Early EV History - Rae Article



The Electric Vehicle Company:
A Monopoly that Missed

by John B. Rae
Associate Professor of History
Massachusetts Institute of Technology

Abstract: Attempts to monopolize the automobile industry began early in its history but were never successful because the industry possessed characteristics which made monopolization exceptionally difficult. The first of these efforts provide an illuminating example of business failure resulting from avoidable errors of judgment. The Electric Vehicle Company began its operations on the assumption that the electric automobile was going to be the dominant type; when this became demonstrably a bad guess, the company tried to compensate by using the Selden patent to collect royalties from the manufacturers of gasoline automobiles. This scheme likewise misfired, and the company collapsed into bankruptcy. The scheme also brought disaster to the Pope Manufacturing Company of Hartford, Connecticut, which abandoned a very promising position of leadership in the automobile field in order to participate in a highly speculative enterprise.

Since the automobile industry was born during the era of the great trusts, it was inevitable that the prospect of monopolizing this promising new area of enterprise should be explored early in its history. As a matter of fact, the attempt with which this paper is concerned was made almost before there was an industry to work on. In some fields this prompt start might have been an advantage, but it seems to have been the fate of the Electric Vehicle Company to be consistently unfortunate in everything it did. To begin with, when the company was organized the technical future of the horseless carriage was quite uncertain; no one could say with assurance whether steam, electricity, or the internal combustion engine would prove to be the most acceptable substitute for the horse. Moreover, in those early years of the automobile industry, it was extremely easy for new firms to enter the field, since production called for comparatively modest resources in capital and equipment, while the demand for cars was mounting so rapidly that the newcomer could be reasonably sure of finding a market.[2]

It would be difficult to envisage a less promising situation for the would-be monopolist. A combination of unusual technological and business foresight, ability to control basic processes by patent or otherwise, and a substantial dose of good luck was needed to dominate the automobile industry. The electric Vehicle Company proved to be singularly deficient in all these attributes.

The company's career can be divided into three principal stages. First, it tried to monopolize the electric automobile, beginning with the production and operation of electric taxicabs. Secondly, when it became evident that this enterprise was doomed to failure because the automobile field was going to be dominated by the gasoline rather than the electric car, the company fell back on its possession of the Selden patent, endeavoring to maintain its solvency by collecting royalties from the manufacturers of gasoline automobiles. This effort also failed. The majority of the manufacturers organized and outmaneuvered the Electric Vehicle Company for control of the issuing of licenses under the patent, while a minority, led by Henry Ford, refused to acknowledge the validity of the patent at all. Finally, the company slipped into the bankruptcy which seems to have been foreordained for it, and attempts to salvage something from the wreckage likewise turned out to be calamitous.

The company, therefore, afford an illuminating example of business failure. It was not the kind of small-scale failure which was so common in the infancy of the automobile industry, nor was it a case of audacity coming to grief because of adverse and uncontrollable circumstances. The history of the company is one of almost unbroken errors of judgment, most of them, on the face of the evidence, avoidable.

The Organization of the Company

The inception of this enterprise dates back to 1896, when Henry G. Morris and Pedro G. Salom founded the Electric Carriage and Wagon Company, which began to operate electrically driven taxicabs in New York City early in 1897.[3] At the same time, the concern was bought by Isaac L. Rice, president of the Electric Storage Battery Company of Philadelphia, and reincorporated (27 September 1897) as the Electric Vehicle Company.[4] Rice, whose company held Charles F. Brush's patent on lead storage batteries, saw in the electric taxicab business a desirable affiliation for his own concern. From the outset, therefore, the Electric Vehicle Company was tinged with the passion for combination which affected so many of the businessmen of this period.

