VEHICLE FOR GROWTH

When Henry Ford started making cars, few people had them.
Ford knew that cars were only bought by the rich.
So obviously his strategy would be market growth, not market share.
In 1908, the average car cost over $2,000.
So he launched the Model T costing just $800.
People who’d never even considered owning a car could now afford one.

Ford aimed to grow the market amongst non-owners.
The cheaper he made the cars, the more people could buy them.
It became a constant struggle to get costs down, and down.
By 1911, he realised production was one of the main costs.
If he could make the cars faster he could sell them cheaper.
But current assembly techniques were just too slow.
Ford needed to think creatively.
Think in a way other car manufacturers weren’t thinking.
So he looked outside factories and industry.
He looked at meat-packing plants.
In meat-packing plants the carcasses are loaded onto an endless belt.
The employees stand where they are while the carcasses come past.
One man takes out the innards, that’s all he does all day.
One man cuts off the limbs, that’s all he does.
One man separates the various cuts of meat, that’s all he does.
Nobody has to move, they do one simple job over-and-over.
Henry Ford thought, what if I did that in reverse?
Instead of using a conveyor belt to take something apart, I could use it to put a car together.
The Ford production line was born and the speed of making a car was halved.
Along with the cost, which Ford cut to to $360.
Model T sales rose to a quarter of a million.
Another huge cost in auto manufacturing was employee churn.
The work was dirty and badly paid.
In one year, Ford alone hired 53,000 different staff for 14,000 jobs.
This meant the constant cost of retraining, plus the lost production.
Again Ford needed to think creatively.
And in 1914, Henry Ford did the unthinkable.
He doubled his employees’ basic wage from $2.34 to $5 a day.
Every other manufacturer thought he was insane.
But none of Ford’s employees now wanted to leave.
He saved the cost and the time of constant retraining.
And, as Ford explained, he turned his 250,000 workers into customers.
They could all now afford to buy cars.
And the one car at a price they could all afford was the Model T.
By 1916, Ford sold half a million Model Ts.
By 1922, he cut the price to $269 and had half the entire market.
By 1927, when the Model T finally stopped production, he had sold fifteen million cars.
Henry Ford had turned America into a country of car owners.
He saturated the country, and the market, with automobiles.

He not only built the cars, he built the market.

 

 

 

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