We have owned the Detroit, Toledo & Ironton Railroad for about five years. A great deal has been written and said about this road, because, until we took it over, it had been through more than a dozen receiverships and reorganizations. We have no record that it ever earned any money before we bought it — that is, earned money for the stockholders. It has earned fairly well for the bankers who from time to time have reorganized it.
The road has earned money for us and would earn more were it not that an Act of Congress limits the return on our investment to 6 percent. We are limited in our service by laws conceived in part by ill-informed theorists who cannot understand the real function of profits, and in part by those who see in regulated business the inevitable necessity for banker finance.
These are the advantages under which we took the road:
1. A complete freedom from banker control.
2. A large traffic originating in our own industries.
3. Direct connections with all of the big trunk lines of the country. The old road had these connections also, but it took small advantage of them.
These were our disadvantages at the beginning:
1. A thoroughly demoralized working force.
2. The bad will of the public and the shippers.
3. A ramshackle road that started nowhere and ended nowhere.
4. A roadbed hardly fit for use and rolling stock and motive power which were all but junk.
Out of the chaos which existed when we took it over, we have now a railroad which, while not first class in other than men and management, earned in 1925 more than two and a half millions of dollars, or about half of what we paid for it.
The result has not been brought about by magic. We have not yet put the new electrical short line between Flat Rock and Detroit into operation. The short line represents the highest type we know of concrete construction with the wires carried on concrete arches. This cut-off road is owned by the Detroit and Ironton Railroad Company, the stock of which is owned by us. We have not made the short cuts which we intend to make on the road and for which we have bought the right of way. We have not laid all the heavy rail we intend to put down, and we have not touched many of the worst grades. We shall makeover the road, but we have not yet done it. The earnings have been made with only a small addition to the equipment which was already in use when we bought the road. We have simply brought in management. That is to say, we have:
1. Cleaned up the road and everything about it.
2. Put all the equipment in good condition.
3. Put in what we think are proper wage scales, and have demanded work for pay.
4. Abolished all red tape and division of duties.
5. Played square with the public and the people who work for us.
6. Made all our improvements with our own money.
The point in the management of this railway is not the money it has earned or where or how it gets its traffic. The point is that this railway has utterly discarded many of the precedents of railroad operation and is doing its job with the utmost directness at much lower than the former average operating ration and at the same time paying the highest railway wages in the country. The railroad is really more remarkable for the time-honoured formulas it neglects to observe than it is for the profits it earns.
We did not buy the railroad because we wanted to own a railroad. We did not want to go into the railroad business. It was simply that the right of way interfered with some of our River Rouge extensions. The railroad wanted so much money for a small portion of its land that we thought it would be cheaper to buy the whole railroad. Once we bought the railroad, we had to run it according to our own principles of management. Of course, we did not know whether our principles would apply to the management of a railway, but we thought they would. We found that they did. We have not been able to do much yet. When we get the road into the shape we want, perhaps it will amount to something.
Our factories were in Detroit long before we bought this railroad, and the railroad was there, too. It would seem that the railroad should have had as much business from us then as it has now. We have spent more money than the old railroad could have spent, for it had no credit, but it could easily enough have used what facilities it already had in such a way as to get more business and build itself up. We really have spent very little money except out of earnings.
For the fiscal year ending in June, 1914, the old D.T. & I. reached an operating ratio of 154 percent — that is, it spent three cents to earn two cents. It was capitalized in 1913 at $105,000 a mile! Nobody knows how many millions have been raised on the strength of this railroad. In the reorganization of 1914, the bondholders paid around five million dollars in assessments. That is what we paid for the road and we could have paid less. We paid what we thought to be a fair price, which is the only price we ever pay. Our price happened to be above the market price. We paid sixty cents on the dollar for the bonds, although they were being offered between thirty and forty cents without takers. The bonds were in default. In fact, no security ever issued by this railroad had, up to the time of our purchase, made a return to any investor. We paid a dollar a share for the common stock and five dollars a share for the preferred stock. These stocks did not have a market price because there were no buyers. We made our bid for the securities on the basis of giving fair value as nearly as we could estimate it. We did not get a bargain. We did not want a bargain. We think our management experience has been sufficiently large to permit us to turn a profit on any investment we may make. Every transaction must have at least two sides, and so we are just as much opposed to paying too little as we are to paying too much.
The road taken over, the first step was to put in the Ford principles of management. The principles are extremely simple. They may be compressed into three statements:
1. Do the job in the most direct fashion without bothering with red tape or any of the ordinary divisions of authority.
2. Pay every man well — not less than six dollars a day — and see that he is employed all the time through forty-eight hours a week and no longer.
3. Put all machinery in the best possible condition, keep it that way, and insist upon absolute cleanliness everywhere in order that a man may learn to respect his tools, his surroundings, and himself.
