Chapter 3 - Starting the Real Business
In the little brick shop at 81 Park Place I had ample opportunity to work out the design and some of the methods of manufacture of a new car. Even if it were possible to organize the exact kind of corporation that I wanted--one in which doing the work well and suiting the public would be controlling factors--it became apparent that I never could produce a thoroughly good motor car that might be sold at a low price under the existing cut-and-try manufacturing methods.
Everybody knows that it is always possible to do a thing better the second time. I do not know why manufacturing should not at that time have generally recognized this as a basic fact--unless it might be that the manufacturers were in such a hurry to obtain something to sell that they did not take time for adequate preparation. Making "to order" instead of making in volume is, I suppose, a habit, a tradition, that has descended from the old handicraft days. Ask a hundred people how they want a particular article made. About eighty will not know; they will leave it to you. Fifteen will think that they must say something, while five will really have preferences and reasons. The ninety-five, made up of those who do not know and admit it and the fifteen who do not know but do not admit it, constitute the real market for any product. The five who want something special may or may not be able to pay the price for special work. If they have the price, they can get the work, but they constitute a special and limited market. Of the ninety-five perhaps ten or fifteen will pay a price for quality. Of those remaining, a number will buy solely on price and without regard to quality. Their numbers are thinning with each day. Buyers are learning how to buy. The majority will consider quality and buy the biggest dollar's worth of quality. If, therefore, you discover what will give this 95 per cent. of people the best all-round service and then arrange to manufacture at the very highest quality and sell at the very lowest price, you will be meeting a demand which is so large that it may be called universal.
This is not standardizing. The use of the word "standardizing" is very apt to lead one into trouble, for it implies a certain freezing of design and method and usually works out so that the manufacturer selects whatever article he can the most easily make and sell at the highest profit. The public is not considered either in the design or in the price. The thought behind most standardization is to be able to make a larger profit. The result is that with the economies which are inevitable if you make only one thing, a larger and larger profit is continually being had by the manufacturer. His output also becomes larger--his facilities produce more--and before he knows it his markets are overflowing with goods which will not sell. These goods would sell if the manufacturer would take a lower price for them. There is always buying power present--but that buying power will not always respond to reductions in price. If an article has been sold at too high a price and then, because of stagnant business, the price is suddenly cut, the response is sometimes most disappointing. And for a very good reason. The public is wary. It thinks that the price-cut is a fake and it sits around waiting for a real cut. We saw much of that last year. If, on the contrary, the economies of making are transferred at once to the price and if it is well known that such is the policy of the manufacturer, the public will have confidence in him and will respond. They will trust him to give honest value. So standardization may seem bad business unless it carries with it the plan of constantly reducing the price at which the article is sold. And the price has to be reduced (this is very important) because of the manufacturing economies that have come about and not because the falling demand by the public indicates that it is not satisfied with the price. The public should always be wondering how it is possible to give so much for the money.
Standardization (to use the word as I understand it) is not just taking one's best selling article and concentrating on it. It is planning day and night and probably for years, first on something which will best suit the public and then on how it should be made. The exact processes of manufacturing will develop of themselves. Then, if we shift the manufacturing from the profit to the service basis, we shall have a real business in which the profits will be all that any one could desire.
All of this seems self-evident to me. It is the logical basis of any business that wants to serve 95 per cent. of the community. It is the logical way in which the community can serve itself. I cannot comprehend why all business does not go on this basis. All that has to be done in order to adopt it is to overcome the habit of grabbing at the nearest dollar as though it were the only dollar in the world. The habit has already to an extent been overcome. All the large and successful retail stores in this country are on the one-price basis. The only further step required is to throw overboard the idea of pricing on what the traffic will bear and instead go to the common-sense basis of pricing on what it costs to manufacture and then reducing the cost of manufacture. If the design of the product has been sufficiently studied, then changes in it will come very slowly. But changes in manufacturing processes will come very rapidly and wholly naturally. That has been our experience in everything we have undertaken. How naturally it has all come about, I shall later outline. The point that I wish to impress here is that it is impossible to get a product on which one may concentrate unless an unlimited amount of study is given beforehand. It is not just an afternoon's work.
These ideas were forming with me during this year of experimenting. Most of the experimenting went into the building of racing cars. The idea in those days was that a first-class car ought to be a racer. I never really thought much of racing, but following the bicycle idea, the manufacturers had the notion that winning a race on a track told the public something about the merits of an automobile--although I can hardly imagine any test that would tell less.
