Enron & Henry Ford

PrintPrintEmailEmail

Ford looked at the car, circling it a couple of times. Then he attacked it. He ripped the driver’s side door off its hinges and then the passenger side door. He leaped onto the hood and kicked in the windshield. Clambering to the roof, he jumped up and down, staving it in. “We got the message,” one observer of this epic temper tantrum reported. “As far as he was concerned, the Model T was God and we were to put away false images.”

IN MANY AMERICAN CORPORATIONS WITH WIDELY DISPERSED STOCKHOLDERS, THE TOP BRASS ANSWER TO NOBODY.

Again, Ford was right, at least for a while. The Model T, its price falling nearly continuously as economies of scale and ever-better manufacturing techniques reduced costs, soon captured nearly 60 percent of the burgeoning American automobile market. In 1915, the dividends declared by the Ford Motor Company, capitalized at less than $700,000 a decade earlier, amounted to an awesome $60 million.

By then Ford had plans for building what would be by far the largest industrial complex in the world, the River Rouge plant, where all the various parts of an automobile would be manufactured and assembled into finished vehicles in one vast operation. It would have 42,000 workers on 229 acres of floor space knitted together with 93 miles of railroad track. The Dodge brothers, who held 10 percent of the company, sued to prevent what they regarded as a monument to Ford’s megalomania. Ford lost in court but won the battle when he bought out the minority stockholders for $105 million. He and his son, Edsel, were now the sole owners of the largest automobile company on earth, and his dream of building the ultimate automobile plant at River Rouge soon became a reality.

By the beginning of the 1920s, more and more car buyers were seeking characteristics beyond basic transportation, such as status. But Henry Ford was convinced that the Model T was still the perfect automobile, and he simply ignored anything that indicated otherwise. No one, not even his own son, could change his mind. The Model T had always been the butt of affectionate jokes, but now the jokes began to take on an edge. (What does the Model T use for shock absorbers? The passengers.) Moreover, the sales of its closest competitor, the Chevrolet, were soaring, from 280,000 in 1924 to 730,000 in 1926. In 1923 Ford had 57 percent of the American market. Two years later it was down to 45 percent and dropping.

In 1926, with sales of the T plummeting, Ernest Kanzler, a Ford vice president, sent Henry Ford a memo arguing forcefully for designing a replacement for it. “That young man is getting too big for his britches,” responded Ford. He soon fired him. Edsel Ford, seeing disaster on its way, kept at his father to end production of the Model T, at no small cost to their personal relationship. Finally, after Henry Ford could no longer deny the evidence that was all around him, it was announced on May 24, 1927, that the Model T would be discontinued. Two days later the 15 millionth one—the record for a single model until 1972, when it was surpassed by the Volkswagen Beetle—rolled down the assembly line. But Henry still didn’t get it. “The only thing wrong with that car,” he said later, “was that people stopped buying it.”

The company shut down for months while its plants were retooled to produce the Model A. The American economy had a slight slowdown as people stopped buying cars, waiting to see what the Model A would be like. It sold well, but Ford was no longer the leader in the American automobile industry. General Motors now held that position, which it has maintained to this day.

As Henry Ford got older, crankier, and even less inclined to listen, the management of the Ford Motor Company, always erratic, became worse. Finally, in his eighties, his son dead, his legendary company a shambles, Ford relinquished control to his grandson Henry Ford II. It would take the latter years to restore what his grandfather, with no one to answer to but himself, had nearly destroyed.

Henry Ford almost ruined the Ford Motor Company because as the sole owner he didn’t need to listen to anybody. How the Enron story will play out is anyone’s guess at this point, but it is already clear that its management didn’t need to listen either. If any good for the American economy is to come out of the Enron debacle, corporate governance will have to change to ensure that the bosses at our great corporations have bosses.