In the early years of the 20th century,
car manufacture was a batch activity in which
individual manufacturers performed most of the tasks involved in making the car.
It was labor-intensive and enjoyed few economies of scale,
and so it was very expensive with the lowest priced car costing around $1,250.
Demand was essentially inelastic as few could afford this price.
For Henry Ford this represented a major marketing opportunity.
As a normal demand curve predicted that if he could make a car for a lower price,
it would trigger an increase in demand.
Of course he couldn't predict by how much any given reduction would increase demand,
but if you could make a significant reduction,
he was convinced that there were sufficient latent demand to make it profitable.
So he determined to make a car for $500.
His imaginary demand curve probably looked like the classical one,
so that the lower the price,
the greater the demand.
Ford's major innovation, and contribution to management practice was
the concept of continuous mass assembly on a production line.
While Ford was not the first to see the advantage of a flow line,
these had been adopted 30 years earlier in can manufacturing.
He was the first to apply it to a complex assembly operation like car manufacturing.
While some essential components were made by Ford,
such as engine blocks,
many others like tires and
electrical parts were bought in from other specialist suppliers.
All were put together in a predetermined sequence with each worker performing only one,
or a small number of tasks before the developing car moved onto the next workstation.
As a result of this division of labor,
Ford was able to train lower-cost unskilled workers
in place of the multi-skilled engineers needed for batch assembly.