What Caused the Tucker Automobile Corporation to Fail?

Article excerpt


The mystery surrounding the rise and fall of the Tucker automobile company remains a fascinating piece of U.S. automotive history for both historians and economists. Francis Ford Coppola's 1988 movie Tucker: The Man and His Dream brought to life the difficulties Preston Tucker faced as he tried to start producing a car years ahead of its time. The movie is captivating because it attributes the collapse of the Tucker Corporation to public choice theory. Despite the movie's portrayal of an alliance between the automobile industry and the S.E.C. to bring down the Tucker Company, historians have found no evidence of a conspiracy. Rather, the collapse of the Tucker Corporation can be attributed to two problems. First, lack of financial planning and refusal to utilize conventional loans scared away venture capital. Second, the S.E.C.'s determination that preselling car features was illegal left the Tucker Corporation financially bankrupt.

JEL Codes: M13, Z11

Keywords: Economic history, Entrepreneurship, Business economics

I. Introduction

The rise and fall of the Tucker Corporation remains an enigma of U.S. automotive history. The 1948 Tucker automobile was heralded as the car of tomorrow, and by performance standards, the car was years ahead of its time. Inspired by Indianapolis 500 racecars, the Tucker '48 "Torpedo" had disc breaks, fuel injection, a rear engine, and a top speed of 120 miles per hour. For safety, the car featured seat belts, pop-out windshields, and a middle light that turned with the steering wheel. Only 51 Tucker '48 cars were produced before the company failed. But, as a testament to the Tucker Corporation, today forty-seven Tucker Torpedoes are still road-worthy; as museum pieces, each is currently valued at more than $250,000 (Tucker Club). This creates an intriguing question for private enterprise economists: If innovation is the source of economic growth in free enterprise, why did the Tucker Corporation, with a superior new design to the American automobile, go bankrupt? The purpose of this educational note is to answer this question by examining the historical evidence.

Francis Ford Coppola's 1988 movie, Tucker: The Man and His Dream © Lucasfilms Ltd., is based on the rise and fall of the Tucker Corporation. The film is captivating because it attributes the collapse of the Tucker Corporation to public choice theory.1 The movie depicts Preston Tucker as a dynamic inventor and an optimistic and charismatic salesman. The film begins with Tucker's vision to build a "car of tomorrow." After convincing several deal-making individuals to join his effort, Tucker pre-advertises the car and sells dealerships to raise money to build a prototype of the Tucker '48. As work on the prototype begins, the movie reveals Tucker's naivete to the greater political forces at work to prevent the Tucker '48 from being produced. Responsible for Tucker's demise are a conglomerate of the "big three" automobile manufacturers, which are threatened by the car's innovations, and corrupt politicians who are controlled by the automobile industry.

The film's antagonist, U.S. Senator Homer Ferguson of Michigan, the head of the War Assets Administration, needed backing from the automobile industry to be re-elected. So, it was in the Senator's own interest to oversee the demise of Tucker Corporation. The film portrays an alliance between the powerful automotive industry, the U.S. senate, and the Securities and Exchange Commission (SEC). In 1946 the commissioner of the SEC was Senator Ferguson's friend, Harry McDonald, also from Detroit, Michigan (Rehmke, 1988). The film alleges political pressure from the automobile industry to investigate Tucker's business dealings.2 The SEC investigation leads to a criminal trial for Preston Tucker and the other Tucker Corporation executives. In spite of being acquitted at the SEC trial, the Tucker Corporation was financially bankrupt. Although the film depicts a captivating hypothesis for the failure of the Tucker Corporation, artistic liberties were taken to enhance the plot and condense six years of problems into a 110 minute movie. …