JP Morgan Rejects GM’s Pleas, the Company Thrives; Morgan Bails Out GM, The Founder Lost His Job September 16, 2010

Nice Guess

On this Date in History: I read an article from the Wall Street Journal from January of 2008. It read that oil prices were around $90 a barrel and were expected to remain around that level. It had a quote from a learned man who said, at that time,  that he expected the price of oil  to drop to about $67 a barrel.   While he didn’t put a time qualifier on the statement,  about 6 months after this artcle came out the price of oil was over $140 a barrel.  I related this story to one of my classes and one student said that it sounded like someone sucks at their job. The point is we often hear these great ideas and pontifications from “experts” that turn out to be wrong by a long shot, if not completely opposite of reality.

Durant Was No Quitter

At the dawn of the 20th Century,  animal power remained much of the energy that drove the economy, though certainly not as much as at the turn of the 19th Century.  Aside from the railroads, animal power was particularly necessary for transportation and for agricultural interests. A United States Senator, Chauncey Depew, said with full confidence that “nothing has come along to beat the horse.”  He suggested to those who might invest in alternative forms of transportation to “keep your money.” Now, one who is looked up to as one who had a great financial mind and who was quite savvy in investing was J. P. Morgan. Well, Morgan had a chance to get into the automobile business in 1908 when he was approached by William Crapo Durant for a loan. Durant and Benjamin Briscoe wanted financing for the proposed merger of their two fledgling automobile companies, Buick and Maxwell-Briscoe. Durant told Morgan that automobile sales would reach a half million per year. Upon hearing Durant’s prediction, one of Morgan’s partners sniffed, “If he has any sense, he’ll keep such notions to himself.”

Depew Left Holding the Horse Shovel

Well, the deal didn’t go through and Briscoe is left to the asheep of history. But Durant soldiered on without any backing of financiers and formed a holding company on this date in 1908 with $2000 and without J.P. Morgan. Instead, he sold shares of stock and raised about $12 million in a couple of weeks. He called it General Motors. He acquired Olds Motor Works later that year, then subsequently bought Cadillac, Pontiac (originally known as Oakland), Cartercar, Ewing and Elmore. But, in 1910, Durant was in a tight financial situation and he turned to competitors of Morgan for help. Durant apparently used the financing to continue to acquire other companies. That led to more problems but, by then,  automobiles were getting popular enough that I suppose JP Morgan had changed his mind.   Around 1920, General Motors found itself with $30 million in debt and huge obstacles ahead. Durant went back to Morgan and Pierre du Pont who were two giants of the financial world. The financiers saved the company but effectively finished off Durant at GM. See, part of the deal was that Durant was out and du Pont took over as President. But, don’t feel too bad for Durant. He’s one of those guys who never quit, following the advice of the old gridiron sage, Granville Hambright who often told his Junior High football players that “a winner never quits and a quitter never wins.”    Durant went on to found a new company. You might have heard of it…Chevrolet.

Sloan: Father of Modern Corporation?

Dupont served as President of GM until 1923 when he turned the reigns over the Alfred P. Sloan who focused his attention on managing the company more effectively. Ever wonder why there are new models to cars every year? It was Sloan’s idea. How about the different pricing structure of different brands in the company? That was Sloan too. By the late 1920′s, GM passed Ford as the leader in automobile sales.  For his company,  Henry Ford  focused his attention on more efficient manufacturing instead of management, marketing and finance. Later in the 20th century, GM became the largest corporation in the world…a title it later lost and did so in quite a spectacular fashion.

Ford Legacy: Don't Give Up Control

Some interesting aspects of this story. First off, it took the geniuses like Morgan a dozen years to figure out that a visionary like Durant was right all along. Durant had the vision but he didn’t have the know-how regarding making his dream come to fruition. What is interesting is that Henry Ford rebuffed the attempts of outside financiers to take over Ford Motor Company when things turned tough in the Depression. Yet, General Motors has an early history of near disaster before they got it right.

