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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



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



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



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.








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

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