Billy Durant's Version of How He Founded General Motors
This is a slightly revised chapter from Billy Durant: Creator of General Motors, by Lawrence R. Gustin, the award-winning first biography of the GM founder. The biography, first published in 1973, will be reprinted in a third edition with updates by the University of Michigan Press in April 2008.
By Lawrence R. Gustin. Copyright, 1973.
As he dined one evening in 1908 at the Flint home of his daughter Margery, William C. Durant was called to the telephone. It was Benjamin Briscoe Jr., in Chicago.
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: "Impossible, too busy, sorry. But I can see you here. Why don't you take the 10 o'clock Grand Trunk arriving at 7 o'clock tomorrow morning. I will meet you at the station and we will have breakfast together."
Briscoe agreed. The two met the following morning in Flint, had breakfast at the Dresden Hotel downtown, then went to Durant's office at Buick.
Note: Durant's recollections of the phone call and ensuing events are recorded in his previously unpublished autobiography in a chapter titled The True Story of General Motors. He recorded the date of Briscoe's call as May 15, 1908, which is incorrect. The initial discussions may have taken place as early as 1907. By January 1908 the talks were at a serious stage. [The late] George S. May gathered this sequence of meeting dates from the diary of Ransom E. Olds: Detroit on Jan. 17, 1908; New York on Jan. 24-25; again in New York on May 11, and apparently still again at the end of May. (The details of the consolidation talks in this chapter are given largely as Durant remembered them, though I have in some cases changed his sequence of events to conform with other evidence.)
Briscoe had particular knowledge of Buick, dating back before November 1904, when Durant, Flint's carriage "king," had been persuaded by other Flint businessmen to take control of that company. Briscoe had provided financial backing for Detroit-based Buick Motor Co. and had been instrumental in its sale in 1903 to directors of the Flint Wagon Works headed by James H. Whiting. Briscoe had since become president of Maxwell-Briscoe Company. Now, meeting in Flint in 1908, he confided to Durant that George W. Perkins, a partner in J.P. Morgan and Company and a financial backer of Maxwell-Briscoe, was exploring the idea of a large automobile merger. Would Durant be interested?
"Briscoe had no well-considered plan but he wanted to get my ideas," Durant wrote. "He suggested calling a meeting of about 20 of the leading concerns, naming Packard, Peerless, Pierce-Arrow, Stoddard-Dayton, Thomas, etc. What did I think of it?"
"I told him frankly that I did not believe the plan was workable. The proposition in my opinion was too big, too many concerns involved, too many conflicting interests to be reconciled." Durant felt that Briscoe should modify his plans and try for a merger of a few auto companies who were trying to produce in volume in the medium-priced field. He proposed the Ford Motor Company of Detroit, the Reo Motor Car Company of Lansing, Buick and Maxwell-Briscoe. "I suggested he first see Henry Ford, who was in the limelight, liked publicity and unless he could lead the procession would not play," Durant continued.
In 1908 Henry Ford was gearing up for production that nearly equaled Buick's – and with the Model T about to be launched that fall would soon surpass it. The Reo Motor Car Company was headed by Ransom E. Olds, who had driven steam horseless carriages around Lansing as early as 1887, when Durant, fifty miles away in Flint, was just getting started with horse-drawn carts in the Flint Road Cart Company. R.E. Olds had walked out of Olds Motor Works in 1904 in a management dispute, and by 1908 was in charge of Reo (the name derived from his initials).
Briscoe met with Olds in Lansing, and found him receptive to the consolidation idea. He talked to Ford, who was at least willing to discuss it. Several weeks later, Durant, Olds, and Ford were invited to meet with Briscoe in the old Penobscot Building in Detroit. Durant wrote:
"In the public reception room were gathered the principals, their close associates and advisers. The room was small, no place to discuss business. I sensed, unless we ran to cover, plenty of undesirable publicity in the offing. As I had commodius quarters in the [old] Pontchartrain Hotel, and as the luncheon hour was approaching, I suggested that we separate and meet in my room as soon as convenient. I had the unexpected pleasure of entertaining the entire party until mid-afternoon."
