Monday, Jun. 02, 1924
Fords at Cost
Reports from Detroit stated that the Ford Motor Co. is now selling its cars practically at cost, and that the company's profits come from the sale of spare parts, freight charges and byproducts and from interest accruing upon bank balances and derived from securities. This statement, if accurate, goes to show that Ford car prices cannot well be reduced further, at least under present conditions. The future policy of the Company is bound to be influenced by Mr. Ford's reaction to the possibility of paying a perfectly enormous income tax. Heretofore, this has been readily avoided. All the stock in the Ford Motor Co. is owned by Henry Ford and his son. Instead of declaring dividends on it in proportion to what the earnings would justify--in which case their incomes would be heavily levied upon by the income tax collector--net income was almost entirely plowed back into the property each year, or used to acquire new plants and establishments of all sorts. On corporate net income the tax rate was only 12 1/2%, while the surtax rate would have been 50% on both the Fords' incomes had these earnings been distributed to them in the form of dividends. Incidentally, this in part explains Henry Ford's willingness to buy all sorts of business enterprises of late, such as his railroad or his huge new development at River Rouge. "Lateral" trusts--i.e., mergers of industries of the same sort--are forbidden by the Sherman Anti-Trust Law on the grounds of restraint of trade. But for the "vertical trust," involving ownership of all productive and transportation facilities needed for manufacture of a product there is no legal prohibition. This is the kind of trust that Henry Ford is creating.