Henry Ford will always appear in lists of great Americans or titans of industry. His dream of an America crossed with roads, studded with gas stations and humming with the sounds of people going places has secured his place in the economic history and development of the U.S.. In this article, we'll look at the life and contributions of Henry Ford.
Henry Ford was born on a farm near Detroit on July 30, 1863. As a youth, he already had a natural talent for tinkering with everything from watches to steam engines. At the age of 28, Henry Ford joined Detroit's Edison Illuminating Company as a machinist and quickly worked his way up to chief engineer.
Taking advantage of his new position, Ford began experimenting with motor-driven transportation and built prototypes that are now known as automobiles. Edison encouraged Ford to continue working on his automobiles. By 1898, Ford had a working model with a gas-powered engine. Ford then left Edison's company to start his own company, but he often credited Edison for inspiring him to the heights he achieved later in life. (Read about how Edison influenced the life of another Wall Street giant in J.D. Rockefeller: From Oil Baron To Billionaire.)
The Ford Model T
When the Model T debuted in 1908, it had a price tag of $825. This put it out of the price range for most Americans and set Henry Ford on a quest to find ways to cut costs and present a more affordable Model T to the public.
The moving assembly line Ford's (NYSE:F) company perfected dramatically reduced both the time and end price of a Model T, but Ford's innovations went far beyond this. The Model T was entirely standardized in order to make the assembly line possible. This had the added benefit of allowing a Model T to be a very easy car to fix compared to custom models from other companies. The Model T was being produced faster and sold more cheaply in every year of its production run. (For related reading, see Measuring Company Efficiency.)
The next cost Ford attacked was materials. He undertook a program of vertical integration that culminated in the massive River Rouge plant's ability to manufacture every element of a car on site - glass, steel and rubber included.
From a few parts-manufacturing plants, the pieces of Model Ts were shipped to assembly plants built throughout the country (and eventually the world). This saved the company shipping costs because crates of parts were cheaper to ship than cars, and created more jobs, which helped to improve the company's public image.
From the assembly plants, the Model Ts were sent to the local Ford dealerships where they were sold. Ford pioneered the franchise system that would be applied to other industries, such as MacDonald's and many other franchise giants. He put a Ford plant in every country that was on good terms with the U.S. and started the trend toward global corporations. Ford mapped out the whole system, from standardizing the car to franchising dealerships to creating a global network, and he did it all with no precedents to learn from. (Read more in Share The Wealth With Franchises and The Globalization Debate.)
Creating American Culture
Ford passed the savings he realized through more efficient production on to his customers. The price of a Model T was $290 by 1924 and, not surprisingly, more than half the cars being sold in America were Fords. As the ticket price of the Model T continued to drop, Ford went on an advertising blitz that helped create the car culture we know today. (Read about the importance of advertising in Advertising, Crocodiles And Moats.)
He pushed aggressively for better roads and service stations and even offered financial backing to the motor clubs that made a drive in the countryside part of the American lifestyle. (Learn how to turn new roads into profits in Build Your Portfolio With Infrastructure Investments.)
Ford also paid his employees much more than the industry standard, doubling pay in 1914 and cutting an hour off the working day. As a result, Ford attracted the best mechanics and technicians in the country. Many Ford employees used their extra income to purchase the cars they were building every day. (Learn how employee appreciation can help your business in Small Business: It's All About Relationships.)
Many historians credit Ford's car for drawing people into cities and creating suburbs that people could drive to work from. (Read more about the pros of commuting in Extreme Commuting: Is It For You?)
Retiring the Model T
Ford's desire to have a car that every family could afford led to him keeping the Model T in production too long. The Model T was cheap, but it was failing the customers in an increasingly important way: customization. By the 1920s, the economy was booming and the average American had a choice between buying a higher-class car with options (such as those made by GM (NYSE:GM) or a Model T - a car that Ford famously said a customer could have in any color as long as it was black. (Learn how to recognize the next market leader in Great Expectations: Forecasting Sales Growth.)
In 1927, Ford's son, Edsel, convinced him to rework the Model T into the Model A, and institute the annual model change that was becoming common in the auto industry. Ford entered semi-retirement, but continued to play a big part in his company's affairs until his death in 1947.
Conclusion: Henry Ford And Big Business
When we look at the few big players dominating the automotive industry now, it is easy to forget that in 1905 there were more than 50 start-ups in the U.S. alone. What separated Ford's company was that it was the only company trying to build a car for the everyman rather than the wealthy classes. As a by-product of his quest, Ford changed the world's view of big business. Large corporations were mistrusted at best before Ford. Henry Ford changed that by putting the U.S. on wheels, taking care of his workers and creating a company that Americans could like.
To read about another financial leader who looked out for the little guy, see Giants Of Finance: Charles Dow.
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