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Published online by Cambridge University Press: 13 December 2011
In the 1920s and 1930s, the rubber tire industry faced debilitating challenges, mostly brought about by changes in the industry's retail structure and exacerbated by the Great Depression. Segments of the industry attempted to use the New Deal's NRA codes to solve these new problems and stabilize the tire market, but the tire manufacturing and tire retailing codes were patent failures. Instead of leading to cartelization and higher prices, which is what most scholars assume the NRA codes did, the tire industry codes actually led to even more fragmentation and price-cutting.
1 G. S. Earseman, NRA Assistant Deputy Administrator, “History of the Code of Fair Competition for the Rubber Tire Manufacturing Industry,” National Archives, Record Group 6, box 7600, 3 (hereafter referred to as “Code History 174”).
2 Hawley, Ellis, The New Deal and the Problem of Monopoly: A Study in Economic Ambivalence (Princeton, N.J., 1966), 132Google Scholar. Revisionist, or New Left, scholarship on the NRA includes: Bellush, Bernard, The Failure of the NRA (New York, 1975Google Scholar); Bernstein, Barton J., “The Conservative Achievements of Liberal Reform” in Towards a New Past: Dissenting Essays in American History, ed. Bernstein, Barton J. (New York, 1968Google Scholar); Radosh, Ronald, “The Myth of the New Deal,” in A New History of Leviathan, ed. Radosh, Ronald and Rothbard, Murray N. (New York, 1972Google Scholar). For a good example of contemporary criticism of the NRA on which Hawley and other critical scholars have built, see Lyons, Leverett and others, The National Recovery Administration: An Analysis and Appraisal (Washington D.C., 1935Google Scholar). Hawley's treatment of the NRA is much more nuanced and tempered than that of the New Left historians, who, in very moralistic terms, go so far as to deem the NRA as fascist. Hawley does not find the NRA to be purposefully fascist; in fact, he does not think the NRA had any clear goals at all, and this was what constituted the NRA's greatest weakness and allowed big business interests to take over. Before Hawley, New Deal historians such as Arthur M. Schlesinger, Jr. and William Leuchtenburg took a more balanced and positive view of the NRA. In Franklin D. Roosevelt and the New Deal, 1932–1940 (New York, 1963Google Scholar), Leuchtenburg argues, “the Recovery Administration has been blamed unfairly for the acceleration of industry toward concentration” (p. 69). But post-Hawley New Deal scholars tend to incorporate the Hawley-New Left view of the NRA in their works. For example, in The Great Depression: America, 1929–1941 (New York, 1984, 1993), pp. 160–162Google Scholar, Robert McElvaine stresses that the NRA served big business interests at the expense of everyone else and states that “all this is generally accepted.” Furthermore, “The NRA contained within it some potential for fascism.”
3 Johnson, James P., The Politics of Soft Coal: The Bituminous Industry from World War I Through the New Deal (Urbana, Ill., 1979Google Scholar); Brand, Donald, Corporatism and the Rule of Law, A Study of the NRA (Ithaca, N.Y., 1988Google Scholar); Gordon, Colin, New Deals: Business, Labor, and Politics in America, 1920–1935 (Cambridge, 1994Google Scholar).
4 These arguments are expressed most clearly in the work of a former NRA official, Pearce, Charles, NRA Trade Practice Programs (New York, 1939Google Scholar), and in Colin Gordon's New Deals. The case of the tire industry supports Gordon's “disorganizational synthesis” in which business groups do indeed influence government policy but fail to achieve rationalization of their markets due to the inevitable reemergence of destructive, or at least inefficient, competition. In short, business groups could not sustain cooperation.
5 Brand, Corporatism, 146–9.
6 Cross, W. H., Earseman, G. S., Lenaerts, J. H., National Recovery Administration, Works Materials No. 41: The Rubber Industry Study (Washington D.C., 1936), 51, 55Google Scholar. Hereafter referred to as: Cross et. al., Works Materials No. 41. The study states that in 1932, 81.8% of tire companies reported losses.
7 For a full discussion of the development of the tire industry's structure from the 1890s to the 1990s, see French, Michael, The U.S. Tire Industry: A History (Boston, Mass., 1991Google Scholar). Blackford, Mansel and Kerr, K. Austin, B. F. Goodrich: Tradition and Transformation, 1870–1995 (Columbus, Oh., 1996Google Scholar) is also a useful source for the history of the tire industry.
8 French, The U.S. Tire Industry, 54–5; idem, “Structural Change and Competition in the United States Tire Industry, 1920–1937,” Business History Review 60 (Spring 1986): 52. My study of the tire industry during the 1930s differs from French's works in its emphasis. I am more interested in the industry's two-year experience with the NRA and how this affects what we understand about that New Deal program.
