We cut our office forces in halves and offered the office workers better jobs in the shops. Most of them took the jobs. We abolished every order blank and every form of statistics that did not directly aid in the production of a car. We had been collecting tons of statistics because they were interesting. But statistics will not construct automobiles—so out they went.
We took out 60 per cent. of our telephone extensions. Only a comparatively few men in any organization need telephones. We formerly had a foreman for every five men; now we have a foreman for every twenty men. The other foremen are working on machines.
We cut the overhead charge from $146 a car to $93 a car, and when you realize what this means on more than four thousand cars a day you will have an idea how, not by economy, not by wage-cutting, but by the elimination of waste, it is possible to make an "impossible" price. Most important of all, we found out how to use less money in our business by speeding up the turnover. And in increasing the turnover rate, one of the most important factors was the Detroit, Toledo, & Ironton Railroad—which we purchased. The railroad took a large place in the scheme of economy. To the road itself I have given another chapter.
We discovered, after a little experimenting, that freight service could be improved sufficiently to reduce the cycle of manufacture from twenty-two to fourteen days. That is, raw material could be bought, manufactured, and the finished product put into the hands of the distributor in (roughly) 33 per cent. less time than before. We had been carrying an inventory of around $60,000,000 to insure uninterrupted production. Cutting down the time one third released $20,000,000, or $1,200,000 a year in interest. Counting the finished inventory, we saved approximately $8,000,000 more—that is, we were able to release $28,000,000 in capital and save the interest on that sum.
On January 1st we had $20,000,000. On April 1st we had $87,300,000, or $27,300,000 more than we needed to wipe out all our indebtedness. That is what boring into the business did for us! This amount came to us in these items:
Cash on hand, January $20,000,000
Stock on hand turned into cash, January 1 to April 1 24,700,000
Speeding up transit of goods released 28,000,000
Collected from agents in foreign countries 3,000,000
Sale of by-products 3,700,000
Sale of Liberty Bonds 7,900,000
TOTAL $87,300,000
Now I have told about all this not in the way of an exploit, but to point out how a business may find resources within itself instead of borrowing, and also to start a little thinking as to whether the form of our money may not put a premium on borrowing and thus give far too great a place in life to the bankers.
We could have borrowed $40,000,000—more had we wanted to. Suppose we had borrowed, what would have happened? Should we have been better fitted to go on with our business? Or worse fitted? If we had borrowed we should not have been under the necessity of finding methods to cheapen production. Had we been able to obtain the money at 6 per cent. flat—and we should in commissions and the like have had to pay more than that—the interest charge alone on a yearly production of 500,000 cars would have amounted to about four dollars a car. Therefore we should now be without the benefit of better production and loaded with a heavy debt. Our cars would probably cost about one hundred dollars more than they do; hence we should have a smaller production, for we could not have so many buyers; we should employ fewer men, and in short, should not be able to serve to the utmost. You will note that the financiers proposed to cure by lending money and not by bettering methods. They did not suggest putting in an engineer; they wanted to put in a treasurer.
And that is the danger of having bankers in business. They think solely in terms of money. They think of a factory as making money, not goods. They want to watch the money, not the efficiency of production. They cannot comprehend that a business never stands still, it must go forward or go back. They regard a reduction in prices as a throwing away of profit instead of as a building of business.