When Ford Motor (F) Chairman and CEO William Ford Jr. convinced Boeing (BA) executive vice-president Alan Mulally to take over as chief executive this week, the great-grandson of company founder Henry Ford was taking a step into history, but not the one he envisioned five years ago when he first assumed the title.
Ford, 49, is hoping Mulally can be the tough-minded, tightly-focused operations chief that he has struggled to be himself, and that he hasn't found within the walls of the Dearborn (Mich.)-based auto maker (see BusinessWeek.com, 9/6/06, "Ford's Latest Recall"). Bill Ford has been telegraphing for weeks that he was looking for an exit strategy as CEO, sounding out friends and counselors about possible candidates and stating that he was "not hung up on titles," in an interview with BusinessWeek last month.
"THE RIGHT TOOLS." Wall Street's reaction to Mulally's appointment was tepid. After all, he was passed over twice to be CEO at Boeing, has no experience in the auto industry, and is walking into the company in the middle of a major restructuring. The most positive voice on the subject of Mulally's hiring belonged to Bill Ford, who looked looser and more relaxed than observers have seen him in two or three years.
There's a consensus—and it's backed up in Bill Ford's comments—that he's relieved to escape the pressure of being chairman, CEO, and COO, and be off the hook for coming up with all the answers about how to fix Ford. Others feel Mulally will do Ford a lot of good. Mike Jackson, CEO of AutoNation (AN), the biggest auto-dealer company in the world and the biggest Ford dealer, says, "Mulally has the right tools for what Ford is undertaking, which is a massive restructuring of a global industrial company."
Earl Hesterberg, former marketing chief at both Ford Europe and Ford North America and now CEO of auto retailer Group 1 Automotive, says: "Turning it over to an outsider and getting a fresh perspective are both good things. An outsider may have more success in aggressive cost cutting, but at the end of the day, Ford needs to revitalize its product offering and brand image."
In a nutshell, these are the big tasks that remain for Mulally and Executive Chairman Bill Ford to tackle.
Bolster the balance sheet. Ford has solid liquidity, but its falling market share and costs of incentives, plus the pending buyout of some 30,000 employees, will eat into the cash hoard.
Focus the company on a smaller number of brands. Ford and Volvo brands are givens. But Ford must soon decide what brands out of Lincoln, Mercury, Land Rover and Jaguar it will go forward with. There's mounting consensus on Wall Street and within the company that management attention and capital are spread too thin.
Lower variable costs. By some estimates, Ford spends some $800 a vehicle more for parts and components than, for example, Renault.
Rationalize and make more efficient and productive the company's far-flung manufacturing and engineering, which cranks out over 2,000 products a year from more than 100 worldwide plants.
Focus and enliven the company's brand strategies and marketing to create more trust and desire for the brands the company retains.
Stop the disastrous slide in market share, which Merrill Lynch (MER) projects will continue to fall by 1% per year for the next few years unless Ford makes some very bold moves.
Bill Ford and Alan Mulally spoke with BusinessWeek Senior Correspondent David Kiley about some of the challenges ahead. They also provide a peek at the thoughts on both sides before Mulally decided to sign on as CEO. Edited excerpts from their conversation follow:
What interested you about the job at Ford?
Mulally: To get a chance to work with Bill Ford to make fuel-efficient and safe vehicles and finish this transformation of Ford. This may sound kind of corny, but this is a United States icon. Boeing is a United States icon.
Some people believe the U.S. can't compete in the design and manufacture of sophisticated products. I think we absolutely can if we pull together. We have shown that we can do that in commercial airplanes, and we can absolutely prove that we can do that in automobiles. I think it will be fun. Automobiles are fun and exciting. We need them. They are a part of our lives.
What drew you to Alan?
Ford: I looked inside and outside the auto industry. And that's something we will continue to do as we continue to build the team. As I looked inside and outside the auto industry, Alan kept rising to the top. He had turned around a major industrial company with many of the same characteristics as Ford.
I was dogged in my pursuit of him. Getting him after 37 successful years at Boeing and convincing he and his wife (Nicki) to leave Seattle, where his children are, was tough. There's a series of tradeoffs. He won't have the "car guy" mentality. But he will offer us experience from another industry and a whole other way of doing things, many of which can be applied to us.
I think he'll be a great mentor to a lot of our younger leaders. He's a great team builder. Our team needs the steady hand of someone who has been through a turnaround, who knows what it takes, who can say, "You're on the right path, stick with it, it'll work," or, "This isn't the way to go, let's refocus."
