Kaiser-Frazer Fails to Crack the "Big Three"
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KAISER-FRAZER FAILS TO CRACK overtures to purchase Chance-Vought Corporation, an THE "BIG THREE" aircraft manufacturer, although he did not complete that merger, which created Ling-Temco-Vought (LTV), until 1961. The Kaiser-Frazer Company merged with Willys- Overland Motors, Inc., on 23 March 1953 pur- THE MILITARY-INDUSTRIAL COMPLEX chasing Willys-Overland for $62 million. The deal was the largest merger in the history of the Amer- No Profit in Peacetime. Cold-war politics dictated ican automotive industry, making the merged that the United States maintain a standing army, navy, companies the fourth largest automaker in the and air force equipped with modern weapons. But no United States. In reality it represented the end of profit existed in making weapons during peacetime — the attempt by industrialist Henry J. Kaiser to even the purchases of the U.S. military proved too small claim a share of the market dominated by the "Big to support many of the major defense companies. Manu- Three" automakers: Ford, General Motors, and facturers anticipated and planned for peacetime lulls in Chrysler. Much of the capital for the merger came their production, but ultimately the government had to from Bank of America and its affiliate, Trans- support defense contractors with constant new orders or america. subsidize them directly with cash payments. Reasoning that it never hurt to have state-of-the-art equipment, the Kaiser-Frazer, which Kaiser and his well-con- government pursued the policy of continually developing nected partner Joseph Frazer created in 1945, had and deploying new weapons systems. This policy also consistently lost money despite increasing sales. In kept most of the major manufacturers' production lines 1950, after he had taken over full control of opera- primed in case of emergency. Near the end of his presi- tions, Kaiser admitted that the company was "al- dency, in 1961, Eisenhower cautioned Americans about ways completely undercapitalized." That year Kai- the growth of this new sector of the economy, which he ser introduced the Henry J. model, a four-cylinder called the "military-industrial complex." compact car that cost $2,000. It did not attract the Missiles. Aircraft manufacturers such as Convair, small-car buyers, however, who bought Lockheed, and North American Aviation that were able Volkswagens, and by 1954 Kaiser ended produc- to make the transition to missile production in the 1950s tion of the Henry J. At the time of the Kaiser- found a solid, if somewhat erratic, profit in defending the Frazer/Willys-Overland union, the two companies nation. In 1955 North American correctly anticipated were both ailing. Kaiser thought the marriage significant gains in missile work and restructured into might pump life into them. Instead, it signalled three divisions in order to meet the government's needs: the end of his run on the Big Three. Kaiser ceased Rocketdyne produced engines; Aeromatics produced auto production in the United States in 1955, sell- guidance systems; and Atoms International produced ing his Willow Run plant near Detroit to General warheads. Between 1956 and 1961 Convair's missile sales Motors for $26 million, the amount of a debt almost tripled, and Lockheed's nearly doubled. Aero- owed to the Reconstruction Finance Corporation. space manufacturers drew half their earnings from mis- Source: Mark S. Foster, "Henry J- Kaiser," The Automobile Industry: siles and other defense-related production by the end of 1920-1980 (New York: Facts On File, 1989), pp. 224-230. the decade. The Gun Belt. This "defense boom" directly benefited the southwestern states and California, where most of the ceived 46 percent of the industry's income in 1954.) NBC defense plants were located. Secluded desert areas and president David Sarnoff scoffed at the notion: his com- proximity to the Pacific Ocean made possible secret, safe pany lost money five of its first nine years. Such cases testing of missiles and aircraft. The plants were also near such government research facilities as Edwards Air Force convinced business leaders and some scholars and policy Base, the Western Development Division of the Air Re- makers that the antitrust laws needed revision. search and Development Command, and the Ames Test The Conglomerate Wave. By the end of the decade a Center. Clearly Texas, California, and the states between new type of merger also appeared, in which unrelated them — dubbed the "gun belt" — provided the most ad- companies joined in an organizational structure called a vantageous locations for defense contractors. East-coast conglomerate. The conglomerate wave continued into aircraft manufacturers such as Grumman, Fairchild, and the 1960s. A typical early conglomerate originated when Curtiss-Wright were unable to keep up. Led by the Jimmy Ling of Dallas started an electrical-contracting growth of the defense industry, political and economic business, then purchased other electrical-contracting clout shifted somewhat by the end of the decade, from companies, then finally positioned