My Life and Work, Henry Ford [i want to read a book .txt] 📗

were set forth the dangers attendant upon the indiscriminate borrowing of money. It is inevitable that any one who can borrow freely to cover errors of management will borrow rather than correct the errors. Our railway managers have been practically forced to borrow, for since the very inception of the railways they have not been free agents. The guiding hand of the railway has been, not the railroad man, but the banker. When railroad credit was high, more money was to be made out of floating bond issues and speculating in the securities than out of service to the public. A very small fraction of the money earned by the railways has gone back into the rehabilitation of the properties. When by skilled management the net revenue became large enough to pay a considerable dividend upon the stock, then that dividend was used first by the speculators on the inside and controlling the railroad fiscal policy to boom the stock and unload their holdings, and then to float a bond issue on the strength of the credit gained through the earnings. When the earnings dropped or were artificially depressed, then the speculators bought back the stock and in the course of time staged another advance and unloading. There is scarcely a railroad in the United States that has not been through one or more receiverships, due to the fact that the financial interests piled on load after load of securities until the structures grew topheavy and fell over. Then they got in on the receiverships, made money at the expense of gullible security holders, and started the same old pyramiding game all over again.

 

The natural ally of the banker is the lawyer. Such games as have been played on the railroads have needed expert legal advice. Lawyers, like bankers, know absolutely nothing about business. They imagine that a business is properly conducted if it keeps within the law or if the law can be altered or interpreted to suit the purpose in hand. They live on rules. The bankers took finance out of the hands of the managers. They put in lawyers to see that the railroads violated the law only in legal fashion, and thus grew up immense legal departments. Instead of operating under the rules of common sense and according to circumstances, every railroad had to operate on the advice of counsel.

Rules spread through every part of the organization. Then came the avalanche of state and federal regulations, until to-day we find the railways hog-tied in a mass of rules and regulations. With the lawyers and the financiers on the inside and various state commissions on the outside, the railway manager has little chance. That is the trouble with the railways. Business cannot be conducted by law.

 

We have had the opportunity of demonstrating to ourselves what a freedom from the banker-legal mortmain means, in our experience with the Detroit, Toledo & Ironton Railway. We bought the railway because its right of way interfered with some of our improvements on the River Rouge. We did not buy it as an investment, or as an adjunct to our industries, or because of its strategic position. The extraordinarily good situation of the railway seems to have become universally apparent only since we bought it. That, however, is beside the point. We bought the railway because it interfered with our plans. Then we had to do something with it. The only thing to do was to run it as a productive enterprise, applying to it exactly the same principles as are applied in every department of our industries. We have as yet made no special efforts of any kind and the railway has not been set up as a demonstration of how every railway should be run. It is true that applying the rule of maximum service at minimum cost has caused the income of the road to exceed the outgo—which, for that road, represents a most unusual condition. It has been represented that the changes we have made—and remember they have been made simply as part of the day’s work—are peculiarly revolutionary and quite without application to railway management in general. Personally, it would seem to me that our little line does not differ much from the big lines. In our own work we have always found that, if our principles were right, the area over which they were applied did not matter. The principles that we use in the big Highland Park plant seem to work equally well in every plant that we establish. It has never made any difference with us whether we multiplied what we were doing by five or five hundred. Size is only a matter of the multiplication table, anyway.

 

The Detroit, Toledo & Ironton Railway was organized some twenty-odd years ago and has been reorganized every few years since then. The last reorganization was in 1914. The war and the federal control of the railways interrupted the cycle of reorganization. The road owns 343

miles of track, has 52 miles of branches, and 45 miles of trackage rights over other roads. It goes from Detroit almost due south to Ironton on the Ohio River, thus tapping the West Virginia coal deposits.

