CHAPTER TWENTY-SEVEN

For What Is a Man Profited?

The selection of Bill Knudsen to head up the agency charged with coordinating war production was a happy one. Just as George Mead knew his aircraft, so did Bill Knudsen know his production. Furthermore, he knew the men who knew production and he held their confidence and regard. This was important at the moment when business and industry had reason to fear and suspect government; the drift in this country toward the omnipotent state had aroused intense bitterness and might have bogged down the whole program had not Bill Knudsen attracted to his organization other men who held the respect of their fellow manufacturers. These men began immediately on the complex task of unraveling all the mare’s nests that had collected around government procurement.

About the middle of the summer of 1940, Fred Rentschler and I went down to Washington to call on the Grand Old Man and outline to him the key to our whole program. The President’s 50,000-plane program, when superimposed on the already staggering foreign purchases, was clearly beyond the total capacity of the New England area. And if we undertook further expansion in other areas, we would impose further burdens on an already hard-pressed staff. The time had now come to bring in the great automotive industry.

Since Knudsen had, until recently, been president of the General Motors Corporation, we saw little hope of interesting him in diverting Buick or Chevrolet to aircraft-engine production just yet. For our automobile manufacturers still remembered the treatment given them back in 1918 when, after the Armistice, their war contracts had been ruthlessly canceled—torn up like so many scraps of paper—and their “war profits” had vanished from view except in the news headlines of the next twenty years. It would take some doing to persuade Bill Knudsen to our cause, and even Bill Knudsen would have his work cut out to get his automotive friends on the beam. As a matter of fact, without Bill Knudsen it could never have been done in time.

For Bill was animated throughout his wartime service by a great motive. He had come to the Land of the Free a penniless immigrant, and had there won not alone riches but the respect and esteem of the great men of the land. And whatever the generation which had inherited liberty might think about it, Bill Knudsen knew what liberty meant; his whole being was imbued with a love for the country of his adoption, with a devotion to the spirit which animated it and an intense zeal to pay back in part some of the privileges it had extended him. And so deeply was this zeal imbedded in his character and so honestly did he seek to pay back his debt that even men grown cynical under the lash of government were impelled to go along. His simple fundamental character combined with his native wit and intelligence gave Bill Knudsen such qualities of leadership at the very moment they were most needed.

The day Fred Rentschler and I walked in on him, we found him leaning over a plain table pawing around among some engine parts with George Mead and Henry Crane. “Uncle Henry” Crane, one of the great engineers of the automotive industry, had been called in for a conference over the failures of the Allison liquid-cooled engine. While Fred and I cooled our heels waiting for experts to decide upon what design changes were necessary to make the Allison run, before they could discuss policy with us, we thought we saw a certain irony in the situation. For the Allison engine was the power plant that had taken the business away from our 1830 engine in the critical months of 1939 when that one contract meant so much to Pratt and Whitney.

When, finally, it came our turn, we broke the news to Bill Knudsen that, with the completion of the new American addition in Hartford, we would reach a saturation point in Hartford and must look elsewhere for new facilities. Bill knew that Wright Aeronautical planned to build a big new shop somewhere in Ohio and presumed, of course, we would go and do likewise, but when we explained the differences in our two situations, he understood. Wright Aero had been formed out of the consolidation of two big engine companies, Curtiss and Wright, and had more topside staff than Pratt and Whitney. Guy Vaughan was still its president, but Don Brown had died. Now when we mentioned licensing the automotive companies, Bill’s first question was who did we have in mind. When we told him Ford, he at first shook his head, but when we stressed the point that selling Uncle Henry was his job and that no one except he and George Mead could do it, Bill Knudsen reluctantly agreed to try.

And Bill and George succeeded. Within a few days we received word that Ford Motor would send a group of shopmen to look over the job and see what could be done. Bill Knudsen, familiar with the Ford setup, had suggested that the machinery in the great Ford tool room, along with some six thousand men employed there, would take the Pratt and Whitney job in its stride. To automotive men, the aircraft industry still looked something like the ancient “carriage trade,” and they discounted our insistence that our standards of quality and precision were not easily come by in the mass-production industries.

