ዘመኑ ባፈራው የቴክኖሎጂ ግብአት በመጠቀም ለህብረተሰባችን ስራ ለሁሉም በሚል ግብ የተሻለ የስራ አማራጭ፣ ለተሻለ ኑሮ፣ ለተሻለ የገበያ ትስስር ፣ ለተቀናጀ የገበያ ተደራሽነት ገዥን ከደንበኛ የማስተሳሰሪያ የቴክኖሎጂ አማራጭ ይዘን መተናል በሁሉም የስራ መስክ በሁሉም የስራ እርከን ስራ ለሚገኙ ባለሙያዎች እና ድርጅቶች የስራ አጋጣሚን መፍጠር
ዘመኑ ባፈራው የቴክኖሎጂ ግብአት በመጠቀም ለህብረተሰባችን ስራ ለሁሉም በሚል ግብ የተሻለ የስራ አማራጭ፣ ለተሻለ ኑሮ፣ ለተሻለ የገበያ ትስስር ፣ ለተቀናጀ የገበያ ተደራሽነት ገዥን ከደንበኛ የማስተሳሰሪያ የቴክኖሎጂ አማራጭ ይዘን መተናል በሁሉም የስራ መስክ በሁሉም የስራ እርከን ስራ ለሚገኙ ባለሙያዎች እና ድርጅቶች የስራ አጋጣሚን መፍጠር
ዘመኑ ባፈራው የቴክኖሎጂ ግብአት በመጠቀም ለህብረተሰባችን ስራ ለሁሉም በሚል ግብ የተሻለ የስራ አማራጭ፣ ለተሻለ ኑሮ፣ ለተሻለ የገበያ ትስስር ፣ ለተቀናጀ የገበያ ተደራሽነት ገዥን ከደንበኛ የማስተሳሰሪያ የቴክኖሎጂ አማራጭ ይዘን መተናል በሁሉም የስራ መስክ በሁሉም የስራ እርከን ስራ ለሚገኙ ባለሙያዎች እና ድርጅቶች የስራ አጋጣሚን መፍጠር
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ዘመኑ ባፈራው የቴክኖሎጂ ግብአት በመጠቀም ለህብረተሰባችን ስራ ለሁሉም በሚል ግብ የተሻለ የስራ አማራጭ፣ ለተሻለ ኑሮ፣ ለተሻለ የገበያ ትስስር ፣ ለተቀናጀ የገበያ ተደራሽነት ገዥን ከደንበኛ የማስተሳሰሪያ የቴክኖሎጂ አማራጭ ይዘን መተናል በሁሉም የስራ መስክ በሁሉም የስራ እርከን ስራ ለሚገኙ ባለሙያዎች እና ድርጅቶች የስራ አጋጣሚን መፍጠር
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👁 :324
In December, 1920, business the country over was marking time. More automobile plants were closed than were open and quite a number of those which were closed were completely in the charge of bankers. Rumours of bad financial condition were afloat concerning nearly every industrial company, and I became interested when the reports persisted that the Ford Motor Company not only needed money but could not get it. I have become accustomed to all kinds of rumours about our company—so much so, that nowadays I rarely deny any sort of rumour. But these reports differed from all previous ones. They were so exact and circumstantial. I learned that I had overcome my prejudice against borrowing and that I might be found almost any day down in Wall Street, hat in hand, asking for money. And rumour went even further and said that no one would give me money and that I might have to break up and go out of business.
It is true that we did have a problem. In 1919 we had borrowed $70,000,000 on notes to buy the full stock interest in the Ford Motor Company. On this we had $33,000,000 left to pay. We had $18,000,000 in income taxes due or shortly to become due to the Government, and also we intended to pay our usual bonus for the year to the workmen, which amounted to $7,000,000. Altogether, between January 1st and April 18, 1921, we had payments ahead totaling $58,000,000. We had only $20,000,000 in bank. Our balance sheet was more or less common knowledge and I suppose it was taken for granted that we could not raise the $38,000,000 needed without borrowing. For that is quite a large sum of money. Without the aid of Wall Street such a sum could not easily and quickly be raised. We were perfectly good for the money. Two years before we had borrowed $70,000,000. And since our whole property was unencumbered and we had no commercial debts, the matter of lending a large sum to us would not ordinarily have been a matter of moment. In fact, it would have been good banking business.
However, I began to see that our need for money was being industriously circulated as an evidence of impending failure. Then I began to suspect that, although the rumours came in news dispatches from all over the country, they might perhaps be traced to a single source. This belief was further strengthened when we were informed that a very fat financial editor was at Battle Creek sending out bulletins concerning the acuteness of our financial condition. Therefore, I took care not to deny a single rumour. We had made our financial plans and they did not include borrowing money.
I cannot too greatly emphasize that the very worst time to borrow money is when the banking people think that you need money. In the last chapter I outlined our financial principles. We simply applied those principles. We planned a thorough house-cleaning.
Go back a bit and see what the conditions were. Along in the early part of 1920 came the first indications that the feverish speculative business engendered by the war was not going to continue. A few concerns that had sprung out of the war and had no real reason for existence failed. People slowed down in their buying. Our own sales kept right along, but we knew that sooner or later they would drop off. I thought seriously of cutting prices, but the costs of manufacturing everywhere were out of control. Labour gave less and less in return for high wages. The suppliers of raw material refused even to think of coming back to earth. The very plain warnings of the storm went quite unheeded.
In June our own sales began to be affected. They grew less and less each month from June on until September. We had to do something to bring our product within the purchasing power of the public, and not only that, we had to do something drastic enough to demonstrate to the public that we were actually playing the game and not just shamming. Therefore in September we cut the price of the touring car from $575 to $440. We cut the price far below the cost of production, for we were still making from stock bought at boom prices. The cut created a considerable sensation. We received a deal of criticism. It was said that we were disturbing conditions. That is exactly what we were trying to do. We wanted to do our part in bringing prices from an artificial to a natural level. I am firmly of the opinion that if at this time or earlier manufacturers and distributors had all made drastic cuts in their prices and had put through thorough house-cleanings we should not have so long a business depression. Hanging on in the hope of getting higher prices simply delayed adjustment. Nobody got the higher prices they hoped for, and if the losses had been taken all at once, not only would the productive and the buying powers of the country have become harmonized, but we should have been saved this long period of general idleness. Hanging on in the hope of higher prices merely made the losses greater, because those who hung on had to pay interest on their high-priced stocks and also lost the profits they might have made by working on a sensible basis. Unemployment cut down wage distribution and thus the buyer and the seller became more and more separated. There was a lot of flurried talk of arranging to give vast credits to Europe—the idea being that thereby the high-priced stocks might be palmed off. Of course the proposals were not put in any such crude fashion, and I think that quite a lot of people sincerely believed that if large credits were extended abroad even without a hope of the payment of either principal or interest, American business would somehow be benefited. It is true that if these credits were taken by American banks, those who had high-priced stocks might have gotten rid of them at a profit, but the banks would have acquired so much frozen credit that they would have more nearly resembled ice houses than banks. I suppose it is natural to hang on to the possibility of profits until the very last moment, but it is not good business.
Our own sales, after the cut, increased, but soon they began to fall off again. We were not sufficiently within the purchasing power of the country to make buying easy. Retail prices generally had not touched bottom. The public distrusted all prices. We laid our plans for another cut and we kept our production around one hundred thousand cars a month. This production was not justified by our sales but we wanted to have as much as possible of our raw material transformed into finished product before we shut down. We knew that we would have to shut down in order to take an inventory and clean house. We wanted to open with another big cut and to have cars on hand to supply the demand. Then the new cars could be built out of material bought at lower prices. We determined that we were going to get lower prices.
We shut down in December with the intention of opening again in about two weeks. We found so much to do that actually we did not open for nearly six weeks. The moment that we shut down the rumours concerning our financial condition became more and more active. I know that a great many people hoped that we should have to go out after money—for, were we seeking money, then we should have to come to terms. We did not ask for money. We did not want money. We had one offer of money. An officer of a New York bank called on me with a financial plan which included a large loan and in which also was an arrangement by which a representative of the bankers would act as treasurer and take charge of the finance of the company. Those people meant well enough, I am quite sure. We did not want to borrow money but it so happened that at the moment we were without a treasurer. To that extent the bankers had envisaged our condition correctly. I asked my son Edsel to be treasurer as well as president of the company. That fixed us up as to a treasurer, so there was really nothing at all that the bankers could do for us.
Then we began our house-cleaning. During the war we had gone into many kinds of war work and had thus been forced to depart from our principle of a single product. This had caused many new departments to be added. The office force had expanded and much of the wastefulness of scattered production had crept in. War work is rush work and is wasteful work. We began throwing out everything that did not contribute to the production of cars.
The only immediate payment scheduled was the purely voluntary one of a seven-million-dollar bonus to our workmen. There was no obligation to pay, but we wanted to pay on the first of January. That we paid out of our cash on hand.
Throughout the country we have thirty-five branches. These are all assembling plants, but in twenty-two of them parts are also manufactured. They had stopped the making of parts but they went on assembling cars. At the time of shutting down we had practically no cars in Detroit. We had shipped out all the parts, and during January the Detroit dealers actually had to go as far a field as Chicago and Columbus to get cars for local needs. The branches shipped to each dealer, under his yearly quota, enough cars to cover about a month's sales. The dealers worked hard on sales. During the latter part of January we called in a skeleton organization of about ten thousand men, mostly foremen, sub-foremen, and straw bosses, and we started Highland Park into production. We collected our foreign accounts and sold our by-products.
Then we were ready for full production. And gradually into full production we went—on a profitable basis. The house-cleaning swept out the waste that had both made the prices high and absorbed the profit. We sold off the useless stuff. Before we had employed fifteen men per car per day. Afterward we employed nine per car per day. This did not mean that six out of fifteen men lost their jobs. They only ceased being unproductive. We made that cut by applying the rule that everything and everybody must produce or get out.
We cut our office forces in halves and offered the office workers better jobs in the shops. Most of them took the jobs. We abolished every order blank and every form of statistics that did not directly aid in the production of a car. We had been collecting tons of statistics because they were interesting. But statistics will not construct automobiles—so out they went.
We took out 60 per cent. of our telephone extensions. Only a comparatively few men in any organization need telephones. We formerly had a foreman for every five men; now we have a foreman for every twenty men. The other foremen are working on machines.
We cut the overhead charge from $146 a car to $93 a car, and when you realize what this means on more than four thousand cars a day you will have an idea how, not by economy, not by wage-cutting, but by the elimination of waste, it is possible to make an "impossible" price. Most important of all, we found out how to use less money in our business by speeding up the turnover. And in increasing the turnover rate, one of the most important factors was the Detroit, Toledo, & Ironton Railroad—which we purchased. The railroad took a large place in the scheme of economy. To the road itself I have given another chapter.
We discovered, after a little experimenting, that freight service could be improved sufficiently to reduce the cycle of manufacture from twenty-two to fourteen days. That is, raw material could be bought, manufactured, and the finished product put into the hands of the distributor in (roughly) 33 per cent. less time than before. We had been carrying an inventory of around $60,000,000 to insure uninterrupted production. Cutting down the time one third released $20,000,000, or $1,200,000 a year in interest. Counting the finished inventory, we saved approximately $8,000,000 more—that is, we were able to release $28,000,000 in capital and save the interest on that sum.
