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 take an inventory and clean house. We wanted to open with another big cut and to have cars on hand to supply the demand. Then the new cars could be built out of material bought at lower prices. We determined that we were going to get lower prices.
We shut down in December with the intention of opening again in about two weeks. We found so much to do that actually we did not open for nearly six weeks. The moment that we shut down the rumours concerning our financial condition became more and more active. I know that a great many people hoped that we should have to go out after money—for, were we seeking money, then we should have to come to terms. We did not ask for money. We did not want money. We had one offer of money. An officer of a New York bank called on me with a financial plan which included a large loan and in which also was an arrangement by which a representative of the bankers would act as treasurer and take charge of the finance of the company. Those people meant well enough, I am quite sure. We did not want to borrow money but it so happened that at the moment we were without a treasurer. To that extent the bankers had envisaged our condition correctly. I asked my son Edsel to be treasurer as well as president of the company. That fixed us up as to a treasurer, so there was really nothing at all that the bankers could do for us.
Then we began our house-cleaning. During the war we had gone into many kinds of war work and had thus been forced to depart from our principle of a single product. This had caused many new departments to be added. The office force had expanded and much of the wastefulness of scattered production had crept in. War work is rush work and is wasteful work. We began throwing out everything that did not contribute to the production of cars.
The only immediate payment scheduled was the purely voluntary one of a seven-million-dollar bonus to our workmen. There was no obligation to pay, but we wanted to pay on the first of January. That we paid out of our cash on hand.
Throughout the country we have thirty-five branches. These are all assembling plants, but in twenty-two of them parts are also manufactured. They had stopped the making of parts but they went on assembling cars. At the time of shutting down we had practically no cars in Detroit. We had shipped out all the parts, and during January the Detroit dealers actually had to go as far a field as Chicago and Columbus to get cars for local needs. The branches shipped to each dealer, under his yearly quota, enough cars to cover about a month's sales. The dealers worked hard on sales. During the latter part of January we called in a skeleton organization of about ten thousand men, mostly foremen, sub-foremen, and straw bosses, and we started Highland Park into production. We collected our foreign accounts and sold our by-products.
Then we were ready for full production. And gradually into full production we went—on a profitable basis. The house-cleaning swept out the waste that had both made the prices high and absorbed the profit. We sold off the useless stuff. Before we had employed fifteen men per car per day. Afterward we employed nine per car per day. This did not mean that six out of fifteen men lost their jobs. They only ceased being unproductive. We made that cut by applying the rule that everything and everybody must produce or get out.