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Mulally joined Ford, after serving as CEO of Boeing Commercial Airplanes (BCA). He began his career with Boeing as an engineer in 1969 and was largely credited with BCA’s resurgence against Airbus in the mid-2000s. When Mulally was approached about serving as Ford’s CEO, he responded, “No matter how bad Ford Motor Company’s problems are today, they aren’t as bad as Boeing’s were on September 12, 2001.”
Mulally was famous in business circles for having saved the aircraft manufacturer from collapse after the terrorist attacks on New York and Washington five years earlier prompted most of the world’s airlines to cancel their orders for new planes. Now, Bill Ford was asking him to save another American icon.
When Bill Ford took over as CEO in 2001, he had promised that the company would be making $7 billion by 2006. Instead, it was about to post a loss of nearly $6 billion for the third quarter alone—the company’s worst quarterly result in more than fourteen years.
In less than three years, both GM and Chrysler would be bankrupt, and a resurgent Ford would wow Wall Street with quarter after quarter of profits at a time when most companies were still reeling from the worst economic crisis since the Great Depression.
Mulally welded Ford’s disparate regional divisions into a single, global operation and took a sledgehammer to the ossified fiefdoms that had divided the company for decades.
Mulally later reflected, “I was right—Ford’s problems weren’t as bad as Boeing’s. They were much, much worse.”
The House That Henry Built
By the 1980s, Ford was fighting for its life against new competitors from Japan. In 1992, Ford’s upgraded version of the Taurus became the bestselling car in America, seizing that title from the Honda Accord. By 1997, Toyota’s Camry claimed the crown, and the Taurus was soon relegated to rental car fleets.
Ford’s overreliance on a single product was surpassed only by its overreliance on a single man.
Instead of capable executives with their own ideas, Ford preferred to surround himself with yes-men and hired guns like Harry Bennett, the éminence grise with reputed underworld connections whom he hired to keep order at the River Rouge factory complex.
Bennett fostered an enduring culture of intrigue and backstabbing among Ford’s senior leadership. Employees lived in fear of being fired by capricious managers and thought carefully before answering questions to make sure they gave the expected response, even if it was wrong.
The Flivver King, as Ford became known, ran his dominion by instinct and intuition.
Unlike at GM, it was rare for Ford executives to hang on to their jobs until retirement; almost everyone was vulnerable to being toppled. The Dearborn company became known as a place where tough guys win.
Ford Motor Company was a survivor. It was the Rocky Balboa of the automobile industry—at its best when it was against the ropes. It could take punches and come back swinging.
The U.S. automobile industry was in serious trouble by the 1970s. Ralph Nader’s Unsafe at Any Speed had destroyed the mystique that surrounded the American automobile—and American automakers—since the days of the Model T. It also helped usher in a new era of government regulation in the United States. Along with the other U.S. car companies, Ford was ordered to make its vehicles safer and reduce tailpipe emissions.
The Explorer was launched in 1990, and it took only a few months to become the bestselling SUV in the world—and one of the biggest moneymakers in the company’s history. By 1995, Ford was selling more trucks than cars. In 1997, it introduced the Expedition, an even bigger SUV that generated even bigger profits. Two years later, the company trumped that with the Excursion, an SUV so big that it could not fit in many standard car washes. Or garages.
In 1998, Ford posted a stunning profit of more than $22 billion. It was the most money any automaker had ever made.
Then, it was time for a leadership transition. While Ford’s board was willing to give Bill Ford a chance, many of the outside directors had their own reservations about his ability to run the company. If nothing else, he was very young—just forty-one when he officially took over on January 1, 1999. Their solution was to divide the office of chairman and CEO into two positions and pair Ford with an experienced chief executive. The man they chose was Jacques Nasser, a suave and swaggering Arab who had been born in Lebanon and raised in Australia. He was ten years older than Bill Ford and considered one of the company’s most talented executives.
The Company began to lose the veteran employees who had always been the backbone of the company. These were the men and women whose skills and institutional memory allowed the automaker to bounce back every time it lost its way. They remembered how Ford dealt with past adversities and knew it could again. Now, thanks to Nasser, they were fleeing in droves.
Ford began to lose sight of the fundamentals. Quality began to suffer. Corners were cut. Launch dates were missed. Vehicle designs began to slip. However, as long as the company was making record profits, few were willing to challenge the pugnacious Nasser.
Then the wheels came off. Literally. In early 2000, the National Highway Traffic Safety Administration began investigating reports of fatal accidents involving Ford Explorers equipped with Firestone tires. The tires were prone to suffering catastrophic failures when driven at high speed in hot weather, causing the vehicle to roll over. The U.S. government ordered Firestone to recall 6.5 million tires. In an effort to restore consumer confidence, Ford decided to recall 13 million more at a cost of $2.1 billion. As the number of deaths blamed on the problem climbed past 140, both companies became the targets of major class-action lawsuits.
Ford’s sales dropped dramatically—partly as a result of the economy, partly because consumers were starting to notice that its products were slipping. Even the Ford Motor Credit Company—long a reliable source of revenue for the parent company—had started to drift.
Broken
The internal ailments of business are the ones that require most attention. —HENRY FORD
Bill Ford did what Ford CEOs had always done when confronted with financial calamity. He cut and cut deep. In January 2002, he announced that the automaker would close five factories in North America and eliminate more than 21,000 jobs. Ford may have been a man of the people, but he had also promised to do whatever was necessary to save his company.
More important, he refocused Ford on its core business of building and selling cars and trucks. With the battle cry “Back to Basics,” he began extricating Ford from the other ventures that his predecessor had found so much more compelling than manufacturing automobiles.
In 2003, as part of the company’s centennial celebration, he unveiled a green makeover of the River Rouge plant, which had long been a symbol of Ford’s manufacturing might. A year later, Ford became the first American automaker to bring a hybrid to market and the first company in the world to introduce a hybrid SUV.
In May 2005, Bill Ford announced that he would forgo all compensation until the company returned to sustainable profitability. Four months later, in September, Ford stood in the airy atrium of the automaker’s most advanced research laboratory and delivered a heartfelt appeal to the company’s scientists and engineers, asking them to revive the spirit of innovation that had once been synonymous with Ford. “We will continue to cut our costs and improve our efficiency, but we cannot win the hearts and the minds of a new generation with efficiency alone,” he said. “I need your help more than ever. I need you to question. I need you to challenge. I need you to stop unnecessary processes. I need you to declare that innovation is going to be a necessary ingredient in everything we do.”
Bill Ford knew his company had reached a critical point in its history. If it could not address its fundamental problems, it would not survive. “We all have to change, and we all have to sacrifice,” Ford told his employees. “The Way Forward contains some strong medicine for our North American business. But it also contains the vision and strategic focus to rebuild the business.”
“Here is what we will not stand for: incremental change, avoiding risk, thinking short-term, blocking innovation, tying our people’s hands, defending procedures that don’t make sense, and selling what we have instead of what the customer wants,” he said. “In short, we will not stand for business as usual.”
Ford’s stock leapt more than 5 percent on the news, but many Wall Street analysts remained skeptical. They were still not convinced Ford was cutting deep enough.
Entrenched executives gave superficial support to his turnaround efforts but often conspired against them whenever his plans ran counter to their own aims. Ford’s rigidly regionalized corporate structure made it impossible for Fields to address issues globally.
