Download KAISER-FRAZER FAILS TO CRACK THE "BIG THREE"

KAISER-FRAZER FAILS TO CRACK
THE "BIG THREE"
The Kaiser-Frazer Company merged with WillysOverland Motors, Inc., on 23 March 1953 purchasing Willys-Overland for $62 million. The deal
was the largest merger in the history of the American automotive industry, making the merged
companies the fourth largest automaker in the
United States. In reality it represented the end of
the attempt by industrialist Henry J. Kaiser to
claim a share of the market dominated by the "Big
Three" automakers: Ford, General Motors, and
Chrysler. Much of the capital for the merger came
from Bank of America and its affiliate, Transamerica.
Kaiser-Frazer, which Kaiser and his well-connected partner Joseph Frazer created in 1945, had
consistently lost money despite increasing sales. In
1950, after he had taken over full control of operations, Kaiser admitted that the company was "always completely undercapitalized." That year Kaiser introduced the Henry J. model, a four-cylinder
compact car that cost $2,000. It did not attract the
s m a l l - c a r buyers, however, who b o u g h t
Volkswagens, and by 1954 Kaiser ended production of the Henry J. At the time of the KaiserFrazer/Willys-Overland union, the two companies
were both ailing. Kaiser thought the marriage
might pump life into them. Instead, it signalled
the end of his run on the Big Three. Kaiser ceased
auto production in the United States in 1955, selling his Willow Run plant near Detroit to General
Motors for $26 million, the amount of a debt
owed to the Reconstruction Finance Corporation.
Source: Mark S. Foster, "Henry J- Kaiser," The Automobile Industry:
1920-1980 (New York: Facts On File, 1989), pp. 224-230.
ceived 46 percent of the industry's income in 1954.) NBC
president David Sarnoff scoffed at the notion: his company lost money five of its first nine years. Such cases
convinced business leaders and some scholars and policy
makers that the antitrust laws needed revision.
The Conglomerate Wave. By the end of the decade a
new type of merger also appeared, in which unrelated
companies joined in an organizational structure called a
conglomerate. The conglomerate wave continued into
the 1960s. A typical early conglomerate originated when
Jimmy Ling of Dallas started an electrical-contracting
business, then purchased other electrical-contracting
companies, then finally positioned the company to buy,
in 1960, the Temco Company, a producer of military
aircraft and missiles. That same year he made his first
B U S I N E S S
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overtures to purchase Chance-Vought Corporation, an
aircraft manufacturer, although he did not complete that
merger, which created Ling-Temco-Vought (LTV),
until 1961.
THE MILITARY-INDUSTRIAL COMPLEX
No Profit in Peacetime. Cold-war politics dictated
that the United States maintain a standing army, navy,
and air force equipped with modern weapons. But no
profit existed in making weapons during peacetime —
even the purchases of the U.S. military proved too small
to support many of the major defense companies. Manufacturers anticipated and planned for peacetime lulls in
their production, but ultimately the government had to
support defense contractors with constant new orders or
subsidize them directly with cash payments. Reasoning
that it never hurt to have state-of-the-art equipment, the
government pursued the policy of continually developing
and deploying new weapons systems. This policy also
kept most of the major manufacturers' production lines
primed in case of emergency. Near the end of his presidency, in 1961, Eisenhower cautioned Americans about
the growth of this new sector of the economy, which he
called the "military-industrial complex."
Missiles. Aircraft manufacturers such as Convair,
Lockheed, and North American Aviation that were able
to make the transition to missile production in the 1950s
found a solid, if somewhat erratic, profit in defending the
nation. In 1955 North American correctly anticipated
significant gains in missile work and restructured into
three divisions in order to meet the government's needs:
Rocketdyne produced engines; Aeromatics produced
guidance systems; and Atoms International produced
warheads. Between 1956 and 1961 Convair's missile sales
almost tripled, and Lockheed's nearly doubled. Aerospace manufacturers drew half their earnings from missiles and other defense-related production by the end of
the decade.
The Gun Belt. This "defense boom" directly benefited
the southwestern states and California, where most of the
defense plants were located. Secluded desert areas and
proximity to the Pacific Ocean made possible secret, safe
testing of missiles and aircraft. The plants were also near
such government research facilities as Edwards Air Force
Base, the Western Development Division of the Air Research and Development Command, and the Ames Test
Center. Clearly Texas, California, and the states between
them — dubbed the "gun belt" — provided the most advantageous locations for defense contractors. East-coast
aircraft manufacturers such as Grumman, Fairchild, and
Curtiss-Wright were unable to keep up. Led by the
growth of the defense industry, political and economic
clout shifted somewhat by the end of the decade, from
the Northeast to the South and Southwest.
