Fins

by William Knoedelseder

  Which is why the United States had tipped into a recession in 1927, when consumers started buying more used cars than new ones and Henry Ford shut down his manufacturing plants for six months. Ford powered back in 1929, reclaiming its number one spot with the sale of 1.8 million Model As, amounting to a third of the industry total and 400,000 more than Chevrolet, which still managed a record year. The industry, too, set a record—5.3 million cars produced. Still, the overall economy continued to weaken.

  After two grueling, frustrating years, Harley had yet to make a real mark on GM; he had not followed up the LaSalle with a similar styling success. But despite his youth, relatively low rank in the organization, and wardrobe choices that made him “stand out like a toucan among grackles,” he became part of Alfred Sloan’s inner circle. He addressed his corporate mentor as “Mr. Sloan” when others were around, but in private called him “Alfie.”

  Harley and Sue continued to live graciously in Larry Fisher’s Whittier Hotel penthouse, where all the services of a luxury hotel were provided free of charge. Sue appeared to have recovered from her debilitating grief over Billy’s death, thanks in part to the birth of another son, James, in May 1928. Still, the pain remained so close to the surface that she and Harley never talked about Billy to anyone, not even family members. His birth and death were not recorded in the otherwise exhaustively annotated Taft-Earl family bible. Indeed, two of Harley’s sister Jessie’s children expressed surprise recently when they were told the story of Billy’s death; they never knew he’d been born. James would grow into adulthood thinking the portrait of the little boy that hung in his father’s study was of him.

  Harley hired a full-time nanny to help Sue after James was born because his job required many late nights in the studio and an increasing amount of travel. He was among a delegation of seven executives who sailed with Sloan to Germany in mid-October 1929 for talks with that country’s biggest carmaker, Adam Opel AG, in which GM held an 80 percent interest. The group was on its way back to New York on October 29, “Black Tuesday,” when the stock market crashed.

  Like many up-and-coming young men of that decade, Harley had invested heavily in the market, buying on the margins as the economy boomed. The crash wiped him out. Both he and his father lost everything they’d made from the sale of Earl Automobile Works, and then some. At the dawn of the Great Depression, Harley suddenly found himself deeply in debt. All he had left was his job at GM. And who knew how long that would last?

  6

  Assembly Lines to Breadlines

  The Great Depression hit Detroit and the auto industry head-on, well before the rest of the country felt its full impact.

  The big car companies experienced a 30 percent drop in sales almost overnight. Within a year, a third of their dealerships were out of business; after two years, their manufacturing plants were operating at one-quarter of capacity. The situation was even worse for the smaller independent and luxury carmakers, which began folding one by one—Essex, Franklin, Stutz, Marmon, Duesenberg, Peerless, Pierce-Arrow—until of the more than one hundred car manufacturers founded since the turn of the century, fewer than twenty were left. By 1930, GM, Ford, and Chrysler accounted for 80 percent of all production.

  The human toll was horrendous. A quarter of a million autoworkers were laid off, about half the industry’s 1929 workforce. Ford alone cut 91,000 jobs, and a majority of those who remained on the payroll were working three days a week or less. Hundreds of unemployed, homeless, and hungry people were sleeping in Detroit’s Grand Circus Park; some were living in caves dug into the ground and covered over with brush. Men gathered overnight outside the gates of their former factories, huddling around fires and hoping against hope that when the morning broke they would be called to return to the assembly line. On cold nights they kept their feet warm by stuffing newspapers into their worn-out “Hoover shoes,” named for the Republican president on whose watch the economy had collapsed. They weren’t all autoworkers; layoffs had spread quickly to other industries that fed the car-making beast—steel, rubber, glass, plastic, textiles.

  For the proud Midwestern metropolis that so recently rumbled with industrial productivity, it was a dizzying descent into economic chaos. Even as Board of Commerce brochures boasted of “Dynamic Detroit” and “The City of Tomorrow,” Mayor Frank Murphy estimated that four thousand children a day were standing on breadlines. And just when it seemed the situation couldn’t get any worse, Henry Ford ratcheted up the misery index by shutting down his factories again.

