James Surowiecki in the New Yorker (link) [via Newmark’s Door (link) {via DeLong (link)}] argues that General Motors is trapped by its dealers, paying the price for decentralization, locked into relationships from which it can’t profit and can’t shake.
It was not always thus. At least by common folklore, Henry Ford used the dealership system to ride out the post-WWI depression. The story is famously retold in John Dos Passos’ great novel:
In 1918 [Ford] had borrowed on notes to buy out his minority stockholders for the picayune sum of seventyfive million dollars.
In February, 1920, he needed cash to pay off some of these notes that were coming due. A banker is supposed to have called on him and offered him every facility if the bankers’ representative could be made a member of the board of directors. Henry Ford handed the banker his hast,
And went about raising money in his own way:
he shipped every car and part he had in his plant to his dealers and demanded immediat5e cash payment. Let the other fellow do the borrowing had always been a cardinal principle. He shut down production and canceled all orders from the supplyfirms. Many dealers were ruined, many supplyfirms failed, but when he reopened his plant,
he owned it absolutely,
the way a man owns an unmortgaged farm with the taxes paid up.
In 1922 there started the Ford boom for president…
John Dos Passos, The Big Money 56
(Washington Square Press Paperback ed. 1961)
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