How Henry Ford Would Handle Today’s Supply Chain Turmoil

DEARBORN, Michigan — Henry Ford, the godfather of mass production, was plagued by the possibility of running out of parts and raw materials. Distrustful of financiers—a spirit that fueled his fervent anti-Semitism—he was especially suspicious of his suppliers. He was consumed with stocking up on enough materials to ensure his assembly lines could continue operating without debilitating shortages.

He bought his own coal mines in Kentucky and Virginia, along with railroads to transport his production to his factories. He amassed a fleet of ships that crossed the Great Lakes, carrying a steady supply of iron ore and timber mined from Michigan’s Upper Peninsula. And he built a massive factory outside Detroit on the River Rouge, a complex of factories designed to handle every step of transforming raw materials into a finished automobile.

A century later, the Rouge plant is still in operation, but is plagued by the lack of a crucial component that would have horrified Ford. The company he founded cannot buy enough semiconductors, the computer chips that are the brains of the modern car.

Ford is heavily dependent on a single chip supplier located more than 11,000 kilometers away in Taiwan. With chips in short supply across the global economy, Ford and other automakers have been forced to intermittently halt production.

On a recent afternoon in Rouge, hundreds of workers used tools to fit parts together for Ford’s most popular vehicle, the F-150 pickup. However, in recent months, Ford has been forced to stash thousands of finished vehicles in lots scattered across Dearborn – Henry Ford’s hometown – awaiting the arrival of chips that can bring them to life.

“It’s exactly the sort of thing Henry Ford feared,” said Matt Anderson, curator of transportation at the Henry Ford, a museum in Dearborn that explores his legacy and the history of American innovation. “He became increasingly obsessed with controlling every aspect of his production process.”

Popularly celebrated in his own day, Henry Ford’s legacy provokes condemnation today. He espoused white supremacist sentiments along with strident anti-Semitism. He unleashed brutal violence on the labor movement that ended up organizing its factories. It has conquered a monopolistic position in the affordable car market.

Mr. Ford clearly realized that supply chains were fragile, needing constant scrutiny and backup plans. Despite his hostility toward unions, he understood the value of generous wages in motivating workers. And he warned that investors’ demands for short-term gains could threaten long-term resilience.

“He recognized that the supply chain was already fraught with risk,” said Mike Skinner, founder of the Henry Ford Heritage Association. If he were around today, “Ford would be making their own chips,” added Skinner. “There’s no doubt about it.”

People who run Ford say this is an oversimplification. The F-150 pickup produced in Rouge uses more than 800 types of chips, requiring dependence on specialists. And chips have a limited lifespan, making them difficult to stock.

“It’s a lot of complexity,” Ford’s director of industrial platform Hau Thai-Tang said during a recent interview. For Ford, making its own chips, or even limiting its suppliers to North America, would represent “a Herculean task that would require a lot of assets and capital, and would not be realistic,” he added.

Yet Ford’s chip supply strategy, Thai-Tang acknowledged, was guided by the interests of a party that the company’s founder disdained as a potential threat to the vitality of his business—the shareholder.

Ford’s adoption of so-called Just in Time inventory – in which warehouses are kept lean to minimize costs – “has been driven by capital markets and is focused on return on invested capital,” Thai-Tang said.

Henry Ford often avoided dividend requirements – payments that enrich investors – while preferring to invest his profits in expansion.

“We are against the kind of banker who regards a business as a melon to be cut,” Ford declared in his memoirs.

This tension came to a head in 1916, when Ford clashed with some of its early investors, the Dodge brothers, who were also innovators in the emerging auto industry.

Ford’s earnings for the previous year had reached $16 million, and the company had more than $50 million in cash in the bank. Mr. Ford was convinced that the money would go towards building his new factory, Rouge.

The Dodge brothers insisted on dividends and filed a lawsuit. They asked a court for an injunction that would freeze Ford’s expansion plans in Rouge.

The court complied, infuriating Mr. Ford: The Dodge brothers were endangering not only their plans for Rouge, but their company’s central organizing principle.

“I don’t believe we should make such a terrible profit from our cars,” he said on the witness stand during the trial that followed. “It has been my policy to force the price of the car down as fast as production allows and to give the benefits to users and workers.”

The conflict was fueled in part by Ford’s decision, nearly two years earlier, to nearly double his workers’ wages to a previously unheard-of $5 a day. Other business leaders accused him of putting their companies at risk by raising wages across American industry.

Mr. Ford insisted he was simply being pragmatic. The advent of the assembly line made car manufacturing routine work. Many workers were angered by what appeared to be a demotion to robotic and repetitive tasks, and they resigned en masse. Ford considered higher wages – in part to anticipate a union campaign – as a means of attracting enough labor to produce increasing volumes of cars.

“A low-wage business is always unsafe,” he declared.

Given the stupendous success of the Model T, Ford dominated the affordable car market. Paying higher salaries was therefore a means of protecting their domain, said Mark J. Roe, a professor at Harvard Law School.

More broadly, Mr. Ford portrayed generous wages as the key to fostering the consumer economy he championed, with affordable cars as a means of pushing the contours of cities, opening up new forms of housing, offices and leisure.

“Most people in the country live on wages,” Ford would write in his memoirs. “The scale of your life – the rate of your wages – determines the prosperity of the country.”

Under withering interrogation during the Dodge brothers’ lawsuit, Ford stated that the purpose of his business was to provide jobs and build affordable cars, with money only an incidental result, according to an account in Richard Snow’s biography I Invented the Modern Era. “

“Business is a service, not a bonanza,” said Ford.

The Michigan Supreme Court eventually rejected this conception. “A business corporation is organized and operated primarily for the profit of shareholders,” the court ruled.

That decision now marks a milestone in the American shareholder’s march toward primacy.

The court ruled for the Dodge brothers and ordered Ford to pay out about $25 million in dividends, although – through an appeal – Ford had secured the right to proceed with construction of the Rouge.

Later, Mr. Ford crushed the Dodge brothers, buying their stock and taking control of their company.

But today more than half of Ford Motor’s shares are controlled by Wall Street institutions like Vanguard, the mutual fund firm, and BlackRock, the world’s largest asset management firm, now overseeing more than $10 trillion.

In the three years leading up to the pandemic, Ford distributed dividends to shareholders reaching $7.9 billion, or 70% of its profits, according to data tabulated by William Lazonick, an economist at the University of Massachusetts Lowell.

Compared to other publicly traded companies, Ford has shown a greater inclination to limit dividends and preserve capital in the face of challenges, Lazonick said.

But chip companies have largely catered to their investors by limiting their capacity — a strategy to keep prices high. A shortage of truck drivers and warehouse workers is often the result of downgrading these jobs, with pay cuts as a way to reward shareholders.

Mr. Ford would not accept the scarcity resulting from undue reliance on a supplier that could not meet his company’s demands.

“He would probably fire whoever did that,” said Willy C. Shih, an expert on international trade at Harvard Business School. “He knew he had to get control of the company before he delivered the car to the masses.”

The parking lots that now house F-150 pickup trucks awaiting chips are in the shadow of Ford’s corporate headquarters in Dearborn. One is across the street from Henry Ford Elementary School.

At the end of last year, the company announced a partnership aimed at manufacturing chips in the United States.

“We are certainly reflecting on the last two years,” said Thai-Tang, a Ford executive.

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