My Life and Work by Henry Ford (free novel 24 .TXT) 📕

That is why putting the usual type of banker or lawyer into the management of a business is courting disaster. Reducing prices increases the volume and disposes of finance, provided one regards the inevitable profit as a trust fund with which to conduct more and better business. Our profit, because of the rapidity of the turnover in the business and the great volume of sales, has, no matter what the price at which the product was sold, always been large. We have had a small profit per article but a large aggregate profit. The profit is not constant. After cutting the prices, the 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