Unfortunately, while the Fordmobile’s name might have pleased its creator, its performance did not—the prototype was wrecked during a test run. Ford and Wills set to building an improved model; Couzens set about looking for investors.
For Couzens, a man who prided himself on overcoming obstacles, the chilly reception he received was maddening. Even with the market for low-cost automobiles beginning to ripen, it seemed no one was interested in investing in Henry Ford. After one particularly dismissive rebuff, Couzens left the man’s offices and collapsed on the curb, frustrated almost to tears.3
Part of the problem was that, with automobiles becoming more predominant in the public consciousness, a good many crackpots and fly-by-night operators were entering the field, each promising investors vast returns but delivering only red ink, a scenario that had categorized both of Ford’s previous ventures. Far more significant, however, was that by the time Ford & Malcomson was incorporated, another manufacturer was already quite successfully marketing the nation’s first low-priced, mass-produced automobile, the curved-dash Olds, which would soon be immortalized in the popular song “In My Merry Oldsmobile.”*1
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Ransom Eli Olds, whose family ran a machine shop in Lansing, 90 miles northwest of Detroit, had cobbled together his first automobile, a steamer, in the summer of 1887. Still in his early twenties, he decided to test his creation on the city’s streets at three in the morning. The resulting din prompted neighbors to leap from their beds. During the ensuing panic, “Civil War rifles and sabers were snatched from walls and attics.”4 The contraption soon died and had to be pushed back to the shop, but Olds persuaded his father to begin manufacture of those small steam engines, and the family sold 2,000 of them in the next five years. Olds soon moved on to gasoline engines, “Best Small Power in the World,” advertised as “One and Two Horse Power, specially adapted for running Printing Presses, Sewing machines, Lathes, Ventilating Fans, Ice Cream machines, etc.” The Olds product, readers of Scientific American were assured, was “Simple, Safe, Economical and Durable,” requiring “no engineer or extra insurance.”5
By that time, Olds had also produced an improved automobile, an odd hybrid of gasoline and steam. The vehicle became the subject of a highly favorable article, also in Scientific American, which called it “such a practical success” that “an engraving of its appearance” was included. “The boiler is upright,” the magazine reported, “and placed between the two cylinders on the rear platform, both engines being connected so as to work as one engine. Just behind the seat are the water and gasoline tanks. The water tank is sufficient for a ten or fifteen mile run, while the gasoline tank is sufficient for a forty mile trip. Over the entire vehicle extends a canopy top, so that the general appearance of the rig is like an ordinary surrey.”6 Olds’s new steamer was actually not all that practical, however. It lacked brakes and was so underpowered that on the slightest incline, Olds’s wife had to follow on foot with a block of wood to shove under the rear wheels in case of a stall.
The following year, 1893, Olds visited the Chicago World’s Fair, where he took a short drive in one of Gottlieb Daimler’s cars and from there directed his focus solely on gas power. By 1896, he had built a gasoline motor that he considered superior to the German’s design; he was granted a patent, and the following year he founded the Olds Motor Vehicle Company.
Olds was obsessive, working sixteen to eighteen hours a day, even on weekends. When a design didn’t work, he took it apart and examined it piece by piece to determine the cause and then create a successor that would perform better. He was particularly drawn to engines, but the factory Olds had established was not adequate to manufacture those engines in quantity. Olds “looked around his home town of Lansing and decided that among its twelve thousand residents there were not enough trained machinists to man a factory such as he had in mind. He must be nearer a larger supply of competent labor. Despite the fact that Lansing bankers had been more generous with him than bankers in general were inclined to be with prospective automobile makers, he needed a less timid source of capital.”7
After briefly flirting with Newark, New Jersey, Olds returned to Michigan to seek the capital he needed to expand. He had acquired a reputation as a mechanical genius, so suitors were not a problem. Olds chose Samuel L. Smith, a copper and lumber magnate from Detroit, who offered him both financing and facilities if Olds would move to the city. In 1899, while Henry Ford was still frustrating his first set of investors by refusing to build a salable automobile, Olds and Smith formed Olds Motor Works, for which a factory was constructed on East Jefferson Avenue in Detroit, the first in the United States built specifically for the manufacture of motorcars.