But, as the others were doing it, I, too, had to do it. In 1903, with Tom Cooper, I built two cars solely for speed. They were quite alike. One we named the "999" and the other the "Arrow." If an automobile were going to be known for speed, then I was going to make an automobile that would be known wherever speed was known. These were. I put in four great big cylinders giving 80 H.P.--which up to that time had been unheard of. The roar of those cylinders alone was enough to half kill a man. There was only one seat. One life to a car was enough. I tried out the cars. Cooper tried out the cars. We let them out at full speed. I cannot quite describe the sensation. Going over Niagara Falls would have been but a pastime after a ride in one of them. I did not want to take the responsibility of racing the "999" which we put up first, neither did Cooper. Cooper said he knew a man who lived on speed, that nothing could go too fast for him. He wired to Salt Lake City and on came a professional bicycle rider named Barney Oldfield. He had never driven a motor car, but he liked the idea of trying it. He said he would try anything once.
It took us only a week to teach him how to drive. The man did not know what fear was. All that he had to learn was how to control the monster. Controlling the fastest car of to-day was nothing as compared to controlling that car. The steering wheel had not yet been thought of. All the previous cars that I had built simply had tillers. On this one I put a two-handed tiller, for holding the car in line required all the strength of a strong man. The race for which we were working was at three miles on the Grosse Point track. We kept our cars as a dark horse. We left the predictions to the others. The tracks then were not scientifically banked. It was not known how much speed a motor car could develop. No one knew better than Oldfield what the turns meant and as he took his seat, while I was cranking the car for the start, he remarked cheerily: "Well, this chariot may kill me, but they will say afterward that I was going like hell when she took me over the bank."
And he did go.... He never dared to look around. He did not shut off on the curves. He simply let that car go--and go it did. He was about half a mile ahead of the next man at the end of the race!
The "999" did what it was intended to do: It advertised the fact that I could build a fast motorcar. A week after the race I formed the Ford Motor Company. I was vice-president, designer, master mechanic, superintendent, and general manager. The capitalization of the company was one hundred thousand dollars, and of this I owned 25 1/2 per cent. The total amount subscribed in cash was about twenty-eight thousand dollars--which is the only money that the company has ever received for the capital fund from other than operations. In the beginning I thought that it was possible, notwithstanding my former experience, to go forward with a company in which I owned less than the controlling share. I very shortly found I had to have control and therefore in 1906, with funds that I had earned in the company, I bought enough stock to bring my holdings up to 51 per cent, and a little later bought enough more to give me 58-1/2 per cent. The new equipment and the whole progress of the company have always been financed out of earnings. In 1919 my son Edsel purchased the remaining 41-1/2 per cent of the stock because certain of the minority stockholders disagreed with my policies. For these shares he paid at the rate of $12,500 for each $100 par and in all paid about seventy-five millions.
The original company and its equipment, as may be gathered, were not elaborate. We rented Strelow's carpenter shop on Mack Avenue. In making my designs I had also worked out the methods of making, but, since at that time we could not afford to buy machinery, the entire car was made according to my designs, but by various manufacturers, and about all we did, even in the way of assembling, was to put on the wheels, the tires, and the body. That would really be the most economical method of manufacturing if only one could be certain that all of the various parts would be made on the manufacturing plan that I have above outlined. The most economical manufacturing of the future will be that in which the whole of an article is not made under one roof--unless, of course, it be a very simple article. The modern--or better, the future--method is to have each part made where it may best be made and then assemble the parts into a complete unit at the points of consumption. That is the method we are now following and expect to extend. It would make no difference whether one company or one individual owned all the factories fabricating the component parts of a single product, or whether such part were made in our independently owned factory, if only all adopted the same service methods. If we can buy as good a part as we can make ourselves and the supply is ample and the price right, we do not attempt to make it ourselves--or, at any rate, to make more than an emergency supply. In fact, it might be better to have the ownership widely scattered.
I had been experimenting principally upon the cutting down of weight. Excess weight kills any self-propelled vehicle. There are a lot of fool ideas about weight. It is queer, when you come to think of it, how some fool terms get into current use. There is the phrase "heavyweight" as applied to a man's mental apparatus! What does it mean? No one wants to be fat and heavy of body--then why of head? For some clumsy reason we have come to confuse strength with weight. The crude methods of early building undoubtedly had much to do with this. The old ox-cart weighed a ton--and it had so much weight that it was weak! To carry a few tons of humanity from New York to Chicago, the railroad builds a train that weighs many hundred tons, and the result is an absolute loss of real strength and the extravagant waste of untold millions in the form of power. The law of diminishing returns begins to operate at the point where strength becomes weight. Weight may be desirable in a steam roller but nowhere else. Strength has nothing to do with weight. The mentality of the man who does things in the world is agile, light, and strong. The most beautiful things in the world are those from which all excess weight has been eliminated. Strength is never just weight--either in men or things. Whenever any one suggests to me that I might increase weight or add a part, I look into decreasing weight and eliminating a part! The car that I designed was lighter than any car that had yet been made. It would have been lighter if I had known how to make it so--later I got the materials to make the lighter car.
