Durant almost landed Ford, but couldn't come up with $2 million
Shunning his rival's stock-and-a-promise strategy, Henry held out for cold, hard cash
That is what must have vexed Billy Durant until the day he died.
For lack of a relatively small sum — $2 million — Durant missed the opportunity to acquire Ford Motor Co., his biggest rival of the day and General Motors' biggest rival for the century to come.
Durant almost got Ford one autumn afternoon in 1909.
Imagine the pleasant effect that would have had on GM corporate earnings during the last 100 years.
But it didn't happen.
Flash back to Oct. 5, 1909. The fast-moving Durant visits Henry Ford and James Couzens, Ford's head of operations and administration, who are staying at the Belmont Hotel, near Durant's New York office. For Durant, it is the negotiating table. For Ford, it is not so comfortable.
Ford, then 46, is suffering from lumbago. His back is killing him. As he lies on the cold bathroom floor of his suite, Durant and Couzens dicker elsewhere in the hotel. Durant's proposal: He will buy Henry Ford's company, and Ford will simply walk into the sunset.
Imagine that historic moment! Just six years after launching his company, Ford was literally and figuratively on his back, just a few dickers away from becoming an industrial has-been.
Ford had excited American consumers with the idea of mass-producing rugged little people-mobiles. He had already made a fortune. His 1908 sales of $9 million had netted a profit of $2.5 million. But Ford's car company had been gambling on the outcome of a lawsuit.
Automakers, including Durant's own Buick Motor Co., were selling "self-propelled" vehicles with gasoline engines, even though the patent for the concept had been claimed for 30 years by a New York lawyer named George Selden. Other automakers paid Selden his fees and passed along the cost to the consumer; Ford refused to pay.
The stars align
By 1909, Selden's patent suit against Ford was in appellate court. Selden claimed that Ford owed him a fortune in unpaid royalties and another fortune for any vehicle Ford planned to sell in the future.
For all Henry Ford knew, the courts would agree with Selden. And while Ford was on the verge of investing heavily in his new low-priced Model T, nothing was certain.
Durant knew all that. He also knew that Ford's young key man, Couzens, was burned out. Couzens was suffering from migraines and was tired of working long hours for Ford. Durant had reason to believe the stars were aligned for a buyout.
Durant merely had to structure a deal that personally suited Ford. He did not have to convince Ford of anything — biographers note that people rarely convinced Ford of anything he didn't already believe. It was simply a matter of how much cash Ford wanted.
The answer, according to William Pelfrey's book Billy, Alfred, and General Motors, was $8 million.
But not $8 million as Billy Durant thought of $8 million. It would be $8 million as Henry Ford thought of it.
Durant was a man of credit. He understood how to parlay debt into wealth. He had gained control of Buick, Cadillac and Oldsmobile with minimal amounts of cash. But Ford had little patience for stock and debt.
Couzens brought Durant's offer to the supine Ford. Couzens said he voted yes.
"All right," Pelfrey quotes Ford agreeing from the floor, "but gold on the table." Couzens asked him what he meant.
"I mean cash," Ford answered. "And tell him I'll throw in my lumbago."
Here's what Couzens and Durant worked out: $2 million would be in stock in Durant's newly christened General Motors and $6 million would be in cash. Of the cash, said Pelfrey, $4 million would be paid over three years at 5 percent interest, and $2 million would be paid up front. A New York Times story 10 years later said Ford and Couzens had wanted the $2 million to be paid in gold.
But Durant's acquisitions and deal-making had left him short of cash. To obtain the $2 million, he turned to his New York bank, National City Bank, which was closely associated with powerhouse financier J.P. Morgan. The bank turned him down.
Pelfrey's book quotes Durant as saying, "It must be remembered that the banks, as a rule, were not at that time in favor of the automobile industry. As a matter of fact, they were extremely antagonistic.
"I made no further attempt to secure the $2,000,000 and notified Mr. Ford that the purchase could not be financed at the present time."
Durant's Ford scheme was deflated. Fourteen months later, the judge in Ford's Selden patent lawsuit decided in favor of Ford, ruling that Ford would not have to pay royalties on every vehicle it had ever sold or might ever sell.
Relieved of the uncertainty, Ford began pouring investment into production of the Model T, the car that ignited sales of low-cost vehicles to middle-class Americans. The rest of the industry — Durant's General Motors included — had to answer with low-cost vehicles of their own.
Without the support of the banks, Durant found himself financially overextended and was forced to relinquish control of GM in 1910. Forever the entrepreneur, he sought a car that could match the Model T as a low-priced model for mainstream America.
That search led him to a 32-year-old Swiss-born race car driver named Louis Chevrolet. Chevrolet and Durant created an engine and car design and started selling Chevrolets in 1912.
The Chevrolet operation was acquired by GM and led to Durant's return as GM president in 1916.
You can reach Lindsay Chappell at firstname.lastname@example.org.