With Smith’s blessing, Olds began to design a variety of models and fabricate the engines to power them. Their first product of significance was a touring car priced at $1,250 that had difficulty attracting a market. While trying to decide where next to focus the company’s energies, disaster struck. On March 9, 1901, the Associated Press reported:
The Olds Motor Works, manufacturers of gas engines, automobiles, and other vehicles, was completely destroyed by fire this afternoon, entailing a loss of over $75,000, with $45,000 insurance. The plant shut down at 12 o’clock noon for half a day, and fire broke out soon afterwards. It is supposed two tanks of gasoline in the building exploded and caused the fire. Two men at work on the third floor were compelled to jump for their lives. The entire season’s output of the Olds works, which was stored in the large building, was destroyed.
The account turned out to be inaccurate, however. Before the fire had totally consumed the building, the plant’s timekeeper had managed to push one of the cars out into the street, a small, single-cylinder runabout with a distinctive curved dash.8 Working feverishly to repair the damage, Olds had the plant back up and running in two weeks. Two weeks after that, he told reporters that he intended to meet his previously announced target of ten cars per day. But rather than continuing to tinker, he adopted a strategy that Henry Ford would later claim as his own. “Olds [took] a page from history. Just as Eli Terry found that by standardizing and increasing production, he could reduce the price of his clocks from $25 to $5, so Olds found he could sell a car for $600 if he concentrated on a single model and made enough of them using efficient production methods to keep the cost down.”9 Ten cars a day turned out to be overly ambitious, but that first year, despite the March fire, Olds produced four hundred curved-dash runabouts and sold them all.10
He could have sold many more. By early summer, Olds realized he would soon overrun his capacity and not be able to fill all his orders. He particularly needed to increase production of engines and transmissions. For the first, Olds sought out Henry Leland. Leland had not previously worked with automobile components, but after a glance at Olds’s blueprints, he signed a contract to produce two thousand single-cylinder engines. These engines soon acquired the reputation as the finest in the industry. For transmissions, Olds approached a pair of hard-drinking brothers, John and Horace Dodge, who were known for manufacturing excellently built bicycles, but who also had never before worked with automobile components. The Dodges, who had grown up in poverty, “typically worked eighteen-hour days, slept in the shop, and rarely spent week nights with their families.”11 After a brief meeting, an agreement to build two thousand transmissions was concluded on a handshake. The Dodge brothers would also use their contract with Olds as a springboard to great wealth and success with Ford. As a result of the need to subcontract, Olds was forced to raise his price to $650, but the increase did little to quell demand.
Curved-dash Oldsmobile
From there, Ransom Olds revolutionized automaking. Remembering a visit to a musket factory where a gun was assembled by a series of workers, each performing a specific task, Olds decided to employ the same technique for automobiles. He set up an experimental production line soon after his factory reopened in 1901, and expanded it the following year. By 1903, the entire plant was devo
ted to pushing a single model through in numbers as great as the market would bear. By then, with Leland gone, Olds was once more producing his own motors. Raw materials, metal, wood, or fabric, would be delivered to the appropriate station to be machined, cut, trimmed, or shaped; finished components would be completed by degrees, tested, and then assembled until finally a finished car emerged at the other end of the factory.
A 1904 article in the Detroit Free Press described the Olds plant with words that might easily have applied to a Ford factory a dozen years afterward.