On January 1st we had $20,000,000. On April 1st we had $87,300,000, or $27,300,000 more than we needed to wipe out all our indebtedness. That is what boring into the business did for us! This amount came to us in these items:
Cash on hand, January $20,000,000
Stock on hand turned into cash, January 1 to April 1 24,700,000
Speeding up transit of goods released 28,000,000
Collected from agents in foreign countries 3,000,000
Sale of by-products 3,700,000
Sale of Liberty Bonds 7,900,000
TOTAL $87,300,000
Now I have told about all this not in the way of an exploit, but to point out how a business may find resources within itself instead of borrowing, and also to start a little thinking as to whether the form of our money may not put a premium on borrowing and thus give far too great a place in life to the bankers.
We could have borrowed $40,000,000—more had we wanted to. Suppose we had borrowed, what would have happened? Should we have been better fitted to go on with our business? Or worse fitted? If we had borrowed we should not have been under the necessity of finding methods to cheapen production. Had we been able to obtain the money at 6 per cent. flat—and we should in commissions and the like have had to pay more than that—the interest charge alone on a yearly production of 500,000 cars would have amounted to about four dollars a car. Therefore we should now be without the benefit of better production and loaded with a heavy debt. Our cars would probably cost about one hundred dollars more than they do; hence we should have a smaller production, for we could not have so many buyers; we should employ fewer men, and in short, should not be able to serve to the utmost. You will note that the financiers proposed to cure by lending money and not by bettering methods. They did not suggest putting in an engineer; they wanted to put in a treasurer.
And that is the danger of having bankers in business. They think solely in terms of money. They think of a factory as making money, not goods. They want to watch the money, not the efficiency of production. They cannot comprehend that a business never stands still, it must go forward or go back. They regard a reduction in prices as a throwing away of profit instead of as a building of business.
Bankers play far too great a part in the conduct of industry. Most business men will privately admit that fact. They will seldom publicly admit it because they are afraid of their bankers. It required less skill to make a fortune dealing in money than dealing in production. The average successful banker is by no means so intelligent and resourceful a man as is the average successful business man. Yet the banker through his control of credit practically controls the average business man.
There has been a great reaching out by bankers in the last fifteen or twenty years—and especially since the war—and the Federal Reserve System for a time put into their hands an almost limitless supply of credit. The banker is, as I have noted, by training and because of his position, totally unsuited to the conduct of industry. If, therefore, the controllers of credit have lately acquired this very large power, is it not to be taken as a sign that there is something wrong with the financial system that gives to finance instead of to service the predominant power in industry? It was not the industrial acumen of the bankers that brought them into the management of industry. Everyone will admit that. They were pushed there, willy-nilly, by the system itself. Therefore, I personally want to discover whether we are operating under the best financial system.
Now, let me say at once that my objection to bankers has nothing to do with personalities. I am not against bankers as such. We stand very much in need of thoughtful men, skilled in finance. The world cannot go on without banking facilities. We have to have money. We have to have credit. Otherwise the fruits of production could not be exchanged. We have to have capital. Without it there could be no production. But whether we have based our banking and our credit on the right foundation is quite another matter.
It is no part of my thought to attack our financial system. I am not in the position of one who has been beaten by the system and wants revenge. It does not make the least difference to me personally what bankers do because we have been able to manage our affairs without outside financial aid. My inquiry is prompted by no personal motive whatsoever. I only want to know whether the greatest good is being rendered to the greatest number.
No financial system is good which favors one class of producers over another. We want to discover whether it is not possible to take away power which is not based on wealth creation. Any sort of class legislation is pernicious. I think that the country's production has become so changed in its methods that gold is not the best medium with which it may be measured, and that the gold standard as a control of credit gives, as it is now (and I believe inevitably) administered, class advantage. The ultimate check on credit is the amount of gold in the country, regardless of the amount of wealth in the country.
I am not prepared to dogmatize on the subject of money or credit. As far as money and credit are concerned, no one as yet knows enough about them to dogmatize. The whole question will have to be settled as all other questions of real importance have to be settled, and that is by cautious, well-founded experiment. And I am not inclined to go beyond cautious experiments. We have to proceed step by step and very carefully. The question is not political, it is economic, and I am perfectly certain that helping the people to think on the question is wholly advantageous. They will not act without adequate knowledge, and thus cause disaster, if a sincere effort is made to provide them with knowledge. The money question has first place in multitudes of minds of all degrees or power. But a glance at most of the cure-all systems shows how contradictory they are. The majority of them make the assumption of honesty among mankind, to begin with, and that, of course, is a prime defect. Even our present system would work splendidly if all men were honest. As a matter of fact, the whole money question is 95 per cent. human nature; and your successful system must check human nature, not depend upon it.
The people are thinking about the money question; and if the money masters have any information which they think the people ought to have to prevent them going astray, now is the time to give it. The days are fast slipping away when the fear of credit curtailment will avail, or when wordy slogans will affright. The people are naturally conservative. They are more conservative than the financiers. Those who believe that the people are so easily led that they would permit printing presses to run off money like milk tickets do not understand them. It is the innate conservation of the people that has kept our money good in spite of the fantastic tricks which the financiers play—and which they cover up with high technical terms.
The people are on the side of sound money. They are so unalterably on the side of sound money that it is a serious question how they would regard the system under which they live, if they once knew what the initiated can do with it.
The present money system is not going to be changed by speech-making or political sensationalism or economic experiment. It is going to change under the pressure of conditions—conditions that we cannot control and pressure that we cannot control. These conditions are now with us; that pressure is now upon us.
The people must be helped to think naturally about money. They must be told what it is, and what makes it money, and what are the possible tricks of the present system which put nations and peoples under control of the few.
Money, after all, is extremely simple. It is a part of our transportation system. It is a simple and direct method of conveying goods from one person to another. Money is in itself most admirable. It is essential. It is not intrinsically evil. It is one of the most useful devices in social life. And when it does what it was intended to do, it is all help and no hindrance.
But money should always be money. A foot is always twelve inches, but when is a dollar a dollar? If ton weights changed in the coal yard, and peck measures changed in the grocery, and yard sticks were to-day 42 inches and to-morrow 33 inches (by some occult process called "exchange") the people would mighty soon remedy that. When a dollar is not always a dollar, when the 100-cent dollar becomes the 65-cent dollar, and then the 50-cent dollar, and then the 47-cent dollar, as the good old American gold and silver dollars did, what is the use of yelling about "cheap money," "depreciated money"? A dollar that stays 100 cents is as necessary as a pound that stays 16 ounces and a yard that stays 36 inches.
The bankers who do straight banking should regard themselves as naturally the first men to probe and understand our monetary system—instead of being content with the mastery of local banking-house methods; and if they would deprive the gamblers in bank balances of the name of "banker" and oust them once for all from the place of influence which that name gives them, banking would be restored and established as the public service it ought to be, and the iniquities of the present monetary system and financial devices would be lifted from the shoulders of the people.
There is an "if" here, of course. But it is not insurmountable. Affairs are coming to a jam as it is, and if those who possess technical facility do not engage to remedy the case, those who lack that facility may attempt it. Nothing is more foolish than for any class to assume that progress is an attack upon it. Progress is only a call made upon it to lend its experience for the general advancement. It is only those who are unwise who will attempt to obstruct progress and thereby become its victims. All of us are here together, all of us must go forward together; it is perfectly silly for any man or class to take umbrage at the stirring of progress. If financiers feel that progress is only the restlessness of weak-minded persons, if they regard all suggestions of betterment as a personal slap, then they are taking the part which proves more than anything else could their unfitness to continue in their leadership.
If the present faulty system is more profitable to a financier than a more perfect system would be, and if that financier values his few remaining years of personal profits more highly than he would value the honour of making a contribution to the life of the world by helping to erect a better system, then there is no way of preventing a clash of interests. But it is fair to say to the selfish financial interests that, if their fight is waged to perpetuate a system just because it profits them, then their fight is already lost. Why should finance fear? The world will still be here. Men will do business with one another. There will be money and there will be need of masters of the mechanism of money. Nothing is going to depart but the knots and tangles. There will be some readjustments, of course. Banks will no longer be the masters of industry. They will be the servants of industry. Business will control money instead of money controlling business. The ruinous interest system will be greatly modified. Banking will not be a risk, but a service. Banks will begin to do much more for the people than they do now, and instead of being the most expensive businesses in the world to manage, and the most highly profitable in the matter of dividends, they will become less costly, and the profits of their operation will go to the community which they serve.
Two facts of the old order are fundamental. First: that within the nation itself the tendency of financial control is toward its largest centralized banking institutions—either a government bank or a closely allied group of private financiers. There is always in every nation a definite control of credit by private or semi-public interests. Second: in the world as a whole the same centralizing tendency is operative. An American credit is under control of New York interests, as before the war world credit was controlled in London—the British pound sterling was the standard of exchange for the world's trade.
Two methods of reform are open to us, one beginning at the bottom and one beginning at the top. The latter is the more orderly way, the former is being tried in Russia. If our reform should begin at the top it will require a social vision and an altruistic fervour of a sincerity and intensity which is wholly inconsistent with selfish shrewdness.
The wealth of the world neither consists in nor is adequately represented by the money of the world. Gold itself is not a valuable commodity. It is no more wealth than hat checks are hats. But it can be so manipulated, as the sign of wealth, as to give its owners or controllers the whip-hand over the credit which producers of real wealth require. Dealing in money, the commodity of exchange, is a very lucrative business. When money itself becomes an article of commerce to be bought and sold before real wealth can be moved or exchanged, the usurers and speculators are thereby permitted to lay a tax on production. The hold which controllers of money are able to maintain on productive forces is seen to be more powerful when it is remembered that, although money is supposed to represent the real wealth of the world, there is always much more wealth than there is money, and real wealth is often compelled to wait upon money, thus leading to that most paradoxical situation—a world filled with wealth but suffering want.
These facts are not merely fiscal, to be cast into figures and left there. They are instinct with human destiny and they bleed. The poverty of the world is seldom caused by lack of goods but by a "money stringency." Commercial competition between nations, which leads to international rivalry and ill-will, which in their turn breed wars— these are some of the human significations of these facts. Thus poverty and war, two great preventable evils, grow on a single stem.
Let us see if a beginning toward a better method cannot be made.
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Now I am not outlining the career of the Ford Motor Company for any personal reason. I am not saying: "Go thou and do likewise." What I am trying to emphasize is that the ordinary way of doing business is not the best way. I am coming to the point of my entire departure from the ordinary methods. From this point dates the extraordinary success of the company.
We had been fairly following the custom of the trade. Our automobile was less complex than any other. We had no outside money in the concern. But aside from these two points we did not differ materially from the other automobile companies, excepting that we had been somewhat more successful and had rigidly pursued the policy of taking all cash discounts, putting our profits back into the business, and maintaining a large cash balance. We entered cars in all of the races. We advertised and we pushed our sales. Outside of the simplicity of the construction of the car, our main difference in design was that we made no provision for the purely "pleasure car." We were just as much a pleasure car as any other car on the market, but we gave no attention to purely luxury features. We would do special work for a buyer, and I suppose that we would have made a special car at a price. We were a prosperous company. We might easily have sat down and said: "Now we have arrived. Let us hold what we have got."
