American Icon, Alan Mulally and the Fight to Save Ford Motor Company by Bryce G. Hoffman
Recommendation
It isn’t often that an insightful business history qualifies as a great beach read. Journalist Bryce G. Hoffman’s chronicle of the Ford Motor Company’s post-2008 turnaround transforms corporate restructuring into a sweeping drama, full of cliffhangers and vibrant characters. Hoffman, a reporter for The Detroit News, is a thorough historian who offers granular details on manufacturing capacity, labor negotiations, debt structures, and more. He’s an accomplished prose stylist with a novelist’s flair for storytelling. He recounts how Ford recruited Boeing executive Alan Mulally to pull the company from bankruptcy. Under Mulally’s leadership, Ford weathered the turbulence of the global financial meltdown and emerged as the world’s most profitable automaker. getAbstract recommends this true-life yarn to corporate strategists, product-development executives, financial officers, labor representatives, auto industry insiders and anyone who likes a compelling tale of will, brains and redemption.
Take-Aways
- In the early 2000s, the Ford Motor Company seemed on the verge of bankruptcy.
- Ford had to contend with a changing market and its own dysfunctional culture.
- It had a history of rebounding from mistakes, only to revert to bad habits.
- In 2006, it hired Boeing executive Alan Mulally to turn the company around.
- Mulally had engineered a turnaround at Boeing’s commercial airplane division.
- At Ford, he had to contend with operating inefficiencies, a poisonous culture, union resistance and the Ford family’s skepticism.
- His plan emphasized teamwork and streamlined Ford’s brand portfolio.
- Ford mortgaged all of its North American assets, including its logo, to pay for the restructuring.
- In 2009, GM and Chrysler accepted government bailouts, but Ford opted to go it alone.
- In 2011, Ford became the world’s most profitable carmaker.
American Icon Book Summary
The Edge
In 2006, the Ford Motor Company was on the brink of disaster. Ford, along with its domestic competitors General Motors and Chrysler, once dominated the US automotive market. But in the boom years of post-World War II America, the carmakers grew bloated and complacent. They weren’t ready when competition from Asian and European manufacturers offered not only better quality but also greater fuel efficiency.
“Ford may have been the company that put the world on wheels, invented the moving assembly line, and created the industrial middle class, but its glory days were long past.”
In the early 2000s, the major automakers were in trouble. Most analysts believed Ford would be the first to fall into bankruptcy. Ford was battling its own dysfunctional corporate culture and was losing customers due to “lackluster” designs and poor quality. Its share prices and debt ratings had plummeted, and the company was projecting a 2006 loss of more than $12 billion.
“The rapid pace of the revolution in Dearborn began to silence the skeptics who had doubted the ability of an outsider to make sense of such a complex business.”
In the midst of this maelstrom, Ford appointed former Boeing executive Alan Mulally as its new CEO. Within a few years, General Motors and Chrysler filed for bankruptcy, but Ford pulled off one of the most spectacular turnarounds in history.
Ford and Its Culture
Since its founding in 1903, Ford had a tendency to fumble its biggest successes. For instance, in 1985 it introduced the “game-changing” Ford Taurus. It soon became America’s top-selling car, but Ford failed to keep it competitive and eventually discontinued it.
“Ford kept falling back into its old habits, growing soft and complacent once the danger had passed.”
Yet the Ford Company had an uncanny ability to bounce back from seemingly fatal mistakes. It faced disaster in 1920, then during the Great Depression, and again in the 1970s, but it always rose again. After posting an unprecedented $22 billion profit for 1998, it took a series of missteps and by 2006 it faced bankruptcy.
“Nothing short of a sweeping restructuring of the entire corporation could save Ford Motor Company.”
After its big year in 1998, the company lost focus in 1999 under new CEO Jacques Nasser. Aiming to diversify Ford, Nasser spent big on far-flung acquisitions, spun off the parts subsidiary and planned to broaden the scope of the Ford Motor Credit Company. Ford’s quality control suffered, its designs weakened and sales slipped. Quality issues led to costly recalls and lawsuits.
Insurrection
William Ford Jr., the great-grandson of the company’s founder, led an insurrection against Nasser and took over as CEO at the end of 2001. Bill Ford cut costs, launched a new quality initiative and refocused the Ford’s Credit Company. The company returned to profitability in 2002. But Wall Street remained skeptical: Ford’s share price dropped below $10, its lowest price in a decade, and its credit rating deteriorated.