Bill Ford had accomplished a great deal since 2001. He had taken over a company that was awash in red ink and delivered three years of solid profitability. He had refocused Ford on its core business of building and selling cars and trucks, and had made it the first American automaker to bring a hybrid to market. He had tried to do a lot more, but had ultimately been unable to overcome decades of mismanagement and the ossified corporate culture responsible for it.
Bill Ford recognized, “No single individual can run this company effectively under the current circumstances. I need help.” The time had come to find a CEO who could save Ford from itself.
On July 12, 2006, less than five years after he had demanded Jacques Nasser’s head, Bill Ford once again stood before the company’s board of directors and delivered another emotional appeal. This time, he spoke not with the emphatic self-confidence of a rightful heir demanding his throne, but with the strained voice of a man fighting to hold on to his job and his company.
Ford had been the second-largest automaker in the world, after General Motors. Now it had fallen to third place behind Toyota. Ford had promised $9 billion a year in profits by the middle of the decade. Now Ford was heading toward its biggest loss ever. There was talk of bankruptcy, of selling the company, of parting it out to other automakers or private equity firms.
The Man on the White Horse
As the head of the Boeing Company’s Commercial Airplanes Group, Alan Mulally had spent the previous ten years fending off one disaster after another while somehow managing to transform its divisive culture into a model of corporate collaboration.
Mulally turned what could have been a fatal blow to the aerospace giant into an opportunity to fundamentally transform the company into a leaner, more profitable enterprise. Mulally credited it to a team-based approach he called “Working Together.” And he had learned many of its principles from Ford Motor Company.
The Seattle Times called him “Mr. Nice Guy.” Mulally’s lack of pretension was evident in his dealings with other people. He asked more questions than he answered and seemed genuinely interested in what people had to say, be they world leaders or waitresses.
Mulally’s graduate adviser, Jan Roskam, thought he was a born leader with a knack for getting people to work together. Roskam told Mulally that he had a rare gift for an engineer—people skills—and suggested that he think about management. The professor, who consulted for Boeing, also talked Mulally into going to work for the aerospace company instead of NASA.
As a young boss, Mulally realized that his job was not to show his subordinates how much smarter he was than they were, but to bring them up to his level. Mulally kept asking for more responsibility and getting it. He worked on every Boeing jetliner program from the 707 to 767.
Ford CEO Donald Petersen was a member of Boeing’s board of directors in the late 1980s when Mulally was named chief engineer for the important new jet program. Petersen suggested that Mulally study Ford’s work on the Taurus and offered to introduce him to Lew Veraldi, the man who led the development group Ford called “Team Taurus.”
As a result of this innovative approach, the Taurus not only became the bestselling car in America, but also came in nearly $500 million under budget—unheard-of at a company famous for its cost overruns. Ford promptly forgot most of what it learned from Veraldi and Team Taurus, but Mulally did not. He blended it with other lessons he picked up on Toyota’s assembly lines during visits to Japan and applied it all to the Boeing 777 program after he was promoted to general manager in 1992.
Mulally and his boss, Philip Condit, instituted a new policy of enforced cooperation and transparency. This was Working Together, and it required the top leaders of each discipline and function to meet every week to go over their progress, discuss problems, and figure out how to deal with them as a team.
But Mulally asked himself, “How can I leave Boeing?” Boeing was his baby. Mulally had nursed it through the ups and downs of the business cycle and an array of unprecedented challenges. After slogging it out with archrival Airbus, Boeing was about to deliver a decisive blow with its best airplane yet. How could he walk away before it was finished? Mulally was still weighing that question when Bill Ford called and asked him to come to Dearborn to hear his pitch in person.
Ford told Mulally that the upcoming 2007 contract negotiations with the United Auto Workers would be critical to the company’s survival, and outlined the concessions he hoped to wrest from the union: wage cuts, more competitive work rules, and an end to the infamous jobs banks, where idled workers continued to collect pay and benefits—sometimes for years—while waiting for new positions to open up. If Ford could not get these concessions, it might have to move most of its production to Mexico. Mulally seemed hooked. Clearly there were a lot of challenges facing the storied automaker. And he had a lot of questions that needed answering before he would consider taking charge of such a troubled company. But here was a chance to fight for the very soul of American manufacturing.
Ford continued his unflinching assessment. The automaker was in deep trouble. It was being pulled apart by internal and external forces. The board of directors was actively considering selling Ford or finding another automaker to merge with. The chief financial officer, Don Leclair, was pursuing his own agenda.
Mulally had realized that Ford’s problems were serious, but did not know they were this bad. Bill Ford was clearly in over his head, and he did not try to conceal it. Mulally was moved by his self-awareness and candor but worried about the dire portrait Ford was painting of the company. If the automaker still had a chance to save itself, this was its last.
“We have good people,” he told Mulally. “They just need a leader who can guide them and inspire them.”
Mulally said he believed that nothing short of a sweeping restructuring of the entire corporation could save Ford Motor Company. If Bill Ford was going to retain the position of chairman, Mulally needed to know he had the stomach for what lay ahead.
Mulally was clearly a born leader with an innate charisma that Ford found inspiring. He had been through hell at Boeing and came out smiling. He was not a car guy, but he knew enough about manufacturing to grasp the complexities of Ford’s situation.
Mulally continued his meditation on the plane ride home, sketching the broad outlines of a plan to save Ford. He started with his goals. On a piece of a notebook paper, he wrote, “Make the best cars in the world” and “Profitable growth for all.” Then he listed what he would later call his “Four P’s”: “performance,” “product,” “process,” and “people.” Beneath that, Mulally wrote, “Leadership counts.”
“Compelling vision” and “ruthless execution” were what Ford needed. Mulally outlined his system of weekly meetings for them, and pointed out how his approach enforced extreme accountability on a weekly basis and left no hiding place for anyone who was not entirely committed to executing his part of the business plan.
As Mulally walked down the hall to his boss’s office, the aeronautical engineer found himself regretting his decision to leave the plane maker a little more with every step. I love Boeing. I love airplanes, he thought. My work here is not finished. Even though it had yet to fly, Mulally’s 787 Dreamliner was already being heralded as a game-changer.
The Boldest Move Yet
Mulally had saved Boeing. If he could save Ford, too, he knew he would be regarded as one of the greatest business leaders of his era. Maybe of all time.
Ford executives were surprised by the news initially. Some said they saw it coming. All of them were moved by Bill Ford’s apparent lack of ego, even if it defied the rules of their world. Power was an end unto itself in the automobile industry, and the idea that someone of Ford’s stature would voluntary give it up was almost unimaginable.
In an e-mail to his employees around the world, Bill Ford described the challenges facing the company and the reasons for his decision to step aside. “While I knew that we were fortunate to have outstanding leaders driving our operations around the world, I also determined that our turnaround effort required the additional skills of an executive who has led a major manufacturing enterprise through such challenges before,” he wrote in his message to employees. “After dealing with the troubles at Boeing in the post-9/11 world, Alan knows what it’s like to have your back to the wall—and fight your way out with a well-conceived plan and great execution. He also knows how to deal with long product cycles, changing fuel prices and difficult decisions in a turnaround.” Ford stressed that his own commitment to the company remained unchanged. “Let me assure you: I’m not going anywhere,” Ford continued. “As executive chairman, I intend to remain extremely active in the direction of this company. I’ll be here every day and I will not rest until a prosperous future for this company is secured.”
