Thursday, November 18, 2010
Henry Ford Selling Stock in 1921?
This little nugget was found in a 1921 issue of Motor Age magazine.
As we know now, it was false, but Ford was needing money at the time to help fund the buyout of all remaining stockholders.
Henry Ford was in a financial bind at this point in time as he intended to buy out the Dodge Borthers', James Couzens, Horace Rackham, the John Gray estate and a couple minority stockholders in order to gain complete control of Ford Motor Co.
What prompted this? The brothers John & Horace Dodge once they found out that there would be no stock dividend that year due to Henry Ford's decision to invest that money in Rouge Plant expansion, decided to sue Henry Ford in court over the matter.
He ultimately lost and was forced to pay huge dividends to all the stockholders. He also intended to give his employees their annual bonus, and he had a rather large tax payment coming due to the government.
All of these factors coupled with the fact that Ford did not have enough cash on hand to cover all these liabilities, posed a problem. Frank Klingensmith, a banker before joining Ford Motor Co, suggested Ford borrow the money from a bank or a consortium of Wall Street folks. Not happy with this suggestion he did however secure a line of credit in the event his Plan A didn't work.
Just what was "Plan A"? He closed the plant at the end of the year and did a comprehensive inventory. From the trivial items like pencil sharpeners(you had to use your own pocketknife to sharpen a pencil afterwards), desks, phones, and various things of similar nature were sold. It was discovered that there were enough parts on hand to build quite a few cars, so these cars were assembled and shipped to dealers along with stocks of parts. The dealers had not ordered these cars or parts, but if you refused a shipment, you stood a very good chance of losing your Ford franchise. Most dealers borrowed money to complete the deal.
Government bonds were cashed in to help finance this plan. All told Ford ended up with more than enough money to pay the dividend and bonus! Here's the kicker- this was in 1919 & 1920.
Henry Ford did buy out all the stockholders and how he did that will comprise a future post.
So why would Ford sell stock in 1921 when he had finally gained complete 100% control of the company? He never did. This is just crap journalism reporting it as fact when it was really a rumor. See it even happened back then too!
Posted by Richard at Thursday, November 18, 2010