Pierre du Pont and Military Purchases

When WWI broke out, there was no president of what to charge for the large purchases by the US and allied governments.  The Spanish-American war had been too short, and the Civil War before it was too far in the past.  The Dupont company was suddenly deluged with huge orders for explosives, but what was a fair price?  The deals negotiated by Pierre du Pont formed the principles still followed today.

Some companies welcomed the orders as a great opportunity for growth, but soon regretted their initial enthusiasm.  Both the Winchester Repeating Arms Company and Remington Arms were badly damaged by over-expansion, and neither survived the Great Depression that followed the war. (Remington eventually became part of the Dupont company. Winchester was offered, but rejected.)

Pierre was naturally conservative and saw the outbreak of war in 1914 as a time of great danger for his company.  Filling the orders required the construction and staffing of new plants that would become useless burdens as soon as the war ended.  With the best of intentions on both sides, no one knew what was a fair resolution of this problem.  And yet some solution had to be found as quickly as possible.

At one point, the US government suggested they build the plants themselves and retain ownership of them after the war.  Dupont would only staff and run them.  Pierre rejected the idea of running someone else’s plants for safety and managerial reasons. Neither would he consider someone else’s running of a plant he built.  He distrusted the government and would only accept full control.

The final solution was for Dupont to charge enough for the explosives to cover the cost of the expansion plus a fair profit of 15% for the administrative work (“cost plus” as it is now called).  France complained that this cost per pound was twice that of the open market, when large volumes were expected to lower prices.  Pierre’s quiet manner made him the perfect negotiator.  He could explain the risk to his company, and show that his position was fair and reasonable.

France was one of the early purchasers of explosives (the US did not enter the war until 1917).  Shipping was tight and it took 4–9 pounds of raw materials for them to make one pound of explosives.  Pierre cautiously did not begin the expansion to produce the large amounts of explosives until he had the money in hand.  However, by 1918, most of the cost of the expansion was amortized and the price dropped as the war continued well beyond anyone’s expectations.

Pierre was offended by some of his negotiations with government politicians. He later wrote:

The Secretary [Secretary of War, Baker] said to me, in substance, these words: “I think it is time for the American people to show they can do things for themselves.”  I thought up to that time I was an American citizen, but he seemed to indicate that he considered we were a species of outlaws, and I . . . resented the remark.

RWalck@Verizon.net

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About Roger Walck

My reasons for writing this blog are spelled out in the posting of 10/1/2012, Montaigne's Essays. They are probably not what you think.
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