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.
CHAPTER XII
MONEY—MASTER OR SERVANT?
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.