Sunday, June 2, 2024

Dodge Brothers Stand Up To Henry Ford

Automobile pioneers John and Horace Dodge

John Francis Dodge [October 25, 1864 - January 14, 1920] and Horace Elgin Dodge [May 17, 1868 - December 10, 1920] were born in the era of the horse and buggy, and the marvel of the age, the steam engine locomotive. They were born in Niles, Michgan where their father Daniel Rugg Dodge operated his own machine shop next to his house repairing steam engines for boats and farm equipment. He often had to machine his own custom, precision parts. 

In addition to his sons' traditional book learning, John and Horace learned to operate machine tools under the watchful eye of their father. Both boys were mechanically inclined. The family moved several times before settling in Detroit in 1886 where work in the stove, boiler, carriage, and wagon industries was booming. The brothers apprenticed in different machine shops aound Detroit learning their trade to become skilled journeymen.

In 1892, the brothers began working in Windsor, Ontario, at the Dominion Typograph Company owned by Frederick Samuel Evans. While working for Evans, Horace and John invented and manufactured the enclosed four-point, wheel ball bearing hub for bicycle pedal assemblies which made biking easier and more enjoyable. 

The brothers were granted a patent in 1896 and went into business with Evans to create the popular E&B [Evans and Dodge] bicycle which soon became known as the "Maple Leaf." In 1900, they sold their interest in the company for $7,500. 

With that start-up money, the Dodge brothers were able to open their first machine shop called the Dodge Brothers Company on the ground floor of The Boydell Building at 132-137 Beaubien Street and Lafayette Avenue. They began their enterprise as builders of special machinery and high-speed pleasure craft, but the manufacture of automobile parts and components soon took precedence.

A Detroit Free Press Sunday feature article dated September 1, 1901, proclaimed in its headline "Dodge Brothers Open One of the Most Complete and Modern Machine shops in Michigan. Everything is New and Up-To-Date." 

The Free Press staff writer wrote a glowing description of the factory: "The typical machine shop of the age is dimly lit and litter-obstructed. In contrast, the Dodge Brothers machine shop has an orderly appearance with a thoughtful arrangement of machines to facilitate production and minimize the handling of machine parts, with the greatest ease and rapidity at a fraction of the expense and time employed in the days when hand labor dominated manufacturing [sic]. Machines of the latest design are used intelligently operated by the highly skilled labor force. Their reputation for quality is unequaled."

The Dodge brothers' machine shop soon became busy making precision automobile parts and sub-assemblies like chassis, axles, transmissions, clutches, and complete engines. In 1902, the Dodge brothers signed a major contact with  Ransom E. Olds to produce quality transmissions for his Oldsmobile line. Much to Mr. Olds' chagrin, the contract was not renewed the following year because Henry Ford contracted with the Dodge brothers to exclusively build complete engines and other automobile components in 1903. 

The Dodge brothers agreed to supply 650 Model A engines, transmissions, and axles at $250 each. The added business soon outgrew their shop's floor space, so they built a larger two-story building at Hastings and Monroe Streets in 1906. That space today is the Greektown Casino Hotel parking structure. 

By 1908, they outgrew the Hastings Street facility and began building their own modern factory complex in Hamtramck, Michigan, on sixty-seven acres of vacant land on Joseph Campau Avenue where property taxes were cheaper than in Detroit. 

The four-story, four-building complex contained an extensive machine shop, a power plant, a forging plant, and company headquarters, all with plenty of natural light and ventilation from steel-framed windows. Everything was well-organized in a thoughtful, systematic way. 

The plant came equipped with four cafeterias, male and female restrooms with separate lounges in each, and a well-equipped clinic and first aid center. Automakers from around the world came to see Dodge's state-of-the-art parts factory converted into an automobile plant.


Henry Ford

In the beginning, very little of the original Ford Motor Company cars were actually manufactured by Ford, including the bodies, powertrains, and chassis. FoMoCo was essentially an assembly business which subcontracted much of its mechanical work to independent machine and tool & die shops around the Detroit area.

