From the book, Get a Horse. Author’s book dedication: To my mother and father in memory of those days when a Marmon touring car was their pride and joy.
THE LITTLE MAN with the lust for power who was known as Billy Durant, was not ordinarily of a vindictive nature. But he couldn’t quite forgive the way in which he had been ousted from the presidency of General Motors by a group of bankers who loved money like a pirate crew loves loot.
|William Durrant. He would go down in history as a spirited crapshooter who would make great bets and lose big ones as well.|
That was in the fall of 1910 and Durant was to cherish his resentment for three years before he evolved a plan for revenge. Meanwhile he went back to Flint, where he had first entered the automobile business, and started a new company. It was called the Little Motor Car Company and its product was the Little car. Taking a page from Ford’s book of success, Durant at first built only one model—a roadster priced to compete with Ford at $650.
Durant managed to swing this deal on an outlay of $26,500 cash by taking over the Flint Wagon Works and reorganizing it. In the first year he disposed of some 3,500 Littles as well as several thousand buggies.
But one car was not enough for Durant; he soon formed the Chevrolet Motor Company of Michigan, combining it with the Little Company, and in 1913 introduced the Chevrolet car.
Louis Chevrolet had been a member of the famous Buick racing team headed by Bob Burman. But he was more than a race driver; he was also a designer and self-taught engineer. Durant, while still in power at General Motors, had personally financed Chevrolet in his experiments with a small car, which was a fine break for Super-Promoter Durant.
Chevrolet had two cars ready for Durant just when he needed them; they were the Baby Grand touring car and the Royal Mail roadster. The Chevrolet name gave them immediate buyer interest, but aside from that, the new cars were designed to please the eye; they were low-priced cars dressed up to look like more expensive merchandise.
The time was ripe for a low-priced, “pretty” car, for some of the public were getting a little tired of looking at all those Fords on the road. Granted that there was nothing to beat a Ford, nevertheless, they were something like a man’s wife— durable and practical, but not nearly as streamlined and cute as the little grass widow next door. So a lot of people went for Chevrolets like Ben Turpin chasing a bathing beauty in a Mack Sennett comedy.
Those first Chevrolets weren’t so hot mechanically. They were held together with stove bolts and cotter pins but they sure looked good compared to Fords, which had all their beauty concealed beneath their unesthetic exteriors. In 1913 and 1914 Durant sold sixteen thousand Chevys. That was nothing compared to Ford’s output but it was a good start and the company piled up a profit of $1,300,000. Maybe the public didn’t know anything about art, but it knew what it liked.
The success of the Chevrolet car set tongues wagging in Detroit and Flint and Pontiac and everywhere that automobile men gathered. Billy Durant had done it again. You couldn’t stop the Little Giant. Chevrolet was the biggest little car on wheels. It was going to be bigger than Ford. Get on the bandwagon! Grab some of that Chevrolet stock!
At the same time, General Motors had recovered in such magnificent style from its 1910 financial ailments that nobody believed it had ever been very sick. From 1913 to 1916 it earned $58,000,000, but the bankers who controlled it paid out not one penny of dividends on the common stock.
Meanwhile, Durant had developed a fascinating contact in the person of John J. Raskob, treasurer of the E. I. du Pont de Nemours Company. Here was a growing industrial empire controlled by a family with as much imagination and daring as Billy Durant himself, as well as a practical realization of their responsibility to stockholders and the
The du Ponts dealt in basic products. They had supplied the gunpowder for all our wars since 1812 and had branched out into peacetime chemicals. When Durant had expanded General Motors he had taken over his sources of supply in order to be sure of having parts and materials. The du Pont theory of expansion was just the opposite. They preferred to control their markets. When their laboratories created a new product they wanted to be sure they had customers for it.
The automobile industry was just the sort of expanding market that the du Ponts wished to have a finger in. So when shrewd, brilliant, tough-minded John Raskob and Durant, the super-promoter, came to them with a scheme for grabbing control of General Motors, the du Ponts listened, acquiesced in the idea, and agreed to supply the money to help accomplish the coup.
|Pierre du Pont with John Raskob.|
Durant then formed a new holding company very much like General Motors. It was called Chevrolet Motors Company of Delaware and was first incorporated for $20,000,000 and later the capitalization was increased to $80,000,000. However, the incorporation papers were not filed for fear of tipping off the enemy to what was brewing.