Indeed, there was some disposition to take this stand. Some of the stockholders were seriously alarmed when our production reached one hundred cars a day. They wanted to do something to stop me from ruining the company, and when I replied to the effect that one hundred cars a day was only a trifle and that I hoped before long to make a thousand a day, they were inexpressibly shocked and I understand seriously contemplated court action. If I had followed the general opinion of my associates I should have kept the business about as it was, put our funds into a fine administration building, tried to make bargains with such competitors as seemed too active, made new designs from time to time to catch the fancy of the public, and generally have passed on into the position of a quiet, respectable citizen with a quiet, respectable business.
The temptation to stop and hang on to what one has is quite natural. I can entirely sympathize with the desire to quit a life of activity and retire to a life of ease. I have never felt the urge myself but I can comprehend what it is—although I think that a man who retires ought entirely to get out of a business. There is a disposition to retire and retain control. It was, however, no part of my plan to do anything of that sort. I regarded our progress merely as an invitation to do more—as an indication that we had reached a place where we might begin to perform a real service. I had been planning every day through these years toward a universal car. The public had given its reactions to the various models. The cars in service, the racing, and the road tests gave excellent guides as to the changes that ought to be made, and even by 1905 I had fairly in mind the specifications of the kind of car I wanted to build. But I lacked the material to give strength without weight. I came across that material almost by accident.
In 1905 I was at a motor race at Palm Beach. There was a big smash-up and a French car was wrecked. We had entered our "Model K"—the high-powered six. I thought the foreign cars had smaller and better parts than we knew anything about. After the wreck I picked up a little valve strip stem. It was very light and very strong. I asked what it was made of. Nobody knew. I gave the stem to my assistant.
"Find out all about this," I told him. "That is the kind of material we ought to have in our cars."
He found eventually that it was a French steel and that there was vanadium in it. We tried every steel maker in America—not one could make vanadium steel. I sent to England for a man who understood how to make the steel commercially. The next thing was to get a plant to turn it out. That was another problem. Vanadium requires 3,000 degrees Fahrenheit. The ordinary furnace could not go beyond 2,700 degrees. I found a small steel company in Canton, Ohio. I offered to guarantee them against loss if they would run a heat for us. They agreed. The first heat was a failure. Very little vanadium remained in the steel. I had them try again, and the second time the steel came through. Until then we had been forced to be satisfied with steel running between 60,000 and 70,000 pounds tensile strength. With vanadium, the strength went up to 170,000 pounds.
Having vanadium in hand I pulled apart our models and tested in detail to determine what kind of steel was best for every part—whether we wanted a hard steel, a tough steel, or an elastic steel. We, for the first time I think, in the history of any large construction, determined scientifically the exact quality of the steel. As a result we then selected twenty different types of steel for the various steel parts. About ten of these were vanadium. Vanadium was used wherever strength and lightness were required. Of course they are not all the same kind of vanadium steel. The other elements vary according to whether the part is to stand hard wear or whether it needs spring—in short, according to what it needs. Before these experiments I believe that not more than four different grades of steel had ever been used in automobile construction. By further experimenting, especially in the direction of heat treating, we have been able still further to increase the strength of the steel and therefore to reduce the weight of the car. In 1910 the French Department of Commerce and Industry took one of our steering spindle connecting rod yokes—selecting it as a vital unit—and tried it against a similar part from what they considered the best French car, and in every test our steel proved the stronger.
The vanadium steel disposed of much of the weight. The other requisites of a universal car I had already worked out and many of them were in practice. The design had to balance. Men die because a part gives out. Machines wreck themselves because some parts are weaker than others. Therefore, a part of the problem in designing a universal car was to have as nearly as possible all parts of equal strength considering their purpose—to put a motor in a one-horse shay. Also it had to be fool proof. This was difficult because a gasoline motor is essentially a delicate instrument and there is a wonderful opportunity for any one who has a mind that way to mess it up. I adopted this slogan:
"When one of my cars breaks down I know I am to blame."
From the day the first motor car appeared on the streets it had to me appeared to be a necessity. It was this knowledge and assurance that led me to build to the one end—a car that would meet the wants of the multitudes. All my efforts were then and still are turned to the production of one car—one model. And, year following year, the pressure was, and still is, to improve and refine and make better, with an increasing reduction in price. The universal car had to have these attributes:
(1) Quality in material to give service in use. Vanadium steel is the strongest, toughest, and most lasting of steels. It forms the foundation and super-structure of the cars. It is the highest quality steel in this respect in the world, regardless of price.
(2) Simplicity in operation—because the masses are not mechanics.
(3) Power in sufficient quantity.
(4) Absolute reliability—because of the varied uses to which the cars would be put and the variety of roads over which they would travel.
(5) Lightness. With the Ford there are only 7.95 pounds to be carried by each cubic inch of piston displacement. This is one of the reasons why Ford cars are "always going," wherever and whenever you see them—through sand and mud, through slush, snow, and water, up hills, across fields and roadless plains.
(6) Control—to hold its speed always in hand, calmly and safely meeting every emergency and contingency either in the crowded streets of the city or on dangerous roads. The planetary transmission of the Ford gave this control and anybody could work it. That is the "why" of the saying: "Anybody can drive a Ford." It can turn around almost anywhere.
(7) The more a motor car weighs, naturally the more fuel and lubricants are used in the driving; the lighter the weight, the lighter the expense of operation. The light weight of the Ford car in its early years was used as an argument against it. Now that is all changed.
The design which I settled upon was called "Model T." The important feature of the new model—which, if it were accepted, as I thought it would be, I intended to make the only model and then start into real production—was its simplicity. There were but four constructional units in the car—the power plant, the frame, the front axle, and the rear axle. All of these were easily accessible and they were designed so that no special skill would be required for their repair or replacement. I believed then, although I said very little about it because of the novelty of the idea, that it ought to be possible to have parts so simple and so inexpensive that the menace of expensive hand repair work would be entirely eliminated. The parts could be made so cheaply that it would be less expensive to buy new ones than to have old ones repaired. They could be carried in hardware shops just as nails or bolts are carried. I thought that it was up to me as the designer to make the car so completely simple that no one could fail to understand it.
That works both ways and applies to everything. The less complex an article, the easier it is to make, the cheaper it may be sold, and therefore the greater number may be sold.
It is not necessary to go into the technical details of the construction but perhaps this is as good a place as any to review the various models, because "Model T" was the last of the models and the policy which it brought about took this business out of the ordinary line of business. Application of the same idea would take any business out of the ordinary run.
I designed eight models in all before "Model T." They were: "Model A," "Model B," "Model C," "Model F," "Model N," "Model R," "Model S," and "Model K." Of these, Models "A," "C," and "F" had two-cylinder opposed horizontal motors. In "Model A" the motor was at the rear of the driver's seat. In all of the other models it was in a hood in front. Models "B," "N," "R," and "S" had motors of the four-cylinder vertical type. "Model K" had six cylinders. "Model A" developed eight horsepower. "Model B" developed twenty-four horsepower with a 4-1/2-inch cylinder and a 5-inch stroke. The highest horsepower was in "Model K," the six-cylinder car, which developed forty horsepower. The largest cylinders were those of "Model B." The smallest were in Models "N," "R," and "S" which were 3-3/4 inches in diameter with a 3-3/8-inch stroke. "Model T" has a 3-3/4-inch cylinder with a 4-inch stroke. The ignition was by dry batteries in all excepting "Model B," which had storage batteries, and in "Model K" which had both battery and magneto. In the present model, the magneto is a part of the power plant and is built in. The clutch in the first four models was of the cone type; in the last four and in the present model, of the multiple disc type. The transmission in all of the cars has been planetary. "Model A" had a chain drive. "Model B" had a shaft drive. The next two models had chain drives. Since then all of the cars have had shaft drives. "Model A" had a 72-inch wheel base. Model "B," which was an extremely good car, had 92 inches. "Model K" had 120 inches. "Model C" had 78 inches. The others had 84 inches, and the present car has 100 inches. In the first five models all of the equipment was extra. The next three were sold with a partial equipment. The present car is sold with full equipment. Model "A" weighed 1,250 pounds. The lightest cars were Models "N" and "R." They weighed 1,050 pounds, but they were both runabouts. The heaviest car was the six-cylinder, which weighed 2,000 pounds. The present car weighs 1,200 lbs.
The "Model T" had practically no features which were not contained in some one or other of the previous models. Every detail had been fully tested in practice. There was no guessing as to whether or not it would be a successful model. It had to be. There was no way it could escape being so, for it had not been made in a day. It contained all that I was then able to put into a motor car plus the material, which for the first time I was able to obtain. We put out "Model T" for the season 1908-1909.
The company was then five years old. The original factory space had been .28 acre. We had employed an average of 311 people in the first year, built 1,708 cars, and had one branch house. In 1908, the factory space had increased to 2.65 acres and we owned the building. The average number of employees had increased to 1,908. We built 6,181 cars and had fourteen branch houses. It was a prosperous business.
During the season 1908-1909 we continued to make Models "R" and "S," four-cylinder runabouts and roadsters, the models that had previously been so successful, and which sold at $700 and $750. But "Model T" swept them right out. We sold 10,607 cars—a larger number than any manufacturer had ever sold. The price for the touring car was $850. On the same chassis we mounted a town car at $1,000, a roadster at $825, a coupe at $950, and a landaulet at $950.
This season demonstrated conclusively to me that it was time to put the new policy in force. The salesmen, before I had announced the policy, were spurred by the great sales to think that even greater sales might be had if only we had more models. It is strange how, just as soon as an article becomes successful, somebody starts to think that it would be more successful if only it were different. There is a tendency to keep monkeying with styles and to spoil a good thing by changing it. The salesmen were insistent on increasing the line. They listened to the 5 per cent., the special customers who could say what they wanted, and forgot all about the 95 per cent. who just bought without making any fuss. No business can improve unless it pays the closest possible attention to complaints and suggestions. If there is any defect in service then that must be instantly and rigorously investigated, but when the suggestion is only as to style, one has to make sure whether it is not merely a personal whim that is being voiced. Salesmen always want to cater to whims instead of acquiring sufficient knowledge of their product to be able to explain to the customer with the whim that what they have will satisfy his every requirement—that is, of course, provided what they have does satisfy these requirements.
Therefore in 1909 I announced one morning, without any previous warning, that in the future we were going to build only one model, that the model was going to be "Model T," and that the chassis would be exactly the same for all cars, and I remarked:
"Any customer can have a car painted any colour that he wants so long as it is black."
I cannot say that any one agreed with me. The selling people could not of course see the advantages that a single model would bring about in production. More than that, they did not particularly care. They thought that our production was good enough as it was and there was a very decided opinion that lowering the sales price would hurt sales, that the people who wanted quality would be driven away and that there would be none to replace them. There was very little conception of the motor industry. A motor car was still regarded as something in the way of a luxury. The manufacturers did a good deal to spread this idea. Some clever persons invented the name "pleasure car" and the advertising emphasized the pleasure features. The sales people had ground for their objections and particularly when I made the following announcement:
"I will build a motor car for the great multitude. It will be large enough for the family but small enough for the individual to run and care for. It will be constructed of the best materials, by the best men to be hired, after the simplest designs that modern engineering can devise. But it will be so low in price that no man making a good salary will be unable to own one—and enjoy with his family the blessing of hours of pleasure in God's great open spaces."