The Dodge brothers became Ford stockholders when they each bought 50 shares in 1902. They paid $3,000 cash and pledged $7,000 worth of Dodge manfactured car parts to help Ford get his fledgling company on its feet. 

It was not long after that when Henry Ford realized what he had done when he signed over 10% of his company's stock to them. The Dodge brothers were double-dipping. On the front end, they made money selling automobile components and parts to Ford, and on the back end, they drew handsome dividend checks based on FoMoCo profits.

In 1905, Ford began producing his own engines and transmissions in a move towards self-sufficiency. In 1910 when Ford sold his Piquette Plant and moved into his newly built Highland Park Plant [the largest auto plant in the world at that time] the Dodges realized it was not in their best interests to remain tied to Henry Ford. 

In August of 1913, John Dodge resigned as Ford vice-president, but the brothers remained on the board of directors. The Dodge brothers announced they would quit supplying parts to FoMoCo, so they could begin producing their own cars. They retained their Ford stock and counted on their million-dollar yearly dividend to help finance their rival operation. 

Henry Ford felt betrayed and vindictive. The embittered industrialist began to squeeze the Dodge brothers and Ford's half-dozen other minority stockholders out of their dividends. He wanted to exercise full control of his company without stockholder interference. 

To make it more difficult for the Dodge brothers to attract and retain workers for their new automobile plant, Henry Ford and his vice-president James Couzens announced on January 5, 1914, that FoMoCo would double wages for their assembly-line workers to five dollars a day. 

The move was touted in the national newspapers as a way for Henry Ford to stabilize the chronic absenteeism and high 300% turnover rate of his workforce with a more dependable worker. Paying out higher wages also made it possible for many Ford employees to buy a car on credit for the first time, a car they had a hand in making.

Consequently, sales and productivity surged. Soon, with efficiency refinements in the assembly line and speeding up the line, the time to produce a Model T dropped from 12.5 hours to 93 minutes. FoMoCo doubled its profits in less than two years. Henceforth, Henry Ford was portrayed as the industrial Moses who led his people into the consumer-driven, blue collar middle class.

But the Dodge brothers and the Wall Street Journal criticized Ford's five-dollar-a-day plan as a stratagem to discourage workers from looking for work at their new Dodge plant where they paid only three-dollars a day. 

Thousands of people came from all over the United States to find work at the Highland Park Ford plant and job riots broke out. Ford Security turned waterhoses on the crowd in bitter cold January weather. FoMoCo was compelled to announce they would hire only workers who lived within the Detroit city limits. 

There were other strings attached to the higher wages, like sobriety which was monitored by the Ford Sociological Department. Rather than deprive the Dodge brothers of employees, the result of Ford's plan left the brothers with their choice of the most qualified people from all over the country.

The next scheme Henry Ford devised to squeeze the Dodge brothers out of his company was offering everyone who bought a Model T in 1914 a $50 rebate check, thus denying the Dodge brothers and the other minority investors millions of dollars of dividends. Each time Henry Ford lowered the price of the Model T, the profit pie shrank accordingly. An increase in sales often made up the difference.

Once again, Henry Ford looked like the Rainmaker to the public. John and Horace Dodge were still on the FoMoCo board of directors and were outspoken in their opposition to Ford's blantant disregard for shareholders' rights which cost the minority stockholders millions of dollars in lost dividends.

To further anger the minority stockholders, Henry Ford announced in August of 1916, that rather than pay out dividends to shareholders, he planned to shut down Model T production to expand his manufacturing capablity and develop a whole new automobile. This move adversely affected Ford dealers nationwide as well as workers and stockholders. 

The Dodge brothers knew what was going on. Ford could not stand anyone stealing his thunder, and the positive media attention the Dodge brothers plant was receiving in the national and international press stuck in Ford's craw. Henry Ford wanted to be the only Golden Boy in Detroit.