The Chevrolet Motor Company of Michigan was then absorbed by Chevrolet of Delaware. After that, Durant went quietly to all of his friends who owned large blocks of General Motors stock. There were a good many friends and a good many shares that he had handed out in exchange for various companies while he had been president of General Motors. Durant offered to trade them five shares of new Chevrolet for one share of General Motors. There were plenty of takers, for most of Durant’s old friends were willing to ride along with him. After all, wasn’t he the greatest crapshooter in the business?
When Billy was in a winning streak all you had to do was ride with him. General Motors stock poured into the Chevrolet treasury in huge blocks.
At the same time Durant, his family, his friends and the du Ponts were buying General Motors stock on the open market as fast as it was offered for sale. The price of the stock rose in 1915 from 82 to 558, driven up by the demand that Durant had created.
That rising market made every owner of General Motors stock keep his eye on the ticker. The common stock had never paid a dividend, so there were plenty of investors who had never gained a dime from their investment. This was their chance to clean up. They sold and Durant bought.
|Along with General Motors, The New Chevrolet would acquire its Oldsmobile, Cadillac, Oakland (Pontiac) and other GM brands. A Cadillac is shown here.|
Rumors swept through Wall Street that the Little Giant was up to something. He had the dice again and he was throwing naturals. The bankers who controlled General Motors heard, too, of course. But it was hard for them to believe that enough shares would be dumped into the market for him to buy a controlling interest. Or that Durant could borrow enough cash to capture those shares if they were dumped. After all, where would he get it? Surely no bank wanted to get involved with a fellow like Willie Durant, who liked to gamble that he could make Big Dick the hard Way.
Not until it was too late did those who had tossed Durant out of General Motors discover who was backing him and how many of his old friends had exchanged their General Motors stock for Chevrolet of Delaware, a company they had never heard of before.
The men of Wall Street knew when they went to the directors’ meeting on September 16, 1915, that the dapper little man from Flint had licked them at their own game. So they sat and waited for their dismissal, waited for Durant to come in and hand them their walking papers. And when he did come he was possibly a little embarrassed over his triumph; it was so complete and humiliating to his enemies, but still, revenge was sweet. He strode into the meeting followed by secretaries carrying baskets filled with securities and proxies which had been counted and totaled only a few hours earlier by Durant himself. When the contents of the baskets had been dumped on the table, Durant, with a touch of the ham, but still underplaying it, said quietly, “Gentlemen, I control this company.”
| || || |
| || |
| || || |
And then Durant declared a dividend on the common stock. It was the first the company had ever paid and it was a humdinger—fifty dollars a share! Thus the new management justified the price that General Motors common was selling for. After that, the bankers who had once held complete control of the company resigned and their loan was paid off; then Pierre S. du Pont became chairman of the board of General Motors, four du Pont men became directors, and Billy Durant once more was elected president of General Motors. It was quite a victory for the little fellow with the lust for power.
Unfortunately Durant was not a man who loved automobiles; he only loved power and bigness. After he had stepped in again as president there was only the legal problem of getting Chevrolet to disgorge General Motors so that Durant’s child could become one of the big, happy family it had swallowed. That was accomplished by means of a masterful operation performed by a whole battalion of corporation lawyers; then Durant forgot about Chevrolet and went off on another buying spree.
In the flush of wartime and post-war prosperity the Durant expansion program went almost unnoticed, though occasionally the du Ponts may have wondered about deals like the purchase of the Scripps-Booth car, and the same with the Sheridan. But by 1919 earnings had reached $60,000,000 and the company declared a dividend of $22,000,000. Who could complain about a president who showed that kind of profit, even though he did buy a couple of turkeys in the meantime?