Linda Dunbar, executive director with the communications strategy group, asked about the role that strategic planning would play in Mulally’s regime. Mulally shook his head. “You don’t want somebody on the side doing the strategy,” he said, nodding toward the front row. “It’s us. That’s the number-one thing. It’s not going to be a strategy department. It’s going to be our team. It’s going to be the leadership team that decides where we are going.”
Friends who knew Mulally, or at least knew of him, noted that he was an excellent leader who believed strongly in teamwork, execution, data, and delivering on commitments. Some Ford executives found out that Mulally had written the introduction to a book on teamwork called Working Together and ordered copies.
The fundamental problem: Ford was not making cars that people wanted to buy. Mulally knew Ford had to stop losing money, but he also knew that was only part of the equation. It also needed to give consumers a reason to believe in the Blue Oval again.
Instead of spreading its new product dollars thin across scores of different nameplates, Mulally wanted to focus Ford’s investment on a few key vehicles and make those products truly world class. He explained how a similar approach had paid off at Boeing.
“He has no idea how we do things in Detroit” was the common refrain at Ford’s crosstown rivals, as well as within Ford itself. And Mulally knew it. They’re right. I don’t know how they do things in Detroit, he thought. But I do know it doesn’t work.
The Revolution Begins
Mulally asked probing questions and demanded yes-or-no answers. He brooked no equivocation and was not interested in the long-winded explanations that most of his managers felt compelled to offer. What he did demand was transparency and honesty. Mulally found both in short supply. It did not take long for him to realize that the truth came in many flavors at Ford. Even when he tried to focus on the data, he found that different sources offered different numbers for different audiences.
“There are too many meetings,” he told them. “When do you have time to think about the customer?” From now on, Mulally continued, there would be only one corporate-level meeting—his “business plan review,” or BPR. It would be held every week on the same day, at the same time, in the same place. Attendance would be mandatory for all senior executives. All would be expected to personally deliver succinct status reports and updates on their progress toward the company’s turnaround goals.
Any issues that required more in-depth consideration by the entire leadership team would be taken up in a “special attention review,” or SAR, immediately following the BPR. The idea was to keep the main meeting focused on the big picture. The new Ford was all about the numbers. “The data sets you free,” he said with a smile.
“We are the decision makers,” Mulally said. “We need to make decisions and not pass the buck.”
“If you were a lean machine, doing a turnaround like this would be terrifying. But this is a very complex place, and there’s a lot of opportunity to consolidate and simplify.”
Mulally told his fleet manager to go shopping, and he ordered his senior managers to start driving Volkswagens and Hondas home instead of their Jaguars and Land Rovers. Everything Mulally did seemed downright subversive in an industry that celebrated power and privilege.
“You’re welcome to bring guests,” he announced as they filed into the room. “But they won’t be allowed to speak or answer questions.” Nervous glances were exchanged among the executives. They were used to deferring tough questions or demands for details to their subordinates. But Mulally reminded them that they were in charge of the company and were expected to know their areas inside and out. “If you don’t know the answer to something, that’s okay, because we’ll all be here again next week,” he said with a smile. “And I know you’ll know it then.”
Mulally called their attention to a list of rules posted on the wall. There were ten of them:
1. People first
2. Everyone is included
3. Compelling vision
4. Clear performance goals
5. One plan
6. Facts and data
7. Propose a plan, “find-a-way” attitude
8. Respect, listen, help, and appreciate each other
9. Emotional resilience … trust the process
10. Have fun … enjoy the journey and each other
At Ford, meetings were political theater; side discussions where the real business of the company was conducted. They were where deals were cut and truths too painful to put in a PowerPoint presentation were shared. From now on, Mulally insisted, there would be no more secrets. The BPR and the SAR would shine a light into the darkest corners of the company. Everything would be illuminated.
“Our Creating Value Road Map” included in its center a blue oval marked “Vision.” Mulally defined this vision for those in the room as “People working together as a lean, global enterprise for automotive leadership.” By leadership, he said, he meant being viewed as second to none by customers, dealers, suppliers, employees, and investors. The central oval was surrounded by three more ovals, labeled “Business Environment and Opportunities,” “Strategy,” and “Plan.”
The company was facing a projected loss of more than $12 billion for the year, CFO Leclair told the room. It would be the worst loss in Ford’s history. And 2007 was not looking much better.
Mulally was reminded of a quote he had read from the Grateful Dead’s Jerry Garcia: “Somebody has to do something, and it’s just incredibly pathetic that it has to be us.” In this case, “us” was Mulally himself. Mulally hammered home his twin themes of honesty and accountability.
Ford’s senior executives were used to trumpeting their successes, not dissecting their failures. Those had been swept under the rug as quickly as possible. The executives also were accustomed to running their divisions as they saw fit. Mulally’s insistence that each area of the organization be run using common practices and principles was not only jarring, but also a direct threat to their personal authority.
On October 23, Ford released its financial results for the third quarter—the first since Mulally joined the company. Ford posted a net loss of $5.8 billion for the months of July, August, and September—its worst quarterly loss in fourteen years.
“These results are unacceptable,” Mulally said during a conference call with analysts and reporters that morning. “We know where we are with our business, and we know why we are where we are. We are committed to moving from here to create a viable business going forward. As I have examined our performance, I clearly see the opportunities that will allow us to do so.” It was just the sort of honesty and transparency Mulally demanded of his subordinates. He led by example.
“We’re going to be checking our progress against the plan,” he told the team. “But, at the same time, we’re also going to be working on a better plan. It’s all about continuous improvement.” The plan goals would be displayed as blue bars, while the current forecast for each period would be plotted as a red diamond. Similarly, the status of every program or project would be displayed as a colored box: green for those that were on track or ahead of schedule, yellow for those with potential issues or concerns, and red for those that were behind schedule or off plan.
The point of the color codes was to make it clear what had changed since the previous meeting and where potential problems existed. Mulally encouraged the executives to apply the colors honestly. Mulally used those early BPR meetings as a bully pulpit to drive accountability, enforce cooperation, and ensure execution.
Mulally also went out of his way to encourage each one of them and let them know that he was not blaming them for the faults he was finding with Ford. “You have a problem,” he would say, with a squeeze of the arm and as smile. “You are not the problem.” Mulally also worked hard to make each executive feel a part of a team—a team that could win.
The Plan
Ford needed to drastically downsize its automotive operations to match the real demand for its products, overcome its dysfunctional corporate culture, and negotiate new labor agreements with the United Auto Workers to close the competitiveness gap with its foreign rivals in the United States.
Mulally was hearing the same things from everyone he talked to. Ford had let itself go. The company made good cars and crossovers in Europe, but most of the products it sold in the United States were boring and uncompetitive. Consumers thought of Fords as unreliable gas-guzzlers—if they thought about them at all. But Mulally learned that people also wanted Ford to succeed. There was still a lot of love for the iconic brand.
Mulally studied Ford’s archrival, Toyota. He had been a keen student of the Japanese automaker for years. “They make products that people want, and they do it with less resources and less time than anybody in the world. They’re a magical machine,” he said in an early interview. “This system of continually improving the quality, putting the variations into the product line that people want and doing it with minimum resources and minimum time is absolutely where we have to go. If you look at Ford, it’s the antithesis.”