Once the group was assembled in Durant's room, Briscoe urged that a consolidation plan be developed that could be presented to J. P. Morgan and Company. But he had no specific plan. There was a painful pause.
Durant tried to fill the gap. "If we put a value of $10 million on Ford, would Ford consider $6 million a reasonable figure for Reo?"
Henry Ford said he didn't have the slightest idea of the value or the earning capacity of Reo. Durant then asked Ford and Olds, if Ford were valued at $10 million and Reo at $6 million, would $5 million for Maxwell-Briscoe seem reasonable?
Briscoe, slightly irritated, asked about Buick. Durant replied that the report of the appraisers and auditors and the conditions and terms of the agreement would be his answer.
But at least Durant's questions had broken the ice. The men began to ask questions of each other. How would the company be managed? Who would be in charge? Briscoe thought the purchasing, engineering, advertising and sales departments of the four companies should be combined, and that a central committee should rule on all operating policies.
Durant thought Briscoe's plan would lead to complications. There should be no interference, he felt, in the internal operations of the individual companies. All he wanted was a holding company.
"Durant is for states' rights," Briscoe replied with a laugh. "I am for a union."
There was more general talk – though Henry Ford remained silent. Briscoe said he would report back to the Morgans and that probably the auto men would be invited to confer in New York in the near future.
About a week later the group was called to meet in the law offices of Ward, Hayden and Satterlee in New York City. Herbert L. Satterlee was a son-in-law of J. Pierpont Morgan, and because Morgan had been an early investor in Maxwell-Briscoe, Ben Briscoe felt obliged to use Satterlee as the attorney through which discussions would continue. Briscoe later wrote that had he been able to use an attorney suggested by Ford, Job Hedges, the outcome of the talks might have been different.
At the meeting questions were asked about who had what share of the market, whether anything could be gained by consolidation, and whether there were any objections to an automobile combine. Henry Ford had one objection. The tendency of consolidation, he felt, was to increase prices, which he believed would be a serious mistake. Durant noted that Ford "was in favor of keeping prices down to the lowest possible point, giving the multitude the benefit of cheap transportation."
The meetings in New York continued into the spring and summer of 1908, though the exact sequence of events is lost in the conflicting chronology recorded by Briscoe and Durant. At one meeting, according to Briscoe, Ford Business Manager James C. Couzens said that Ford would join the consolidation only if it received $3 million in cash for starters. Ransom Olds is then supposed to have said that if Ford were to get $3 million, Reo had to get the same.
Durant, on the other hand, later said no specific amount of money was mentioned. In his version, Henry Ford was asked at a meeting in Satterlee's office how much of the preferred stock of the new combine he would take. Ford replied that when he was first approached by Briscoe, he told Briscoe he would sell his company for cash, not for stock in any consolidation. This surprised the financial backers and the attorneys. They had expected a large subscription from Ford. Satterlee asked Durant to step into an adjoining room. What was all this about? Durant replied it was news to him. Why not ask Briscoe?
Durant's account continues: "Briscoe, when questioned, 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 would go along with the others.
"Mr. Satterlee was quite put out and after giving the matter a few moments' thought, went back into the other room and very diplomatically stated that there had been a misunderstanding, but that the matter of finance was entirely up to the bankers, and when they had perfected their plans, another meeting would be called."
Ford and R.E. Olds were at that point out of the talks. Durant and Briscoe, however, still had hopes of forming a Buick and Maxwell-Briscoe combine. And by the end of June 1908, they had almost reached an agreement with their financial backer, specifically George Perkins of J. P. Morgan and Company, on a combination to be called the United Motors Company. On July 1 Ward, Hayden and Satterlee told Buick's attorney, John J. Carton of Flint, that "the certificate of incorporation of the United Motors Co. has been duly filed and unless something unforeseen arises, its stock will be ready to be issued within a few days." The attorneys advised Carton to prepare the stock of Buick for delivery against the stock of United Motors.