Edsel Ford and Charles Sorenson met with Fred Rentschler and me in the boardroom in East Hartford. Sorenson did most of the talking, though Edsel Ford was president of the company. A rough-and-tumble shopman of the Ford school of give and take, Sorenson wasted few words. His men had looked the shop over and found nothing complicated about it—nothing they didn’t savvy. The machine tools seemed standard and the processes excellent. At first his boys had thought the job looked easy, but the more they had seen of our precision, the more they had become impressed with the task before them. At first they had thought we might be overdoing the quality but after a look at the test-shed running and studying the high demands for durability and dependability, they had changed their minds. They realized it was a tough racket but were prepared to go ahead on two conditions.

First, they would have to adopt our technique in every detail and even have to build a complete new aircraft-engine shop; the idea that their tool room would serve was fantastic, the machines wouldn’t do at all. Second, they would have to have access to our suppliers and subcontractors for parts; they could not find other sources of supply. He presumed, of course, that we would give them every assistance and even detail our foremen and leading men to duty in the Ford shops as necessary.

Sorenson’s requirement as to our suppliers posed a problem; most of them were already overloaded. Some like Wyman Gordon, of Worcester, source of our crankshaft and other forgings, were already suppliers to the automotive industry, and could shift their production from autos to aircraft. This had been a long-time feature of our war plans and it applied to many of our parts. On the others we would share the output with Ford and join him in creating new sources. With that decision we all shook hands and it was a deal.

One thing that had impressed the Ford people was the vast difference between the aircraft and automotive processes. Our production was based on the use of standard machine tools; we had few of the special single-purpose machines designed for low-cost volume production of automobiles. Our practice had been deliberately adopted for several reasons. In expanding for war-emergency production we could expect machine tool builders rapidly to expand delivery of standard machines, where special machines would require much longer. Again, whereas automotive production could be standardized for reasonable periods, in aircraft engines we must be able to incorporate every new design change without seriously retarding production. To accomplish this, we had fitted special jigs and fixtures to our standard machines; for a design change we could scrap the fixtures but keep the machines running. No such flexibility as this could be had with the special machines of the automotive shops, and Sorenson’s crew had spotted this right away. In fact, if anyone thought we could learn much about production from the automotive boys, he soon found it was the other way around. They learned from us our secret of aircraft war production, the revolutionary idea of flexibility in volume.

Along with this idea we had developed the aircraft-type assembly of components. Instead of using a conveyer to regulate production rates, we used it to transport materials to the assembly points. Here the workers built up complete units or subassemblies and inspected them on the spot. Aside from the flexibility thus introduced, the idea had an impact on our production workers. We did away with the deadly monotony of repetitive processes, by feeding to the operators such precisely machined parts that even the unskilled could assemble finished devices and test their functioning. And now as we lost our experienced workers to the armed forces and began replacing them with recruits from the white-collar trades, we found this gave a tremendous boost to shop morale. In the development of this process, I found myself thinking frequently of the scene in Charlie Chaplin’s picture where he finally uses both hands and both feet to feed nuts and washers into the ever-moving and compelling assembly.

Now after Ford had broken the ice, Bill Knudsen began bringing in other automotive plants to help us. The great Buick and Chevrolet companies of General Motors joined up, followed soon by Nash. After Curtice of Buick and Coyle of Chevrolet and Mason of Nash had worked out general principles with our top management, the jobs were taken over by the keen shopmen who had made all those organizations great. In some cases our new allies took on responsibilities for Hamilton-Standard Propellers and, in the case of Nash, they even went into production on helicopters when, later on, we faced that new demand. Chance Vought teamed up with Goodyear Rubber and others, on the licensing of product and every division of United spread out all over the country to bring in competent suppliers, large and small.

Meanwhile, after Bill Knudsen had set up the aircraft program and George Mead had turned it back to the armed forces for administration, we ran into stormy weather on the matter of deliveries. The schedules set up by the Army and Navy were fantastic. Among other things, the two services had long neglected to buy engines and propellers for training planes and now, of course, immediate delivery of these was called for. Our plants had been tooled for foreign account on the 1,000-hp 1830’s, and the trainers called for 400-hp Wasp Jrs. for which we had no jigs or fixtures in quantity. Save for our flexible-production scheme, this problem would have thrown us for a loss, and even then we had to hustle to retool. Before we had learned the rudiments of the expanded program, the politicians had begun scrambling for cover. Even some of our military friends began casting about for excuses to blame the manufacturers for their own shortcomings. Newspaper columnists and radio commentators who had previously castigated us as war mongers now began screaming “too little and too late.”

