The People's Tycoon: Henry Ford and the American Century (Vintage) (53 page)

On March 5, 1919, the Los Angeles
Examiner
printed a headline reading “Henry Ford Organizing Huge New Company to Build Better, Cheaper Car.” It reported that Ford was creating a new enterprise to make a quality automobile that would beat the price of the Model T. Ford also promised that his new company would build plants all over the world, because “I believe that every family should have a car and it can be done.” What would happen to the Ford Motor Company? Ford was asked. “Why, I don't know exactly what will become of that,” he replied.
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Here was astonishing news—Henry Ford was walking away from one of the greatest companies in the modern industrial world, one that had put America on wheels, made the Model T a household name, and earned him a fortune. Curiously, he did not appear overly concerned that his present company might go under as a result of his new plan. In words that must have chilled its stockholders, Ford's spokesman, Ernest G. Liebold, noted, “It is Mr. Ford's belief that when any corporation or organization dealing in commodities consumed by the public ceases to serve the public its usefulness is ended and it naturally ceases to exist.” According to the Los Angeles
Times,
Ford was fully prepared to abandon his past and embrace his future. “Unlike that mythical student, Frankenstein, Henry Ford does not intend to be destroyed nor balked by that creature of his own making—the Ford Motor Company—in the realization of his newest dream child, the production of an automobile to be marketed for $250 or $300.”
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An air of mystery surrounded the situation as Ford announced his grand plan while on vacation in California with his family, and the project seemed to come out of the blue. “Officials here of the Ford Motor Company declared today they had no knowledge of the scheme of Henry Ford to organize a new corporation and manufacture a lower priced automobile,” reported the New York
Herald.
The magazine
Automobile Topics
wrote, “To General Manager F. L. Klingensmith, the news was in the nature of a complete surprise. He was disposed at a late point in the week to treat it as a rumor merely, preferring to await Ford's return to Detroit for details.”
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To add to the confusion, there were rumors of high-level financial deals
behind Ford's surprising move. Stories appeared about mysterious groups who were maneuvering to buy Henry Ford's stock in the Ford Motor Company.
Automotive Industries
claimed that General Motors was offering Ford $187million for his shares; the New York
Herald
reported that General Motors, with the backing of Du Pont money, had already acquired the Ford Company and was poised to become “the biggest factor in the automobile business of the world.” Another rumor involved Harvey Firestone. By the early summer of 1919, there were reports that an Eastern financial syndicate was trying to buy shares of minority stockholders in the company.
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Under headlines reading “What Shall We Call the Baby,” newspapers speculated on an appropriate name for the proposed new car—“Fordlet,” “Sub-Ford,” “Ford Junior,” the “Henry,” and “Ford 2d” were early favorites. Wags joked, “Would a Ford be the same under any other name?” Meanwhile, letters of inquiry came into Ford's office at Highland Park. Citizens who could not afford an automobile were elated by the prospect of a $250model, and they wanted to know when it would go on the market. Other writers expressed interest in securing an agency to sell the new car, or asked about buying stock in the new company.
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In this context of unsubstantiated rumor and public excitement, Ford Motor Company stockholders became frantic. If Henry Ford deserted his own company, would it remain a viable, profit-making entity at anything near its present scale? As Liebold wrote to a friend, “Mr. Ford's recent announcement has created quite a stir in this community; in fact I do not believe any of the stockholders are at all pleased over it.” Some reacted angrily. The Dodge brothers issued a statement through their attorney, Elliot G. Stevenson. “There would be no attempt to keep either Mr. Ford or his son in the firm if they simply wished to retire, but Henry Ford is under contract to the Ford Motor Co. and he will not be allowed to leave the firm and start a competitive business,” the statement said in part. “Both Mr. Ford's genius and his name are under contract to the present company, and certainly the organization will not allow him to withdraw these without legal protest.”
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But more was going on than met the eye. Henry Ford was engaged in a sleight of hand. Far from abandoning his company, he was moving secretly and skillfully to gain complete control of it. The evidence suggests that he had floated the rumor about forming a rival manufacturer to create a situation of uncertainty, even foreboding, regarding the future prospects of his company. Ford's overall goal was clear—to frighten the minority stockholders about the future value of their holdings, thus making them amenable to a purchase offer. And the identity of the purchaser would soon become clear.

Two factors motivated Ford. He had been furious at the decision in the Dodge brothers' lawsuit, which forced him to pay millions of dollars in dividends rather than reinvest it in the company, and he vowed never again to be held hostage by stockholders who valued short-term profits over the long-term vitality of the company. He was also bent on expanding the company's productive capacity. Ford believed that the economies of scale he had achieved at Highland Park marked only the first step of what could be realized. He was determined to plot the future direction of his enterprise with a new, even more efficient factory.

