CHAPTER 12
Victory over Alexander Winton at Grosse Pointe once again provided the impetus for a new automobile company for Henry Ford. This time, both Ford and the Ford name would stick. As Ford told it, “The 999 did what it was intended to do: It advertised the fact that I could build a fast motorcar. A week after the race I formed the Ford Motor Company. I was vice-president, designer, master mechanic, superintendent, and general manager.”1
In fact, Ford had been planning for months to move on from Tom Cooper to a new set of investors. As early as May 1902—three months before his breakup with Cooper—Ford had solicited a local coal baron named Alexander Malcomson as a potential new backer. Malcomson—who marketed his product under the brand name Hotter than Sunshine—was a popular, well-connected Detroit man-about-town, who happened to have a rich uncle who owned a bank. He was also a notorious speculator and almost always in debt—often to his uncle—despite the revenues that streamed in from his six coal yards. Malcomson wanted very badly to get into the automobile business—there were few businesses Malcomson did not want to get into—and when Ford presented his plan for a car that could be sold cheaply and in large numbers, Malcomson enthusiastically agreed to fund a partnership. (That Ford had presented the same idea to two previous groups of investors but failed to follow through dissuaded Malcomson not at all.)
In August 1902, before the 999 racer had even been built—and two months before Cooper had been accused of sneaky behavior by Clara Ford—Malcomson and Ford signed a memorandum of agreement. Ford entered the new business with a design for a production model, for which he provided the overview and Harold Wills drew the blueprints.
For a half interest in the new venture, Malcomson agreed to front the $3,000 Ford said he needed to start and to supply any additional financing the venture would require. What he did not divulge either to Ford or to those to whom he already owed money was that, to raise the capital, he would need to pledge all his credit. If Ford once again failed to produce, Malcomson stood to lose his coal yards as well as his automobile.2 For his efforts, Malcomson would ultimately suffer the same fate as Ford’s other partners and, like everyone whose money Ford needed, would earn Ford’s lifelong animus for providing it.
As his first official act, Malcomson, although he did not know it at the time, made perhaps his greatest contribution to the new venture’s stunning success, and it was not financial. In an attempt to keep news of this latest bout of speculation from his debtors, particularly his uncle, Malcomson opened the bank account of the new company in the name of his office manager, James Couzens. Couzens was also told to work with Ford, both to handle the business side of things and to keep careful watch on where the money went. Malcomson might be impetuous, but he wasn’t stupid.
That assignment turned out to be a stupendous stroke of luck for Henry Ford, because if he had had the option he never would have hired Couzens. The two men were different in almost every way, and during their association their feelings for each other would range from mild antipathy to outright loathing. But each man brought to the company vital skills that the other lacked, and for more than a decade, they put up with each other and became immensely wealthy in the process.
Couzens was nine years Ford’s junior and had emigrated as a teenager from his native Ontario to Detroit. There he found a job inspecting cars at the junction yards of the Michigan Central Railroad, where he would spend the next ten years.
Even as a laborer, Couzens dressed impeccably and conducted himself with sufficient seriousness to be considered aloof by his fellows. But his superiors appreciated his perfectionism and almost obsessive attention to detail, and he was eventually promoted to supervisor. In the new position, Couzens was to deal with shippers and suppliers, one of whom was Alexander Malcomson. In 1895, the coal man hired Couzens away at double the salary and made him office manager and chief clerk.
The two men worked closely together and eventually developed something of a father-son relationship—a mixed blessing for Couzens, since his own father had been bullying and could exhibit extreme fits of temper, traits that he again encountered at the coal company. But Couzens did not back down when Malcomson’s ire got the better of him—Couzens would never back down from anyone—and when someone was needed to guard what might amount to Malcomson’s last dollar, Couzens was tapped for the job without hesitation.
