Business: Rubber 1939

Twenty-two years ago, while the U. S. was trying to win World War I, the Du Ponts set a young engineer, Francis Breese Davis Jr., to building the world's No. 1 guncotton plant at Hopewell, Va. Eleven years ago the Du Ponts acquired control of the sick U. S. Rubber Co., the following year put dependable Organizer Davis in to explode a case of profit-making dynamite under it. Davis quickly found out where to plant the charge. Mass production methods had not been perfected in the $900,000,000 rubber industry. As he said afterwards, "U. S. was making tires like they made the pyramids"—by hand.

The rubber industry in 1939 is no longer in the age of Cheops. It is quite ready to mass-produce upwards of 65,000,000 tires a year, if and when full production comes back. Its complaint is that while it is set up to serve an expanding economy, the public is now buying at the rate of about 50,000,000 tires a year. In the first half of 1939, the industry sold 9,217,000 tires at little enough profit to the hard-bargaining auto companies, and 17,188,000 tires at a better markup to the public. Last week its big producers were able to report quite satisfactory profits.*

Measure of the technological progress of U. S. rubber engineering is the difference between a 1926 (4.40 by 21) tire and a 1938 (6.00 by 16) tire: model 1926 sold for $24, ran an average of about 14,000 miles, costing the average U. S. car owner 1.69 mills a mile; model 1938 sold for $19, ran an average of almost 27,000 miles, cost the average U. S. car owner only .73 mills a mile. The auto industry has not stood still, but it has not any better record.

U. S. Rubber, in 1938's first half, reported sales of $67,829,786, a loss of $239,213. This year, its sales were up 30% and its profits were $4,465,397. Only $5,208,728 is needed to cover a full year's dividend ($8) on the company's 651,091 shares of preferred. Last week its preferred shares sold at $109½, yielding 7.3% to income-minded buyers who counted on holding it on the possibility that Mr. Davis will offer them a trade-in for U. S. Rubber's common. The common last week sold at $43, up 466% from 1935's low, versus a 42% gain on the Dow-Jones Industrial average.

Not only technological house cleaning has put U. S. Rubber in the black at this low rate of operations. Engineer Davis has swung a sharp hatchet cutting Rubber's debt from $101,572,400 to $42,144,000, its yearly interest bill from almost $6,000,000 to well under $2,000,000. Last May he got three insurance companies who own its debt to accept an interest cut from 4¼% to 3⅝% just as though he were hiring the money at the market.

About $21,000,000 of U. S. Rubber's $168,103,594 of assets is invested in East Indian rubber plantations, which assures the company of 20% of its raw material (so long as the Japanese do not grab or blockade the East Indies), partial protection against inventory losses if rubber slumps, extra profits if rubber prices skyrocket.