Ford's Nasser Upbeat Despite Firestone Fallout

Give Jacques Nasser credit for candor. Asked what he has learned about tires in the wake of the Firestone tire recall, he throws his hands up and replies: "More than I ever dreamed I really needed."

Most arrows for Ford and the 32-year Ford Motor Co. veteran and president and CEO since Jan. 1, 1999, were pointing upward until the Firestone firestorm erupted in August, triggering the recall of 6.5 million tires potentially subject to sudden tread separation.

By mid-November the faulty Firestones, installed mainly on Ford's industry-leading Explorer sport/utility vehicles, were linked with 119 deaths and more than 500 injuries. Both companies expected the recall to be completed by month's end.

But the dust hasn't settled by any means. Ford and Firestone are the targets of a cascading number of lawsuits that likely will take years - and millions, if not billions - to settle. Both companies have taken huge public relations hits, although Firestone has fared much worse than Ford; its future as a primary tire producer and primary Ford supplier remains in doubt.

Mr. Nasser confirms that the recall cost Ford $500 million in lost production. Ford shut down Explorer output for three weeks in October to divert tires to the recall effort.

In a wide-ranging WAW interview, Mr. Nasser remains optimistic about Ford's future despite the tumult over tires. Highlights:

* He confirms Ford may take responsibility for tire warranties (they're now warranted by tiremakers), but says that would not have averted the Firestone crisis. He also hints that Ford's plan may encompass more than General Motors Corp.'s tire warranty, which was established in 1996.

* Mr. Nasser forecasts 16.5 million to 17 million North American car and truck sales in 2001 - not as robust as this year's anticipated 18 million-plus, but still a strong year.

* Ford's trouble-plagued European operations will return to black ink in 2001, he says, conceding that the much ballyhooed "Ford 2000" globalization plan initiated by now-retired Chairman Alex Trotman may have put too much effort on U.S. products at the expense of Europe.

* Despite dropping its bid to acquire South Korea's bankrupt Daewoo Motor Co. Ltd., Ford will maintain a strong position in the Asia/Pacific region with footholds in India, Thailand, Malaysia, the Philippines, China and Vietnam, in part with its Mazda Motor Corp. partner, he maintains.

* Ford is enjoying "relative stability" in South America and is exceeding its own targets there, with the Amazon small car moving ahead on schedule.

* Ford can live with new federal safety regulations that, among other things, call for stricter tire and vehicle rollover standards. "What is coming through in the legislation is very much what we had recommended," he says. "The need was obvious."

* The combination of simultaneous waves of new products throughout the industry, rapidly advancing technology and ongoing high-volume production globally have "stretched" automakers and suppliers, leaving little time or wiggle room to keep pace, he says. One result: A greater potential for quality glitches, he allows.

* The Internet will alter the way people buy cars, creating change at Ford dealerships, he acknowledges. Still, "my view is that the dealership role is going to be more meaningful - more value added" by eliminating waste and overhead, thereby improving dealer margins.

Mr. Nasser naturally applauds the "Ford team" for acting quickly to replace the recalled tires, saying his first reaction was "a tremendous feeling of disappointment." He regarded it as a "serious issue," he says, "although I didn't know how serious at the time. I knew it was going to cause anxiety and discomfort for our customers."

Clearly Job 1 was "to get the bad tires off the road as quickly as possible; that was our immediate reaction. It was as basic as that." Firestone had predicted it would take until spring 2001 to complete the task but "we didn't find that acceptable," he says.

Ford turned to Goodyear, Michelin and Continental to deliver replacement tires, closed the Explorer plant and otherwise moved to shave about six weeks off Firestone's schedule, says Mr. Nasser.

Only 48 hours after the recall announcement, Mr. Nasser arrived on Saturday Aug. 12 at Ford World Headquarters in Dearborn, MI, wearing a T-shirt and jeans to cut a commercial aimed at assuring customers it was pulling together all of its resources to address the tread-separation issue. "I went into my office and put on a suit, shirt and tie," he recalls, "I'm not sure I had socks on."

