Resurrecting Henry

They’re called zombie ideas: dead as a doornail, but every so often they reanimate and wander around eating brains until they get put down again. The big one in housing has been coming back to life every decade or so since the early 1930s. Experts decide that the construction process is all wrong and needs to be thrown out, and instead we ought to…well, let’s let LBM Journal explain it. Or ChatGPT. See if you can tell which one is which:

“Innovations like 3D printing, prefabrication, and advanced materials have reached a critical mass, heralding a Henry Ford moment in home building. These technologies streamline construction, cut costs, and democratize access to quality housing, mirroring Ford’s assembly line impact on the automotive industry.”

“We are at a Henry Ford moment, where most of housing will shift to offsite construction and be produced faster, at a higher quality, and at a lower price. Housing is a product and it’s the only consumer product in existence that isn’t produced in a factory.” 

Not easy to tell the difference, is it? Both are good summaries of what the internet thinks about offsite construction. And either one would have Henry Ford spinning in his grave.

Of course offsite will change the way we build. It already has. Once this downturn ends and labor tightens up again, it’ll play an even larger role. But when people call something a “Henry Ford moment,” they’re saying it’s a wholesale transformation on par with the revolution in auto manufacturing that occurred when Ford introduced the first assembly line. Two problems here:

First, the impact is not even in the same ballpark. Assembly line methods enabled Ford to reduce the price of a Model T by a whopping 83%. In housing, panelization saves time, but more often than not, increases the installed cost of the shell.

Second, Ford didn’t invent the assembly line. Assembly line methods had been around since the 1850s. Ransom Eli Olds had been building Oldsmobiles on an assembly line for more than a decade when Ford set up his first line in 1913.

That’s not to say there was no Henry Ford moment, though.

The Henry Ford Museum explains: “Experiments through 1913 and into 1914 reduced the time required to build a Model T automobile from 12-1/2 hours to a mere 93 minutes. Increased efficiencies lowered production costs, which lowered customer prices, which increased demand.”

And took all the fun out of the job. “The very goal of the moving assembly line was to take what had been relatively skilled craftwork and reduce it to simple, rote tasks. Workers who had taken pride in their labor were quickly bored by the more mundane assembly process. Some took to lateness and absenteeism. Many simply quit, and Ford found itself with a crippling turnover rate of 370%.”

When Ford and his executive team met to brainstorm solutions, the best they could come up with was bribing workers to put up with the tedium.

Ford told his managers to “‘see what a 25-cent raise will do to us.’ So they figured the daily and monthly cost of a 25-cent increase. ‘Put on another quarter and see what that will cost,’ he said. And so they went on, 25 cents a step. Finally the wage of $2.34 (per day) stood at $4.75—more than a 100% increase.”

At that point, “one of the associates—a good financial head—remarked sarcastically that if they were going to be fools, why not be first-class fools and make it $5.00? ‘All right,’ said Mr. Ford. ‘Let’s make it $5.00.’”

The Five-Dollar plan, as it was called, was accompanied by a reduced workday, from nine hours to eight. That didn’t affect wages—workers were paid by the day—but it did enable Ford to set up three shifts and keep the factory running 24 hours per day.

The rest of the story is well-known: Ford made headlines worldwide, competing automakers were outraged, and literally thousands of people showed up in Detroit for jobs. “Riots broke out and the crowds were turned away with fire hoses in the icy January weather,” says the Museum.

The combination of higher pay plus a shorter workday took care of Ford’s turnover problem. Now he needed to figure out how to make sure he got his money’s worth.

Ford’s thinking was that people whose personal lives were a mess were more likely to be unproductive on the job, so he made the Five-Dollar plan a profit-sharing plan. The base wage was still $2.34 per day. You earned the remainder if—and only if—you met the company’s requirements.

Those requirements were just a little bit personal. “Workers had to abstain from alcohol, not physically abuse their families, not take in boarders, keep their homes clean, and contribute regularly to a savings account,” says the Ford Museum.

Ford’s intentions may have been good, but that was overstepping even in 1914. He hired inspectors who visited employees’ homes to verify that they were toeing the line, and it’s probably no surprise that those visits were not well-received. Ford got so much pushback that he dropped the program after a few years.

