By Josh Katzowitz, WCI Content Director
Sixty-six years ago this week, the Ford Motor Company made a tremendous mistake that would cost it hundreds of millions of dollars in 1957 (and billions of dollars in today’s dollars). And it leads to important lessons that white coat investors can take away in their own financial lives.
Yes, today is the Edsel’s birthday, and boy oh boy, was this vehicle an absolute disaster. Let’s celebrate by remembering just how awful the idea and the execution were for this jalopy that was supposed to make Ford the dominant car maker in the market.
[I’ve always loved history. I’ve always loved the idea of taking a peek into the past and studying it from the current-day perspective. I’ve always been interested in the idea of time travel. And now that I’ve found a passion in writing about finance, I’m combining all of this together in an occasional column for WCI that I’m calling “The Financial Wayback Machine.”
I want to journey back in time and look at those supposedly great ideas that now seem ridiculous, all the good and terrible predictions (crystal balls have never not been cloudy), the doctors who did great (and shady) things, and all the seemingly minor news nuggets that ended up making huge waves. It’ll be fun, it’ll be silly, and maybe it’ll be a good lesson for what not to do with your money today.
Step into the Financial Wayback Machine with me, and let’s travel back in time.]
The Debacle of the Edsel Release
On Aug. 26, 1957, the Edsel was introduced to the world. Ford expected this announcement to be a big moment. It had spent a decade and $250 million on developing a car that would fill the mid-price vehicle market and step into a niche that was more luxurious than GM’s low-cost Chevrolet and Pontiac but not as expensive as GM’s Cadillac (while competing against GM’s mid-priced Buick and Oldsmobile).
Here was what the announcement looked like in the next day’s San Diego Union, via the ReadEx Report.
Interesting-looking car in a big, splashy advertisement? Who wouldn’t want to check out the automobile, maybe take it out for a test drive, and then plunk down $4,000 ($41,309 in today’s money) to shepherd it home? Lots of people were interested in the first part (apparently 3 million people visited an Edsel showroom to study it in its first week). Plenty of them probably partook in the second part. Not many completed the transaction, though.
Only three years later, Ford ended the Edsel experiment as its stock price plunged from about $60 to less than $40 only a year later. In today’s dollars, it cost the company $3.61 billion. For what it’s worth, Ford’s stock price this week was about $12, but the current market cap is about $47 billion, so clearly, the Edsel, despite its best efforts, didn’t kill the company.
Still, when you talk about all-time car company mistakes, the Edsel is at the front of the pack.
What, then, can you learn from Ford’s massive mistake? Here’s what I’ve gathered.
#1 Do Your Research—and Actually Pay Attention to What It Tells You
Ford actually did its market research. It just might not have listened to what the research was saying—and it never asked a key question.
According to Time, studies showed 50% of US families would be earning at least $5,000 per year by the mid-1960s and that they would be interested in medium-priced vehicles (in the mid-1950s, medium-priced cars made up 60% of the market). That’s the demographic Ford was targeting. As one researcher claimed, Edsel should aim “the smart car for the younger executive or professional family on its way up.”
By the time Ford unveiled the Edsel, though, customers had stopped purchasing mid-priced cars. Instead, they had turned toward compact vehicles like the Volkswagen Beetle (which cost between $1,500-$2,000). That lower-priced portion of the market, Time wrote, was “an area the Edsel research had overlooked completely.”
It also overlooked how customers wanted their cars to look.
Wrote Hot Cars:
“People did not find the car attractive, and the semi-powerful engines under the hood didn’t change people’s minds. Simply put, the car couldn’t compete in this category with the other rides of the time.”
Turns out most of that research went for naught. Still, as an investor, researching your options is key to having a successful financial journey. Whether you’re taking special care to vet real estate investing opportunities or applying Bruce Lee principles to your overall financial education, taking the time to make firm decisions based on sound explorations is imperative.
More information here:
#2 Watch Out for Bad Timing
Much like buying a home in 2006, just before the housing bubble popped, sometimes your timing is all wrong. It can’t always be helped, of course, but there’s a reason why the mantra of “Past performance does not guarantee future results” exists. And for Ford, the timing was terrible (though it can partially be forgiven for thinking the good times would continue forward).
After World War II, the US economy was booming, and people were buying more vehicles than ever before. Only two years before the Edsel was introduced, Americans purchased more than 7.1 million new cars, the most in history. According to the Foundation for Economic Education, “the early 1950s were a euphotic period for automakers” as “automobiles evolved from mere transportation vehicles just after World War II to symbols of middle-class affluence.” Ford thought it could overtake General Motors and that the Edsel could be the tipping point for an enthusiastic customer base.
The economy had other ideas.
Though Ford had toyed with the idea of releasing the car in June 1957, it waited an extra three months. By the fall of 1957, the US economy entered a recession, car sales dropped by more than 40% year over year for multiple companies, and car dealers ended the year with the second-largest amount of unsold vehicles in history.
Wrote Business Insider:
“Had [Ford] acted more cautiously and avoided betting so much on the car, they could have pulled back once the stock market took a nosedive in the summer of 1957, and people stopped buying mid-priced cars.”