At the first part of the 20th century, General Motors needed help and so they went to private financial institutions for that help. When they were denied, founder Durant figured out a way to move ahead while some of his competitors went by the wayside. Then additional help came in the form of the previously reluctant Morgan. Ford probably worked with Morgan on a number of deals, but none with the expressed intent of saving the company. In fact, in the early 1920′s when Ford faced potential bankruptcy, Henry Ford turned down financing from big investment houses who required that Ford turn over control of the company, like Durant did. In the early 21st century, it’s deja vu. But, this time, General Motors turned to the Federal Government (taxpayers) to get saved and private investors (stock holders, bond holders) ended up with the short end of the stick. Instead of financiers like du Pont taking control of the company, the government fired the head of GM. Meanwhile, Ford did not take government money and continues to move forward and maintain control of the company, in the same tradition of the company’s founder, Henry Ford.   While Ford Motor Company in late 2010 still had about $27 Billion in debt, it had reduced its debt by $4 Billion, had positive cash flow and the outlook for Ford looks bright in some circles with some analysts project Ford having more cash than debt by 2012.  But, be careful, those are just “expert” opinions and remember, Morgan’s experts thought that the automobile was a loser investment 100 years earlier.  What a difference a century makes. In some ways, not one bit. In other ways, a huge difference.

Weather Bottom Line:  We got the light rain in the morning but it doesn’t look like it will help advance the notion of rain, let alone thunderstorms on Thursday evening or afternoon.  It’s just too stable an atmosphere and that’s too bad because we need the rain.  This was our big chance and it wasn’t too good to begin with.  Look for a pleasant Friday with a return to hot, but relatively dry, conditions for the weekend into early next week.

Car Ahead of Its Time For All Time February 17, 2010

1946 Volkswagen

Volkswagen 1975...not much difference after 31 years

On This Date in History:  Back in the early 1930′s, the world was mired in a global depression.  Europe was still reeling from the effects of the First World War.  Consumer consumption of products was low.  So, in 1933, the United States swore in a new president.  Franklin D. Roosevelt went about trying to revive the American economy.  In Europe, the leader of a nation went to a young automobile engineer with a proposal that was in the form of a demand.  Ferdinand Porsche had developed a reputation as an outstanding designer during his tenure at Daimler-Benz and Auto-Union and had developed his own consulting business.  He was asked to come up with a small car that seated four people, had a durable air-cooled engine that got 4o miles per gallon and was priced at less than $250 (1000 German Marks).   The leader of Germany even had a name for the yet-to-be-created car:  The Volkswagen which means “people’s car.”

What was mistaken (by me) as a 1944 Volkswagen Wartime Staff Car Variation Is Really A Mercedez Benz 170 Da OTP(Open Touring Police) as per it's owner, Richard.

Of course, the leader was Adolph Hitler and a few months later, he ordered 3 prototypes to be built and also more or less ordered the nation’s manufacturers to supply the parts.  Porsche was in a fix.  The engineering was not the problem but instead it was the economics.  The man who perfected the mass production of automobiles, Henry Ford, turned out cars at a low cost but even his cars ran about $800.  It was a daunting task to undercut Henry Ford by over 2/3 and still produce a quality car.  Given that the request came from the German Chancellor who was gathering unrivaled political power through both legal and violent means, the pressure must have been enormous.   But, old Ferdinand had a secret.  See, Hitler demanded delivery of the prototypes in just 10 months but Porsche was ahead of the game.   The year before he had designed a rear engine, air-cooled small car on his own.   But, there was the issue of the cost.  So, it was back to the drawing board.

VW Kubelwagen 1944-Germany's Answer to the Jeep

But Porsche had other interests as he split time with his efforts to help German racing teams and he was more interested in that than in living up to Hitler’s public announcements that soon there would be an affordable car for all Germans.  And the German Automobile Manufacturers Society wasn’t exactly racing to provide materials because they knew all they were doing was helping create a new competitor in the market.  Porsche though was still pushed so he went to America to take notes on how the Americans mass-produced cars.  He determined that there was no way that the German financial system could support the development of such an endeavor and that the government would have to do it.  As it turns out, before production of the people’s car could get off the ground, Hitler started invading countries all over Europe.  The factory never delivered what has become known as the Beetle.  Instead, the factory was retooled and an stronger, more powerful rear engine  open vehicle was created called the Kubelwagen.  It had similar capabilities of the American Jeep.  It also served as the German Staff Car during the war.  Later, the Kubelwagen variation created by Porsche came back to life as the VW Thing.