This announcement was received not without pleasure. The general comment was:
"If Ford does that he will be out of business in six months."
The impression was that a good car could not be built at a low price, and that, anyhow, there was no use in building a low-priced car because only wealthy people were in the market for cars. The 1908-1909 sales of more than ten thousand cars had convinced me that we needed a new factory. We already had a big modern factory—the Piquette Street plant. It was as good as, perhaps a little better than, any automobile factory in the country. But I did not see how it was going to care for the sales and production that were inevitable. So I bought sixty acres at Highland Park, which was then considered away out in the country from Detroit. The amount of ground bought and the plans for a bigger factory than the world has ever seen were opposed. The question was already being asked:
"How soon will Ford blow up?"
Nobody knows how many thousand times it has been asked since. It is asked only because of the failure to grasp that a principle rather than an individual is at work, and the principle is so simple that it seems mysterious.
For 1909-1910, in order to pay for the new land and buildings, I slightly raised the prices. This is perfectly justifiable and results in a benefit, not an injury, to the purchaser. I did exactly the same thing a few years ago—or rather, in that case I did not lower the price as is my annual custom, in order to build the River Rouge plant. The extra money might in each case have been had by borrowing, but then we should have had a continuing charge upon the business and all subsequent cars would have had to bear this charge. The price of all the models was increased $100, with the exception of the roadster, which was increased only $75 and of the landaulet and town car, which were increased $150 and $200 respectively. We sold 18,664 cars, and then for 1910-1911, with the new facilities, I cut the touring car from $950 to $780 and we sold 34,528 cars. That is the beginning of the steady reduction in the price of the cars in the face of ever-increasing cost of materials and ever-higher wages.
Contrast the year 1908 with the year 1911. The factory space increased from 2.65 to 32 acres. The average number of employees from 1,908 to 4,110, and the cars built from a little over six thousand to nearly thirty-five thousand. You will note that men were not employed in proportion to the output.
We were, almost overnight it seems, in great production. How did all this come about?
Simply through the application of an inevitable principle. By the application of intelligently directed power and machinery. In a little dark shop on a side street an old man had laboured for years making axe handles. Out of seasoned hickory he fashioned them, with the help of a draw shave, a chisel, and a supply of sandpaper. Carefully was each handle weighed and balanced. No two of them were alike. The curve must exactly fit the hand and must conform to the grain of the wood. From dawn until dark the old man laboured. His average product was eight handles a week, for which he received a dollar and a half each. And often some of these were unsaleable—because the balance was not true.
To-day you can buy a better axe handle, made by machinery, for a few cents. And you need not worry about the balance. They are all alike—and every one is perfect. Modern methods applied in a big way have not only brought the cost of axe handles down to a fraction of their former cost—but they have immensely improved the product.
It was the application of these same methods to the making of the Ford car that at the very start lowered the price and heightened the quality. We just developed an idea. The nucleus of a business may be an idea. That is, an inventor or a thoughtful workman works out a new and better way to serve some established human need; the idea commends itself, and people want to avail themselves of it. In this way a single individual may prove, through his idea or discovery, the nucleus of a business. But the creation of the body and bulk of that business is shared by everyone who has anything to do with it. No manufacturer can say: "I built this business"—if he has required the help of thousands of men in building it. It is a joint production. Everyone employed in it has contributed something to it. By working and producing they make it possible for the purchasing world to keep coming to that business for the type of service it provides, and thus they help establish a custom, a trade, a habit which supplies them with a livelihood. That is the way our company grew and just how I shall start explaining in the next chapter.
In the meantime, the company had become world-wide. We had branches in London and in Australia. We were shipping to every part of the world, and in England particularly we were beginning to be as well known as in America. The introduction of the car in England was somewhat difficult on account of the failure of the American bicycle. Because the American bicycle had not been suited to English uses it was taken for granted and made a point of by the distributors that no American vehicle could appeal to the British market. Two "Model A's" found their way to England in 1903. The newspapers refused to notice them. The automobile agents refused to take the slightest interest. It was rumoured that the principal components of its manufacture were string and hoop wire and that a buyer would be lucky if it held together for a fortnight! In the first year about a dozen cars in all were used; the second was only a little better. And I may say as to the reliability of that "Model A" that most of them after nearly twenty years are still in some kind of service in England.
In 1905 our agent entered a "Model C" in the Scottish Reliability Trials. In those days reliability runs were more popular in England than motor races. Perhaps there was no inkling that after all an automobile was not merely a toy. The Scottish Trials was over eight hundred miles of hilly, heavy roads. The Ford came through with only one involuntary stop against it. That started the Ford sales in England. In that same year Ford taxicabs were placed in London for the first time. In the next several years the sales began to pick up. The cars went into every endurance and reliability test and won every one of them. The Brighton dealer had ten Fords driven over the South Downs for two days in a kind of steeplechase and every one of them came through. As a result six hundred cars were sold that year. In 1911 Henry Alexander drove a "Model T" to the top of Ben Nevis, 4,600 feet. That year 14,060 cars were sold in England, and it has never since been necessary to stage any kind of a stunt. We eventually opened our own factory at Manchester; at first it was purely an assembling plant. But as the years have gone by we have progressively made more and more of the car.
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On May 31, 1921, the Ford Motor Company turned out Car No. 5,000,000. It is out in my museum along with the gasoline buggy that I began work on thirty years before and which first ran satisfactorily along in the spring of 1893. I was running it when the bobolinks came to Dearborn and they always come on April 2nd. There is all the difference in the world in the appearance of the two vehicles and almost as much difference in construction and materials, but in fundamentals the two are curiously alike—except that the old buggy has on it a few wrinkles that we have not yet quite adopted in our modern car. For that first car or buggy, even though it had but two cylinders, would make twenty miles an hour and run sixty miles on the three gallons of gas the little tank held and is as good to-day as the day it was built. The development in methods of manufacture and in materials has been greater than the development in basic design. The whole design has been refined; the present Ford car, which is the "Model T," has four cylinders and a self starter—it is in every way a more convenient and an easier riding car. It is simpler than the first car. But almost every point in it may be found also in the first car. The changes have been brought about through experience in the making and not through any change in the basic principle—which I take to be an important fact demonstrating that, given a good idea to start with, it is better to concentrate on perfecting it than to hunt around for a new idea. One idea at a time is about as much as any one can handle.
It was life on the farm that drove me into devising ways and means to better transportation. I was born on July 30, 1863, on a farm at Dearborn, Michigan, and my earliest recollection is that, considering the results, there was too much work on the place. That is the way I still feel about farming. There is a legend that my parents were very poor and that the early days were hard ones. Certainly they were not rich, but neither were they poor. As Michigan farmers went, we were prosperous. The house in which I was born is still standing, and it and the farm are part of my present holding.
There was too much hard hand labour on our own and all other farms of the time. Even when very young I suspected that much might somehow be done in a better way. That is what took me into mechanics—although my mother always said that I was born a mechanic. I had a kind of workshop with odds and ends of metal for tools before I had anything else. In those days we did not have the toys of to-day; what we had were home made. My toys were all tools—they still are! And every fragment of machinery was a treasure.
The biggest event of those early years was meeting with a road engine about eight miles out of Detroit one day when we were driving to town. I was then twelve years old. The second biggest event was getting a watch—which happened in the same year. I remember that engine as though I had seen it only yesterday, for it was the first vehicle other than horse-drawn that I had ever seen. It was intended primarily for driving threshing machines and sawmills and was simply a portable engine and boiler mounted on wheels with a water tank and coal cart trailing behind. I had seen plenty of these engines hauled around by horses, but this one had a chain that made a connection between the engine and the rear wheels of the wagon-like frame on which the boiler was mounted. The engine was placed over the boiler and one man standing on the platform behind the boiler shoveled coal, managed the throttle, and did the steering. It had been made by Nichols, Shepard & Company of Battle Creek. I found that out at once. The engine had stopped to let us pass with our horses and I was off the wagon and talking to the engineer before my father, who was driving, knew what I was up to. The engineer was very glad to explain the whole affair. He was proud of it. He showed me how the chain was disconnected from the propelling wheel and a belt put on to drive other machinery. He told me that the engine made two hundred revolutions a minute and that the chain pinion could be shifted to let the wagon stop while the engine was still running. This last is a feature which, although in different fashion, is incorporated into modern automobiles. It was not important with steam engines, which are easily stopped and started, but it became very important with the gasoline engine. It was that engine which took me into automotive transportation. I tried to make models of it, and some years later I did make one that ran very well, but from the time I saw that road engine as a boy of twelve right forward to to-day, my great interest has been in making a machine that would travel the roads. Driving to town I always had a pocket full of trinkets—nuts, washers, and odds and ends of machinery. Often I took a broken watch and tried to put it together. When I was thirteen I managed for the first time to put a watch together so that it would keep time. By the time I was fifteen I could do almost anything in watch repairing—although my tools were of the crudest. There is an immense amount to be learned simply by tinkering with things. It is not possible to learn from books how everything is made—and a real mechanic ought to know how nearly everything is made. Machines are to a mechanic what books are to a writer. He gets ideas from them, and if he has any brains he will apply those ideas.
From the beginning I never could work up much interest in the labour of farming. I wanted to have something to do with machinery. My father was not entirely in sympathy with my bent toward mechanics. He thought that I ought to be a farmer. When I left school at seventeen and became an apprentice in the machine shop of the Drydock Engine Works I was all but given up for lost. I passed my apprenticeship without trouble—that is, I was qualified to be a machinist long before my three-year term had expired—and having a liking for fine work and a leaning toward watches I worked nights at repairing in a jewelry shop. At one period of those early days I think that I must have had fully three hundred watches. I thought that I could build a serviceable watch for around thirty cents and nearly started in the business. But I did not because I figured out that watches were not universal necessities, and therefore people generally would not buy them. Just how I reached that surprising conclusion I am unable to state. I did not like the ordinary jewelry and watch making work excepting where the job was hard to do. Even then I wanted to make something in quantity. It was just about the time when the standard railroad time was being arranged. We had formerly been on sun time and for quite a while, just as in our present daylight-saving days, the railroad time differed from the local time. That bothered me a good deal and so I succeeded in making a watch that kept both times. It had two dials and it was quite a curiosity in the neighbourhood.
In 1879—that is, about four years after I first saw that Nichols-Shepard machine—I managed to get a chance to run one and when my apprenticeship was over I worked with a local representative of the Westinghouse Company of Schenectady as an expert in the setting up and repair of their road engines. The engine they put out was much the same as the Nichols-Shepard engine excepting that the engine was up in front, the boiler in the rear, and the power was applied to the back wheels by a belt. They could make twelve miles an hour on the road even though the self-propelling feature was only an incident of the construction. They were sometimes used as tractors to pull heavy loads and, if the owner also happened to be in the threshing-machine business, he hitched his threshing machine and other paraphernalia to the engine in moving from farm to farm. What bothered me was the weight and the cost. They weighed a couple of tons and were far too expensive to be owned by other than a farmer with a great deal of land. They were mostly employed by people who went into threshing as a business or who had sawmills or some other line that required portable power.
