"higher salaries increase his costs and thus the price of his vehicles"
Tim, you are smarter than that. Labor is only one component, and for Ford in particular, it was one of the smaller components. While personnel costs might have gone up, the higher volume meant he had greater leverage to get a lower price on the other components.
And it isn't really clear that his personnel costs went up. He had a lower turn over and a more motivated workforce. So his personnel costs might have even been lower, overall. Even on an assembly line, which was one of his big innovations, some skills are needed. You can't just hire day laborers and expect it to work.
The other innovation, was a standard product. Cars of the day were expensive and rare. So most automobiles had some degree of customization. The model T, in particular, eliminated that. Every unit was identical, including the color. That greatly simplified the process. This is a lesson that companies learn over and over again. One company I worked for suffered from this. Every model had a wide variety of options. Sales loved it, they could configure units for each and every sale. Engineering and manufacturing hated it. They were complex and difficult to design. Plus, their reliability stank. Finally, in consultation with a new CIO who consulted on such matters, they picked a target of 90% of the market and researched those needs. The new product sold for less than half the cost of previous models at a much higher margin. It could be dropped from a meter and a half to concrete with no damage, compared to the old unit which would often croak if carelessly dropped on a desk from a few inches. The customer in focus groups loved it, and when shown to the grunts on the warehouse floor, they took to it without a second thought.
Then we were bought out by our largest competitor in a stock swap deal. They fired everyone and killed all the orders for the new product. Of course, it was later discovered that they had played Enron-style tricks to inflate their stock value and the CEO had to flee to Sweden ahead of indictments, but that is a different story... |
