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William Levitt and Levittown

2/19/2017

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                   Source: David Halberstam. The Fifties (1997)
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     Home ownership was another sign of the abundance in America after WW II. With the explosion of the number of cars and roads, distances were opened up to the point where farmland around cities became desireable for suburban housing. $5000 became the base price of a new home, which equaled two years of family income (the typical automobile assembly line worker earned $3k/yr). Owning a home symbolized independence and security, and the home became the embodiment of the American Dream, as well as fulfillment and contentment.
     The home brought families together in the 1950s, a decade when the car and television pulled families apart. While Henry Ford was the first "Great Figure" in American business in the 20th Century, William Levitt was the second. Levitt brought Ford's mass production techniques to housing, which up to then was among the most neglected of American industries. The typical pre-WW II builder constructed five houses a year; Levitt revolutionized the process, creating many affordable homes where Americans entered the middle class by the millions.
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​     Levitt, perhaps more than any single person, made the American Dream a reality. Levittown was more of a social creation than architectural; according to Levitt, owning a home was Capitalism in the most personal sense. In 1941, Levitt and his brother Alfred won a government contract to build 2350 war worker's homes in Norfolk VA. At first it was a disastrous experience, with nothing going to plan, including uncooperative workers and subcontractors, which equaled less production and profits.
     Levitt broke down construction to its basic elements, and identified 27 separate steps. So, 27 seperate teams were trained, each specializing in just one step. Doing so not only allowed Levitt to find a way around the shortage of skilled carpenters, since the process needed far less skilled workers, but it also sped up the entire process. Also, Levitt calculated salaries instead of wages, in essence paying for pieceword at an advanced level. A worker could add to his base salary by producing more instead of just working longer hours.

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     As World War II continued, Levitt and his crew became experts in mass building, and as such Levitt was transferred to the SeaBees (Navy Construction Batallion) in the Pacific. Levitt was commissioned to build instant airfields on an island taken from Japan for the Navy. Levitt was the only one that was capable of doing what the Navy needed; lives were in the balance if Levitt couldn't build those airfields on schedule. Not only did Levitt and his fellow SeaBees discuss how they would accomplish their work on the island, but also what they would do after the war. WW II allowed Levitt to experiment on the quickest, most efficient, and most profitiable ways to build low-cost mass housing, something that never would have occurred had Levitt been a civilian.
     After WW II, Levitt begged/borrowed money, knowing he just had to build homes and the massive profits would follow. Levitt understood that demand for those homes was immense; even before WW II, Levitt had purchased 1000 acres of agricultural land near
Hempstead, Long Island (NY). During WW II, Levitt told his brother (Alfred) to keep up the option on that land; while his brother the architect didn't see the potential in the land, Levitt did. "Housing Starts" fell from 1 million/year before the Great Depression to fewer than 100k/year before WW II. What Levitt also noticed was that at the same time, the marriage/birth rate increased dramatically . . . so after WW II, the US housing situation was extremely tight. In Chicago, 250 trolley cars were sold to be used for homes. Estimates for those that wanted new homes after the war exceeded five million.

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     A federal housing bill was rushed through Congress that protected builders by using federal mortgage guarantees, which in essence subsidized builders so they would make money by constructing homes. The stored-up energy in America to spend money after WW II was unleashed: in 1944, 144,000 single homes were built, in 1946, 937k, in 1948, 1.18m, and by 1950, 1.7m. So Levitt had every reason to believe that he was on the top of the Wave of the Future in terms of building suburban housing. 
     In 1946, Levitt started building homes at Hempstead, adding more land to what he already owned, just 20 miles north from Manhattan. Levitt started to create the largest housing development in history to that point, and it was an astonishing success from the very beginning. The first houses had 4.5 rooms for a young family, with lots 60 x 100 feet and the house only taking up 12% of the lot. The living room was 12 x 16, and there were 2 bedrooms and a bath. A family could expand by adding on to the outside or finishing the attic. 
     Soon Levitt redesigned the house so the kitchen was located at the back of the house, so moms could watch their kids in the backyard. The basic Levittown Cape Cod model sold for $7990, with a later ranch model for $9500. And for an extra incentive to buy a home from him in the early period of Levittown, Levitt even threw in a TV and a washing machine for free, focusing on the needs of fellow returning veterans.