Railroad management, because of long usage, the demands of legislation, and for a dozen other reasons, has become exceedingly complex. A big railroad divides up into numerous circles of authority; so do many manufacturing corporations. The Ford Motor Company has only two divisions — office and shop. It has no rigid lines of authority. The people are supposed to get through the work. This same system went into force on the railway.
The divisions of work among the men were abolished; an engineer may now be found cleaning an engine or a car or even working in the repair shop. The crossing tenders act as track walkers for their districts, the station agents sometimes paint and repair their won stations. The idea is that a group of men have been assigned to run a railroad, and among them they can, if they are willing, do all the work. If a specialist has some of his special work on hand he does it; if he has no such work he does labourer’s work or whatever there may be to do.
We abolished the legal department and all the divisions in the clerical department. We wiped out the Detroit office and all the freight solicitors and a considerable line of executive officers. The legal department was costing the old road $18,000 a year — it now costs $1,200 a year. The new principle is to settle all claims for damages at once on a fair basis according to the facts. The whole clerical force — which includes the administrative officers — consists of ninety persons. The executive officers are in two rooms; the whole accounting force is in one small building. The traveling auditor makes reports on any conditions he finds. It is no one’s business to spy on any one else because no one has any exclusive business to spy on. The job, not convention, rules. The old railway had 2,700 employees for a freight business running to 5,010,000 tons. The force was at once reduce to around 1,500. Now, handling twice the old tonnage, the road has 2,390 employees and these include the mechanics in a large repair shop where the old engines are being made over.
The railway unions have made no objection of any kind, for all the men are being paid well above the highest union scale. The management of the road does not know whether a man is union or non-union; the unions do not seem to care either, for the road has been exempted from all wage negotiations and also from all strike orders.
Cleanliness is an integral part of our plan. The first thing we did was to clean the railway from end to end and to paint every building. New ties are being laid at the rate of about 300,000 a year, and the sixty-pound rails are being replaced by eighty- and ninety-pound rails. The new stone ballast has to be as exact and to be kept as exact as a straight edge can make it. No employee may smoke on the premises. The engines are being made over at an average cost of around $40,000 each; they are being practically rebuilt, and when they come out of the shop they are show engines. They have to be kept that way. No hammer of a size to damage an engine is allowed in a cab. An engine must be cleaned after every trip.
Give a man a good tool — a fancy polished tool — and he will learn to take care of it. Good work is difficult excepting with good tools used in clean surroundings.
These are not unimportant points; they are fundamental. They make for the working spirit. They are as important as the wages. The work would not be returned for the wages were not the conditions so arranged that the work is possible. Section sheds are all standard and have cement floors, every tool and piece of material is in a standard rack, and a supply car goes over the stock once a month. These houses, as well as the stations, have to be kept painted and absolutely clean — stations and platforms have to be swept at least three times a day. Locomotives are now cleaned by a machine which was designed at Fordson and which saves three men and does the work in two and a half hours less than before. The locomotives and all the machinery in the repair shops are enameled to an automobile finish. Cabooses are kept clean and they are comfortable — often the brakemen come in before time to scrub the floors.
It is said that a D.T. & I. man always carries in his hand a bunch of cotton waste. It is the insignia of the road. But that cotton waste is not thrown away once it is used. It goes back to a cleaning plant and comes out as new. No scrap is thrown away. It all goes back to our reclamation plants.
One hears a great deal about railroad wages. No dispute on wages ever takes place in the Ford Industries; the wages are always somewhat ahead of what the workman reasonably expects. When an ordinary labourer goes on the railway, he is paid, according to our rule, five dollars a day for sixty days; then he goes on to the six-dollar-a-day minimum.
Excepting in a few instances, the men running the road today are the men who were with the old company. We do not like to discharge men. Whenever we take over a property, we keep all of the old employees who are willing to work and to fall in with our ideas of management. Very few fail to fall in step with our policies. Those few we let go, because invariably they are the men who want jobs and not work.
The train master of one of the most important divisions of the road began as a section hand when he was sixteen years old. He got ten cents an hour and often was not paid for three months. His father was a road supervisor of the same section, along with three other supervisors and numerous foremen. Now this train master has charge of the whole division and there are no road supervisors. Instead, we have a few maintenance foremen who work on their own initiative instead of being directed from above. As this train master put it to the foremen when the new plan went into effect:
“Wouldn’t you fellows rather put in a bolt or a tie when you see it is needed than wait around for me to come along and tell you to do it?”
The foremen have their pay raised on their work. Everyone on the road has his pay raised according to his work. All the foremen are workers — not one of them stands around just bossing. If you come upon a gang you cannot tell who is the boss. We judge the men solely by results. For instance, a section in charge of one young man was always in first-class shape — the rails were always right, the ties good, the ballast straight lined, and the buildings fresh with paint. We raised the young man without telling him. When his first check under the new scale came to him, he took it to the superintendent.