But when Billy set out to take over the tractor and farm-implement business, he bit off a lot more than he could chew. First he bought a dog in California called the Sampson Tractor Company along with a few smaller outfits; then he combined them with the Janesville Machine Company at Janesville, Wisconsin. Out of the plant at Janesville were supposed to come tractors and farm gadgets that would make International Harvester holler “Uncle!” What came out of it was a headache that cost General Motors $42,000,000. The du Ponts realized then that if they didn’t look out, that mild soft-spoken little man with the $150 suits and the aplomb of a movie actor, would break them.
| || || |
| || |
| || || |
In the spring of 1920 the post-war deflation began. By fall, General Motors was in trouble again. And Durant was in even more serious difficulties. The market had been dropping for months and he had been trying to support the price of General Motors stock. But this time he was rolling snake eyes instead of naturals. As the market receded point by point, Billy kept buying and buying, sure that it would reverse its trend. Finally he was in up to his neck. He had bought $35,000,000-worth of General Motors stock and he didn’t have enough cash to cover his margins.
When Durant’s brokers threatened to sell him out, the du Ponts realized that a forced sale of that magnitude might crack the market wide open, damage the credit of General Motors, and possibly start a financial panic. With the help of J. P. Morgan and Company, they got Billy Durant out of hock. He still had a couple of million left when it was all over but he was washed up for good at General Motors.
The post-war depression caught Henry Ford out on a limb, too. In order to buy out Couzens, the Dodge brothers and the other minority stockholders, Ford had borrowed $75,000,000 from eastern bankers.
Henry had expected to pay off that loan from one year’s profits and a cash reserve of $20,000,000. But then the bottom dropped out of the market and Ford sales skidded by 50 per cent. It looked as though there might not be any profit for 1921. Just the opposite.
On top of that Ford had a large inventory at inflated prices. Everybody said he had gotten rid of the minority stockholders only to fall into the hands of the bankers. Out of the frying pan into the fire. For Henry, who had a farmer’s antipathy to Wall Street and its bankers, this was a fate worse than death.
Ford had no talent for finance but he knew where the money came from; it came from his dealers who paid spot cash for his cars when they were delivered. Obviously, then, the thing to do was deliver cars to them and make them pay for them. If a dealer refused, cancel his franchise. He had made them rich, now it was up to them to help him meet that $75,000,000 loan.
|Ford Dealers had to pay cash for their cars.|
While the rest of Detroit was cutting production to meet the decreased dealer demand Henry kept his assembly lines moving at top speed. His dealers got Fords till their showrooms and warehouses were crammed. They got them and paid for them. If they didn’t have the cash, they went to their local banks and borrowed it. And for the first time they had to be salesmen. Instead of sitting in their showrooms and taking orders, they went out and hustled them. It broke a few of them and alienated the majority of them but Henry pulled himself out of trouble, paid off the bankers and then thumbed his nose at them.
There was, all this while, a man working for Henry Ford whose name was William Knudsen. He had been acquired by Ford in the purchase of a Buffalo steel mill, where he had been superintendent. Ford brought him to Highland Park and in the course of company expansion, Knudsen set up fourteen assembly plants for Ford.
Over the years, as the organization grew, it lost something that had originally made it function better than any other. A certain esprit de corps among the top executives and camaraderie with the boss were gradually diluted by the very bigness of the company, until there was nothing to be gained by working for Ford but a salary. The great affection they once had for the homely Model T grew into a cynical distaste; except for Ford himself there was no one left who admired his little beast of burden. That was when the executives who had helped make Ford, the man, and Ford, the car, began to resign or get fired.
One of these was Knudsen. And when he quit, Ford lost a man who was to make a lot of trouble for him. For Bill Knudsen went to Chevrolet. It was 1921 and Durant was out of General Motors; he was starting all over again with the Durant and the Star.
So Bill Knudsen took over Chevrolet and did for it what Durant had never done for any car. He made it his hobby; he gave it loving attention; he turned it into the most popular car in America.
Ford was unprepared for the awful truth. He couldn’t believe that he was wrong. He had been right for almost twenty years, but now, day by day, his sales decreased and Chevrolet’s sales curve went up. In 1926, production on the Model T fell off by 335,000 units, while Chevrolet’s output increased.
That was when Henry decreed a new car. He announced that he would stop when he had built his fifteen millionth Model T. Then he would start all over again with a car to be known as the Model A. Bill Knudsen’s little beauty had a finally won out over Ford’s beast of burden.