At American automobile companies, design was art and engineering was science. Designers wore black shirts, Italian shoes, and sported enormous wristwatches that cost more than some of the cars they had created. Engineers favored khakis and plaid shirts with pocket protectors and wore their cellphones on their belts. The two usually met at arm’s length, if they met at all. Mazda’s system forced them to work together, often side by side in the same studio. It also gave other functions such as manufacturing, purchasing, and even sales a seat at the drafting table. The point was to prevent costly and time-consuming revisions of the initial design. When these groups worked independently, mistakes occurred.
By including people from each of these disciplines in the design process, Mazda dramatically reduced missteps. The system was remarkably similar to the approach employed by Ford’s own Team Taurus, which had so impressed Mulally in the 1980s.
Mulally also looked to Ford’s past for inspiration. As he learned more about the automaker’s illustrious history, he became convinced that the key to Ford’s future was a return to the principles that had made it so successful in the early days, when Henry Ford was still sitting in the chair he now occupied. Over the subsequent decades, the company had lost its way, but Mulally was convinced he could help Ford find it again.
Ford’s vision was highlighted in a poster title, “Opening the highways to all mankind.” Beneath it, Henry Ford outlined his vision for the company’s future. “An organization, to render any service so widely useful, must be large in scope as well as great in purpose. To conquer the high cost of motoring and to stabilize the factors of production—this is a great purpose. Naturally it requires a large program to carry it out,” it stated. “In accomplishing its aims the Ford institution has never been daunted by the size or difficulty of any task. It has spared no toil in finding the way of doing each task best. It has dared to try out the untried with conspicuous success.” This was exactly what Mulally had been looking for—a polestar to guide his transformation of Ford, a touchstone that he could return to in times of doubt.
Mulally pulled all of his stakeholders together around the compelling vision and outlined his plan:
• Opening the highways to all mankind
• Form a tight working-together relationship with Bill, the board and the family
• Respect the heritage
• Join the Ford team
• Respect and reach out to all the stakeholders
• Implement a reliable discipline and responsible business plan process
• Include everyone
• Make it safe
• Every week, every month, every quarter Continuous improvement
• Organize to deliver the plan—the matrix organization
• People working together
• Great products … Strong business … A better world
• The best-designed vehicles in the world
• Aggressively restructure
• Accelerate the development of new products
• Obtain financing and improve the balance sheet
• Change the culture
• Share our story
• Tell the plan
• Shape the business
• Consolidate and integrate
• Laser focus
• Divest all the non-core brands
• Complete family of small, medium and large cars, utilities and trucks
• Best-in-class
• Streamline the brands
• Fewer dealers
• Reduce the inventory
At the same time, he envisioned his own legacy with Ford as follows:
• Clear, compelling vision going forward
• Survive the perfect storm—commodities, oil, credit, CO2, safety, UAW
• Develop a profitable growth plan, global products and product strategy
• A skilled and motivated team
• Reliable ongoing BPR process
• A leader and leadership team with “One Ford” vision implementation tenacity
His plan was built around three priorities:
1. PEOPLE: A skilled and motivated workforce.
2. PRODUCTS: Detailed customer knowledge and focus.
3. PRODUCTIVITY: A lean global enterprise.
“There’s not one Ford: there’s Ford of North America, there’s Ford of South America, there’s probably three Fords that make up Ford of Europe. There’s Australia, there’s China, India—there’s a lot of Fords, and they’re operated very separately as business units,” he said. “We’ve got to go from where we are to leverage our global assets to compete as one company going forward.”
During one of his first press conferences, Mulally was asked if Ford was considering a merger. “Yes,” he said. “We’re going to merge with ourselves.”
Ford and its subsidiaries were making and selling ninety-seven different nameplates around the world. Way too many, Mulally thought as he studied his handmade charts.
Mulally had no trouble convincing them that Ford needed to radically simplify its global lineup. Mulally also wanted to streamline Ford’s organizational chart. It was clear to him from the start that too few people reported directly to the CEO.
Mulally believed his system made each business unit fully accountable, but also made sure that each key function of the organization—from purchasing to product development—was managed globally in order to maximize efficiencies and economies of scale. Mulally wanted to create one Ford and fully leverage the company’s global assets, but he also wanted the business units to remain in place to stay on top of the unique challenges and opportunities presented by each market.
In the past, Mulally explained, Ford had been overly dependent on big trucks and its U.S. business. He wanted to change that. He showed the directors a slide with two pie charts. The first represented Ford’s global product offerings, and it was divided into three equal slices labeled small, medium, and large. The second represented Ford’s global revenue. It, too, was divided into three equal segments, representing Asia, Europe, and the Americas. “We need to offer a full family of vehicles—cars, crossovers, and trucks,” Mulally told the directors, explaining that this was the surest hedge against fluctuating fuel prices and changing consumer preferences. “We also need to split the business evenly among each of the three regions so that problems in one part of the world no longer threaten the entire organization.” This was the essence of Mulally’s plan, which he summed up with just two words: “One Ford.”
Mulally finally managed to distill everything down to four simple points, which he shared with the directors:
1. Aggressively restructure to operate profitably at the current demand and changing model mix.
2. Accelerate development of new products our customers want and value.
3. Finance our plan and improve our balance sheet.
4. Work together effectively as one team.
Betting the Farm
For the first time in the company’s 103-year history, Ford staked its assets as collateral, and Wall Street took it as a sign of desperation. Analysts had expected Ford to seek additional financing, but this went way beyond what any of them had anticipated. Ford’s stock tumbled by more than 4 percent on the news, closing at $8.16 a share.
“This is Ford’s one last shot to get it right,” veteran Wall Street analyst John Casesa commented at the time. “If the restructuring plan is not executed flawlessly, the company will lose its independence. Management is staking the entire future of the company on successfully executing this plan.”
“Our business units are not well integrated, resulting in a high level of complexity in the company,” Mulally responded. “The number-one thing we need to do is to deal with our reality, and tackle these issues head on.”
“A key opportunity going forward is to operate as one company. In my short time with Ford, I have seen that we have many largely separate, regional companies operating around the world. Operating as one company also will allow Ford to accelerate our product development efforts, increase scale, and develop more efficient global designs.”
By the time the deal closed, the automaker had managed to borrow a total of $23.6 billion. The size of the total package far exceeded Ford’s expectations. It was a testament to Wall Street’s confidence in the company’s new CEO.
Ford’s financing deal would allow it to survive without a government bailout. If Bill Ford had not convinced his family to stake everything, the Fords likely would have lost control of the company entirely.
A year later, even the most profitable companies in the world would have been unable to borrow half that amount.
Assembling the Team
Mulally remained true to his word. Instead of figuring out whom to get rid of, he was trying to figure out where each of Ford’s executives could make the biggest contribution to the company’s turnaround effort.
“The biggest opportunity we have as a company is to integrate Ford globally. It starts with product. That’s what’s going to make us a success—making the best products in the world.” To do that, Ford’s cars and trucks had to be the highest quality, safest, and most fuel-efficient vehicles on the road.
“I don’t care if everyone believes in the plan one hundred percent, as long as they act like they do,” Mulally told them. “Because once you start acting like you do, you’ll find yourself in the light—and you won’t want to go back into the darkness.”
