In declining a federal bailout, CEO Alan Mulally gambled that cash—and new models such as the Fusion Hybrid—can help Ford outlast its rivals
When Ford Motor (F) Chief Executive Alan Mulally decided not to ask for a government bailout, it wasn't just because Ford is in better financial shape than its Detroit rivals. Company insiders say the overarching goal was to separate Ford in the public mind from General Motors (GM) and Chrysler. As the crisis afflicting the auto industry has deepened, Mulally & Co. have gone out of their way to convince car buyers that Ford is stronger, greener, and more technologically advanced than those other guys. Executive Chairman William C. Ford Jr. sees an advantage if "people view us as a company that pulled itself up by its own bootstraps."
SLAPPING DOWN MERGER TALK
Mulally's go-it-alone strategy is risky because if he doesn't manage to transcend the "Made in Detroit" label and sell a lot more cars, he might find himself in the position of asking the feds for money later this year. What's more, Mulally's bid to prove to consumers that his company is healthier than its Detroit rivals could make the United Auto Workers less keen to give Ford the concessions it badly needs.
Still, there's no question Ford could use an image boost, and Job One is making that happen. On Dec. 19, Fox News (NWS) reported that Ford was talking to Chrysler about a possible merger. The last thing Mulally wanted was to be linked to a company many believe is a goner; Ford's PR team hit the phones faster than the Mustang GT500 does the quarter-mile. Mulally brusquely slapped down talk of a merger: "We haven't even been thinking about it, let alone discussing it," he told BusinessWeek at the time.
As the year came to a close, all eyes were on GM's near-death experience as it waited for the government to provide bridge loans. Then Ford changed the conversation by talking up the hybrid version of its Fusion sedan. Before long the blogosphere was full of breathless commentary about a car that beats Toyota Motor's (TM) Camry hybrid by seven miles per gallon and outpaces GM's Chevy Malibu hybrid by 15. Never mind that hybrid sales have tanked along with gas prices—and that the new Fusion costs $3,300 more than a comparable conventional model; talk of it cast a halo over Ford. The company also has been trumpeting a computerized key that prevents teens from driving without seat belts and limits speed and stereo volume. "Toyota has shown that unique technology creates enormous goodwill around a brand," says Steve Wilhite, president of Jumpstart Automotive Media, a Web marketing firm. "Ford has embraced that strategy with success."
At a time when GM's and Chrysler's financing arms have been hard-pressed to make loans to potential buyers, Ford has been using television, online, and radio ads to remind the world that it has money to lend. And executives have been falling over themselves to promote Ford's kudos from Consumer Reports, which this month noted that of eight new Detroit cars it recommends, six are Fords or Ford brands.
Is the PR offensive paying off? Ford says it is. In a dismal fourth quarter, it notes, only Ford, Honda (HMC), and Toyota increased their market share among the top six carmakers. Ford surveys, says a company insider, show that when consumers are asked about Ford as part of the Big Three or the Detroit Three, they "express pessimism, concern, and lack of confidence." But when the questions center on Ford alone, this person says, confidence shoots up—"and not just by a couple of points."
Ford's audience isn't only consumers, of course. Mulally's request for a credit line rather than loans has left lawmakers and the union believing Ford is stronger than its rivals. To a degree, that's true, partly because two years ago, Mulally raised $23 billion in new money and credit lines. But Ford also has $26 billion of debt—$19 billion of it unsecured—and for six months has been burning through cash as fast as GM. Mulally is understandably eager to retain Ford's independence by paying its creditors in full. But GM, in exchange for federal help, likely will swap equity for debt and may emerge with a stronger balance sheet. By taking the high road, Ford could find itself at a competitive disadvantage.