Ford vs. GM: The IPOs of a Changing America

While General Motors' (GM) stock issue has broken records to become the biggest IPO in American history, it has also drawn attention to how much the auto industry has changed in the last few decades.

Less than 60 years ago, on Jan. 17, 1956, Ford Motor (F) launched its IPO into an economy in which U.S. industrial might was the envy of the world and American cars represented the apex of the automotive pyramid. Today, as GM eases into its second go-around, the questionable future of industry and the shifting definition of "made in America" cast a dark shadow over the car company's public celebration.

Owning a Piece of Magic

When Ford went public, it was the largest IPO in history, and its release of 10.2 million shares yielded $660 million (in 1956 dollars). More than 260 firms were involved in the IPO, and according to historians Peter Collier and David Horowitz, who wrote The Fords: An American Epic, "People stood in line outside brokerage houses in 1956 to be able to buy Ford stock, thus owning a piece of the company which still had an almost magical quality for the average American."

It's likely that part of the draw lay in Henry Ford's adamant refusal to sell stock because control of the company's operations remained in the hands of the Ford family. However, the founder died in 1947, leaving his grandson, Henry Ford II, in charge. Under the younger Ford's leadership, the company launched the IPO, opening it's ownership -- and leadership -- to the rest of the world.

Not coincidentally, when the younger Ford stepped down from the drivers' seat at the company in 1979, he was replaced by Philip Caldwell, the first non-Ford to be CEO of the carmaker. In fact, it was 22 years before the next descendant of the founder worked his way up to the head office. In 2001, William Clay Ford Jr. was elected CEO.

Before the Edsel, Before the Pinto

But Ford stock's status as forbidden fruit explains only part of the company's appeal to investors. Collier and Horowitz's vision of private stockholders waiting in the snow to get their piece of Ford may be somewhat florid, but the public had a deep affection for the brand. This, after all, was before the disappointment of the Edsel, the debacle of the explosive Pinto and several decades of second-rate engineering and third-rate construction.

In 1956, Ford was still changing its models every year, and it was offering the kind of big, high-horsepower models that Americans loved. That season, in fact, the major innovation was the Thunderbird -- a massive 312-cubic inch, 225-horsepower V-8 engine that was optional in all models.

The company's commitment to its workers was also part of its mythos. Henry Ford's 1914 decision to pay his employees the princely sum of $5 per day made it possible for them to buy the cars they worked on -- a strategy that generated extreme loyalty among his workers and impressed much of the car-buying public. By 1956, Ford had survived a few run-ins with workers, but its reputation as a good place to work still held strong.

54 Years Later, a Different World

GM's new stock is going out into a much tougher market. Unlike Ford, which used the funds generated by its IPO to expand, GM's proceeds will be used to pay back some of its creditors, including the U.S. and Canadian governments, both of which helped bail out the ailing carmaker last year. While this might dull the sting of the "Government Motors" tag that GM was hit with during the 2009 government bailout, the automaker will likely still have to deal with resentment over what many pundits and politicians have claimed was an inappropriate government incursion into private business.

It also seems likely that GM faces a tough relationship with its workers. On the one hand, the automaker unions -- UAW and CAW -- now own a hefty percentage of the company, having traded much of their pensions for a share in the new GM. While this would appear likely to translate into a more comfortable relationship with factory workers, a side effect of GM's restructuring will be a new pay-and-benefit tier that will enable the carmaker to hire new employees for roughly half of what their predecessors made.

It remains to be seen if the automaker will follow the old Ford model of paying workers enough to buy the cars they made, or if line worker jobs at GM will earn too little to cover the cost of buying GM cars.

Japanese Makes Can Be More American Than American Cars

Another difference is that the "made in America" label no longer carries the cachet that it had in the mid-1950s. Over the past three decades, while Asian and European car companies have poured money into innovation, American manufacturers have been left behind with models that have often paled in comparison. Worse yet, shoddy construction -- which car manufacturers have often blamed on a need to cut corners in order to pay hefty union contracts -- have led to an American reputation for second-rate cars.

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There's also the question of what "made in America" now means. U.S. carmakers have outsourced many of their components to other countries, Asian manufacturers have taken advantage of tax breaks to bring factories to America. As a result, the car with the most American-made parts is the Toyota Camry, and the second place is taken by the Honda Accord. In fact, the Chevy Malibu is the only GM car among the top 10 American-made models.

GM's plan for the future is promising: In addition to its less-costly worker contracts, the company has shed all but four of its brands in the hope of creating distinctive identities for its remaining models. With lower labor costs, massive cuts in pension expenditures and a reinvigorated model lineup, the future could be promising, as long as the company can convince domestic car purchasers that buying American is more than just a marketing slogan.