Even before that time I had the idea of making some kind of a light steam car that would take the place of horses—more especially, however, as a tractor to attend to the excessively hard labour of ploughing. It occurred to me, as I remember somewhat vaguely, that precisely the same idea might be applied to a carriage or a wagon on the road. A horseless carriage was a common idea. People had been talking about carriages without horses for many years back—in fact, ever since the steam engine was invented—but the idea of the carriage at first did not seem so practical to me as the idea of an engine to do the harder farm work, and of all the work on the farm ploughing was the hardest. Our roads were poor and we had not the habit of getting around. One of the most remarkable features of the automobile on the farm is the way that it has broadened the farmer's life. We simply took for granted that unless the errand were urgent we would not go to town, and I think we rarely made more than a trip a week. In bad weather we did not go even that often.
Being a full-fledged machinist and with a very fair workshop on the farm it was not difficult for me to build a steam wagon or tractor. In the building of it came the idea that perhaps it might be made for road use. I felt perfectly certain that horses, considering all the bother of attending them and the expense of feeding, did not earn their keep. The obvious thing to do was to design and build a steam engine that would be light enough to run an ordinary wagon or to pull a plough. I thought it more important first to develop the tractor. To lift farm drudgery off flesh and blood and lay it on steel and motors has been my most constant ambition. It was circumstances that took me first into the actual manufacture of road cars. I found eventually that people were more interested in something that would travel on the road than in something that would do the work on the farms. In fact, I doubt that the light farm tractor could have been introduced on the farm had not the farmer had his eyes opened slowly but surely by the automobile. But that is getting ahead of the story. I thought the farmer would be more interested in the tractor.
I built a steam car that ran. It had a kerosene-heated boiler and it developed plenty of power and a neat control—which is so easy with a steam throttle. But the boiler was dangerous. To get the requisite power without too big and heavy a power plant required that the engine work under high pressure; sitting on a high-pressure steam boiler is not altogether pleasant. To make it even reasonably safe required an excess of weight that nullified the economy of the high pressure. For two years I kept experimenting with various sorts of boilers—the engine and control problems were simple enough—and then I definitely abandoned the whole idea of running a road vehicle by steam. I knew that in England they had what amounted to locomotives running on the roads hauling lines of trailers and also there was no difficulty in designing a big steam tractor for use on a large farm. But ours were not then English roads; they would have stalled or racked to pieces the strongest and heaviest road tractor. And anyway the manufacturing of a big tractor which only a few wealthy farmers could buy did not seem to me worth while.
But I did not give up the idea of a horseless carriage. The work with the Westinghouse representative only served to confirm the opinion I had formed that steam was not suitable for light vehicles. That is why I stayed only a year with that company. There was nothing more that the big steam tractors and engines could teach me and I did not want to waste time on something that would lead nowhere. A few years before—it was while I was an apprentice—I read in the World of Science, an English publication, of the "silent gas engine" which was then coming out in England. I think it was the Otto engine. It ran with illuminating gas, had a single large cylinder, and the power impulses being thus intermittent required an extremely heavy fly-wheel. As far as weight was concerned it gave nothing like the power per pound of metal that a steam engine gave, and the use of illuminating gas seemed to dismiss it as even a possibility for road use. It was interesting to me only as all machinery was interesting. I followed in the English and American magazines which we got in the shop the development of the engine and most particularly the hints of the possible replacement of the illuminating gas fuel by a gas formed by the vaporization of gasoline. The idea of gas engines was by no means new, but this was the first time that a really serious effort had been made to put them on the market. They were received with interest rather than enthusiasm and I do not recall any one who thought that the internal combustion engine could ever have more than a limited use. All the wise people demonstrated conclusively that the engine could not compete with steam. They never thought that it might carve out a career for itself. That is the way with wise people—they are so wise and practical that they always know to a dot just why something cannot be done; they always know the limitations. That is why I never employ an expert in full bloom. If ever I wanted to kill opposition by unfair means I would endow the opposition with experts. They would have so much good advice that I could be sure they would do little work.
The gas engine interested me and I followed its progress, but only from curiosity, until about 1885 or 1886 when, the steam engine being discarded as the motive power for the carriage that I intended some day to build, I had to look around for another sort of motive power. In 1885 I repaired an Otto engine at the Eagle Iron Works in Detroit. No one in town knew anything about them. There was a rumour that I did and, although I had never before been in contact with one, I undertook and carried through the job. That gave me a chance to study the new engine at first hand and in 1887 I built one on the Otto four-cycle model just to see if I understood the principles. "Four cycle" means that the piston traverses the cylinder four times to get one power impulse. The first stroke draws in the gas, the second compresses it, the third is the explosion or power stroke, while the fourth stroke exhausts the waste gas. The little model worked well enough; it had a one-inch bore and a three-inch stroke, operated with gasoline, and while it did not develop much power, it was slightly lighter in proportion than the engines being offered commercially. I gave it away later to a young man who wanted it for something or other and whose name I have forgotten; it was eventually destroyed. That was the beginning of the work with the internal combustion engine.
I was then on the farm to which I had returned, more because I wanted to experiment than because I wanted to farm, and, now being an all-around machinist, I had a first-class workshop to replace the toy shop of earlier days. My father offered me forty acres of timber land, provided I gave up being a machinist. I agreed in a provisional way, for cutting the timber gave me a chance to get married. I fitted out a sawmill and a portable engine and started to cut out and saw up the timber on the tract. Some of the first of that lumber went into a cottage on my new farm and in it we began our married life. It was not a big house—thirty-one feet square and only a story and a half high—but it was a comfortable place. I added to it my workshop, and when I was not cutting timber I was working on the gas engines—learning what they were and how they acted. I read everything I could find, but the greatest knowledge came from the work. A gas engine is a mysterious sort of thing—it will not always go the way it should. You can imagine how those first engines acted!
It was in 1890 that I began on a double-cylinder engine. It was quite impractical to consider the single cylinder for transportation purposes—the fly-wheel had to be entirely too heavy. Between making the first four-cycle engine of the Otto type and the start on a double cylinder I had made a great many experimental engines out of tubing. I fairly knew my way about. The double cylinder I thought could be applied to a road vehicle and my original idea was to put it on a bicycle with a direct connection to the crankshaft and allowing for the rear wheel of the bicycle to act as the balance wheel. The speed was going to be varied only by the throttle. I never carried out this plan because it soon became apparent that the engine, gasoline tank, and the various necessary controls would be entirely too heavy for a bicycle. The plan of the two opposed cylinders was that, while one would be delivering power the other would be exhausting. This naturally would not require so heavy a fly-wheel to even the application of power. The work started in my shop on the farm. Then I was offered a job with the Detroit Electric Company as an engineer and machinist at forty-five dollars a month. I took it because that was more money than the farm was bringing me and I had decided to get away from farm life anyway. The timber had all been cut. We rented a house on Bagley Avenue, Detroit. The workshop came along and I set it up in a brick shed at the back of the house. During the first several months I was in the night shift at the electric-light plant—which gave me very little time for experimenting—but after that I was in the day shift and every night and all of every Saturday night I worked on the new motor. I cannot say that it was hard work. No work with interest is ever hard. I always am certain of results. They always come if you work hard enough. But it was a very great thing to have my wife even more confident than I was. She has always been that way.
I had to work from the ground up—that is, although I knew that a number of people were working on horseless carriages, I could not know what they were doing. The hardest problems to overcome were in the making and breaking of the spark and in the avoidance of excess weight. For the transmission, the steering gear, and the general construction, I could draw on my experience with the steam tractors. In 1892 I completed my first motor car, but it was not until the spring of the following year that it ran to my satisfaction. This first car had something of the appearance of a buggy. There were two cylinders with a two-and-a-half-inch bore and a six-inch stroke set side by side and over the rear axle. I made them out of the exhaust pipe of a steam engine that I had bought. They developed about four horsepower. The power was transmitted from the motor to the countershaft by a belt and from the countershaft to the rear wheel by a chain. The car would hold two people, the seat being suspended on posts and the body on elliptical springs. There were two speeds—one of ten and the other of twenty miles per hour—obtained by shifting the belt, which was done by a clutch lever in front of the driving seat. Thrown forward, the lever put in the high speed; thrown back, the low speed; with the lever upright the engine could run free. To start the car it was necessary to turn the motor over by hand with the clutch free. To stop the car one simply released the clutch and applied the foot brake. There was no reverse, and speeds other than those of the belt were obtained by the throttle. I bought the iron work for the frame of the carriage and also the seat and the springs. The wheels were twenty-eight-inch wire bicycle wheels with rubber tires. The balance wheel I had cast from a pattern that I made and all of the more delicate mechanism I made myself. One of the features that I discovered necessary was a compensating gear that permitted the same power to be applied to each of the rear wheels when turning corners. The machine altogether weighed about five hundred pounds. A tank under the seat held three gallons of gasoline which was fed to the motor through a small pipe and a mixing valve. The ignition was by electric spark. The original machine was air-cooled—or to be more accurate, the motor simply was not cooled at all. I found that on a run of an hour or more the motor heated up, and so I very shortly put a water jacket around the cylinders and piped it to a tank in the rear of the car over the cylinders. Nearly all of these various features had been planned in advance. That is the way I have always worked. I draw a plan and work out every detail on the plan before starting to build. For otherwise one will waste a great deal of time in makeshifts as the work goes on and the finished article will not have coherence. It will not be rightly proportioned. Many inventors fail because they do not distinguish between planning and experimenting. The largest building difficulties that I had were in obtaining the proper materials. The next were with tools. There had to be some adjustments and changes in details of the design, but what held me up most was that I had neither the time nor the money to search for the best material for each part. But in the spring of 1893 the machine was running to my partial satisfaction and giving an opportunity further to test out the design and material on the road.
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Climate change was a major factor behind the hot, dry weather that gave rise to the devastating LA fires, a scientific study has confirmed.
It made those weather conditions about 35% more likely, according to World Weather Attribution - globally recognised for their studies linking extreme weather to climate change.
The authors noted that the LA wildfire season is getting longer while the rains that normally put out the blazes have reduced.
The scientists highlight that these wildfires are highly complex with multiple factors playing a role, but they are confident that a warming climate is making LA more prone to intense fire events."Climate change increased the risk of the devastating LA wildfires," said Dr Clair Barnes, from Imperial College London, the study's lead author.
"Drought conditions are more frequently pushing into winter, increasing the chance a fire will break out during strong Santa Ana winds that can turn small ignitions into deadly infernos."
The Santa Ana winds are strong and gusty east or north-easterly winds that blow from inland California towards the coast.Around 30 people have died and more than 10,000 homes have been destroyed in the fast-spreading, destructive fires that broke out in early January.
This new study looks at what are termed the fire-prone conditions that can lead to dangerous conflagrations.
It's been carried out by a team of researchers from World Weather Attribution (WWA), a global group that publishes rapid analyses of climate-related weather events.
They use climate models to simulate how the warming that has occurred since the middle of the 19th century is influencing heatwaves, droughts, floods and fires.
The widespread burning of coal, oil and gas in the wake of the industrial revolution has driven billions of tonnes of planet-warming gases into the atmosphere.
