Sales Ad Saturday- Chrysler Accquires Dodge Brothers Inc.

A pivotal moment in the history of the Chrysler Corporation for this week’s ‘Sales Ad Saturday’. On May 28th, 1928 Walter P. Chrysler acquired Dodge, and when the transaction closed, the Chrysler Corporation became the world’s third-largest automaker. Through his acquisition of Dodge, Chrysler’s ascension into what became known as the ‘Big Three’ was made possible. Chrysler’s eventual opportunity to acquire Dodge may not have been possible without the fierce independence and stubbornness of Henry Ford.

Much has been written about brothers John and Horace Dodge and their dysfunctional relationship with Henry Ford. When the Dodge brothers opened their own machine shop in Detroit in 1900, they quickly earned a reputation for quality and were hired to produce parts for a variety of developing automakers, including very lucrative contracts from Ransom Olds and Henry Leland.

Henry Ford had been hearing good things about the Dodge Brother’s work, and he was interested in hiring them to supply engines, transmissions, and axles for his new Model A, the first offering from the newly formed Ford Motor Company. This was Henry’s third attempt at entering the automotive industry, with his short-term partner Alex Malcomson. In 1903, Henry was struggling to be taken seriously as an automaker. His first two attempts had been failures, and it was generally accepted by lenders and potential investors that doing business with the Ford Motor Company was a risky proposition. It was because of this risk that the Dodges were able to negotiate much better terms than they could with any other automaker in Detroit. In February 1903, the Dodges agreed to an exclusive arrangement with Ford. The brothers acquired a 10% stake in the Ford Motor Company, in exchange for a total investment of $10,000; $3,000 in cash, and $7,000 in components. Ford agreed to an initial order of components for 650 cars at $250 per car. Additionally, payment to the brothers for the first 100 cars would be COD (cash on delivery) with payment due within 15 days of delivery for all orders after that because of the risk involved. Success was far from certain, and the brothers were also granted rights to all unsold machinery should Ford default on these terms.

By July 14th, 1903, things were not looking good. Ford Motor Company was capitalized with $19,500 cash less than a month before, but treasurer James Couzens had been writing checks to pay bills, and the company was just about out of money, with the cash on hand dropping as low as $223.65, with more bills coming due. Fortunes changed for Ford and the Dodges on July 15th, when a dentist from Chicago, Ernst Pfennig paid $850 cash for the first Model A. Just eight months later, the Dodge’s run of parts for the first 650 cars had all been sold. From July 15th forward, cash shortages at the Ford Motor Company would not be an issue.

While company profits were no longer a problem, the working relationship between Ford and the Dodges would gradually deteriorate over time. By the time the Model T was introduced in 1908, Henry and the Dodges frequently found themselves at odds over a variety of issues, including improvements the Dodges believed needed to be made over time to Henry’s beloved Tin Lizzie. In time, recognizing the unimproved weaknesses of the Model T, the now immensely wealthy Dodge brothers ended their supply contract with Ford in 1913 and began developing their own advanced line of cars, the development of which was largely bankrolled by dividends paid by the Ford Motor Company. Furious over this, Ford attempted to stop payments of most shareholder distributions to all stockholders including the Dodges, who still retained a 10% stake in the company. Ford’s strategy was to instead invest profits into aggressive expansion and continual price reductions of the Model T. Understandably, this caused a very public, bitter, and protracted legal battle that was not finally resolved until 1919, when Ford was forced to disperse 19 million dollars in unpaid dividends to the shareholders. This included the Dodge Brothers, now highly successful car makers in their own right. Most of the unpaid dividends went straight to Henry Ford, but the Dodges share was almost two million dollars. Ford, who decided he was finished with outside investors he regarded as ‘parasites’ initiated a number of aggressive and creative tactics to acquire all remaining shares of Ford stock outside of his control. He accomplished this in 1919, and the proceeds to the Dodges from Henry’s buyout of their shares was twenty-five million dollars. In total, the Dodges made over thirty-one million dollars (the equivalent half a billion dollars today) on their $10,000 investment in 1903, a staggering 62% annualized ROI that is generally recognized as one of the greatest business investments in history.

Colorful, complicated men both, John and Horace Dodge would not enjoy their wealth as long as they had hoped. John passed due to complications of pneumonia in January 1920, at 55. Horace passed less than a year later with influenza in December 1920, at 52. Their widows would retain their ownership in their husbands’ company until they agreed to sell it to investment bank Dillion, Reed & Co. in 1925 for $146 million. Dodge Brothers Inc. and newly acquired truck maker Graham Brothers were managed by Dillion Reed until Chrysler acquired the Dodge. paying $170 million. Walter Chrysler was later in life quoted as saying, “Buying Dodge was one of the soundest acts of my life. I say sincerely that nothing we have done for the organization compares with that transaction.” History has proven Chrysler correct.