Preston Pysh  4:19  

So did Edison have a bigger role than what you just described? Talk to us about how much of a role he played in all of this?

Well, Edison and Ford were contemporaries. They were close personal friends. And Ford always gravitated to very intelligent people. He was the sort of man who took his own counsel. He didn’t take advice from anybody. But for somebody like Thomas Edison, or Harvey Firestone, another very close friend. You know, these were the sorts of people at Ford looked up to and associated with and traveled with them extensively. They all had homestead in Florida, for example, and they would travel back and forth, which was an undertaking those days. 

Christopher Whalen  5:02  

So, you know, he definitely was influenced greatly by Edison, although he later said that while Edison was one of the great inventors of all time, he was also one of the poorest businessmen. He sold General Electric and put his money into another endeavor, which did not turn out.

Preston Pysh  5:19  

Isn’t that so common though, with a lot of the inventor is that that’s kind of neat to see that time really doesn’t change.

Yeah, but the fortune of Ford was made because of the other people around him, because automobiles were in such vast demand that you can make just about anything and put four wheels on it, and people would buy it. There were dozens of car companies and slowly they got consolidated and bought out and everything else. And Ford survived, in part because of the people who work there. But also because of the grace of God. Henry Ford almost destroyed the company several times and one of the themes in the book is just that it was only the Ford men, the managers, people like Charles Sorensen and many others who kept this thing on track. But it’s survived through World War Two and a great depression, and the various crazy things that the great creator would do from time to time. You know, he was an imperfect man, it was a lot like Steve Jobs. If you compare the two personalities, they are very similar.

Stig Brodersen  6:26  

And one of these men, one of these Ford men, you’re talking about Chris, that would be James Couzens. And he has probably not received the recognition that he should have. He was basically the person who was the driving force and handled all the daily operations at the first decade of Ford Motor Company. So could you talk about that rivalry between the two and why he ultimately decided to leave the company?

Preston Pysh  6:49  

Well, James Couzens was a clerk for a coal dealer named Malcomson and Malcomson was essentially the private equity investor who started Ford Motor Company. Ford wasn’t an officer of the company when it started because it had two business failures. The second company he was associated with later become Cadillac for General Motors. And so, when they invested in this third enterprise and basically was built around Henry Ford’s idea to bake a car, they had to be kind of quiet about it because Malcomson was afraid his bankers would get upset. If they found out he was associated with Henry Ford, Ford was a racer and a tinkerer, who was not known as somebody that was reliable in a commercial sense. So Couzens had to watch for it because the bankers insisted that Malcomson stay with his coal business to secure the loans that supported Ford. 

Christopher Whalen  7:48  

And a small group of people put their money together and helped capitalize the company including Couzens. He borrowed money from his family members. The Dodge Brothers were early investors for a stock and it got started because it was the man who insisted that they were there to make money and to sell cars. If it had been up to Henry Ford, he would have tinkered with his invention endlessly. And Couzens wouldn’t have any of that. 

So one day, he just said, “I’m putting an ad in the newspaper, we’re selling cars.” And sure enough, the orders started to come in. So they had to build cars to sell to these people. Initially, very early on, Ford didn’t even have a factory. So the Dodge Brothers, who were the great parts makers of that era, actually sold it to Ford, the Ford specifications, which were then assembled in this building in Detroit that they used as their first factory. And that’s how the company got started. It was just a bootstrapped kind of entrepreneurial endeavor, but one that didn’t have enormous amount of planning or guidance. 

That’s really one of the lessons from this book is luck is very important and chance, and also just being in the right place at the right time because you could have sold anything. As I said before, there was such an enormous claim and demand for cars in that first decade of the 20th century. You could have literally sold anything. In fact, the investors and Ford Motor Company got all their money back in the first year. The profits were exponential, and they just went straight up from there.

Stig Brodersen  9:25  

Wow. And so how much do you think was locked in? How much do you think was really Henry Ford’s skill in attracting the right people? And the reason why I asked this is it’s not only James Couzens who we were talking about now. It’s also, you mentioned before Charles Sorensen, the engineer who basically ran the company for 40 years or so.

Preston Pysh  9:43  

Well, I’m not sure that Henry Ford picked the right people. I think they picked him. It was a case that he had a reputation as someone who had an idea about building cars and other people came together around him and formed this enterprise. Many of these people would be driven off later by Ford, as he slowly got rid of all the original shareholders. Eventually James Couzens left in 1915. 

