Financing the Automobile Industry   By Pierre Bonneau

Collectors of old stock and bond certificates have been tracking down the fascinating events which led to the financing of the automobile industry. The hobby itself, called "Scripophily," first emerged in Europe in the late 1970's and has since gained popularity with many North American enthusiasts.

The appearance of such financial instruments as stocks and bonds in the automobile industry dates back to the turn of the century. They were not frequently used at first since the early requirements to build a car were quite affordable. No heavy investment in plant and equipment was needed, as production was almost exclusively an assembly operation, using parts and components bought from outside firms. Moreover, many manufacturers financed themselves by buying from suppliers on credit and selling to dealers for cash.

However, the best prospects for survival were generally those companies which were already established, or those individuals who could find investors. In other words, substantial capital soon became essential! To illustrate this point, I chose five important individuals who, in their own way, shaped the world of motorized vehicles as we know it today, and recount how they "financed" their entry in the American automobile industry. From Ransom E. Olds and Henry Ford, two impoverished engineers with a dream, to James W. Packard and the Studebaker brothers, both already established; and finally, the flamboyant Preston T. Tucker, who used marketing and the stock market before his prototype was even completed!

Ransom Eli Olds
Olds Motor Works Company
REO Motor Car Company

Originally involved with stationary gas engines, Ransom E. Olds built his first experimental three-wheeled steam car in 1891. He went on to form the Olds Motor Works Company five years later, and introduced a single-cylinder gasoline-engined vehicle of dogcart type in 1897. Hindered by lack of capital for nearly two years, Olds finally found a backer in a copper and lumber magnate named Samuel L. Smith. The latter invested $199,600 into the venture in return for 95 per cent of its stock, while Olds contributed the rest of the $200,000 of paid-up capital. Ready for a new beginning, the company moved its operations from Lansing to Detroit in 1899.

Bad Luck seemed to have struck when the new factory burned down in March 1901. A little buggy with one cylinder engine and a curved dash, which Olds had designed as a possible low priced car, was all that was left! Having no other alternative, the company concentrated its effort on the curved-dash buggy and ordered engines from Leland & Faulconer, then a machine tool manufacturer also making motor boat engines (Leland later created the "Cadillac" cars). As for transmissions, they came from a small machine shop owned by brothers John and Horace Dodge!

Needless to say, the result was spectacular. The little curved-dash runabout soon became known as the "Merry Oldsmobile," considered by many as the world's first mass-production automobile. The car itself was very successful until 1904, at which point Smith decided to drop the buggy in favor of heavy touring cars. Olds disagreed and left the company, only to be put right back in business by a group of Lansing associates.

The new venture, named the REO Motor Car Company (for R.E. Olds), kept on producing inexpensive 8hp single-cylinder runabouts until 1909, and a more expensive companion 16hp twin was also offered. The company itself remained a steady seller for more than twenty-five years.

Henry Ford
Ford Motor Company

From his boyhood, Henry Ford definitely had a flair for machinery. He spent close to twenty years as a mechanic, machinist, and engineer before he built his first car, the "Quadricycle," in 1896. Underfinanced, he had to wait three years before finding support from a group of Detroit businessmen headed by a lumber dealer named William F. Murphy. The new venture, originally organized as the Detroit Automobile Company and later as the Henry Ford Company, was a disaster. By 1902, Ford had been replaced by Henry M. Leland (of Leland & Faulconer), and the company was reorganized as the Cadillac Automobile Company (. . . so Ford and Cadillac have a common ancestry!).

Ford, himself, was anxious to get back to work and founded the Ford Motor Company with another group of partners in 1903. Alexander Y. Malcomson, a Detroit coal dealer, supplied the initial $28,000 while the Dodge brothers became stockholders in return for providing chassis, engines, and transmissions for the first Ford cars. By 1905, following a quarrel with Malcomson, Ford emerged in complete control of his company. Three years later, the "Model T" was introduced . . .

James Ward Packard
Packard Motor Car Company

James W. Packard graduated from Lehigh University in 1884 and started a successful light bulb manufacturing venture, the Packard Electric Company, in 1890. He subsequently got interested in automotive engineering in 1898, following the purchase of a defective Winton No. 12 car. By 1900, he began producing his own cars in Warren, Ohio, using a subsidiary called the Ohio Automobile Company.

The company's rise to prominence started the following year, shortly after the 1901 New York automobile show. Greatly impressed by Packard's car, a group of Detroit capitalists headed by Henry B. Joy, son of railroad magnate James F. Joy, acquired control of the Packard Electric Company. The name was changed to Packard Motor Car Company, and production was moved to Detroit in 1903. That same year, a big four of over 730ci displacement was designed on European lines by Charles Schmidt, which led to the famous Model L, the first car to bear the classic Packard radiator.

Henry and Clem Studebaker
Studebaker Corporation

Brothers Henry and Clem Studebaker first opened a blacksmith's and wagon building shop in South Bend, Indiana, in 1852. As the largest manufacturer of horse-drawn vehicles in the world, their company received lucrative government contracts during both the Civil War and World War I. All in all, the firm produced more than 750,000 wagons over a 67 years period!