In the course of a year Rice expanded the taxicab fleet from this the thirteen with which Morris and Salom had started to about hundred. This apparent success, which was probably due more to the novelty of the vehicles than to their efficiency, attracted the attention of a group of electric traction magnates led by William C. Whitney and including P.A.B. Widener, Anthony N. Brady, and Thomas F. Ryan.[5] Since there were already experienced enough in the art of merger and stock manipulation, it was natural enough for these men to decide that electric taxicabs offered a useful adjunct to their traction interest, particularly with the battery patent offering monopolistic possibilities. At any rate, they bought both the Electric Vehicle Company and the Electric Storage Battery Company at a handsome profit to Rice[6] and launched an ambitious scheme for organizing taxicab companies in all the principal cities of the United States. As part of the project Whitney approached the Pop Manufacturing Company of Hartford, Connecticut, ostensibly to arrange for manufacture of the considerable number of taxicabs that would be required. This concern, the maker of the Columbia bicycle, was the largest producer of bicycles in the United Stated and since 1895 had been developing both electric and gasoline-powered road vehicles under the supervision of Hiram P. Maxim.

In the course of the negotiations Whitney unfolded to the Pope officials a dazzling proposal for a merging of their firm with the New York organization to monopolize the electric vehicle field. Quite obviously, this was no inspiration of the moment; the outlines of the scheme must have been worked out by the New York syndicate before Whitney went to Hartford. Presumably he was to present it if conditions appeared favorable-as they were. To begin with, since the bicycle boom of the 1890's was declining, the Pope company was more than willing to expand its motor carriage business; [7] secondly, with Maxim as a vigorous dissenter, the officials of the company were inclined to favor the electric over the gasoline vehicle; [8] and finally the Pope management was every bit as monopoly-minded as Whitney and his associates. The owners of the concern, Albert A. and George Pope, had built their fortune in part by acquiring bicycle patents and collecting a royalty of $10 on every bicycle manufactured in the United States[9]-with one exception to be noted later.

Whitney's proposal was therefore accepted, and the combine was formed early in 1899. Its corporate structure was complex. A new company, the Columbia Automobile Company, took over the Pop motor carriage department and was then merged with the Electric Vehicle Company and the Electric Storage Battery Company under the name of the Columbia and Electric Vehicle Company.[10] Shortly afterward the Electric Vehicle Company was reorganized as a holding company for the projected operating concerns in the various cities, and in 1900 the relationship of parent and subsidiary was reversed when the Electric Vehicle Company took control of the Columbia organization.[11] The combine, whose president was George H. Day, vice president of the Pop Manufacturing Company, also acquired several smaller firms making electric automobiles, so that it enjoyed for the time being almost complete control of the production of this type of vehicle.

The bicycle end of the Pope business was reconstituted as the Hartford Cycle Company, which in turn became part of the American Bicycle Company, a merger of some twenty firms engineered by the Pope cousins late in 1899.[12] American Bicycle ran into a declining market and went into receivership in 1902. In the meantime, however, some of the affiliates had begun to make automobiles, mainly gasoline but including one electric model, and these operations were continued under the name of the International Motor Car Company, later changed to the Pope Motor Car Company, with tits principal factories located at Toledo and Indianapolis. Shortly after the receivership Colonel Albert Pope decided that the unused capacity of the Hartford bicycle plant should also be devoted to automobile production, the result being that the Pop Manufacturing Company was reincarnated in 1903 as a New Jersey corporation to consolidate the Pop Motor Car Company and the remaining assets of the American Bicycle Company, including the manufacturing facilities at Hartford. The Pope organization thus preserved its identity, but somewhere in this corporate labyrinth it lost its financial stability.

It is, indeed, a striking illustration of the obsession for merger which permeated the contemporary business atmosphere that men as able as Pope and Day6 should have tied a successful going concern to an enterprise which was at best a technological and commercial gambles and was related only in part to the activity of their company. To the extent that it was aimed at dominating the manufacture and operation of electric automobiles, the Electric Vehicle company was founded on an error of judgment. It had put its money on the wrong horse-or, to be more accurate, the wrong horseless carriage. The error was pardonable enough in 1899, since it was not until after the turn of the century that the gasoline car began to pull clearly ahead of its rivals, but it was nonetheless avoidable. Only two years before, Thomas A. Edison had stated in an interview that the horseless carriage would most likely be run by a gasoline or naphtha motor, unless a new and more economical electric storage battery should be discovered.[13]

