Roy D. Chapin: The Man Behind the Hudson Motor Car Company

XXVI. Building for Tomorrow

CHAPTER XXVI BUILDING FOR TOMORROW A T FIRST glance it might seem that a company like HudJLX . son with established manufacturing ability, a modern plant, an experienced management, would have no trouble in getting funds. That would have been true in the 1920*8, but obviously conditions were now completely different. Hudson had continuously plowed a large share of its earnings into plant development. It made more and more of the parts on its own premises (in contradistinction to its policy in the early days). In good times the new procedure had been profitable, but the depression had caught the company with an excessive capital investment in plant and a weakness in liquid capital. In fact, $6,000,000 was needed to pay pressing obligations and provide adequate working funds. If Hudson's creditors had been willing to be patient, the situation promised fair, but from various actions that were taking place, Roy was under the impression that competitors might be trying to push him to the wall, and the delicate financial status of the company left it defenseless unless ready capital could be found. A certain tire company threatened to take action unless its accumulated bills were cared for, and early in 1934, Hudson owed a total of $800,000 to four leading banks who were pressing for settlement. These various obligations might not have seemed particularly serious if the company had time and working capital to convert its inventories into sales of finished cars; but another liability loomed from the finance companies. Installment buying of automobiles which had become common practice in the 256 ROY D. CHAPIN 1920's was handled by huge concerns engaged in the financing of cars from factory to dealer and dealer to customer. The onrush of the depression had caused the insolvency of thousands of buyers. Re-possessed cars flooded the market and the unredeemed notes were backing up on the factories. Roy had been told that Hudson might not be able to get further accommodation from its particular finance company. If this proved so, it would cut off" a major source of financing and cripple the company 's operations. Faced with this series of grievous possibilities, Roy turned for advice to his friend, Lewis Strauss, of Kuhn, Loeb and Company , one of New York's chief financial houses. He had met Strauss during the Cabinet days when the latter had been an unofficial advisor to President Hoover. Chapin and Strauss had found an immediate rapport and a deep friendship had resulted. Chapin laid all the figures before Strauss, pointed out the big tangible investment in Hudson's manufacturing properties and mentioned particularly its sizable body plant. The body plant, in fact, was an item on which some competitor might have a covetous eye, eager for the opportunity of buying it cheap if Hudson could be forced into bankruptcy. As the two men discussed Hudson's condition, it was clear that the size of the properties, in the immediate circumstances, might be more of a liability than an asset. They were attractive financially only at a forced sacrifice sale because the depression had greatly diminished their earning power. Furthermore, the cost of taxes and maintenance continued. All things considered, the flotation of a bond or stock issue was impossible, for the investment market was moribund. As Strauss expressed it "There were many industrial skulls along the roadside." The financial doldrums also made it impossible for Chapin or his associates to borrow substantial sums of money on their own credit, as their funds were largely in Hudson stock and this, like other securities, had declined in market value almost BUILDING FOR TOMORROW 257 to the vanishing point. No bank or group of banks could afford, either within the law or within common sense, to make loans based on the hope of a revived motor industry and the good management of Hudson, however much faith they might have in both. Roy had imbued Strauss with such faith. "Roy was individual collateral of the highest character," Strauss has said. "We participated in many conferences with the most skeptical financial minds, and no one would ever have dreamed that there was anything which had reason to disturb him. He was confident, calm, and cheerful. He radiated success." The conferences referred to by Mr. Strauss arose from the fact that he had recalled the existence of Section 13b of the Federal Reserve Act whereby a Federal...