Christopher Whalen  10:14  

And you know, by the time you get into the 1920s, Henry Ford’s basically running the company by himself. He makes his son, Edsel, president. And Edsel has you know, limited authority. Ford basically ran the company as a plantation, with no planning, no Board of Directors, no governance, no auditors, when a company didn’t have audited financials for the first 50 years of its existence. So, you know, it was very much of a dictatorship built around the great man. And he also was quite distracted. He got involved in politics. He opposed America’s entry into World War One and made it very clear that he was on the side of Germany. He was the man that paid attention to everything but running the company. 

And it was only because of a series of managers, people like Couzens and others, that the thing continued. But again, that demand for cars is what pulled it fold. But the trouble was, is that Ford’s vision was very set in stone, it was not flexible. So as you know, you get into the 20s and the 30s, and you’d have General Motors growing and offering all sorts of new products. Henry Ford had one car. He built the Model T until 1927. And by the end, it was hopelessly obsolete, but he believed that it was the only car people needed. It only came in one color, black.

Preston Pysh  11:41  

So Christopher, after spending so much time researching the stories for your book, what was the most surprising thing you uncovered? And what was the main learning point from that discovery?

The real interesting vignette about Henry Ford that very few people know and which always struck me as a student of finance is the role he played in the Great Depression. Ford and Couzens when they parted company, still lives in Detroit and Couzens became the Senator from Michigan, very involved in politics, Couzens, I believe was probably the one who raised wages. It wasn’t Henry Ford. Couzens was haunted by his wealth and the fact that it had exploded in such a way that by the time he got into politics and whatnot, he was worth $40-50 million. 

Christopher Whalen  12:30  

That was just the multiplicative effect of the board: excess It was just enormous. Everyone involved in that company became enormously wealthy. So Ford was very much an aesthetical to America’s involvement in Europe in World War One, and he was also opposed to American involvement in World War Two. And he was very vocal about this and really came at loggerheads with both President Hoover and FDR. And in the early 30s, after the Great crash, the banks in the US were in a lot of trouble. And the banks in Detroit in particular, were in a lot of trouble. Herbert Hoover tried to convince Ford. But Ford said no to hell with all of you. I’m going to take my money out of the bank. This was in February of 1933 and Henry Ford was one of the wealthiest men in the country. Certainly, probably the biggest depositor in US banks. 

So the governor of Michigan found out about this and declared a bank holiday. And three weeks later, when Franklin Roosevelt took office in March of 1933, every bank in the country was closed. That’s because of Henry Ford. And I often wondered, I said, “How is it possible that Henry Ford could do such a thing and we never talked about it?” And the reality is, it’s kind of buried in Hoover’s memoirs. It’s also discussed at length in the memoirs of Jesse Jones, the head of the Reconstruction Finance Corporation. And you know, all of these men and Couzens to tried to reason with Ford and Ford said, “Oh, well, if you know the world goes to hell, I’ll rebuild by myself.” And it was such a ridiculous statement because his wealth and his success had come about because of the help, and the work of many, many other people. 

It was a very revealing episode in Ford’s life. It showed just how myopic and how selfish he could be. But you know, on the other hand, he was probably right, putting money into a bank, it was going to fail anyway, wouldn’t have done a very good idea. 

Stig Brodersen  14:34  

How do you think that Henry Ford really got that reputation? Because I gotta be honest before reading your book, like I guess I had the same impression like most people like he was this great businessman, this great thinker who really made all this possible, and it seems to be a lot of stories untold. Do you think he was very aware of his own reputation? Or was it more like the Ford Motors would also have an interest in building on his reputation, this is a part of the brand?

Preston Pysh  15:03  

Well, the Ford Motor Company, the public relations people, some really great ones who work for Ford over the second half of the 20th century, certainly burnished the history. And while Henry Ford is the creator, I think it’s important to realize that there’s an awful lot of people that comprise this story over the years, many managers, people like Robert McNamara, for example, who came in with the whiz kids, right after World War Two. The first thing they had to do was assemble a financial picture of the company. The company had never been audited. It had their own records. It was a completely blank slate. So they had to go in there, figure out what the company owned, where all these assets were, trying to assemble a financial picture. So that eventually, they did a public offering in the late 50s. Not because the company needed to raise money, but because the Ford family had to engineer a way to get around the confiscatory state taxes that FDR had put in place during his term, in part because he wanted to get people like Henry Ford.

Stig Brodersen  16:13  

Wow, it really is an interesting story. And if we should continue this discussion about what happened in the mid and late 80s, because it’s really hard to talk about the Ford Motor Company without discussing Ford Edsel, which is today still regarded as one of the classic samples of how not to launch a product. So could you please tell us the story about this horrible, horrible product launch of the new car and what we can learn from the mistakes?