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     Levitt was initially thunderstruck by the sheer number of veterans intending to purchase a house waiting in line to see the model home. When Levitt opened his office for business on March 1949, 1400 contracts were drawn the first day. Selling homes was easy, building them was not, but Levitt was ready. Right away, Levitt showed that he learned a lesson from buidling homes during WW II in Norfolk: his homes would not have a basement, but a slab foundation. Right away, the most difficult-and-complicated part of buidling a house was eliminated.A Long Island official actually denied Levitt a permit to build because he was a basement-lover, but a scathing editorial in a Hempstead newspaper made the official back down.
​     Levitt's genius was that he incorporated a moving assembly line like Ford, but since the home couldn't move, he moved the specialized crews to the buidling site: the construction site became the factory. Leviit learned that prefabricated houses were too limited in nature, so Levitt created his own kind of preassembly. Many critical parts of the house were preassembled at other locations, and  brought in, so ordinary workers with power tools (they were new on the scene) could assemble the home. It didn't take Levitt long to figure out that the first thing he had to actually construct was a road to the housing development so the delivery and construction trucks wouldn't get bogged down in the mud.
     By July 1948, Levitt's specialized crews were building 36 homes a day, 18 in the morning, and 18 in the afternoon. Nothing could be left ot chance, since even a delayed shipment of nails would ruin the tight timetable. Levitt made his own nails, lumber, and cement, doing his absolute best to create at least a partial vertical monopoly.

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    The first Levittown in Long Island had 17,000 homes with 82,000 people; a swimming pool was built for every 1000 homes. The suburb of Levittown was not unlike a Massachusetts whaling port in the 1840s, but instead of being gone for months from home with the wife running the household, the men were back from their 20 mile commute to NC by dinnertime.
     Levitt hated labor unions, since in his view unions protected the slowest and most ineffecient workers. Levitt only hired non-union workers, and paid them top-dollar and provided many incentives. A Levitt worker earned twice that of a typical constrution worker, but he earned that money on Levitt's terms. Levitt bought appliances form Levitt subsidiaries, since the very idea of middlemen enraged him. And Levitt simplified the process of financing so people could purchase his homes much easier: no money down, and the price was the price, no debate, which was especially appealing to veterans. And, as an added bonus, Levitt's homes were high-quality and durable. Many that criticized Levitt were those in already traditional middle class homes while others attacked Levitt focusing on the perceived massive conformity of his housing development, saying he had sucked out any sembelance of individuality . . . but those "cookie-cutter" homes turned out to be islands of individuality in a sea of conformity.

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     However, for the next 20 years, African-Americans could not buy a home in a Levittown. Levitt's father moved the family from their neighborhood when Levitt was a boy because an African-American family moved in nearby, afraid the value of neighborhood homes would plummet. Levitt understood that if one African-American family moved in, it would drastically reduce demand. Levitt stated that he could solve the housing problem, but not the housing AND racial problem. 
     Soon enough, Levitt understood that he needed to offer/build upgraded homes. In essence, Levitt took a page from General Motors with their models for different incomes (Chevy, Pontiac, Build, Oldsmobile, and Cadillac). But Levitt kept the down payment low, even with the increased price of the home. While Levitt still built base-level suburban homes, he wanted to profit from the more affluent buyer as well. 
     What Levitt (and other builders) started was a massive migration from the cities to the suburbs, a.k.a. "The Great White Flight". From 1950 to 1980, 18 of the top 25 US cities lost population, while the suburbs gained 60 million people . . . 83% of the nation's growth would occur in the suburbs during that time. By 1970, more Americans lived in suburbs compared to cities . . . Levitt started a social/economic revolution. The move to the suburbs also interrupted progress made by women in the workplace before/during World War II. For awhile at least, suburban housewifes were isolated in the Private Sphere, having to cater to her family's every need.