Now that he had his team in place, he did not want to risk losing any of his top talent. With the board’s approval, he ordered his CFO to put together retention plans for each of Ford’s key executives—just in case. He knew that Ford did not have any executive talent to spare.
The cult of personality that had long held sway at Ford was being replaced by a new regime of results.
The Best and Worst of Times
Ford committed to sharing actual data from the Thursday BPRs with the U.S. workforce every month. The report cards would show everybody in the company where Ford was falling short of its turnaround goals, and he hoped this would inspire them to work harder. But not everyone agreed.
Mulally explained, “We’ve made the commitment, and I’ve made the commitment, to communicate regularly with our folks so they understand where we are. It gives them the motivation to improve.”
Most things that Ford could control directly—quality, engineering costs, and the like—were on plan. But the company could do little about rising raw materials costs. Sales were also tricky. Some of the levers Mulally was pulling to improve the company’s long-term fundamentals were having a negative impact in the short term. Nowhere was that more obvious than in the sales numbers.
Mulally explained how important it was for them to keep improving and not be satisfied with the success they had already achieved. They needed to keep raising their targets to stay ahead of the competition and the external business environment.
Interestingly, Toyota had become what Ford had once been: an agile, innovative manufacturer of products that made people’s lives better. Toyota was lean, well organized, and immensely profitable.
Mulally took his role as cheerleader in chief seriously. Ford’s employees had been down for so long, they needed someone to show them which way was up. Mulally felt like he was moving at light speed. He had only been at Ford for six months, but he had already fundamentally transformed just about every aspect of the business—and bigger changes were in the offing.
Family Strife
Identity was important to the Ford family. If the automaker failed, many of them would still be quite wealthy. Money had married money; wise investments had turned small fortunes into large ones. There was land, buildings, and other businesses. But America was full of millionaires and billionaires. What made the Fords different was the fact that they still controlled Ford Motor Company.
“When the going gets tough, it’s time to pitch in,” Bill said, “not head for the hills. Whatever the family does now or in the future, we’re always going to be better off unified rather than divided,” he said, urging them to consider what had happened when those other famous families had fractured and split. “There was never a good outcome. It never ends well.”
Bill Ford breathed a long sigh of relief that night. For the first time in its history, the Ford family had been faced with a real threat to its unity and to its continuing control of the company. But he had held it together. Some shares would exchange hands, but not outside the family.
Watershed
You’ve been fighting General Motors and the Wall Street crowd. Now you are in here, and we have given you a union shop and more than you got out of them. That puts you on our side doesn’t it? We fight General Motors and Wall Street together, eh? —HENRY FORD to United Auto Workers leader Walter Reuther
Ford knew he treated his workers better than any other industrialist in the world, and he resented the idea that they might need a union to mediate with him on their behalf. He did everything in his power to block the early attempts to organize his factories in the 1930s.
“Labor unions are the worst things that ever struck the earth,” Ford declared after the UAW used sit-down strikes to force GM and Chrysler to recognize the union. After his workers managed to shut down the Rouge in 1941, Ford finally relented and signed his first contract with the UAW.
Henry Ford offered more generous terms to UAW than the union had been seeking for its members. If Ford was going to be a union company, it was going to offer the best contract in the business.
Ford’s new CEO Mulally was not exactly known as a friend to labor. After all, he was the guy who cut Boeing’s factory workforce in half after the September 11 terrorist attacks, went on to outsource much of the work on its flagship 787 airliner, and battled its unions in a series of bitter strikes that were called as a result of these measures.
While he had not been a big fan of the painful cuts Mulally demanded to save Boeing, Ford Union leaders always found him to be an honest broker. Like everything else, labor relations were all about teamwork for Mulally. He rejected the traditional adversarial relationship between companies and unions. To him both sides were in it together. Both stood to lose if the company failed. Both stood to gain if it succeeded.
“This is an historic day for Ford,” Bill Ford declared. “The teamwork was amazing, and we came up with a contract that is—in my mind—excellent for the employees, excellent for the retirees, and great for the company.” Mulally did not get everything he wanted. The jobs bank was still there, though there were few workers left in it and those who remained would be gone within a year. But it was close enough. The new deal with the UAW had not only gone a long way toward closing Ford’s labor cost gap with its foreign competitors, but also moved a huge chunk of the company’s legacy costs off the books. Mulally had done what many inside the Ford believed was impossible: He had figured out a way to profitably produce cars in the United States. Now he needed to convince the American people to start buying them.
Selling It Like It Is
Marketing research in 2008 revealed that, at least on the coasts, they did not think about Ford at all. From a marketing perspective, that was far, far worse than changing perceptions about quality.
As the head of Ford’s National Dealer Council, Tom Addis, was fond of saying, “Everybody wants to go to heaven, but nobody wants to die.”
Mulally was struggling to extend his cultural revolution deeper into the organization. By the end of 2007, Ford’s top executives had embraced his new order. However, lower-level employees reported that the old ways persisted further down inside the bowels of the corporation.
So, Mulally put together a card that was distributed throughout the organization. On the front of the card, beneath Ford’s Blue Oval, was the phrase that summed it all up—“One Ford”—and three other Mulally catchphrases: “One Team,” “One Plan,” and “One Goal.” Beneath the first, Mulally spelled out his vision for the company: People working together as a lean, global enterprise for automotive leadership, as measured by: Customer, Employee, Dealer, Investor, Supplier, Union/Council, and Community Satisfaction.
Under “One Plan,” Mulally restated his now famous four-point strategy. Beneath “One Goal,” he wrote: An exciting viable Ford delivering profitable growth for all. The back of the card listed what Mulally called “Expected Behaviors”:
• Foster Functional and Technical Excellence
• Own Working Together
• Role Model Ford Values
• Deliver Results
The Drive One campaign was designed to address the perception issue by focusing on the four areas where Ford had made the most progress: quality, safety, sustainability, and innovation.
Ripe for the Picking
With a $750 million profit just nine months after he arrived in Dearborn, Alan Mulally had Ford back in the black for the first time in two years. But the company’s sales continued to slide and Mulally warned that things would get worse before they got better.
In January 2008, they announced another round of belt-tightening. Ford offered more generous buyouts to its remaining 54,000 factory workers in the United States and told salaried employees to prepare for additional downsizing. Ford was bracing for a major recession. “We are fiscally conservative,” Mulally said the day the latest cost-cutting moves were announced. “We wanted to make sure we had enough cash to ride this out.” Ford’s stock price fell precipitously in the early weeks of 2008. On January 15, it closed below $6 a share for the first time since 1986.
Ford’s management was starting to achieve highly meaningful traction in its turnaround efforts. Last week this was reinforced by Ford’s first quarter 2008 results, achieved despite the difficult U.S. economic environment,” it stated. “Tracinda believes that Ford management under the leadership of Chief Executive Officer Alan Mulally will continue to show significant improvements in its results going forward.”
Storm Warning
When a reporter asked Mulally if the decision to abandon his 2009 profitability pledge had damaged his credibility, the otherwise ebullient executive simply snapped, “No comment,” and turned away. It was a rare hint of frustration from a man who was so relentlessly upbeat. Just when it seemed like he had finally got Ford firing on all cylinders, the engine was running out of gas. But Mulally remained steadfastly optimistic. He was disappointed, but he refused to dwell on it. He knew that he and his team had done everything they could. The market was just deteriorating too fast for Ford to catch up.
