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- Excerpt
Billy, Alfred and General Motors
The Story of Two Unique
Men, a Legendary Company,
and a Remarkable Time
in American History
by William Pelfrey
INTRODUCTION
General Motors and Ford almost merged once, in 1908, when
J.P. Morgan tried to put together a deal between four major
car makers: Ford, Buick, Olds, and Briscoe-Maxwell. The
secret meeting between the charismatic heads of these
companies is retold in the excerpt, below.
What's amazing about this excerpt is that all the parties
involved agreed to the merger -- including the enigmatic
Henry Ford. It looked like a done deal, to be called the
"International Motors Corporation" -- a name picked out by
J.P. Morgan. Suddenly, the deal unraveled. The reasons are
complex, involving the psychology of self-made men vs.
schooled managers, distributed vs. central control, and
inventors vs. the financiers they hated but couldn't grow
without. W.C. "Billy" Durant, who attended the meeting as
the head of Buick, went on to make the deal later that year
-- without Ford -- and called the new company "General
Motors."
The excerpt is written by National Book Award nominee
William Pelfrey. A veteran freelance journalist and GM
insider, Pelfrey recreates the events of that day using
obscure newspaper accounts, personal letters, and other
previously unpublished documents. More information about
the author and the book follows the excerpt. Enjoy!
How General Motors and Ford Almost Merged
by William Pelfrey
[EDITOR'S NOTE: * indicates the source of the quotation is
the unfinished manuscript of William C. Durant, entitled
"The True Story of General Motors," housed in the Durant
Collection, Scharchburg Archives, Kettering University.]
The biggest adventure of all began with what Billy
described as an unexpected phone call from Chicago.
The caller was Ben Briscoe, who had established close
relations with the all-powerful House of Morgan in New York
City after dumping his interest in the failing Buick
enterprise on James Whiting in 1904. J.P. Morgan and
Company agreed to back Briscoe with a bond issue of
$250,000 to acquire Jonathan Maxwell's automobile
enterprise, which at the time was only slightly healthier
than David Dunbar Buick's business. The Morgan bankers were
finally taking notice of the automobile industry's
potential and saw the underwriting of Briscoe as a low-risk
way to enter the market. The also wanted to make sure that
the concentration of manufacturing operations in the
Midwest was offset by at least one major operation in the
East. At the insistence of Morgan, the renamed Maxwell-
Briscoe Company proceeded to build a new plant in
Tarrytown, New York, on the banks of the Hudson River.
Within a year, the plant was up and running.
The first Maxwell-Briscoe cars were immediately successful,
but by the spring of 1908, Briscoe (like so many others)
was convinced that the inevitable shakeout among
manufactures would come sooner rather than later.
Accordingly, he had an idea to run by Billy Durant. As
Billy described it:
"I was dining with my daughter, Mrs. E.R. Campbell, when I
was called to the phone. Chicago on the line, Briscoe
calling."
"Briscoe: 'Hello, Billy, I have a most important matter to
discuss with you and want you to take the first train to
Chicago.'"
"Durant: 'What's the big idea, Ben?'"
"Briscoe: 'Don't ask me to explain, it's the biggest thing
in the country, there's millions in it, can you come?'"*
Durant told Briscoe he couldn't come to Chicago, he was too
busy; but he would have breakfast with him in the morning
if Briscoe could catch the evening train to Flint. Briscoe
agreed, and Billy met him at the Flint train depot at seven
o'clock the next morning. They had a quick breakfast at the
nearby Dresden Hotel and then proceeded to Billy's office
at the Buick plant to discuss Briscoe's big idea.
