Engines That Move Markets (2nd Ed)

by Alasdair Nairn

  “Jumping bicycles, terrible flying machines for use in war, motor carriages and bicycles of marvellous fleetness parade through the pages of these foreign journals, interlarded with interviews and puffs of the inventor himself that touch ‘the very base string of humility.’ He is compared to Napoleon in the magnificent sweep of his genius, and the charms of his person are fulsomely recited to complete the seductive picture.

  “Meantime the recipient of all this adulation luxuriates in an elegant suite at a leading London hotel, and plots new surprises to spring upon a credulous world…

  “Just what the relationship between Thomas Kane and Co. and E. J. Pennington was never very clear. Thomas Kane told the editor of The Horseless Age that Pennington was not associated with him in business; that he simply manufactured motors for Pennington, or the Racine Motor Vehicle Company, one of the many aliases under which Pennington has operated.

  “Quite a number of these motors were made and sold under different nom-de-plumes – hot air engines, electro-oil engines, etc. – while the magic effects of double sparking and refrigerating cylinders were harped upon so effectively that many persons of ordinarily good judgement were led to part with their money.

  “Complaints of this motor began to come to the editor from all sides. The general verdict was that it was absolutely worthless, and having satisfied himself as to the character of the man and the motor, the editor instructed his Chicago agent to accept no advertisement from any one wishing to advertise Pennington motors or vehicles.

  “…Realizing that he had outworn his welcome here, he set out for the green fields of England to repeat his performance there, and from the very moment of his landing the tide of puffery and misrepresentation has been rising in the English press.

  “And what of this English Kane-Pennington Company? Who constitute it? Has Thomas Kane made in England an alliance which he would not make in America?

  “It passes belief that this adventurer has been able to worm himself into the confidence of the promoters of the industry in England. That he has done so is not to their credit.”

  Although the editorial piece has a somewhat sanctimonious ring to it given the column inches previously devoted to the prospects for Pennington vehicles, it does illustrate the difficulty which faced investors. Not only did the investor have to decide upon the likely success of competing technologies, but even after this verdict had been reached, he had to distinguish between companies some of whom were effectively fraudulent and only incorporated for the purpose of raising funds from investors. Since for some promoters this was their main purpose it should not be surprising that they were well aware of the need to fool an often credulous press. The answer for investors presumably lay in waiting for a trading history, the delivery of actual profits and audited statements. Given that at the time the investment had to be based on the future prospects of an exciting new concept this would have effectively meant not participating and leaving the investment to those who would now be described as venture capitalists.

  6.6 – Aptly named: the case of the Hot Air Engine Company

  Source: Horseless Age, vol. 1, no. 1, November 1895.

  The battle for technology leadership

  Most motor manufacturers emerged from industries and crafts which were either competitors of, or tangentially related to, the automobile. Forms of transportation varied depending upon the distance being travelled. For long distances the steam-powered railroad was the dominant carrier of both people and goods, but for shorter distances there were a number of different options. There were urban passenger railroads powered by either steam or electrical engines. There were horse-drawn carriages and there was the newly developed bicycle. Each of these had advantages over the others but none commanded overwhelming superiority. They therefore co-existed and catered for slightly different requirements depending upon what was being transported, how much flexibility was required and what the budgetary constraint was.

  The advent of the bicycle, which gained popularity during the 1880s, had as a by-product increased the demands for improvements to the road system in America, where surfaced roads remained a rarity. As the demand increased for a form of transport more flexible than the railroad, with greater carrying capacity than the bicycle and cheaper than the horse and carriage, many of the existing transport-related companies sought to produce a vehicle that would satisfy these needs.

  There were three main schools of thought on the engine that would power such a vehicle. First, there was the adaptation of the steam engine. Existing steam engines were too heavy to power freestanding vehicles but this power-to-weight ratio was partly a product of what provided the best traction on rails, and a number of inventors sought to adapt the engine to make it better suited for an automobile. Second, there was the electric motor that had emerged to power the new lighting source pioneered by Edison. Finally, there was the gasoline engine which had been developed in Europe and which had begun to stimulate interest in America, most notably with the aforementioned automobile of the Duryea brothers.

  In the early stages vehicles powered by each of the three different engines vied with each other to become the standard for the industry. Although the gasoline engine was to come out on top in the battle of the engines, it would take a number of years before it became obvious that the technology of the electric and steam engines had been overtaken by improvements in the gasoline engine.