“Our plan is working,” Mulally reminded himself as he rode home to Dearborn, past the glowing smelters of the Rouge. “It’s just that nothing else is.”
In 2007, Mulally vowed that Ford would close the quality gap with its Japanese rivals by the end of 2008. That bold claim raised some eyebrows internally as well.
“We don’t play to be second place,” he reminded them. In June, J.D. Power announced that Ford’s Mercury brand now outperformed Honda in initial quality and was just a few points behind Toyota. It was the first time anyone could remember a nonluxury American brand beating one of the big Japanese automakers. And the Blue Oval itself was not far behind.
Mulally’s team approach to product development was a key enabler of all these gains. In October, Consumer Reports declared that Ford was now equal to both Toyota and Honda in quality.
Then, just figuring out how to survive until 2010 was becoming a real challenge. Ford was still on track to meet Mulally’s goal of reducing annual operating costs by $5 billion in 2008, thanks in part to another 15 percent reduction in its North American salaried payroll that had been announced two weeks earlier and the lower labor costs it wrested from the UAW in the new contract.
On the same day Ford reported its record second-quarter loss, the company announced that it would retool pickup and SUV factories in the United States and Mexico to produce small cars and crossovers from Europe. Bringing these vehicles to North America had always been part of Mulally’s plan to create a global product lineup and achieve greater economies of scale. But with the price of gas pushing past $4 a gallon in the United States, it became more urgent than ever to get these fuel-efficient vehicles into U.S. showrooms.
The Sum of All Fears
Just when it seemed as though Ford Motor Company had figured out a way to stay on course and ride out the downturn, the economic crisis in the United States turned into a global financial meltdown. On September 15, 2008, Lehman Brothers—America’s fourth-largest investment bank—filed for Chapter 11 protection. It was the biggest bankruptcy in U.S. history, and it pushed the world’s economy over the edge.
Chief Financial Officer Don Leclair began planning for bankruptcy, despite the Ford family’s adamant insistence that it would never allow that to happen. But Ford’s board of directors insisted on preparing for the worst. Mulally’s turnaround plan seemed to be working, but several of the directors now feared that the gains he had made would be unsustainable in the face of the global financial cataclysm.
Leclair had devoted his life to Ford and worked as hard or harder than anyone else in the building to save it. But he was dividing the company at a time when it needed to be united like never before. He had to go, and go now. On October 10, Ford announced that Leclair was retiring at the age of fifty-six. The company also announced that Lewis Booth would replace him as CFO. The same day, the price of Ford’s stock fell below $2 a share for the first time since 1982. Mulally did not have time to worry about that. If we make it through this crisis, it’ll rebound, he thought. If we don’t, it won’t matter.
At every level of the company, managers were being told to find ways to save money. They required little convincing. The newspapers told the story every morning: The American automobile industry was collapsing. Ford had always been at its best when things were at their worst. The end of 2008 was no exception. Though sales continued to fall along with Ford’s bank balance, Mulally’s leadership team gelled like never before. For the first time in the automaker’s history, all of the senior executives were working together as a team—not just Monday through Friday, but on Saturdays and Sundays, too. Mulally did not have to twist anybody’s arm to get them there.
Instead of waiting for each Thursday’s BPR meeting, the entire leadership team was now reviewing Ford’s finances every day. Ford had been on track to meet its 2008 cost-reduction goal of $5 billion. These new cuts almost tripled that figure.
People were scared, and getting more so every day. But Alan Mulally still walked the corridors of World Headquarters with a smile on his face. If he passed people looking glum, he would pat them on the back, maybe even give them a hug, and tell them to cheer up.
Though Ford began to plan for the bankruptcy of both General Motors and Chrysler, Mulally could see no way to prevent the uncontrolled collapse of his crosstown competitors from bringing down the entire automobile industry. The recession would turn into a full-scale depression.
Mr. Mulally Goes to Washington
When you get a whole country—as did ours—thinking that Washington is a sort of heaven and behind its clouds dwell omniscience and omnipotence, you are educating that country into a dependent state of mind which augurs ill for the future. —HENRY FORD
In 2007, Alan Mulally had learned to his dismay that the United States government did not think much of the nation’s automobile industry. The Republicans who controlled the White House saw Detroit’s automakers as a pack of stumbling dinosaurs, hamstrung by a union that they were too timid to take on, ceding the market to foreign rivals that built better products for less money. The Democrats who controlled Congress regarded the three car companies as peddlers of polluting products who had spent thirty years resisting regulations that would have made them cleaner, greener, and more competitive. To politicians of both parties, the Detroit Three were an embarrassing counterpoint to the innovation of Silicon Valley and the profitability of Wall Street.
The Energy Independence and Security Act, which Congress passed and the president signed in December 2007, established a new CAFE target of 35 miles per gallon by 2020. Such fuel-economy gains would only be possible through a broader rollout of hybrids, electric vehicles, and other innovative technologies like Ford’s EcoBoost system. So the legislation authorized the U.S. Department of Energy to provide low-interest loans to automakers, both foreign and domestic, to help cover the cost of creating the manufacturing infrastructure necessary to produce these more advanced products. Then Congress refused to fund the loan program it had authorized.
For a Detroit automaker, Ford enjoyed a decent rapport with the administration of President George W. Bush. Ford turned to Congress. Lawmakers were focused on the banking crisis and the election, but Ford leadership scheduled a meeting with Pelosi and Senate Majority Leader Harry Reid for November 6. General Motors and Chrysler found out about it and asked if they could come, too. Since Ford was asking for aid for the entire industry, Mulally agreed.
The analysis showed how interdependent the industry was, with the vast majority of each company’s suppliers also providing parts for at least one of the other two U.S. automakers. The aim was to demonstrate how important the industry was to America, and how devastating the failure of even one of the Detroit Three would be for the nation. The three CEOs agreed that they would support the administration’s idea of using the Energy Department loans as a source of short-term liquidity. However, they wanted to double the amount of money available through the program to ensure that they did not lose the retooling money in the process.
All three automakers would seek authorization to borrow additional money from the Federal Reserve at the same low rate it offered banks. All three companies agreed that they would split whatever money they got from Washington according to their relative share of the U.S. market.
“In these challenging times, our plan is more important than ever: aggressively restructure the business, accelerate the development of vehicles people want and need, finance our plan and improve our balance sheet, and work together as one team, leveraging our global assets,” Mulally explained.
Ford was now engaged in a delicate balancing act, trying to convince consumers and investors that it was in better shape than its crosstown competitors while at the same time trying to persuade Washington that it was just as deserving of help.
“We are very interdependent, and we’re all dependent on the U.S. economy. If any one of us gets in trouble in a big way, then that’s going to have major ramifications for the entire value stream—for the suppliers, for the (automakers), for the dealers.”
Reid and Pelosi called on the outgoing Bush administration to give Ford, General Motors, and Chrysler access to the $700 billion. They sent a letter to Treasury secretary Paulson reminding him that, in authorizing the TARP fund, they had given him broad discretion to use it in whatever way was necessary to stabilize the financial markets. “A healthy automobile manufacturing sector is essential to the restoration of financial market security,” they said. Paulson disagreed. He and other Bush advisers maintained that letting the three Detroit automakers tap that money would set a dangerous precedent.
Ford had to make a clean break from the auto giants. It had to banish “Big Three” from the American lexicon. It had to prove to Congress and the American people that it was different. And the best way to do that was to stop asking for their money.