Even though regular wagon production was carried on until 1919, experiments with electric "horseless carriages" began as early as 1898. The Studebaker Corporation was finally chartered as an offspring of the existing Studebaker Brothers Manufacturing Company in 1902. The well-funded venture produced its first motorcar two years later. The Studebaker brothers never claimed to be engineers, but they were good marketers! Recognizing their limited technical expertise, they initially bought most of their engines and chassis from the Garford Manufacturing Company of Elryria, Ohio. The bodies were then added in South Bend, and the cars were marketed through their established network of wagon dealers. The Studebaker Corporation finally bought out its suppliers in 1910 and absorbed the original wagon manufacturer in 1911. By then, its automobile activities were all consolidated under one name, with factories in South Bend and Detroit.

Preston T. Tucker
Tucker Corporation

By the end of the Second World War, surveys revealed that the #1 priority for the American consumer was to buy a new automobile -- and engineer Preston T. Tucker was about to create just the car they wanted! He envisioned a radical new design featuring a central steering wheel, disk brakes, padded dash, front passenger crash compartment, pop-out windshield, three headlights, and mobile front fenders synchronized with the wheels. His new "Torpedo" was also to include a flat opposed 589ci engine and a rear wheel double torque direct drive system.

Tucker chartered his Tucker Corporation in 1946 and worked with former Auburn-Cord-Duesenberg stylist Alex Tremulis to make his dream a reality. He soon published an article showing the low, long, and luxurious styling of the Torpedo along with its safety and performance features. The new car was an instant success, with more than 3,000 orders placed by the end of 1948.

Unlike earlier automobile manufacturers, the flamboyant Tucker marketed his product well before he could deliver -- and he had no operating funds! Moreover, since his idea directly challenged the ultra conservative products of the current automobile industry, bankers were reluctant to support his Chicago based venture. In the end Tucker was forced to finance himself by selling capital stock. Robert Pierce was already one of Preston Tucker's larger shareholders with ownership of 40,000 "Tucker B Stock", and arrangements were made with certain of his associates to allocate stock in lieu of salaries and reimbursements for expenditures. However, most of the financing came from the "Tucker A Stock", which was offered to the general public.

Unfortunately, the production models had major problems, and many of the desired features had to be abandoned. The initial Tucker Torpedo was never really produced, becoming instead the Tucker '48 sedan. Tucker, Pierce, and four other associates were soon charged with fraud; but they were eventually acquitted. The Tucker Corporation, itself, was finally dissolved in 1950, having only produced 51 automobiles . . .

Pan Motor Company

The stock in this company represents the tangible results of what is considered the most unique swindle in the history of the American car industry. Samuel Conner Pandolfo conceived the idea of a practical car built in a single plant by workers who lived in company housing. Pan Motor was incorporated in Delaware in 1918 to officialize the concept. Pandolfo built a village around a large factory and started production of touring cars and roadsters in St. Cloud, Minnesota. The car had many attractive features including an adjustable lever that allowed the seats of Pan cars to be transformed into a double bed.

The project, itself, was a good idea; but Pan Motors made such extravagant claims of production output that the publicity enabled Pandolfo to net $9.5 million by selling stock to 70,000 people. By 1919, the investors were getting weary and various complaints were filed. Most plaintiffs were charging misrepresentation in letters and literature mailed to them as prospective shareholders. In December, 1919, the Federal Court of Chicago found Pandolfo guilty of using the mail in a scheme to defraud. The ruling didn't put a stop to his activities, and the company was viable until 1922 when a new project was in the wings -- a Pan tractor.

Luckily, Pandolfo was arrested; but this time, he was convicted and imprisoned. When Pan Motors went out of business in 1922, it was revealed that the plant had produced a grand total of 737 cars in its four years of existence. The company was put in the receiver's hand, and the liquidation proceedings were completed in 1925. All the assets were disposed. There was no equity left for the shareholders. The charter of the Pan Motor Company was officially canceled on January 24, 1927. This government action was taken because the company had failed to produce annual reports and pay its taxes for a number of years.

An Early Stockholders Meeting

The Birmingham was first manufactured in Detroit, Michigan in 1921. Operations moved to Jamestown, New York where Samuel Carlson, Mayor of Jamestown, became president of the Birmingham Car Company. Stock was sold in the company; and soon, rumors were rife that the stock was worthless. In order to allay such accusations, 26 Birminghams were manufactured and a special stockholders meeting was called. One of those present was stabbed to death, and an officer of the company leaped through a plate glass window. In 1923, the Birmingham Car Company terminated operations.

Note:

Although the total number of American car manufacturers will never be accurately determined, it is believed that more than three thousand makes of cars and trucks have been built by some fifteen hundred identifiable companies since 1897. As we celebrate the automobile industry's first century, it is interesting to note how America has always kept its "horseless carriages" history alive through collectibles. However, financing instruments such as stocks and bonds, the very fuel of the whole industry, have only been introduced to collectors a few years ago.

As an exciting new field for automotive enthusiasts, Scripophily offers an unprecedented variety of colorful, historic documents. Easy to display, these will complement any existing collection. Moreover, the availability of choice pieces is still impressive, and prices can be surprisingly reasonable!

Pierre Bonneau is the Marketing Director for Stock Search International, Inc. and the founder of the "Old Certificates Collectors Club". As an established dealer in collectibles, stocks and bonds, he organizes mail bid auctions and produces illustrated catalogs. For more information about "Scripophily" or to get your free "Automotive Stocks and Bonds" catalog, please contact Pierre at: 1-800-537-4523.