Preston Pysh  16:42  

Well, the Edsel was an effort to create an upmarket product for Ford because coming out of the war years, they still really only had entry level products. So if you were an executive and your first car was a Ford, you would not necessarily go and buy a Ford when you were making more money and you were more successful. In fact, quite the opposite, you would probably go buy a Chevrolet or an Oldsmobile or something like that, because General Motors had half a dozen different product offerings. Ford had one. They had the Lincoln, Lincoln they had acquired, it was very expensive, well beyond the means of most Americans. So there was nothing in the middle. And the answer was an effort to try and put a slightly more expensive, fancier vehicle in place, but the execution was horrendous. And in particular, the way that they handled the organization of the product and the dealers who was going to handle it and all the rest of it was just a mess. 

Christopher Whalen  17:47  

This was a failure that was to a large extent, owned by Ernie Breech and also by Robert McNamara, two very significant executives during this period. You know, basically they didn’t plan it. They didn’t execute it right. They should never have named it after Edsel Ford, it was a terrible thing to do. But they were kind of pandering to the family. And this was, unfortunately, something that you find throughout the story, the tension between the managers on the one hand, and the Ford family, on the other. And the families that have said, “No, don’t name it after Edsel.” 

And the sad thing is that the Edsel vehicle itself was not that badly conceived. There were a couple of variants of it that were sold under the mercury brand going forward. They didn’t get the recognition that they should have gotten. But the trouble was the immediate execution and the launch of the Edsel car was so bad, and the products were not well made. They had doors falling off and all sorts of things. So you had this really, really bad start, and Ford immediately pulled back and killed the program. If they had stuck with it and fixed the problems and tried to get it right, I think it might have succeeded.

Stig Brodersen  19:06  

Yeah. And also, it seems to me like one of the main problems is really simplicity. This wasn’t a simple product for anyone. It was not a simple Ford, it was not a simple product for the consumers and the distributors were… Perhaps the group that was even more confused Ford different models, or was it not Ford different models and was very difficult to basically communicate with the buyer? What is really that you’re getting? And why should you buy this car? Would you agree that it was really a marketing disaster, more than anything?

Preston Pysh  19:35  

It was a marketing disaster. They hadn’t defined the price points, and just where this vehicle fit in in the marketplace. They had a couple different variants of the Edsel and they also cannibalize their dealer network. Henry Ford II, at one point was thinking in terms of creating a whole new dealer network for the Edsel, but that really wasn’t possible. There just weren’t people out there that were looking to open Edsel dealerships, it wasn’t enough. So they basically piggybacked on the existing dealers, and they were not terribly enthusiastic about this. And it was just there were a number of different errors that were all strung together in a series that came together to make this quite a flop. But as I say, it was a good idea to come out with a mid-price vehicle to go along with the entry level vehicles that Ford had, but it really was so poorly executed that it’s rightly thought of as a disaster.

All right, so the next question that I have is one of the chapters in your book is titled “Never complain, never explain.” Without giving away the whole premise of the story, talk to our audience about what the mindset in general culture that Ford would cultivate within his organization?

Henry Ford II had to grow up very quickly. He didn’t really have much of a childhood. He was in the Navy, young man comes home and because he is, before the next generation, he had to immediately take over and run the company, and try and gather the managers and the other people of talent around him that could help him accomplish this, because such was the legend of Ford and the enormous esteem that the family had in the public’s mind that it was really impossible for anybody else to take over. You know, once  his grandfather had died, and the family was looking to him to save their fortune and save the company. And that’s what he did. 

Christopher Whalen  21:41  

So he was, you know, at times a little sophomoric and he got in some trouble. He was out with his mistress one day in California drunk driving and got arrested and you basically use that term to explain why he wasn’t gonna make any explanation. But I think it was is very appropriate for the auto industry because the auto industry screws up on a regular basis. And they never complain and they never apologize. And you saw that with the Ford Explorer and with other product defects, but it’s certainly that phrase certainly fit Henry Ford II very well, Henry the Deuce as he was called.

Stig Brodersen  22:22  

Yeah. So let’s talk about Ford Motors here in the 21st century, because it was definitely not an easy time that they have. And it seemed like things were only getting worse after the 2000. In 2006, they reported a 12.7 billion loss and the new CEO Alan Mulally was under intense pressure to restructure the company. Do you think you can tell us a story that symbolizes the financial side of the restructuring? And perhaps even more importantly, a story about the changes in the corporate culture that Ford motors experience during those years?