The idea was a consolidation of carmakers on the lines of
U.S. Steel, whose creation in 1901 had been orchestrated by
J.P. Morgan himself. Morgan now wanted Briscoe to feel
Durant out on the idea of a similar automotive merger. As
Billy recalled it:
"One of the partners of J.P. Morgan and Co. had made a
small investment in the Maxwell-Briscoe Co. when it was
first organized. Pleased with progress the company was
making and recognizing the possibilities, he asked me if a
sufficient number of motor car concerns could be brought
together to control the industry. How would the leading
companies regard a consolidation? Would Briscoe canvass the
situation and report [to Morgan]? At that time trusts and
combinations were the order of the day -- promotions of all
kinds encouraged by big banking interests. Biscoe had no
well-considered plan but wanted to get my ideas."*
Despite his years as a professional stock trader in New
York before taking on the Buick challenge, there is no
record of Billy Durant having ever dealt directly with the
House of Morgan before Briscoe made his pitch. If he had,
he may well have told Briscoe good-bye on the spot.
Durant's business record (like that of all the other
strong-willed auto industry leaders of the day) indicates a
temperament that would never willingly cough up the kind of
money and operational control that was the J.P. Morgan and
Company policy in underwriting mergers. That policy was
spelled out by Morgan partner George Perkins, who
eventually became the lead intermediary in trying to put
together the first automotive merger:
"Morgan and Company would investigate, consulting and
questioning the various producers in the field as to their
interests and opinions. Then the firm would prepare a plan
and submit it to the chief corporations in the industry. If
approved, the House of Morgan would estimate the working
capital necessary to organize the new concern, and form a
syndicate to raise the money. If $10,000,000 were needed,
the syndicate would issue $15,000,000 in stock, the extra
millions representing the syndicate's 'bonus'...Morgan
would also insist upon choosing all the officers and
directors of the new company. This point Morgan and Co.
have found indispensable in making their combination."
(Bernard A. Weinberger, "The Dream Maker," Boston: Little,
Brown, 1979, p.128)
Perkins's description of more than a century ago remains a
remarkably accurate depiction of the way most investment
banks still put deals together today. It also explains why
they were feared, respected, and needed all at the same
time, then as now.
At this meeting with Durant in Flint, Briscoe suggested
bringing together no less than twenty companies for
discussions. He then asked Billy what he thought. Billy
told him he did not think it was workable, with so many
different parties and too many conflicting interests to be
reconciled.
Billy asked, "Why not modify your ideas, Ben, and see if
you can get together a few concerns committed to volume
production in the medium-priced class, all having a common
objective, all heading for a highly competitive field?"* He
went on to suggest Ford, Maxwell-Briscoe, Buick, and Reo,
then the four dominant companies of the industry. (Reo had
been formed by Ransom E. Olds after his falling out with
his financial backer Fred Smith and his Oldsmobile
management team and was now actually outselling
Oldsmobile.)
Durant further suggested that Briscoe meet personally with
Henry Ford before any of the others, explaining that Ford
was "in the limelight, liked publicity, and unless he could
lead the procession, would not play."* He told Briscoe,
"Get Ford if possible, then take the matter up with R.E.
Olds. When and if everything is arranged to your
satisfaction, advise me the time and place and I will
attend your meeting."*
Regardless of how much each player actually knew of the
Morgan bankers' modus operandi, a new game was afoot. The
fact that all the players quickly agreed to what Billy
suggested that morning is testimony to how nervous and
uncertain each man was about who would survive in the young
but ruthlessly competitive and wide open automobile
industry.
BILLY BRINGS THE BIG FOUR TOGETHER...
With J.P. Morgan and Company still in the background,
Briscoe informed Durant two weeks after their Flint
breakfast that Henry Ford and Ransom Olds would like to
meet with the two of them in Detroit. The designated place
was the Penobscot Building (then Detroit's tallest
building, still standing and occupied today) rather than
the more popular Pontchartrain Hotel, where Durant and all
other self-respecting nonresident auto barons always
stayed.