9 French, The U.S. Tire Industry, 45–6.
10 While most small firms were hurt by the compressed price structure and vicious price wars, there were exceptions. A few low-cost small producers found that they could survive by using discounts to fend off large firm intrusion into their local replacement market territories. See French, The U.S. Tire Industry, 64. This minority of small firms generally did not side with the majority group of small and medium firms during NRA code debates. Instead, they often found themselves agreeing with Big Three positions. For a highly relevant study of a small tire firm's experience and dilemmas over price-cutting during the Great Depression, see Fricke, Ernest B., “The New Deal and the Modernization of Small Business: The McCreary Tire & Rubber Company, 1930–1940,” Business History Review 56 (Winter 1982CrossRefGoogle Scholar).
11 In the late 1920s, The Rubber Institute, with approval from the U.S. Attorney General and the Federal Trade Commission, attempted to implement industrial self-government by enacting a price-filing program. The program quickly failed after companies refused to report secret price cuts. The Rubber Institute's next attempt at self-regulation was to write a code of fair competition in 1929, four years before the industry was asked to do so by the NRA. Yet because of violations and failure to cooperate, not only did the code of 1929 fail, but the Rubber Institute itself disbanded in the spring of 1929. See Himmelberg, Robert, The Origins of the National Recovery Administration: Business, Government, and the Trade Association Issue, 1921–1933 (New York, 1976, 1993Google Scholar) for a discussion of 1920s associationalism.
12 Histories of other industries' experiences under the NRA include Galambos, Louis, Competition and Cooperation: The Emergence of a National Trade Association (Baltimore, Md., 1966Google Scholar); Fine, Sidney, The Automobile Under the Blue Eagle: Labor, Management, and the Automobile Manufacturing Code (Ann Arbor, Mich., 1963Google Scholar); Johnson, The Politics of Soft Coal; Connery, Robert H., The Administration of an N.R.A. Code: A Case Study of the Men's Clothing Industry (Washington D.C., 1938Google Scholar); Childs, William, Trucking and the Public Interest: The Emergence of Federal Regulation, 1914–1940 (Knoxville, Tenn., 1985Google Scholar).
13 Code Committee Meeting Minutes, 16 June 1933, J. P. Seiberling Papers, box 2, folder 31, Ohio Historical Society, Columbus, Ohio (hereafter referred to as JPS Papers).
14 Code Committee Meeting Minutes, 23 June 1933, JPS Papers, box 2, folder 31; Lief, Alfred, The Firestone Story: A History of the Firestone Tire and Rubber Company (New York, 1951), 199Google Scholar. Unlike the other members of the Big Four, Firestone did not engage in special brand business, nor did it join the rubber trade associations in the 1920s. Also unlike the Big Three, Firestone was not satisfied with its market share and came up with different and more aggressive ideas on how to expand. Firestone did not see its interests as being shared by the Big Three.
15 Code Authority Meeting Minutes, 7 Sept. 1933; L.R. Jackson [Firestone], Charles Borland [Mohawk Rubber], William O'Neill [General Tire & Rubber] to the Tire Industry, 19 Sept. 1933, JPS Papers, box 3, folder 2.
16 Even though this faction of small companies had an economic motive for opposing the Allocation and Differential Plans, their spokesmen emphasized a commitment to laissez-faire ideals and distrust of government regulation and price-fixing in numerous public statements and letters to the federal government. It must be noted that “cost control” was also a pricefixing scheme because, as eventually written in January 1934, it called for the designation of the “representative lowest cost producer” in each category of tire manufacturers, and all other companies in that category were supposed to base their cost calculation, and therefore prices, on those of that manufacturer. By contrast, the Differential Plan did not take costs into account, and calculated prices for the whole industry as percentages off of Goodyear's prices. “Proposed Market Stabilization Plan Based Upon Cost Control” 24 Jan. 1934, NA, RG 9, box 5126, file 5, folder 3(e); James Butler to A.L. Kress, 3 March 1934.
17 Code Authority Meeting Minutes, 23 Sept. 1933; Draft of Code, 29 Sept. 1933, JPS Papers, box 3, folders 1 and 2.
18 Refer to note 10 for more on small firms' behavior. As for the government's reaction, not until late October 1933 did the NRA set guidelines for codal price provisions, and these proved not to be as liberal as price provisions included in previously passed codes. Hugh Johnson and other officials began to face major criticism from anti-trusters and consumer advocates. This criticism culminated in significant policy changes near the end of 1933 and beginning of 1934. In its short life, then, the NRA was a dynamic program. The tire industry became ensnared in this contradictory policy-making as Administration officials fluctuated from supporting the businessman to championing the consumer. Due to the NRA's change in policy, the tire industry never benefited from the original “business slant” of the NRA. See Hawley, The New Deal and the Problem of Monopoly, chaps. 4 and 5.