Couzens, by then married with three small children, had never appreciated the potential of the automobile, a view that did not substantially change when he met Henry Ford. But to Couzens, a business needed to be managed just so, no matter what the product. For his part, Ford never appreciated the necessity of sound business practices, although he thought he did. Their negotiating styles differed as well. Ford tended to be dry and acerbic, which was often merely off-putting, whereas Couzens could be pugnacious and confrontational when the situation called for it (and sometimes when it didn’t)—a useful trait for a small business trying to appear more successful than it actually was.
Soon after the August agreement was signed, Ford and Wills began to hire mechanics and craftsmen to build a prototype for the company’s new car, which Malcomson intended to call the Fordmobile. Both he and Couzens had decided to market the maker as much as the car, a strategy with which Ford was in hearty agreement.
As the prototype began to take shape—Ford and Wills would produce the engine and chassis and subcontract the body, wheels, and other parts—Ford and Malcomson converted the partnership to a corporation. The November 1902 filing indicated a capitalization of $150,000 divided into 15,000 shares. The two principals split 6,900 of those shares and paid $3,500 for an additional 350, which left 7,750 shares to be sold to the public. The paid-in capital was to be used to finance production and marketing of the company’s car.
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
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 devoted 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
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 money 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.
With twelve investors in hand and only $28,000 of actual paid-in capital, on June 16, 1903, the Ford Motor Company was incorporated. (It was Malcomson’s idea to take his name off, not Ford’s.) John S. Gray was president—at his insistence, although it didn’t hurt to have a banker on the letterhead—Ford was vice president and general manager, James Couzens was secretary and business manager, and, in something of an irony given his proclivities, Alexander Malcomson was treasurer. As the company’s affairs played out, however, Gray and Malcomson had virtually nothing to do with the running of the company, either in product development or in financial management. Couzens, although without the title, became the actual treasurer of the company.
Ford later claimed that the vision he would bring to fruition in 1908 with the Model T was already fully formed when the Ford Motor Company was incorporated in 1903, and, Olds’s success notwithstanding, that it was unique and original. To buttress this argument, Ford pointed to the very first advertisement the Ford Motor Company unveiled, for which he had approved the copy himself:
Our purpose is to construct and market an automobile specially designed for everyday wear and tear—business, professional, and family use; an automobile which will attain a sufficient speed to satisfy the average person without acquiring any of those breakneck velocities which are so universally condemned; a machine which will be admired by man, woman, and child alike for its compactness, its simplicity, its safety, its all-around convenience, and—last but not least—its exceedingly reasonable price, which places it within the reach of many thousands who could not think of paying the comparatively fabulous prices asked for most machines.20
But, in fact, the idea to mass-market lower-cost automobiles was neither new, obscure, nor confined to either the Olds or the Ford company. The same month Ford would sell his first automobile, and a full five years before production of the Model T, a long, remarkably prescient syndicated article, “This Is the Age of the Auto,” ran without byline in newspapers across the nation.
The automobile is no longer an experiment, and motoring is no longer a pastime or a luxury. The old coaching roads and coaching inns will once more be thronged with travelers. We shall know the land we live in—its rural interests, its beauties, its antiquities. The man who has a business in the town will no longer be dependent upon a slow and rare service of trains. Therefore thousands of the town dwellers of today will be the country dwellers of tomorrow. This will bring into the market at good prices a great number of country places unlettable and unsalable today. There will soon arise, in consequence, an irresistible demand for better roads.
This, however, will be but a minor factor in the coming development of motor traffic. The motor vehicle for business purposes will soon be universal. A few years hence we shall look back with a smile to the practice of the railways and large firms in using horse-drawn vans. Commercial travelers will take their samples through the country in suitable motor-cars. Agriculture will be one of the chief industries to benefit by the coming revolution. I am even inclined to go a step further and hazard the opinion that the motor vehicle will kill the railway.21
The trade magazines, of which there were by this time more than a half-dozen, also regularly carried articles on the potential of the automobile—and other gasoline-powered vehicles—for business and on the farm. So while it was not Ford’s unique vision that attracted investors to his idea, his plans did contain an element that seemed a significant improvement on what was available from his competitors. “The cornerstone of the edifice was the engine. It was primarily because of their faith in the engine that the experienced Dodge brothers, in the teeth of a strong bid from Olds, had signed the vital contract of the new business.”22 But what Ford never admitted publicly was that the Dodges had corrected a number of flaws in Wills’s initial design.