One of the most acid of these, Fulton Lewis, Jr., made a special trip to Hartford to give his public an on-the-spot disclosure of the shortcomings at United Aircraft. His Hartford outlet then was WTHT, _The Hartford Times_, whose publisher, Francis S. Murphy, was familiar with our problems “Over East,” as we say up here. Frank suggested that Fulton Lewis call on me, and I, all unsuspecting, gave him a personally conducted tour of the shops and then, back in my office, told him some of our problems. Fulton Lewis, surprised by what he saw, asked me if I would go on the radio with him that night. Afterward, he sold the National Association of Manufacturers on his idea of sending a group of commentators of press and radio on a nation-wide tour of factories to learn the truth about “too little and too late.”

As I came to know some of the radio commentators, I was impressed by the skill with which some of them dug the germ of the news out of the ruck and got it over to their listeners. After Cedric Foster left Hartford for Boston to take over his spot on Mutual, he made it a habit to call his old friends for their slants on spot news. My experience with Admiral Reeves having taught me to delve for fundamentals in strategy and tactics, I was able to give Cedric some slants on the progress of the war. I was always impressed by the way in which he put his finger on the key items and summarized the situation succinctly and competently.

Our rate of production was largely dependent upon things outside our control. Both Army and Navy made contracts with us and each administered his own business in his own peculiar way. Each maintained a staff of inspectors at our plants, men who sometimes liked to show their authority over us and to put each other on the spot. Each specified the accessories to our equipment according to his own fancies, and even specified details. On this matter of accessories, the British and French had their own ideas, and in some cases these differed from either Army or Navy. A single model of our engine might have as many variations as there were customers to buy them or airplanes in which to install them, and the permutations and combinations ran into complications of all sorts. In an effort to correct some of this, I used the delivery schedule as a lever.

I agreed to accept their fantastic schedules _in toto_, provided three requirements were met: First, one of the services would handle all contracts for our company and administer them for all the others; second, all the services would standardize their accessories and attachments as well as their specifications so as to simplify models; third, the service administering the contracts would require its inspectors to do all those reasonable things intended to expedite deliveries according to the terms of the contracts and its specifications, rather than operate as an obstacle. To the degree that any or all of these requirements were not met, we now submitted delayed delivery schedules to correspond with each degree. Under this pressure, the services agreed to divide the two engine companies; Pratt and Whitney became the charge of the Navy.

It was when we came to prices for engines that we ran into trouble. After Jack Homer had discussed the problem with BUAERO as to details, J. F. McCarthy and I went to Washington to face the issues with Comdr. L. B. Richardson, then in charge of Procurement. This was not the Captain Dick Richardson of the big-boat formula fame, but a younger Dick with whom I had flown in the service. He knew his business and had positive ideas based on wide experience. On contracts calling for such large volume, the Bureau would expect a far lower price than any we had quoted—and in principle it was right. Our problem was that, pending expansion of the shop, the training of new operators, the testing of tools, and all the other problems of getting into production, we would run into high costs. That had been our experience during the expansion periods with the French and British contracts and now with the likelihood that we would lose even some of our key men to the armed forces, we could expect spoiled work and scrap to skyrocket costs. No one could guess when costs could be brought into line, and it seemed almost impossible to arrive at a price agreeable to both sides.

And this problem of price might have delayed negotiations interminably had we not taken an important decision to break the deadlock. This decision was based on long experience in business for government account and on a background of events that have been herein related. It dated back to that provision in the Air Corps Act of 1926, in which we granted the government the right to keep cost inspectors in our plant. To break the impasse we now proposed that if BUAERO would establish fixed prices on our contracts on the basis of our earlier experience, we would undertake voluntarily to reduce future invoice prices on products yet to be shipped, to the end that we would never accumulate any excessive profit. In other words, since neither we nor the Bureau could stand any future criticism on profits, we would voluntarily renegotiate ourselves to avoid excessive profit. The Bureau’s resident cost inspectors, with access to all our books, would furnish the data on which the Bureau could judge the reasonableness of our performance, and we would abide by their judgment.

