Business History Session 4

Business History
Businesses that changed the World
Henry Ford: Building cars and markets for them
• Henry Ford unleashed his “Tin Lizzie” on the American
public. A model steam carriage built by a Jesuit missionary
had been demonstrated successfully in China in the late
17th century.
• The 18th century saw successful experimentation in would-
spring engines (the clock method) and others powered by
compressed air.
• The first forerunner of the modern auto would seem to be a
steam-powered tricycle built by the Frenchman Nicholas
Joseph Cugnot, and an imposing invention it truly was:
• A 1769 version capable of carrying four people ran for 20
minutes at 2.25 miles a hour.

Business History
• Two German inventors, Gottlieb Daimler and Carl Benz,
generally get credit for refining the gasoline-powered engine
to a point where commercial production was feasible.
• Benz sold his first car to a Parisian in 1887. A few years
later, Daimler got into the business.
• If Europe gets credit for the technical innovations that
launched the auto industry, it was in the United States that
the industry caught hold and flourished.
• Europe had more people, but by dint of its geography, the
U.S. had the greater need – and by the start of the 20th
century also had the native capital to support the growth.

Business History
• By 1903, there were 11000 cars on the roads of America.
The next year, in 1904, Ransom Olds added 5,000 more
with his 3-horsepower Oldsmobiles and proved that it was
possible to make a handsome living in the automobile trade.
• Beginning in 1903 and extended over the next 5 years, a
full 20 dozen auto-manufacturing firms went into business in
the U.S., including one founded by a backyard Michigan
inventor named Henry Ford.
• In 1908, the Ford Motor Company began producing the
Model T – faster than a horse, sturdy enough to withstand
America’s primitive roads.

Business History
• Ford sold more than 10000 Model Ts in its first year of
production, bringing in more than $ 9 million to a company
that had been capitalized with $ 28,000 only 5 years earlier
and had set up shop with a dozen workmen in a plant.
• Ford was 16 years old when he walked to Detroit to take a
job as an apprentice engineer, a position he was fired from
in less than a week. Undaunted, he moved on to a job
repairing watches and another working on ship engines, two
skills he would never forget.
• Decades later – a billionaire and a global figure – Ford still
took delight in taking apart and reassembling his friends’
pocket watches and in occasionally getting down on the
factory floor with one of his greasy engines.

Business History
• Automobiles caught Henry Ford’s greatest attention.
• A little after midnight on June 4, 1896, he finished building
his first experimental car in a brick shed behind the duplex
where he and his wife, Clara, were living.
• Three years later, he successfully demonstrated a second
prototype by driving it roundtrip from Detroit to Pontiac,
Michigan, and soon formed his first business, the Detroit
Automobile company, with $ 15,000 raised from a dozen
shareholders.
• By 1903, Ford had established himself as the premier
designer of American racing cars and formed the Ford
Motor Company.

Business History
• In 1905, though, Ford would take a first critical step towards
separating his company from the teeming multitude. The
Ford Motor company was barely two years old before it had
factory-trained mechanics in the field.
• By the early 1910s, Ford motor company had very nearly
wrung the maximum potential out of traditional production
methods.
• In his 1922 autobiography My Life & Work, one of three that
Ford would collaborate on during his life, he described how
the first automobile assembly line came to be. Initially, he
wrote, a Ford car had been assembled “in exactly the same
way one builds a house.”

Business History
• Ford mentioned that we now have two general principles in
all operations. The principles of assembly are these :
1. Place the tools and the men in the sequence of the
operation so that each component part shall travel the least
possible distance while in the process of finishing.
2. Use work slides or some other form of carrier so that when
a workman completes his operation, he drops the part
always in the same place – which place must always be the
most convenient place to his hand – and if possible have
gravity carry the part to the next workman for his operation.
3. Use sliding assembling lines by which the parts to be
assembled are delivered at convenient distances.

Business History
• Ford had already built and put into operation the most
modern factory in the automobile industry – the well-lit and
well-ventilated Highland Park plant, which opened in early
1910.
• In April 1913, he launched his first experiment in assembly-
line production, beginning with the flywheel magneto.
(Magneto uses magnets to generate electricity)
• A year later, the company raised the height of the assembly
line 8 inches, this time the average production time was
lowered to 7 minutes.
• By the end of 1914, almost half of all cars sold in America
were Henry Ford’s Model T’s.

Business History
• Henry and Clara Ford moved into “Fair Lane,”a 2000-acre
estate near where he had been born – their 11th address in
23 years of marriage.
• The executives of the Ford Motor Company loved the
assembly line and the economies of scale it created.
• Even before the assembly line, Ford had been bothered by
a high labor turnover: The Company’s productivity
demands were among the most stringent in the business.
• By the close of 1913, Ford had to hire nearly a 1000 people
every time it wanted to find another 100 permanent workers,
and such was the success of its cars that it needed to
expand the work force almost constantly.

