Talk about a shocker. William C. Ford Jr., chairman and CEO of Ford Motor Co. (F), tapped an outsider in Boeing Co.'s (BA) No. 2 executive Alan Mulally to become president and CEO of his family's struggling automaker immediately.
Bill Ford said in a statement that he'll remain "extremely active," and will continue his duties as executive chairman of the company.
There's no way around it. Mulally seems like a late-round choice. Bill Ford has gone after successful auto industry veterans like current DaimlerChrysler chairman (DCX) Dieter Zetsche and Renault-Nissan (NSANY) CEO Carlos Ghosn. Unable to get either one, he grabbed Mulally, who has done a fine job as head of Boeing's commercial aircraft business but was passed up for the CEO job last year.
GOOD CREDENTIALS. But give the Boeing lifer some credit. Even though Mulally wasn't Ford's top choice, he has a good track record. In Mulally, Ford gets a manufacturing whiz who turned around Boeing's commercial aircraft business after airlines dropped orders in droves following the September 11 terrorist attacks.
He'll have an even bigger challenge at Ford. The company has lost $9 billion in North America since 2001. The company's U.S. market share has also fallen to 17%, from almost 20% in that time. "An outside perspective is exactly what the company needs," Casesa Strategic Advisors managing partner John Casesa told Bloomberg News.
For Ford's part, finding an outsider makes sense, at least on paper. Promotions from within Ford's own ranks have yielded nothing but more turnover, heavy losses and falling sales over the past five years. The current "turnaround team" of President of the Americas Mark Fields, Chief Operating Officer of the Americas Anne Stevens, and Chief Financial Officer Don Leclair have been saying the right things.
NEW INITIATIVES. But there's no getting around the fact that the plan Fields is credited with laying out last January to restore Ford's vehicle business to profitability by 2008 has hit the shoals and is in do-over mode already.
Mulally inherits a company that has seen four different executives in charge of its European operations, as well as three managers atop its North American business and product development works since Bill Ford took over as chairman and CEO in October, 2001.
He will have to immediately begin working on big strategic initiatives with Bill Ford, like selling off some of Ford's brands, such as Jaguar, Aston Martin and Land Rover—deals around which there are already plenty of rumors swirling. He will also have to dive into Ford's product plan in an effort to rejuvenate sales.
AN AUTOS OUTSIDER. As far as the company's revision of its struggling "Way Forward" plan being revised, Ford warned that Mulally will have limited effect in the short run. "Alan will be informed of the decisions being made…the Way Forward plan can't be held up," Ford added. "But if he finds things he would do differently, he'll go after them. That's expected."
Mulally, by his own admission Tuesday, is not "a car guy." Currently, he drives a Lexus 430 sedan, a car chairman Ford said was "being keyed" during the press conference, announcing his arrival. Detroit, though, has not been kind to executives outside the auto industry. General Motors (GM), for example, named a president of North America in the late 1990s, Ron Zarella, who came to the automaker from Bausch & Lomb (BOL) and Procter & Gamble (PG). Zarella and the cadre of packaged goods marketing executives who followed him to GM were unsuccessful in affecting GM's culture and left the company.
Mulally may have an easier time as a manufacturing and engineering whiz. Ford's plants are underproductive, and quality is a little better than average. Ford is currently the least productive automaker in North America, as measured by The Harbour Report, and has the lowest utilization of plants of any automaker.
ENGINEER AND BUSINESSMAN. Mulally has some tools that could come in handy at Ford. A 34-year veteran of Boeing, he came up through the ranks as a design engineer. He gets credit for developing the company's newest airplane models—the twin-engine 777 jetliner, launched in the early 1990s, and the new fuel-sipping 787 Dreamliner, which is expected to enter service in 2008.
But at Boeing, Mulally only had to worry about a new product launch about every 13 years. At Ford, the company tries to launch a new vehicle every few months. And instead of sealing deals with CEOs of airline companies, he needs good instincts about consumer ad campaigns and marketing strategies that sink or save even the best car or pickup.
He is known for being a top-notch engineer who also understands business, says Sandy Munro, president of Munro and Associates, a manufacturing consulting firm that worked on the Boeing 787. "He's a smart engineer," Munro says. "He understands how to make money and he understands marketing and what it takes to push something out the door."
EKING OUT PROFITS. At Boeing, Mulally slashed costs, laid off 30,000 employees, closed some factories, terminated some struggling airplane programs such as the 100-seat 717 and fixed the division's numerous production and supply-chain challenges. He essentially was able to do what no commercial airplane executive had ever done before: match airplane expense with plummeting revenues during the airline slump and still eke out an operating profit.
Mulally leaves Boeing's commercial airplane unit in good shape. The unit generated record airplane orders in 2005 and nearly $23 billion in revenues. It is continuing to chalk up strong sales through the first eight months of this year.
Mulally will also have to get a feel for what car buyers want. And he'll have to learn to work with the United Auto Workers union—a more powerful bunch that the International Association of Machinists he dealt with at Boeing. Getting concessions from the UAW is critical to Ford's plan of plant closures and staff reductions.
A "QUICK STUDY." If the UAW decides to strike Ford next year when the automaker's contract negotiations open, the work stoppage could sink the company. Mulally has been blamed for a 28-day strike that gripped Boeing last year and was, in the end, thought to be unnecessary since the union got what it wanted all along.
The new CEO says he's been doing his own due diligence on Ford over the summer as his discussions with Bill Ford led to his hiring last Friday. "I'd say I'm nervous, but not afraid," said Mullaly.
Munro says Mulally has a chance because he is sharp and a quick study. He will have to be. Ford lost $1.3 billion this year in North America and its market share is plummeting. That means the ambitious and focused Mulally will have to learn the car biz. And fast.