Preston Pysh  22:57  

Well, the interesting thing about Alan Mulally is he had been at Boeing, a very talented executive, but the board passed him over for the CEO slot. And John Thornton, the Goldman Sachs partner who was on the board of Ford Motor Company, found Mulally, along with a couple other directors, because they realized that Bill Ford, you know, smart as he is, really didn’t have the credentials to run the company. And the company was facing a terrible crisis in the early 2000s. But what they did was they hired Mullally, they went out, they raised 20 billion plus dollars, and they effectively restructured the company without filing bankruptcy. They didn’t want to file bankruptcy the way GM and Chrysler did, because that would have meant that the Ford family would have lost their super voting shares. They have shares that have a 10 vote margin compared to the normal common shares. And they succeeded. They literally had to hawk every asset that the company had and Mulally who would come from aircraft business and had no particular emotional attachment to automobiles fixed it. 

Christopher Whalen  24:05  

But he not only fixed the company, he at least temporarily fixed the culture. That was a big problem at Ford and it’s still a problem today, which is you had the managers on the one hand, who run the business, understand the business. And then you have the family on the other hand, that has the vote to control the business, but they don’t make cars. They don’t have the competency to be operators of tthe busines. You would never hire any of them to run a business if their name wasn’t Ford. 

And that’s kind of the dichotomy that I deal with throughout the book, and that I end the book with is that you had Mulally there for a while, fixed the business, restructured the company, you know, wonderful success for him. But then he leaves in part because if he had stayed, he would have probably been too influential and he might have threatened the family’s control. Maybe that’s what’s interesting about Mulally like he could have easily stayed on. But he didn’t. I think that says it all.

Stig Brodersen  25:07  

Hmm, that’s a really interesting story and perhaps also why Ford Motor Company is facing the problems are today. All right, Preston, I see you have a next question here.

Preston Pysh  25:18  

So Chris, many of the people that are listening to our show, own their own business and are looking for key lessons that they can take away and put into practice into their own lives. What would you say the key learning point would be from Ford Men that they could take away?

I think it’s a couple of things. First, successful businesses need luck. You need to be in the right part of the business cycle in any new business, particularly, to take advantage of the kind of demand. As I said, you could have sold anything that had Ford tires on it, and all the automakers took advantage that. Later on in the 80s and the 90s, when the American automakers were confronted by the imports to Japanese and then later, Korean cars, cars from all over the world, they’ve really struggled and they’ve had to remake themselves. And then finally, obviously, I take the tale of Ford Men as about being able to gather the talented individuals you need as a team. And it wasn’t about one man. It was really about a whole succession of people, some in the family, some not. But together, they made it work. And that is a key lesson.

Stig Brodersen  26:30  

Very interesting. Before conclude, could you please share with the audience one of the most influential book you ever read and explain why it’s been profound for you and it can be related to Ford Men or not? 

Preston Pysh  26:45  

Oh, boy, that’s a hard question. I’m sitting here in my library, which books I tell you about. I think probably one of the books I mentioned earlier, “Fifty Billion Dollars: My Thirteen Years with the RFC ” by Jesse Jones. That’s a book that really, really early on, opened my eyes to how America got through the Great Depression. And how important it was that when businesses failed, they had to be fixed. They had to be restructured. They had to be recapitalized. Jesse Jones, came from Texas, went up to Washington looking for help. And Herbert Hoover said, “Fine, you’re staying.” And put him on the board of the RFC, even though at the time Hoover really didn’t know what to do with the RFC. He knew the economy was in trouble. But he didn’t have the data and insight to really know exactly what he should do. 

Christopher Whalen  27:38  

Some stayed on when FDR won the election. In fact, Jones made himself Chairman. It’s the other directors resigned and worked very closely with FDR to basically restructure the US economy and then help to finance the war. Leo Crowley, who was head of the FDIC, worked very closely with Jones, the banks to qualify for FDIC insurance ended up in Leo’s pocket and the banks that couldn’t ended up with Jesse Jones and he would literally remake them. He restructured commercial companies and everything else. And in that book, of course, he talks about Henry Ford, about what a difficult individual he was. And also the role of Ford Motor Company eventually did play a very positive role in World War Two.

Preston Pysh  28:24  

So Chris, if people want to learn more about you, where can they find you on the internet?

Well, the book will be available on Amazon, which is easy to find “Ford Men: From inspiration to enterprise.” I’m active on social media under RCWhalen. And then my website is the same RCWhalen.com. And my blog, which I just resurrected, The Institutional Risk Analyst has also interesting stuff for those who like finance, but I’d be happy to hear from any of your listeners. I appreciate your time.

Well, we appreciate your time, Chris and the story and the insights that you provided to our audience were just awesome. I know it’s very different than the story I remember reading about in high school and some of the other history classes that I’ve taken, with respect to Ford and his legacy. So that was really an interesting discussion and we really appreciate your time.

Stig Brodersen  29:17  

All right, guys. That was all the Preston and I had for this week’s episode of The Investor’s Podcast. We will see each other again next week.

Outro  29:24  

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