The General Of General Motors

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The Durant name still had magic. The Goodrich Tire & Rubber Company invited Durant to set himself up in a modest office in its building in New York City. After a brief holiday at White Sulphur Springs Durant contacted sixty-seven friends, asking them to back a new automobile company that would bear his name. Within forty-eight hours he raised seven million dollars, two million more than he needed. Durant Motors, Inc., came into being on January 21, 1921.

The enterprise started under propitious conditions. Durant’s public image was excellent. He was looked upon as an underdog, a self-made man who had been crucified by the du Ponts and the Wall Street bankers. The first model produced, the “Durant four,” was an exceptional value at $850; as Durant advertised it, it was “a real good car.”

Durant Motors, Inc., grew by leaps and bounds. Facilities were built in Flint and Lansing and in Oakland, California. The Sheridan plant in Muncie, Indiana, was bought to produce the “Durant six. ” The bankrupt Locomobile Company of Bridgeport, Connecticut, was purchased to add to the Durant line a luxury car with a longstanding, prestigious reputation. With the Willys Corporation in receivership, Chrysler and Studebaker were outbid at $5.25 million to acquire the new Willys plant at Elizabeth, New Jersey, the most modern automobile factory in the world, plus the Willys design for a mediumpriced car that became the “Flint.” Then, on February 15, 1922, Durant announced that he would bring out the “Star,” which at a price of !348 would compete with the Ford Model T. Cognizant of Ford’s patent anti-Semitism, Durant thought the Star would have a special appeal to Jewish buyers. Some sixty thousand people flocked to see the Star at its first showing in New York City, and by January 1, 1923, Durant had accepted cash deposits on orders for 231,000 Stars, a full year’s production. The Durant Motors Acceptance Corporation was formed to finance time sales and to help dealers store cars over the winter for spring delivery. Ever a financial innovator, Durant worked out an ingenious scheme for financing his new company by selling stock at low prices, on the installment plan. He got 146,000 shareholders- more than any other American company except American Telephone and Telegraph. And he created the Liberty National Bank, to raise still more money. He called it “the most democratic bank in the United States.” Its officers and board of directors worked without salary. Anyone could purchase stock in it. No one was allowed to own more than one of its three hundred thousand shares, which could be purchased on the installment plan.

Yet despite its promising start, Durant Motors never amounted to much. In its best years it was unable to capture more than a fifth of the market for new cars. Henry Ford effectively crushed the threat of competition from the Star by unexpectedly lowering his prices for the Model T. Other Durant models never caught the fancy of the buying public. And anyway, by the mid-1920’s the market for new cars was rapidly approaching the saturation point.

A well-managed firm might have pulled through—but Durant failed to recruit top-flight managerial talent. Few of his more capable associates at General Motors had left with him. They knew that with Durant business was a roller-coaster ride that was apt to end in a crash. And in the automobile industry the word had gotten around that Durant was difficult to work for. That put the burden of managing Durant Motors squarely on Durant’s shoulders. He might have succeeded if he had applied his energies fully to the task. But he could not resist the lure of the stock market, and soon he started to treat Durant Motors as a sideline.

After the First World War the dominant power that the eastern investment bankers historically had wielded in Wall Street increasingly came to be shared with a new group of self-made millionaires who came mainly from the Midwest. Less cautious and conservative than their predecessors, these new speculators became the prime movers in the runaway bull market of the late 1920’s. The most important figure among them by far was William C. Durant, who after 1924 was widely referred to by the press as “the leading bull.”

The “bull consortium” that Durant led was estimated at various times to include between twenty and thirty millionaire investors, who were known as Durant’s prosperity boys. It was said that Durant himself had Sl.2 billion in the market by 1928 and that he directly controlled about four billion in investments. Durant had accounts with at least fifteen brokers, and his commission fees to brokers were rumored to run as high as six million dollars a year. Phone bills of twenty thousand dollars a week were supposedly not uncommon. The financial press regularly reported multimillion-dollar killings that Durant was said to have made in individual pools.

Durant, like many other insiders, unloaded in the spring of 1929. Shortly after the collapse of the market on Tuesday, October 29, Earl Sparling, a financial writer, visited Durant to get his comment on the fact that some forty billion dollars in security values had been wiped out overnight. Durant did some quick calculations on a pad of paper, smiled, and announced that if the loss were translated into a stack of silver dollars, it would reach a hundred thousand miles into the sky.

But like many others who had sold before the initial disaster struck, !Durant assumed that the worst was now over. He plunged back into the market to pick up stocks at what he thought were bargain prices, only to find that the market kept deteriorating. His brokers sold him out in 1930.