My Life and Work
profits for a time run low, but then the inevitable economies begin to
get in their work and the profits go high again. But they are not
distributed as dividends. I have always insisted on the payment of small
dividends and the company has to-day no stockholders who wanted a
different policy. I regard business profits above a small percentage as
belonging more to the business than to the stockholders.
The stockholders, to my way of thinking, ought to be only those who are
active in the business and who will regard the company as an instrument
of service rather than as a machine for making money. If large profits
are made--and working to serve forces them to be large--then they should
be in part turned back into the business so that it may be still better
fitted to serve, and in part passed on to the purchaser. During one year
our profits were so much larger than we expected them to be that we
voluntarily returned fifty dollars to each purchaser of a car. We felt
that unwittingly we had overcharged the purchaser by that much. My price
policy and hence my financial policy came up in a suit brought against
the company several years ago to compel the payment of larger dividends.
On the witness stand I gave the policy then in force and which is still
in force. It is this:
In the first place, I hold that it is better to sell a large number of
cars at a reasonably small margin than to sell fewer cars at a large
margin of profit.
I hold this because it enables a large number of people to buy and enjoy
the use of a car and because it gives a larger number of men employment
at good wages. Those are aims I have in life. But I would not be counted
a success; I would be, in fact, a flat failure if I could not accomplish
that and at the same time make a fair amount of profit for myself and
the men associated with me in business.
This policy I hold is good business policy because it works--because
with each succeeding year we have been able to put our car within the
reach of greater and greater numbers, give employment to more and more
men, and, at the same time, through the volume of business, increase our
own profits beyond anything we had hoped for or even dreamed of when we
started.
Bear in mind, every time you reduce the price of the car without
reducing the quality, you increase the possible number of purchasers.
There are many men who will pay $360 for a car who would not pay $440.
We had in round numbers 500,000 buyers of cars on the $440 basis, and I
figure that on the $360 basis we can increase the sales to possibly
800,000 cars for the year--less profit on each car, but more cars, more
employment of labour, and in the end we shall get all the total profit
we ought to make.
And let me say right here, that I do not believe that we should make
such an awful profit on our cars. A reasonable profit is right, but not
too much. So it has been my policy to force the price of the car down as
fast as production would permit, and give the benefits to users and
labourers--with resulting surprisingly enormous benefits to ourselves.
This policy does not agree with the general opinion that a business is
to be managed to the end that the stockholders can take out the largest
possible amount of cash. Therefore I do not want stockholders in the
ordinary sense of the term--they do not help forward the ability to
serve. My ambition is to employ more and more men and to spread, in so
far as I am able, the benefits of the industrial system that we are
working to found; we want to help build lives and homes. This requires
that the largest share of the profits be put back into productive
enterprise. Hence we have no place for the non-working stockholders. The
working stockholder is more anxious to increase his opportunity to serve
than to bank dividends.
If it at any time became a question between lowering wages or abolishing
dividends, I would abolish dividends. That time is not apt to come, for,
as I have pointed out, there is no economy in low wages. It is bad
financial policy to reduce wages because it also reduces buying power.
If one believes that leadership brings responsibility, then a part of
that responsibility is in seeing that those whom one leads shall have an
adequate opportunity to earn a living. Finance concerns not merely the
profit or solvency of a company; it also comprehends the amount of money
that the company turns back to the community through wages. There is no
charity in this. There is no charity in proper wages. It is simply that
no company can be said to be stable which is not so well managed that it
can afford a man an opportunity to do a great deal of work and therefore
to earn a good wage.
There is something sacred about wages--they represent homes and families
and domestic destinies. People ought to tread very carefully when
approaching wages. On the cost sheet, wages are mere figures; out in the
world, wages are bread boxes and coal bins, babies' cradles and
children's education--family comforts and contentment. On the other
hand, there is something just as sacred about capital which is used to
provide the means by which work can be made productive. Nobody is helped
if our industries are sucked dry of their life-blood. There is something
just as sacred about a shop that employs thousands of men as there is
about a home. The shop is the mainstay of all the finer things which the
home represents. If we want the home to be happy, we must contrive to
keep the shop busy. The whole justification of the profits made by the
shop is that they are used to make doubly secure the homes dependent on
that shop, and to create more jobs for other men. If profits go to swell
a personal fortune, that is one thing; if they go to provide a sounder
basis for business, better working conditions, better wages, more
extended employment--that is quite another thing. Capital thus employed
should not be carelessly tampered with. It is for the service of all,
though it may be under the direction of one.