But the workplace was Ford’s turf; he made the rules there. When he first started building Model Ts in 1908, he hired Frederick Winslow Taylor to help streamline production. Taylor was the country’s first management consultant, famous in the manufacturing sector for developing a concept called scientific management.

By all accounts, Taylor was not the kind of guy who got invited to a lot of parties. His theories were rooted in the unshakeable belief that all workers were slackers. He improved efficiency by conducting meticulous time studies of each task that went into a job, identifying best practices, then forcing every worker to perform that task exactly the same way.

Taylor’s time studies at Ford Motor Co. gave Ford the data he needed when he introduced his first power-driven assembly line in 1913. Before then, an assembly line meant employees pulling vehicles along a track with ropes. A mechanized line enabled Ford to manage productivity by controlling the speed at which vehicles moved down the line.

It was that control that enabled him to build Model Ts at the rate of one every 93 minutes. He passed much of the savings on to consumers, which made the Model T the most popular car on the planet. When it was introduced in 1908, the cost was $825, or $27,818 in 2023 dollars. By 1925 a new Model T cost $260, or $4,624 today.

Much is made of the fact that the Five-Dollar plan gave Ford’s employees enough money to buy their own Model Ts. But it was the mechanized assembly line that made $5.00-per-day wages necessary in the first place. His willingness to more than double wages in a single stroke suggests that Ford viewed the turnover rate as an existential threat, and no solution was too radical.

In other words, the real Henry Ford moment was the Five-Dollar plan.

Ford’s competitors would have hung him from the nearest tree if they could have. Instead they had no choice but to match his pay scale and hours. In doing so, they transformed the automobile industry into the engine that created the American middle class.

Rising wages in auto manufacturing put pressure on wages everywhere. Workers who bought Model Ts also drove growth in related industries such as oil, steel, and rubber. More cars created a need for infrastructure investment in roads. That not only created more jobs, it spawned industries to support Americans’ newfound mobility—restaurants, motels, gas stations, tire dealers, and repair shops, for example. A robust highway system enabled a transportation sector that would not have been viable without it.

More roads also made suburbs possible, and suburbs created the housing industry as we know it today.

It’s easy to see why people focus on the assembly line—which could have put Ford Motor Co. out of business if not for the Five-Dollar plan. Machines are logical and predictable; people are messy and difficult.

But as the two quotes at the beginning of this story illustrate, our age-old love affair with machines and technology often leads to wishful thinking.

The first (“Innovations in 3D printing…”) is from ChatGPT, which is to say it’s a mashup of everything anyone has ever said that found its way to the internet. ChatGPT “thinks” we’re at a Henry Ford moment because offsite construction has “reached a critical mass.”

Depends on how you define critical mass. NAHB says “the total market share of non-site-built single-family homes (modular and panelized) was just 2% of single-family homes in 2022,” and “has been steadily declining since the early 2000s.”

The second quote (“We are at a Henry Ford moment…”) is from LBM Journal. It cites a private equity executive who says we’re at a Ford moment because a house is “the only consumer product in existence that isn’t produced in a factory.” You might not be clear on how that proves builders are about to embrace offsite construction. LBM Journal doesn’t explain, either. The author just calls the PE exec’s reasoning sound.

It might be better to call it a clue.

The argument that site-built construction is obsolete and needs to be replaced by factory-built methods has been around for nearly a century if not longer. It hasn’t moved the needle in all those years, and may actually be harming the market for factory-built homes and components. Here’s why:

When stud framing first emerged in the mid-19th century, it was more efficient than the alternatives at the time—primarily timber framing or masonry (or logs in rural areas). But efficiency wasn’t the only benefit.

Masonry and timber framing required highly-specialized skills that took years to develop. The basics of stud framing can be taught in a few weeks. That was critical during the second Industrial Revolution when housing demand exploded as people migrated from farms to cities for factory jobs. Stud framing made it possible to build with semi-skilled labor and everyone knew they’d make mistakes. The method was designed to provide exceptional flexibility to correct those mistakes or make other adjustments during production.

Offsite construction is absolutely more efficient in some situations, but it’ll never match the flexibility of building on site. When advocates present it as a replacement for site-built rather than an option for use when appropriate, that’s a deal-breaker for many builders.