An Australian, Mr. Nasser's accent surprised some viewers who'd never seen or heard him before. He's philosophical about that: "We weren't trying to win an Oscar or Emmy or whatever; we were trying to portray a message." Ford research shows that some 70% considered the commercial "very effective," he adds. (Some professional media critics were unimpressed, however).

Ford and Firestone have been doing business for nearly a century, but Mr. Nasser is vague about their future relationship. That "is quite a legitimate question, however it's one our customers have to answer. We're going to give them a choice; they will decide what they really want," he says. Buyers in any case are becoming increasingly "brand-aware" of tires on their vehicles, he adds.

Ford has determined that it may no longer be "prudent" to rely so heavily on a single tire supplier for a high-volume vehicle like the Explorer, he says.

And the Firestone fallout is manifested in numerous other ways. Ford, for example, is establishing an early warning system with tire suppliers. "We've asked them to give us more comprehensive data, faster," he says.

Even if Ford had warranted the tires, that would "not have been an answer in itself," Mr. Nasser argues. Ford had Firestone's warranty data, but that typically shows only cases of minor damage and records warranty costs - generally extremely low - and thus would have been "meaningless" in heading off the Firestone problem, he maintains.

Still, taking on tire warranty responsibility "is worth looking at, and we are," he says. "We're looking at several alternatives," he reveals, hinting that whatever Ford does, it likely will go beyond GM's guarantee, which basically covers minor damage. GM's suppliers still cover "catastrophic" situations such as road hazard damage.

The Firestone frenzy prompted Congress to conduct hearings expanding regulatory power involving vehicle safety, including tires and rollovers.

Mr. Nasser initially was criticized for ducking an appearance in Congress. He refutes that, saying he declined because at first he was asked to join a panel. "I've never walked away from a confrontation in my life - that's just not what I'm made of," he exclaims, "but I didn't want to be part of a gang."

When he was then asked to appear on his own, he showed up. And he generally has no complaints about the resulting legislation, at least as it is being interpreted in the early stages.

Tire specifications haven't changed in 32 years while "vehicles and vehicle usage has changed dramatically," he says. Tiremakers worldwide already were moving toward common specifications and reporting, reflecting the auto industry's globalization, "and we supported that."

If that structure had been in place, Ford and Firestone may have acted earlier based on Firestone/Explorer tread-separation reports emanating earlier from the Middle East and South America. Thanks to the new law, the National Highway Traffic Safety Admin. now can mandate reporting on an international basis.

Ford also supported a tougher vehicle stability index as outlined in the new law. Although it's "not perfect, at least it's a start," he says. "Rather than debate the issue, we felt: Let's get started, and we can modify the index later." The index looks at a vehicle's track and height and compares those to other vehicles with with identical dimensions. But it doesn't include content differences such as side air bags or "sophisticated anti-roll technology," information important to buyers.

Asked if the re-engineered 2002 Explorer will do better in the rollover index than the current model, Mr. Nasser says, "It's probably a notch better because it's a larger and wider vehicle."

Although clearly distracted during recent months by ripples from the tire issue, Mr. Nasser says Ford is not neglecting other concerns.

A chief focal point is Europe, where Ford lost $68 million during the first nine months of this year - compared to a $40 million profit in the same period in 1999 - amid price wars and stiffening competition, notably from Germany's Volkswagen AG.

On the plus side, Ford will have launched 45 new models over a five-year period starting in 1999 with the compact Focus. New for 2001 are replacements for the midsize Mondeo, Galaxy minivan and Transit commercial truck.

Ford also has closed the huge Dagenham complex in the U.K., revamped Halewood to build the X-type junior Jaguars, and is launching new diesel and gasoline engines. It also has a new manual gearbox outsourced with joint-venture partner Getrag, as well.

Ford also has concentrated on the market's high end, acquiring Volvo Cars and Land Rover and shoring up its global Premier Automotive Group.