Rows upon rows of special machinery are humming and buzzing away, bewildering the onlooker with their number. A great expanse of floor space stretches away before the visitor, along which are arranged these ingenious devices, each with its own peculiar work to do. Some bore out cylinders…some finish the connecting rods and shafts…every step in the process of turning out…a modern car is carried out by a group of these beautiful machines.12
The process was an immense success, allowing Olds to build—or assemble, in the case of subcontracted components—thousands of curved-dash runabouts at a time when most automakers could barely turn out one hundred cars in a year. Fabrication translated to sales, and Olds—an ALAM member—would sell an unheard-of four thousand cars in 1903, the year Henry Ford was just beginning production.
Olds’s influence extended to the city that would become automaking’s hub. In an evaluation of early car manufacturing published in 1921, Motor World wrote, “It was Olds’ success in Detroit that fixed the center of the automobile industry in that city. It is equally true that the Olds Motor Works was the first to reach quantity production by applying the progressive system of assembly to the manufacture of a single model gasoline-engine driven vehicle, and the first to popularize the automobile with the American people, taking it from the classification of rich man’s toy to that of every man’s servant.”13
Ransom Olds was also the first to grasp the value of marketing to the masses. In 1901, soon after the plant reopened, he decided to exhibit his runabout at the November auto show at Madison Square Garden in New York. Rather than ship the car by railroad, Olds assigned twenty-one-year-old Roy Chapin to drive it from Detroit to New York, where Olds himself would be waiting. Chapin was the son of a Lansing attorney and had originally been hired as a photographer, but he showed such talent at the tiller that he was soon assigned to test-drive Olds’s new models.*2
Chapin set out on October 29 on what would be an arduous seven-day adventure. The roads across New York State were so bad that Chapin was forced to drive on the Erie Canal towpath, prompting some very unkind words from the muleskinners who claimed right-of-way. When car and driver arrived covered with mud at the doors of the Waldorf Astoria, the doorman refused to believe that Chapin was there to meet a guest of the hotel. Chapin’s odyssey did not garner the headlines Olds had hoped for—local newspapers ignored the story—but the little grime-encrusted runabout was a hit at the auto show, and Olds was able to announce that he had landed a deal with a New York dealer to sell one thousand cars in 1902. (The actual number turned out to be 750, still massive for a single location.)
With his success, Olds became the fulcrum on which automobiles moved permanently to gasoline power.
Of the 2,500 motor vehicles counted in the United States Census of Manufactures for 1899, the vast majority were steam and electric-powered carriages produced in New England plants. By 1900 steamer sales had inched past electrics, with the young industry producing 1,681 steam, 1,575 electric, and 936 gasoline vehicles. Steamers maintained this lead through 1902, at which point the three engine types held roughly equal shares of the market. Not until 1903, when the Olds Motor Vehicle Company’s curved-dash Oldsmobile led the industry with 4,000 sales, did gasoline-powered carriages become dominant.14
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By the time Ford, Wills, Couzens, and Malcomson were preparing to design and market a low-priced car, Ransom Olds had provided them a clear business model. Still, Ford needed money, and it did not appear that any local financiers would step forward to provide it. To make the company’s future even more problematic, Couzens informed Malcomson that when all the bills came due, Ford would have spent $7,000, more than double the amount that Malcomson had agreed to provide as front money.
Couzens suggested that, rather than becoming a manufacturer, the company subcontract out the entire car, component by component, so that all that would be necessary in its own factory was assembling the finished automobile. The idea was not new—almost every small and medium-sized auto company was an assembler, and even Olds had yet to fabricate his own transmissions. While such an approach involved paying more to a supplier than the variable costs of producing a component themselves, it saved an enormous amount on fixed costs—plant size and machinery—which could allow a good bit of the accounts payable to be covered through sales.
