The Lincoln Motor Company was founded in August 1917 by Henry Leland and his son Wilfred. Among the founders of Cadillac, Leland had sold the company to General Motors in 1909, remaining on as an executive until 1917, when he left over a dispute with GM President William Durant. Naming Lincoln Motor Company after Abraham Lincoln, the first President for whom he ever voted (1864), Leland financed the company by securing a $10 million contract to build Liberty V12 aircraft engines, breaking ground on the Lincoln Motor Company Plant. To build the Liberty engines, Lincoln sourced parts from other manufacturers; along with cylinders produced by Ford, other parts were sourced from Buick, Cadillac, Marmon, and Packard. In total, 6,500 Liberty V12 engines were produced by Lincoln before the end of World War I ceased wartime production.
Following a complete retooling for automobile production, Lincoln Motor Company developed its first automobile, the Lincoln Model L. Intended as a rival for Cadillac and similar luxury car manufacturers, the Model L was powered by a V8 engine, derived from the technology of the Liberty V12.
During the early 1920s, Lincoln Motor Company struggled with the shift from military to automobile production, with some customers having to wait nearly a year for their vehicles to be completed from the time of purchase. By 1922, Lincoln fell on the verge of bankruptcy and was placed in receivership. On February 4, 1922, Lincoln Motor Company was acquired by Ford Motor Company for $8 million. Although Henry Ford had previously designed several luxury vehicles under the Ford brand (the 1904 Ford Model B, the 1905 Ford Model F, and the 1906 Ford Model K), Ford sought to create a stand-alone luxury-vehicle division, as General Motors had done with Cadillac. With the acquisition of Lincoln, Ford Motor Company produced a rival for Cadillac, Pierce-Arrow, Marmon, Peerless, Duesenberg, and Packard alongside the Ford Model T.
In addition to more closely competing against General Motors in different price segments, the purchase of Lincoln also held personal value within Ford management. In 1902, Henry Ford had been forced out of his second company (Henry Ford Company) by a group of investors led by Leland. Henry Ford Company was renamed Cadillac Automobile Company; sold to General Motors in 1909, Cadillac has remained a chief competitor of Lincoln from 1920 to the present day. While Henry and Wilfred Leland were initially retained to manage Lincoln, on June 10, 1922, both Lelands were removed, with Edsel Ford brought in to manage the company.
Following the introduction of Edsel Ford to Lincoln management, the fortunes of Lincoln began to quickly improve. For 1923, the Lincoln Model L underwent extensive changes. While the chassis and drivetrain (including an L-head 60-degree V8) were largely left alone, several new bodystyles were introduced. In line with a Duesenberg or a Rolls-Royce, customers could also purchase a Model L with coachbuilt bodywork. For 1923, Lincoln produced 7,875 cars (nearly 45% higher than 1922), operating at a profit by the end of the year.
During the early 1920s, Lincoln steered away from the common American automotive industry practice of yearly model changes. While used to market fresh designs to customers, Lincoln found that its customers had begun to purchase multiple Lincolns (or other luxury vehicles) in different bodystyles; yearly styling changes would not properly accommodate its customer base. Following the 1930 model year, however, Lincoln chose to withdraw the Model L in favor of a more modern vehicle. For 1931, the Lincoln Model K was introduced as a competitor to the Cadillac 355 Chrysler Imperial, Duesenberg Model J, and Packard Eight.
For 1932, Lincoln became an American manufacturer to produce a "multi-cylinder" engine as it introduced its first V12 engine. While not the first to produce a V12 engine in an American-produced car, in 1933, Lincoln became the first manufacturer to produce vehicles exclusively with V12 engines, as it retired the L-head V8 engine.
During the 1930s, Lincoln expanded to two model lines for the first time. As Lincoln shifted the Model K upwards in price, Edsel Ford introduced the Lincoln-Zephyr as a sub-marque within Lincoln for 1936. Designed to compete against the LaSalle and Chrysler Airstream, the Lincoln-Zephyr introduced an all-new body and chassis, along with its own V12 engine. As a result, Lincoln sales increased ninefold from 1935 to 1936.
In the late 1930s, Edsel Ford began to consider American cars too boxy. In late 1938, to develop a European-style car for his next Florida vacation, he commissioned Ford Chief Stylist E. T. Gregorie to design a one-off body design, using a 1939 Lincoln-Zephyr Convertible Coupe chassis. After sectioning the body 4 inches, the running boards were deleted and a spare tire was mounted behind the trunklid.
After Edsel Ford received the car and vacationed in Florida with the one-off vehicle, it attracted a high amount of interest from potential buyers, often referring to its "European" or "Continental" exterior design. From the latter term, the one-off vehicle became known as the Lincoln Continental.
Following the Great Depression, a number of American luxury car manufacturers were either forced into closure or reorganization; by 1940, alongside Lincoln, the American luxury-car segment largely consisted of Cadillac (who ended production of the LaSalle and V16 in 1940), the Chrysler Imperial (reduced to 8-passenger sedans and limousines), and Packard. To further secure the future for Lincoln, on April 30, 1940, Ford Motor Company reorganized Lincoln Motor Company as the Lincoln Division of Ford Motor Motor Company.