19 Draft of Code, 29 Sept. 1933; F.A. Seiberling quoted in “New Tire Code Unsigned by 2,” Akron Beacon Journal, 2 Oct. 1933, p. 1, col. 4, and p. 22, col. 6.
20 Hearing on Code of Fair Practices Presented by the Rubber Tire Manufacturing Industry, 20 Oct. 1933, NRA Hearing No. 413, microfilm, The Ohio State University.
21 “Report of Conference on the Code for the Rubber Tire Industry Held After the Public Hearing,” 23 Oct. 1933, NA, RG 9, box 5134, file 22, folder 4; “Revisions to Code,” 31 Oct. 1933, JPS Papers, box 3, folder 2.
22 Seiberling Rubber Company, et. al., to Colonel R.W. Lea, 8 Nov. 1933, NA, RG 9, box 4764, file 11, folder 19.
23 “21 Smaller Rubber Heads Will Confer,” Akron Beacon Journal, 16 Dec. 1933, p. 11, col. 6; “Sign Tire Code; See New Era,” ibid., 20 Dec. 1933, p. 1, col. 7, and p. 16, col. 7.
24 See Rubber Tire Manufacturing Code, Article XI.
25 J. P. Seiberling to District Managers, 21 Dec. 1933, JPS Papers, box 2, folder 4.
26 Earseman, “Code History 174,” 100.
27 J. P. Seiberling to Frank Seiberling, 30 Dec. 1933, JPS Papers, box 3, folder 5; Gordon, New Deals, 176.
28 French, The U.S. Tire Industry, 67.
29 Hearing on Code of Fair Practices Presented by the Retail Rubber Tire and Battery Trade, 14 Dec. 1933, NRA Hearing No. 401, microfilm, The Ohio State University. While the Consumer Advisory Board as a policy-making body was not very influential within the NRA, the interests which it represented (the “public interest”) were gathering steam in late 1933 and 1934, especially with Clarence Darrow's National Recovery Review Board and the vocal protests of Senators William Borah and Gerald Nye. See Hawley, The New Deal and the Problem of Monopoly, chap. 4.
30 R. E. Wood to Hugh Johnson, 19 March 1934, NA, RG 9, box 4775, file 21. In his discussion of Brandeis, Louis in Prophets of Regulation (Cambridge, Mass., 1984Google Scholar), Thomas McCraw explores this issue of government protection of small business interests through price maintenance and how this harms consumer interests in light of the development of the more efficient and lower cost methods of big business and mass retailers. See especially pages 103–108.
31 NRA Hearing No. 401, code hearing testimony of Edward Levy; George Dorman of the Greater New York Tire Dealers Association and representatives of the Gamble-Skogmo chain as well as other chains of franchised small dealers presented arguments similar to Levy's.
32 NRA Hearing No. 401, code hearing testimony of L.E. Sexton of the Mail Order Association, and of Edward Levy.
33 See code hearing testimony of James Hayes of Standard Oil, Norval Trimborn of the National Tire Dealers' Association, W.W. Humphrey of Western Auto Supply, L.E. Sexton of the Mail Order Association and L.R. Jackson of Firestone for debates over the warranty and trade-in allowance provisions.
34 Cross et al., Works Materials No. 41, 149; Report on Tire Industry, NA, RG 9, box 55; box 5127, file 6 contains numerous complaints against Sears Roebuck.
35 J. P. Seiberling organized a letter-writing campaign among the executives of many small and medium manufacturers: see J. P. Seiberling to Walsh of Armstrong, 26 March 1934, JPS Papers, box 5, file 14. Quoted in “Tire Price War Danger Renewed,” Akron Beacon Journal, 13 March 1934, p. 1, col. 4.
36 Hawley, The New Deal and the Problem of Monopoly, 71.
37 Ibid., 87–8, 100–1.
38 Ibid., 87–88; Frederick Lipps, “History of Code of Fair Competition For the Retail Rubber Tire and Battery Trade,” n.d., 59–61, NA, RG 9, box 4767, file 13, folder 1; Leon Henderson to Hugh Johnson, 26 March 1934; “Extracts from Minutes Held in the Office of Deputy Administrator A.L. Kress,” 1 May 1934, NA, RG 9, box 4748, file 5(e), folder 1; Kress and Simpson to Johnson, 6 April 1934, NA, RG 9, box 5128, file 8, folder 6.
39 RMA General Bulletin No. 1093, from A.L. Viles to Tire Manufacturers, 4 May 1934, NA, RG 9, box 5134, file 21, folder 1.