  Ford did not learn the most important lesson of the Model T’s collapse. In the aftermath, he chose to build another one-off car that he thought could remain unchanged and competitive for as many years as the Model T, if not longer. But despite spectacular sales in 1928 and 1929, the Model A quickly became outmoded, struggling to compete with Chevrolet’s fresher styling and new six-cylinder engine. So in August 1931, Ford ceased all production for six months while his engineers worked up a new “Model B” that he decided would be powered by a V-8, an engine with four more spark plugs than a cow had teats.

  Ford’s second extended shutdown in four years had a catastrophic effect on the economy, as the massive idleness at the Highland Park and Rouge River plants, in the words of Ford historians Allan Nevins and Frank Ernest Hill, “dragged like a dead weight on the city—on the world.”

  The unemployment rate shot to more than 30 percent in Detroit; it was 80 percent among African American workers, thousands of whom had been drawn from the South by the carmakers’ relatively high-paying assembly line jobs. By 1932, the federal government estimated that more than 12 million people were unemployed nationwide, a quarter of the workforce. Michigan was hit the hardest, with 2.5 million unemployed. Laid-off workers overwhelmed Detroit’s Department of Public Welfare, which saw its relief rolls quintuple, to the point that it was serving 728,000 people at a cost of $2 million a month and could expend only $5.00 a month per family. It was estimated that three people were dying of starvation in Detroit every day. Mayor Murphy figured the department would need $10 million to help the destitute get through the winter of 1931.

  In Henry Ford’s hometown of Dearborn, where the Rouge River plant was located, city officials sought his help in allaying the exploding cost of their public relief program. They reached an agreement that transferred furloughed Ford workers living in Dearborn from public relief rolls to a Ford relief program that provided a voucher for sixty cents’ worth of food a day at a company commissary—in effect, a free lunch. Except it wasn’t really free. Ever the hard-boiled industrialist, Henry insisted that if the workers were later rehired, the relief money then would be deducted from their paychecks.

  The Ford welfare barely amounted to a drop in the bucket, however, since the vast majority of the laid-off workers lived within the city limits of Detroit, not in Dearborn, and Detroit was hurtling toward bankruptcy. By Christmas 1932 it was clear to city managers that Detroit would not be able to meet its financial obligations after the first of the year. They turned to the banks for help but learned that—unbeknownst to the public—the city’s two most powerful financial institutions, the First Detroit Banking Group and the Union Guardian Group, were dangerously close to insolvency and had applied for rescue loans from the Reconstruction Finance Corporation (RFC), a federal agency recently set up by Congress to deal with the burgeoning problem of bank failures around the country. The RFC already had provided nearly $1 billion to more than five thousand struggling banks, mostly in small towns, but it balked at lending to Union Guardian, whose board of directors was packed with auto executives, including Edsel Ford, its largest single investor. “Why should we bail out Mr. Ford?” the RFC administrators asked.

  Indeed, some in the government thought it should be the other way around: the big auto magnates, with all their amassed wealth, ought to bail out the banks. Secretary of the Treasury Ogden Mills told Edsel at a meeting in Washington, D.C., that he and his father had a “duty” to step up and help solve the
impending bank crisis in Detroit, starting with the Union Guardian Trust Company, one of the group’s banks that was in imminent danger of collapse. During the final weeks of his presidency, Herbert Hoover held separate talks with Alfred Sloan, Walter Chrysler, and Henry Ford in an attempt to get them to deposit funds in Union Guardian Trust to prevent its failure. Ford was considered the key because he had $50 to $60 million in deposits divided equally between First Detroit Banking Group and Union Guardian Group banks. After the discussions, Hoover told the RFC that an agreement had been reached whereby Ford would subordinate the $7.5 million he had on deposit with Union Guardian Trust, in effect lending it to the company, while GM and Chrysler would each deposit $1 million. The $9.5 million would be enough to return the trust to solvency, at least temporarily; however, Ford changed his mind a few weeks later and reneged on his part of the agreement.

