Oil, Automobiles and Inflation

photograph - silver statuette
Full Throttle circa 1920 nickel-plated bronze automobile mascot, by Boccazzi, realized $2,250.00 at Heritage Auction, November 2019.

By Jim O’Neal

In 1859 a man by the name of Edwin Drake drilled the 1st mechanical oil well in Titusville, PA. Since that time, many great fortunes have been made as crude oil inexorably became the lifeblood of the American economy. Sadly, Mr. Drake did not patent his process and died in poverty. Like almost no other product, oil contributed to the American ethos, most notably the propulsion of our dream machine, the automobile.

After it became available to the middle class in the 1920s, the passenger car was visibly symbolic of American prosperity, perhaps more than wealth itself. It gradually evolved into a necessity as the growth of suburbia made mass transportation an anachronism. In a 1953 Congressional hearing, General Motors CEO Charles Wilson declared, “As General Motors goes, so goes the Nation.” It would take some time, but this linkage to the future was almost prophetic.

As General Motors made larger cars, people bought them according to their status – the bigger the car, the bigger sign of success. An automobile was a statement to society – a chrome and steel declaration of self that spoke to our ambitions of speed and power. Rather strangely, no one in Detroit seemed concerned about the rapid increase of shiploads of smaller Toyotas, Nissans and Hondas unloading night and day in California ports of entry. This trend to smaller is better was a harbinger of dramatic changes just around the next corner, yet no one seemed to care and those that did were not concerned.

My friend Tom Peters (In Search of Excellence) loved to recount this story from his experience at McKinsey, one of the world’s premiere consulting firms, especially for corporate strategy. Apparently, the GM Board of Directors (and the Ford Motor Company) received periodic business updates from Senior Management. One of the more important key performance indicators in most businesses is SOM (share of market). Despite all the competition, GM’s share was remarkably stable at +/- 35%.

After a little digging, it turned out that someone had decided to exclude foreign imports and just focus on domestic production. Effectively, this meant the pie was getting smaller, but their slice was unchanged. A sad, but true story.

Perhaps it was because there was no single event, such as the stock market crash in 1929, that warned of the economic uncertainty of the 1970s. And no single measure to explain the economy’s obvious malfunctioning. Instead, the pain of what turned out to be the most challenging decade since the Great Depression slowly crept up on the United States. When President Nixon was inaugurated in 1969 he inherited a recession from Lyndon Johnson, who had simultaneously supported the Vietnam War and launched the Great Society. Nixon continued to support the war and, despite his reputation as a fiscal conservative, ran budget deficits every single year he was in office. From 1970-1974, the budget deficits totaled $70 billion, a 20% increase.

Still, President Nixon’s concern was not about budget deficits, the strength of the dollar or even inflation. This was a man obsessed about re-election. And in his political calculus this translated into a simple tactic; avoid another recession, stimulate the economy and put maximum pressure on the Federal Reserve for low interest rates. He fired Fed Chair William McChesney and installed presidential advisor Arthur Burns in early 1970. The Nixon mandate was “cheap money” and low interest rates that would promote short term growth and give the economy the appearance of strength as voters were casting ballots. Nixon said, “We’ll take inflation if necessary, but we can’t take unemployment.“ Ironically, the Nation would soon have an abundance of both.

Another dramatic economic intervention was imposing wage and price controls in 1971. They appeared to work during the following election year, but later they would fuel the fires of double-digit inflation. Predictably, as soon as they were removed, virtually every business and individual rushed to raise prices to make up for all the pent-up ground that was lost. Concurrently, the Nixon deficits were making foreign dollar-holders more nervous. The result was a run on the dollar when it became obvious the dollar was vulnerable. Soon they were proved right when Nixon broke the last link to gold. The American dollars were now a fiat currency and devalued, leaving oil barons in the Middle East with tens of millions of petrodollars whose value was slashed.