Ford’s engine would have two cylinders, set horizontally opposite each other, to Olds’s one. This is not to say Ford’s machine would be superior. While Olds’s one-cylinder motor would not be able to reach the two-cylinder’s 8 horsepower or top speed of 28 miles per hour, its performance was more reliable. Each machine featured a transmission with two forward gears and one reverse gear, but Ford’s became notorious for transmission bands that slipped regularly, thus leaving the car without power. The Ford car was also prone to overheating, while the Olds was not.
Ford Model A, 1903
Work had been proceeding apace, and just weeks after the Ford Motor Company became a legal entity, completed “running gear”—motors, frames, transmissions, and axles—began to arrive at Strelow’s from the Dodges.*3 From there, the remaining components were attached and the car was painted. (During testimony in a later lawsuit, Ford would be forced to admit that “the Dodges had made the entire Ford car except the body, wheels and tires.”)23 The only problem was that while the vendors were producing, they were not being paid, because not all the investors had as yet deposited their money and no one had bought a Ford automobile. Couzens stalled as much as he could and remitted funds when he had to, but by July 11, after less than one month in existence, the company’s bank balance stood at $223.65. But on that day, Strelow paid in his $5,000 and Ford Motor survived.
Instead of naming the new model, Ford decided that since anything he produced would be constantly improved, he would use succeeding letters of the alphabet. Four days after Strelow saved the company from insolvency, the first Model A was sold, to a Chicago dentist named Ernst Pfennig. (Doctors and dentists were, by far, the professionals who most often availed themselves of the new technology.) Pfennig bought the standard model, $850, without the optional “tonneau,” a detachable rear seat, that would have added $100 to the price. The car was shipped to him on July 28, 1903.24 Other sales followed, and soon the survival of the company, at least in that pivotal first year, was no longer in doubt.
Ultimate success, however, would rest on the reception the Model A received in the trade magazines. Despite being exceptionally light at only 1,250 pounds, containing a number of new features such as an improved carburetor, and being billed by the company as “the most reliable car in the world,” the Model A was, in truth, neither better built nor more reliable than its competition.*4 Nor was it cheaper. The Oldsmobile was priced $100 less than Ford’s model even though Olds, as a licensed ALAM member, was paying royalties on each sale. So if significant flaws were exposed in the trades, word would make its way into the popular press and doom the Ford car.
But Ford’s runabout, and particularly its engine, received raves. Cycle and Automobile Trade Journal wrote:
The first one of the first lot of 650 Ford automobiles was placed on the road early in June, 1903…the latest representative of the American type of two-cylinder driven vehicles, which is unquestionably destined to hold a high place among the leading forms of self-propelled carriages. The two opposed cylinder motor has advantages in the way of balance and frequency of impulse delivered to the motor shaft, which produce distinctively smooth running and strong hill climbing, and there is no possible room for doubt as to the pronounced success of this form of motor for driving low-cost and high-duty vehicles of the runabout and detachable tonneau class.25
Horseless Age added that when the motor ran at high speed, about 1,000 rpm, it was “remarkably free from vibration and noise.”26
Cycle and Automobile Trade Journal also indicated that, although its technology was not new, the Ford machine and not the one-cylinder Oldsmobile was the future of low-cost automobiles. “Since the Ford wagon is the latest to be driven by two opposed cylinders, it should be among the best of its kind, as its designer had the vast advantage of a number of highly successful examples in the work of his predecessors, as well as in his own previously constructed two-opposed cylinder driven wagons, to aid him in selecting the elements and determining the detail forms of his latest motor, the last of a series of conspicuously speedy wagon drivers produced under his direction.”27 For contrast, the ad on the inside front cover of the journal was for a Winton 20-horsepower four-seater touring car, much more luxurious than the Model A but with a price of $2,500.
