Ford Philosophy

Last week frightened steelmen could not help recalling the story of a week last autumn. When steelmen returned jauntily from 1938 Labor Day weekends, they were confident that no more dreary months of 25% and 30% operations lay ahead--October would start the 1939 auto model year off with a bang. Soon all steel-peddling haunts buzzed with reports that auto production schedules called for 1,000.000 1939 cars by year's end. At a ton of steel per car, Detroit would have to buy 1,000,000 tons. Buick had just bought 35,000 tons. Ford was shopping for 50,000 tons. For the steel industry the days of on & up were coming back.

Ford, whose philosophy is based on low prices and big volume, took his time shopping for his 50,000 tons. For weeks he dangled the bait until big time steelmen forgot that the price of 1,000,000 tons was at stake, enough to keep U. S. continuous rolling mills busy for more than a month, while 50,000 tons add up to a couple of days' work.* By October 1, steelmen were in a competitive lather.

Then Ford bought his 50,000 tons, at $4 a ton below what steelmen quickly realized had been the price, but was the price no more. There started a week's orgy of price cutting. Steel price quotations fell as rapidly as stock quotations on a Hitler-speech day. The independents (staying in the black) offered to lay steel down in Detroit for $8 a ton less than the U. S. Steel Corporation, and the U. S. Steel Corporation (going into the red) met the cut. Little Steel's Girdler and Big Steel's Stettinius traded punches till both were sorry.

A week later, when it was all over, Big & Little Steel were yoked to a new price structure at $50.51 instead of $56.27 a ton and they had enough orders for five months of operations at 50% of capacity. Their week of war had sold not just 1,000,000 tons to feed Detroit from October through Christmas, but something like 2,000,000 tons--enough to tide auto production over until the 1939 model year was nearly over. Result: the 1939 model cars were about $25 cheaper than the 1938, and $10 of that cut was put up by the steelmen.

Last week, this bit of history was memorable for Ford was again dangling an order before the trade, an order for only 5.000 tons, only an hour's run for the industry's continuous mills. But such was the state of the steel industry that the offer was demoralizing. Youngstown Sheet & Tube allegedly nibbled first, offering Ford a $2 a ton cut. He held out, won a reduction twice as big, added insult to injury by splitting the bone he was throwing seven different ways, so that no plant got more than a sniff of business.

As it did last October,-price cutting spread. Some steel prices dropped as much as $11 a ton or up to 20%. Characteristically, competing automen disputed Ford's claim for credit in securing the reduction. Meanwhile, large steel orders by the motormakers are probably two months off, for the auto companies have enough steel on hand to last until large scale production begins on 1940 models and want to be sure their big buying is done at the bottom, not on the way down. Aggressive National Steel Co., always up front among the price cutters, admitted that it didn't "know what the price is," was reported taking fill-in business from all comers to be rolled in one lot when enough of it accumulates. Ponderous U. S. Steel Corp. first disregarded the buzzing and biting of the mosquitoes, denied it was doing anything at all, finally "reaffirmed" present prices for the third quarter, in fact cutting them $3 a ton by extending previous "quantity deductions" to all small lots sold. This left the giant of the industry $8 a ton above its lowest competitor, but it asserted its intention of meeting each cut till its small bedevilers reformed or bled to death. Price cuts that bring increased orders are good business according to the philosophy which Henry Ford made famous and Edsel Ford now practices. But in spite of last week's cuts, steel production fell this week to 45.4% (last week 47%, fortnight ago 49%). Unless more business follows soon, steel's price cuts will raise questions: How far can steel prices tumble without steel managements opening fire on wages? What then of wages generally, and labor peace? Will other prices follow down the price of steel? Can industry afford to buy materials months in advance in the face of threatening inventory losses and production curtailment? How soon will the auto-steel logjam break, so that Detroit can again lead U. S. business to another upturn? And, more philosophically, do price reductions pay when they don't coax new business out of hiding? Meanwhile, the copper industry demonstrated that Henry Ford's low price-big volume doctrine is still worth something. Last week, copper companies, who recently got new orders by cutting prices from 11 1/4-c- to 10 1/4-c- a Ib. (TIME, May 15), found orders again drying up. So Kennecott Copper Corp., big Guggenheim unit, cut the price to 10-c- and other companies followed. Result: April's high rate of sales continued. Phelps Dodge's President, Louis Shattuck Gates, tall, pleasant, frank, fond of playing poker (because "you can only get mad at yourself if your guess is wrong") remained one rebel against price cutting. Anti-Ford in philosophy, he kept his price at 10 1/2 and consoled himself with the thought that his competitors were bad poker players--while they got the business.

* Annual rolling mill capacity: over 13,000,000 tons. Rolling speed: 1,800 feet a minute.

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