  (a) Steam power

  The steam engine that powered the railroads had been developed over the preceding 100 years. Its technological properties were therefore well understood. Not surprisingly, therefore, many of the early automobiles were powered by steam engines adapted for the purpose. In Boston, George Whitney – who subsequently formed the Whitney Motor Wagon Company in 1898 – built ‘steamers’. Equally active in the Boston area were the Stanley twins, who also formed a company to manufacture steamers. (Funding for this venture had been put together through the sale of the twins’ photographic patents to one George Eastman.) Within a relatively short space of time, the commercial interest in their company proved difficult to resist and the twins sold their company to two prominent local businessmen for $0.25m ($18m). Unable to maintain a business relationship, the two purchasers then split up and formed two new companies: the Mobile Company and the Locomobile Company. As for the twins, they shortly re-entered the business, buying the Whitney Motor Wagon Company in 1899, and in 1901 bought back the steam facilities from the Locomobile Company, which had switched to mainly gasoline engines, for $20,000 ($1.3m).

  The early years of the steamer did not mark it down for extinction. It was more economical than the electric car, it had a more reliable and smoother engine than the gasoline car and the fact that it could not stall greatly simplified its transmission mechanism and hence its manufacture. The main apparent obstacle – the time it took to build up steam – appeared to have been solved with the invention of the flash boiler. Just as the gas companies had reacted to the threat posed by the incandescent lamp by improving the gas mantle, so too did the steamers improve their effectiveness in the face of the technological threat from gasoline-powered engines. As a consequence, the steamer became the largest-selling type of automobile in America, with 1,681 being produced in 1900 as compared with 1,575 electric and 936 gasoline automobiles.⁵² Indeed, of all the automobiles produced in America in the three years leading up to 1902, nearly one quarter were steamers manufactured by the Locomobile Company. However, this marked the peak in market share from which there was to be a very sharp decline.

  The decline was the simple result of a technological dead end. The running costs of a steamer were similar to the gasoline engine, since the boiler consumed almost as much gasoline as the internal combustion engine. In addition, the steamer required voluminous quantities of water, which made it unsuitable in areas where there was no abundant supply. The saving grace would have been if the steamer represented a better mechanism for producing power. Unfortunately, as the refinement of the internal c
ombustion engine continued, it became obvious that the steamer could not reach the standards of power-to-weight of its competitor.

  This is not to say that the manufacturers of steamers simply capitulated. Many soldiered on in their development in the ultimately vain hope that the steamers could regain market position. Their development efforts were not without results. In 1906, for example, a Stanley steamer averaged over 120 mph in speed trials at Ormond Beach, Florida. This compared to the 26 mph it had achieved in Rhode Island races ten years earlier. The increase in top speed, though, was to no avail as gasoline engines also improved substantially and extended their superiority. Within four years of it being the most popular vehicle in America, the steamer was a marginal player. As a consequence, the companies that manufactured steamers either shifted to gasoline vehicles or sooner or later exited the industry. It should be remembered, however, that the Stanley manufacturing plant still employed over 140 people in 1903, before the Ford Motor Company was established. In other words, with the benefit of hindsight the ultimate superiority of the gasoline engine may appear obvious, but it was less so at the time in either the eyes of the consumer or the press.

  6.7 – Not so clear at the time: US market share of automobile technologies in 1900

  Source: J. J. Flink, America Adopts the Automobile, 1895–1910, Cambridge: The MIT Press, 1970.

  (b) The electric automobile

  Like the steamer, the electric automobile was initially fairly successful. The vehicle had a number of strong selling points. Principal among them was that it was quiet, odourless and easy to drive. In the early years electric vehicles had been on a par with their gasoline and steamer competitors. In 1896, for example, at the first track races held in America, an electric-powered vehicle won all five races. In doing so it beat five competing Duryea automobiles. Unfortunately the slow speed of the races held at Rhode Island did little to grab the public’s attention and the derogatory ‘get a horse’ cry was again to the fore. Even The Horseless Age, whose whole raison d’être was the automobile industry, was forced to describe the Narragansett Park races as “in some respects being disappointing”, although the journal went on to point out that the organisation of the meeting, together with the conditions caused by the weather, were the main causes of the debacle: visitors could not see the new automobiles, the number of races had to be cut, and the final day given over to races of horse-drawn carriages. The Horseless Age ascribed this last event to rumours “that the horsemen felt jealous of the amount of the purse offered in the motor-carriage race, which was considerably larger than any purse they were contending for, and on this account the managers of the Fair preferred to allow the horses to monopolize the track on the last day.”⁵³

  The main producers of electric cars were the Electric Carriage and Wagon Company of Henry Morris and Pedro Salom, and the Pope Manufacturing Company. The Electric Carriage and Wagon Company operated a dozen cabs in New York City and was taken over by the Electric Vehicle Company of New Jersey. For the Pope Manufacturing Company the automobile was a diversion from its main line of business as the country’s largest manufacturer of bicycles. The automobile division, headed by Hiram Maxim, began operations in 1895 and by 1897 was producing electric automobiles under the name of its popular bicycle brand ‘Columbia’. It also produced a small number of gasoline cars, but the overwhelming interest was in electric vehicles and by the end of 1898 it had produced nearly 500 electric vehicles as compared with 40 gasoline versions. Pope’s view that the electric-powered vehicle would prevail rested at least in part on his view that: “[y]ou can’t get people to sit over an explosion.” In this he differed somewhat from Maxim and in 1899 Pope dissolved his company to form the American Bicycle Company, with the renamed Columbia Automobile Company being consolidated with the Electric Vehicle Company.