When Billy arrived, he saw the others waiting in a crowded
public area with a cadre of "associates and advisers." He
immediately feared that they would draw attention and
headlines. As he observed:
"I sensed that unless we ran to cover, plenty of
undesirable publicity was in the offing. As I had
commodious quarters in the Pontchartrain Hotel and as
luncheon hour was approaching, I suggested that we separate
(in order not to attract attention) and meet in my room as
soon as convenient, giving the number of the room and how
to locate it without going to the office. This was
accomplished and I had the unexpected pleasure of
entertaining the entire party until mid-afternoon."*
Durant let Briscoe open the meeting. Not one to beat around
the bush, Briscoe explained that the objective was to come
up with a plan for merging the four companies that might
appeal to J.P. Morgan and Company.
Then came what Billy called "a painful pause."
Durant himself broached the subject of the value of the
companies, throwing out a figure of $10 million for Ford
Motor, $6 million for Reo, and $5 million for Maxwell-
Briscoe, but not offering a figure for Buick.
When Briscoe finally asked what Buick was worth, Billy
replied only that "the report of the appraisers and
auditors and the conditions and terms of the agreement"
would answer that question.
With tension already in the air, the discussion then moved
quickly to the nitty-gritty of all merger negotiations: How
would the new entity be managed? Who would be the boss? How
would the different companies be represented in management?
Briscoe and Durant led the discussion, and their differing
views remain a remarkably accurate summary of the debate
over centralized control versus operational independence
that is still conducted within large companies and among
potential partners every day.
As Billy Durant recalled the discussion:
"Briscoe took the position that the purchasing and
engineering departments should be consolidated, that the
advertising and sales departments should be combined, and
that a central committee should pass on all operating
policies. I took the position that this would only lead to
confusion; that there should be no change or interference
in the manner of operating, that the different companies
should continue exactly as they were. In other words, I had
in mind a holding company. Briscoe came back jokingly with
'Ho! Ho! Durant is for states' rights; I am for a union.'"*
Eerily, it was the same difference in opinion and
philosophy that would eventually lead to the General Motors
crisis of 1920 and the final parting of Billy Durant and
Alfred Sloan.
Billy also noted that Henry Ford was the only person who
remained silent during the meeting. Despite the sharp
difference between Durant and Briscoe, the discussion kept
going, with Billy recalling, "Business conditions and the
future of the industry were forecast, the hazards and
uncertainties were gone into thoroughly, the desirability
of a controlling organization agreed upon, the meeting
breaking up with the best of feeling with a statement from
Mr. Briscoe that he would see his people and report, and
that, in all probability, we would be invited to meet in
New York in the near future."*
From that point, the House of Morgan took charge of the
game, and none of the players would end up happy with its
rules.
HENRY FORD KILLS MORGAN'S BIG DEAL
The exact dates of the various meetings following that
initial session in Detroit are contradicted by the various
players: James Couzens, Henry Ford's point man, and Ransom
Olds both left sketchy diaries that put the most intense
meetings in January 1908, while Billy Durant puts them in
May (around the time of his divorce and remarriage). Most
historians give credence to the January time frame but also
concur with Durant's recollection of the substance of the
conversations. (See Arthur Pound, "The Turning Wheel," New
York: Doubleday, Doran and Company, 1934, pp.111-118; May,
"A Most Unique Machine," pp.300-303; and Weisberger, "The
Dream Maker," pp.123-128)
Regardless of the exact dates, the House of Morgan
contacted all four principles shortly after Briscoe's
report. The next meeting was arranged in New York and held
at the law offices of Ward, Hayden and Satterlee at 120
Broadway rather than the fabled House of Morgan at the
corner of Broad and Wall Street (opposite the New York
Stock Exchange). Herbert Satterlee was a partner in the
firm and happened to be J.P. Morgan's son-in-law. Satterlee
led the discussion and immediately asked the kinds of
questions that today make all executives wince in the
presence of competitors and in the absence of their own
attorneys: How much capital did each bring to the table?
What would each gain by the merger? Would a consolidation
attract or discourage competition? What were their
objections, if any, to the merger?
