How Ford's Failure Became GM's Prestige

On this day in economic and business history...

Two of the Dow Jones Industrial Average's (DJINDICES: ^DJI  ) longest-tenured members celebrate key moments in their history on August 22. While neither company remains a part of the Dow today, both were index components for many decades, and their ascent to index membership can be credited (at least in part) to the events that took place today. Let's take a deeper look...

The (re)birth of a legend
Did you know that Cadillac, the oldest marquee in General Motors' (NYSE: GM  ) stable, was formed out of the wreckage of Henry Ford's (NYSE: F  ) early failure? The story is a bit complex. The Henry Ford Company got its start at the end of 1901 after Ford (the man) reorganized his first failed company with the support of new financial backers. However, Ford soon clashed with these backers and was gone by midyear, on his way to starting the company that lives on to this day.

Ford's departure left the Henry Ford Company's investors with assets but no engineering talent, and they were initially determined to sell off the remnants of Ford's failure piece by piece. Automotive entrepreneur Henry Leland, fresh off his success as an engine supplier for the Oldsmobile Curved Dash (the first assembly line automobile), was brought in on Aug. 22, 1902 to assess the value of the company's assets. Leland instead determined that the old Ford assets could be put to use, as Evan McCausland writes in Automobile magazine:

William Murphy and Lemuel Bowen -- both directors of the Henry Ford Company -- first approached Leland in August 1902. The men were tasked with liquidating the firm's assets after Ford's departure, and wanted Leland to appraise their value. After surveying the plant, Leland had an idea: he had a leftover engine design, based roughly on the Olds single-cylinder unit (yet unused by Oldsmobile), that boasted impressive power, remarkable reliability, and was cheaper to manufacture. Why not use it as the foundation of a new automobile?

Surprisingly, the directors agreed -- and on August 22, 1902, the company was reorganized under the name Cadillac, in honor of Antoine Laumet de La Mothe, Sieure-de-Cadillac, the French explorer who essentially founded what became the city of Detroit. The rest is, as they say, is history: Cadillac's first car was completed in October, [and] the company was purchased by General Motors in 1909.

Six years after acquiring Cadillac, GM joined the Dow for the first time. McCausland also points out an interesting wrinkle in the Cadillac story: Leland left Cadillac to form Lincoln Motor several years after GM acquired it, and Lincoln eventually became the luxury marquee of -- you guessed it -- Ford Motor.

There's some debate as to whether Cadillac or Buick is the oldest extant auto marquee in the U.S. Buick Motor was not incorporated until 1903, but an earlier engine-maker called Buick Auto-Vim and Power Company got its start in 1899. Either way you slice it, General Motors is the parent of the oldest auto marquee in America.

The birth of big steel
The massive Edgar Thomson steel plant roared to life on Aug. 22, 1875 in Pittsburgh, Penn. It was the cornerstone of industrialist Andrew Carnegie's steel empire, and on its first day the million-dollar plant (its costs would be equal to roughly $25.5 million today) churned out enough liquid steel to produce 2,000 rails for the Pennsylvania Railroad. That year, U.S. steelmakers combined to produce 380,000 tons of steel.

In its first year of operation, the E.T. mill, as it's popularly known, had produced more than 32,000 tons of steel rail, and it soon increased its capabilities to 225 tons of rail per day, which would equal more than 82,000 tons of steel if the mill operated every day of the year. Carnegie's early adoption of the Bessemer process helped him dominate the American steel industry, and the E.T. mill was the source of much of his strength.

The E.T. mill still cranks out steel to this day as part of US Steel (NYSE: X  ) , which was formed in 1901 by a billion-dollar consortium that had purchased many of the larger steelmaking interests in the U.S. (US Steel became a Dow component almost immediately after its formation, on account of its sheer size.) The mill remains integral to US Steel's production, despite its advanced age: E.T.'s two active blast furnaces produced 2.8 million tons of steel at the turn of the century, comprising roughly a quarter of the company's total production. The E.T. plant and its associated steelmaking complex still account for about 15% of US Steel's annual production in North America, which is pretty impressive when you consider that the plant will soon celebrate its 140th birthday.