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Richard & Maurice McDonald + Ray Kroc

2/3/2017

3 Comments

 
                    Source: David Halberstam. The Fifties (1997)
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        Richard and Maurice McDonald
opened their first restaurant in San Bernardino CA (population 100,000) after getting a loan for $5000 from a major bank without collateral. The McDonald brothers wanted $7500, but the bank manager, against the wishes of the bank's board of directors, acted on a hunch for $5000. The restaurant was a drive-in, and it was an immediate hit, soon making a profit of $40k/year. Most customers were teen boys and young families; the McDonald brothers wanted to discourage the first group and encourage the second.
     Originally, customers waited 20 minutes, and the brothers wanted to quicken the pace, without carhops. The Macdonalds understood that people were far more mobile and lived farther from work than ever before; more-and-more Americans seemed to be in a perpetual rush, and they wanted to eat quickly. So the McDonalds looked for any weaknesses that delayed service, and the first to go were the carhops.
     To their surprise, the McDonalds discovered that their menu was far too large, and when they checked their receipts, they found that 80% of their business was hamburgers. That data meant that the brothers could get rid of the labor-intensive barbeque items, and that they could largely mechanize the process of making hamburgers. The McDonalds just wanted to maximize their profits, and it wasn't until years later that they realized that they had been at the forefront of a new US phenomenon . . . people wanted quality cheap food fast.

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​     Suddenly the McDonalds were innovators in the one thing they knew well: fast food. In 1948 the brothers closed down for several months to reinvent their process. The brothers brought in two 6 foot stainless steel grills, which was not only easier to clean, but also distributed the heat better compared to the previous iron grills. Plates and silverware were no more, replaced by paper bags, cups, and wrappers, which eliminated the need for a dishwashwer. The menu was cut from 25 items to 9, featuring hamburgers and cheeseburgers, and they made the burgers a little smaller, getting 10 hamburgers from a pound of ground been instead of 8. 
     Also, the McDonalds chose the condiments, not the consumer: ketchup, mustard, onions, and two pickles. The brothers found a machine to uniformly create hamburger patties by posing as candy makers, finding a peppermint patty press that was perfect for their needs. Under the new system, if a customer wanted something different than what was offered, they faced a delay in service. The McDonalds also figured out they could keep their hamburgers hot with infrared lights. The whole process was based on speed, lower prices, and making money on volume ("McDonald's Famous Hamburgers (Buy 'em by the bag): 15 cents).
     To their surprise, business at first fell off, but when they added milkshakes and french fries, their phenomenal succes began in earnest. By 1950, the teen thugs were elsewhere, replaced by working class families that, thanks to the low prices, could afford to take their families out to eat.

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     The McDonalds put out the word to their employees to be great with kids, since they would demand that their parents take them back again and again. What the McDonalds did with food was what Henry Ford did with cars and William Levitt did with homes; they turned their kitchen into an assembly line. Due to the fact they were largely innovating on the fly, the brothers had to create much of their own equipment.
    Ed Toman was the McDonald's Charlie Taylor, and in his San Bernardino shop, Toman helped create a stainless steel Lazy Susan for hamburger preparation (12 patties), a stronger steel spatula, and a condiment pump that dispensed the perfect amount. In the kitchen were 3 hamburger cooks, 2 milkshake guys, 2 french fry guys, 2 hamburger wrappers, and 3 men at the counter. Slack time was the opportunity to get ahead of the next rush. 
     By 1951, gross receipts were 40% higher at $277k, and by the mid-1950s, the McDonalds were sharing profits of $100k/year, a dazzling figure when one considers that what they were selling cost 15 cents. The McDonalds were uncommonly generous in sharing their expertise and knowledge with others. The brothers also knew they would have to franchise their operation, and in 1952 the McDonalds reluctantly sold their first franchise rights. The brothers were content with their lives, and really didn't want the responsibilities that franchising and expansion entailed . . . the McDonalds wanted an awesome-but-limited future.
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     Ray Kroc didn't have those self-imposed limits. Kroc boasted, with good reason, that he had the ablility to anticipate mass taste (the Hula Burger being an obvious exception). By 1939, Kroc was selling the Multi-Mixer, a 5 spindle milkshake machine, and set out to sell as many as he could nationwide. Kroc was on a holding pattern in terms of sales during WW II, but after the war orders for Multi-Mixers exploded. However, by the early-1950s, sales were diminishing, and Kroc faced stiff competition.
     Kroc realized that the growth of the suburbs meant that he would sell less machines to city drugstores. By 1954, Kroc noticed that there was one restaurant in San Bernardino that still ordered Multi-Mixers; the McDonalds were making up to 50 milkshakes at the same time. In early-1954, Kroc went to the McDonalds restaurant and was instantly stunned . . . and instantly liked what he saw. Kroc noticed that the McDonalds (Toman) had cut the spindles so the milkshake cups could be bigger. 
     After talking to the McDonalds, Kroc saw that his future was in hamburgers, not milkshakes. The brothers were looking for someone to manage their franchising, which was then up to 9 other restaurants. Kroc took over the franchising for the McDonalds at the age of 52, and his already legendary work ethic grew even more. Kroc had been in countless restaurants, and he knew the McDonald brothers were on to something big.

