Thursday, February 21, 2019

The Franklin - First to Market, Last in the Marketplace

Once of the largest auto companies in America, Franklin declared bankruptcy only two decades later.

Syracuse, New York is famous for a lot of inconsequential things.  They used to pump salt brine from the ground and dry it out - thus the moniker "Salt City."  It was also a hub of industry in the early part of the 20th Century.  A fellow named Lipe was quite a machinist, and he had a machine shop that ended up being an incubator for a number of successful businesses that, 100 years later, are gone and forgotten.  Such was the nature of Engineering back then - there were no silicon-valley superstars whose names were household words.  Well, if they were, they were forgotten by the time the next big thing came down the pike.

One of the companies that came out the Lipe incubator was the Franklin Automobile.  H.H. Franklin was an investor and he teamed up with an Engineer who had a novel design for a car with an air-cooled engine.   Most automakers back then gravitated to water-cooling (literally - there was no ethylene glycol back then) to prevent the primitive engines of the day from overheating and seizing.  But the Franklin car used finned cylinders and large fan to keep the car cool, and for the most part, it worked very well.

In the pre-Model T era, cars were build by hand, one at a time, and mostly out of wood.  The Franklin had a wooden frame, which was thought to be better for absorbing shocks from the primitive roads of the time.  And bodies were largely made of wood as well.   It was a tedious process to build a car - almost like building a small house!   And the costs were staggering.  Only the very rich had cars, which they ordered to their specifications, often buying a chassis and then having it shipped to a coachbuilder who would custom-build the body to the buyer's tastes.

Franklin did very well, initially.  They engaged in road trips, road racing, and long-distance runs.  One of the "runs" they did regularly went through my home town of Cazenovia, New York.  Today, every August, the Franklin club re-enacts these road runs and puts on a car show at the small college there.

But then the market changed.   Ford came out with the Model-T.  It was not a threat to the large, custom-built cars of the era - the Pierce-Arrow, the Packard, the Stevens-Duryea, and the Franklin.  The wealthy would still order their cars to spec, and would not consider a "mass-produced" car in their garage.

But over time, the mass-produced cars started to predominate, and they started to move upmarket.  GM famously sold a car for "every purse and purpose" from Chevrolet, through Pontiac, Oldsmobile, Buick, and up to Cadillac.  Mass-produced cars had several advantages over custom-built cars - besides price.   Since they were made in large numbers, the "bugs" in the cars could be worked out more readily and thus mass-produced cars are more reliable than custom jobs.   It is also easier to get parts for a mass-produced car, and easier to find someone to work on it.   And since they are less expensive, you can afford to trade them in more often, thus keeping up with latest technologies (electric starters, electric lamps!) and the latest styles.

While your old custom-build limousine might have been "in style" for several years, after a while, artillery wheels and the monstrous low-compression engines start to look dated.  You want to trade up, but no one wants your old "circus wagon" as a used car.

The luxury marques hung on for quite a few years, but by the 1950's, the last of them - Packard - threw in the towel, after trying to transition from a custom-built luxury car maker to a mass-production upscale car.   The rest of the marques failed early on or were killed off during the depression.

I recall reading an article in a car mag about old cars of that era - when they became used cars.   The writer bought an old pre-war Packard touring car that had been up on blocks during the war.  It was the object of desire in his youth - such a swell car!  But the year was 1955, and high-compression overhead valve V-8's from Ford, Chevy, and Chrysler ruled the road.   The circus-wagon car was just old and out of place, and he could not afford to keep it in indoors and could not find parts for it.   A neighbor's cat shredded the dry-rotted top one night, and that was the end of that.  His wife forced him to sell it - for a pittance.  Today, it would be a collector's item.

My parents went through the same thing.  After the war, my Dad struggled to find a job, and he came home one day with a used pre-war Packard.  New cars were in short supply due to strikes and the steel supply - and he couldn't afford one, anyway.  But boy howdy!  This old Packard was quite the car back in 1936!  And he snagged it for only a couple hundred bucks!   My mother was not pleased, particularly when the steering wheel fell off in her hands.   It was just an old car by the 1950's, and one that was laughably out-of-style and out-of-date.  She made him sell it.