Business History
• To solve the problem and to thwart a unionization drive
launched in the summer of 1913 by the Industrial Workers
of the World, in 1914 Henry Ford introduced what was to be
his second great industrial innovation: a $5 wage for an 8
hour day, about 15% more than the prevailing rate in the
auto industry.
• Neither Henry Ford nor his company stopped at the factory
floor. Productive labor required a proper home environment
and decent habits, and the $5 a day wage gave Ford and
his men the entrée to attach both.
• Ford promulgated a series of rules meant to assure that its
employees were not just good workers but what it
considered good citizens.

Business History
• Workers were expected to show thrift, to live in a proper
house, to not associate with nor allow their children to
associate with the wrong kind of people (Unions etc.)
• Through its newly created Sociological Department, Ford
sent counselors out to advise workers and the families on
how best to meet the requirements that would qualify them
for the profit-sharing bonus.
• About two in five Ford workers were disqualified from the
plan in its early months; if they failed to mend their way
within half a year, they were let go and their escrowed profit
share was donated to charity.

Business History
• By 1918, war time inflation had brought the buying power of
Ford’s $5 a day down to $ 2.80 in 1914, and Henry Ford
himself was worrying less about the moral content of his
work force than about union activity in his factories.
• Ford succeeded in buying out the last non-family
stockholders in 1919. As the 1920s began, he sat atop a
tightly held, vertically integrated industrial behemoth with
main plants in Highland Park and River Roughe; branch
plants around the world, including assembly plants in
Canada and England.
• Henry Ford was no less quiet in his views on broader
international affairs.

Business History
• More practically, but perhaps only slightly more so, he set
sail for Europe in late 1915 abroad a Ford-sponsored
“Peace Ship” bound for Scandinavia and the Netherlands
with technical advisers, delegates to a peace conference.
• When Ford became sick and had to lay up in Oslo, the
mission fell apart. Back home, he formed a trade school
and donated money to build a hospital, both named after
him.
• Ford ran for the U.S. Senate in 1918, as a Democrat in
Republican-dominated Michigan, losing by less than 5000
votes.

Business History
• By 1920, Ford for President clubs were springing up across
the nation. Whatever the reality of Ford’s $5 a day wage
and whatever the truth of everyday life inside and outside
the factory for a Ford employee, Ford’s brand of welfare
capitalism was magic with the public:
• Ford was seen as another Great Emancipator, a Lincoln of
the working man.
• In 1926, Ford announced the establishment of a radical
five-day work week for his employees. Three years later, in
late November 1929 with a cancer sweeping through the
economy, Ford responded to a Herbert Hoover request not
to lower wages.

Business History
• As many as 30000 Ford workers were let go on the eve of
his new “depression-beating wage,” and those that
remained were required to fulfill production quotas nearly
50% higher than the pre-salary-boost quotas.
• By the late 1920s, though, Ford had more to worry about
than his public approval ratings.
• The Model T wasn’t the first car Henry Ford produced:
Models A,B,C,F,K,N,R and S preceded it, some of them
fairly expensive as Ford stretched for the right marriage of
product and market demand.

Business History
• In 1921, Ford had outsold GM’s bottom-of-the-line
Chevrolet – the closest competitor to the Model T.
• Ford was still offering a bare-bones car built for rough turn-
of-the-century roads, and he was still counting on the Ford
name to bring buyers in.
• Heavily promoted through ads, Chevrolet steadily closed
the gap with Ford until by 1926 one Chevy was selling for
every two Model Ts.
• On May 27, 1927, Model T production was halted and Ford
plants closed while a successor was designed and the
factories retooled to produce it.
• A little more than six months later, on Dec.2, 1927, the

Business History
• To promise its new model, Ford spent more in one week on
advertising than the company had spent collectively over
the 19-year lifespan on the Model T.
• The campaign worked – Ford recaptured the lead from GM
in total car sales – but for the rest of his life.
• On the labor front, Ford’s increasingly violent reactions to
attempt at union organization began to run against the new
spirit of the times.
• During March 1932 Ford Hunger March by union-minded
Ford workers, Dearborn, Michigan. Police fired at point-
blank range on the demonstrators, killing 3 and wounding
50, including a New York Times photographer shot in the
head.

Business History
• Ford’s reemergence as the auto sales leader was only
temporary as well. For all the hullabaloo that surrounded
the Model A’s arrival, it was highly conventional car in both
its looks and its machinery.
• Technically, the company would take another gigantic stride
in 1932 when it introduced the Model 18 V-8, with its single
unit cast engine block, the prototype for decades of engines
to follow, but Ford and its founder had missed a large
message: Even in hard times, buyers were interested in
style, comfort, and convenience.

Business History
• Not nearly so generous in his life as John D.Rockefeller and
Andrew Carnegie had been, Henry Ford in death would give
away billions of dollars through the Ford Foundation, and
the Foundation itself would save his heirs over $ 300 million
in federal inheritance taxes.
• In time, too, the Foundation’s generous support of a variety
of liberal and social-welfare programs – would help buff the
image of the automaker and rescue him from the
consequences of may of the actions of his later years.

Business History Session 4

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Business History Session 4