Breaking with Detroit
Our help does not come from Washington, but from ourselves —HENRY FORD
Overall sales were still down sharply. But the early success of these products did suggest that Mulally’s strategy was fundamentally sound. By continuing to invest in new cars and trucks while other automakers cut back to control costs, Ford was leaping ahead of the competition. If it kept it up, it just might emerge from this recession faster and stronger than its rivals.
Our plan is working, Mulally thought. We just have to make it through this trough.
“Can we make it without the government’s money?” Mulally asked his team. “Can we get through this without their help?” If Washington was writing checks, Ford would be foolish not to take one. But if it could somehow make it through this crisis on its own, it would make up for a lot of years of bad products and broken promises. Jim Farley could see the marketing potential immediately. “This can be a moment that really separates Ford,” he said. “It can be a moment that really differentiates us.”
Here’s the Ford story, which was a differentiator from the Big Three auto manufacturers:
We are more balanced; we are more efficient; we are more global; and we are really focused.… Ford is an American company, and an American icon. We are woven into the fabric of every community that relies on our cars and trucks and the jobs our company supports. The entire Ford team—from our employees to shareholders, suppliers to dealers—is absolutely committed to implementing our new business model and becoming a lean, profitable company that builds the best cars and trucks on the road for our customers. There is a lot more work to do, but we are passionate about the future of Ford.
A website—www.thefordstory.com—was developed to include detailed information about everything Ford had accomplished in its turnaround, the proof points of its progress, product information, congressional testimony, and videos starring Bill Ford, Alan Mulally, and other executives talking about Ford’s transformation.
Bill Ford did a masterful job of telling the Ford story on Larry King Live, turning every question about why the American automobile industry deserved a bailout into an opportunity to remind the host and his viewers that Ford was different. “Our plan is working. Our market share is picking up. I believe we’re headed exactly where the country wants us to go,” he told King. “We’re not asking for any federal money. We’re trying to pull ourselves up by our bootstraps and make it on our own.”
By Their Own Bootstraps
The e-mails and telephone calls started coming in right after Alan Mulally’s speech on Capitol Hill. Ford Motor Company noticed a huge jump in traffic on its websites as well. The letters began arriving a few days later. They all said the same thing. Thank you. Thank you for not asking for our money. Thank you for fixing your problems on your own. Thank you for showing us that the can-do spirit that made America great is not dead. Others bought stock instead of a car to show their support.
One dealer in Texas told how a woman pulled onto his lot in a brand-new Jeep and asked to trade it in for a Ford. She said she was embarrassed to be seen in a vehicle built by a company that could not survive without a government handout. Ford’s pollsters reported that, within ten days of the second round of hearings on Capitol Hill, 95 percent of the American people knew that General Motors and Chrysler were asking Washington for a bailout. Fifty-two percent knew that Ford was not. Two weeks after the hearings, 48 percent of consumers surveyed said they were more likely to consider a Ford product for the next car or truck as a result.
The U.S. Environmental Protection Agency released its official mileage number for the new Ford Fusion Hybrid that December. With 41 miles per gallon in the city and 36 miles per gallon on the highway, it was a big blow to archrival Toyota, roundly beating the Camry Hybrid to claim the title of most fuel-efficient mid-sized sedan in America. Ford was now taking the fight to the Japanese—challenging them in the segment they had owned since 1997, when the Camry lapped Ford’s aging Taurus.
On January 29, the automaker announced a staggering loss of $14.6 billion for 2008. It was Ford’s biggest loss ever. In the fourth quarter, Ford’s core North American automotive operation lost only $1.9 billion—just $400 million more than it lost during the same period a year before, when the economy was still relatively strong. Analysts had been expecting a much deeper decline, given the dramatic drop in sales. It was proof the company’s cost-cutting efforts were working.
They succeeded beyond Ford’s most optimistic expectations. Over the next month, Ford and its lending subsidiary spent $2.4 billion in cash and issued 468 million new shares of stock to retire $9.9 billion worth of debt. Wall Street was stunned by the take rate. “Investors jumped on the offer like it had slapped their mothers,” analyst Shelly Lombard of Gimme Credit declared just before the deal closed. It was one of the largest debt swaps in U.S. history, but it was not Ford’s first.
Like George W. Bush, Obama had concluded that the uncontrolled collapse of the two automakers would be too big a blow for the already battered economy to absorb. By the end of March, all the tracking data showed that Ford had opened a wide gap in public perception with General Motors and Chrysler. The American people were no longer mentioning the Dearborn automaker in the same breath as the other two manufacturers.
On April 3, Ford’s stock closed above $3 a share for the first time since 2008. By April 9, it was trading above $4. On April 24, Ford posted a first-quarter loss of $1.43 billion. It no longer seemed to matter. The company’s stock ended the day at $5 a share. Wall Street was paying more attention to Ford’s cash burn rate, which had fallen to $3.7 billion. The company’s shares were knocking on the door of $6 at the end of trading on April 30.
By May 1, 63 percent of the car-buying public said it had a favorable view of the Dearborn automaker. In the depths of the worst crisis to afflict the American automobile industry in eight decades, Mulally and his team had done what many thought impossible even in the best of times: They had restored the American people’s faith in Ford Motor Company.
Fortunately for Ford, transports stacked with new vehicles like the redesigned Fusion and Fusion Hybrid were pulling into dealer lots just as customers decided that the company was worth another look. Once again, Ford’s timing was perfect. Three years after Mark Fields’ Way Forward speech, Alan Mulally had finally made Ford America’s car company.
Turning the Corner
Chrysler filed for bankruptcy on April 30, 2009. General Motors followed it into Chapter 11 a month later. As jealous as Ford’s executives might have been about the ease with which the two other Detroit automakers were undoing decades of mismanagement, none of them wanted to trade places with their bankrupt competitors. Ford was benefiting greatly from its decision to pass on a government bailout. Though the entire industry continued to struggle, Ford continued to gain market share in the United States and around the world.
Demand was also beginning to pick up. Overall U.S. sales had been increasing month-over-month since March. “There are a lot of people out there that don’t like the concept that government is running these companies,” explained Ken Czubay, head of U.S. sales and marketing for Ford. “They’re also disillusioned by the resale value of their products.” By then, the residual value of Chrysler products had fallen by nearly 50 percent.
Each day brought new surprises for Mulally and his team. The U.S. government had never gotten so intimately involved in the operations of private corporations. There was no rulebook for any of this; Washington was clearly making it up as it went along. And that made Ford very nervous.
Washington was now spending taxpayer dollars to pay for advertising touting the benefits of GM and Chrysler products over competing Fords. Those companies were also using taxpayer dollars to offer bigger incentives in an effort to win back sales. Even more troubling for Ford was the fact that the government was using General Motors’ former lending arm, GMAC, to offer attractive financing terms to buyers that Ford simply could not match.
The government made quick work of the problems at GM and Chrysler. Both were out of bankruptcy by mid-July. But nothing Washington did could match the gains Ford was making with consumers. In June, Ford’s U.S. sales were down just 11 percent, compared to the industry’s 28 percent decline.
The automaker stunned Wall Street with an entirely unexpected second-quarter profit of $2.3 billion. The company’s quarterly cash burn rate was now down to $1 billion. Investors were ecstatic. Ford’s stock passed the $7 mark in trading that day and was at $8 within a week—a level not seen in a year.