1974 VW Thing Looks A Lot Like 1944 Kubelwagen

But, the Thing came about after the Beetle and the Beetle, aka the people’s car, did not come to life until after the end of the Second World War.  The factory fell into the British zone of divided post-war Germany.  The British needed to keep workers busy so, after finding the blueprint of Porsche’s design, the put the factory personnel to work.  By 1948, the British put BMW designer Dr. Ing. Heinz Nordhoff in charge of Volkswagen.  Nordoff remained at the helm when the plant was turned over to the new West German government and by 1955, Beetle number 1,000,000 rolled off the assembly line as the first European car to ever achieve such a production level.  But, they weren’t done.  Americans stationed overseas had first brought the Beetle to the states as a second car.  But, quickly, the car that was dwarfed by the mammoth cars put out by Detroit fulfilled Hitler’s promise to the American people.  While it was slow and quite small, the Volkswagen was very durable, required little maintainance, was very miserly with gas compared to American gas guzzlers and was generally affordable for people who otherwise could not afford cars. 

Porsche: The Real Genius Behind the Beetle

Henry Ford with his Model T had acheived that objective before the Beetle, before Hitler and before anyone else.  But, by the 1950′s Detroit kinda moved away from that business model and the Beetle fit that nitch market quite nicely.  And it continued to do so.  On this date in 1972, Volkswagen put out Beetle number 15,007,034 rolled off the assembly line to surpass Ford’s Model T for the most produced car in all of history.  While Volkswagen became the name of the company instead of the car, and the original Beetle model was eventually discontinued in the United State and replaced by a new, more expensive Beetle with more of the luxuries that Americans demand, the old model Beetle remains in production in Mexico.   Seems that every time I’ve been in Mexico, the cab I rode in was either a Beetle or a Thing…both relics of World War II.  Most people though think that Hitler came up with the Beetle and he didn’t;  it was Ferdinand Porsche.  And what became known as the Beetle wasn’t even offered to the public until after the war.  I think the story of the People’s Car is a good metaphor for Hitler in some regards because he falsely took credit for someone else’s genius and he then made a promise to the people that he never kept.

NWS snowfall depiction through Tue Feb 15 2010

Weather Bottom Line: I don’t have much to add today except that I had about 4.5 inches of snow at my house and the National Weather Service had an official total for the event through early Tuesday of just around 4 inches with the weather service office closer to 5 inches or so.   Yet, the newspaper trumpted in it’s headlines Tuesday morning “6 Inches and Counting.”  It reminds of of the flood in parts of the city in early August when the paper quoted all of these rain totals that were based on rumor and not fact as no measuring device could come close to verifying what city officials and the paper claimed.  But, to be sure, some folks got a little more than 5-6 inches of snow and some got less.  From driving around it seems like Jefferson County got 4-5 inches in general with the 6-8 inch totals falling north of the river or northeast of Louisville.  The NWS made a very general map seen above.  A few flurries on Wednesday and it stays cold.  The next system seems to be falling behind with the models and there is a better than fair chance that we warm up a little and get rain for the second half of the weekend before a little snow on the tail end for Monday.  But, there is no consensus with this solution except that the GFS is starting to show some consistency. We’ll have to see how it shakes out over the next few days but I strongly suspect its more of a rain event than snow.

Once Upon a Time, General Motors Didn’t Get a Bailout September 16, 2009

Nice Guess

On this Date in History:  I just read an article from the Wall Street Journal from January of 2008.  It read that oil prices were around $90 a share and were expected to remain around that level.  It had a quote from a learned man who said that he expected the price of oil at that time to drop to about $67 a barrel.  Now, he didn’t put a time qualifier on the statement but just about 6 months after this artcle came out, the price of oil was over $140 a barrel.  My student said that it sounded like someone sucks at their job.  The point is we often hear these great ideas and pontifications from “experts” that turn out to be wrong by a long shot, if not completely opposite of reality.

