My Life and Work
doing this, speculators were buying sugar to store in warehouses. Nearly
all our war shortages were caused by speculation or buying ahead of
need.
No matter how short the supply of an article is supposed to be, no
matter if the Government takes control and seizes every ounce of that
article, a man who is willing to pay the money can always get whatever
supply he is willing to pay for. No one ever knows actually how great or
how small is the national stock of any commodity. The very best figures
are not more than guesses; estimates of the world's stock of a commodity
are still wilder. We may think we know how much of a commodity is
produced on a certain day or in a certain month, but that does not tell
us how much will be produced the next day or the next month. Likewise we
do not know how much is consumed. By spending a great deal of money we
might, in the course of time, get at fairly accurate figures on how much
of a particular commodity was consumed over a period, but by the time
those figures were compiled they would be utterly useless except for
historical purposes, because in the next period the consumption might be
double or half as much. People do not stay put. That is the trouble with
all the framers of Socialistic and Communistic, and of all other plans
for the ideal regulation of society. They all presume that people will
stay put. The reactionary has the same idea. He insists that everyone
ought to stay put. Nobody does, and for that I am thankful.
Consumption varies according to the price and the quality, and nobody
knows or can figure out what future consumption will amount to, because
every time a price is lowered a new stratum of buying power is reached.
Everyone knows that, but many refuse to recognize it by their acts. When
a storekeeper buys goods at a wrong price and finds they will not move,
he reduces the price by degrees until they do move. If he is wise,
instead of nibbling at the price and encouraging in his customers the
hope of even lower prices, he takes a great big bite out of the price
and gets the stuff out of his place. Everyone takes a loss on some
proposition of sales. The common hope is that after the loss there may
be a big profit to make up for the loss. That is usually a delusion. The
profit out of which the loss has to be taken must be found in the
business preceding the cut. Any one who was foolish enough to regard the
high profits of the boom period as permanent profits got into financial
trouble when the drop came. However, there is a belief, and a very
strong one, that business consists of a series of profits and losses,
and good business is one in which the profits exceed the losses.
Therefore some men reason that the best price to sell at is the highest
price which may be had. That is supposed to be good business practice.
Is it? We have not found it so.
We have found in buying materials that it is not worth while to buy for
other than immediate needs. We buy only enough to fit into the plan of
production, taking into consideration the state of transportation at the
time. If transportation were perfect and an even flow of materials could
be assured, it would not be necessary to carry any stock whatsoever. The
carloads of raw materials would arrive on schedule and in the planned
order and amounts, and go from the railway cars into production. That
would save a great deal of money, for it would give a very rapid
turnover and thus decrease the amount of money tied up in materials.
With bad transportation one has to carry larger stocks. At the time of
revaluing the inventory in 1921 the stock was unduly high because
transportation had been so bad. But we learned long ago never to buy
ahead for speculative purposes. When prices are going up it is
considered good business to buy far ahead, and when prices are up to buy
as little as possible. It needs no argument to demonstrate that, if you
buy materials at ten cents a pound and the material goes later to twenty
cents a pound you will have a distinct advantage over the man who is
compelled to buy at twenty cents. But we have found that thus buying
ahead does not pay. It is entering into a guessing contest. It is not
business. If a man buys a large stock at ten cents, he is in a fine
position as long as the other man is paying twenty cents. Then he later
gets a chance to buy more of the material at twenty cents, and it seems
to be a good buy because everything points to the price going to thirty
cents. Having great satisfaction in his previous judgment, on which he
made money, he of course makes the new purchase. Then the price drops
and he is just where he started. We have carefully figured, over the
years, that buying ahead of requirements does not pay--that the gains on
one purchase will be offset by the losses on another, and in the end we
have gone to a great deal of trouble without any corresponding benefit.
Therefore in our buying we simply get the best price we can for the
quantity that we require. We do not buy less if the price be high and we
do not buy more if the price be low. We carefully avoid bargain lots in
excess of requirements. It was not easy to reach that decision. But in
the end speculation will kill any manufacturer. Give him a couple of
good purchases on which he makes money and before long he will be
thinking more about making money out of buying and selling than out of
his legitimate business, and he will smash. The only way to keep out of
trouble is to buy what one needs--no more and no less. That course
removes one hazard from business.
This buying experience is given at length because it explains our
selling policy. Instead of giving attention to competitors or to demand,
our prices are based on an estimate of what the largest possible number
of people will want to pay, or can pay, for what we have to sell. And
what has resulted from that policy is best evidenced by comparing the
price of the touring car and the production.