“Wall Street had long viewed the Ford family’s control of the automaker as an anachronism that prevented shareholders from realizing the true value of their investment.”
After a year on the job, Bill Ford was unable to tame the turf battles among the company’s entrenched managers. He had difficulty getting executives to carry out his ideas. Ford asked HR director Joe Laymon to scout for a new leader from outside the company who could help restructure Ford worldwide. They offered the position of chief operating officer to Nissan’s Carlos Ghosn and Chrysler’s Dieter Zetsche, but neither one wanted the job.
Mandate
Bill Ford assembled a task force to repair Ford’s North American business. He asked Mark Fields, head of Ford of Europe, to come to Ford’s Dearborn headquarters and lead the team.
“Bill Ford made it clear that his decision to bring in an outside CEO meant the end of business as usual at the company.”
In December 2005, Fields presented the board with his team’s plan, “The Way Forward.” The plan called for plant shutdowns and layoffs, with the goal of eliminating $6 billion in “material costs” by the end of the decade. It balanced cutbacks with expanded quality efforts and pressed Ford designers to come up with brash and distinctively American styling.
“If Ford filed for Chapter 11 protection, [Mulally] would not be remembered as the man who saved Boeing, only as the man who lost Ford.”
Oil prices rose, and The Way Forward faced a quagmire of executive infighting and turf battles. By July 2006, Ford’s stock price fell below $7 a share, down from more than $16 when Bill Ford first became CEO, and the company anticipated its biggest-ever annual loss. The board instructed Bill Ford to consider a merger and to prepare for bankruptcy.
“The American automobile industry had mythologized itself for so long that lying had become a virtue.”
He decided to step down as CEO and stay on as chairman. The company made another offer to Carlos Ghosn, but he insisted that he would have to be both CEO and chairman. Bill Ford and Laymon sought a leader with turnaround experience from outside the auto industry. Their top choice was Alan Mulally, who was the head of the Boeing Company’s Commercial Airlines Group.
The “Turnaround Expert”
Alan Mulally had saved the aircraft manufacturer from a series of disasters that included the collapse of aircraft sales that were following the September 11, 2001, terrorist attacks, robust competition from Airbus Industrie of Europe as well as a troubled merger with McDonnell-Douglas.
“Mulally believed the company could now make it through the crisis without additional government aid – provided that neither GM nor Chrysler went into an uncontrolled bankruptcy.”
At 59, Mulally knew that his chances of becoming the CEO of Boeing were fading. The job once seemed to be his after two earlier CEOs had left the company amid scandals. But Boeing’s largest customer, the Pentagon, insisted that Boeing appoint an outsider. Mulally first met with Bill Ford at the end of July 2006 and accepted the automaker’s offer to become CEO that September.
Taking the Helm
Mulally instituted a weekly, corporate-level meeting – the “business plan review” (BPR). Once he laid out the turnaround plan, his team would use each BPR to assess Ford’s success in keeping it up. When they identified shortfalls or other problems, they would address them in a supplemental meeting called the “special attention review.”
“Mulally “was trying to figure out where each of Ford’s executives could make the biggest contribution to the company’s turnaround effort.”
Mulally believed Mark Fields’s The Way Forward plan was a “good start,” but argued that it focused too much on cost cutting and not enough on winning back customers. To save the company, Mulally believed he had to align Ford’s operations more effectively with customer demand, reform the corporate culture and hammer out a more competitive labor contract with the United Auto Workers (UAW). He planned for Ford’s long-term health with ideas for “globalizing” product development and designing cars that consumers would want. He also had to figure out how to raise money to finance these plans.
Consolidation
Consolidating Ford’s product portfolio was a priority. It offered 97 different nameplates worldwide. Mulally reckoned it should focus on making specific, exceptional vehicles. His top concern was reforming the corporate structure to be more rational by slicing away layers of bureaucracy and redundant functions and by unscrambling chains of command. He planned to use a “matrix” structure, as at Boeing, and divide Ford into “business units and functional areas.”
“By continuing to invest in new cars and trucks while other automakers cut back to control costs, Ford was leaping ahead of the competition.”