Franklin soldiered on for quite a while, but struggled as car prices dropped in the 1920's.  Hard to believe that car prices would actually go down, but the car business in the 1920's was like the computer business in the 1980's and 1990's.   Personal computers cost thousands of dollars in the early 1980's but by the end of the 1990's they cost a few hundred.  Cars in the early part of the 20th Century were the same way - as the assembly line replaced hand-building, costs dropped precipitously.

It is like old mainframe computers in the 1980's - you couldn't give them away in the PC era.   At the lab, we used an old PDP-8 for data logging.  It was also laughably outdated, but when it came time to replace it, we found that Digital Equipment had brand new in the box PDP-8's which once sold for thousands (if not tens of thousands) of dollars, for only a few hundred bucks each.   So we bought one, and transferred our old programs to it, using it for several years until we broke down and bought an HP data system.

The Model-T Ford went from nearly $1000 a copy to a low of $365 before rebounding somewhat toward the end of the model run, as more content was added.   But newer cars, like the Model A and the Chevrolet, had more and more features - electric start, electric lights, radios and V-8 engines or overhead valves - once only the province of luxury car builders.

And if you wanted to separate yourself from the masses, you could move upscale to a Lincoln, Cadilliac, or Chrysler.

Franklin had other problems, though.   The look of the car was odd, which turned off buyers (car buyers are like sheep - ask the designers of the Chrysler Airflow or the Graham "Sharknose" - novel designs which sold so poorly they nearly bankrupted their companies!).  Originally it had a Renault-style snub nose.  Then it had a circular grill with a fan behind it.  Dealers revolted and demanded a more "normal" looking car, which was obtained, once the chief Engineer quit in disgust.  But the change only kept the company alive a few more years.

Dealerships were located in odd, rural areas (Montana?) while sales of such cars were concentrated in wealthy suburbs of major cities.   So even when competing with the other "investment grade" cars of the day, Franklin was at a disadvantage.

And improvements in water-cooled engines negated the advantages of the Franklin air-cooled.   Prestone "permanent" anti-freeze replaced the alcohol used early on.  People learned that having an oddball car only meant it was hard to get parts and service for it, and the resale market was limited.

Cars became a commodity item which were sold on price and features - and the profit margins got slimmer and slimmer - and still are today.   That is why it is laughable when someone comes along and says, "I have a great new business idea - to build a revolutionary new car!" - because the business is already one of margins, and it is incredibly hard to break into.  And even if your revolutionary idea has merit - such as the Tesla electric car - others will copy your idea, once it has been proven successful (without making all the teething mistakes you made, of course!).

First to market is last in the marketplace.   And maybe that is why Bitcoin is doomed.  If there is going to be a "there" there in "virtual currency" it has to be in a currency that doesn't have all the teething problems of Bitcoin.  It now takes hours to process a transaction and costs $20 or more - clearly this isn't replacing my credit card anytime soon.   And the well-documented incidents of fraud and theft (as well as people "losing" their coins by throwing out hard drives, forgetting their passwords, or dying and not telling anyone their password) mean that the currency is hardly as secure as even a Visa card.

In general, I shy away from "The Next Big Thing!" altogether.   It is hard to spot winners early on, and even the winners drop the ball, sometimes more than once, before they become successful.  Ford, for example, struggled early on, and started two car companies, before he hit upon the Model-T.  One of those companies eventually became Cadillac, oddly enough.

The Franklin engine soldiered on, even without a car to go with it. It became somewhat popular as an airplane engine (powering the Republic SeaBee, for example) although it was never thought of as being as reliable or powerful as Continental or Lycoming.  Aircooled motors, as it was called, ended up being bought by Preston Tucker (remember him?) who nearly drove it into the ground by cancelling all their aviation contracts.  The company survived Tucker, and the designs were sold to a Polish company in the 1990s, who make the engines today.

So what's the point of this?  Picking winners in the market - and particularly emerging markets - is very hard to do.  What seems like a big company with a banging business can turn into an obsolete has-been in a few very short years.  Maybe if Franklin had switched to a cheap, air-cooled rear-engine car, like VW, they could have triumphed.  But the managers and Engineers at the company didn't have that sort of vision - "We've always done it this way!" I am sure they said.

Save the risky investments for the risk-takers.   You can look back in time and say, "If only I had invested in Microsoft!" and think about how rich you would be.   But what would have been more likely is that you would have invested in Digital Research (the makers of the popular CP/M operating system, obsoleted by MS-DOS) and you would have lost your shirt.

Hindsight is 20:20, but it cuts both ways!