Ford was back in the black. And this time it would stay there. Though sales would remain depressed in the United States and around the world, Ford was finally matching production to demand. It had done what no other American automaker had been able to do before: The company had figured out how to make money in a down market. For Ford, at least, the nightmare was over.
Ford’s sales were back up in October even without government incentives, increasing 3 percent year-over-year. Ford had now gained market share in twelve of the last thirteen months. The industry as a whole was up, too, though not as much as Ford. The worst was over. The recovery would be slow, but the market was coming back.
The company now had enough cash and enough confidence in the future to announce a $2.3 billion investment to expand production in Brazil. Ford was no longer just surviving. It was starting to grow. Sales of the Ford Fusion leapt 54 percent after Motor Trend magazine named it “Car of the Year.”
On December 2, Ford’s shares closed above $9 for the first time in more than two years. Three weeks later, the price passed $10. It was the first time since 2005 that Ford’s shares had traded in the double digits.
“What they need is another Alan Mulally,” one of the bankers opined, drawing vociferous agreements from the rest of the table. It had become a common sentiment, both in Detroit and on Wall Street. But in Dearborn, Mulally and everyone else in the Glass House knew it was not that simple. Under his leadership, Ford’s once-fratricidal executive corps had been transformed into a team, and that team had just saved the company from the biggest crisis in its long and difficult history.
Ford reported its financial results for 2009: a full-year profit of $2.7 billion. Mulally had kept his word after all.
Proof Points
There was no more poignant symbol of Ford’s transformation than the old Michigan Truck Plant in Detroit’s industrial suburb of Wayne. Ford had gutted the SUV factory that had once been its most profitable plant in the world. The company had rechristened it the Michigan Assembly Plant, and it was spending more than $550 million to retool the factory to produce the new Focus and Focus Electric.
Mark Fields led a group of journalists on a tour of the cavernous facility—a space so large, its far walls were lost in shadow. “Just a year ago in this plant, we were producing Navigators and Expeditions. And one year from now, we’re going to be producing the new Ford Focus,” Fields said, his voice echoing off the bare concrete. “Our intent is to have a strong manufacturing presence here in the U.S.”
Ford’s stock price closed above $11 a share on January 6—the first time since 2005. It passed $12 on March 2. And the numbers just kept getting better. Ford made $2.1 billion in the first three months of 2010.
Current employees were also sharing in Ford’s success. Ford restored profit sharing with its U.S. factory workers in January, writing each of its approximately 43,000 UAW-represented employees a check for $450. The automaker also lifted a freeze on merit pay increases for salaried workers and began restoring some of the benefits that they had given up in the depths of the crisis.
Mulally was not doing too bad, either. In March, Ford revealed that his compensation for 2009 totaled almost $18 million in cash, stock, and stock options. Even Bill Ford was finally getting paid. Five years after he gave up all compensation, it was announced that the company’s executive chairman would receive $4 million in cash and more than $11 million worth of stock options. He immediately donated $1 million of that to a college scholarship fund for the children of Ford employees.
Ford’s success had made its CEO a celebrity. On January 15, Mulally was named “Industry Leader of 2009” by the Automotive Hall of Fame, which called him “the overwhelming and obvious choice.” Automobile magazine had already named Mulally “2010 Man of the Year.” Barron’s added him to its annual list of the thirty most-respected CEOs in the world, while Automotive News lauded him as “Industry Leader of the Year.” Mulally was voted “Businessperson of the Year” by the readers of Fortune and “CEO of the Year” by those who followed MarketWatch. The Detroit News named him “Michiganian of the Year.” Even the president of the United States jumped on the Mulally bandwagon, naming Ford’s CEO to his Export Council on July 7.
Ford’s stock was now trading north of $14 a share. It broke $15 on November 3 and closed above $16 two days later. By the end of 2010, it was flirting with $17. The lucky few who had purchased Ford’s stock when it bottomed out at $1.01 on November 20, 2008, had now made a nearly 1,600 percent return on their investment in just two years!
Ford had been transformed from a company clinging to life on the strength of a few big trucks and SUVs to one that now made money on everything from subcompacts to heavy-duty pickups. Instead of lagging behind the rest of the industry, Ford was now a leader in technology, design, quality, and fuel economy.
On January 28, 2011, Ford posted a full-year profit of $6.6 billion for 2010. It was the most money the company had made in more than a decade. Alan Mulally and his team had not just saved an American icon; they had made Ford Motor Company the most profitable automaker in the world.
The Road Ahead
It is easy, and not necessarily incorrect, to say that Alan Mulally saved Ford Motor Company. But the truth is more complicated than that. One could just as easily say that Bill Ford saved the company by having the humility and self-awareness to step aside and make way for someone who could do what he had been unable to.
Ford was not saved because a hero rode into town on a white horse. But if he had not, Ford would not be here today. Certainly not the proud, profitable, and independent automaker that has become a symbol of American resilience and resourcefulness for the second time in a century.
Ford’s executives, like those at General Motors and Chrysler, could not see beyond their own shared experience. The cyclical nature of the business was internalized. “We were not organized for success,” Chief Technical Officer Paul Mascarenas told me. “Alan changed that with One Ford.”
“Running a business is a design job. You need a point of view about the future, a really good plan to deliver that future, and then relentless implementation.” Alan Mulally has now saved not one, but two American industrial giants.
Mulally’s serial success also proves that his unique approach to management—the weekly meetings, devotion to data, and emphasis on working together—is portable.
“What I have learned is the power of a compelling vision, a comprehensive strategy, a relentless implementation process, and talented people working together based on those commitments. You’ve got to trust the process. You need to trust and nurture your emotional resilience,” he said. “Do you have a point of view about the future? Check. Is it still the right vision today? Check. Do you have a comprehensive plan to deliver that? Check. If you get skilled and motivated people working together through this process, you’re going to figure it out. But you’ve got to trust it.” The leader’s job is to remind people of that vision, make sure they stick to the process, and keep them working together. “Working together always works. It always works,” Mulally stressed. “Everybody has to be on the team. They have to be interdependent with each other.”
Bill Ford’s willingness to step aside and make way for Mulally that helped save the company. It was also his unceasing effort to give him the time, the space, and the resources he needed for his revolution to succeed. Without that, Mulally may well have become just another victim of a company and a culture that seemed impervious to change.
The ultimate test of Mulally’s revolution will be its ability to endure his absence. Boeing has suffered major setbacks since Mulally left Seattle in 2006. Insiders say that is because his successors have failed to maintain the processes Mulally put in place to guarantee success.
But the biggest and most important difference between Mulally and his predecessors is that he attacked the root of the problem: Ford’s corporate culture. He took a sledgehammer to the silos that had divided the company into warring fiefdoms for generations.
The real challenge facing Ford Motor Company today is institutionalizing Mulally’s revolution. Mulally has given the company a system that, if rigorously adhered to, should prevent Ford’s chronic disease from reasserting itself. He has also given it a bench of leaders who know how to win.
From the day he arrived in Dearborn, Mulally said he was fighting for the soul of American manufacturing. If Ford had failed, a little bit of America would have died, too. But Ford did not fail. Under Mulally’s leadership, it showed the entire world that at least one American automaker could pick itself up, shake off the rust, compete with the best in the business, and win.