I r I I ( III the coming ofage of capitalism's favorite child KenneoY The Coming ofAge ofCapitalism's Favorite Child THE AUTOMOBILE INDUSTRY O. ^=^2j. l\enneJii 7 HE fabulous story of the automobile industry from the horseless carriage days of 1900 to the streamlined model of 1940 is told in this comprehensive survey of capitalism's favorite child and our best example of large- scale industrial enterprise. The scene opens with the electric auto, which was more popular than the gasoline buggy, and then shifts to the Middle West with the formation of the pioneer com- panies of Oldsmobile, Buick, Cadillac, Packard, Hudson, Overland and Ford. Growing pains were soon manifest in the beginnings of mergers and in the mortality rate which, despite fantastic profits, had by 1915 eliminated six out of every seven companies founded up to then. Four chapters are given to the World War period, from which the industry emerged as a towering young giant. Control of General Motors passed from William C. Durant to the Du Fonts and it was on its way to becoming the biggest profit producer in all history. Ford bought out his minority stockholders and became king of all he surveyed. America turned its back on Europe and rolled through the dizzy twenties, led by the automobile. For the first time the problem of producing cars be- came secondary to the problem of selling them, and the auto maker was faced with time-payments, trade-ins, used cars and development of export business. Ford's famous Model T disappeared and the picture changed rapidly with the rise of Chrysler. The industry as a whole reached its top in 1925, and then declined into the precarious decade of the thirties. Today it enters a new and artificial era under a war economy, with many fundamental problems unsolved. Based in part on contemporary magazines and news- papers, The Automobile Industry is a vivid, lively chronicle of perhaps the most potent economic and so- cial force in American life. REYNAL & HITCHCOCK, INC 38b czJffutlk i=J-veii,ue, jVew Ljotk From the collection of the d 2 ^mk PreTinger a V Jjibrary P r: t San Francisco, California 2007 Digitized by the Internet Archive in 2007 with funding from IVIicrosoft Corporation http://www.archive.org/details/automobileindustOOI<ennrich THE AUTOMOBILE INDUSTRY E. D. KENNEDY THE AUTOMOBILE INDUSTRY The Coming of Age of Capitalism's Favorite Child REYNAL &. HITCHCOCK : NEW YORK COPYRIGHT, I94I, BY E. D. KENNEDY All rights reserved, including the right to reproduce this boo\, or portions thereoj, in any form RINTED IN THE UNITED STATES OF AMERICA Y THE CORNWALL PRESS, CORNWALL, N. Y. For Charles Contents 1. THE HORSELESS CARRIAGE 189O-I9OO I 2. BEGINNINGS IN DETROIT I9OO-I905 16 3. MONOPOLY AND MERGER I905-I9IO 42 4. THE PROFIT FORMULA 1910-1914 59 5. THE WAR BOOM I914-I919 85 6. THE FIRST CRISIS I92O-I92I II5 7. NEW TIMES, NEW PROBLEMS I922-I923 I38 8. THE GOLDEN AGE I924-I925 161 9. THE END OF MODEL T I926-I927 I78 10. THE END OF PROSPERITY I928-I929 I98 11. THE VANISHING CUSTOMER I93O-I933 224 12. SELECTIVE RECOVERY I933-I936 247 13. REPETITION OF A PATTERN I937-I938 278 14. THE ECONOMY OF WAR I939-I94O 308 15. SUMMING UP 314 INDEX 329 THE AUTOMOBILE INDUSTRY 1: The Horseless Carriage 1890-1900 IN 1892, Hiram Percy Maxim was superintendent of the Amer- ican Projectile Company's plant at Lynn, Massachusetts. His father, Sir Hiram Stevens Maxim, was the inventor of the Maxim gun; Hiram Percy was later to invent the Maxim silencer. In 1892, however, Hiram Percy was thinking about inventing an automo- bile. Not that he did his thinking in exactly those terms. Strictly speaking, the automobile was not an invention. It was the applica- tion of the gasoline engine to vehicular transport by land. Even the word "automobile" had not yet been imported from France. In Springfield, Massachusetts (about a hundred miles from Lynn), Charles Duryea was on the point of building the first American gasoline car. Six years before, in Mannheim, Germany, Carl Benz had solved the problem on which Duryea was working and about which Maxim was beginning to think. The world's first automobile was a German automobile which Benz had completed in 1886. But these were things which Maxim did not know. In those days there was little interchange of scientific information, and inventors were particularly given to working strictly by themselves. So Maxim, starting from first principles, thought of his problem as an entirely original exercise in the appHcation of gasoHne power to a vehicle that could move over the public highways without the as- sistance of a horse. As a graduate of the Massachusetts Institute of Technology and as a practicing engineer, Maxim was familiar with the principle of the internal-combustion engine. This type of engine, in its modern (four-cycle) form, had been perfected by Nicholas August Otto, . 