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Read/Post Comments (8) | Recommend This Article (2)

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  • Report this Comment On August 22, 2013, at 12:00 PM, AmericanFirst wrote:

    Regardless how Ford got to where they are today. They didn't get there by fleecing bondholders / creditors for $30B, and leaving the taxpayers holding the bag for an estimated $10-15B as GM per the Obamaruptcy / GM Bailout!

  • Report this Comment On August 22, 2013, at 1:07 PM, pwkrp wrote:

    @Americafirst, neither did GM or Chrysler, they have paid the bailout back plus GM is buying stock back from the government and they couldn't do that if they didn't pay the bailout back. Even Ford was having problems back then. Ford avoided bankruptcy by borrowing $23.4 billion in late 2006 and closing 16 plants from late 2005 through 2009 to bring its production in line with demand.

  • Report this Comment On August 22, 2013, at 2:06 PM, 308roadready wrote:

    You are in error dear editor. Buick is the oldest automobile company in the USA. The company started out as Buick Auto-Vim and Power Company in 1899. Buick was the saving grace of General Motors financially several times. Buick is the rock that kept the General afloat. Buick was also the best selling car in the world at one point and was 2nd and 3rd in global sales several times throughout its history. Also regarding Chrysler. He was the head of production then president at Buick from 1911 to 1919. It was after his experience (and outrageous wages he made) at Buick that lead him to start the Chrysler Corporation in 1925 which he dissolved the Maxwell Motor Company into.

    I agree with Cadillac being Fords junk turned treasure thanks to GM snatching it in 1909 and making a luxury brand out of it.

  • Report this Comment On August 22, 2013, at 4:44 PM, fordman53 wrote:

    I love the way the editor mocks Henry Ford as a "failure" in the headline of this article. The truth is that the first Cadillac was actually a Ford, designed by Henry Ford, but he did not like the engine in the car for he believed it was underpowered, and the battles with the investors to build a car they way he felt it should be built, forced him to leave, and start a new car company known as "Ford Motor Company." He built the first car, the Model A, with a similarity of design to the Cadillac, but it had an engine of proper power.

    Henry Leland did replace Henry Ford and made Cadillac into a great name, and then went on to make Lincoln a greater mark, only to end up selling to Henry Ford the great Lincoln Motor Company!

    So much for failure!

  • Report this Comment On August 22, 2013, at 5:41 PM, fangzamillion wrote:

    I own nothing GM. No Government Motors vehicles, no Government Motors stock, or anything else connected with that atrocity. The vehicles are junk, built with more Chinese parts than any other manufacturer outside China uses. The blatant advertising for GM by President Soetoro was enough to sicken me and turn me away from the products even if they WEREN'T sub-par. I would like nothing more than to wake up some morning to find that GM had crashed completely.

  • Report this Comment On August 22, 2013, at 8:04 PM, AmericanFirst wrote:

    PWKRP,

    I noticed you didn't comment on GM's fleecing of bondholders for approx. $30B, which destroyed the retirement dreams of thousands.

    I'm sorry, you don't know the facts. See the below links:

    http://www.fool.com/investing/general/2013/03/23/why-governm...

    http://gaanderson.hubpages.com/hub/Obama-General-Motors-GM-T...

    http://www.politico.com/news/stories/0711/59582.html

    Lastly, how can you condemn Ford for managing / handling their business? . Ford managed their business without sticking it to bondholders, creditors, or taxpayers?

  • Report this Comment On August 22, 2013, at 9:22 PM, enginear wrote:

    Wow! strong emotions in many posts here... There really is a great rivalry between the two camps. Almost like sports.

    History is one of the most interesting and informative subjects I know (I just wish I'd have felt that way when I was in school and didn't until I was an old man to realize it). Thanks for the lesson.

  • Report this Comment On September 08, 2013, at 12:35 PM, sccarally wrote:

    A "marquee" is part of the facade on a movie theater. A "marque" is a brand of car. The term is more common in the UK.

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