How Henry Ford Cut the Dodge Brothers Out of FoMoCo
Ford made a move that still impacts American businesses today to try to cripple the early Dodge brand.
While it comes as a surprise to many people, Dodge brand founders John and Horace Dodge were instrumental in the early success of Ford Motor Company. After the Dodge brothers got their start in the automotive world making transmissions for Oldsmobile, they would become the chief supplier of parts for the Ford Model A, but the brothers were also key financial investors in Ford Motor Company.
According to a piece on HowStuffWorks, after being such key players in the success of Ford, John and Horace decided to launch their own automobile brand in 1914 and their first car was the Dodge 30-35. This car was designed to compete with the Ford Model T, so as you might imagine, Henry Ford wasn’t exactly thrilled with the new competition and the Ford-Dodge feud began.
Ford Cuts Funding
While Ford may have built the first American car that the average person could afford, the Dodge brothers both financed the early production process while playing a major role in the nuts and bolts of the program.
Ford raised $28,000 in the early 1900s to begin production of the Model A and the Dodge brothers contributed a “large portion” of that sum. As a result, John and Horace were major shareholders of Ford Motor Company and when Henry Ford began making big money, his shareholders were making big money in the way of dividends on their investments.
This meant that the Dodge brothers were making good money from Ford, and that money was part of what the brothers used to start their own company. Seeing that, Ford stopped paying dividends to his investors in an effort to make holding stock in the Motor Company less desirable. Although these shareholders were vital to Ford getting his start, he saw these people as “parasites,” so in ending the dividend program, Ford had hoped that they would sell back their interests in the company.
Heading to Court
Instead of being crippled, the Dodges sued Ford and won, with the United States Supreme Court ruling still playing a role in the business world today. The legal situation became known as “shareholder primacy” and it states that “a business corporation is organized and carried on primarily for the profit of the stockholders.” Of course, the court also ordered Ford to continue paying dividends, including those owned to the Dodge brothers.
Ford Swings Back
Ford had the last laugh in the matter of the Dodge brothers benefiting from the success of the Motor Company. Shortly after the court ruled in favor of the investors, Henry sold the company to his son while starting a rumor that he was going to launch a new company of his own. The change of hands and the news of a possible new company from Henry caused Ford’s stock value to plummet, leading the Dodge brothers and many other investors to sell their shares back to the Ford family.
However, by that time, John and Horace had made enough money from Henry Ford to secure the future of their own brand, leading to the lineup of powerful muscle cars and trucks that continue to beat the best from FoMoCo.