Business: Ford Saga

For six weeks, in Detroit, and then through last week in Washington, lawyers have asked questions concerning cars and a man (TIME, Jan. 17, THE CABINET). What they drew out of the mouths of sworn witnesses was the saga of Henry Ford, motorcar maker, and his Ford Motor Co.

Beginning. In 1919 minority stockholders in the Ford Motor Co., including Senator James Couzens of Michigan, sold their shares to Henry Ford for about $12,500 a share. They had to prefer him to outsiders, if he wanted their securities, according to a company bylaw. He did want their stocks. But before they sold they asked Daniel C. Roper, then U. S. Commissioner of Internal Revenue, to evaluate their stocks for purpose of income tax. Commissioner Roper did them the favor; judged each share of Ford Motor Co. stock to be worth $9,489 in 1913, the year from which they would have to compute their income taxes. The minority stockholders sold out to Henry Ford; paid Government income tax on the difference between $9,489 valuation and $12,500 received a share.

Government Contention. Secretary of the Treasury Andrew W. Mellon has decided that in 1913 Ford stock was worth between $2,500 and $5,500 a share. If so, the minority stockholders who sold in 1919 owe the Government back income taxes of $15,000,000 to $30,000,000, as may decide the Special U. S. Board of Tax Appeals that has been sitting in Washington. Commissioner of Internal Revenue Daniel C. Roper had no authority to do Ford company stockholders the favor of estimating the tax value of their property. In fine, the Government has never officially decided what the income tax in this instance should have been.

Questions to be decided are: 1)

Can the original tax value be now revised? 2) If so, what was the original tax value of Ford Motor Co. stock in 1913?

From the mass of testimony, some bits which stand out in retrospect are: Mr. Ford. “Mr. Ford is the strangest, most perplexing combination.Take his book on Henry Ford—one chapter reveals uncanny judgment, and the next is composed of the most utter rot. He was the company’s greatest asset and also the greatest risk. He insisted on policies that were untried and which were against the consolidated judgment of other men in the automobile industry. Now that he has been so successful we can see that his judgment was sound. There was the question of the life or death of Mr. Ford. There was the risk that arises in the peculiar genius of Mr. Ford. No one can anticipate his processes.”—Waddill Catchings of Goldman Sachs & Co. Said Paul M. Clay, vice president of Moody Investment Service: “I’d rather buy genius than material.” The Billion. In 1916, Partner John W. Prentiss of Hornblower & Weeks met Henry Ford in Detroit. Said Mr. Ford: “Oh, you are one of those Wall Street guys.” Mr. Prentiss offered him a half billion dollars for his concern. Mr. Ford laughed at him. In 1924 Mr. Prentiss offered Edsel Ford a billion dollars. Edsel Ford refused him. In 1925 were repeated both offer and refusal. Early this year Mr. Prentiss heard that the Fords might recapitalize. Edsel Ford denied this.

100 Percenters. The Ford company paid 100% and more dividends for years. Mr. Prentiss cited two other 100 percenters— Timken Brothers who in 1901 built a $100,000 steel mill at St. Louis; Sterling Products Co. of Wheeling, W. Va., makers of Castoria and Dr. Caldwell’s Syrup of Pepsin and other proprietary medicines that give yearly profits of $2,500,000. Ford Credit. “I’d say that the Ford Motor Car Co. as a credit proposition equals the United States Steel Corp., the Standard Oil Co., General Electric arid General Motors.”—Mr. Prentiss.

Du Pont. “General Motors does not want to step on your foot,” said General Motors’ Chairman Pierre S. duPont to Henry Ford in 1921, according to onetime Ford Sales Manager Norval A. Hawkins. Salesman Hawkins testified further: “Mr. duPont knew that if Mr. Ford wanted to he could sell his car so cheap as to make Chevrolet high priced.” In 1912 the Ford company could have sold cars at cost and still earned $1,325,000 or 66% on its then capitalization of $2,000,000. Today the company can sell cars at cost and profit from the sale of parts. In 1919 its parts profits were $80,000,000. Now there are 12,000,000 Fords on the road which need supplies. Wealthy Fools. It is “folly to make fools wealthy,” Henry Ford told his inventor, Italian-born Antonio Felix Pajalich, asserts the inventor in a $1,750,000 royalty suit filed at Detroit. Labor. In the Ford plants the assistance of skilled labor was not needed in 1913, nor is it needed today, said Leone Faurote, engineer. A common laborer can be trained to operate the machinery in three days. In some instances all a man has to know is the difference in color of lights. Dealers. Road agents selected Ford dealers on the basis of good habits, home town standing and enthusiasm for the car itself. Ford dealers could sell only Ford cars. “Influences” that made Ford stock worth relatively little in 1913: Woodrow Wilson’s threat to hang commercial malefactors “on a gallows as high as Haman”; New York’s impeached Governor William Sulzer’s threats against stock speculations; Theodore Roosevelt’s trumpetings at “malefactors of great wealth.”—Testimony of Arthur O. Choate, Manhattan investment banker.

Earnings —

1904…… $ 82,017 1912 ….$13,056,452 1904 201,019 1913…. 24,714,0781905… 285,231 1914 …29,764,500 1906….. 107,360 1915 …24,519,541 1907.. 1,011,826 1916 …59,017,8921908…. 1,251,097 1917 …27,843,999 1909 2,686,134 1918 …51,837,821 1910 4,452,609 1919 …52,094,241 1911 6,226,372 1919 ….76,775,366