“There is a mistake in my check,” he said.
Then he was told that he had been raised, and why. The section next to him was in bad condition, but the moment its foreman heard of the pay raise that section began to get better. We find it good business to pay solely on ability, and where two men are doing the same job and one is getting more than the other, to let it be known why; thus, we rarely have a request for an increase in pay, the men know they will get more when they are worth more and that asking will not help. Also we have no Grievance Committee or committees of any kind other than Safety Committees. Any man may go directly to headquarters and he knows it. The cause of derailments is a sore spot with every railroad and under the old methods the track men always got the blame. Now they have a chance and we can place the real blame, and we find that it is seldom with the track men.
We had some trouble with the track gangs in the beginning. They were nearly all foreigners, and we found that being related to the foremen was the best credential for a job. Now relatives are not allowed in the same gang. We are having an increasing number of young high-school graduates coming into the section gangs. They are no longer taking the white collar. They see that manual labour can be performed under decent and self-respecting conditions.
This is particularly noticeable in the bridge gangs. Formerly these gangs were made up without regard to the residence of the members, and the men slept in dirty camp cars, reaching home only on Sundays and sometimes not then. Now we have the road divided into fifty-mile stretches, the gangs are chosen from men who live along the stretch, and with fast motor cars we see that each man reaches home every night. The morale of these gangs used to be low; now it is high. Incidentally, we save the pay of seven cooks and the keep of the men. This saving has been transferred to their pay and they can have real homes.
We have no seniority rules. Such rules are not fair to the community. If a man has been in service a long time, he ought to be better than a newcomer; if his experience has only taught him to dodge work, then the new man, in the public interest, ought to go ahead of him. The engineers on most of the railroads are, because of the rules, usually old men. We have quite a number of young men. We care nothing about age anywhere in our industries. We are after the best man, regardless of age. The absence of rules helps in many ways. As a yard master who has been on the railroad for thirty years — he is sixty-eight years old — said:
“Say a car comes in marked ‘Rush’ and no yard engine is around. In the old days, if I asked a regular engine and crew to shift that car, they would just tell me to chase myself — that moving cars around the yard was not in their working agreement. Now any engine available will shift the car. The men are paid to work, not to debate rules.”
The wages are paid for a strictly forty-eight-hour week, with no overtime, and also there is no piece work at all. The lowest paid man on the D.T. & I. receives $1,872 for a year of 2,496 hours. According to the statistics of the Interstate Commerce Commission for Class 1 railroads, the average compensation for railroad employees, excluding general division officers in 1923, was $1,588 for a year of 2,584 hours — that is, the D.T. & I. men receiving the lowest pay get $25 a month more than the general average of railroad pay for the highest-class roads. Take some specific wages. The D.T. & I. freight conductors get from $3,600 to $4,500 a year as against from $3,089 to $3,247 on other lines; the brakemen get from $2,100 to $2,820 a year as against from $2,368 to $2,523; and the engineers from $3,600 to $4,500 as against the general average of from $3,248 to $3,758. The average pay of office employees on the D.T. & I. is $8.11, and of operating men $7.26.
In addition to the wages, the road has an investment plan. The impulse to invest is right, and it is a thousand criticisms upon our civilization that a man cannot invest where he works, so that not only may he have an additional income, but that his work may take on added interest. If there were more opportunities for solid industrial investment in business with which men are acquainted, there would be far less appeal in the false bonanza schemes that are exploited.
The plan has been in operation only since October, 1923, but up to date, employees have subscribed for certificates to the amount of $600,000 and more than one-half the men are investors. They pay for the certificates out of wages and are permitted to buy up to an amount the installment payment on which will not exceed one-third of the wage. No interest is guaranteed, but the men are paid 6 percent if they find it necessary to withdraw. It is essentially a profit-sharing plan drawn in accordance with the railroad laws and rulings.
The earning of the D.T. & I. are in part due to the business of the Ford Motor Company and in part to the better division of rates with connecting roads. The old road did not have enough traffic to make a fight on the division it received for its part of a through haul, and it received divisions which were often below the actual cost of transportation. It took what it could get; under our management all these rate divisions have been revised, upon a fair and just basis. The operating ratios tell the really important story. In 1920, under the old management, it had an operating ratio of 125.4 percent; in the first year of the new management and with practically the same equipment, it had a ration of 83.8 percent as compared with the operating average of 79.31. The present operating ratio is around 60 — which is less than average of the country for far better equipped roads.
Another point we make and carry through all our industries — no man may work on Sunday.
The experiment is not unimportant. For a long time the country’s railways have been at war with their employees or with the public — and sometimes with both. The war has been so long drawn out that the purpose of the railways seems sometimes to be forgotten. I believe in private ownership. I think time does not hallow the practices of business. Under private ownership it is possible to conduct any business so that it will pay high wages and yet give cheap service.