Especially when a home buyer is involved (e.g., move-up or high-end single-family vs. entry-level or MFLC), flexibility is baked into the experience. Buyers expect to be able to change their minds, and builders who can’t accommodate them are at a serious disadvantage.

That means the need for skilled trades is not going to disappear no matter what happens in the offsite market. When NAHB’s Home Innovation Research Labs asked builders what they thought was the long-term solution to the labor shortage, three out of four said the answer was to recruit and train more tradespeople.

People are working on it. Non-profit organizations such as the Building Talent Foundation and the Northeast Construction Trades Workforce Coalition, plus local initiatives such as custom builder Richard Laughlin’s Casa Über Alles in Texas are making good progress attracting and training high-schoolers.

Even so, it’ll take years to turn them into journeymen. Especially in framing, the industry is badly behind the eight-ball. The Bureau of Labor Statistics says there were 173,400 production and non-supervisory workers employed by framing subcontractors in August 2005. In October 2023, the headcount was just 67,200.

This certainly seems like a situation that could benefit from a Henry Ford moment. So the question is what that might look like.

Not all elements of the Five-Dollar plan translate well to construction (or, for that matter, construction supply). But the psychology that underpins the plan is all but universal, so it’s worth speculating on what Ford might have been thinking.

The first key element of the plan was the size of the raise. Ford could afford it; he was sitting on a pile of cash due to the efficiencies created by the assembly line. But he pushed his senior managers to raise wages well beyond what they thought was reasonable or necessary—then pushed them higher yet when they balked.

Maybe Ford was just an altruistic guy who wanted to share his good fortune. But more likely, he had a strategy in mind. Getting the turnover rate under control was obviously important. But he also wanted to make a statement, namely, You’ll never find a better job than at Ford Motor Co., so don’t screw this up.

Lesson No. 1 is to go big or go home. A raise is an opportunity to kick people out of complacency; anything less is a waste of money.

The second key element was the strings he attached to the raise. Ford stirred up a hornets’ nest when he hired inspectors to monitor workers’ personal lives (although it isn’t clear that their families were as vehemently opposed as the employees).

But as badly conceived as the idea might have been, it did send the message that Ford cared about their well-being. Ford did other things that communicate the same thing less intrusively—e.g., an on-site doctor’s office providing free medical care to employees.

That’s Lesson No. 2: If you want to be important to employees, you need to prove to them that they’re important to you, too.

The third element was the controls Ford put in place to manage productivity. By all accounts, he had it easy. Scientific management was designed for manufacturing jobs that consist of “simple, rote tasks.” Construction and construction supply are more difficult because the jobs require judgment and initiative. But even in a manufacturing environment, Ford’s approach was notably simple, transparent, and equitable. That’s Lesson No. 3: When you measure performance, leave zero room for anyone to argue that your metrics are less than 100% fair.

Yeah, that’s a lot of work. But chances are Ford would have very little sympathy for you. The strategy behind the Five-Dollar plan suggests that he viewed $5-per-day wages as an investment—and believed that only a fool would invest money without a system in place to measure the return.

People are by far the toughest aspect of management. With roughly 130 of them involved in the construction of a typical single-family home, it’s easy to see why builders would be attracted to anything (such as offsite) that might reduce the need for a skilled (and sometimes cranky) workforce.

But with or without offsite construction, the need for skilled tradespeople is only going to grow. As of 2022 there were 143.4 million existing housing units in the U.S. according to the Census Bureau. The median age of those homes is just over 40 years.

Remodeling is poised for a boom that will equal if not exceed the next boom in new home construction. If you think the competition for journeymen is fierce now, just wait. But don’t wait too long.

If you sell to the MFLC or single-family production markets, you’ll probably be providing turnkey labor and material before long and you’ll need your own framing crews. If you sell to custom home builders and remodelers, your people will need construction expertise that matches theirs, plus the selling skills to work effectively with their customers’ clients.

If four out of five builders say finding skilled labor is the most difficult challenge they face, the solution is to do what the fifth builder does.

Chances are that’s straight out of Henry Ford’s playbook: Be the best employer people will ever have in their lives, then manage them to make sure you get your money’s worth.

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