The initial plan was for Kaiser-Frazer to build two cars: one badged as a Kaiser, the other as a Frazer. Graham-Paige, which would not return to passenger car production after all, was to provide one-third of Kaiser-Frazer production.
Kaiser and Giannini originally wanted to set up Kaiser production in California, but Frazer argued strongly in favor of remaining in the Detroit area, closer to established suppliers and a pool of experienced labor. He also pointed out that that with military production winding down, now-unneeded factories would be available at bargain prices.
Soon afterward, Hickman Price learned that the federal Reconstruction Finance Corporation (RFC) would soon be offering the enormous factory complex at Willow Run, outside Detroit, at a very attractive rate. Designed by former Ford production chief Charlie Sorenson, Willow Run was built in 1940 at cost of over $100 million. During the war, it had manufactured Consolidated B-24 Liberator heavy bombers at a rate that sometimes approached one aircraft per hour. Willow Run was a formidable icon of America’s wartime industrial might, with both ample production capacity and considerable symbolic value. Naturally, the RFC and the United Auto Workers (UAW) were also very keen to see it remain in operation.
On September 21, Frazer signed a five-year lease agreement on Willow Run. In a canny bit of negotiation, he arranged to offset almost half of the already very modest lease rate by leasing a Graham-Paige plant to the RFC. As a result, the net cost of the lease was almost nothing for the first year and only $350,000 for the second. Kaiser-Frazer began moving in on November 1.
While the Willow Run lease was a short-term victory, touring the mammoth factory complex left Frazer with a sense of foreboding, wondering if perhaps they were biting off more than they could chew.
The new Kaiser-Frazer Corporation had two high-powered leaders and an impressive factory. Now, it needed capital, which meant an initial public offering (IPO) of Kaiser-Frazer stock.
Launching an IPO is complicated and requires one or more investment firms to underwrite the stock offering. Frazer asked Dutch Darrin to hastily craft a metal scale model they could show brokers, which enabled Frazer to reach a tentative agreement with the prestigious Lehman Brothers firm.
Unfortunately, Lehman Brothers backed out at the last minute and other Wall Street investment houses remained skeptical despite (or because of) Kaiser and Frazer’s reputations. As Amadeo Giannini had pointed out, Frazer had no manufacturing experience and Kaiser’s had all been under government contracts. It probably didn’t help that Kaiser was strongly associated with the Roosevelt administration and the New Deal, to which there was a renewed backlash following the death of Franklin Roosevelt in April. (Historian Stephen B. Adams notes that Kaiser’s standing in Washington quickly began to sour after FDR was gone.)
In the end, the IPO was jointly underwritten by Allen & Company, Otis and Company, and Kaiser and Frazer’s old friend Giannini. Despite the underwriters’ wariness, the stock offering was a great success and was followed by a second in January 1946. The latter was further bolstered by the announcement that Kaiser-Frazer had signed an initial agreement with the UAW, then in the midst of a long and bitter strike of General Motors.
In all, the stock offerings raised $54.2 million. Graham-Paige, which was contractually obliged to fund one-third of Kaiser-Frazer’s operating expenses, raised an additional $11.5 million through a bond issue. Combined, that’s the equivalent of more than $730 million in 2009 dollars, but it was small beer by Detroit standards. Richard Langworth notes that by early 1946, Kaiser-Frazer’s total capitalization was barely one-third of Chrysler’s prewar figure and about one-ninth of GM’s. Even in the thirties, that would have been marginal; in the face of steep postwar inflation, it would not be nearly enough.
Nevertheless, both Frazer and Kaiser remained optimistic. When they showed off mock-ups of their new cars at a gala event in the Waldorf-Astoria hotel in New York City in January 1946, nearly 160,000 visitors came out to see them. The future looked rosy.
KAISER-FRAZER BIRTH PAINS
It very quickly became clear that there was no way Kaiser and Frazer’s plans for a compact “people’s car” would come to fruition any time soon. Kaiser-Frazer engineers kept working on the front-wheel-drive K-85, but making it production-ready would take more time and money than the new company could spare. Kaiser finally canceled the project in May 1946.
Frazer, meanwhile, had abandoned Bill Stout’s Project Y in favor of an entirely conventional front-engine, rear-drive car taking its exterior design from the scale model Dutch Darrin had created for Frazer’s pitch to the Lehman Brothers. That model had been crude and neither Frazer nor Darrin ever expected it to be anything other than a concept piece to support the IPO, but the Lehman Brothers had loved the model so much that Frazer had reluctantly agreed to put it into production as it was. After the Lehman Brothers backed out, Kaiser-Frazer was scrambling to get something ready for production and there wasn’t time for much of anything else. Darrin was never happy with the design, particularly after it had been “productionized,” and was even less happy when he saw that the early Frazers wore “Darrin Styled” badges; they were soon removed.
Neither Kaiser-Frazer nor Graham-Paige had the resources to design or manufacture a new engine, so they arranged to purchase one from the Continental Motor Corporation. The Continental engine, a hoary 226 cu. in. (3,707 cc) L-head six, had been used in a bewildering number of cars and trucks, including some prewar Grahams. It was a known quantity, but it was a thoroughly undistinguished engine with few real virtues other than low cost. Kaiser-Frazer chief engineer Henry McCaslin and Continental president Jack Reese made a number of improvements to the engine, but even then, it could only manage a modest 100 horsepower (75 kW) at 3,600 rpm. It did not like to rev and it had a penchant for overheating and vapor lock that K-F didn’t fully resolve until 1953. The engine would prove to be one of Kaiser-Frazer’s weakest links.
With the K-85 stillborn, Kaiser was falling seriously behind schedule. At Joe Frazer’s suggestion, the first Kaiser production model was a cheaper, de-contented version of the new Frazer, dubbed Kaiser Special.
Building these new cars was a great deal more difficult than designing them, thanks in no small part to acute shortages of raw material. The U.S. government was still allocating various strategic materials and Kaiser-Frazer, having no prior production history, was very far down the priority list. Suppliers were not eager to accommodate a new and relatively small company either, so obtaining materials like steel and copper often required convoluted gray-market scheming. Kaiser was obliged to buy controlling interests in several steel mills to insure supply and many materials were very expensive when they were available at all.
Those problems, combined with the high costs of converting Willow Run to automobile production, cut deeply into Kaiser-Frazer’s available cash. By the end of 1946, the company had already spent nearly two-thirds of its initial capital and posted a first-year loss of $19.3 million.