  Pope sought to continue his interests in the automobile through an electric vehicle manufacturer, the Waverley Company, and through H. A. Lozier of Ohio, a steam and gasoline manufacturer. The two operations were consolidated as the International Motor Company and funded with the sale of $4.2m in stock ($300m). Perhaps a suggestion of some of the potential pitfalls to the investment was contained in an article devoted to the cash-raising exercise, where the promoter talked of the need to develop a vehicle in the sub-$1,000 range. In other words, the funds were being raised for the creation of a vehicle based on expected demand, rather than on the ability to produce it. If this was not sufficient warning, the adjoining article concerning the court case of Commodore Vanderbilt’s daughter and her investment in automobiles might have raised concerns.

  Like the steamer, the electric vehicle provided no great cost advantage over the gasoline engine. Indeed there are estimates that it was 20–50% more expensive to purchase and two to three times more expensive to run. If this was not a sufficient barrier, it also suffered from a limited range, speed and traction. The reason lay simply in the battery needed to power the vehicle. The maximum range of the vehicle was approximately 20 miles from the charging stations, mainly provided by local electric light companies. The electric companies recognised it was in their best interest to help sustain the electric vehicle and companies such as the Edison Electric Illuminating Company companies added a substantial number of charging stations. By the early 1900s, therefore, it became possible to drive an electric car from New York City to Philadelphia. However, the electric car remained an urban vehicle and could not hope to expand beyond this unless battery technology improved by orders of magnitude.

  It was to this task that Thomas Edison, the doyen of the electric industry, set his mind. Given his previous success in confounding his scientific critics and conventional wisdom, it was understandable to think that he might solve the problem of the battery. It has to be remembered that the gasoline engine was a new and imperfect invention and that by comparison there was at least a history of some success with electricity. Edison had foreseen that the automobile would replace the horse and had somewhat hesitantly suggested that the battery-powered vehicle would prove more economical than the gasoline equivalent. This somewhat reversed his earlier views that experiments on the storage battery were “a catch-penny, a sensation, a mechanism for swindling by stock-companies”.

  6.8 – The electric vehicle inferior – but deemed suitable for rich ladies

  Source: Horseless Age, 27 September 1899.

  Edison began work on the automobile battery in 1899 and two years later felt sufficient progress had been made to form the Edison Storage Battery Company. After numerous setbacks, production of his new battery began. As was typically the case with Edison, marketing took the form of interviews with the press extolling the virtues of his advances and their practical application. Unfortunately the path was the same as had been followed with the incandescent lamp. That is, the problems had by no means all been solved, and the battery fell well below expectations in terms of both performance and cost. Unlike the electric light, the product was not intrinsically better than its rivals and although Edison did produce a better battery than had previously existed, it remained inferior to the continually improving gasoline engine. For Edison, the venture was to prove a commercial success since his newly developed alkaline battery found many other uses in a wide range of industries, just not in the automobile. The new battery failed to save the electric vehicle industry which, like the steamer, eventually succumbed to the gasoline car.

  The Lead Cab Trust

  The promoters of electrical vehicles had not been blind to the uncertain outcome of the struggle between the different types of vehicles. The Electric Vehicle Company, the product of a combination of both vehicle and battery companies, had been backed by a group of Wall Street financiers with the purpose of establishing a fleet of electric taxi cabs in all major American cities. The so-called ‘Lead Cab Trust’ was not to enjoy a particularly happy or extended existence despite the fact that it raised substantial sums of capital. The scheme effectively worked as follows: corporate activity brought under one
umbrella a number of companies involved in the manufacture and maintenance of electrical vehicles. These included the Columbia Automobile Company, the Electric Storage Battery Company, the New Haven Carriage Company and the US subsidiary of Siemens & Halske.

  If one were to analyse the financial statements of the Electric Vehicle Company, at first sight the result would appear impressive as they shared the net profits of over $0.5m ($36m), dividends of $0.325m ($24m) and financial assets of $5m ($360m) in the shape of cash and marketable securities. In order to sell its vehicles the company had entered into agreements or set up operating companies which paid the Electric Vehicle Company for the privilege of the exclusive right to purchase and operate its electric vehicles. The financial results of the Electric Vehicle Company therefore largely reflected the sale of rights to these operating arms, either for cash or stock. The operating companies had raised capital from the public to finance their future operations. The profits of the Electric Vehicle Company were then simply the transfer of capital raised from the public. The financial results reflected only the successful capital-raising exercise and bore no relation to future operations.