I quit my job on August 15, 1899, and went into the automobile business.
It might be thought something of a step, for I had no personal funds. What money was left over from living was all used in experimenting. But my wife agreed that the automobile could not be given up—that we had to make or break. There was no ‘demand’ for automobiles—there never is for a new article. They were accepted in much the fashion as was more recently the airplane. At first the ‘horseless carriage’ was considered merely a freak notion and many wise people explained with particularity why it could never be more than a toy. No man of money even thought of it as a commercial possibility. I cannot imagine why each new means of transportation meets with such opposition. There are even those today who shake their heads and talk about the luxury of the automobile and only grudgingly admit that perhaps the motor truck is of some use. But in the beginning there was hardly any one who sensed that the automobile could be a large factor in industry. The most optimistic hoped only for a development akin to that of the bicycle. When it was found that an automobile really could go and several makers started to put out cars, the immediate query was as to which would go fastest. It was a curious but natural development—that racing idea. I never thought anything of racing, but the public refused to consider the automobile in any light other than as a fast toy. Therefore later we had to race. The industry was held back by this initial racing slant, for the attention of the makers was diverted to making fast rather than good cars. It was a business for speculators.
A group of men of speculative turn of mind organized, as soon as I left the electric company, the Detroit Automobile Company to exploit my car. I was the chief engineer and held a small amount of the stock. For three years we continued making cars more or less on the model of my first car. We sold very few of them; I could get no support at all toward making better cars to be sold to the public at large. The whole thought was to make to order and to get the largest price possible for each car. The main idea seemed to be to get the money. And being without authority other than my engineering position gave me, I found that the new company was not a vehicle for realizing my ideas but merely a money-making concern—that did not make much money. In March 1902, I resigned, determined never again to put myself under orders. The Detroit Automobile Company later became the Cadillac Company under the ownership of the Lelands, who came in subsequently.
I rented a shop—a one-story brick shed—at 81 Park Place to continue my experiments and to find out what business really was. I thought that it must be something different from what it had proved to be in my first adventure.
The year from 1902 until the formation of the Ford Motor Company was practically one of investigation. In my little one-room brick shop I worked on the development of a four-cylinder motor, and on the outside I tried to find out what business really was and whether it needed to be quite so selfish a scramble for money as it seemed to be from my first short experience. From the period of the first car, which I have described, until the formation of my present company, I built in all about twenty-five cars, of which nineteen or twenty were built with the Detroit Automobile Company. The automobile had passed from the initial stage where the fact that it could run at all was enough, to the stage where it had to show speed. Alexander Winton of Cleveland, the founder of the Winton car, was then the track champion of the country and willing to meet all comers. I designed a two-cylinder enclosed engine of a more compact type than I had before used, fitted it into a skeleton chassis, found that I could make speed, and arranged a race with Winton. We met on the Grosse Point track at Detroit. I beat him. That was my first race, and it brought advertising of the only kind that people cared to read.
The public thought nothing of a car unless it made speed—unless it beat other racing cars. My ambition to build the fastest car in the world led me to plan a four-cylinder motor. But of that more later.
The most surprising feature of business as it was conducted was the large attention given to finance and the small attention to service. That seemed to me to be reversing the natural process, which is that the money should come as the result of work and not before the work. The second feature was the general indifference to better methods of manufacture as long as whatever was done got by and took the money. In other words, an article apparently was not built with reference to how greatly it could serve the public but with reference solely to how much money could be had for it—and that without any particular care whether the customer was satisfied. To sell him was enough. A dissatisfied customer was regarded not as a man whose trust had been violated, but either as a nuisance or as a possible source of more money in fixing up the work which ought to have been done correctly in the first place. For instance, in automobiles there was not much concern as to what happened to the car once it had been sold. How much gasoline it used per mile was of no great moment; how much service it actually gave did not matter; and if it broke down and had to have parts replaced, then that was just hard luck for the owner. It was considered good business to sell parts at the highest possible price on the theory that, since the man had already bought the car, he simply had to have the part and would be willing to pay for it.
The automobile business was not on what I would call an honest basis, to say nothing of being, from a manufacturing standpoint, on a scientific basis, but it was no worse than business in general. That was the period, it may be remembered, in which many corporations were being floated and financed. The bankers, who before then had confined themselves to the railroads, got into industry. My idea was then and still is that if a man did his work well, the price he would get for that work—the profits and all financial matters—would care for themselves and that a business ought to start small and build itself up and out of its earnings. If there are no earnings, then that is a signal to the owner that he is wasting his time and does not belong in that business. I have never found it necessary to change those ideas, but I discovered that this simple formula of doing good work and getting paid for it was supposed to be slow for modern business. The plan at that time most in favor was to start off with the largest possible capitalization and then sell all the stock and all the bonds that could be sold. Whatever money happened to be left over after all the stock and bond-selling expenses and promoters, charges and all that, went grudgingly into the foundation of the business. A good business was not one that did good work and earned a fair profit. A good business was one that would give the opportunity for the floating of a large amount of stocks and bonds at high prices. It was the stocks and bonds, not the work, that mattered. I could not see how a new business or an old business could be expected to be able to charge into its product a great big bond interest and then sell the product at a fair price. I have never been able to see that.
I have never been able to understand on what theory the original investment of money can be charged against a business. Those men in business who call themselves financiers say that money is ‘worth’ 6 percent, or 5 percent, or some other percent, and that if a business has one hundred thousand dollars invested in it, the man who made the investment is entitled to charge an interest payment on the money, because, if instead of putting that money into the business he had put it into a savings bank or into certain securities, he could have a certain fixed return. Therefore, they say that a proper charge against the operating expenses of a business is the interest on this money. This idea is at the root of many business failures and most service failures. Money is not worth a particular amount. As money it is not worth anything, for it will do nothing of itself. The only use of money is to buy tools to work with or the product of tools. Therefore money is worth what it will help you to produce or buy and no more. If a man thinks that his money will earn 5 percent, or 6 percent, he ought to place it where he can get that return, but money placed in a business is not a charge on the business—or, rather, should not be. It ceases to be money and becomes, or should become, an engine of production, and it is therefore worth what it produces—and not a fixed sum according to some scale that has no bearing upon the particular business in which the money has been placed. Any return should come after it has produced, not before.
Businessmen believed that you could do anything by ‘financing’ it. If it did not go through on the first financing, then the idea was to ‘refinance.’ The process of ‘refinancing’ was simply the game of sending good money after bad. In the majority of cases the need of refinancing arises from bad management, and the effect of refinancing is simply to pay the poor managers to keep up their bad management a little longer. It is merely a postponement of the day of judgment. This makeshift of refinancing is a device of speculative financiers. Their money is no good to them unless they can connect it up with a place where real work is being done, and that they cannot do unless, somehow, that place is poorly managed. Thus, the speculative financiers delude themselves that they are putting their money out to use. They are not; they are putting it out to waste.
I determined absolutely that never would I join a company in which finance came before the work or in which bankers or financiers had a part. And further that, if there were no way to get started in the kind of business that I thought could be managed in the interest of the public, then I simply would not get started at all. For my own short experience, together with what I saw going on around me, was quite enough proof that business as a mere money-making game was not worth giving much thought to and was distinctly no place for a man who wanted to accomplish anything. Also it did not seem to me to be the way to make money. I have yet to have it demonstrated that it is the way. For the only foundation of real business is service.