Paper Losses, Real Losses


During one week last summer the stock market suddenly soured on technology stocks. Microsoft’s William S. Gates saw his fortune decline by an awesome 2.4 billion dollars. To get some idea of just how much money that is, consider that if a person had a net worth that large, he or she would rank about number twenty-two on the Forbes Four Hundred List, right along- side the likes or Ross Perot. Of course, Bill Gates is not number twenty-two; he is number one, so the wolves remain many billions of dollars away from his front door. Still, that is probably some sort of record for short-term paper losses.

For short-term real losses, however, the record is almost certainly held by William C. Durant. Between April and November 1920 he lost ninety million dollars, well over a billion in today’s money. Had there been a Forbes list then, he would have gone from near the top to the edge of bankruptcy in less than eight months. Ironically he suffered these real losses in a hopeless attempt to prevent mere paper ones.

Of all the major figures in the history of the American automobile industry, none, not even Henry Ford, compares with Durant for the sheer drama of his career. (The best full-length biography of him, The Dream Maker , is by one of my colleagues in the front of this magazine, Bernard A. Weisberger.) Durant would scale the heights of capitalism by creating General Motors. But he would end his days running a bowling alley.

Durant was born in Boston in 1861 of old New England stock. His maternal grandfather had moved to Michigan, prospered mightily in the lumber trade, and served as the mayor of Flint and as Michigan’s governor. When Durant’s parents’ marriage collapsed- after his father bankrupted himself in the wild stock market of the late 1860s —his mother moved back to Flint.

Leaving high school without bothering to graduate, Durant was soon working for a local cigar manufacturer as a salesman. When he returned from his first sales trip, his boss was furious to learn that Durant had run up travel expenses of $8.15 in only two days. The employer, however, decided not to make an issue of it when Durant turned in orders for no fewer than twenty-two thousand cigars.

While many of his contemporaries were still in school, Durant had already found the wellspring of his genius. He was a natural-born salesman. His philosophy was simple: “Let the customer sell himself,” he said. “Look for a self-seller. If you cannot find one, make one.”

Following his own advice, he quickly found a self-seller and decided to make it. When he was twenty-four, a friend offered him a lift in his new cart. Durant discovered that the cart did not bounce the passengers around the way most sulkies did. He inspected it and saw that the reason was a unique suspension system.

Durant recognized a winner immediately. He tracked down the manufacturer and, for fifteen hundred dollars he didn’t yet have, bought the patent rights and took in a partner to provide working capital. The company was an immediate success, and by 1900 Durant-Dort was the largest carriage company in the United States.

Durant was a very rich man, but the carriage business was beginning to bore him. He needed new challenges. In 1900 it was still possible to believe in a prosperous future for the horse-drawn carriage business, but Durant noticed that when he drove an automobile around Flint, he collected a fascinated crowd wherever he stopped. Durant had a self-seller; he just had to make it.

Automobiles had been around since the early 1890s. But they remained largely the product of back-yard tinkerers, most of whom had no conception of what was needed to make a successful automobile business. Durant did: capital and lots of it. He quickly proved as able at selling stock as he was at selling everything else.

In 1904 Durant took over management of the Buick Motor Company, which had moved to Flint the previous year and was in financial extremis. He displayed a model at the New York Automobile Show that year and immediately took orders for 1,108 cars, despite the fact that this was more than twenty-five times the total number of cars the company had manufactured since its inception. But Durant’s unquenchable optimism led him on, this time to glory. He raised capital by selling new stock to everyone with money in Flint, many of them his friends, relations, and employees. He would always feel a personal responsibility to those who held stock in his companies, an emotion that would one day cost him dearly indeed.

Buick produced 725 cars in 1905, 1,400 in 1906, and 4,641 in 1907. In 1908 Buick, with a production of 8,820, was the number one car company in the country, outselling the second and third companies—Ford and Cadillac—combined.

But Durant was already thinking bigger still. He realized that the future of the automobile business lay in ever-larger size. On September 16, 1908, he founded General Motors, which soon owned or controlled not only Buick but Oldsmobile, Cadillac, Oakland (now Pontiac), and numerous smaller manufacturers as well.