the insiders of the ALAM. For the trade as a whole soon organized itself to prevent a recurrence of similar disputes in the future. All but a few automotive manufacturers, with Ford and Packard the chief exceptions, banded together to form a patent pool. As a result of this voluntary combination, the industry was to be, henceforth, notably free of patent litigation.
From the standpoint of Ford’s business, the fight against Selden had been all to the good. During the life of the action, from 1909 to 1911, only fifty of Ford’s customers ever asked for a bond when they bought their Model T’s. During that same interval, the company sold 18,000 cars. In looking back on the Selden suit years later, Ford said it was one of the best advertising media he had ever enjoyed. In his opinion, he said, it had called attention to the Ford Motor Company at the expense of all its competitors.
But throughout the period in question and for the next two decades, the real key to Ford’s stunning success was the fact that the public liked his product. From 1908 on, as Couzens took occasion to remark ten years later, Ford cars were “not sold;” they were “simply handed over the counter.”
When the Model T was only beginning to catch on here, there and everywhere, one of the neatest symbols of its triumph was an illuminated signboard which the Ford Motor Company placed in 1908 on the roof of the old Detroit Opera House on Cadillac Square. When the lights were turned on at night, this display pictured a Ford car in motion; it reproduced a Model T with turning wheels; it portrayed as one of the car’s passengers a woman with a neck scarf that danced and streamed over her shoulder.
Here E. LeRoy Pelletier, Ford’s first advertising man, could exhibit his prowess as a phrase-maker. Over the glittering Ford sign on Cadillac Square there appeared for the first time, Pelletier’s pat and happy slogan, “Watch the Fords Go By.”