The next day, Durant wrote to Carton from Buick's Boston sales branch, also indicating that the consolidation was close to reality, but adding:
"Had a long, hot session with our friends in New York yesterday and was pretty nearly used up at the finish. If you think it is an easy matter to get money from New York capitalists to finance a motor car proposition in Michigan, you have another guess coming. Notwithstanding the fact that quoted rates are very low, money is hard to get owing to a somewhat unaccountable feeling of uneasiness and a general distrust of the automobile proposition."
The Flint Journal of July 3 reported rumors that Buick and Maxwell-Briscoe had merged and that Durant was general manager of the new consolidation. But Durant was out of town, and Buick officials refused to comment.
As the talks seemed to be nearing a successful completion, Satterlee asked Durant and Briscoe if they would object to the combine's being named the International Motor Car Company instead of United Motors. Perkins liked that name, since he was also involved with the International Harvester Company and the International Mercantile Marine. There was no objection.
Meanwhile, Buick's business was booming. As the demand for sales increased, production was stepped up; new additions to the Flint plant were now under construction. Durant was working late into the night in Flint, while at the same time trying to negotiate a successful conclusion to the merger talks in New York. In the midst of all this, he decided to try to involve the Olds Motor Works of Lansing in his plans. He knew little about the Oldsmobile, except that it was one of the most famous automobiles in the country and that the company was having a hard time at the moment.
The Olds Motor Works dated to 1899, having evolved out of an earlier Olds company, when Ransom Olds secured financial backing from S.L. Smith, a copper magnate. They had erected a factory in Detroit. It had burned in 1901 but was quickly rebuilt and in 1901 Olds built 425 curved-dash runabouts. Within four years, Olds was turning out more than 5,000 cars a year. Ransom Olds left in 1904 after a dispute with Smith's sons, Frederic L. and Angus Smith. Then the Olds Motor Works started to go downhill. With more elaborate models that didn't catch on, production fell from 5,000 in 1904 to 1,055 in 1908.
Fred Smith recalled that Durant arrived in Lansing after midnight one night, roused the Olds officials from bed, and at 3 a.m. galloped through the Olds plant on a fifteen-minute tour. Then they talked until dawn about the sale of Olds to the proposed combination, working out a plan for Olds to join the combination after the Buick and Maxwell-Briscoe merger had taken place.
According to Durant's account, S.L. Smith told him he was the only creditor of Olds and that he valued the business at $2 million. Durant asked if he would take $2 million of the preferred stock of the new combination. "Mr. Smith asked what the preferred stock was worth and if I thought there would be any market for it. I told him that until a statement was issued, the preferred stock would have no market value, but if he would take $2 million preferred with no bonus of common, I would agree to buy the stock from him within one year at a net to him of $1.8 million."
The Smiths, excited about the prospect of Morgan financial backing, agreed to join in the venture. On July 21, 1908, Fred Smith confirmed in a letter to Durant an agreement to transfer three-quarters of the Olds stock for stock in the proposed combine.
Shortly afterward Perkins was planning a business trip from New York to Chicago and asked if Durant would ride as far as Albany on the train with him. Durant wrote: "In his drawing room, we had the opportunity of getting acquainted. I told him of my 20 years' experience in the carriage business and in reply to his questions gave him my views as to how the combination should be handled – and I think I sold him the 'holding company' idea. Mr. Perkins asked what I thought of the proposed name – International Motor Car Company – to which I replied that I considered it most appropriate. He then said, 'I think we should protect it, and if you wish to join me, I will, upon my return to Chicago, file an application for a New York charter.' This I agreed to…."
Whether the Durant-Perkins meeting on the train resulted in closer agreement, as Durant thought, or in the beginning of the end of the Morgan interest in the deal, as Smith wrote, remains unclear. According to Smith, Perkins became alarmed with Durant's insistence that he himself be in charge of the combination's finances. Whatever the reason, the talks soon ran into difficulty. After his conversation with Perkins, Durant returned to New York. As he walked into Satterlee's office, he was met by Curtis R. Hatheway, a young attorney with the firm. The Morgans, said Hatheway, were anxious to talk to Durant. Durant was escorted to the office of Francis Lynde Stetson, the Morgan attorney.
