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.
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.”
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.
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.
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.
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.