Profits belong in three places: they belong to the business--to keep it
steady, progressive, and sound. They belong to the men who helped
produce them. And they belong also, in part, to the public. A successful
business is profitable to all three of these interests--planner,
producer, and purchaser.
People whose profits are excessive when measured by any sound standard
should be the first to cut prices. But they never are. They pass all
their extra costs down the line until the whole burden is borne by the
consumer; and besides doing that, they charge the consumer a percentage
on the increased charges. Their whole business philosophy is: "Get while
the getting is good." They are the speculators, the exploiters, the
no-good element that is always injuring legitimate business. There is
nothing to be expected from them. They have no vision. They cannot see
beyond their own cash registers.
These people can talk more easily about a 10 or 20 per cent. cut in
wages than they can about a 10 or 20 per cent. cut in profits. But a
business man, surveying the whole community in all its interests and
wishing to serve that community, ought to be able to make his
contribution to stability.
It has been our policy always to keep on hand a large amount of
cash--the cash balance in recent years has usually been in excess of
fifty million dollars. This is deposited in banks all over the country,
we do not borrow but we have established lines of credit, so that if we
so cared we might raise a very large amount of money by bank borrowing.
But keeping the cash reserve makes borrowing unnecessary--our provision
is only to be prepared to meet an emergency. I have no prejudice against
proper borrowing. It is merely that I do not want to run the danger of
having the control of the business and hence the particular idea of
service to which I am devoted taken into other hands.
A considerable part of finance is in the overcoming of seasonal
operation. The flow of money ought to be nearly continuous. One must
work steadily in order to work profitably. Shutting down involves great
waste. It brings the waste of unemployment of men, the waste of
unemployment of equipment, and the waste of restricted future sales
through the higher prices of interrupted production. That has been one
of the problems we had to meet. We could not manufacture cars to stock
during the winter months when purchases are less than in spring or
summer. Where or how could any one store half a million cars? And if
stored, how could they be shipped in the rush season? And who would find
the money to carry such a stock of cars even if they could be stored?
Seasonal work is hard on the working force. Good mechanics will not
accept jobs that are good for only part of the year. To work in full
force twelve months of the year guarantees workmen of ability, builds up
a permanent manufacturing organization, and continually improves the
product--the men in the factory, through uninterrupted service, become
more familiar with the operations.
The factory must build, the sales department must sell, and the dealer
must buy cars all the year through, if each would enjoy the maximum
profit to be derived from the business. If the retail buyer will not
consider purchasing except in "seasons," a campaign of education needs
to be waged, proving the all-the-year-around value of a car rather than
the limited-season value. And while the educating is being done, the
manufacturer must build, and the dealer must buy, in anticipation of
business.
We were the first to meet the problem in the automobile business. The
selling of Ford cars is a merchandising proposition. In the days when
every car was built to order and 50 cars a month a big output, it was
reasonable to wait for the sale before ordering. The manufacturer waited
for the order before building.
We very shortly found that we could not do business on order. The
factory could not be built large enough--even were it desirable--to make
between March and August all the cars that were ordered during those
months. Therefore, years ago began the campaign of education to
demonstrate that a Ford was not a summer luxury but a year-round
necessity. Coupled with that came the education of the dealer into the
knowledge that even if he could not sell so many cars in winter as in
summer it would pay him to stock in winter for the summer and thus be
able to make instant delivery. Both plans have worked out; in most parts
of the country cars are used almost as much in winter as in summer. It
has been found that they will run in snow, ice, or mud--in anything.
Hence the winter sales are constantly growing larger and the seasonal
demand is in part lifted from the dealer. And he finds it profitable to
buy ahead in anticipation of needs. Thus we have no seasons in the
plant; the production, up until the last couple of years, has been
continuous excepting for the annual shut downs for inventory. We have
had an interruption during the period of extreme depression but it was
an interruption made necessary in the process of readjusting ourselves
to the market conditions.
In order to attain continuous production and hence a continuous turning
over of money we have had to plan our operations with extreme care. The
plan of production is worked out very carefully each month between the
sales and production departments, with the object of producing enough
cars so that those in transit will take care of the orders in hand.
Formerly, when we assembled and shipped cars, this was of the highest
importance because we had no place in which to store finished cars. Now
we ship parts instead of cars and assemble only those required for the
Detroit district. That makes the planning no less important, for if the