Stetson was cordial. He said he had heard some fine things about Buick. He went on to say that he understood Durant was in complete control of Buick stock, with authority to execute an agreement. Durant replied that this was correct, that the stock was deposited in a Flint bank. Durant and Carton had some time before prepared for the consolidation by drawing up an agreement to be signed by Buick stockholders, authorizing Durant to act for them in an exchange of stock between Buick and the planned new company – the exchange to be on the same terms for other stockholders as it would be for Durant. Durant wrote that every share of Buick stock was endorsed under the agreement and deposited in a Flint bank, with a vice president of the bank as trustee.
"Mr. Stetson asked if the depositors had knowledge of the new securities or any details regarding the new company, the size of the capitalization, etc. I told him the stockholders had confidence in me and that the matter was entirely in my hands.
"Mr. Stetson said he doubted if a title of that kind would be sufficient and said he thought it might be necessary to have the Buick stockholders execute a new set of papers. I questioned the wisdom of changing or even suggesting a change in the agreement. Mr. Stetson insisted that he must have a better title and could not approve the exchange on the terms and under the conditions of the deposit agreement. I told him I was acting on the advice of my attorney and that I would get in touch with him immediately.
"Up to that time, I was what you might say 'quite warm' for the merger, but after my interview with Mr. Stetson, I am frank to say that I cooled off slightly,"
Carton replied to Stetson's challenge on July 29. 1908: "So far as the transfer of the stock of the Buick Motor Company is concerned, it seems to me to be a perfectly plain transaction…The stock of course is owned by the individual stockholders who have a right to sell it or transfer it on any terms they see fit, the same as they would any other property owned by them. They have agreed to sell and transfer their stock for an equal amount of the preferred stock of the International Motor Company plus an amount equal to fifty percent of the common stock of that company and I can see no reason why they cannot transfer that stock to the International Motor Company direct or to some other person for the purpose of exchanging it…I can see no reason why the details of the organization should be voluntarily made known to the individual stockholders of the Buick Motor Company. If any should refuse to sell their stock without the knowledge of these details then it would be a matter to be taken up with that individual stockholder but I do not think that will be required in view of the consent which they have already given to the sale and transfer."
While the fuss over the Buick stock continued, another problem came up. The Morgans were upset about an article in the New York Times which went into some of the details of the negotiations. Hatheway wired Durant that the Morgans "now refuse to cooperate," but that he would try to restore the situation. Durant replied on August 1 that he had not seen the article, "but I take it that it must have been very 'severe' to have so greatly disturbed our friends at this late date."
The offending article was a one-column item in the Times July 31, 1908, which began: PLAN A $25,000,000. MOTOR CAR MERGER
The first big combination in the automobile world is now in the making, the plans calling for a company to be known as the International Motor Car Company with $25 million capitalization, $11 million common and $14 million preferred stock.
The story went on to state, quite correctly, that Buick and Maxwell-Briscoe were to be combined first, with others to follow in consolidation. Several members of the Morgan company were among the underwriters, the article observed, though the banking house was not itself involved in the transaction. The merger could be ready for operation by September. No source was cited for the information.
On August 4 Briscoe returned to New York from a trip and was surprised to find the situation with the Morgans "in somewhat of a chaotic state." He wrote to Durant:
"It seems that on the account of the publication of the details in Friday's 'Times' that the people on the 'corner' [the Morgans] are very upset. Why they should feel it as deeply as they do I can't quite fathom myself…[and] the position taken by Mr. Stetson, that a full disclosure to each stockholder must be made whose stock is exchanged, will, I imagine, somewhat interfere with your plans. Articles have been appearing in the Detroit and Flint papers which have evidently emanated from Buick stockholders…It has always appeared to me that one of the surest ways to get publicity is to deny things, or to refuse to confirm or deny them, and this has been too much our attitude in regard to the publication of the matter…I recognize that the procrastination in pushing the matter through has been very disappointing and disconcerting to you, as it has been to myself. I think that the time that it has taken to get where we have has been quite unnecessary and I am of the opinion…that it would be possible for you and myself, and perhaps one or two others that we could attach to us, to take hold of this matter and work it out without waiting on anybody. We have both concluded that a million dollars in cash would be enough to finance the proposition and I will eat my shoes if we can't raise a million dollars between us."