There is another possibility which must be considered in view of the record of Whitney, Widener, and the others in the traction business, namely, that they were far less interested in making and operating automobiles than in developing a fresh opportunity for stock promotion. Maxim, a disapproving but immediate observer of the birth of the Electric Vehicle Company, has this to say:[14]

The scheme was a very broad one, promising all manner of possibilities in the way of stock manipulation. Whether it was intended to develop profits out of earned dividends, or by unloading the stock on the public, I will not venture to guess. In those days of wild finance, unloading upon the public was very fashionable.

In support of this thesis is the fact that, while Whitney's original proposal to the Pope firm contemplated a capitalization of $3,000,000, the Electric Vehicle Company issued over $20,000,000 worth of securities by 1902.[15] Had the organization been headed in the right direction, the substantial amount of water represented in this figure could have been absorbed, but monopolizing the wrong thing has never been an acceptable formula for business success. The hopes that had been entertained for the electric taxicab proved illusory. About two thousand were manufactured and placed in service in New York, Chicago, Philadelphia, Boston, and Washington, only to be driven from the streets by their gasoline-powered competitors.[16] By 1900 the company was in trouble, and its financial methods were being subjected to vigorous criticism. It had paid an 8 per cent divided from capital in 1899, but in 1900 it was compelled to go to the banks for help and it floated a loan, under somewhat questionable circumstances, through the State Trust Company, which happened to be controlled by the Whitney syndicate.[17] It was also being referred to in the press as the "Lead Cab Trust." Clearly, if it was to survive, it would have to be by some means other than the operation of electric taxicabs.

The Selden Patent Fiasco

Despite their predilection for the electric automobile, the promoters of the Electric Vehicle Company were far too shrewd to ignore the possibility that the gasoline car might turn out to be the better prospect. To protect themselves against this eventuality, they acquired control of United States Patent No. 549,160, issued to George B. Selden, of Rochester, New York, on 5 November 1895. The story of Selden and his patent is familiar enough not to require detailed repetition here. He had filed his application in 1879, covering somewhat generally the basic features of a road vehicle propelled by a liquid hydrocarbon engine, and had managed to delay the issue of the patent itself until it had some prospect of commercial value. He had never actually built a vehicle conforming to his specifications.

This patent was spotted by Herman F. Cuntz, a mechanical engineer who had charge of the patent department of the Pope Manufacturing Company and he promptly told Maxim that the production of gasoline carriages must be stopped at once.[18] Maxim merely laughed at him, on the ground that the vehicle described in the patent was completely impractical. Cuntz then took his story to Vice President Day and Hayden Eames (Maxim's immediate superior) but they for the time being did nothing, although they did get in touch with Selden, apparently when the latter approached the Pope concern in his search for a backer. So the matter rested until Whitney arrived to propose the Electric Vehicle scheme. During the negotiations, according to Cuntz, Whitney asked if there were any patents that might cause trouble, whereupon he (Cuntz) again produced Selden's claim. Maxim says simply that the growing importance of the gasoline vehicle eventually convinced Day and Eames that the patent might be worth looking into, but this decision coincided too closely with the organization of the Electric Vehicle Company to be purely fortuitous. At any rate, after further investigation of the soundness of Selden's claims, the Electric Vehicle Company bought the patent from him in November, 1899.[19] Selden received a cash payment and a fifth of the prospective royalties, but the precise nature of this arrangement is still obscure.[20]

There are, in fact, several parts of this story which are obviously incomplete. For example, if Whitney did raise the question of patents, was this merely a shot in the dark? It seems rather implausible that as skilled an operator as he was should have left such an important matter to a chance inquiry in Hartford when he could easily have found out all he wanted to know before he left New York. It is just as reasonable to assume that Whitney had already heard about the Selden patent and was trying to find out what men with experience in manufacturing motor carriages thought of it.[21]

We may also speculate on what an organization built upon the electric automobile proposed to do with a patent on gasoline cars; to put it another way, when Whitney spoke of a patent "causing trouble," for whom was the trouble to be caused? This answer is obvious enough. Except in so far as the Pope Manufacturing Company was already engaged in the business, the Electric Vehicle combine did not intend to enter the gasoline automobile field,[22] but if it could levy toll on all those who did produce such cars, then it stood to gain regardless of which type of automobile won out.