This fateful decision removed the last obstacle and cleared the right of way to the high ball. The remaining problem was to settle upon a sound principle for determining fair profit. During the busy year 1940, one which could be taken as indicating the return which a plant of our character could earn under other than wartime conditions, we had earned $12,000,000 with a plant provided by our own capital, on sales made of our own initiative, and on shipments that included practically no business with the United States government. If now we were to freeze our annual net earnings at that figure no matter how our sales might soar nor how our plant might be increased at public expense, we would be stabilizing our earnings at an experienced level that seemed capable of justification from the points of view of the stockholder and the public. If in this process we could earn that return and still pay our employees reasonable wages and salaries, then we would be discharging our responsibility to all concerned.

As a measure of the effectiveness of this principle we may have recourse to an incident that occurred some months later, when production had begun to roll and costs had cascaded to unprecedentedly low levels. After assembling the figures, we had advised the Bureau formally that, effective at the beginning of the next quarter, we would reduce invoice prices below the contract fixed prices by a certain figure per engine calculated to avoid any accumulation of excessive profits. The total relinquishment of potential profits was calculated to amount to approximately $10,000,000. Meanwhile, we had adjusted wages and salaries on a merit basis for all except top executives. On the day this news appeared I was making one of my customary tours through the shop when one of the workers detached himself from a big Bullard machine and headed out to cut me off in the aisle.

He was a big brute with beetling black eyebrows and a sullen mouth, yet as he caught up with me the hard look melted away before a big grin and he stuck out a grimy fist.

“Mister,” he said, gripping my hand in his big paw, “I’d go to hell for a company that won’t profiteer. And, mister,” he added, “that goes for a lot of other guys in this shop, too.”

Despite the fact that the Air Corps Act of 1926 had made provision for this type of profit control, Congress had passed an amendment to the Vinson-Trammel Act in 1934, imposing a further statutory limit on profits under contracts for shipbuilding and aircraft production. The wartime Excess Profits Tax purported to further regulate profits but of course only created waste. The manufacturer had to add the tax to the price of his product anyway. The act encouraged management to take decisions which, though unsound economically, looked smart taxwise. Expense accounts chargeable to cost of product soared to heights undreamed of in competitive business. Political in character, uneconomic in principle, the Excess Profits Tax swelled the costs of war while giving a false impression of profit limitation.

The Price Adjustment Act, commonly called “renegotiation,” was the really effective means of profit control. Under it, competent price adjustment boards set up the ground rules and administered them with justice to those concerned. Yet this legislation, despite the fact that it was fundamentally in the interest of private industry, was passed with such a flavor of punitive action against business that even the wisest industrialists were tricked into fighting it as just another attack on the profit motive. Too many of us, unfortunately, were so busy hating Roosevelt that we forgot how to use our brains.

Under wise leadership the whole thing could have been turned around into a constructive effort. Had the administration called in representatives from the many industries and put the problem squarely before them along with an appeal to their patriotism, there would have been no problem. Voluntary, industry-wide action would have been forthcoming to keep industry on a sound financial basis, and the example thus set must certainly have brought wage rates within bounds. Had a routine been set up under which the government agreed to utilize privately owned facilities on terms that would compensate owners for their use and restore them as nearly as possible to their original status, details could have been handled by price adjustment boards in a cooperative manner. Punitive laws could have been reserved for culprits, and industry would have helped police the economy.

My own convictions as to the efficacy of voluntary processes stem out of experiences in two wars. In World War I, Herbert Hoover, relying upon good leadership to prevent shortages, gave a convincing demonstration of what the American people can do voluntarily in such an emergency. In World War II, at the very moment when my company was being frustrated at every turn by arbitrary controls on men, money, machines, and materials, I acted as chairman of the Connecticut State War Finance Committee and saw the people rally to the brilliant leadership of two able young men in the Treasury Department, Ted Gamble and Bob Coyne, who raised billions of dollars that would never have been forthcoming under any compulsion.