In the beginning, the prospects were dim
One hundred years ago, Henry Ford and 11 other investors teamed up to change the face of the nascent auto industry
The 40-year-old Ford was, at best, a risky prospect for venture capital. He was already a two-time loser in the nascent automobile industry, and he had a reputation for marching to the beat of his own drum.
In 1899, he quit his job as chief engineer at Edison Illuminating Co., where he had worked for eight years, and became a partner in Detroit Automobile Co., which was financed by Mayor William Maybury and friends. It was the first automobile manufacturing company established in Detroit.
But Ford soon grew impatient. He wanted to focus on improving the assembly process - the vehicles were essentially custom-made - and his backers were focused on immediate sales.
In November 1900, he resigned, and the company folded the following January. It had sold fewer than half a dozen cars.
The unemployed Ford spent the next year working around the clock on a racing car, which he drove to victory in a highly publicized competition at the Grosse Pointe racetrack on October 10, 1901.
Seven weeks later, a group of five millionaires led by lumber dealer William Murphy, who had seen the race, invested $30,000 in Henry Ford Co.
Ford was given a sixth of the stock and the title "engineer."
But that company was short-lived, too.
The roots of Cadillac
Ford wanted to build another racing car; his backers wanted a production car. They brought in famed engineer and designer Henry Leland, but he and Ford were instantly at each other's throats. By March 1902, Ford was gone. What was then Leland's company began to produce a car called the Cadillac.
Detroit at the time resembled Silicon Valley during the dot-com boom or San Francisco in the Gold Rush days. From 1900 to 1903, 142 new auto companies began production; in 1903 and 1904, 64 folded. Everyone was sure there was money to be made, but nobody knew where the lightning was going to strike.
In August 1902, Ford signed an agreement with Alex Malcomson to develop a commercial automobile. While Malcomson was Detroit's biggest coal dealer, he was also overextended financially.
The pair hoped to go it alone, but it soon became clear that outside investors were needed. In November 1902, they formed Ford & Malcomson Ltd., and Malcomson began raising money. The venture became Ford Motor Co. in 1903.
It took six months and some fancy footwork to raise the necessary funds. To escape his creditors' attention, Malcomson opened the partnership's account at a bank other than the one where he did the rest of his business. And the account was in name of his bookkeeper, James Couzens.
The president of the bank where he did the rest of his business was his uncle, John S. Gray. Both men were among the original stockholders of Ford Motor Co. So were Vernon J. Fry, Malcomson's cousin; C.J. Woodall, a clerk in Malcomson's office; Horace H. Rackham and John Wendell Anderson, Malcomson's attorneys; Albert Strelow, the contractor who had built Malcomson's coal yard; and Charles H. Bennett, an inventor and owner of Daisy Air Rifle Co., who was brought in by Fry. Couzens also was an original shareholder.
After he cashed out in 1919, Rackham became a renowned philanthropist. He was a major benefactor of the Detroit Zoo, and donated the land for the Rackham Golf Course, which adjoins the zoo.
A trust fund established by his will financed the Rackham School of Graduate Studies at the University of Michigan and the building there that bears his name, as well as the Rackham Memorial Building, home of the Engineering Society of Detroit.
The only investors who weren't tied directly to Malcomson were the Dodge brothers, John and Horace, red-haired rowdies from Niles, Michigan, whose machine shop had been supplying engines to Oldsmobile, the biggest success in the auto industry at that time. In exchange for their stock, the Dodges agreed to cancel their contract with Ransom Olds and become the exclusive supplier of engines, transmissions and axles to Ford.
The brothers also got a better deal from the new company because of Malcomson's lousy credit: He offered them cash on delivery for the first 100 chassis, and payment within 15 days (the norm being 40 to 60 days) on every subsequent consignment. The agreement obligated the fledgling company to the tune of $162,500 before it had raised a dime.
The Dodges weren't the only investors who were short of cash. Strelow got his shares for the use of his shop as the company's first factory. Rackham mortgaged his home; Anderson borrowed his stake from his father, and Woodall "paid" with a promissory note.
The unlucky 13th
There was almost another investor. Gray's physician, Dr. Frederick E. Zumstein, had committed to five shares, but having 13 stockholders bothered the superstitious Ford, so Gray bought them instead. It was certainly bad luck for Zumstein: Initially valued at $500, the shares were sold by Gray's heirs in 1919 for $1,755,000.
Although the paper value of its stock was $100,000, the company had only $28,000 in the bank (the equivalent of $550,000 today), and most of that was Malcomson's. By midsummer, most of it was gone. The company's balance was $223 on July 15, 1903, when it sold its first Model A to Dr. E. Pfennig, a Chicago dentist.
By the end of March 1904, nine months after its founding, it had sold 658 automobiles. In September 1904, Ford Motor Co. declared a cash dividend of $100,000.
"Ford and Malcomson" was an utterly appropriate name for the company's first incarnation. Malcomson's fund-raising artistry was just as crucial as Ford's engineering genius and marketing vision. But in Ford's autobiography, Malcomson's name never appears; nor do those of any of the other investors, except for a passing reference to Strelow's shop.
You can reach Jeff Mortimer at (Unknown address).