  President Hoover quickly arranged for Secretary of Commerce Roy Chapin and Under Secretary of the Treasury Arthur Ballantine to meet with Edsel and Henry in the latter’s Dearborn office at 10:00 a.m. on Monday, February 13, 1933. According to a written account by Francis Awalt, the Treasury Department’s acting comptroller of currency at the time, Chapin and Ballantine told Henry that without his help the Union Guardian Group banks would have to close to prevent a run by depositors, and that could spark widespread panic and lead to a chain reaction of bank closings throughout the state and beyond. But Henry didn’t budge, saying he “would not contribute a single dime” to bail out the banks, Awalt wrote, “because he felt that the principle was wrong.”

  What’s more, according to Awalt, Ford told Chapin and Ballantine that if Union Guardian Trust did not open the next morning then he was prepared to immediately withdraw the $25 million he had on deposit with First Detroit’s flagship First National Bank of Detroit, a move they believed surely would cause it to fail and bring down the Union Guardian banks as well.

  Stunned by the threat, Ballantine pleaded with Ford, telling him that “this would cause vast distress in the State of Michigan as there were nearly a million bank depositors representing the source of support of as many as three million people. All these people would be subject to loss and suffering, and the business of the state would be vastly hampered, if not paralyzed.”

  Ford responded that if the banking system crashed then it would serve as a lesson to people: “Everybody would have to get to work a little sooner, and that might be a very good thing.”

  He may have been bluffing, but the President’s men didn’t want to risk him pulling his money out of First National. After hours of tense meetings and telephone calls to the White House, the Federal Reserve, the Treasury Department, the Commerce Department, and the RFC, Francis Awalt decided that, as comptroller of currency, “I had no choice under such circumstances but to refuse to let the two large Detroit banks [Union Guardian Trust and First National Bank of Detroit] open the next day because I could not let Mr. Ford have preference to the detriment of the other depositors in those institutions.” He notified Michigan governor William A. Comstock, who at 1:00 a.m. on February 14 declared an eight-day “bank holiday” in the state, preventing Henry Ford and everyone else from withdrawing funds from Michigan banks. The governor said later that he personally had only thirty dollars in cash on hand when he issued the order.

  As many had feared, the Michigan bank closings set off a chain reaction as one state after another declared a similar holiday to protect their banks from runs by panicked depositors. On March 6, thirty-six hours after his inauguration, President Franklin Roosevelt declared a four-day nationwide bank holiday. Three days later, after only thirty-five minutes of debate, Congress passed the Emergency Banking Act, authorizing the RFC to borrow without limit from the Treasury to purchase preferred stock in closed banks and help them reopen. On Sunday, March 12, Roosevelt broadcast the first of his famous “fireside chats” over the radio, assuring Americans that “it is safer to keep your money in a reopened bank than under the mattress.”

  The next day, Federal Reserve member banks across the country reopened, and by March 15 the crisis seemed to have passed as banks controlling 90 percent of the country’s banking resources resumed operations, with more people depositing money than withdrawing.

  In Detroit, First National and Union Guardian banks were not among the banks that reopened. Instead, General Motors stepped into the void left by Henry Ford and partnered with the RFC to form a new bank, First Bank of Detroit; GM purchased $12.5 million in common stock while the RFC bought $12.5 million in preferred stock. “Finally it became obvious that the situation required some strong organization capable within itself of assuming the responsibility of affording the essential relief,” Alfred Sloan wrote later. “People were suffering. It was not a problem of selection. General Motors was the only organization that had the resources to do the job and General Motors did it.”

  The Detroit bank crisis signaled the beginning of GM’s rise and the fall of Ford. Henry Ford’s time had passed. Once seen as a folk hero for putting America on wheels, doubling the industrial pay rate, and initiating the five-day, forty-hour workweek, he was now reviled by the New York Times as “an industrial fascist—the Mussolini of Detroit” for a slew of employment practices and public pronouncements that ranged from merely mean-spirited to truly monstrous.