They would extract their revenge when OPEC quadrupled the price of oil from $3 to $12 a barrel. Then the Arab states punished the West for supporting Israel in the Yom Kipper War by imposing a 6-month embargo in 1973. Inflation doubled to 8.8% in 1973 and later growing to 12%. By 1980 inflation was at 14%, with the United Srates being compared to the Weimer Republic. Still etched in my memory is the picture of long lines of autos at gas stations.

In truth, it was the policies of Lyndon Johnson and Richard Nixon who led our country to the edge of fiscal chaos. Both Administrations supported a winless, expensive War and ambitious social agendas without balancing our checkbook. They both got locked in a vicious cycle; pressed on them by their faith in containment, even as they tried to maintain prosperity. Then expanding to effect social transformation toward a more equitable society at home.

This gruesome story of the great inflation of the 1970s would not end until the early 1980s has been labeled “the greatest failure of American macroeconomic policy in the post-war period.” I think it was a display of hubris by 2 men who were political geniuses, but managed to surround themselves with men of questionable judgement that were willing to follow orders they knew were flawed.

I hope the folks in their spots today will take the time to at least consider the lessons learned. From my viewpoint, we are dangerously close to losing precious things that tens of thousands of great men struggled to attain. At least we could start with what FDR and Lincoln instinctively knew – you must have the support of most of the people, not 50% +1. The U.S. Constitution started with these three words for a reason, “We the people….

Intelligent Collector blogger JIM O’NEAL is an avid collector and history buff. He is president and CEO of Frito-Lay International [retired] and earlier served as chair and CEO of PepsiCo Restaurants International [KFC Pizza Hut and Taco Bell].

Passion, Singular Vision Form Foundation of Successful Projects

Models of the 1957 Chevrolet Corvette, like this 1.6 scale model of the classic V-8 finished in Venetian red, remain popular with collectors.

By Jim O’Neal

“For years, I thought what was good for our country was good for General Motors, and vice versa.” – Charles Erwin Wilson, CEO of General Motors, as a nominee for Secretary of Defense for President Eisenhower in 1953 confirmation hearings (often misquoted)

From 1931 to 2007, General Motors was always the biggest and then, as predicted, they couldn’t pay their bills. They chose to file Chapter 11 bankruptcy and gratefully accepted a federal bailout. The corporate name was formally changed to “Motors Liquidation Company,” an entity that allowed them to deal with their many creditors through a complex structure of four trust funds. Then voilà – a new General Motors was born. It issued an IPO in 2010 that raised $20.1 billion, and by 2016 established record sales of 10 million units.

“General Motors is alive and Osama bin Laden is dead” became a clever line used in the Obama vs. Romney presidential race.

Before all this happened, much earlier, the first Chevrolet Corvette rolled off the production line in Flint, Mich., in 1953. However, it wasn’t until spring 1956 that I recall seeing one. We were parked at Gene’s BBQ Drive-in on Long Beach Boulevard in Compton, Calif., when a smallish, white convertible pulled in. I’m not sure what model it was or even the year, but it didn’t impress anyone (yawn). I had a cherry red 1951 Mercury with 17 coats of hand-rubbed, lacquer paint that was way cooler.

Duntov

His name, Zora Arkus-Duntov, seemed better suited for the ruler of a planet in a Buck Rogers comic strip than as the father of this little “Vette” that was destined to become a true American sports car. Duntov joined the GM-Chevrolet R&D group in 1953, but the Corvette (French for a small, highly maneuverable ship, smaller than a frigate) didn’t get his full attention until 1955.

The first cars were six-cylinder two-seaters and white, “Polo White” to be precise, and only 300 were produced in 1953. The next year, sales were projected to be 10,000, but only 3,640 were assembled and only two-thirds of those were sold by year’s end. Then, unexpectedly, sales in 1955 declined to a measly 700. The drop was worrisome, especially to those who truly believed in the destiny of a car with Corvette’s aspirations.