The significance of the Ford Motor Company—new, undercapitalized, and hastily thrown together as it may have been—establishing itself as a participant in an expanding market for low-priced automobiles was not lost on those for whom it would be competition, most prominently ALAM members Olds and Packard, a newer manufacturer.
Packard had been started in Warren, Ohio, by Col. J. W. Packard, a quick-tempered manufacturer of wire and cable. After purchasing a Winton in 1899, Packard thought it terribly flawed and decided that he could do better. He told the equally quick-tempered Winton as much, and Winton challenged him to try, so Packard did. Packard’s car, a one-cylinder runabout, aroused the interest of his friends, most of whom agreed that the new automobile was superior to Winton’s model, and by 1901, Col. Packard was in the automobile business, with his brother as his partner.
The following year Packard licensed a group of dealers, and his 12-horsepower machine with tonneau sold briskly, even though the price was not substantially below what Winton was charging. One of the purchasers was a man from Detroit named Henry Joy, whose late father had been president of the Michigan Central Railroad, where he had once engaged a young lawyer named Abraham Lincoln. Joy stopped in Warren on his way home from New York for a chat with Col. Packard, who, it turned out, was so pleased with his car business that he had decided to expand, assuming he could raise the necessary capital. Joy put together a group of investors with himself at its head, moved the company headquarters to Detroit, and engaged a young architect named Albert Kahn to build a new factory with reinforced concrete—the first of its kind. With the Warren plant continuing to operate, the Packard Motor Car Company entered the industry as a force.
Although Packard continued to produce its one-cylinder model, Joy, himself a rich man, wanted also to build cars that other rich men would want to drive. He suggested a luxurious model with a price tag in excess of $7,000. Col. Packard, whose success had been based on reducing both the complexity and the price of the machine, thought that idiotic, but Joy nonetheless turned much of the company’s efforts to producing a four-cylinder, 25-horsepower touring car.
Despite the diversion of resources, Packard’s Model F runabout—Packard, not Ford, was the first to use letters to denote their automobiles—remained popular, and Joy finally grasped that it would be sound business to exploit its potential. Henry Joy was not a man to do things in a small way, and he decided to launch a publicity stunt so grand that Packard would explode into the marketplace and leave both Olds and Winton far behind. When Frederic Smith, who by then had effectively taken over Olds Motor from his father (and from Olds), heard about Joy’s plan, he was determined to match it with a similar venture of his own.*5 Each of the two Brahmins accepted the necessity of slugging it out—as gentlemen—but neither man was prepared to accept an additional competitor in the market for smaller cars, especially an arriviste such as Henry Ford.
In mid-1903, as it happened, Henry Joy and Frederic Smith were also the most powerful voices on the executive committee of ALAM. To these men, the notoriety Ford had garnered from his race cars made him a target, someone to be squashed, not encouraged. The man who had beaten Alexander Winton and built the 999 just might be able to produce a car that cut drastically into their companies’ profits. What was more, Smith was none too pleased that Ford had stolen the Dodge brothers out from under Olds, which now meant out from under him. As a result, from the outset, Ford’s ability to gain entry into what amounted to a private club encountered quite serious obstacles. Nor would the presence of John Gray as president of the company provide a lever—the men who had faced down William Whitney were not about to be cowed by a local banker.
Ford had been aware of the Selden patent since 1900, and although no record of his early impressions exists, his later pronouncements and his antipathy toward the patent system in general make it fair to say he didn’t think much of it. It is a virtual impossibility that he viewed Selden’s unbuilt machine as controlling an invention of the sophistication of the automobile. Still, in February 1903, Ford met with Hermann Cuntz at an automobile show and let it be known that he would be happy to operate as a licensed manufacturer and pay the appropriate royalties. He was apparently either unaware of the antipathy in which he was held by ALAM board members or so willing to compromise in order to gain a license that he would accept any conditions to gain entry.
