Trying to save Ford

Posted: Dec 24, 2006 12:01 AM
Trying to save Ford

If Alan Mulally, Ford's CEO, is looking for fresh words to inspirit his troubled company -- words to replace "The Way Forward," which rang hollow as Ford slid further backward -- he might try: "Lay off the cheeseburgers, America -- you're killing yourself, which is your business, but you're also killing Ford, which is my business." That exhortation is not pithy but is oddly pertinent.

The average weights of American men (191 pounds) and women (164 pounds) have increased 25 pounds since 1960. And according to one study, in 2003, Americans' 223 million cars and light trucks burned an extra 39 million gallons of fuel for every additional pound of passenger weight. So Americans are using almost a billion gallons of gasoline more each year than they would if they were as (comparatively) svelte as they were in 1960. Because Ford is more a truck company than a car company (its big moneymakers are F-Series pickups, and SUVs such as the Explorer are classified as trucks), it has been hit especially hard by changing consumer preferences produced by high gasoline prices. That is one reason why Ford lost $5.8 billion in the third quarter.

Mulally, 61, is frequently described as having "boyish" looks and pep. But it has been only four months since William Clay Ford Jr., Henry's great-grandson, replaced himself with Mulally (Ford remains the company's executive chairman), who is going to find this an aging experience.

Already he has taken one of the great gambles in the history of American business, one perhaps unavoidable if Ford is to avoid bankruptcy. Ford has taken $23 billion in loans, most of that sum secured by almost everything Ford owns -- physical assets, patents, trademarks. The market value of Ford's outstanding stock is $15.4 billion. "The data," Mulally serenely acknowledges, "say we're going out of business."

Perhaps he is serene because he has seen, and seen off, conditions which were, if not worse, really bad. After 9/11, when the commercial airline market froze, Mulally, who then was at Boeing, oversaw the downsizing of that company's payroll from 127,000 to 52,000.

Still, the most difficult military maneuver is a retreat under fire because it can become a rout, and the same is true of a corporate contraction. However many people Ford hires -- at reduced wages -- to replace some of the approximately 38,000 UAW employees who have agreed to buyouts, many of them will never have built a car. This could mean quality problems which can further depress Ford's market share, driving a downward spiral.

Mulally's vision for Ford is forward-looking nostalgia. He wants to restore Ford to the role it had in "the middle America that we grew up with." But to "spiff up the blue oval" -- Ford's trademark -- he must market cars designed on the assumption that gasoline prices "are staying up." He talks about the need to "take the hard decisions" and "rationalize our product family" with a "simplified product portfolio." He stops short of talking -- yet -- about scrapping brands. But why is the company still making the Mercury, the average age of whose buyers is 55. Perhaps because it cost GM $1 billion -- payments to dealers, etc. -- to eliminate the Oldsmobile brand.

Mulally says production efficiencies can solve half the company's economic problem. That will not suffice unless Ford efficiently produces exciting products. Mulally, a quick study, already has a rudimentary grasp of Detroit-speak: He says Ford must develop new products "with curb appeal -- the 'wow' factor."

But in 2001, with much fanfare, Ford rolled out a new version of a 1950s success, the Thunderbird. It was underpowered, handled badly and is no longer in production. Recently, the company heavily advertised the Lincoln Zephyr. But now it is called the MKZ. Why? This is the behavior of a company whose left hand does not know what its other left hand is doing.

Seventy percent of the people who go through O'Hare Airport, Mulally says, are not going to Chicago. His point is that a snapshot of customers -- moving targets -- does not tell you where they are heading. Henry Ford, according to Mulally, said that if, when he founded his company, he had asked potential customers what they wanted, they would have said faster horses. Mulally has bet the company on its ability to develop ``curb appeal'' products that people do not yet know they want, and to develop them before the company, which burned through about $6 billion in the last two quarters of 2006, burns the rest of its borrowed cash.