Ford borrowed $23.6 billion to pay for the restructuring. The banks demanded that Ford mortgage all of its US assets, including its “blue oval” logo – if the turnaround failed, it would mean the end of the company. The timing of the deal was fortuitous. A deep recession was on the horizon, and when it came, the world’s credit markets would grind to a halt.
Winning Over Stakeholders
In addition to management, Mulally had three groups of important stakeholders that he needed to get on board with the plan:
- The Ford heirs – Tensions within the Ford family were growing. Some worried that Bill Ford and Mulally gave precedence to saving the company over protecting the family’s investment. The family’s Class B shares had dropped in value from about $2.25 billion in 1999 to about $578 million. Some chafed at the company’s decision to discontinue dividends. After a family meeting in which Bill Ford and Mulally presented their case, the heirs concluded Mulally’s plan was the company’s best hope.
- Labor – Mulally had to get the UAW on board. After a series of marathon meetings, he and the union worked out a deal that allowed Ford to produce cars in the US on a competitive basis with foreign automakers.
- The customers – New vice president of sales and marketing Jim Farley had the job of wooing back Ford’s disaffected consumers. He started by talking with dealers. He broke with Ford tradition by asking dealers for their input on how to spend marketing money in their regions. The move inspired the dealers to take on more advertising expenses of their own. Fields stretched his meager budget by embracing guerrilla-marketing tactics and moving into social media. His team came up with a campaign built around the slogan “Drive One,” with ads featuring Ford employees talking about their cars’ features.
Status Report
Ford reported a record $12.7 billion loss for 2006. By July of 2007, it was operating in the black, but ended the year with a total loss of $2.7 billion. The company’s chief economist had been raising red flags about an impending recession. The recession started in December 2007, but its full force hit in 2008. Wall Street investment banks crumbled, credit stalled and unemployment rose. Gasoline prices spiraled, and car and truck sales plummeted.
“Instead of lagging behind the rest of the industry, Ford was now a leader in technology, design, quality and fuel economy.”
In July 2008, Ford posted a second-quarter loss of $8.7 billion. It was about to fall into fourth place among global automakers, behind Volkswagen. General Motors and Chrysler, which had suffered even bigger losses, proposed different types of mergers. Mulally decided that Ford should go ahead on its own.
“No one ascends to the top of a major corporation without a healthy ego, but those in the automobile industry were oversized even by Fortune 500 standards.”
The economic crisis went global. General Motors and Chrysler asked for help from the US government’s Troubled Asset Relief Program (TARP). Ford decided to forgo TARP money.
Rebound
In January of 2009, Ford announced another record loss of $14.6 billion for 2008. But a few bright spots emerged. The Environmental Protection Agency (EPA) announced that Ford’s Fusion hybrids were the most fuel-efficient midsize sedans in the United States. The EPA also found that Fusion’s nonhybrid version beat comparable models from Toyota and Honda. Ford’s abstention from taking TARP money brought a form of goodwill from consumers and investors.
By spring 2009, polls showed that 63% of US car buyers viewed Ford favorably. Its stock, which had fallen below $2 a share the year before, reached $5 on April 24 and neared $6 on the 30th.
Bankruptcy
Chrysler and General Motors filed for bankruptcy in 2009. President Barrack Obama announced that the government was investing $30 billion in GM, thus becoming a part owner of the automaker. The government bought shares in Chrysler, but expected Italy’s Fiat SpA to buy those shares to complete its merger with Chrysler.
“Cash for Clunkers”
Chrysler and GM were out of bankruptcy by July of 2009, but couldn’t catch up with Ford, which ramped up production. It drew on a $5.9 billion loan from the Department of Energy to develop a full line of electric and hybrid vehicles. It got a boost from the government’s Cash for Clunkers program. The program offered people who owned older cars a $4,500 subsidy toward the purchase of a more fuel-efficient car.
Redemption
In July 2009, Ford reported a second-quarter profit of $2.3 billion. Its stock price, which had been hovering below $6, rose to $8 within days. It finished 2009 with a total profit of $2.7 billion, and in 2011, posted a profit of $6.6 billion. Since 2006, Mulally and his team have pulled Ford back from the brink and transformed it into the world’s most profitable carmaker.
About the Author
Detroit Newsreporter Bryce G. Hoffman covered the Ford Motor Company and won awards from the Society of Professional Journalists, the Society of American Business Editors and Writers, the Associated Press and the California Newspaper Publishers Association.