#056: Oldsmobile – launched the car industry by outsourcing, creating spinoffs like Dodge

They named the band REO Speedwagon from the REO Speed Wagon, a 1915 truck that Ransom Eli Olds designed. Doughty had seen the name written across the blackboard when he walked into his History of Transportation class on the first day they had decided to look for a name.

Oldsmobile introduced the concept of outsourcing

Dave Young:

Welcome to The Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom and pop to major brands. Stephen Semple is a marketing consultant, story collector and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is well, it’s us, but we’re highlighting ads we’ve written and produced for our clients so here’s one of those.

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Dave Young:

Hey, welcome to The Empire Builders Podcast. Dave Young here, along with Stephen Semple. Stephen, when you told me today’s topic, I got all nostalgic. When I was probably 15, my sister’s a year older than me so she had just turned 16 and our first car, she got to drive as a driver and I got to drive as a student driver and then eventually as a driver, was a hand me down. My grandmother’s 1971 Oldsmobile 98 with a 455 big, big engine. That thing was a land yacht. Four barrel carburetor. Should not put that in the hands of kids 16 years old, but I think my dad’s thought was, well, it’s got a lot of sheet metal. We’re going to talk about Oldsmobile.

Stephen Semple:

We are going to talk about Oldsmobile and one of the big reasons why I felt like we need to talk about Oldsmobile is when it comes to the mass assembly line and a lot of that innovation that happened with automobiles, Henry Ford gets a lot of credit and deserves a lot of credit, but there was a bunch of innovation that happened before Ford, that if it didn’t occur Ford wouldn’t have been able to do what he did with the moving assembly line. And I think it’s a lesson that has been lost to history. Ransom Olds deserves much more credit in history than they’ve gotten so that’s where we’re going to explore a little bit. Again, before Ford could do his moving assembly line there was a bunch of innovations that had to happen and the car makers that we all know today, this is now the interesting part when we go back to history, car makers we all know today were not the first car manufacturers. We all think this whole thing of first in is the one that wins.

Dave Young:

Yeah.

Stephen Semple:

Well in the automotive industry all the players that got in first are all long gone. It was the second wave that became the dominant players. The first car maker in the United States was James Duryea, who made the first Duryea automotive in Springfield, Massachusetts in 1893. We’ve never heard of them.

Dave Young:

Who? Nah.

Stephen Semple:

Right. They ended up getting the money for doing it because there was a race that was held, this 54 mile race that went from Jackson Park in Chicago to Evanston and back again and it was held on Thanksgiving day in 1895 and they won this race.

Dave Young:

54 miles. That’s just like an average commute now.

Stephen Semple:

And it was $2,000 prize money. So they got this $2,000 prize money and all the recognition from it and started to make cars. And the first car that they made was the Duryea Motor Wagon and they started making those cars in the 1900s. And they basically made, I think it was about 13 or 14 vehicles before it was all ended.

Dave Young:

They had not figured out the mass assembly line.

Stephen Semple:

No, and by 1900 there was a hundred different brands of horseless carriages being marketed in the United States. All of a sudden there was all of these manufacturers, but they were all virtually handmade and as we know were all outrageously expensive and it was cars were perceived as a toy for the rich. Now Ransom Olds was a son of a blacksmith and he grew up in Lansing, Michigan. What he wanted to do was put the automobile on the main streets of America, similar to Ford. That’s what Ford wanted to do.

Dave Young:

Yeah.

Stephen Semple:

When he was 18 years old he hooked up a steam engine to a three wheel vehicle and took it for a ride around the neighborhood. And what we forget at that time steam was the most popular method to put into a car. Steam was first, electric was second, gasoline was the third most popular. What he recognized was that gas was the future. Oldsmobile said, no, you know what, gas is the future for a bunch of different reasons. But what he also looked at is he said for the automotive industry to survive things need to be made in a different way because basically not only were cars handmade, every component of the car was made in the shop.

Dave Young:

Yeah.

Stephen Semple:

Every screw, every bolt, everything was made in the shop.

Dave Young:

It was just a big building full of machinists and their tools.

Stephen Semple:

Machinists and their tools and there was also little if any standardization across the industry. So what he came up with the idea is how to outsource parts of smaller manufacturers and the word outsourcing hadn’t even been invented yet. And this was a major breakthrough in manufacturing. So he would go to a manufacturer and say, you make these things and go to another manufacturer and you make these things and basically it came into his shop and they did some manufacturing and primarily assembly. Oldsmobile is the one that created the idea of outsourcing.

Dave Young:

Nice.

Stephen Semple:

With the final product being assembled by them and this method was absolutely revolutionary during its time.

Dave Young:

Stay tuned. We’re going to wrap up this story and tell you how to apply this lesson to your business right after this.

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Dave Young:

Let’s pick up our story where we left off and trust me you haven’t missed a thing.