As the first step in this direction suit was brought in 1900 against the Winton Motor Carriage Company of Cleveland, Ohio, then the largest maker of gasoline automobiles in the country, for infringement of the Selden patent. Winton lost the first round in the lower court and then, while an appeal was pending, he and his fellow manufacturers decided to change their tactics and negotiate with the Electric Vehicle Company. The impetus behind this movement came chiefly from Henry B. Joy of the Packard Motor Company and Frederic L. Smith of the Olds Motor Works, who saw in the situation an opportunity to organize the automobile manufacturers for what they hoped would be their mutual advantage.[23] They were prepared to fight the Electric Vehicle Company if necessary; they preferred, however, to come to an agreement with it if satisfactory terms could be reached. The proposals of the automobile men were accepted by the Electric Vehicle Company early in 1903. For our purposes their essential features were as follows:[24]

    1. An organization, the Association of Licensed Automobile Manufacturers (A.L.A.M.) was created, whose members agreed to pay a royalty of 1 1/4 per cent on the catalogue price of each car manufactured under the Selden patent. (The Electric Vehicle Company had originally demanded a 5 per cent royalty.) Of this sum, three-fifths was to go to the Electric Vehicle Company while the remainder was kept by the A.L.A.M., to be used for expenses of litigation and for service to the industry in general.
    2. An executive committee of five members of the A.L.A.M., one of whom was always to represent the Electric Vehicle Company, was given responsibility for deciding who should or should not be awarded licenses under the Selden patent. The board of managers of the A.L.A.M., consisting of one representative of each member company, could under specified conditions overrule the executive committee.
    3. The executive committee also had the right to determine what suits were to be brought for patent infringement.

By 1904 some thirty automobile producers had signed this agreement, which shows a surprising willingness to yield on both sides. As far as the manufacturers are concerned, their motives become quite clear on a little examination. None of the automobile companies at this time was big enough to face the hazards and expense of a prolonged lawsuit, and there was much more to be gained by association. What the A.L.A.M. really intended to achieve has been stated frankly by its successor, the Automobile Manufacturers Association:[25]

The Selden patent was studied by counsel and it was decided by a good many manufacturers that their best course would be to recognize it. A group was formed which made arrangements with Mr. Selden... The principal activity of the group was the improvement of business practices of the trade.

It was at a time when automobiles were being made by almost every large machine shop in New England. Competition was such that many were being made with inferior experience and possibly with inferior workmanship and material. The dissatisfaction experienced with such cars was affecting the reputation and progress of the good manufacturers. The Selden patent gave opportunity to exercise a certain amount of control and was therefore a highly desirable instrument.

This testimony is corroborated by Alexander Winton, who certainly was in a position to speak authoritatively on the founding of the A.L.A.M. His account states:[26]

We had to pitch in and fight the wildcat automobile companies on the outside. It was difficult for the public to distinguish between the general and the ephemeral, and there are towns that can still point to windowless factories that were built from the stock sold by glib promoters, but which never manufactured more than two or three cars. Orphan cars were numerous and always were a 100 per cent liability, because it was impossible to get replacements for broken parts... Dishonest practices did much harm during years when support was most needed.

For a device which might eradicate these conditions and bring stability and order into the industry, a royalty of 1 1/4 per cent (later whittled down to .8 per cent) was hardly an excessive price, whatever reservations might be entertained, as some were, regarding the validity of Selden's claims.