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​     Kroc immediately saw that the prime customers were families, especially those with young children, who might not be comfortable at more traditional sit-down restaurants . . .  a family of four could eat for $2.50 ($22+ today). Kroc understood the connection between fast food and the growing suburbs; Kroc had absolutely no use for downtown locations in cities. Kroc also wanted no part of hot dogs, something he considered a regional food item (e.g. NYC and Philadelphia). Hamburgers could be assembled on his terms, while hot dog customers wanted to personalize their hot dogs. 
     Kroc wanted to make all franchise operators conform to his culinary/economic vision, famously saying that the organization cannot trust the individual, the individual must trust the organization. Kroc found that the franchise operators in the Midwest, unlike California, acceded to his demands far more readily. In April 1955, Kroc opened a McDonalds in Des Plaines in suburban Chicago, which was the area Kroc was from.
     Kroc was very hands-on with his very first store in Des Plaines, including personnel, often demanding certain grooming restrictions (e.g. no facial hair). Kroc also wanted Coca-Cola as the main beverage, and negotiated a sweet deal with the #1 regional Coca-Cola sales representative. By the second full year of the restaurant in Des Plaines, the store had a total volume of $200k in receipts. Second to Kroc's work ethic was his thrift, and waste drove Kroc crazy . . . it was a common site to see Kroc at the Des Plaines restaurant micromanaging his employees to minimize waste. Initially, Kroc made his money by taxing sales at the seemingly miniscule 1.9%. . . . eventually, Kroc would realize that much greater profits existed by taxing sales and becoming a de facto realtor for each new franchise.

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      Kroc found that the best owners were those that hadn't yet made it, but were ready to bet everything on their new venture, just like Kroc. Kroc started franchising in 1955, and by 1956 he had opened 12 more stores, and by the late-1950s, Kroc was opening 100+ new stores per year . . . Kroc's whole life became McDonalds. By 1961, Kroc started preliminary talks with the McDonalds, wanting to buy them out.
    By then, the relationship between Kroc and the brothers had become strained. Kroc saw the brothers as nothing more than freeloaders, while the McDonalds wanted out of their deal with Kroc, but only on their terms. Kroc, in part because it was a smart business decision, and also because by then he was in an absolute fit over what he viewed as the brothers' intransigence, bought each brother out for $1 million each after taxes, $2.7 million total. It was a great deal of money, and Kroc was in debt from expansion, but he nonetheless put together a loan, sensing a bargain, especially looking at the long run.
     The deal meant that Kroc owned the name McDonald's, and the brothers had to change the name of their beloved restaurant to "The Big M". Kroc, a very vindictive sort, opened a McDonald's franchise just one block away to steal their thunder . . . and their profits (that first restaurant had to close down). The real glory years for Kroc and McDonald's was just beginning. The only thing Kroc really wanted to do with his profits was to own a major league baseball team, which came true in 1974 when he purchased the San Diego Padres for $12 million. 
      (Below: the movie trailer for "The Founder", starring Michael Keaton & Nick Offerman)

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