In our first year we built "Model A," selling the runabout for eight hundred and fifty dollars and the tonneau for one hundred dollars more. This model had a two-cylinder opposed motor developing eight horsepower. It had a chain drive, a seventy-two inch wheel base--which was supposed to be long--and a fuel capacity of five gallons. We made and sold 1,708 cars in the first year. That is how well the public responded.
Every one of these "Model A's" has a history. Take No. 420. Colonel D. C. Collier of California bought it in 1904. He used it for a couple of years, sold it, and bought a new Ford. No. 420 changed hands frequently until 1907 when it was bought by one Edmund Jacobs living near Ramona in the heart of the mountains. He drove it for several years in the roughest kind of work. Then he bought a new Ford and sold his old one. By 1915 No. 420 had passed into the hands of a man named Cantello who took out the motor, hitched it to a water pump, rigged up shafts on the chassis and now, while the motor chugs away at the pumping of water, the chassis drawn by a burro acts as a buggy. The moral, of course, is that you can dissect a Ford but you cannot kill it.
In our first advertisement we said:
- Our purpose is to construct and market an automobile specially
- designed for everyday wear and tear--business, professional, and
- family use; an automobile which will attain to a sufficient speed to
- satisfy the average person without acquiring any of those breakneck
- velocities which are so universally condemned; a machine which will
- be admired by man, woman, and child alike for its compactness, its
- simplicity, its safety, its all-around convenience, and--last but
- not least--its exceedingly reasonable price, which places it within
- the reach of many thousands who could not think of paying the
- comparatively fabulous prices asked for most machines.
- Good material.
- Simplicity--most of the cars at that time required considerable skill in their management.
- The engine.
- The ignition--which was furnished by two sets of six dry cell batteries.
- The automatic oiling.
- The simplicity and the ease of control of the transmission, which was of the planetary type.
- The workmanship.
We often hear quoted the old proverb, "Time is money"--and yet how few business and professional men act as if they really believed its truth.
Men who are constantly complaining of shortage of time and lamenting the fewness of days in the week--men to whom every five minutes wasted means a dollar thrown away--men to whom five minutes' delay sometimes means the loss of many dollars--will yet depend on the haphazard, uncomfortable, and limited means of transportation afforded by street cars, etc., when the investment of an exceedingly moderate sum in the purchase of a perfected, efficient, high-grade automobile would cut out anxiety and unpunctuality and provide a luxurious means of travel ever at your beck and call.
Always ready, always sure.
Built to save you time and consequent money.
Built to take you anywhere you want to go and bring you back again on time.
Built to add to your reputation for punctuality; to keep your customers good-humoured and in a buying mood.
Built for business or pleasure--just as you say.
Built also for the good of your health--to carry you "jarlessly" over any kind of half decent roads, to refresh your brain with the luxury of much "out-doorness" and your lungs with the "tonic of tonics"--the right kind of atmosphere.
It is your say, too, when it comes to speed. You can--if you choose--loiter lingeringly through shady avenues or you can press down on the foot-lever until all the scenery looks alike to you and you have to keep your eyes skinned to count the milestones as they pass.
I am giving the gist of this advertisement to show that, from the beginning, we were looking to providing service--we never bothered with a "sporting car."
The business went along almost as by magic. The cars gained a reputation for standing up. They were tough, they were simple, and they were well made. I was working on my design for a universal single model but I had not settled the designs nor had we the money to build and equip the proper kind of plant for manufacturing. I had not the money to discover the very best and lightest materials. We still had to accept the materials that the market offered--we got the best to be had but we had no facilities for the scientific investigation of materials or for original research.
My associates were not convinced that it was possible to restrict our cars to a single model. The automobile trade was following the old bicycle trade, in which every manufacturer thought it necessary to bring out a new model each year and to make it so unlike all previous models that those who had bought the former models would want to get rid of the old and buy the new. That was supposed to be good business. It is the same idea that women submit to in their clothing and hats. That is not service--it seeks only to provide something new, not something better. It is extraordinary how firmly rooted is the notion that business--continuous selling--depends not on satisfying the customer once and for all, but on first getting his money for one article and then persuading him he ought to buy a new and different one. The plan which I then had in the back of my head but to which we were not then sufficiently advanced to give expression, was that, when a model was settled upon then every improvement on that model should be interchangeable with the old model, so that a car should never get out of date. It is my ambition to have every piece of machinery, or other non-consumable product that I turn out, so strong and so well made that no one ought ever to have to buy a second one. A good machine of any kind ought to last as long as a good watch.