Civilian Industry Benefits. The military-industrial
complex also benefited nondefense industries by provid-
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THE RISE OF TRW
Military interservice rivalries had much to do
with the shift of defense business from the frost
belt to the sun belt. The U.S. Air Force, freed
from army control by the late 1940s, was the beneficiary of the Strategic Missiles Evaluation Committee (the "Teapot Committee"), which in 1954
recommended a six-year crash program for R&D
in ballistic missiles. It proposed that the air force
lead the new effort, based on the West Coast at
Western Development Division (WDD), which
was created in 1954 and located in Inglewood (Los
Angeles).
Meanwhile two engineers in the Howard Hughes
aircraft organization, Simon Ramo and Dean
Wooldridge, had built up a huge scientific and engineering organization within Hughes. At one
time they oversaw the work of four hundred scientists. Ramo and Wooldridge left the Hughes operation in 1953, joining with a Cleveland aircraftengine firm called Thompson Products. They were
given the green light to form a new Californiabased company "to apply creative science and technology both to military and nonmilitary applications." Although only Ramo, Wooldridge, and two
other employees opened the business during its
first days, the company had 220 contracts and
thousands of subcontractors. In 1958 Thompson
merged with Remo-Wooldridge to form T R W ,
which produced everything from engine parts to
famous racing pistons. But the primary defense
work went to California.
Source: "Teamwork Across 2,000 Miles," Business Week (29 November
1958): 52+.
ing the basis for tremendous amounts of research and
development (R&D) in the decade. Scholars still debate
whether the computer or the jet passenger aircraft would
have appeared when it did, without military R&D or
subsidies. Inarguably, however, technology that had been
designed for the military was also found to have civilian
applications. The complex also benefited academic research: in 1956 Lockheed transferred its missile research
division to Stanford University and built new labs at Palo
Alto for military R&D.
A Strained Relationship. But the tight relationship
between business and the military was still occasionally
strained. In 1950, for example, the Defense Department's
weapons-system-evaluation panels cleared the Convair
B-36 bomber of charges that it was inadequate to U.S.
needs, keeping intact an order for more than 60 of the
bombers and saving hundreds of Convair jobs. Two years
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later the secretary of the air force announced a cut of 147
B-52s produced by Boeing, then suddenly reversed himself to order expanded production of the bomber. In 1953
Congress suggested that contractors and the armed forces
conspired to pad the Defense Department's budget. A
House government operations subcommittee headed by
Rep. R. Walter Riehlman (R-New York) demanded that
the military punish those responsible for spending $3
million on "useless" navy forklifts, $45 million for "unsuitable" army overcoats, and $1 million for unnecessary
air-force chain-link fences. The subcommittee demanded
that Secretary of Defense Charles E. Wilson explain his
plan to end "costly and wasteful" service loyalties and
correct other "deficiencies" harming the purchase and
distribution of supplies. Appropriately or not, however,
the government continued to spend growing amounts on
defense: by the end of the decade defense spending stood
at $46.4 billion, a 38 percent increase over 1949 levels.
Sources:
Roger W. Lotchin, Fortress California, 1910-1961: From Warfare to
Welfare (New York: Oxford University Press, 1992);
Ann R. Markusen, The Rise of ¿he Gunbelt: The Military Remapping of
Industrial America (New York: Oxford University Press, 1991).
T H E NATIONAL HIGHWAY A C T AND
THE AUTO INDUSTRY
New Highways. By the 1950s Americans had made a
firm commitment to private cars over public mass transportation such as buses and trains, even though it meant
higher personal expense, traffic jams, and occasional frustrations. The dominance of the transportation field by
the automobile and trucking industries was assured when
Congress passed the National Highway Act in 1958.
America already had 1.68 million miles of surfaced road
in 1950 — up from 1.34 million in 1940 — but the highway act promised a significant improvement over even
those paved roads by funding the building of wider, safer,
more-modern four- to eight-lane freeways. Justified as a
defense measure to speed the transport of troops in an
emergency, the new freeways benefited the average
American, who could shave days off cross-country auto
trips by avoiding the "backroads." Also as a result, oncelegendary highways such as Route 66 were virtually abandoned in favor of the new freeways.
American Independence. Although frequently criticized as extravagant or wasteful, transportation by private
autos gave Americans an independence that no other
nation had. Drivers enjoyed greater safety and comfort
than they could expect on subways or buses. For Americans their private means of transportation was part of
their lives: in 1950 there was one passenger car for every
3.75 Americans, representing ownership of some forty
million cars by 60 percent of the households in the
United States.
A Profitable Decade. For Detroit's automakers, the
National Highway Act proved a final topping to an already profitable decade. U.S. auto production in 1950
A M E R I C A N
D E C A D E S :
1950-1959