Ford quietly began to break ground on an industrial complex along the banks of the Rouge River on a scale the world had never seen. Something that would impress even the most discriminating pharaoh of ancient Egypt, an industrial complex that takes in raw materials at one end and converts them into finished automobiles at the other. Ford's vindictive mind reasoned that turnaround was fair play. FoMoCo helped finance the Dodge factory complex; it was only fitting that they help finance his vision.

Henry Ford's Rouge Plant industrial complex

Ford purchased Dearborn farmland that was over a mile of Rouge River waterfront and a mile and a half wide with his own money. He announced that his Rouge project was a personal one. Ford incorporated a new company named Henry Ford and Son which would produce Fordson tractors. Henry Ford told the press that the Rouge River site would involve "no stockholders, no directors, no absentee owners, and no parasites." This was a direct swipe at the Dodge brothers.

When Ford announced his intention to build his own blast furnace and coke plant to make massive amounts of raw steel, the Dodge brothers knew the Ford tractor plant was destined to mass produce automobiles. The brothers refused to take that lying down. 

On November 2, 1916, the Dodge brothers filed a law suit on behalf of the minority stockholders requesting that the FoMoCo pay out a minimum of 75% of its cash surplus to shareholders, amounting to over $39 million.

After more than two years working itself through the court system, the Michigan Supreme Court ruled in favor of the Dodge brothers' lawsuit. Ford was ordered to pay over $19 million to stockholders with $1.5 million in interest. The money hardly mattered to Henry Ford. As the majority stockholder, he owned 58.5% of FoMoCo stock. His payout was close to $12 million.

Henry Ford was determined to buy out his stockholders, so his company would be 100% family owned. While he and his wife Clara took an extended vacation in Southern California, his twenty-five-year-old son Edsel was entrusted with the task of buying out the minority stockholders. 

The opening bid offered was $7,500 per share. The Dodge brothers knew the bid was undervalued. They negotiated for $12,500 per share. On their original investment of $10,000 in 1902, the brothers made $9.5 million in dividends and sold their Ford stock in 1919 for an additional $25 million, realizing a grand total of $34.5 million.

After the settlement was announced, members of the automobile press asked John Dodge for a statement. "Someday," he said, "people who own a Ford are going to want an automobile." In two short years from 1914 through 1915, the Dodge Model 30-35 touring car ranked second behind Ford in total sales.

A 1915 Dodge four-door sedan used by the United States Army.

Dodge cars were clearly superior to Ford's Model T. They had solid all-steel bodies rather than sheet metal fastened to a wooden frame; the Dodge four-cylinder engine developed 35 hp, almost twice that of the Model T's 20 hp; the electrical system was 12 volt, compared to the Model T's 6 volt system; the Dodge car used a sliding-gear transmission, rather than the Model T's old-fashioned planetary transmission; and the stylish body came in a variety of colors, while the Model T came only in black.

By 1920, Henry Ford's protracted battle with the Dodge brothers and his heavy debt load financing the construction of the Rouge Plant left Ford close to bankrupcy.

But Ford's financial problems gave the Dodge brothers little comfort. While attending an automobile banquet in New York City, both brothers contacted the Spanish flu. John suffered for a week before dying at the age of fifty-six on January 15, 1920, at the Ritz-Carlton Hotel with his wife by his side. 

Horace was also critically ill in a room down the hall from his brother, but he recovered in four days. Horace never recovered emotionally from the sudden death of his brother who had been his business partner all of their adult lives.

Eleven months later, while staying at this Florida home, Horace died of cirrhosis of the liver at the age of fifty-two, with his wife and son at his side on December 10, 1920. His married daughter was overseas and could not make it back for her father's funeral.

In 1925, the Dodge widows sold their husbands' company to Dillon, Read & Company for $146 million to become the largest cash transaction in United States history, that is until 1928 when Walter Chrysler purchased the company for $170 million.

Chrysler boasted to the automotive press that the purchase of Dodge Motors was the smartest financial decision he ever made. The mid-priced Dodge fit nicely between  Plymouth on the low-priced end and Chrysler on the high-priced end. Chrysler Motors now took its place among Detroit's Big Three automakers.

The Tragedy of Edsel Ford