  In the midst of the mass unemployment caused in large part by his layoffs, he was widely quoted as saying, “It’s good that the recovery is taking a long time. The average man really won’t do a day’s work unless he is caught and can’t get out of it.” At the same time, he was employing a security force of some three thousand roughnecks (benignly named the Ford Service Department) that delighted in terrorizing his plant employees by, among other things, monitoring their visits to the restroom and speeding up the assembly line and then summarily firing anyone who couldn’t keep up the pace, knowing there were plenty more waiting outside the gates to take their place. The head of the Ford Service was a thuggish ex-boxer named Harry Bennett, who reported only to Henry and later boasted, “I became his most intimate companion, closer to him than his own son.”

  A virulent anti-Semite, Ford published a newspaper called the Dearborn Independent that operated out of a former Ford tractor factory and unrelentingly blamed nearly all the world’s problems on “the international Jewish conspiracy.” Under the editorial guidance of his personal secretary, Ernest Liebold, the Independent specialized in articles that would cause even the most rabid Ku Klux Klansman to blanch, claiming, for instance, that Queen Isabella of Spain had been “a Jewish front for the discovery of America,” that Jewish bankers were behind the assassination of Abraham Lincoln, and that Jews were responsible for the popularization of “Negro Jazz,” which it called “moron music.”

  Henry had embarrassed himself on the witness stand in 1919 after he sued the Chicago Tribune for $1 million over an editorial that called him “ignorant” and “incapable of thought.” Seeking to counter Ford’s description of himself as “an educator,” the attorney for the newspaper asked him a series of questions that exposed his lack of education beyond the eighth grade:

  “Have there ever been any revolutions in this country?”

  “There was, I understand,” Ford replied.

  “When?”

  “In 1812.”

  “Did you ever hear of Benedict Arnold?”

  “I have heard the name.”

  “Who was he?”

  “I have forgotten just who he is. He is a writer, I think.”

  After the testimony, one newspaper described Henry as “a man with a vision distorted and limited by his lack of information.” The jury found in his favor but awarded damages of only six cents.

  The capper came in March 1932, when several thousand unemployed workers staged a “hunger march” on Ford’s Rouge River complex to present Henry with a list of demands that included the rehiring of all workers, a seven-hour workday with eight hours’ pay, free medical care for employees and their families, and an
end to discrimination against black workers. The Rouge employed roughly 10,000 African Americans, but most were relegated to the hardest, dirtiest, and hottest jobs. Seventy percent of the plant’s foundry workers were black.

  The march proceeded peacefully under police escort until it reached the city limits of Dearborn, where the combined forces of that city’s fire and police departments and the detested Service Department blocked its path. As the marchers pushed through the skirmish line in an attempt to reach the company’s employment offices, they were blasted by fire hoses and bombarded with tear gas canisters. When they responded with rocks, Henry’s goons opened fire with guns, mortally wounding five and injuring sixty.

  “Dearborn pavements were stained with blood, the streets were littered with broken glass and the wreckage of bullet-riddled automobiles,” reported the New York Times. The more Ford-friendly Detroit Free Press called it a “riot” carried out by a “Red [Communist-inspired] mob,” but the event quickly became known as “the Ford Hunger March Massacre,” making Henry’s fall from grace complete.

  He’d done more than damage his public image, however. Thanks to his autocratic, capricious management, the company had become increasingly dysfunctional. He disdained college graduates and experts and refused to hire them. He harassed any of his executives who showed promise or gained the loyalty of their underlings, inevitably firing them or driving them from the company, as he did with his extremely capable head of production, William Knudsen, who quit in frustration and went to work as the general manager of archrival Chevrolet. Ford’s ideas about running a company were so antiquated that he could have been describing a small-town, turn-of-the-century hardware store when he bragged in his autobiography, My Life and Work, that Ford Motors had “no organization, no specific duties attaching to any position, no line of succession or of authority, very few titles and no conferences. We have only the clerical help that is absolutely required; we have no elaborate records of any kind and consequently no red tape.” In an obvious dig at Alfred Sloan, he added, “There is no bent of mind more dangerous than that which is sometimes described as ‘genius for organization.’”