Duntov was born in Belgium to Russian parents. He was raised in Russia and, in retrospect, the signs of where he was headed were clear. He loved motorcycles and at the tender age of 14 designed a motor-driven ice sled. The family moved to Germany and at university, he wrote his thesis on supercharging.

When he left the Chevrolet R&D team for Corvette, he could see the car wasn’t quite right. “The first time I saw Corvette, I think … beautiful, beautiful car … but I was disappointed what was underneath … but visually, it was superb!” He believed in its future, as did the man who created it, Harley Earl. Earl’s 1927 LaSalle had placed him at the forefront of Detroit’s great stylists. But it was Duntov who transformed the Corvette into “a bat out of hell.”

The 1956 Corvette was the first model to feel the impact of Duntov’s influence. The 210-horsepower engine could be cranked to 225 with the optional twin, four-barrel carburetors. Then, for racing, you could add Duntov’s cam, 240 horsepower. This one reached 163 mph, which really got the automotive world’s attention!

Despite all the improvements, the team was still restless. Bill Mitchell succeeded Earl as head of design and when he saw the designs of Larry Shinoda, a young Japanese-American who created his first designs while in a WW II internment camp, he knew they had it – the most striking of all Corvettes, the 1963 Sting Ray. This marked Corvette’s true arrival and when combined with what Duntov put under the hood, it ensured them a place in history. Corvette would lose its way at various times over the years, but a sense of heritage and resilience always enabled it to come back.

If the new General Motors ever stumbles again, they would be wise to look back at their own Corvette history. They will be reminded that the cars we admire most (and buy) derive from true passion and a strong singular vision.

Intelligent Collector blogger JIM O’NEAL is an avid collector and history buff. He is president and CEO of Frito-Lay International [retired] and earlier served as chair and CEO of PepsiCo Restaurants International [KFC Pizza Hut and Taco Bell].

Military Officers Swooped In and Saved Ford Motor Company

Henry Ford, left, often took trips with Thomas Edison and Harvey Firestone. This photograph, circa 1924, signed by Ford, sold for $1,195 at a June 2010 auction.

By Jim O’Neal

In 1968, General Curtis LeMay was the vice presidential running mate with American Independent Party candidate George Wallace. This unlikely duo snagged 46 electoral votes and five states with almost 10 million popular votes. This was the last time a third-party candidate won a state.

During World War II, LeMay had implemented a controversial bombing campaign in the Pacific. It was during this time that future Ford Motor Company President Robert McNamara was busy analyzing U.S. bomber efficiency and effectiveness, especially the B-29 command of General LeMay, as part of a team headed by Colonel Tex Thornton.

LeMay and McNamara would cross paths again during the Bay of Pigs fiasco and the war in Vietnam.

During the late war years of the 1940s, the Ford Motor Company was struggling to remain viable. President Edsel Ford, son of founder Henry, died of stomach cancer in 1943 and the board made the mistake of bringing back an ailing Henry Ford in an act of desperation. The company was losing $9-10 million a month and the Roosevelt administration had considered nationalization to keep vital war materials flowing.

In 1945, Edsel’s son Henry Ford II was discharged from the Navy and the board quickly named him president of Ford. However, the company he inherited was still a shell of a corporation badly in need of modernizing its production, establishing financial controls and building an organization.

In a stroke of genius, Tex Thornton decided to market his staff of nine wartime officers to corporations that were reconverting from military to civil production. After all, his colleagues were part of a management science operation within the Army Air Force and, without a doubt, were the most talented managerial team of the century … young men who had gained 25 years of experience in just four years.

Thornton sent a cable to young (28) Henry Ford II and after an impressive interview, Ford hired the group with salaries ranging from $10,000 to $16,000. Bob McNamara was the second-highest paid and he took over finance at Ford. This is the group that became the famous “Whiz Kids” (although internally they were called “Quiz Kids” since they were always asking “Why?”). The Ford Motor Company would never be the same, fortunately, and slowly started catching up with rival General Motors.