2 THE AUTOMOBILE INDUSTRY who had patented his invention in 1877. By 1892 the Otto engine —as a stationary and marine engine—was in common use. A farmer near Lynn had an Otto engine which Maxim had often seen at work. To be sure, it was used to run a pump and its fuel was illuminating gas. Nevertheless, it was an engine—a source of power. It was, moreover, a source of power that might be put to a more ambitious purpose than supplying water to a New England farm. Maxim's first step toward the construction of an automobile was the purchase, in a West Lynn paint shop, of an eight-ounce bottle of gasoline. At that time, gasoline was considered a dangerous and, on the whole, obnoxious by-product of petroleum. Kerosene was then the primary petroleum product, and it v/as to control the sup- ply of kerosene oil that John D. Rockefeller had organized his famous trust. The paint-shop man told Maxim that everyone who had experimented with gasoline had ended by blowing himself up. But Maxim, although ignorant of the properties of gasoline, was used to explosives, and the warning left him unimpressed. He took the bottle back to the projectile plant and there poured one drop of gasoline into a six-pounder cartridge case. (A six- pounder cartridge case was a brass cylinder 2 J/2 inches in diameter and 12 inches in depth.) Plugging the open end, he rolled the cylinder around to let the gasoHne mix with the air. Then he took out the plug, stood the cylinder upright, and tossed into it a lighted match. There followed what Maxim describes as "a terrifying explosion"; a sheet of flame leaped out of the cylinder and the matchstick was blown up to the ceiling. Maxim did not then realize how many bil- lions of times in the future a mixture of air and gasoline would be exploded in a cyHnder, but he was deeply impressed by the immedi- ate result of his experiment. He tried again with two drops of gaso- line and got a less violent explosion. He found that the greater the amount of gasoline, the less vigorous the reaction (because the larger amounts of gasoline did not mix so thoroughly with the air) Finally he produced only a dull noise accompanied by a heavy cloud THE HORSELESS CARRIAGE j of smoke. Maxim was well pleased with his first experiment. He was rapidly becoming acquainted with the characteristics of his motor fuel. In several months of hard labor (after hours) , Maxim progressed from his cartridge case to a rudimentary one-cylinder engine. The engine had no cooling system. For a carburetor Maxim used a kero- sene can to the bottom of which he had fastened a copper tube. The gasoline ran from its "tank" (the kerosene can) through the tube and was dripped into the cylinder by means of a valve. But although Maxim now had what might be called an automobile engine, he did not have anything that could be called an automobile. There was no vehicle to which the engine could be attached. Not having the money to buy a carriage, Maxim spent $30 on a secondhand tandem tricycle. He needed at least a three-wheeled vehicle so that he would have something that would balance itself. As for the tandem ar- rangement, he had illusions about some day taking his girl for a ride on the extra seat. The tricycle-automobile was not, however, a success. To be sure, it ran. In a way, it ran altogether too well. The engine was much too heavy and powerful for the body, so that on its first trip the machine got out of control, ran off the road, and threw Maxim over the handle bars. This experience cured Maxim of any notions about giving his girl an automobile ride and even pf making any further road tests himself. He decided to postpone additional outdoor trials until he had saved enough money to get himself a four-wheeled body. Meanwhile, he continued to work on the engine. By 1894 he had a three-cylinder job that was considerably in advance of its day, but which he had no way of trying out on the road. Maxim lacked the determination—the fanatic quality—of the true inventor-pioneer, and his automotive career might well have ended at this point. In the spring of 1894, however, he paid a visit to Hart- ford, Connecticut, and took a trip through the plant of the Pope Manufacturing Company. Here Colonel Albert A. Pope built car- riages, bicycles, and a few motor carriages driven by electric motors.