Acting like a blanket, these gases have driven up temperatures by around 1.2C since then.
By using climate models and statistical methods along with real world observations, the WWA group have been able to show how much of an influence climate warming has had on extreme events.
In the case of the LA fires, they found that the hot, dry conditions that drove them are expected to occur once every 17 years.
This is an increase in likelihood of around 35% compared to a world that hadn't experienced warming.
"We actually see that the models show very much the same results that the [real world] observations have," said Dr Friederike Otto, the head of World Weather Attribution.
"So there, in this combined index, we are quite confident about the result... we have actually a signal that we can say that we definitely can attribute that, also quantitatively."
The researchers also examined other important variables that can lead to wildfire including the length of the fire season.
By analysing weather observations, the scientists found that this has increased by around 23 days since the world began warming, around 1850.
The team say that this means the dry conditions and the Santa Ana winds that are crucial for the spread of fires, are increasingly overlapping.Another key element is drought.
Dry conditions in the LA area over the October to December period are now about 2.4 times more likely than before humans starting using fossil fuels on a large scale.
The researchers are clear that climate change increased the probability of the hot, dry conditions that gave rise to the fires.
However, the authors are more cautious about the link between rising temperatures and the longer fire season or decreased rainfall, saying that the models did not show a significant connection.
Despite these reservations, the conclusion is that a warmer world increased the chances of the devastating wildfires occurring - as more fossil fuels continue to be burnt, those chances will continue to rise.
"Overall the paper finds that climate change has made the Los Angeles fires more likely despite some statistical uncertainty," said Prof Gabi Hegerl, from the University of Edinburgh, who was not part of the study team.
"This is a carefully researched result that should be taken seriously," she said in a statement.The new work builds on research that was published while the fires were still burning fiercely.
That study linked the wildfires to what's termed "climate whiplash."
The idea is that very wet years are followed almost immediately by very dry ones, which increases the risk of fires.
This is what happened in LA, when two wet winters were followed by an extremely dry autumn and winter this year – the wet weather promoted the growth of grass and shrubs that became the fuel for the fires that took off in the gusting Santa Ana winds.
source:https://www.bbc.com/news/articles/cd9qy4knd8wo
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US officials are considering the national security implications of an apparent artificial intelligence (AI) breakthrough by Chinese firm DeepSeek, according to White House press secretary Karoline Leavitt.
The announcement comes after the US navy reportedly banned its members from using DeepSeek's apps due to "potential security and ethical concerns".
Meanwhile, the maker of ChatGPT, OpenAI, has promised to work closely with the US government to prevent rivals from taking its technology.
Earlier this week, DeepSeek's reportedly cheap yet powerful AI model caused a slump in the stocks of US technology firms as investors questioned the billions of dollars they are spending on new AI infrastructure."I spoke with [the National Security Council] this morning, they are looking into what [the national security implications] may be," said Ms Leavitt, who also restated US President Donald Trump's remarks a day earlier that DeepSeek should be a wake-up call for the US tech industry.
According to CNBC, the US navy has sent an email to its staff warning them not to use the DeepSeek app due to "potential security and ethical concerns associated with the model's origin and usage".
The Navy did not immediately respond to a request for comment from BBC News.
Speaking on Fox News, the recently appointed "White House AI and crypto czar", David Sacks, also suggested that DeepSeek may have used the models developed by top US firm OpenAI to get better.
This process - which involves one AI model learning from another - is called knowledge distillation.
"There's substantial evidence that what DeepSeek did here is they distilled the knowledge out of OpenAI's models," Mr Sacks said. "I think one of the things you're going to see over the next few months is our leading AI companies taking steps to try and prevent distillation... That would definitely slow down some of these copycat models."
OpenAI echoed this in a later statement that said Chinese and other companies are "constantly trying to distill the models of leading US AI companies."
"As the leading builder of AI, we engage in countermeasures to protect our [intellectual property]... and believe as we go forward that it is critically important that we are working closely with the U.S. government to best protect the most capable models".
Meanwhile, DeepSeek says it has been the target of cyber attacks. On Monday it said it would temporarily limit registrations because of "large-scale malicious attacks" on its software.
A banner currently showing on the company's website says registration may be busy as a result of the attacks.
Yuyuan Tantian, a social media channel under China's state broadcaster CCTV, claims the firm has faced "several" cyber attacks in recent weeks, which have increased in "intensity".DeepSeek shot to fame last week as AI geeks lauded its latest AI model and people began downloading its chatbot on app stores. Its rise caused a slump in US tech stocks, many of which have since recovered some ground.
But America's AI industry was shaken by the apparent breakthrough, especially because of the prevailing view that the US was far ahead in the race. A slew of trade restrictions banning China's access to high-end chips was believed to have cemented this.
Although China has boosted investment in advanced tech to diversify its economy, DeepSeek is not one of the big Chinese firms that have been developing AI models to rival US-made ChatGPT.
Experts say the US still has an advantage - it is home to some of the biggest chip companies - and that it's unclear yet exactly how DeepSeek built its model and how far it can go.
As DeepSeek rattled markets this week, President Trump described it as "a wake-up call" for the US tech industry, while suggesting that it could ultimately prove to be a "positive" sign.
"If you could do it cheaper, if you could do it [for] less [and] get to the same end result. I think that's a good thing for us," he told reporters on board Air Force One.
He also said he was not concerned about the breakthrough, adding the US will remain a dominant player in the field.
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Sanctioned Russian oligarch Roman Abramovich could owe the UK up to £1bn after a botched attempt to avoid tax on hedge fund investments, evidence seen by the BBC suggests.
Leaked papers reveal investments worth $6bn (£4.7bn) were routed through companies in the British Virgin Islands (BVI). But evidence suggests they were managed from the UK, so should have been taxed there.
Some of the money that funded Chelsea FC when Mr Abramovich owned it can be traced back to companies involved in the scheme, the BBC and the Bureau of Investigative Journalism (TBIJ) also found.
The oligarch's lawyers said he "always obtained independent expert professional tax and legal advice" and "acted in accordance with that advice". He denies having any knowledge or being personally responsible for any unpaid tax.Joe Powell, a Labour MP who leads a Parliamentary group on fair taxation, called on HM Revenue and Customs to "urgently" investigate the case to recover what could be "very significant amounts of money that could be invested in public services".
At the heart of the scheme was Eugene Shvidler, a former Chelsea FC director and a billionaire businessman in his own right, who is currently challenging the UK government's decision to sanction him for his close links to Mr Abramovich.
Mr Shvidler moved to the USA after Russia's invasion of Ukraine, but from 2004 until 2022 he lived in the UK, with properties in London and Surrey.
A tax expert told the BBC that evidence Mr Shvidler had been making strategic decisions on the investments while based in the UK, and not in the BVI, was "a pretty big smoking gun", suggesting the companies should have been paying UK tax.
Lawyers for Mr Shvidler said the BBC was basing its reporting on "confidential business documents that present an incomplete picture" and had "drawn strong and erroneous conclusions as to Mr Shvidler's conduct".
They said "the structure of investments" was "the subject of very careful and detailed tax planning, undertaken and advised on by leading tax advisors".
The scheme involving Mr Abramovich's hedge fund investments was revealed in a huge leak of data that the BBC and the Bureau of Investigative Journalism have been examining for over a year - thousands of files and emails from a Cyprus-based company that administered Mr Abramovich's global empire.The leaked data shows how Mr Abramovich invested a large part of the wealth he acquired in the 1990s through a corrupt deal - ploughing it into a company in the BVI called Keygrove Holdings Ltd.
A network of British Virgin Islands companies owned by Keygrove invested this money - up to $6bn (£4.8bn) between the late 1990s and early 2020s - into Western hedge funds, according to the leaked files.
These investments made the oligarch an estimated $3.8bn (£3.1bn) in profits over almost two decades. By making the investments through companies in the BVI, which does not levy tax on corporate profits, the scheme appears to be set up to ensure as little tax as possible was paid.It is not unusual for businesses to legally avoid paying tax on their profits by making their investments from companies in tax havens. But the companies involved must be managed and controlled offshore where they are incorporated.
If an offshore company's strategic decisions are being taken by someone in the UK, its profits could be taxed as if it were a UK company.
The leaked documents show how the directors of the BVI investment companies handed sweeping powers over them to Mr Shvidler, who was living in the UK and gained British citizenship in 2010.
The BBC has seen "general power of attorney" documents dated between 2004 and 2008, that gave him the "broadest possible powers" and "full power to do everything and anything" to investment companies in the BVI.From 2008, Mr Shvidler appears to have acquired the power to direct the investments of Keygrove, which owned the BVI companies, through another company.
Millennium Capital Ventures Ltd, which was owned indirectly by Mr Shvidler's wife and appointed him as a director in 2000, became Keygrove's investment manager. It was assigned "full power and authority to supervise and direct" the investment of the assets, "all without prior consultation with client".Further evidence of Mr Shvidler's crucial role in the investment decisions of the BVI companies emerged in a court case brought in September 2023 by the US Securities and Exchange Commission (SEC) against a New York firm called Concord Management.
The SEC filing says that Concord had only one client, since identified as Mr Abramovich. The company advised on investment decisions for the oligarch's BVI companies.
It identifies a "longtime close associate" of Mr Abramovich, referred to as "Person B", who "made investment decisions" for Mr Abramovich.
It says he was "the point of contact for receiving investment advice" and "for either deciding or communicating the decision whether to go forward with recommended transactions".
Using the leaked documents, the BBC was able to identify "Person B" as Eugene Shvidler.
The evidence suggests Mr Shvidler was making the decisions described by the SEC, managing and controlling Mr Abramovich's investments, from the UK rather than the BVI.Tax expert Rita de le Feria told the BBC that evidence a UK resident, such as Mr Shvidler, was taking "strategic big decisions" on the hedge fund investments was a "clear indication" the huge profits should have been taxed by the UK.
"I think this is a pretty big smoking gun. That would be, again, strong evidence that the effective management of the company was not taking place in the BVI," she said.
Mr Shvidler's lawyers said there can be "no question of Mr Shvidler, either knowingly or negligently, being involved in an unlawful scheme to avoid paying tax".
Lawyers for Mr Abramovich said that in addition to the advice he obtained over his tax affairs, he "expects that similar advice was sought" by those with responsibility for running companies related to him.
The leaked documents also reveal how large amounts of the untaxed profits from Mr Abramovich's hedge fund investments passed through a network of the oligarch's companies before flowing into Chelsea FC.
The hedge fund investments flowed back into his companies in the BVI and then into Keygrove, their parent company.
Keygrove then loaned out money to other companies in Mr Abramovich's network, which in turn lent money to Camberley International Investments Ltd - a company set up to bankroll Chelsea FC.
By 2021, when Chelsea won the Champions League, Club World Cup and UEFA Super Cup, hundreds of millions of dollars in loans to the club could be traced back to companies benefiting from Mr Abramovich's untaxed hedge fund investments.If HMRC were to investigate, how much could Mr Abramovich or the companies concerned owe?
We have assessed the profits made by the investment companies in the BVI from 1999 to 2018.
The leaked documents only contain complete accounts for the companies investing in hedge funds from 2013 to 2018.
