At first, I thought it was astonishing that Preston Tucker and
his fabled car from the 1940s should suddenly reclaim the
public’s attention, as a result of the new movie by Francis Ford
Coppola.[1]
Thinking it over, I decided that the Tucker car’s second
coming—if only on the screen—isn’t so astonishing after all.
Ever since Tucker’s short-lived car-making venture collapsed in
late 1948, myths about him have circulated in the country. The
myths have become part of a legend that strikes close to the
opinions held by a lot of people. These myths are worth
reviewing because they also touch economic fallacies which are
part of the general folklore.
It should be said at the outset that the Tucker car was a poorly
conceived venture that was doomed to fail from the start. Though
Preston Tucker was a charming, persuasive person with novel
ideas, he lacked many of the qualities which were needed for a
successful entrepreneurial venture. Even had he possessed these
qualities, however, he was entering a business which had become
fiercely competitive and cost-efficient at every level. The U.S.
automotive industry was already dominated by the Big Three in
the late 1940s and would soon shake out established companies
like Studebaker, Packard, and Hudson.
There was some concern about this situation by people who argued
that it takes many producers to bring real competition. The
truth, however, is that the Big Three reached their positions
because they performed most efficiently among the carmakers who
still survived as the industry grew and matured. The Big-Three
efficiency was not only in designing and engineering cars, but
also in mass- producing, marketing, and servicing them. Any
would-be contender in this tough market would have had to offer
not only a great car at a competitive price, but also superb
manufacturing and a sound dealer network with servicing
arrangements. The outlook for success was so forbidding that no
really new car company had grown up since Walter Chrysler
revamped the Maxwell concern in the 1920s and then went on to
acquire the formidable Dodge interests. The one newcomer who did
achieve some success in the postwar car building industry was
Henry J. Kaiser, who produced about 750,000 cars in his
nine-year attempt to crack the market. Amazingly, however, it’s
Tucker and his 51 cars that have stayed in the public memory.
Kaiser, an astute businessman with many successes to his credit,
is largely forgotten.
Preston Tucker burst upon the scene in 1946 with astonishing
announcements which promised a revolutionary new car. First
called the Tucker Torpedo, it purportedly had been under testing
and development fifteen years and sported amazing safety and
performance features. It’s hard to believe the response to this
incredible announcement. As a pair of magazine writers recalled
in 1982, thousands considered Tucker a genius, “an automotive
David who would slay the monopolistic Goliaths of Detroit.”[2]
For two years, Tucker’s “Tin Goose,” as it became known, seemed
to fly fairly high. For his company headquarters, Tucker managed
to obtain from the War Assets Administration a huge Chicago
plant which Dodge had operated during World War II. Early
success in selling stock and dealerships eventually brought in
about $26 million. Though the responsive public became restive
over Tucker’s failure to produce a car, he finally displayed one
in a highly dramatized showing on July 19, 1947. Now called the
Tucker “48,” the display model captivated crowds with its
aerodynamic design, rear-mounted engine, and such supposedly
advanced safety features as a Cyclops center headlight which
turned with the wheels and a windshield to pop out in an
accident.
Though the display model also drew record crowds when Tucker
took it on tour, it turned out that the vehicle had been hastily
put together and actually had no reverse gear at the original
showing. The suspension system had failed and had been
frantically rebuilt just before the show. Some of the body had
been fabricated around a 1942 Oldsmobile body. The more serious
problem was that Tucker apparently had no sound plan or even
blueprints for getting the car into real production. The 51
Tucker cars actually produced were hand-built models fabricated
at enormous cost. One example of Tucker’s profligate ways was
revealed in his procurement of transmissions. Tucker obtained
salvaged transmissions from the defunct Cord automobile, and
then paid a shop owned by his family $223,105 to rework 25 of
them.[3] With such weird practices,
it’s not surprising that by late 1948 the firm was all but
bankrupt. By early 1949 it was all over, with less than $70,000
remaining of the nearly $26 million raised by Tucker from
trusting shareholders and would-be dealers.
A number of publications, particularly Collier’s
magazine, reported on the failure, leaving little doubt that the
Tucker venture had been a business seduction of massive
proportions. Tucker himself was exonerated of fraud charges, and
it’s possible that he had, indeed, fully intended to build and
market his dream car. He was reportedly still determined to
launch another auto-making venture when he died of cancer in
1956 at age 53.
Long before Tucker’s death, the myths were already circulating
in Detroit. I’m sure I heard them from fellow workers when I
worked on assembly in a Detroit engine plant in 1951 and 1952.
We heard that Tucker had had such a phenomenal car that the Big
Three automakers moved to block it. One of their alleged tactics
was to bully their own suppliers into refusing to sell parts to
Tucker. They also enlisted the government’s help; and the
Securities and Exchange Commission helped speed the Tucker car’s
demise by leaking information about the company. Another
“villain”—as the new movie makes clear—was Homer Ferguson, a
U.S. Senator from Michigan who had strong personal ties to the
Big Three establishment.