Mulally: I can't wait to be a car guy
Detroit has a history of eating outsiders for breakfast. The most prominent example I can think of is Ron Zarella, who came to General Motors (GM) as marketing chief and then went on to be President of North America. But his tenure was incredibly difficult for him and for GM. And the flock of packaged-goods executives who came with him washed out with very few exceptions. Ford hired some tech and packaged-good people, too, without much success. Did this enter your thoughts before asking Alan, or for you, Alan, before accepting the offer?
Ford: Alan's style will go a long way toward that not happening. Everybody I talked to about Alan said he was not only capable but that he's a fantastic team builder and communicator. With those skill sets, his entry into Ford and entry into Detroit will be very easy. If you're a straight-shooter and your ego is under control, you'll do just fine.
Mulally: When it did come up, it moved fast to Bill's points. I'm a product guy. I'm a creative guy, a designer, a customer. I've been in tough situations. It's more like…as soon as I can start working and helping Bill, everyone is going to know that I'm "True North." I'm here to help a great company continue to survive and be viable. I don't have any other agenda. It's pretty hard to not like me.
Ford: Yeah, I thought that, too, at one point [about how people would think of me in this job].
When I think of turnarounds in recent past in the auto industry, I think of Carlos Ghosn at Nissan (NSANY) and Dieter Zetsche at DaimlerChrysler (DCX). And to some degree, I think of how Bob Lutz has improved General Motors' product portfolio. All those executives have a track record for sometimes acting unilaterally from their instincts and experience to kill or greenlight risky products, ads, and the like, rather than running the decisions through a committee. Don't you think you need someone like that to get your recovery moving faster?
Ford: For every example you gave me of guys and hip shooters where that approach worked, I can give you one where it didn't work. We have a great product-development guy in Derrick Kuzack. What he did in Europe was magic.
Alan will have all the help he needs from inspired car guys. What our inspired car guys need is inspired direction. The problem at Ford…if you think our products are not boldly styled enough and didn't reach far enough…it wasn't because we didn't have inspired car people here, it was it was because our management didn't have enough confidence to pull the trigger and let those car people loose. We got cautious. Having Alan on board will liberate those people. He will put a business framework in place that will allow those people to pull off bolder designs.
Isn't that caution and lack of structure on you?
Ford: That has partly been me. But some of the products that fit that category…most were developed during the tail-end of my predecessor and during the changeover. The new products that have my stamp—Fusion, Edge, MKS, the Fusion—are very different.
Alan, will you speed up the Way Forward plan, which is already done and going through revision now? Or are you coming on now at a time when all you can really do is execute it.
Mulally: Yes. I will have some say, and certainly about decisions yet to be made. Clearly, [the focus is on] the North American operations. Things have changed dramatically for Ford. The world has changed.
Bill has put in place a plan and actions and a team to deal with this reality. The most important thing is to match the capacity to the demand. The second priority is to focus our investment, and that we do a better job of making car and trucks that people really, really want. Better than the competition and better in every way.
Alan, what do you see as the biggest short-term challenges?
Mulally: What we decide to do on the product side. With the business environment we have, higher oil prices will be with us for a while. So continuing to work with enhancing fuel efficiency, especially on the car side to complement the great position we have in trucks and SUVs.
Every world-class company increases productivity 4% to 5% a year. We have that goal. Focusing on making cars and trucks people want to buy. And capturing everyone's hearts and minds to get behind the plan.
Bill, how would you grade your tenure as CEO?
Ford: When I came in 2001, we were awash in red ink. And my goal was to get us profitable again. And we did that. We had to restock the product pipeline. We did that. The operations around the world were tough, mostly awash in red ink. And even with the problems we're having on the car side of our business, we were profitable last year.
It was clear to me we need someone with a skill-set to take us further. Each person's skill-set doesn't fit every company at every time. What we need now…I wanted someone with major turnaround experience. And who was ready willing and able. It's all to the good of Ford Motor Co. I feel good I could attract Alan here.
How does Alan's hiring impact President of the Americas Mark Fields, who has been the architect of the Way Forward plan?
Ford: Mark will have someone to go to now that has gone through many of the same things that Mark is going through now. That was a primary driver of this decision…I felt we needed someone who has been through all this. Who has been through the wars. Who has the battle scars and came out victorious.
This isn't a reflection on Mark. He has been doing a great job. But he, like everyone else around here, could use some different kind of leadership from a very experienced and winning executive.