Success could be Ford's biggest enemy
Executives look to pitfalls of past, guard against complacency
By Paul A. Eisenstein
updated 12/22/2010 11:23:02 AM ET
Barring an unexpected — and totally unlikely — setback, Ford will end 2010 regaining the No. 2 sales spot it lost to Toyota in 2007.
While Toyota’s sales have slipped 15 percent for the year, Ford’s sales grew 21 percent in 2010 and its market share saw the biggest single-year gain in decades. Indeed, by almost any metric you choose, 2010 has been a great year for Ford.
Profit margins are up, driving multibillion-dollar earnings and a stock surge of 70 percent, more than even market darlings Google and Apple. And recent third-party studies show that vehicle quality is up, as is customer satisfaction — both critical factors for the future.
Sure, the carmaker has its problems, including substantial debt that stems from the automaker’s decision to mortgage its assets four years ago to pay for a huge restructuring.
But could success be Ford’s biggest enemy? The century-old company has shown a worrisome pattern, dating back to its earliest days, of snatching defeat from the jaws of victory. It’s something top Ford executives admit they’re worried about today.
“In the past, whenever we’ve made it out of the bad times, we’ve stopped changing,” said executive Chairman William Clay Ford Jr., great-grandson of the automaker’s founder.
“The world around us continues to change," he said. "We need to recognize this isn’t a static world and find ways to continue driving change through the organization."
If there’s anyone who speaks the mantra of change more fervently than Bill Ford, it’s Alan Mulally, the former Boeing executive who signed on as the automaker’s CEO four years ago.
Even before he joined Ford, the boyish-looking chief executive was aware of its aversion to change. Some years back, Mulally had brought to Boeing a tired and frustrated Lew Veraldi, the man many credit with saving Ford in the late 1980s. Veraldi was the leader of the team that developed the 1986 Ford Taurus, arguably one of the most important vehicles in recent automotive history. But while the Taurus became a smash hit, company officials resisted what would be required to repeat that success, and, Bill Ford acknowledges, it largely went back to business as usual — with Veraldi forced out of the company.
After moving to Dearborn, Mich., it didn’t take Mulally long to see for himself where Ford’s problems were rooted.
At one of his first meetings with senior company managers, Mulally asked them to report on Ford’s progress and, he was told, everything was just fine.
“If so,” Mulally responded, in clear frustration, “how come I’m about to report a $20 billion loss?”
A week later, when Mulally asked for a company update, Mark Fields, president of the Americas, raised his hand and acknowledged a problem with the launch of the then-new Ford Edge crossover. Traditionally, that might have been a career-ending move. In the highly political environment, Fields’ confession was tantamount to admitting failure and encouraging someone else to gun for his job. So at first, the group went deathly silent — until Mulally began to applaud.
“Great visibility,” he told Fields, who is the executive now considered most likely to eventually replace Mulally in the Ford CEO spot.
It’s uncertain when Mulally, 65, will leave Ford. Much to almost everyone’s relief, Mulally appears in no rush to move on, having earlier this year agreed to extend his contract.
One of Mulally’s biggest moves was to launch the “One Ford” program, which has transformed the global enterprise. Founder Henry Ford was the first auto magnate to establish a global manufacturing network. But until recently it operated like a series of fiefdoms, each developing and producing vehicles for a local market.
Now, however, the company’s goal is to develop global models that undergo only minimal changes to reflect regional needs and desires.
The 2012 Ford Focus, which is just now going into production in the United States, shares 80 percent of its parts and components with the European Focus. Meanwhile, the compact model will be only one of 10 products to eventually make use of the so-called Global C-Car platform. Another, the C-Max microvan , will be introduced at the Detroit Auto Show next month.
Ultimately, Ford expects to produce 2 million vehicles a year on the C-Car platform, improving economies of scale to where it can make margins approaching those of its long-popular pickups and SUVs, rather than running billions into the red like past Ford small cars, such as the old Escort.
Another key Mulally move was to abandon Ford’s European-based luxury brands, like Jaguar and Land Rover. Good brands, all, he says, “but you can’t believe the difference it makes” when you don’t have to divide your day up spending barely an hour or so each on all of your many different brands.
Ford sold the Aston Martin brand to private investors in 2007, while Jaguar and Land Rover were sold to India’s Tata Group in 2008 and Chinese carmaker Geely purchased Volvo in August 2010.
If any move by Mulally poses potential risk to the company it was the decision to mortgage Ford’s assets just before the economy went south.
The move was already in the works, crafted by Chairman Bill Ford, President Fields and former chief financial officer Don LeClair; but the new CEO realized if the company didn’t have access to more than $30 billion it wouldn’t be able to weather a recession. And even then, Mulally had no idea how deep the financial meltdown would be.
The money helped Ford survive — and just as importantly, enabled it to do so without the federal bailout required by cross-town rivals General Motors and Chrysler. Research by CNW Marketing shows that skipping the government hand-out has played well with U.S. consumers, translating into much of Ford’s current market momentum.
But now, analysts warn, Ford has got to pay off its large debt burden, and fast, to remain competitive — especially against GM and Chrysler, who left much of their debt behind when they emerged from bankruptcy. Mulally has used every opportunity to shore up Ford’s balance sheet, most recently announcing plans to turn more than $1 billion in debt into equity.
Longer-term, Ford’s real challenge will be to maintain the same acceptance of change that has been the hallmark of his four-year tenure. That's not easy in a company that long encouraged executives to scuffle rather than cooperate, and rewarded those who could build the strongest fiefdoms.
But based on what Ford has experienced over the last several years, the rewards have been even greater for trying it Mulally’s way. And in the current competitive environment, business-as-usual would be a quick and clear recipe for failure.