the company to buy, the Northeast to the South and Southwest. in 1960, the Temco Company, a producer of military Civilian Industry Benefits. The military-industrial aircraft and missiles. That same year he made his first complex also benefited nondefense industries by provid- BUSINESS AND THE ECONOMY 97 later the secretary of the air force announced a cut of 147 THE RISE OF TRW B-52s produced by Boeing, then suddenly reversed him- self to order expanded production of the bomber. In 1953 Congress suggested that contractors and the armed forces Military interservice rivalries had much to do conspired to pad the Defense Department's budget. A with the shift of defense business from the frost House government operations subcommittee headed by belt to the sun belt. The U.S. Air Force, freed Rep. R. Walter Riehlman (R-New York) demanded that from army control by the late 1940s, was the ben- the military punish those responsible for spending $3 eficiary of the Strategic Missiles Evaluation Com- million on "useless" navy forklifts, $45 million for "un- mittee (the "Teapot Committee"), which in 1954 suitable" army overcoats, and $1 million for unnecessary recommended a six-year crash program for R&D air-force chain-link fences. The subcommittee demanded in ballistic missiles. It proposed that the air force that Secretary of Defense Charles E. Wilson explain his lead the new effort, based on the West Coast at plan to end "costly and wasteful" service loyalties and Western Development Division (WDD), which correct other "deficiencies" harming the purchase and was created in 1954 and located in Inglewood (Los distribution of supplies. Appropriately or not, however, Angeles). the government continued to spend growing amounts on defense: by the end of the decade defense spending stood Meanwhile two engineers in the Howard Hughes at $46.4 billion, a 38 percent increase over 1949 levels. aircraft organization, Simon Ramo and Dean Sources: Wooldridge, had built up a huge scientific and en- Roger W. Lotchin, Fortress California, 1910-1961: From Warfare to gineering organization within Hughes. At one Welfare (New York: Oxford University Press, 1992); time they oversaw the work of four hundred scien- Ann R. Markusen, The Rise of ¿he Gunbelt: The Military Remapping of tists. Ramo and Wooldridge left the Hughes oper- Industrial America (New York: Oxford University Press, 1991). ation in 1953, joining with a Cleveland aircraft- engine firm called Thompson Products. They were THE NATIONAL HIGHWAY ACT AND given the green light to form a new California- THE AUTO INDUSTRY based company "to apply creative science and tech- New Highways. By the 1950s Americans had made a nology both to military and nonmilitary applica- firm commitment to private cars over public mass trans- tions." Although only Ramo, Wooldridge, and two portation such as buses and trains, even though it meant other employees opened the business during its higher personal expense, traffic jams, and occasional frus- first days, the company had 220 contracts and trations. The dominance of the transportation field by thousands of subcontractors. In 1958 Thompson the automobile and trucking industries was assured when merged with Remo-Wooldridge to form TRW, Congress passed the National Highway Act in 1958. which produced everything from engine parts to America already had 1.68 million miles of surfaced road famous racing pistons. But the primary defense in 1950 — up from 1.34 million in 1940 — but the high- work went to California. way act promised a significant improvement over even Source: "Teamwork Across 2,000 Miles," Business Week (29 November 1958): 52+. those paved roads by funding the building of wider, safer, more-modern four- to eight-lane freeways. Justified as a defense measure to speed the transport of troops in an emergency, the new freeways benefited the average American, who could shave days off cross-country auto ing the basis for tremendous amounts of research and trips by avoiding the "backroads." Also as a result, once- development (R&D) in the decade. Scholars still debate legendary highways such as Route 66 were virtually aban- whether the computer or the jet passenger aircraft would doned in favor of the new freeways. have appeared when it did, without military R&D or subsidies. Inarguably, however, technology that had been American Independence. Although frequently criti- designed for the military was also found to have civilian cized as extravagant or wasteful, transportation by private applications. The complex also benefited academic re- autos gave Americans an independence that no other search: in 1956 Lockheed transferred its missile research nation had. Drivers enjoyed greater safety and comfort division to Stanford University and built new labs at Palo than they could expect on subways or buses. For Ameri- Alto for military R&D. cans their private means of transportation was part of A Strained Relationship. But the tight relationship their lives: in 1950 there was one passenger car for every between business and the military was still occasionally 3.75 Americans, representing ownership of some forty strained.