But we can estimate how much money the companies involved were likely to have made over the entire period by looking at their "revenue reserves". These are profits kept in the businesses, rather than being paid out to shareholders. By the end of 2018 this amounted to $3.8bn.
Applying historical UK corporation tax and currency conversion rates to the revenue reserves up to 2012, and the yearly profits to 2018, amounts to a potential tax bill of more than £500m owed to HMRCBut in the event of an enquiry into unpaid tax, HMRC can also impose late payment interest and penalties for failure to notify the authorities.
If tax has gone unpaid, then depending on whether an investigation concluded those responsible knew but did not tell HMRC, or whether they did not know, the total amount due could range from almost £700m to over £1bn.
There is a possibility that some tax on the profits could not be recovered, as HMRC investigations can only go back a maximum of 20 years.
However, our calculations are also likely to be an underestimate, because we have applied the lowest rate of corporation tax that existed between 1999 and 2012, and it is possible profits had been extracted from the companies in that period that we have not included in our sums.
In any event, Mr Abramovich's tax bill could dwarf the £653m bill imposed on Formula One boss Bernie Ecclestone in 2023.
Frozen funds
Following Russia's full-scale invasion of Ukraine, the British government allowed Roman Abramovich to sell Chelsea FC to Todd Boehly. It did so on the condition that £2.5bn from the proceeds would be donated to charities supporting victims of the war in Ukraine.
Nearly three years later, the money still sits in a frozen Barclays bank account, reportedly due to disagreement over how it should be spent, with Mr Abramovich wanting the money to go to "all the victims" of the war, and the UK government insisting it should be spent solely on humanitarian aid in Ukraine.
The BBC's investigation suggests that, just as Ukrainians are waiting for money from the former Chelsea boss, so is the British taxpayer.
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The primary object of a manufacturing business is to produce, and if that objective is always kept, finance becomes a wholly secondary matter that has largely to do with bookkeeping. My own financial operations have been very simple. I started with the policy of buying and selling for cash, keeping a large fund of cash always on hand, taking full advantage of all discounts, and collecting interest on bank balances. I regard a bank principally as a place in which it is safe and convenient to keep money. The minutes we spend on a competitor's business we lose on our own. The minutes we spend in becoming expert in finance we lose in production. The place to finance a manufacturing business is the shop, and not the bank. I would not say that a man in business needs to know nothing at all about finance, but he is better off knowing too little than too much, for if he becomes too expert he will get into the way of thinking that he can borrow money instead of earning it and then he will borrow more money to pay back what he has borrowed, and instead of being a business man he will be a note juggler, trying to keep in the air a regular flock of bonds and notes.
If he is a really expert juggler, he may keep going quite a long time in this fashion, but some day he is bound to make a miss and the whole collection will come tumbling down around him. Manufacturing is not to be confused with banking, and I think that there is a tendency for too many business men to mix up in banking and for too many bankers to mix up in business. The tendency is to distort the true purposes of both business and banking and that hurts both of them. The money has to come out of the shop, not out of the bank, and I have found that the shop will answer every possible requirement, and in one case, when it was believed that the company was rather seriously in need of funds, the shop when called on raised a larger sum than any bank in this country could loan.
We have been thrown into finance mostly in the way of denial. Some years back we had to keep standing a denial that the Ford Motor Company was owned by the Standard Oil Company and with that denial, for convenience's sake, we coupled a denial that we were connected with any other concern or that we intended to sell cars by mail. Last year the best-liked rumour was that we were down in Wall Street hunting for money. I did not bother to deny that. It takes too much time to deny everything. Instead, we demonstrated that we did not need any money. Since then I have heard nothing more about being financed by Wall Street.
We are not against borrowing money and we are not against bankers. We are against trying to make borrowed money take the place of work. We are against the kind of banker who regards a business as a melon to be cut. The thing is to keep money and borrowing and finance generally in their proper place, and in order to do that one has to consider exactly for what the money is needed and how it is going to be paid off.
Money is only a tool in business. It is just a part of the machinery. You might as well borrow 100,000 lathes as $100,000 if the trouble is inside your business. More lathes will not cure it; neither will more money. Only heavier doses of brains and thought and wise courage can cure. A business that misuses what it has will continue to misuse what it can get. The point is—cure the misuse. When that is done, the business will begin to make its own money, just as a repaired human body begins to make sufficient pure blood.
Borrowing may easily become an excuse for not boring into the trouble. Borrowing may easily become a sop for laziness and pride. Some business men are too lazy to get into overalls and go down to see what is the matter. Or they are too proud to permit the thought that anything they have originated could go wrong. But the laws of business are like the law of gravity, and the man who opposes them feels their power.
Borrowing for expansion is one thing; borrowing to make up for mismanagement and waste is quite another. You do not want money for the latter—for the reason that money cannot do the job. Waste is corrected by economy; mismanagement is corrected by brains. Neither of these correctives has anything to do with money. Indeed, money under certain circumstances is their enemy. And many a business man thanks his stars for the pinch which showed him that his best capital was in his own brains and not in bank loans. Borrowing under certain circumstances is just like a drunkard taking another drink to cure the effect of the last one. It does not do what it is expected to do. It simply increases the difficulty. Tightening up the loose places in a business is much more profitable than any amount of new capital at 7 per cent.
The internal ailments of business are the ones that require most attention. "Business" in the sense of trading with the people is largely a matter of filling the wants of the people. If you make what they need, and sell it at a price which makes possession a help and not a hardship, then you will do business as long as there is business to do. People buy what helps them just as naturally as they drink water.
But the process of making the article will require constant care. Machinery wears out and needs to be restored. Men grow uppish, lazy, or careless. A business is men and machines united in the production of a commodity, and both the man and the machines need repairs and replacements. Sometimes it is the men "higher up" who most need revamping—and they themselves are always the last to recognize it. When a business becomes congested with bad methods; when a business becomes ill through lack of attention to one or more of its functions; when executives sit comfortably back in their chairs as if the plans they inaugurated are going to keep them going forever; when business becomes a mere plantation on which to live, and not a big work which one has to do—then you may expect trouble. You will wake up some fine morning and find yourself doing more business than you have ever done before—and getting less out of it. You find yourself short of money. You can borrow money. And you can do it, oh, so easily. People will crowd money on you. It is the most subtle temptation the young business man has. But if you do borrow money you are simply giving a stimulant to whatever may be wrong. You feed the disease. Is a man more wise with borrowed money than he is with his own? Not as a usual thing. To borrow under such conditions is to mortgage a declining property.
The time for a business man to borrow money, if ever, is when he does not need it. That is, when he does not need it as a substitute for the things he ought himself to do. If a man's business is in excellent condition and in need of expansion, it is comparatively safe to borrow. But if a business is in need of money through mismanagement, then the thing to do is to get into the business and correct the trouble from the inside—not poultice it with loans from the outside.
My financial policy is the result of my sales policy. I hold that it is better to sell a large number of articles at a small profit than to sell a few at a large profit. This enables a larger number of people to buy and it gives a larger number of men employment at good wages. It permits the planning of production, the elimination of dull seasons, and the waste of carrying an idle plant. Thus results a suitable, continuous business, and if you will think it over, you will discover that most so-called urgent financing is made necessary because of a lack of planned, continuous business. Reducing prices is taken by the short-sighted to be the same as reducing the income of a business. It is very difficult to deal with that sort of a mind because it is so totally lacking in even the background knowledge of what business is. For instance, I was once asked, when contemplating a reduction of eighty dollars a car, whether on a production of five hundred thousand cars this would not reduce the income of the company by forty million dollars. Of course if one sold only five hundred thousand cars at the new price, the income would be reduced forty million dollars—which is an interesting mathematical calculation that has nothing whatsoever to do with business, because unless you reduce the price of an article the sales do not continuously increase and therefore the business has no stability.
If a business is not increasing, it is bound to be decreasing, and a decreasing business always needs a lot of financing. Old-time business went on the doctrine that prices should always be kept up to the highest point at which people will buy. Really modern business has to take the opposite view.
Bankers and lawyers can rarely appreciate this fact. They confuse inertia with stability. It is perfectly beyond their comprehension that the price should ever voluntarily be reduced. 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 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 production stream and the order stream are not approximately equal we should be either jammed with unsold parts or behind in our orders. When you are turning out the parts to make 4,000 cars a day, just a very little carelessness in overestimating orders will pile up a finished inventory running into the millions. That makes the balancing of operations an exceedingly delicate matter.
In order to earn the proper profit on our narrow margin we must have a rapid turnover. We make cars to sell, not to store, and a month's unsold production would turn into a sum the interest on which alone would be enormous. The production is planned a year ahead and the number of cars to be made in each month of the year is scheduled, for of course it is a big problem to have the raw materials and such parts as we still buy from the outside flowing in consonance with production. We can no more afford to carry large stocks of finished than we can of raw material. Everything has to move in and move out. And we have had some narrow escapes. Some years ago the plant of the Diamond Manufacturing Company burned down. They were making radiator parts for us and the brass parts—tubings and castings. We had to move quickly or take a big loss. We got together the heads of all our departments, the pattern-makers and the draughtsmen. They worked from twenty-four to forty-eight hours on a stretch. They made new patterns; the Diamond Company leased a plant and got some machinery in by express. We furnished the other equipment for them and in twenty days they were shipping again. We had enough stock on hand to carry us over, say, for seven or eight days, but that fire prevented us shipping cars for ten or fifteen days. Except for our having stock ahead it would have held us up for twenty days—and our expenses would have gone right on.
To repeat. The place in which to finance is the shop. It has never failed us, and once, when it was thought that we were hard up for money, it served rather conclusively to demonstrate how much better finance can be conducted from the inside than from the outside.
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The employer has to live by the year. The workman has to live by the year. But both of them, as a rule, work by the week. They get an order or a job when they can and at the price they can. During what is called a prosperous time, orders and jobs are plentiful. During a "dull" season they are scarce. Business is always either feasting or fasting and is always either "good" or "bad." Although there is never a time when everyone has too much of this world's goods—when everyone is too comfortable or too happy—there come periods when we have the astounding spectacle of a world hungry for goods and an industrial machine hungry for work and the two—the demand and the means of satisfying it—held apart by a money barrier. Both manufacturing and employment are in-and-out affairs. Instead of a steady progression we go ahead by fits and starts—now going too fast, now stopping altogether. When a great many people want to buy, there is said to be a shortage of goods. When nobody wants to buy, there is said to be an overproduction of goods. I know that we have always had a shortage of goods, but I do not believe we have ever had an overproduction. We may have, at a particular time, too much of the wrong kind of goods. That is not overproduction—that is merely headless production. We may also have great stocks of goods at too high prices. That is not overproduction—it is either bad manufacturing or bad financing. Is business good or bad according to the dictates of fate? Must we accept the conditions as inevitable? Business is good or bad as we make it so. The only reason for growing crops, for mining, or for manufacturing, is that people may eat, keep warm, have clothing to wear, and articles to use. There is no other possible reason, yet that reason is forced into the background and instead we have operations carried on, not to the end of service, but to the end of making money—and this because we have evolved a system of money that instead of being a convenient medium of exchange, is at times a barrier to exchange. Of this more later.