Stephen Semple:

And then the other thing they figured out is how to make the parts interchangeable. When a car was being made, that model, all the parts were unique to that model and Oldsmobile said, that’s nuts. There’s a lot of parts that can work on all of my vehicles. So how do I make the parts interchangeable? So they outsourced and made the parts interchangeable. And this is really historically important because if that had not happened, there’s no way Henry Ford could have invented the moving assembly line.

Dave Young:

Yeah.

Stephen Semple:

Right.

Dave Young:

Good point. Yeah.

Stephen Semple:

This predated Ford’s work. Ford took this work of Oldsmobile and took it to the next level. But what’s also noteworthy is the people involved with Ransom Olds, a lot of them on their own went on to do some really major accomplishments. It was the Dodge brothers who supplied transmissions to Olds and they ended up playing a major part in automotive history, right? Olds engines were supplied by Henry Leland, who later went on the found Cadillac in Lincoln and Fred Fisher, who was the body maker, went on to become the body maker for General Motors. These were the pioneers of the automotive industry. All came out of this experiment that was done by Ransom Olds.

Dave Young:

That’s really cool because, I mean, the scary part for an innovator like that is that people are going to get the idea that they can just do this themselves and that’s true.

Stephen Semple:

And it happened.

Dave Young:

Right. It happened. It happened in a way that was really beneficial to the market.

Stephen Semple:

Well, it was beneficial to the market and those were the ones that for a long time survived on their own or got acquired for a pretty substantial dollar amount because you think of it, there were a hundred manufacturers and I bet you if we looked it up and went through that list, maybe two we would recognize.

Dave Young:

Yeah, but I mean some of the big ones that you said, with the exception of the Dodge brothers, ended up in the General Motors family.

Stephen Semple:

They did. They did.

Dave Young:

Right. And that’s not surprising because the DNA is stamped all over them.

Stephen Semple:

The DNA is absolutely stamped all over them, but Ransom Olds does not get enough recognition in history for his contribution to the manufacturing process. He invented this idea of standardized parts and outsourcing. That was invented by him. He was the first to do it, certainly in the automotive industry and look, I just thought, since we did a thing on Henry Ford and I would encourage people to go back and re-listen to it, because it’s a fascinating story even in terms of the inspiration for the assembly line and where Ford got it from, but without that, without Olds, Ford wouldn’t have been able to do what he did. Ford was the next natural extension of the work that Oldsmobile did and I just felt, you know what? He deserves a little love.

Dave Young:

I wish I could ask him some things like for example, was this need to outsource parts, have things brought into his factory, was there some other factor pushing on it? For example, was their a factory just not big enough to make all the parts themselves? And so he’s like, hey, you know what? Maybe we could get some of our buddies to make some of these parts for us. Because sometimes it’s those types of pressures that cause some innovation. You go, well, here’s the thing we can’t do ourselves.

Stephen Semple:

It’s like an earlier podcast we recorded the M.M.LaFleur one where her idea for the distribution of clothing happened because they were running out of space for storing dresses and just went, Jesus, we got to get rid of these things. They created a new sales model because of that problem. So you’re absolutely right. Sometimes the issue is there’s this other force pushing on it. I can’t answer that question for certainty, Dave, but based upon the research that I was able to come across on Oldsmobile, I think a lot of it was primarily driven by this whole idea of to make the automobile mainstream we have to bring down the manufacturing costs and complexity in the standardizing of parts, in moving it out where somebody just makes a transmission and we assemble.

Stephen Semple:

I think what’s primarily driven is this simplifies the process and anytime you simplify the process, you bring down the costs. In the bringing down the cost idea was not we wanted to be the cheapest on the street, bringing down the cost was to open a new market because basically again, the desire was I want this to be from mainstream and mainstream cannot afford the price point in which cars are being done at under those manufacturing principles. So I think that was the primary driver, but you know, it could be other things and often it is, often it is some outside force that makes this innovation happen.

Dave Young:

Bit of Ransom Olds trivia.

Stephen Semple:

Sure.

Dave Young:

He founded Oldsmobile in 1897, but then he left it in 1905. He started a new company, the REO Motor Company. So Ransom E. Olds and one of their cars was the REO Speed Wagon.

Stephen Semple:

Oh, you’re kidding me. How did I miss that?

Oldsmobile - REO Speedwagon
1915 REO Speedwagon

Dave Young:

I’ve always known that about REO Speedwagon because I grew up as a disc jockey. Part of the Ransom E. Olds legacy.

Stephen Semple:

You one-up me, Dave. This is the reason why you’re the man.

Dave Young:

Now get that song stuck in your head. Or one of those songs. Yeah.

Stephen Semple:

Yeah.

Dave Young:

Oh, this was a fun episode, Stephen. Thank you.

Stephen Semple:

Awesome. Thanks David.

Dave Young:

Thanks for listening to the podcast. Please share us. Subscribe on your favorite podcast app and leave us a big fat juicy five star rating and review and if you have any questions about this or any other podcast episode, email to questions@theempirebuilderspodcast.com.

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