According to Durant's account, Ford and Ransom Olds were still involved in the negotiations at this point, but when Ford announced that he wanted money, not stock, the talks fell apart and "everyone except myself left the sinking ship." Yet, given the letters, newspaper articles, and the accounts of other participants, it appears more likely that Ford and Olds had dropped out weeks earlier. The Morgans may have lost interest because of the argument over the Buick stock, or because of the publicity, or because they had perceived that Durant was not about to turn over financial control to the Morgans and be content with managing Buick. Whatever the reason, by the end of August the Morgans appeared no longer interested in working with Durant. Herbert Satterlee asked Durant what he intended to do.
"I told him that I had come to New York several months earlier, and had been led to believe that the consolidation sponsored by the Morgan firm was being seriously considered and I had so informed my people; that the Buick stock had been deposited and if released could never again be collected in the same form – nor would I have the courage, or care, to make another attempt. I must have a consolidation.
"Mr. Satterleed said, 'Mr. Durant, you only have the Buick, how can you have a consolidation? I replied that I would have no difficulty in securing another company, as a matter of fact I had one in mind at the moment – the Olds Motor Works of Lansing, Michigan. The company – one of the oldest in the business – was controlled by Mr. S.L. Smith of Detroit, and was being operated by his sons, Fred and Angus Smith, whom I knew intimately. While that company was not a financial success, I believed it had possibilities. Mr. Henry Russel, vice president of the Michigan Central Railroad, a great friend of Mr. Smith, was president of the Olds Motor Works. I was acquainted with Mr. Russel and said I would wire him immediately asking if he would meet me in Lansing the following Saturday, mentioning the fact that I would like to discuss a possible merger of Olds and Buick, which I did.
"Satterlee asked about the capitalization and how the common stock was to be issued. I told him I had in the Buick organization a competent engineer, by the name of Walter Marr, that the engineering success of the Buick was due largely to his efforts, that he was a crank on carburetors and had taken out numerous patents; that he was very fond of me, had named his only son after me, and I was quite sure he would set aside for my use a sufficient number of patents and applications against which the common stock could be issued.
"Satterlee then asked what I intended to call the company. I told him that in view of the collapse of the 'consolidation,' I assumed Mr. Perkins would have no use for the name 'International Motor Car Company' (owned jointly by us) and believed I would have no difficulty in arranging with him to take over his interest. Mr. Satterlee was not so sure that Mr. Perkins would care to surrender his interest and I suggested that he go over to the bank and talk the matter over with him. In about half an hour he returned and stated that Mr. Perkins preferred to reserve the name 'International Motor Car Company' for possible use at a later date.
"We then looked over the list of names which we had previously prepared when we were seeking a name for the consolidation and when we came to General Motors I selected that name and as of that moment the General Motors Company came into being."
The name was one of several on a list Durant left with the attorneys. On September 10, 1908 – six days before incorporation – he received a letter from Ward, Hayden and Satterlee:
"We find it impractical to use the 'International Motor Company'…we might use the 'United Motors Company' were it not for the fact that there is already a 'United Motor Car Company' in that state. We suggest the name, 'General Motors Company,' which we have ascertained can be used…."
Oldsmobile leader Fred Smith was a strong admirer of Durant. In his recollections, Motoring Down a Quarter of a Century (Detroit Saturday Night, 1928), he wrote: "Durant saw the possibilities of a strong combination earlier and more clearly than anyone else in or out of the industry, and he put it over: a feat more staggering at the time than can be easily appreciated today. In spite of frequent and earnest scraps with W. C., I had at least the intelligence to see in him the strongest and most courageous individual then in the business and the master salesman of all time. No man ever lived who could sell such a variety of commodities in so short a space of time, cigars, buggies, automobiles, ideas and himself, believing wholeheartedly in his wares and in the last item especially…It would be a poorly posted analyst who failed to list W.C. Durant as the most picturesque, spectacular and aggressive figure in the chronicles of American automobiledom. He certainly made some capital mistakes…but the man who makes no mistakes rarely makes anything at all on a large scale."