Ultimately only two of the principal automobile manufacturers refused to fall in line. One was Henry Ford, who was denied a license in 1903 on the ground that he had not yet demonstrated his ability to make a commercially practical car. He then decided to ignore the A.L.A.M. and fought the Selden patent through a spectacular and eventually successful judicial battle. The other was Thomas L. Jeffery, manufacturer first of the Rambler bicycle and then of the Rambler automobile at Kenosha, Wisconsin.[27] With Jeffery, history was repeating itself. As the organizer of the second firm in the United States to manufacture bicycles, Jeffery had refused to acknowledge the patent claims of the Pope concern and had never paid any royalties; now that he had turned to automobiles and found his old adversary flaunting the Selden patent at him, he refused to recognize that patent too.[28]

The action of the Electric Vehicle Company in accepting the agreement with the A.L.A.M. is somewhat more puzzling, since it abandoned an apparently strong position without even token resistance. It surrendered control of the precious patent to a board on which it had only one member out of five, and it gave up two-fifths of its royalties to the A.L.A.M.[29] The explanation probably lies in the failure of the electric taxicab scheme. Since these vehicles proved to be money-losers, the company came to depend on its royalties to remain solvent; in other words, the tail had to wag the dog.

Consequently, the Electric Vehicle Company in 1903 was in no condition to face prolonged litigation on its own resources. As long as its claims were under adjudication, it would not be collecting royalties, and there was always the possibility that the Selden patent might not stand up in court. Joy, in fact, bluntly pointed out to Day that the automobile manufacturers were far more interested in their association than in the patent, and that the latter had value only in the hands of the association.[30] Otherwise, it would be so subject to endless lawsuits as to be worthless. Since Day himself was none too certain that the patent would survive a full-fledged test in court,[31] it was plainly wise for the Electric Vehicle Company to make the best deal it could with the gasoline automobile manufacturers.

On this showing, it is clear that the danger of the Selden patent creating an automobile monopoly has been greatly exaggerated. If the patent ever kept anyone out of the automobile industry, or even influenced the design of automobiles in any way, the fact does not appear in the record. Whatever some of its founders may have desired with regard to restricting competition, the Association of Licensed Automobile Manufacturers in practice pursued a reasonably liberal licensing policy,[32] and its members competed freely with each other. Moreover, the ceaseless coming and going of new makes of cars during these years suggests that the Association never got very far even with its campaign against the fly-by-nights. The organization's most lasting contribution to the automobile industry had nothing to do with the restriction of competition. It was the initiation of the program of technical standardization which was later taken over by the Society of Automotive Engineers.[33]

As a matter of fact, the only manufacturer who appears to have benefited from this whole arrangement was the principal nonparticipant, Henry Ford. It must be kept in mind that the Selden patent suit between the Ford Motor Company and the A.L.A.M. occurred at the height of the trust-busting crusade, when any combination was automatically suspect. The Association came to be regarded quite erroneously as a sinister Automobile Trust and it suffered from the bad reputation of the Whitney syndicate. Ford, on the other hand, was cast by public opinion in the role of David battling the monopolistic Goliath-a role, needless to say, worth millions of dollars in advertising value to the Ford Motor Company.

Suppose Ford had lost his case? An adverse verdict would have hurt the Ford Motor Company financially but would hardly have driven it out of business,[34] and there certainly would not have been an end to free enterprise in the automobile industry. When the final decision was handed down early in 1911, the Selden patent had little more than a year to run anyway. Regardless of how the courts ruled, the automobile field was going to be open to all comers after 5 November 1912, and while the manufacture of automobiles required a somewhat more substantial investment than had been necessary a decade before, it was still a field with ample opportunity for new entrants. The title which Professor Nevins has used for one of his chapters on this episode in Henry Ford's career, "The Shadow of Monopoly,"[35] is well chosen. It was only a shadow, nothing more.