One amusing anecdote involves The Edsel Show, a live one-hour television special designed to promote Ford’s cars. It aired on Oct. 13, 1957, and featured Bing Crosby, Louis Armstrong, Rosemary Clooney and Frank Sinatra. The show drew great reviews.

Clooney received one of the new Edsels as a gift and after the show, she and Henry Ford were walking together when she went over to get in. The door handle came off in her hand, so she turned and said, “Henry, about your car…”

Quality control was still en route to Dearborn, Mich., but arrived after the Edsel’s funeral.

More about Robert Strange McNamara, who became Secretary of Defense in 1961, in future posts.

Intelligent Collector blogger JIM O’NEAL is an avid collector and history buff. He is president and CEO of Frito-Lay International [retired] and earlier served as chairman and CEO of PepsiCo Restaurants International [KFC Pizza Hut and Taco Bell].

Chevrolet Brothers Never Benefited from Company’s Enduring Success

Original ad illustrations, like this piece for Chevrolet titled “Car Passing a Buggy,” 1925, by Lawrence L. Wilbur, are popular with collectors.

By Jim O’Neal

One of the most recognizable emblems is owned by Chevrolet. It was quickly called the “bowtie” for its unique design, but the origin of the company, its name and invaluable trademark is a complicated story not well known.

The Chevrolet family had their beginning in Switzerland, where the father was a watchmaker. This is where the highly accomplished mechanic, designer and racing driver, Louis-Joseph Chevrolet, was born on Christmas Day 1878. In 1887, the family moved to France, where Louis’ brothers Gaston and Arthur were born.

Chevrolet first used its “bowtie” emblem in 1913.

The brothers became obsessed with bicycle racing, a first-tier sport in France. One story is that American playboy-sportsman Willie Vanderbilt encouraged them to move to America where their skills would be more appreciated ($$). Louis went first and was soon followed by Gaston and Arthur, who joined Louis to work on French cars, fixing flats and eventually becoming factory racecar drivers for Buick.

Enter William C. Durant, who was busy buying car companies to add to the General Motors portfolio. According to one biography, he had an agreement to buy Ford, but only if Henry kept the rights for motorized farm equipment (Henry was spooked by a patent suit claiming invention of the automobile). Fortunately for Ford, the banks would not provide financing – “The industry is too risky” – and he went on to become a giant in the car industry instead of farm equipment.

After a financial panic in 1910, the GM board ousted Durant, at least for a while.

So Durant convinced Louis Chevrolet to found a new car company, the Chevrolet Motor Car Company, but they parted ways when Durant added a cheaper version that Louis thought was demeaning. Louis proceeded to sell his stock and, in an all-time blunder, left his name with the company and decided to focus on racing again.

He managed to finish 7th in the 1919 Indy 500, but it was Gaston who turned out to be a phenomenally good race driver. When Gaston finished first in 1920, he became the first driver in the history of the race to go the full distance without making a tire change. However, his fame was short-lived. Six months later, at age 28, in November 1920, he died in a fiery crash with Eddie O’Donnell at the Beverly Hills speedway in a race for the “Speed King of the Year.”

Gaston’s death resulted in the brothers leaving racing, although Louis continued to design engines for Ford. The Indianapolis Motor Speedway Hall of Fame Museum features a memorial dedicated to the many accomplishments of Louis-Joseph Chevrolet. Fittingly, he was inducted into all four major automotive Hall of Fames.

Durant eventually used his stock in Chevrolet to buy General Motors again and the Chevrolet brand is still alive, although none of the Chevrolets benefited from its long enduring success.

Jim O'NielIntelligent Collector blogger JIM O’NEAL is an avid collector and history buff. He is President and CEO of Frito-Lay International [retired] and earlier served as Chairman and CEO of PepsiCo Restaurants International [KFC Pizza Hut and Taco Bell].