On the lower end, Ford has been widely criticized for failing to update Fiesta, its high-volume small car last revamped in 1989, while arch competitors have introduced advanced new models.

Conceding that Ford may have sacrificed new products in Europe by concentrating too heavily on the U.S. during the '90s, he now says an all-new Fiesta and its derivatives "are prioritized" for introduction late in 2001.

Looking into 2001, Mr. Nasser says the industry still has plenty of firepower, including favorable national economic indicators, "incredible product innovation and creativity," and low prices. Together that translates into "the best value (buyers have seen) in at least 20 years."

North America remains focused on Ford's tire woes, but its faltering operations overseas, particularly in Europe, have the potential to wreak more havoc with its bottom line than the Firestone debacle. In the space of just two years, Ford's earnings outside the U.S. collapsed from $300 million in 1997 to a $300 million loss in 1999 (see WAW - June '00, p.34).

Analysts blame much of the problem on former Chairman Alex Trotman's "Ford 2000" plan for the automaker's current troubles, particularly in Europe. There it has an aging product line, its smallest market share in more than two decades and underutilized manufacturing plants.

Ford 2000 sought to cut costs and eliminate redundancies by consolidating global platforms, but it is faulted for severely weakening Ford's product portfolio outside North America.

Mr. Nasser won't criticize Ford 2000, but he admits the strategy did shift talent and resources to the U.S. to the point that it hurt Europe initiatives.

"We had some of our best talent and some of our most intense focus here in the U.S. market. I think while that was happening, we missed the product lead in Europe."

"Europe is disappointing for us because the market is reasonably strong, but we were caught without a full range of products," he adds.

However, he now argues the dramatic restructuring of European operations and 45 new products coming out in the next five years will turn things around.

He's especially optimistic about the recently launched Ford Mondeo. "The German magazines who find it difficult to say anything nice about anybody except a couple of German companies, rated it the best car in its segment," he says proudly.

"We'll be profitable next year, and we'll get better over time. It's not going to be a dramatic improvement, but it will be steady improvement."

Interestingly, he says Ford isn't planning to offer a direct competitor to General Motors Corp.'s highly successful 7-seat Zafira microvan. "I like the product," he says. "But our view is that if we're going to invest in a new segment, we'd like it to be in a segment that we've created. If a vehicle already is out there in the marketplace and customers can be satisfied buying the competitive vehicle, then I'd rather we do something else," Mr. Nasser says. "That's the kind of direction that we're headed in."

And despite the decision to pass on buying Korean automaker Daewoo Motor Co. Ltd., Mr. Nasser expresses confidence in Ford's strategy for Asia and Asia/Pacific. That includes a "very good" manufacturing venture in India, joint ventures in Thailand and Malaysia and new plants in the Philippines and Vietnam. "We'd like to do more in China" he adds, noting that Ford now is considering doing a car program with Changang Automobile Group Co. in Western China.

For a few months it looked as though the Ford Motor Co. had one-upped General Motors Corp. by obtaining exclusive rights to bid on South Korea's Daewoo Motor Corp.

GM President G. Richard Wagoner proved to be prescient when, after the Ford deal surfaced, he told reporters that "It's not over yet." And indeed, GM is back at Daewoo's door, trying to work out a deal.

Perhaps equally intriguing is why Ford took a powder. President and CEO Jacques Nasser clears that up in a WAW interview:

"They're a good company, and we wanted to have a very good look at how they would fit with our strategy. We didn't know much about Daewoo. We knew they were a strong manufacturer in Korea and also a low-cost producer in Europe.

"But we didn't know their real strengths and weakness, how they would complement us, and how they would fit in with what we wanted to do. We were impressed with some of their manufacturing abilities and engineering and technology capabilities.

"But the more we looked at it, the more we became convinced they probably weren't the right partner for us. In every instance going back to Jaguar or Volvo or Hertz - whenever we decided on partnerships we looked at how do we integrate them, how do we make it function. We also thought deeply about how good it would be for them (Daewoo), and the more we thought, the more it was going to be an extremely difficult process. It was not a financial decision."