Significantly, only Henry Ford raised any objection. As
Durant recalled, "He [Ford] thought the tendency of
consolidation and control was to increase prices, which he
believed would be a serious mistake. He was in favor of
keeping prices down to the lowest possible point, giving
the multitude the benefit of cheap transportation."*
Ford's comment reflected his determination to build that
"universal car" for the masses, but it also reflected his
lingering mistrust of financiers and other businessmen. The
mistrust went back to his early failures. Those experiences
actually led him to resent many of the basic tenets of
capitalism itself, especially the way financiers and
investors were driven by the profit motive rather than what
he saw as the more noble desire to create a product that
would benefit the human race. Ford expressed his bitterness
and suspicion when recalling his ouster by the financial
backers of the Henry Ford Company in 1902:
"What I most realized about business that year is this: (1)
The finance is given a place ahead of work and therefore
tends to kill the work... (2) That thinking first of money
instead of work brings on fear of failure and this fear
blocks every avenue of business... (3) That the way is
clear for anyone who thinks first of service, of doing the
work in the best possible way. The money influence...seemed
to be at the bottom of most troubles. I was not free. I
could not give full play to my ideas. Everything had to be
planned to make money; the last consideration was the
work." (Sidney Olson, Young Henry Ford; Detroit: Wayne
State University Press, 1963, p.147)
Despite his comment in Satterlee's office, Henry Ford
expressed no other objection to the merger at that meeting.
It was agreed by all parties, however, that the session was
to be considered "purely informal," that there would be no
publicity, and that none of the parties had made any kind
of commitment. Billy Durant left the meeting confident that
a deal would be made.
Another meeting of the four principals and the Morgan
representatives and attorneys was called at Satterlee's
office on Broadway. The bankers reported that they had
completed their audits and appraisals. They also reported
that they had already instructed their attorneys to draw up
contracts to be approved by the stockholders and directors
of the four companies.
The conversation then turned to the actual underwriting of
the issuance of stock in the new company, and Henry Ford
quickly killed the deal by announcing that he wanted cash
rather than stock. This turn of events might have been
expected from the outset if the other parties had followed
a bit closer Ford's prior dealings with bankers and
investors as Durant recalled:
"We were told that generous subscriptions on the part of
the manufacturers would have a favorable effect upon the
public acceptance of the issue and Mr. Ford was asked how
much of the preferred stock he would subscribe for. He
replied that when he was first approached by Mr. Briscoe,
he told Mr. Briscoe that he would sell his company for
cash, but would not be interested in or take stock in any
merger or consolidation. This was a great surprise and the
bankers who were expecting a large subscription from Mr.
Ford were quite disappointed."*
The number Ford threw out that day was $3 million in cash
plus a share of the new company's stock. Ransom Olds
immediately declared that if Ford wanted to get cash, he
did, too. Olds's number was also $3 million.
A stunned and embarrassed Satterlee asked Durant to step
into an adjoining private room. Durant told him that Ford's
statement was news to him, and he suggested they bring
Briscoe into the room. Incredibly, Briscoe told them that
what Ford had said was true. Again, Billy recalled:
"Briscoe said that Mr. Ford had correctly stated the case,
but that he had shown such an interest as the matter
progressed that Briscoe, whether rightly or wrongly,
inferred that Mr. Ford had changed his mind and that he
would go along with the others."*
With that, the deal that would have combined the Big Four
automobile makers into a single enterprise was dead. One
can only speculate how America's auto industry, its
economy, and even its culture would have been different
today if the merger had proceeded. Would Henry Ford have
still had the freedom to proceed with the Model T? Would
Ford and Durant have been able to coexist in the same
organization? Would the House of Morgan have put its own
management team and business strategy in place? Would
Alfred Sloan have remained a small independent supplier?
[EDITOR'S NOTE: * indicates the source is the unfinished
manuscript of William C. "Billy" Durant, entitled "The True
Story of General Motors," housed in the Durant Collection,
Scharchburg Archives, Kettering University.]
Copyright (c) 2006 by William Pelfrey. All rights reserved.
Reprinted here with permission of the publisher, Amacom
Books, http://www.amacombooks.org. Please feel free to
duplicate or distribute this file, as long as the contents
are not changed and this copyright notice is intact.
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