From this determination had emerged a plan to force out minority shareholders. Other than Ford and his son, Edsel, the other key player in the plan was William B. Mayo, the chief power engineer and the designer of the new plant taking shape on the River Rouge. There is conflicting testimony as to who originally hatched the idea, Ford or Mayo, but, regardless of the source, Ford emphatically endorsed it and deputized Mayo, who contacted acquaintances at the Old Colony Trust Company and negotiated a loan to purchase the minority stock. F. M. Holmes, an Old Colony vice president, emerged as a key figure, along with Stuart W. Webb of the Bond & Goodwin investment house. This pair of experienced financiers worked behind the scenes, contacting the minority stockholders to purchase their stock without disclosing the identity of the real buyer. The stockholders believed Henry Ford's public denials of any interest in their holdings, and they speculated, according to attorney John W. Anderson, that “the potential principal [buyer] was J. P. Morgan [Company] or W. C. Durant [of General Motors].”
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While this situation was developing privately, publicly Ford played a game of deception. “He disclaims any desire to buy up that portion of its stock which he does not now own,”
Automobile Topics
reported in March. At the same time, Edsel Ford was playing a careful game of stalling and reassurance with regard to company functionaries around the country. Though he did not deny the plans for a new company, he sought to reassure employees that massive changes were not coming immediately. Two weeks after Henry's announcement, Edsel sent a letter to Ford dealers stating: “A large majority of the rumors afloat are distorted. A new car may be manufactured, but as to when it will be manufactured we are not in a position to say, except that we know a new car could not possibly be designed, tested out, manufactured, and marketed in quantity [in] under two or three years.”
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Meanwhile, the purchase of minority stock was proceeding steadily. Stuart Webb had contacted stockholders such as John W. Anderson and Horace H. Rackham, who knew only that Webb represented the Old Colony Trust. Negotiations proceeded throughout the summer, and it was
only late in the process, according to Anderson, that “I had any inkling of who the purchaser of that stock was going to be.” By late July, all minority stockholders had been bought out, including the Dodge brothers. Around eighty-three hundred shares were purchased for $12,500 a share, except that James Couzens was paid $13,000because of his extraordinary contributions to the company. Henry Ford had stayed conspicuously on the sidelines throughout this process. “What interested me was the way I was left alone,” Webb reported later. “I was amazed how Mr. Ford could keep his hands off details.” When the deal was finally closed, however, the negotiators met with Ford to give him the news, at which time, according to one eyewitness, “he danced a jig all around the room.”
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At last the truth emerged. On July 17, it was announced that Ford had bought out minority interests as part of a larger “reorganization plan” for the company. A news release detailed the purchase and noted, “Mr. Henry Ford, though owning the controlling interest, took no part in the negotiations, but consented to and approved the purchase.” News stories reported that the Fords had received a $75million loan to help cover the acquisition of the minority stock. The Chase Securities Corporation of New York, the Old Colony Trust Company, and Bond & Goodwin advanced this credit.
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Thus Ford gained total control of the company. As a headline in
Motor Age
put it, “Purchase Paves Way for New Ford Era.” The success of the maneuver had freed Ford to conduct the affairs of his company according to his own lights, free of interference from the likes of John and Horace Dodge. Any talk of Ford's starting a new automobile enterprise vanished. As a public statement from the company noted, “Of course there will be no need of a new company now. We will develop our plans for a new car in the Highland Park plant.” In fact, however, Henry Ford's vision had already begun to extend beyond the confines of that facility. He had set his sights some miles to the southwest, to a spot not far from his home, near Dearborn. There he planned to build a car factory like none ever before seen.
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In the spring and summer of 1915, Fred Gregory, a real-estate agent, and four associates quietly began to purchase tracts of land in a remote area southwest of Dearborn. Located near the Rouge River, this district contained dozens of small farms, patches of forest, and abundant pastureland on its flat landscape. By the time they were finished, the Gregory group had bought some two thousand acres, but their purpose remained secret. What only a few insiders knew was that Gregory was Henry Ford's representative.

The reason for the secrecy gradually came to light—Ford planned to build on this acreage the largest industrial complex in the world.
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By the end of June, the plan had gone public, at least in part. The ostensible rationale for the new facility, according to Ford's announcement, was the production of tractors, a project in which he had become much interested. According to stories appearing in the Detroit
Journal
and
Automobile Topics,
he wanted to build a large factory that would eventually produce a million tractors a year. Moreover, the facility would include a blast furnace that would allow “Henry Ford to bring iron ore in boats … and turn the ore into motor cylinder heads and other auto and tractor parts without having either ore or iron pass through the hands of the middleman.”
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In fact, however, the blast furnaces and the tractor plant were but the first step in a much larger undertaking. Ford planned the creation of a massive manufacturing complex to replace Highland Park and produce automobiles on a scale that far surpassed anything in existence. Even more important, his blueprint called for a vast extension of the manufacturing process in order to construct an entire vehicle, from raw materials to finished product. The complex would include not only an assembly plant, but a port and a shipyard, a huge series of storage bins, a steelmaking operation, a foundry, a body-making plant, a sawmill, a rubber-processing facility, a cement plant, and a power plant. Thus the goal of River Rouge was not just a matter of sheer size but complete control of production, from the time iron ore came out of the ground until a Model T rolled off the assembly line.

The Rouge plant was Henry Ford's idea from the beginning, and two factors prompted his launching of the project. First, he became convinced that the company had maximized its productive capacities at Highland Park. Second, he believed that his company needed greater control over its supply of raw materials and parts. Having had several bad experiences with suppliers who withheld materials, Ford, according to one associate, did not wish to be “dependent to the point where he could be pinched … [and] having his whole set-up stymied.” But at a deeper level, he sought to be placed beyond the reach of financiers who could interfere with, or even buy out, his company. “I would tear down the plant brick by brick and scrape off the mortar before I would let this business get into the hands of capitalists,” he told a journalist who inquired about his new Rouge project and rumors that the Ford Company might be purchased. The best way to keep control of his company was to extend its reach to the very earliest stages of production.
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