Ford Must Earn Right to Do Business

Special Coverage

State of the Industry: North America

DEARBORN, MI – Ford Motor Co. President and CEO Alan Mulally has the unenviable task of pulling a 104-year-old American industrial icon from the brink of bankruptcy.

Upon his arrival at the troubled auto maker late last year, Mulally’s first move was to survey the situation and formulate a game plan, which consists of three basic elements: produce cars and trucks consumers want, adjust production to meet demand and secure financing for the turnaround.

Alan Mulally

So far, that plan has produced solid results, as Ford has beat Wall Street expectations every quarter since Mulally has been at the helm.

Like all good plans, Mulally has built in a great degree of flexibility, making constant adjustments in reaction to the fluctuating circumstances of the industry.

Despite a concentrated effort to launch more small cars and cross/utility vehicles, Ford’s fortunes largely rise and fall on the success of its venerable F-Series pickup.

As such, Mulally and his team have kept a close eye on the overall strength of the U.S. economy.

“Our watch items in the U.S. are employment, the credit market, housing market and new construction,” he says. “We’re watching those things very carefully. It all comes down to consumer confidence.

“We’re cautiously optimistic we’ll work our way through all these big macroeconomic issues, but we’ll keep adjusting our production to the real demand. That’s the most important thing.”

Despite making incremental quarterly improvements, Ford still is losing money, and that simply is unacceptable for a viable business, Mulally tells Ward’s in a wide-ranging interview.

“In business, you’re either growing or you’re not, and growing means growing your earnings and growing your cash flow,” he says.

“This is business: If you don’t do the math, you don’t earn your right. That’s why they call it earnings. You earn your right to be in business.”

It didn’t take long for Mulally, a former president and CEO of Boeing Commercial Airplanes, to adjust to the automotive industry because he finds it very similar to aerospace. “I feel very comfortable here. The similarities far outweigh what’s different.”

A self-confessed student of Toyota Motor Corp.’s efficient manufacturing system, Mulally has been working to integrate the fundamentals of that system with Ford’s own, which is dedicated to producing quality vehicles with fewer resources. “It’s still the finest manufacturing, with a big ‘M,’” he says.

There are, however, fundamental differences between Ford and Toyota, particularly in the way each company formed.

“We grew up regionally, Toyota grew up globally, essentially, and so we’re going to try to use the best of those worlds going forward,” Mulally says. “Henry Ford set Ford up as a very regional operation around the world. That leads to its own challenges in a global industry of leveraging those assets around the world, as opposed to them operating very autonomously.”

Ford may learn more of the “Toyota Way” with the recent addition of former Lexus chief Jim Farley, who joined Ford as its chief marketing officer.

While bullish on Farley, calling him a “phenomenal talent,” Mulally disputes media reports suggesting he plans to groom Farley as his successor.

“I think it’s a little premature. I really like my job,” he quips. Besides, “Bill (Ford) doesn’t want me to retire.”

Mulally says he has the full support of the Ford family, which owns some 70 million shares of “Class B” stock, giving it a controlling stake, with 40% of all outstanding stock.

Rumors the Ford family was looking for outside help in an effort to relinquish its holdings are unfounded, Mulally says. Bill Ford has been especially supportive.

“I said I would come only if he stayed as chairman, because he is Bill Ford of the Ford Motor Co., and I wanted to know I could absolutely count on his support as I help transform the company,” Mulally says. “Bill and the family have been 100% behind me.”

Mulally says Ford will keep Mercury.

The auto maker has been scaling down its production capacity in order to meet actual demand, a key element of Mulally’s turnaround plan.

While Ford will continue to trim capacity as it realigns itself to a changing market, it will remain a full-line manufacturer, Mulally pledges.

That full product portfolio will include Mercury, a brand repeatedly rumored to be on the chopping block, but one Mulally contends boasts its strongest lineup in years.

Some have called for Ford to import European products to bolster Mercury, but that’s a strategy Mulally says is unlikely to advance anytime soon.

Still, global platform sharing as a way to reduce cost and complexity is definitely on the agenda. Especially intriguing to Mulally is the design language adopted by Ford of Europe.

Dubbed “kinetic design,” the strategy is the brainchild of Martin Smith, Ford of Europe’s executive design director.

Mulally envisions a time when Ford products worldwide will rely on kinetic design and be based on shared platforms.

“Over time we (will) bring them together – common platforms, more top hats, more of that kinetic design,” he says. “I think it’s going to be a key part of our plan going forward in the U.S.”

Company-wide support of his plan and the goodwill Ford employees have for the auto maker has been surprising, Mulally admits.

“The enthusiasm of the Ford employees and everybody pulling together as one ‘Ford’ has exceeded my expectations,” he says. “We have really strong leaders like Derrick Kuzak for product development, who is working to integrate the product development – same way on manufacturing, same way on procurement.”

Mulally chuckles when asked about a comment he made last summer at the Management Briefing Seminars in Traverse City, MI, suggesting a fuel-tax hike might be a way to address national concerns about fuel consumption and cause Americans to buy smaller vehicles.

“I’m a market-driven, customer-end capitalist. And I believe that the allocation of precious resources ought to be led and decided by the consumer,” he says.

“I think we should engage (consumers) in the debate about where we want to go in respect to energy independence, energy security and being good stewards of our environment,” Mulally adds. “Have that debate and have the policies reflect that and have the customers decide.”

Washington lawmakers have been supportive of the auto industry and its plight, he maintains, despite congressional calls for stringent fuel-economy regulations that represent extreme challenges for the industry – and in particular auto makers such as Ford that rely on large pickups and SUVs for the bulk of their revenues.

“I’m very pleased with the dialogue going on (with Washington), and I think we’re going to come to a good solution,” Mulally says. “(They’re) absolutely paying attention to Detroit’s needs right now, because it’s so important. Not just Detroit – the entire auto industry in the U.S.”

Some legislators are less than sympathetic, blaming the auto industry for global warming. And while the industry is contributing to the warming trend, it is not the only one doing so.

“Over the years, we (the auto industry) could’ve done a lot better job telling our story,” Mulally says. “The improvements we’ve made in safety and efficiency are incredible.

“We have to be proactive about what we stand for and what we don’t stand for. Because when you get yourself in a bind when someone proposes legislation and you’re reacting, you sound like you’re negative and don’t care,” Mulally adds, noting he’s always been an avid supporter of improving fuel economy.

“If we keep giving people safe and efficient cars and trucks,” Mulally says, “I think that’s going to win in the marketplace.”

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