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 basis of taking as much money away from the consumer as he will give up—then surely the consumer ought to have a wide range of choice.
Standardization, then, is the final stage of the process. We start with consumer, work back through the design, and finally arrive at manufacturing. The manufacturing becomes a means to the end of service.
It is important to bear this order in mind. As yet, the order is not thoroughly understood. The price relation is not understood. The notion persists that prices ought to be kept up. On the contrary, good business—large consumption—depends on their going down.
And here is another point. The service must be the best you can give. It is considered good manufacturing practice, and not bad ethics, occasionally to change designs so that old models will become obsolete and new ones will have to be bought either because repair parts for the old cannot be had, or because the new model offers a new sales argument which can be used to persuade a consumer to scrap what he has and buy something new. We have been told that this is good business, that it is clever business, that the object of business ought to be to get people to buy frequently and that it is bad business to try to make anything that will last forever, because when once a man is sold he will not buy again.
Our principle of business is precisely to the contrary. We cannot conceive how to serve the consumer unless we make for him something that, as far as we can provide, will last forever. We want to construct some kind of a machine that will last forever. It does not please us to have a buyer's car wear out or become obsolete. We want the man who buys one of our products never to have to buy another. We never make an improvement that renders any previous model obsolete. The parts of a specific model are not only interchangeable with all other cars of that model, but they are interchangeable with similar parts on all the cars that we have turned out. You can take a car of ten years ago and, buying to-day's parts, make it with very little expense into a car of to-day. Having these objectives the costs always come down under pressure. And since we have the firm policy of steady price reduction, there is always pressure. Sometimes it is just harder!
Take a few more instances of saving. The sweepings net six hundred thousand dollars a year. Experiments are constantly going on in the utilization of scrap. In one of the stamping operations six-inch circles of sheet metal are cut out. These formerly went into scrap. The waste worried the men. They worked to find uses for the discs. They found that the plates were just the right size and shape to stamp into radiator caps but the metal was not thick enough. They tried a double thickness of plates, with the result that they made a cap which tests proved to be stronger than one made out of a single sheet of metal. We get 150,000 of those discs a day. We have now found a use for about 20,000 a day and expect to find further uses for the remainder. We saved about ten dollars each by making transmissions instead of buying them. We experimented with bolts and produced a special bolt made on what is called an "upsetting machine" with a rolled thread that was stronger than any bolt we could buy, although in its making was used only about one third of the material that the outside manufacturers used. The saving on one style of bolt alone amounted to half a million dollars a year. We used to assemble our cars at Detroit, and although by special packing we managed to get five or six into a freight car, we needed many hundreds of freight cars a day. Trains were moving in and out all the time. Once a thousand freight cars were packed in a single day. A certain amount of congestion was inevitable. It is very expensive to knock down machines and crate them so that they cannot be injured in transit—to say nothing of the transportation charges. Now, we assemble only three or four hundred cars a day at Detroit—just enough for local needs. We now ship the parts to our assembling stations all over the United States and in fact pretty much all over the world, and the machines are put together there. Wherever it is possible for a branch to make a part more cheaply than we can make it in Detroit and ship it to them, then the branch makes the part.
The plant at Manchester, England, is making nearly an entire car. The tractor plant at Cork, Ireland, is making almost a complete tractor. This is an enormous saving of expense and is only an indication of what may be done throughout industry generally, when each part of a composite article is made at the exact point where it may be made most economically. We are constantly experimenting with every material that enters into the car. We cut most of our own lumber from our own forests. We are experimenting in the manufacture of artificial leather because we use about forty thousand yards of artificial leather a day. A penny here and a penny there runs into large amounts in the course of a year.
The greatest development of all, however, is the River Rouge plant, which, when it is running to its full capacity, will cut deeply and in many directions into the price of everything we make. The whole tractor plant is now there. This plant is located on the river on the outskirts of Detroit and the property covers six hundred and sixty-five acres—enough for future development. It has a large slip and a turning basin capable of accommodating any lake steamship; a short-cut canal and some dredging will give a direct lake connection by way of the Detroit River. We use a great deal of coal. This coal comes directly from our mines over the Detroit, Toledo and Ironton Railway, which we control, to the Highland Park plant and the River Rouge plant. Part of it goes for steam purposes. Another part goes to the by-product coke ovens which we have established at the River Rouge plant. Coke moves on from the ovens by mechanical transmission to the blast furnaces. The low volatile gases from the blast furnaces are piped to the power plant boilers where they are joined by the sawdust and the shavings from the body plant—the making of all our bodies has been shifted to this plant—and in addition the coke "breeze" (the dust in the making of coke) is now also being utilized for stoking. The steam power plant is thus fired almost exclusively from what would otherwise be waste products. Immense steam turbines directly coupled with dynamos transform this power into electricity, and all of the machinery in the tractor and the body plants is run by individual motors from this electricity. In the course of time it is expected that there will be sufficient electricity to run practically the whole Highland Park plant, and we shall then have cut out our coal bill.
Among the by-products of the coke ovens is a gas. It is piped both to the Rouge and Highland Park plants where it is used for heat-treat purposes, for the enamelling ovens, for the car ovens, and the like. We formerly had to buy this gas. The ammonium sulphate is used for fertilizer. The benzol is a motor fuel. The small sizes of coke, not suitable for the blast furnaces, are sold to the employees—delivered free into their homes at much less than the ordinary market price. The large-sized coke goes to the blast furnaces. There is no manual handling. We run the melted iron directly from the blast furnaces into great ladles. These ladles travel into the shops and the iron is poured directly into the moulds without another heating. We thus not only get a uniform quality of iron according to our own specifications and directly under our control, but we save a melting of pig iron and in fact cut out a whole process in manufacturing as well as making available all our own scrap.
What all this will amount to in point of savings we do not know—that is, we do not know how great will be the saving, because the plant has not been running long enough to give more than an indication of what is ahead, and we save in so many directions—in transportation, in the generation of our power, in the generation of gas, in the expense in casting, and then over and above that is the revenue from the by-products and from the smaller sizes of coke. The investment to accomplish these objects to date amounts to something over forty million dollars.
How far we shall thus reach back to sources depends entirely on circumstances. Nobody anywhere can really do more than guess about the future costs of production. It is wiser to recognize that the future holds more than the past—that every day holds within it an improvement on the methods of the day before.
But how about production? If every necessary of life were produced so cheaply and in such quantities, would not the world shortly be surfeited with goods? Will there not come a point when, regardless of price, people simply will not want anything more than what they already have? And if in the process of manufacturing fewer and fewer men are used, what is going to become of these men—how are they going to find jobs and live?
Take the second point first. We mentioned many machines and many methods that displaced great numbers of men and then someone asks:
"Yes, that is a very fine idea from the standpoint of the proprietor, but how about these poor fellows whose jobs are taken away from them?"
