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.