YEAR PRICE PRODUCTION
1909-10 $950 18,664 cars
1910-11 $780 34,528 "
1911-12 $690 78,440 "
1912-13 $600 168,220 "
1913-14 $550 248,307 "
1914-15 $490 308,213 "
1915-16 $440 533,921 "
1916-17 $360 785,432 "
1917-18 $450 706,584 "
1918-19 $525 533,706 "
(The above two years were war years and the factory was in war work).
1919-20 $575 to $440 996,660 "
1920-21 $440 to $355 1,250,000 "
The high prices of 1921 were, considering the financial inflation, not
really high. At the time of writing the price is $497. These prices are
actually lower than they appear to be, because improvements in quality
are being steadily made. We study every car in order to discover if it
has features that might be developed and adapted. If any one has
anything better than we have we want to know it, and for that reason we
buy one of every new car that comes out. Usually the car is used for a
while, put through a road test, taken apart, and studied as to how and
of what everything is made. Scattered about Dearborn there is probably
one of nearly every make of car on earth. Every little while when we buy
a new car it gets into the newspapers and somebody remarks that Ford
doesn't use the Ford. Last year we ordered a big Lanchester--which is
supposed to be the best car in England. It lay in our Long Island
factory for several months and then I decided to drive it to Detroit.
There were several of us and we had a little caravan--the Lanchester, a
Packard, and a Ford or two. I happened to be riding in the Lanchester
passing through a New York town and when the reporters came up they
wanted to know right away why I was not riding in a Ford.
"Well, you see, it is this way," I answered. "I am on a vacation now; I
am in no hurry, we do not care much when we get home. That is the reason
I am not in the Ford."
You know, we also have a line of "Ford stories"!
Our policy is to reduce the price, extend the operations, and improve
the article. You will notice that the reduction of price comes first. We
have never considered any costs as fixed. Therefore we first reduce the
price to a point where we believe more sales will result. Then we go
ahead and try to make the price. We do not bother about the costs. The
new price forces the costs down. The more usual way is to take the costs
and then determine the price, and although that method may be scientific
in the narrow sense, it is not scientific in the broad sense, because
what earthly use is it to know the cost if it tells you you cannot
manufacture at a price at which the article can be sold? But more to the
point is the fact that, although one may calculate what a cost is, and
of course all of our costs are carefully calculated, no one knows what a
cost ought to be. One of the ways of discovering what a cost ought to be
is to name a price so low as to force everybody in the place to the
highest point of efficiency. The low price makes everybody dig for
profits. We make more discoveries concerning manufacturing and selling
under this forced method than by any method of leisurely investigation.
The payment of high wages fortunately contributes to the low costs
because the men become steadily more efficient on account of being
relieved of outside worries. The payment of five dollars a day for an
eight-hour day was one of the finest cost-cutting moves we ever made,
and the six-dollar day wage is cheaper than the five. How far this will
go, we do not know.
We have always made a profit at the prices we have fixed and, just as we
have no idea how high wages will go, we also have no idea how low prices
will go, but there is no particular use in bothering on that point. The
tractor, for instance, was first sold for $750, then at $850, then at
$625, and the other day we cut it 37 per cent, to $395. The tractor is
not made in connection with the automobiles. No plant is large enough to
make two articles. A shop has to be devoted to exactly one product in
order to get the real economies.
For most purposes a man with a machine is better than a man without a
machine. By the ordering of design of product and of manufacturing
process we are able to provide that kind of a machine which most
multiplies the power of the hand, and therefore we give to that man a
larger role of service, which means that he is entitled to a larger
share of comfort.
Keeping that principle in mind we can attack waste with a definite
objective. We will not put into our establishment anything that is
useless. We will not put up elaborate buildings as monuments to our
success. The interest on the investment and the cost of their upkeep
only serve to add uselessly to the cost of what is produced--so these
monuments of success are apt to end as tombs. A great administration
building may be necessary. In me it arouses a suspicion that perhaps
there is too much administration. We have never found a need for
elaborate administration and would prefer to be advertised by our
product than by where we make our product.
The standardization that effects large economies for the consumer
results in profits of such gross magnitude to the producer that he can
scarcely know what to do with his money. But his effort must be sincere,
painstaking, and fearless. Cutting out a half-a-dozen models is not
standardizing. It may be, and usually is, only the limiting of business,
for if one is selling on the ordinary basis of profit--that is, on the