In the second year we scattered our energies among three models. We made a four-cylinder touring car, "Model B," which sold for two thousand dollars; "Model C," which was a slightly improved "Model A" and sold at fifty dollars more than the former price; and "Model F," a touring car which sold for a thousand dollars. That is, we scattered our energy and increased prices--and therefore we sold fewer cars than in the first year. The sales were 1,695 cars.
That "Model B"--the first four-cylinder car for general road use--had to be advertised. Winning a race or making a record was then the best kind of advertising. So I fixed up the "Arrow," the twin of the old "999"--in fact practically remade it--and a week before the New York Automobile show I drove it myself over a surveyed mile straightaway on the ice. I shall never forget that race. The ice seemed smooth enough, so smooth that if I had called off the trial we should have secured an immense amount of the wrong kind of advertising, but instead of being smooth, that ice was seamed with fissures which I knew were going to mean trouble the moment I got up speed. But there was nothing to do but go through with the trial, and I let the old "Arrow" out. At every fissure the car leaped into the air. I never knew how it was coming down. When I wasn't in the air, I was skidding, but somehow I stayed top side up and on the course, making a record that went all over the world! That put "Model B" on the map--but not enough on to overcome the price advances. No stunt and no advertising will sell an article for any length of time. Business is not a game. The moral is coming.
Our little wooden shop had, with the business we were doing, become totally inadequate, and in 1906 we took out of our working capital sufficient funds to build a three-story plant at the corner of Piquette and Beaubien streets--which for the first time gave us real manufacturing facilities. We began to make and to assemble quite a number of the parts, although still we were principally an assembling shop. In 1905-1906 we made only two models--one the four-cylinder car at $2,000 and another touring car at $1,000, both being the models of the previous year--and our sales dropped to 1,599 cars.
Some said it was because we had not brought out new models. I thought it was because our cars were too expensive--they did not appeal to the 95 per cent. I changed the policy in the next year--having first acquired stock control. For 1906-1907 we entirely left off making touring cars and made three models of runabouts and roadsters, none of which differed materially from the other in manufacturing process or in component parts, but were somewhat different in appearance. The big thing was that the cheapest car sold for $600 and the most expensive for only $750, and right there came the complete demonstration of what price meant. We sold 8,423 cars--nearly five times as many as in our biggest previous year. Our banner week was that of May 15, 1908, when we assembled 311 cars in six working days. It almost swamped our facilities. The foreman had a tallyboard on which he chalked up each car as it was finished and turned over to the testers. The tallyboard was hardly equal to the task. On one day in the following June we assembled an even one hundred cars.
In the next year we departed from the programme that had been so successful and I designed a big car--fifty horsepower, six cylinder--that would burn up the roads. We continued making our small cars, but the 1907 panic and the diversion to the more expensive model cut down the sales to 6,398 cars.
We had been through an experimenting period of five years. The cars were beginning to be sold in Europe. The business, as an automobile business then went, was considered extraordinarily prosperous. We had plenty of money. Since the first year we have practically always had plenty of money. We sold for cash, we did not borrow money, and we sold directly to the purchaser. We had no bad debts and we kept within ourselves on every move. I have always kept well within my resources. I have never found it necessary to strain them, because, inevitably, if you give attention to work and service, the resources will increase more rapidly than you can devise ways and means of disposing of them.
We were careful in the selection of our salesmen. At first there was great difficulty in getting good salesmen because the automobile trade was not supposed to be stable. It was supposed to be dealing in a luxury--in pleasure vehicles. We eventually appointed agents, selecting the very best men we could find, and then paying to them a salary larger than they could possibly earn in business for themselves. In the beginning we had not paid much in the way of salaries. We were feeling our way, but when we knew what our way was, we adopted the policy of paying the very highest reward for service and then insisting upon getting the highest service. Among the requirements for an agent we laid down the following:
- (1) A progressive, up-to-date man keenly alive to the possibilities of
- (2) A suitable place of business clean and dignified in appearance.
- (3) A stock of parts sufficient to make prompt replacements and keep in
- active service every Ford car in his territory.
- (4) An adequately equipped repair shop which has in it the right
- machinery for every necessary repair and adjustment.
- (5) Mechanics who are thoroughly familiar with the construction and
- operation of Ford cars.
