He was in the profit business, not the car one

It’s not quite true that Ford Motor Corporation is abandoning the making of cars, rather, they’re going to make and sell very few saloons in the North American market and concentrate upon commercial vehicles, SUVs and specialist output like the Mustang. In the rest of the world they’ll still be heaving things like the Focus out the door in volume. At which point well, what would Henry Ford himself made of all of this?

My intuition is that he would have loved it. Ford wasn’t, unlike the way some think of him, particularly a car man. He was in business, he’d one great invention to apply, the assembly line, and cars were where it was at right then. Yes, I exaggerate but not by all that much. It was rather later generations of management who thought they were in the car business, not the profit one.

By the way, no, Ford did not raise wages to $5 a day so that his workers could buy his cars. The math on that doesn’t work at all, sorry, a company cannot become more profitable by such self-bootstrap pulling. He did it to lower labour turnover and thus recruitment and training costs. It also helped to screw over the Dodge Brothers which is just another indication that Ford himself knew he was in the profit business, nothing else.

So, to today’s announcement:

Ford’s decision to drop sedans and hatchbacks makes sense.

Well, no, we don’t know that. We face, as all of us do, uncertainty. We really just don’t know what the future holds. But given that, that the test is being able to look back and insist that yes, that worked, from where we are now it makes sense. As Lee Iacocca continually pointed out – more a reflection of Lee’s inability than anything else to be sure (and this will be the last time I acknowledge stealing a joke from PJ O’ Rourke. I did actually ask the man once whether it was OK to do so and he said “Steal away”) – it’s not possible to make small cars in America and make a profit. Not quite true but it’s certainly true that economic profits, that is profits above the general rate of profit on capital, aren’t made that way.

Say goodbye to the Ford Taurus.

The family-friendly sedan — which has graced American roadways since the-mid 1980s — is being phased out in North America alongside the Fiesta subcompact, Fusion midsize sedan, Taurus large sedan and the C-Max van, according to Ford’s quarterly earnings statement.

Ford said eliminating most of the company’s cars except for two models will allow the company to focus on their “winning portfolio” in the United States, Canada and Mexico. The Detroit automaker plans to keep the Ford Mustang sports car and a new Focus crossover that the company plans to release next year.

Well, why shouldn’t a company concentrate on what makes a decent profit and drop what doesn’t? Actually, it’s rather what we would hope a company would do, even what it should do. One of the problems of the Big Three car makers being that they’ve generally not quite acted that way. Two of them going bust as a result just recently. But this brings us to this question:

What would Henry Ford think?

He’d love it. Sure, we’ve got this idea that he’s synonymous with cars but that’s really hindsight. He was after, and gained obviously enough, profit. His invention was the assembly line. Cars were simply what he applied it to. Even, he was the entrepreneur who applied, not invented, the assembly line to cars. If he were around today it would be something else. We might say the same about Alfred Sloan actually, he wasn’t really in the car business, he was though a genius at market segmentation, cars just being where he applied it. Ferdinand Porsche though, no, he really was in the car business.

Quite seriously, I think Henry Ford would just love that Ford Motor Company is getting out of cars in North America. Actually, I think he’d have more than the occasional expletive for the people who didn’t do this at least one if not several decades back. For he was in the profit business and that’s not quite where the domestic American car business has been all that good recently.

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7 COMMENTS

  1. It isn’t impossible to make a profit on small cars in the US, but the question is whether that would make Ford a profit most easily. (Yes, “opportunity cost.”) The Japanese and Koreans stamp out high-quality commodity sedans and there is no point trying to do it better to market to the penny-pinching segment of the car-buying public.

  2. PJ said ‘Steal away’ because everyone knows PJ’s jokes, and everyone knows when someone steals one.

    (An Australian motoring journalist once got sacked for stealing his material about whether he preferred small cars or big cars, and he said rental cars, because you can drive the shit out of them, etc.)

  3. The idea of the profit business was what drove those grand old conglomerates of thirty, forty and fifty years ago. If you had the skills and competencies to make it big in the fast-food business, surely you could do the same by acquiring subsidiaries in aerospace, movie making and pharmaceuticals, because profit-making is a universal skill set. That philosophy has gone out of favour. Today’s top companies are winners because they focus on a particular industry that they know inside-out, back-to-front.

    • I agree, thorough knowledge beats chance synergies as a key to turning a profit.

      A manager at a large corporation where I once worked was known for stating, “A competent manager can manage any business.” He was often quoted in ridicule (including his accent, as he could not manage English inside-out, back-to-front) every time events proved he could manage no business.

  4. Got a rental on my last trip to the US. Every car in the choice line was an SUV except for a Fusion Hybrid which had no room for the luggage. And that’s what you see on the streets too, to a lesser extent. Took a Hyundai, competent but uninspiring.

    (I’m very fond of the Chevy Impala, it sacrifices nothing to the Asian sedans. There are some very good US cars nowadays. Along with the beer and the cheese old prejudies don’t stand up in today’s USA).