As a student of free-market economics, I’m quick to concede that
a government-backed business conspiracy can work to stifle a new
venture. The involvement of Senator Ferguson and the SEC does
muddy the waters in reviewing the Tucker collapse. In fact,
however, Tucker needed no help in destroying his company. The
government, if anything, bent the rules in Tucker’s favor when
it awarded him the plant in Chicago on very generous terms. As
for Senator Ferguson, his more probable concern was not that
Tucker would succeed, but that .he was headed for a massive
failure which would wipe out shareholders’ investments. The SEC
did not doom Tucker, nor did it really carry out its role of
protecting investors.
Did the Big Three Shut Out Tucker?
What about the role of the Big Three auto-makers? Their supposed
opposition to Tucker is inferred as a result of a common fallacy
about big business concerns. There is a widely held belief that
any large business or several “oligopolists” can easily shut out
an upstart competitor, either with predatory pricing or some
other tactic. The way this story goes, the dominant business
simply applies such pressures when a new company appears, and
then goes back to its usual exploitative practices after the
would-be contender expires. This is a fallacious argument that
is often used to explain failure. It can be easily disproved by
tracking the number of times newcomers have dislodged
established firms. It still survives, however, and it
contributed to the Tucker myth.
I find it hard to believe that any top manager of a Big Three
company actually gave more than a few minutes’ thought to the
Tucker venture, let alone conspired to destroy him. While
Detroit’s auto executives would have been curious about any new
car, they would have been quick to see that the Tucker program
was likely to unravel by itself. They were also in the midst of
an extraordinary sellers’ market in the late 1940s and had
little apprehension that a new competitor might sweep the
industry. Nor was there need to fear that failure to bring out a
glitzy new body design would cause loss of market share. Though
some of them may have admired Tucker’s body design, all of them
had new aerodynamic models in progress and planned for early
introduction. Studebaker and Hudson, in fact, did beat the Big
Three to the market with aerodynamic designs, and yet this did
not help them survive in the long run.
Even if Tucker had offered a truly revolutionary car, it’s
doubtful that Detroit’s managers would have panicked about
possible “losses of billions” in the future, as the Coppola
movie suggests. The Big Three automakers already knew how to
design “dream” cars, as both GM and Chrysler did just before
World War ii.[4] Their concern was
not the design of such cars, but the cost constraints of getting
them into production. Again, there is far more required for
automotive success than just having a great car. Any top
executive of GM or Ford, in looking over the Tucker car, would
have immediately questioned whether it could be put into
production to support the low sales price Tucker had promised.
There would have been questions about its likelihood of giving
trouble-free performance and whether the car really delivered
the excellent gas mileage promised. And it would have raised
some eyebrows if it had been known that Tucker had sneaked
reworked Cord transmissions into the car rather than designing
his own.
There is also scant reason to believe, as some do, that the
Detroit automakers bullied their suppliers into refusing to sell
parts to Tucker. I had personal knowledge of this as a result of
being associated with Libbey- Owens-Ford for 14 years. I learned
that Libbey-Owens-Ford had fabricated Tucker’s pop-out
windshield at a time when LOF supplied 100 percent of General
Motors’ automotive glass. Had Tucker gone into production, LOF
would have continued as his supplier, just as it also supplied
glass to other auto and truck manufacturers. (Ford Motor Company
had its own glass plants.) Moreover, sales managers are adamant
in denying that any carmaker would prevent a supplier from
selling to other companies. Rather than making suppliers totally
dependent on them, carmakers are more interested in having
vendors who are soundly financed and are likely to have a number
of customers in order to survive the times when auto production
is cut back.
It is possible, of course, that in 1948 some suppliers would
have been more attentive to Big Three customers than to Tucker.
The persistent fear at supplier firms is that a customer may not
be able to pay the bills. In view of disturbing rumors that were
already circulating about Tucker Corporation in early 1948, any
prospective suppliers would have been skittish about selling to
the company except on a cash, basis. Tucker, however, never
reached the point of ordering production parts in volume. He was
never strongly in the market for the parts that supposedly had
been denied to him.,
The most likely Big Three response to Tucker is that the top
auto managers noted his company and quickly dismissed it as a
speculative venture that would not survive. The duty of
following Tucker and reporting on his progress would have been
assigned to the market-research person who tracked competitors’
activities. Far from conspiring to destroy Tucker, the Big Three
executives were more concerned about competing with each other
for the long ton.
Another reason given for the Tucker failure is that the SEC
leaked damaging information which had the effect of stifling
sales of Tucker stock and dealerships. As a result, Tucker fell
far short of raising the total amount that would have been
needed to get into production. While nobody knows an exact
figure for this, $100 million is probably a fair estimate. This
was four times the amount Tucker actually raised.
The Market Responds
Whatever the effect SEC leaks might have had on Tucker’s
venture, his failure to raise more capital can be easily
explained by the ordinary behavior of the investment market. The
surprising thing is not that Tucker failed to finance his
venture. What’s really surprising is that he found investors and
dealers who were gullible enough to risk $26 million with him.