It crosses most of the large trunk lines and it is a road which, from a general business standpoint, ought to pay. It has paid. It seems to have paid the bankers. In 1913 the net capitalization per mile of road was $105,000. In the next receivership this was cut down to $47,000 per mile. I do not know how much money in all has been raised on the strength of the road. I do know that in the reorganization of 1914 the bondholders were assessed and forced to turn into the treasury nearly five million dollars—which is the amount that we paid for the entire road. We paid sixty cents on the dollar for the outstanding mortgage bonds, although the ruling price just before the time of purchase was between thirty and forty cents on the dollar. We paid a dollar a share for the common stock and five dollars a share for the preferred stock—which seemed to be a fair price considering that no interest had ever been paid upon the bonds and a dividend on the stock was a most remote possibility. The rolling stock of the road consisted of about seventy locomotives, twenty-seven passenger cars, and around twenty-eight hundred freight cars. All of the rolling stock was in extremely bad condition and a good part of it would not run at all. All of the buildings were dirty, unpainted, and generally run down. The roadbed was something more than a streak of rust and something less than a railway. The repair shops were over-manned and under-machined.

Practically everything connected with operation was conducted with a maximum of waste. There was, however, an exceedingly ample executive and administration department, and of course a legal department. The legal department alone cost in one month nearly $18,000.

 

We took over the road in March, 1921. We began to apply industrial principles. There had been an executive office in Detroit. We closed that up and put the administration into the charge of one man and gave him half of the flat-topped desk out in the freight office. The legal department went with the executive offices. There is no reason for so much litigation in connection with railroading. Our people quickly settled all the mass of outstanding claims, some of which had been hanging on for years. As new claims arise, they are settled at once and on the facts, so that the legal expense seldom exceeds $200 a month. All of the unnecessary accounting and red tape were thrown out and the payroll of the road was reduced from 2,700 to 1,650 men. Following our general policy, all titles and offices other than those required by law were abolished. The ordinary railway organization is rigid; a message has to go up through a certain line of authority and no man is expected to do anything without explicit orders from his superior. One morning I went out to the road very early and found a wrecking train with steam up, a crew aboard and all ready to start. It had been “awaiting orders”

for half an hour. We went down and cleared the wreck before the orders came through; that was before the idea of personal responsibility had soaked in. It was a little hard to break the “orders” habit; the men at first were afraid to take responsibility. But as we went on, they seemed to like the plan more and more and now no man limits his duties. A man is paid for a day’s work of eight hours and he is expected to work during those eight hours. If he is an engineer and finishes a run in four hours then he works at whatever else may be in demand for the next four hours. If a man works more than eight hours he is not paid for overtime—he deducts his overtime from the next working day or saves it up and gets a whole day off with pay. Our eight-hour day is a day of eight hours and not a basis for computing pay.

 

The minimum wage is six dollars a day. There are no extra men. We have cut down in the offices, in the shops, and on the roads. In one shop 20

men are now doing more work than 59 did before. Not long ago one of our track gangs, consisting of a foreman and 15 men, was working beside a parallel road on which was a gang of 40 men doing exactly the same sort of track repairing and ballasting. In five days our gang did two telegraph poles more than the competing gang!

 

The road is being rehabilitated; nearly the whole track has been reballasted and many miles of new rails have been laid. The locomotives and rolling stock are being overhauled in our own shops and at a very slight expense. We found that the supplies bought previously were of poor quality or unfitted for the use; we are saving money on supplies by buying better qualities and seeing that nothing is wasted. The men seem entirely willing to cooperate in saving. They do not discard that which might be used. We ask a man, “What can you get out of an engine?” and he answers with an economy record. And we are not pouring in great amounts of money. Everything is being done out of earnings. That is our policy.

The trains must go through and on time. The time of freight movements has been cut down about two thirds. A car on a siding is not just a car on a siding. It is a great big question mark. Someone has to know why it is there. It used to take 8 or 9 days to get freight through to Philadelphia or New York; now it takes three and a half days. The organization is serving.

 

All sorts of explanations are put forward, of why a deficit was turned into a surplus. I am told that it is all due to diverting the freight of the Ford industries. If we had diverted all of our business to this road, that would not explain why we manage at so much lower an operating cost than before. We are routing as much as we can of our own business over the road, but only because we there get the best service. For years past we had been trying to send freight over this road because it was conveniently located, but we had never been able to use it to any extent because of the delayed deliveries. We could not count on a shipment to within five or six weeks; that tied up too much money and also broke into our production schedule. There was no