Ford had hoped the Edsel would sell 400,000 units per year; instead, only 63,000 were sold in that first year.
You, of course, shouldn’t try to time the market, but sometimes the market times you at just the wrong time.
#3 Don’t Fall for Those Who Overhype Their Product
In the same way you have to take caution when a whole life insurance salesperson tries to convince you to buy their product or when somebody extols the virtues of variable annuities, be careful about getting in business with people who claim their product is so very, very awesome and that it will improve your life so very, very much.
Edsel was touted as the gorgeous-looking vehicle of the future. But customers didn’t experience that.
“The public had been teased into expecting nothing less than a ‘plutonium-powered, pancake-making supercar.’ What they got looked like an overpriced, regular Ford Mercury with a front ‘horse collar’ grille described by Time magazine as looking ‘like a midwife’s view of labor and delivery’; others said it resembled a toilet seat.”
That said, let's take a moment to raise a glass and toast the Edsel. Happy birthday to you! May there never be another like it.
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Remembering a Hero Doctor
Earlier this month, my family and I visited Israel (more on that in my next column), and for most of one morning, we visited Yad Vashem, the Holocaust museum and memorial in Jerusalem.
While touring the grounds, we happened upon this sculpture.
It’s in remembrance of Janusz Korczak, a pediatrician and author who couldn’t bear to leave the Jewish children he cared for in his Warsaw Ghetto orphanage and was murdered for his dedication to them.
Korczak, whose real name was Dr. Henryk Goldszmit, trained as a children’s doctor and served as a military physician in 1906 during the Russo-Japanese War. Afterward, he thought he could make his mark more as a teacher and author than as a doctor, and he eventually opened a Jewish orphanage.
From the Jerusalem Post:
“When the Germans created the Warsaw Ghetto in 1940, his orphanage was forced to move to the ghetto. Korczak went with the children even though he had repeatedly been offered shelter on the ‘Aryan side,’ however he always refused these offers, saying that he could not abandon his children.”
In 1942, Nazi soldiers prepared to pack about 200 children from the orphanage and ship them to the Treblinka camp, where they would be put to death. Once again, Korzcak refused to abandon the children and kept them from panicking as they marched for hours to the transportation that would take them all to their eventual murders.
As one witness said afterward, “All the children were ordered in groups of four, with Korczak at the head, with his eyes facing upwards, he held two children by their hands and led the march . . . These were the first Jewish lines that went to death with dignity.”
Even while in the camp, a Nazi guard recognized Korzcack and offered to save him. One last time, Korzcack made the decision to stay with his children. It cost him his life. The doctor and the children were never heard from again.
Money Song of the Week
Aerosmith, 53 years after forming in Boston, is set to begin its nationwide final farewell tour, and it got me thinking about the first rock show I ever attended. It was Aerosmith at Atlanta’s Lakewood Amphitheater in 1994 (it cost me $26.85 for a ticket), and the band opened the show with a killer version of “Eat the Rich.”
Despite the fact that Aerosmith was a rich rock band at the time—especially after releasing the mega-successful “Permanent Vacation,” “Pump,” and “Get a Grip” albums that completed its comeback from a drug-induced fadeaway in the early- to mid-1980s—there was apparently no irony in singing lyrics like this:
“Cause I’m sick of your complainin’/About how many bills/And I’m sick of all your [moaning]/‘Bout your poodles and your pills/And I just can’t see no humor/About your way of life/And I think I can do more for you with this here fork and knife.”
According to Ultimate Classic Rock, Aerosmith was angry with its record company at the time, because the band’s liaison to Geffen Records made it clear that he didn’t like the songs the band was planning for “Get a Grip” and threatened to take the record label’s name off the album. “Nobody threatens me like that—nobody,” singer Steven Tyler wrote in 1997.
The rich rock stars then made a song about eating the people who were actually richer than them.
The best part: Aerosmith is almost assuredly wealthier now than it was 30 years ago with some websites estimating that each member of the band is worth more than $100 million. It’s a pretty good bet that on its final tour, the band will earn more than $1 million per show (considering it was making $850,000 per concert a decade ago).
I saw Aerosmith in 2019 during its Las Vegas residency (it cost me $160 for a ticket), and “Eat the Rich” was prominently featured toward the end of the set. People still love it, and they still love that Aerosmith sings it. Even if the guys who play it are ripe to become the main dish.
Tweet of the Week
Good morning. McDonald’s is hiring and offering $18-21/hr starting pay. As a first year cardiology fellow with 4 years experience saving lives… I don’t make McDonald’s starting pay 🙃
— Kadijah Porter MD MS (@KadijahPorterMD) August 8, 2023
For what it’s worth, somebody making $21 per hour and working 40 hours a week would make a smidge less than $44,000 per year.
What do you think? What other financial lessons can be learned from the Edsel debacle? Does Aerosmith's message resonate with you? Comment below!
[Editor's Note: For comments, complaints, suggestions, or plaudits, email Josh Katzowitz at [email protected].]