Collapse and Disintegration

By the time the great patent suit was resolved, the organization with which it had all started was no longer in existence. The Panic of 1907 saw both the Electric Vehicle Company and the Pope Manufacturing Company go into receivership, although the automobile industry in general weathered this crisis quite successfully. The expectations on which the merger had been based had proved to be illusory. The electric taxicabs were, as we have stated, a failure, and a further attempt to keep them in operation swallowed up the combine's share of the Selden patent royalties.[36] The royalties themselves were scarcely munificent as a source of revenue. At the end of 1907 the total payments from the licensees came to $1,893,608.93, of which the Electric Vehicle Company's share was $682,274.64.[37] The best year was 1906, when the company's income from royalties was $217,683.56, but this was hardly enough to support an unprofitable business venture and also the $20,000,000 of securities the Electric Vehicle Company had issued. Nor was the company in a position to benefit from the continuing expansion of the automobile industry, since the licensees promptly took advantage of its troubles to beat down the royalty rate. The flimsy character of the organization was revealed with painful clarity when it collapsed. Of the $17,000,000 of assets claimed by the Pope Manufacturing Company, $14,000,000 was charged to goodwill.[38] The Electric Vehicle Company had less confidence in its goodwill, but it arrived at assets of over fourteen million dollars by valuing its patents and licenses-the only important one being the Selden patent-at eleven and a half millions. Its cash assets came to $12,000.

After two years of receivership, what was left of the combine was reorganized as the Columbia Motor Car Company of Hartford, with its capitalization scaled clown to $2,000,000.[39] The new concern inherited the Selden patent from its predecessor, and it also seems to have inherited the compound of bad luck and bad judgment that had pursued the Electric Vehicle Company from the beginning. The reorganization was scarcely complete before the Columbia company became involved in another overambitious scheme of automobile combination.

By this time most of the original promoters of the Electric Vehicle project had dropped out of the picture. Whitney and Day died before the 1907 crash, and Albert A. Pope did not long survive the demise of his company. Widener and Ryan evidently found the tough competitive conditions of the automobile industry uncongenial to them and returned to the less strenuous world of stock promotion and street railway franchises. Only Anthony N. Brady of this group remained interested in the automobile business, and he was, appropriately enough, a participant in the project whose failure destroyed the last vestiges of the Electric Vehicle organization.

This was Benjamin Briscoe's United States Motor Company, launched in 1910 with Brady as one of its backers[40] in an effort to duplicate the feat of Briscoe's erstwhile associate, William C. Durant, in establishing General Motors. The basis of this organization was Briscoe's own Maxwell-Briscoe Motor Company and the Columbia concern, to which were later added several smaller automobile manufacturers and a miscellany of related enterprises, the whole combination being capitalized at $30,000,000.[41] It was a jerry-built structure, whose parts had no intrinsic relationship to one another, and it included none of the leaders of the automobile world. It went into receivership in 1912, and when the wreckage was cleared away, the Columbia Motor Car Company had disappeared.

So terminated an enterprise which neither could nor should have succeeded. It began with an understandable but nevertheless unnecessary error of judgment regarding the prospects of the electric automobile and grew into an attempt at monopoly with overtones of a large-scale bucket shop operation. When it became evident that the gasoline car was going to be the dominant type after all, the Electric Vehicle group tried to establish a privileged position for itself by exploiting the nuisance value of the Selden patent. It was, in short, a parasitical growth on the automobile industry, and its demise was regretted only by those unfortunate enough to hold its securities.

The worst casualty was the Pope Manufacturing Company. Here was a concern which had done some valuable pioneering work with highway vehicles, both gasoline and electric,[42] and possessed the organization, financial resources, and technical skill to become a major automobile producer, but which lost its opportunity because its officials allowed themselves to be tempted by an alluring get-rich-quick scheme. No other explanation is sufficient to account for the Pope catastrophe. Other firms turned from bicycles to automobiles without undue difficulty-Winton and Jeffery, for example, and the decline of automobile manufacturing in New England should not have been fatal to a company which had extended its operations to Toledo and Indianapolis. What the Pope people envisaged when they joined in the Electric Vehicle project was obviously a repetition of what they had done successfully in the bicycle industry; what they did not foresee was that the automobile industry would develop too rapidly and on much too large a scale to be monopolized or even constrained. All they accomplished was to offer a demonstration that in business there is no adequate substitute for the production of goods and services.

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