Durant Was No Quitter

At the dawn of the 20th Century, animal power remained a large part of the energy that drove the economy.  Particularly when that involved transportation.  A United States Senator, Chauncey Depew, said with full confidence that “nothing has come along to beat the horse.”   He suggested to those who might invest in alternative forms of transportation to “keep your money.”  Now, one who is looked up to as a great financial mind who was quite savvy in investing was J. P. Morgan.  Well, Morgan had a chance to get into the automobile business in 1908 when he was approached by William Crapo Durant for a loan.  Durant and Benjamin Briscoe wanted financing for the proposed merger of their two fledgling automobile companies, Buick and Maxwell-Briscoe.  Durant told Morgan that automobile sales would reach a half million per year.  Upon hearing Durant’s prediction, one of Morgan’s partners sniffed, “If he has any sense, he’ll keep such notions to himself.”

Depew Left Holding the Horse Shovel

Well, the deal didn’t go through and Briscoe is left to the asheep of history.  But Durant soldiered on without any backing of financiers  and formed a holding company on this date in 1908 with $2000 and without J.P. Morgan.  Instead, he sold shares of stock and raised about $12 million in a couple of weeks.   He called it General Motors.  He acquired Olds Motor Works later that year, then subsequently bought Cadillac, Pontiac (originally known as Oakland), Cartercar, Ewing and Elmore.  But, in 1910, Durant was in a tight financial situation and he turned to competitors of Morgan for help.  Durant apparently used the financing to continue to acquire other companies.  That led to more problems but  I suppose that automobiles were getting  popular enough that JP Morgan changed his mind.  Around 1920, General Motors found itself in $30 million in debt and huge problems ahead.  Durant went back to Morgan and Pierre du Pont, two giants of the financial world.  The financiers saved the company but effectively finished off Durant at GM.  See, part of the deal was that Durant was out and du Pont took over as President.   But, don’t feel too bad for Durant.  He’s one of those guys who never quit, following the advice of the old gridiron sage, Granville Hambright.  He went on an founded a new company.  You might have heard of it…Chevrolet.

Sloan: Father of Modern Corporation?

  Dupont served as President of GM until 1923 when he turned the reigns over the Alfred P. Sloan who focused his attention on managing the company more effectively.   Ever wonder why there are new models to cars every year?  It was Sloan’s idea.  How about the different pricing structure of different brands in the company? That was Sloan too.  By the late 1920′s, GM passed Ford as the leader in automobile sales and Henry Ford had focused his attention on more efficient manufacturing instead of management, marketing and finance.  Later in the 20th century, GM became the largest corporation in the world…a title it later lost and did so in quite a spectacular fashion. 

Ford Legacy: Don't Give Up Control

Some interesting aspects of this story.  First off, it took the geniuses like Morgan a dozen years to figure out that a visionary like Durant was right all along.  Durant had the vision but he didn’t have the know-how regarding making his dream come to fruition.  What is interesting is that Henry Ford rebuffed the attempts of outside financiers to take over Ford Motor Company when things turned tough in the Depression.  Yet, General Motors has an early history of near disaster before they got it right. 

At the first part of the 20th century, General Motors needed help and so they went to private financial institutions for that help.  When they were denied, founder Durant figured out a way to move ahead while some of his competitors went by the wayside.  Then additional help came in the form of the previously reluctant Morgan.  Ford probably worked with Morgan on a number of deals, but none with the expressed intent of saving the company.  In fact, in the early 1920′s when Ford faced potential bankruptcy, Henry Ford turned down financing from big investment houses who required that Ford turn over control of the company, like Durant did.  In the early 21st century, it’s deja vu.  But, this time, General Motors turned to the Federal Government (taxpayers)  to get saved and private investors (stock holders, bond holders) ended up with the short end of the stick.  Instead of financiers like du Pont taking control of the company, the government fired the head  of GM.   Meanwhile, Ford did not take government money and continues  to move forward and maintain control of the company,  in the same tradition of the company’s founder, Henry Ford. 

What a difference a century makes.  In some ways, not one bit.  In other ways, a huge difference.

Rain Mainly South Thu Evening

Weather Bottom Line:  The other day I told you about the inverted trof to the south and the front to the north and I opened up the possibility that the front might sag farther south and, if it did, our rain chances would not be so good.  Well, that’s the story.  While we may have a errant shower or two, particularly to the south, rain chances probably won’t get to anything worthwhile until the second half of the weekend when a storm system from the southwest may lift at least toward our way.  Hey, it’s September….one of the driest months in Louisville annually.