Malcomson took Couzens with him to meet with John and Horace Dodge. In less than a year, thanks to Ransom Olds, the Dodges had not only expanded their tool works but also established themselves at the forefront of automobile machinists. Couzens extolled the virtues of Ford’s and Wills’s new motor, but before the brothers would work for Ford, “Horace Dodge examined the plans for Ford’s new automobile and improved the design of the engine and rear axle considerably.”15 Malcomson then offered the brothers a contract to build 650 chassis—engines, frames, and transmissions—at $250 each, or $162,500 worth of business.16 This was a much larger and potentially much more lucrative deal than the Dodges had made with Olds. Still, the Dodges would be forced to spend a good deal of up-front money for the machinery to produce the product, and so they did not sign on until Malcomson agreed to advance them $10,000—$5,000 when they had finished retooling and $5,000 when they actually began production. It would turn out to be a wholly inadequate sum. The Dodges would spend $60,000 before they ever saw a penny in return.
Similar deals were struck for other components—wheels, bodies, tires, upholstery—bringing the total commitment to approximately $350,000. The only potential flaw in this plan was that Malcomson had no cash on hand, not even the $10,000 deposit for the Dodges, and, with his credit stretched like a guitar string, no prospects of raising it. His plan was to essentially kite his bills: to gain payment for the cars after they were assembled but before they were delivered, and then turn around and pay his bills with the proceeds. At $850 per car, he computed happily, he would walk away with a profit of $95,000 in the first year. This strategy was risky and extreme even to someone with Malcomson’s creative view of credit, relying as it did on maximal sales volume and almost perfectly timed movement of money.
Not surprisingly, it didn’t work. Malcomson was soon in full flight, creditors, especially the Dodges, reaching for the back of his shirt collar. The coal baron finally broke down and confessed the entire scheme to Uncle John—John S. Gray, president of the German-American Bank of Detroit—who was waiting for his nephew to make good on a previous loan with which he had bought out a competing coal supplier.
Banker Gray was, of course, appalled. But Malcomson, for all his rashness, had not gotten where he had without some substantial business acumen. He convinced his uncle that Henry Ford’s automobile had immense profit potential and that Gray should front the $10,000 to the Dodge brothers; he promised to pay Gray back personally if the venture went under. That, in turn, persuaded a local carpenter, Albert Strelow, to invest an additional $5,000 and supply the premises where the vehicles would be assembled. From there, Malcomson abandoned the notion of funding the new corporation with one large investor and instead went to a series of smaller ones.17
Thus, unlike Henry Ford’s first two ventures—three, if one counts the 999—the Ford Motor Company, as it would be called, was bankrolled by a diverse, ad hoc group of twelve mostly ordinary people, some of whom put their life savings into the enterprise. Horace Rackham and John W. Anderson, the young lawyers who drew up the incorporation papers, each invested $5,000, Anderson only after begging the m
oney from his tight-fisted father. Vernon Fry, a dry goods merchant and a member of Malcomson’s church, also put up $5,000, as did Charles Bennett, a Malcomson acquaintance who was president of the Daisy Air Rifle Company. The Dodge brothers were persuaded to forgo the $10,000 they were owed and take shares in the new company instead. They would work exclusively for Ford until 1914 and help make each other fortunes.18 John Gray decided to leave his $10,500 in and accept stock in lieu. (He had added $500 on his own, to ensure he would be the largest stockholder, the better to keep an eye on his money.) James Couzens, no longer a skeptic, wanted in badly but had only $400 in the bank. Malcomson, however, agreed to advance him his $500 bonus and accept a promissory note for $1,500. Couzens took that money, his own $400, and $100 from his schoolteacher sister, and bought shares in the company.19
The willingness of this diverse group to ignore Ford’s record of antagonizing investors and back his enterprise earned neither his gratitude nor his loyalty. While he would never actually cheat anyone, Ford maintained the fervent belief that investors were at best a necessary evil, to be dispensed with, if possible, the moment there was no further necessity. He remained determined to make his own decisions and not allow other people’s money to dictate the new company’s direction. Ironically, for the first time his intentions matched those of the men—and woman—who had put up the money, and he finally dedicated himself to building the automobile that he claimed had been his vision since the quadricycle. Had that been the case with the first two ventures, there might have been no cause for their dissolution.
Drive!: Henry Ford, George Selden, and the Race to Invent the Auto Age Page 16