With or without the SEC, the stock market has an intelligence of
its own and puts values on shares after they have been sold.
Though Tucker was able to milk thousands of small, trusting
investors, he was not likely to tap into shrewder ones who
realized how speculative his entire venture had become. Price is
the stock market’s way of expressing opinion about company
values, and in Tucker’s case the share prices plummeted as facts
began to surface, virtually foreclosing any hope of raising
funds with new equity offerings.
Another myth is that Tucker did have a revolutionary car which
foretold Detroit’s future. Newspaper articles recently extolled
some of the unusual features of the Tucker car: a pop-out
windshield, a rear engine, a Cyclops light in the center which
turned with the front wheels, a padded dash, and an aerodynamic
body style. But were these really the way Detroit went in the
future? No carmaker adopted the pop-out windshield, for example,
and the Libbey-Owens-Ford engineers who supplied it to Tucker
thought it was a bad idea. Few carmakers have adopted a rear
engine; and the front-wheel drive has helped eliminate the long
drive train. The Cyclops light is a gimmicky idea that intrigues
onlookers, but apparently hasn’t been considered an automotive
selling point. Credit Tucker with the padded dash and the leap
into aerodynamic design, but neither was beyond Detroit’s
capabilities.
A final feature of the Tucker myth was the David vs. Goliath
aspect, always a subject for popular appeal. At the end of the
Coppola movie, for example, Tucker is deploring the fact that
there’s no place for the little guy in the automotive business.
This is in line with the frequently expressed idea that nobody
can get rich anymore. We heard that in 1948, just as we
occasionally hear it 40 years later. Anybody can disprove it,
however, by getting the latest copy of the Forbes 400
wealthiest people and noting how many current multimillionaires
were penniless or had not even been born back in 1948. There
have been numerous opportunities which were spotted by people
like Ross Perot, Sam Walton, or Steven Jobs.
Tucker’s point was that the little guy could no longer enter the
car-making business. My point is the same, with the added
proviso that car-making is so competitive and risky, and the
capital requirements are so high, that it also excludes “big
guys.” If there are to be new entrepreneurial ventures in
car-making, they will logically be carried out by well-financed
companies who already have expertise in heavy manufacturing. You
might think, for example, that a firm like Deere.& Company would
use its experience as a tractor builder to move into passenger
cars. Such companies avoid car manufacturing as they would the
plague, knowing that it would mean almost certain losses.
The automotive manufacturing business does, however, offer
countless opportunities for people in related lines. If car
building itself is a “big guy” business, the industry continues
to provide excellent opportunities for hundreds of supplier
firms. There have also been entrepreneurial firms who came up
with new automotive tools and ideas. Add to that the companies
which specialize in modifying and rebuilding stock cars for
select markets.
Tucker himself, if he had possessed more self-understanding and
business savvy, might have prospered as a custom car remodeler.
He did have a love of cars and he had experience in the
automotive field. In a way, the Tucker car itself was a
customized remodeling of existing car concepts. Tucker’s use of
the Cord trans-mission, for example, showed that he understood
nifty innovations which somehow hadn’t succeeded in the market.
But one of Tucker’s problems was in being carried away by a
“dream” while ignoring the practical work needed to apply it for
useful purposes. Mere possession of a dream does not excuse a
person from exercising prudence in business relationships.
Though Tucker himself escaped conviction on fraud charges, it is
fraudulent at this late date to blame his failures on the Big
Three automakers. There are lots of sins we can lay at the door
of GM, Ford, and Chrysler managements. They have sometimes been
arrogant and complacent; they have occasionally misjudged their
markets; they have been sluggish in coping with the new
worldwide competition. Their faults are typical of big
companies: poor communications, slow response to change, and
even bad habits growing out of too much success. Most of the
time, however, market realities tend to correct such problems.
And in criticizing the Big Three, we should never forget that
they are the companies that were most influential in putting the
nation and even the world on. wheels.
Let us also be careful not to add Tucker’s failure to any
catalog of Big Three wrongs. There’s simply no evidence that any
Big Three company was more than an innocent bystander while the
Tucker venture was running its erratic course. Tucker did
himself in and lost money for lots of trusting shareholders and
prospective dealers at the same time. And Tucker was never a
victim of anybody or anything other than his own ineptitude. The
Tucker Torpedo was a dud from the start, and Tucker was the
triggerman with faulty aim.
Notes
1. Tucker—The Man and His Dream, which
opened in .many American theaters in early August 1988.
2. Perry R. Dais and Glen E. Holt, “The Tale
of the Tin Goose,” Chicago, October 1982.
3. Lester Velie, “The Fantastic Story of the
Tucker Car,” Collier’s, June 25, 1949.
4. See Alfred Sloan, My Years With General
Motors (New York: Doubleday and Co., 1963). It carries a
photo of the “dream car” designed by GM Styling and introduced
in 1938 to test consumer reaction to advanced ideas.
|
Leadership Focus