We suffer frequent periods of so-called bad luck only because we manage so badly. If we had a vast crop failure, I can imagine the country going hungry, but I cannot conceive how it is that we tolerate hunger and poverty, when they grow solely out of bad management, and especially out of the bad management that is implicit in an unreasoned financial structure. Of course the war upset affairs in this country. It upset the whole world. There would have been no war had management been better. But the war alone is not to blame. The war showed up a great number of the defects of the financial system, but more than anything else it showed how insecure is business supported only by a money foundation. I do not know whether bad business is the result of bad financial methods or whether the wrong motive in business created bad financial methods, but I do know that, while it would be wholly undesirable to try to overturn the present financial system, it is wholly desirable to reshape business on the basis of service. Then a better financial system will have to come. The present system will drop out because it will have no reason for being. The process will have to be a gradual one.
The start toward the stabilization of his own affairs may be made by any one. One cannot achieve perfect results acting alone, but as the example begins to sink in there will be followers, and thus in the course of time we can hope to put inflated business and its fellow, depressed business, into a class with small-pox—that is, into the class of preventable diseases. It is perfectly possible, with the reorganization of business and finance that is bound to come about, to take the ill effect of seasons, if not the seasons, out of industry, and also the periodic depressions. Farming is already in process of reorganization. When industry and farming are fully reorganized they will be complementary; they belong together, not apart. As an indication, take our valve plant. We established it eighteen miles out in the country so that the workers could also be farmers. By the use of machinery farming need not consume more than a fraction of the time it now consumes; the time nature requires to produce is much larger than that required for the human contribution of seeding, cultivating, and harvesting; in many industries where the parts are not bulky it does not make much difference where they are made. By the aid of water power they can well be made out in farming country. Thus we can, to a much larger degree than is commonly known, have farmer-industrialists who both farm and work under the most scientific and healthful conditions. That arrangement will care for some seasonal industries; others can arrange a succession of products according to the seasons and the equipment, and still others can, with more careful management, iron out their seasons. A complete study of any specific problem will show the way.
The periodic depressions are more serious because they seem so vast as to be uncontrollable. Until the whole reorganization is brought about, they cannot be wholly controlled, but each man in business can easily do something for himself and while benefiting his own organization in a very material way, also help others. The Ford production has not reflected good times or bad times; it has kept right on regardless of conditions excepting from 1917 to 1919, when the factory was turned over to war work. The year 1912-1913 was supposed to be a dull one; although now some call it "normal"; we all but doubled our sales; 1913-1914 was dull; we increased our sales by more than a third. The year 1920-1921 is supposed to have been one of the most depressed in history; we sold a million and a quarter cars, or about five times as many as in 1913-1914—the "normal year." There is no particular secret in it. It is, as is everything else in our business, the inevitable result of the application of a principle which can be applied to any business.
We now have a minimum wage of six dollars a day paid without reservation. The people are sufficiently used to high wages to make supervision unnecessary. The minimum wage is paid just as soon as a worker has qualified in his production—which is a matter that depends upon his own desire to work. We have put our estimate of profits into the wage and are now paying higher wages than during the boom times after the war. But we are, as always, paying them on the basis of work. And that the men do work is evidenced by the fact that although six dollars a day is the minimum wage, about 60 per cent. of the workers receive above the minimum. The six dollars is not a flat but a minimum wage.
Consider first the fundamentals of prosperity. Progress is not made by pulling off a series of stunts. Each step has to be regulated. A man cannot expect to progress without thinking. Take prosperity. A truly prosperous time is when the largest number of people are getting all they can legitimately eat and wear, and are in every sense of the word comfortable. It is the degree of the comfort of the people at large—not the size of the manufacturer's bank balance—that evidences prosperity. The function of the manufacturer is to contribute to this comfort. He is an instrument of society and he can serve society only as he manages his enterprises so as to turn over to the public an increasingly better product at an ever-decreasing price, and at the same time to pay to all those who have a hand in his business an ever-increasing wage, based upon the work they do. In this way and in this way alone can a manufacturer or any one in business justify his existence.
We are not much concerned with the statistics and the theories of the economists on the recurring cycles of prosperity and depression. They call the periods when prices are high "prosperous." A really prosperous period is not to be judged on the prices that manufacturers are quoting for articles.
We are not concerned with combinations of words. If the prices of goods are above the incomes of the people, then get the prices down to the incomes. Ordinarily, business is conceived as starting with a manufacturing process and ending with a consumer. If that consumer does not want to buy what the manufacturer has to sell him and has not the money to buy it, then the manufacturer blames the consumer and says that business is bad, and thus, hitching the cart before the horse, he goes on his way lamenting. Isn't that nonsense?
Does the manufacturer exist for the consumer or does the consumer exist for the manufacturer? If the consumer will not—says he cannot—buy what the manufacturer has to offer, is that the fault of the manufacturer or the consumer? Or is nobody at fault? If nobody is at fault then the manufacturer must go out of business.
But what business ever started with the manufacturer and ended with the consumer? Where does the money to make the wheels go round come from? From the consumer, of course. And success in manufacture is based solely upon an ability to serve that consumer to his liking. He may be served by quality or he may be served by price. He is best served by the highest quality at the lowest price, and any man who can give to the consumer the highest quality at the lowest price is bound to be a leader in business, whatever the kind of an article he makes. There is no getting away from this.
Then why flounder around waiting for good business? Get the costs down by better management. Get the prices down to the buying power.
Cutting wages is the easiest and most slovenly way to handle the situation, not to speak of its being an inhuman way. It is, in effect, throwing upon labour the incompetency of the managers of the business. If we only knew it, every depression is a challenge to every manufacturer to put more brains into his business—to overcome by management what other people try to overcome by wage reduction. To tamper with wages before all else is changed, is to evade the real issue. And if the real issue is tackled first, no reduction of wages may be necessary. That has been my experience. The immediate practical point is that, in the process of adjustment, someone will have to take a loss. And who can take a loss except those who have something which they can afford to lose? But the expression, "take a loss," is rather misleading. Really no loss is taken at all. It is only a giving up of a certain part of the past profits in order to gain more in the future. I was talking not long since with a hardware merchant in a small town. He said:
"I expect to take a loss of $10,000 on my stock. But of course, you know, it isn't really like losing that much. We hardware men have had pretty good times. Most of my stock was bought at high prices, but I have already sold several stocks and had the benefit of them. Besides, the ten thousand dollars which I say I will lose are not the same kind of dollars that I used to have. They are, in a way, speculative dollars. They are not the good dollars that bought 100 cents' worth. So, though my loss may sound big, it is not big. And at the same time I am making it possible for the people in my town to go on building their houses without being discouraged by the size of the hardware item."
He is a wise merchant. He would rather take less profit and keep business moving than keep his stock at high prices and bar the progress of his community. A man like that is an asset to a town. He has a clear head. He is better able to swing the adjustment through his inventory than through cutting down the wages of his delivery men—through cutting down their ability to buy.
He did not sit around holding on to his prices and waiting for something to turn up. He realized what seems to have been quite generally forgotten—that it is part of proprietorship every now and again to lose money. We had to take our loss.
Our sales eventually fell off as all other sales fell off. We had a large inventory and, taking the materials and parts in that inventory at their cost price, we could not turn out a car at a price lower than we were asking, but that was a price which on the turn of business was higher than people could or wanted to pay. We closed down to get our bearings. We were faced with making a cut of $17,000,000 in the inventory or taking a much larger loss than that by not doing business. So there was no choice at all.
That is always the choice that a man in business has. He can take the direct loss on his books and go ahead and do business or he can stop doing business and take the loss of idleness. The loss of not doing business is commonly a loss greater than the actual money involved, for during the period of idleness fear will consume initiative and, if the shutdown is long enough, there will be no energy left over to start up with again.
There is no use waiting around for business to improve. If a manufacturer wants to perform his function, he must get his price down to what people will pay. There is always, no matter what the condition, a price that people can and will pay for a necessity, and always, if the will is there, that price can be met.
It cannot be met by lowering quality or by shortsighted economy, which results only in a dissatisfied working force. It cannot be met by fussing or buzzing around. It can be met only by increasing the efficiency of production and, viewed in this fashion, each business depression, so-called, ought to be regarded as a challenge to the brains of the business community. Concentrating on prices instead of on service is a sure indication of the kind of business man who can give no justification for his existence as a proprietor.
This is only another way of saying that sales should be made on the natural basis of real value, which is the cost of transmuting human energy into articles of trade and commerce. But that simple formula is not considered business-like. It is not complex enough. We have "business" which takes the most honest of all human activities and makes them subject to the speculative shrewdness of men who can produce false shortages of food and other commodities, and thus excite in society anxiety of demand. We have false stimulation and then false numbness.
Economic justice is being constantly and quite often innocently violated. You may say that it is the economic condition which makes mankind what it is; or you may say that it is mankind that makes the economic condition what it is. You will find many claiming that it is the economic system which makes men what they are. They blame our industrial system for all the faults which we behold in mankind generally. And you will find other men who say that man creates his own conditions; that if the economic, industrial, or social system is bad, it is but a reflection of what man himself is. What is wrong in our industrial system is a reflection of what is wrong in man himself. Manufacturers hesitate to admit that the mistakes of the present industrial methods are, in part at least, their own mistakes, systematized and extended. But take the question outside of a man's immediate concerns, and he sees the point readily enough.
No doubt, with a less faulty human nature a less faulty social system would have grown up. Or, if human nature were worse than it is, a worse system would have grown up—though probably a worse system would not have lasted as long as the present one has. But few will claim that mankind deliberately set out to create a faulty social system. Granting without reserve that all faults of the social system are in man himself, it does not follow that he deliberately organized his imperfections and established them. We shall have to charge a great deal up to ignorance. We shall have to charge a great deal up to innocence.
Take the beginnings of our present industrial system. There was no indication of how it would grow. Every new advance was hailed with joy. No one ever thought of "capital" and "labour" as hostile interests. No one ever dreamed that the very fact of success would bring insidious dangers with it. And yet with growth every imperfection latent in the system came out. A man's business grew to such proportions that he had to have more helpers than he knew by their first names; but that fact was not regretted; it was rather hailed with joy. And yet it has since led to an impersonal system wherein the workman has become something less than a person—a mere part of the system. No one believes, of course, that this dehumanizing process was deliberately invented. It just grew. It was latent in the whole early system, but no one saw it and no one could foresee it. Only prodigious and unheard-of development could bring it to light.
Take the industrial idea; what is it? The true industrial idea is not to make money. The industrial idea is to express a serviceable idea, to duplicate a useful idea, by as many thousands as there are people who need it.
To produce, produce; to get a system that will reduce production to a fine art; to put production on such a basis as will provide means for expansion and the building of still more shops, the production of still more thousands of useful things—that is the real industrial idea. The negation of the industrial idea is the effort to make a profit out of speculation instead of out of work. There are short-sighted men who cannot see that business is bigger than any one man's interests. Business is a process of give and take, live and let live. It is cooperation among many forces and interests. Whenever you find a man who believes that business is a river whose beneficial flow ought to stop as soon as it reaches him you find a man who thinks he can keep business alive by stopping its circulation. He would produce wealth by this stopping of the production of wealth.
The principles of service cannot fail to cure bad business. Which leads us into the practical application of the principles of service and finance.