Cuntz seemed courteous and receptive but, in a surprise to no one outside Ford & Malcomson, Ford was soon rebuffed, although not yet in a manner that would cause confrontation. At that point, ALAM was continuing to portray itself not as an oligopoly, whose purpose was to restrict competition and safeguard profits, but rather as a trade organization, whose primary goal was protecting the public interest. As such, board members insisted that the decision to grant or withhold licenses to “the flower of the industry” was based on strict criteria of capitalization, manufacture, and performance. The association “will not try to shut out reputable and established manufacturers who build a reliable vehicle,” they proclaimed in the trade magazines. “It will license all such, but it will license no unreliable upstarts. In this way, the association will protect the public and be a boon to all purchasers of gasoline automobiles.”28 Those lofty sentiments notwithstanding, the association was never terribly precise as to what terms such as “reputable,” “established,” and “reliable” actually meant. In fact, the standards under which a firm was granted or denied membership often seemed arbitrary.
In a prime example, one of the few specific requirements ALAM was willing to enunciate was that a manufacturer must actually build its cars. Mere “assemblers” would be excluded because of the ease of simply cobbling together an inferior product with a poorly thought-out design from an ill-conceived conglomeration of parts.
Two weeks after he deposited $5,000 to purchase his Ford shares, John Anderson, the young lawyer who had entreated his father for the money, reported a “chance encounter” with Frederic Smith. The two knew each other well, so Anderson inquired about the licensing association. “Smith told him that the ALAM had been formed for the purpose of stabilizing the industry and barring fly-by-night operators and mere assemblers.” When Anderson replied that Ford was an assembly plant and asked what they were to do, Smith replied, “Well, we are disposed to be fair. We will take an inventory of their stocks, machinery, and equipment, whatever they may have, give them a fair value for it, and then they quit business.”29 The only problem with Smith’s altruism was that, to some degree, virtually every carmaker was an assembler, including his company, Olds. In fact, up until a few weeks prior to their conversation, Olds had been assembling components delivered from the Dodge brothers.
Although he must have been getting a sense that the game was rigged against him, after Ford Motor had been incorporated in June Ford tried again, this time submitting a formal application for membership in the Association of Licensed Automobile Manufacturers. At Smith’s and Joy’s instigation, an official and dispassionate investigation of Ford’s business was ordered. John Gray assured the board that he was happy to put up the $2,500 initiation fee and that the Ford business, regardless of a current lack of actual factory space, was sure to be a going and growing concern. Smith, many years Gray’s junior, later said, “Mr. Gray put their case so simply and fairly that I had a guilty feeling of sassing my elders.”30 However, that did not stop him from turning Gray and Ford down. If the Ford Motor Company persisted in manufacturing automobiles, it would do so in violation of the Selden patent and most assuredly be the subject of an infringement suit.
There is more than one account of what happened when Ford and Couzens received the news, but the most popular—and most colorful—was that James Couzens leapt to his feet and bellowed, “Selden can take his patent and go to hell with it!” Ford, who supposedly was sitting in a chair tilted back against the wall, leaned forward, stood up, said to Smith, “Couzens has answered you,” and moved for the door. Smith, once more with a pretense of affability, said, “You men are foolish. The Selden crowd can put you out of business—and will.” At which point, either Ford or Couzens leveled a finger in Smith’s direction and sneered, “Let them try it.”
Whether or not this exchange actually took place, the spirit of the reaction of Ford and Couzens is accurate. Both men were combative and, in the fashion of those who often bullied others, became furious when such behavior was aimed at them. Neither of them likely needed additional motivation to make their venture a success, but Frederic Smith and his cronies nonetheless provided it.
The attempt to join ALAM was a blunder, one of the rare occasions when Ford’s marvelous instincts failed him. The last thing he needed—or should have wanted—was to cede initiative, to compromise with a group of men whom he was capable of outthinking and outmarketing. But Ford was saved by an even larger blunder: Smith and Joy denied him entry.
Even as he was shown the door by Frederic Smith, the future glimmered on the horizon. Ford began to sell cars, eventually more than one thousand in his first year. At a profit of $150 per car, the company was actually able to declare a stock dividend in 1904.