- (6) A comprehensive bookkeeping system and a follow-up sales system, so
- that it may be instantly apparent what is the financial status of the
- various departments of his business, the condition and size of his
- stock, the present owners of cars, and the future prospects.
- (7) Absolute cleanliness throughout every department. There must be no
- unwashed windows, dusty furniture, dirty floors.
- (8) A suitable display sign.
- (9) The adoption of policies which will ensure absolutely square dealing
- and the highest character of business ethics.
- A dealer or a salesman ought to have the name of every possible
- automobile buyer in his territory, including all those who have
- never given the matter a thought. He should then personally solicit
- by visitation if possible--by correspondence at the least--every man
- on that list and then making necessary memoranda, know the
- automobile situation as related to every resident so solicited. If
- your territory is too large to permit this, you have too much
George B. Selden, a patent attorney, filed an application as far back as 1879 for a patent the object of which was stated to be "The production of a safe, simple, and cheap road locomotive, light in weight, easy to control, possessed of sufficient power to overcome an ordinary inclination." This application was kept alive in the Patent Office, by methods which are perfectly legal, until 1895, when the patent was granted. In 1879, when the application was filed, the automobile was practically unknown to the general public, but by the time the patent was issued everybody was familiar with self-propelled vehicles, and most of the men, including myself, who had been for years working on motor propulsion, were surprised to learn that what we had made practicable was covered by an application of years before, although the applicant had kept his idea merely as an idea. He had done nothing to put it into practice.
The specific claims under the patent were divided into six groups and I think that not a single one of them was a really new idea even in 1879 when the application was filed. The Patent Office allowed a combination and issued a so-called "combination patent" deciding that the combination (a) of a carriage with its body machinery and steering wheel, with the (b) propelling mechanism clutch and gear, and finally (c) the engine, made a valid patent.
With all of that we were not concerned. I believed that my engine had nothing whatsoever in common with what Selden had in mind. The powerful combination of manufacturers who called themselves the "licensed manufacturers" because they operated under licenses from the patentee, brought suit against us as soon as we began to be a factor in motor production. The suit dragged on. It was intended to scare us out of business. We took volumes of testimony, and the blow came on September 15, 1909, when Judge Hough rendered an opinion in the United States District Court finding against us. Immediately that Licensed Association began to advertise, warning prospective purchasers against our cars. They had done the same thing in 1903 at the start of the suit, when it was thought that we could be put out of business. I had implicit confidence that eventually we should win our suit. I simply knew that we were right, but it was a considerable blow to get the first decision against us, for we believed that many buyers--even though no injunction was issued against us--would be frightened away from buying because of the threats of court action against individual owners. The idea was spread that if the suit finally went against me, every man who owned a Ford car would be prosecuted. Some of my more enthusiastic opponents, I understand, gave it out privately that there would be criminal as well as civil suits and that a man buying a Ford car might as well be buying a ticket to jail. We answered with an advertisement for which we took four pages in the principal newspapers all over the country. We set out our case--we set out our confidence in victory--and in conclusion said:
In conclusion we beg to state if there are any prospective automobile buyers who are at all intimidated by the claims made by our adversaries that we will give them, in addition to the protection of the Ford Motor Company with its some $6,000,000.00 of assets, an individual bond backed by a Company of more than $6,000,000.00 more of assets, so that each and every individual owner of a Ford car will be protected until at least $12,000,000.00 of assets have been wiped out by those who desire to control and monopolize this wonderful industry.
The bond is yours for the asking, so do not allow yourself to be sold inferior cars at extravagant prices because of any statement made by this "Divine" body.
N. B.--This fight is not being waged by the Ford Motor Company without the advice and counsel of the ablest patent attorneys of the East and West.
We thought that the bond would give assurance to the buyers--that they needed confidence. They did not. We sold more than eighteen thousand cars--nearly double the output of the previous year--and I think about fifty buyers asked for bonds--perhaps it was less than that.
As a matter of fact, probably nothing so well advertised the Ford car and the Ford Motor Company as did this suit. It appeared that we were the under dog and we had the public's sympathy. The association had seventy million dollars--we at the beginning had not half that number of thousands. I never had a doubt as to the outcome, but nevertheless it was a sword hanging over our heads that we could as well do without. Prosecuting that suit was probably one of the most shortsighted acts that any group of American business men has ever combined to commit. Taken in all its sidelights, it forms the best possible example of joining unwittingly to kill a trade. I regard it as most fortunate for the automobile makers of the country that we eventually won, and the association ceased to be a serious factor in the business. By 1908, however, in spite of this suit, we had come to a point where it was possible to announce and put into fabrication the kind of car that I wanted to build.