40 The whole of file 7 in box 4757 and file 6 in box 5127 regards Sears' noncompliance.
41 NA, RG 9, box 4757, file 6 includes over 40 folders of letters protesting the 90-day warranty. “Johnson Grants Guarantee Stay,” Akron Beacon Journal, 17 May 1934, p. 3, col. 1; “War is Threatened on Tire Guarantee,” (16 June 1934, 12:4; “Stay of Guarantee-Warranty Clause of Recent Order Afflicting Retail Tire and Battery Trade,” NRA Press Release No. 5109, NA, RG 9, box 5134, file 21, folder 2; Cross et al., Works Materials No. 41, 160.
42 RMA General Bulletin No. 1093.
43 Ibid.; Cross et al., Works Materials No. 41, 166, 173.
44 Report on Rubber Tire Industry, NA, RG 9, box 55, 29–30.
45 H. F. Taggart, Division of Research and Planning to James Hughes, 28 June 1934, NA, RG 9, box 5135, file 24; Henderson to Johnson, 11 Aug. 1934, NA, RG 9, box 4774, file 22, folder 1; Hawley, The New Deal and the Problem of Monopoly, 87. Clearly, Henderson was afraid of public reaction to approving the tire industry's cost plan: “Frankly, I do not believe tires can be sold at the increased prices required by the manual, and that the protests would engulf us.” Interestingly, Henderson thought that using replacement costs would help the Big Four at the expense of small firms while many small companies believed just the opposite. For instance, Harry McCreary, president of McCreary Rubber Company, wrote, “if you permit costs to be figured at any other basis than ‘replacement costs’ of materials, the small manufacturer is ruined—just as surely as tho [sic] you had deliberately legislated him our of business.” McCreary to E. D. Bransome, 14 Aug. 1934, NA, RG 9, box 5129, file 9, folder 6. See also Charles Guthrie of Kelly-Springfield to Henderson, 15 Aug. 1934, NA, RG 9, file 11, folder 1; and Charley Moony of Carlisle Tire and Rubber to Bransome, 21 Aug. 1934, NA, RG 9, box 5127, file 6.
46 Cross et al., Works Materials No. 41, 164–167. An example of small company discontent with “one price for all” is a letter from Denman Rubber Company to Kress, 31 May 1934, NA, RG 9, box 4745, file 4, folder 1.
47 Marketing and Fair Practices Committee to Viles, and Code Authority 174 Meeting Minutes, both 11 July 1934 in NA, RG 9, box 5126, file 5, folder 2(e); Manufacturers' Code Authority, “Application to Redetermine Lowest Reasonable Cost and Establish Differentials” to Bransome, 23 July 1934, NA, RG 9, box 4747, file 5(d), folder 3.
48 Leon Henderson, Report on Order 410–15, 18 Aug. 1934, NA, RG 9, box 4762, file 11, folder 4; “Johnson on Spot,” Akron Beacon Journal, 18 Aug. 1934, p. 13, col. 8; NA RG 9 box 4764, file 11, folder 19 contains letters protesting the mail order houses' new catalog prices; Cross, et.al., Works Materials No. 41, 168–172.
49 Firestone to Firestone Dealers, 29 Aug. 1934, NA, RG 9, box 4764, file 11, folder 17. More correspondence on this issue can be found in box 5134, file 21, folder 2; Cross et al., Work Materials No. 41, 172–174.
50 To Bransome (author unknown), 12 Sept. 1934, NA, RG 9, box 4764, file 11, folder 17; “Tire Price Base Ends Oct. 1,” Akron Beacon Journal, 25 Sept. 1934, p. 17, col. 5.
51 Cross et al., Works Materials No. 41, 176; Earseman to F.J. Martin, 8 Feb. 1935, NA, RG 9, Box 5125, File 1. The last eight months of the tire codes were marked by inactivity on the part of the tire Code Authorities and their committees. In fact, the retail tire Code Authority was so heavily in debt, because of the fact that it had collected negligible dues from its member companies and could not cover its operating costs (mainly its printing bill), that it had closed its offices and stopped communication in September 1934.
52 Hawley, The New Deal and the Problem of Monopoly, 118.
53 Frank Seiberling to A.L. Viles, 12 May 1934, NA, RG 9, box 4747, file (d), folder 3.
54 The Federal Trade Commission's 1936 ruling that the Goodyear-Sears contract was unlawful and must be cancelled also led to a mitigation of tensions in the tire industry.
55 While the 1950s was a stable period for the industry, the 1960s brought a revival of the conditions that were faced in the early 1930s: price-cutting, emphasis on the cheaper end of the market, a shrinking of price differentials, and intense pressure on medium companies, most of which were acquired by the major rubber firms. The industry continued to be very competitive in both its OE and replacement markets. The intense competition of the large domestic firms with each other and with foreign rubber firms brought by the radial revolution of the 1970s and 1980s resulted in a shakeout so that the American tire industry is now nearly all foreign owned. Blackford and Kerr review these developments in B.F. Goodrich, chaps. 6–10.
