Now after Ford had broken the ice, Bill Knudsen began bringing in other automotive plants to help us. The great Buick and Chevrolet companies of General Motors joined up, followed soon by Nash. After Curtice of Buick and Coyle of Chevrolet and Mason of Nash had worked out general principles with our top management, the jobs were taken over by the keen shopmen who had made all those organizations great. In some cases our new allies took on responsibilities for Hamilton-Standard Propellers and, in the case of Nash, they even went into production on helicopters when, later on, we faced that new demand. Chance Vought teamed up with Goodyear Rubber and others, on the licensing of product and every division of United spread out all over the country to bring in competent suppliers, large and small.
Meanwhile, after Bill Knudsen had set up the aircraft program and George Mead had turned it back to the armed forces for administration, we ran into stormy weather on the matter of deliveries. The schedules set up by the Army and Navy were fantastic. Among other things, the two services had long neglected to buy engines and propellers for training planes and now, of course, immediate delivery of these was called for. Our plants had been tooled for foreign account on the 1,000-hp 1830’s, and the trainers called for 400-hp Wasp Jrs. for which we had no jigs or fixtures in quantity. Save for our flexible-production scheme, this problem would have thrown us for a loss, and even then we had to hustle to retool. Before we had learned the rudiments of the expanded program, the politicians had begun scrambling for cover. Even some of our military friends began casting about for excuses to blame the manufacturers for their own shortcomings. Newspaper columnists and radio commentators who had previously castigated us as war mongers now began screaming “too little and too late.”
One of the most acid of these, Fulton Lewis, Jr., made a special trip to Hartford to give his public an on-the-spot disclosure of the shortcomings at United Aircraft. His Hartford outlet then was WTHT, The Hartford Times, whose publisher, Francis S. Murphy, was familiar with our problems “Over East,” as we say up here. Frank suggested that Fulton Lewis call on me, and I, all unsuspecting, gave him a personally conducted tour of the shops and then, back in my office, told him some of our problems. Fulton Lewis, surprised by what he saw, asked me if I would go on the radio with him that night. Afterward, he sold the National Association of Manufacturers on his idea of sending a group of commentators of press and radio on a nation-wide tour of factories to learn the truth about “too little and too late.”
As I came to know some of the radio commentators, I was impressed by the skill with which some of them dug the germ of the news out of the ruck and got it over to their listeners. After Cedric Foster left Hartford for Boston to take over his spot on Mutual, he made it a habit to call his old friends for their slants on spot news. My experience with Admiral Reeves having taught me to delve for fundamentals in strategy and tactics, I was able to give Cedric some slants on the progress of the war. I was always impressed by the way in which he put his finger on the key items and summarized the situation succinctly and competently.
Our rate of production was largely dependent upon things outside our control. Both Army and Navy made contracts with us and each administered his own business in his own peculiar way. Each maintained a staff of inspectors at our plants, men who sometimes liked to show their authority over us and to put each other on the spot. Each specified the accessories to our equipment according to his own fancies, and even specified details. On this matter of accessories, the British and French had their own ideas, and in some cases these differed from either Army or Navy. A single model of our engine might have as many variations as there were customers to buy them or airplanes in which to install them, and the permutations and combinations ran into complications of all sorts. In an effort to correct some of this, I used the delivery schedule as a lever.
I agreed to accept their fantastic schedules in toto, provided three requirements were met: First, one of the services would handle all contracts for our company and administer them for all the others; second, all the services would standardize their accessories and attachments as well as their specifications so as to simplify models; third, the service administering the contracts would require its inspectors to do all those reasonable things intended to expedite deliveries according to the terms of the contracts and its specifications, rather than operate as an obstacle. To the degree that any or all of these requirements were not met, we now submitted delayed delivery schedules to correspond with each degree. Under this pressure, the services agreed to divide the two engine companies; Pratt and Whitney became the charge of the Navy.
It was when we came to prices for engines that we ran into trouble. After Jack Homer had discussed the problem with BUAERO as to details, J. F. McCarthy and I went to Washington to face the issues with Comdr. L. B. Richardson, then in charge of Procurement. This was not the Captain Dick Richardson of the big-boat formula fame, but a younger Dick with whom I had flown in the service. He knew his business and had positive ideas based on wide experience. On contracts calling for such large volume, the Bureau would expect a far lower price than any we had quoted—and in principle it was right. Our problem was that, pending expansion of the shop, the training of new operators, the testing of tools, and all the other problems of getting into production, we would run into high costs. That had been our experience during the expansion periods with the French and British contracts and now with the likelihood that we would lose even some of our key men to the armed forces, we could expect spoiled work and scrap to skyrocket costs. No one could guess when costs could be brought into line, and it seemed almost impossible to arrive at a price agreeable to both sides.
And this problem of price might have delayed negotiations interminably had we not taken an important decision to break the deadlock. This decision was based on long experience in business for government account and on a background of events that have been herein related. It dated back to that provision in the Air Corps Act of 1926, in which we granted the government the right to keep cost inspectors in our plant. To break the impasse we now proposed that if BUAERO would establish fixed prices on our contracts on the basis of our earlier experience, we would undertake voluntarily to reduce future invoice prices on products yet to be shipped, to the end that we would never accumulate any excessive profit. In other words, since neither we nor the Bureau could stand any future criticism on profits, we would voluntarily renegotiate ourselves to avoid excessive profit. The Bureau’s resident cost inspectors, with access to all our books, would furnish the data on which the Bureau could judge the reasonableness of our performance, and we would abide by their judgment.
This fateful decision removed the last obstacle and cleared the right of way to the high ball. The remaining problem was to settle upon a sound principle for determining fair profit. During the busy year 1940, one which could be taken as indicating the return which a plant of our character could earn under other than wartime conditions, we had earned $12,000,000 with a plant provided by our own capital, on sales made of our own initiative, and on shipments that included practically no business with the United States government. If now we were to freeze our annual net earnings at that figure no matter how our sales might soar nor how our plant might be increased at public expense, we would be stabilizing our earnings at an experienced level that seemed capable of justification from the points of view of the stockholder and the public. If in this process we could earn that return and still pay our employees reasonable wages and salaries, then we would be discharging our responsibility to all concerned.
As a measure of the effectiveness of this principle we may have recourse to an incident that occurred some months later, when production had begun to roll and costs had cascaded to unprecedentedly low levels. After assembling the figures, we had advised the Bureau formally that, effective at the beginning of the next quarter, we would reduce invoice prices below the contract fixed prices by a certain figure per engine calculated to avoid any accumulation of excessive profits. The total relinquishment of potential profits was calculated to amount to approximately $10,000,000. Meanwhile, we had adjusted wages and salaries on a merit basis for all except top executives. On the day this news appeared I was making one of my customary tours through the shop when one of the workers detached himself from a big Bullard machine and headed out to cut me off in the aisle.