Feb. 7 (Bloomberg) -- Six months after arriving at Ford Motor Co. from Boeing Co. in 2006, Alan Mulally had to decide the fate of the Explorer, once America’s top-selling sport utility vehicle.
Ford had just posted a $12.6 billion annual loss, and investors were clamoring for the new chief executive officer to replace such guzzlers as the Explorer with the gas-sipping models that buyers wanted.
Mulally had to think fast after Ford staked the company name as collateral on $23 billion in bank loans. At Boeing, he’d bet that lightweight parts would help the 787 Dreamliner burn 20 percent less fuel than rival airliners. He gave Ford engineers an ultimatum: Put the Explorer on a diet, or it’s dead, Bloomberg Markets magazine reports in its March issue.
“Alan told us we need to truly reinvent the Explorer,” Derrick Kuzak, Ford’s product development chief, says in the company’s domed-shaped showroom in its Dearborn, Michigan, design studio.
When Kuzak, 59, went back in early 2009 to request $400 million to start producing the Explorer that his team had spent two years overhauling, he didn’t begin his pitch with profits or costs. Instead, he told Mulally he’d found ways to cut almost 100 pounds (45 kilograms) from the 4,450-pound behemoth, get 24 percent better gas mileage, add length and width and maintain off-road performance.
Mulally, sitting with 15 executives in the Thunderbird Room at Ford’s Dearborn headquarters, was so impressed that he gave Kuzak the cash to start building in a renovated Chicago assembly plant.
“Weight is absolutely critical,” Mulally, 65, says in his 12th-floor office overlooking a factory where Henry Ford built the Model T.
As automakers claw back from the biggest financial crisis since the Great Depression, Mulally is betting that trimming pounds from Ford’s lineup is the route to passing rivals. He’s making lightweight vehicles the foundation of Ford’s plan to meet rising fuel and safety mandates without scrapping the pickups and SUVs that generate most of the company’s profits.
A middling player in lightweight design a decade ago, Ford is now a leader, says Eric Showalter, CEO of Strathroy, Ontario-based Meridian Lightweight Technologies Inc., which supplies magnesium parts to automakers worldwide.
‘League With BMW’
“They’re in a league with BMW,” says Showalter, referring to Munich-based Bayerische Motoren Werke AG, which for 2013 plans a battery-powered car built from aluminum and carbon fiber to save weight. “The Japanese, with the exception of Honda, are not being nearly as aggressive,” he says.
Ford already has emerged from the recession as the world’s most-profitable carmaker. The company earned $6.37 billion in the first nine months of 2010, the most since the Explorer’s 1998 heyday. Fourth-quarter profit fell 79 percent to $190 million, or 5 cents a share, as Ford’s European unit had an unexpected loss and the introductions of the Explorer and other new models drove up costs. Explorer sales jumped 73 percent in January as the SUV became the fastest moving model on the showroom floor, according to Ken Czubay, Ford’s U.S. sales chief.
For the year, Ford posted net income of $6.56 billion, the highest since 1999. Ford shares rose 42 percent in 12 months to $15.72 on Feb 4.
“If they can make fuel-efficiency one of the top attributes of a Ford, they’ll suck people into their showrooms,” says Gary Bradshaw, a fund manager at Dallas-based Hodges Capital Management, which owned 100,000 Ford common shares and 100,000 preferred shares as of mid-January. “Ford will continue to be a good investment.”
Regulators worldwide are demanding mileage and safety improvements. The administration of President Barack Obama is requiring carmakers to boost the fuel economy of their fleets 42 percent to an average of 35.5 miles (57 kilometers) per gallon (3.8 liters) by 2016. Officials are considering a 62-mpg target for 2025.
U.S. rules this year mandate that roofs on new models become twice as strong as those on previous ones to prevent deaths in rollover accidents. In China, the government wants to reduce fuel consumption to 6.6 liters for every 100 kilometers driven in three to five years from an average of 8.13 liters, says analyst Tianshu Xin at IHS Global Insight in Shanghai.
‘Moving to Forefront’
Light cars don’t have to be less safe, Kuzak says. They can be designed so that the impact of a crash travels around passengers rather than through them. The new Explorer has air bags in its rear seat belts, and the SUV cuts power when it enters a curve too fast.
Even gas-electric hybrids and fuel-cell models benefit from lighter bodies that put less strain on batteries and motors, Kuzak says. A decade ago, Ford executives didn’t even discuss weight when they approved vehicles, he says. Ford predicts that hybrids and electrics will account for as much as 25 percent of sales by 2020.
“The very nature of how cars are built and used is being challenged worldwide,” says John Casesa, senior managing director of New York-based Guggenheim Securities, the investment banking and capital markets arm of Guggenheim Partners LLC. “Making lighter cars has become essential, and Ford is moving to the forefront. With products like the Explorer, customers are beginning to see the result.”
Ford introduced its new Explorer in December as global vehicle sales reached 72.1 million for 2010, after plunging to 63.9 million the year before, according to J.D. Power & Associates.
In 2009, industry sales in the U.S. dropped 21 percent to 10.4 million, the lowest number since 1982. The predecessors of General Motors Co. and Chrysler Group LLC skidded into and out of bankruptcy in 2009.
Mulally laid the groundwork for Ford’s recovery -- and its stock rebound -- by sparing engineers from the brunt of his firings when he cut jobs by 42 percent to 164,000 at the end of 2010 from the end of 2006.
The move paid off: Ford’s quality ranked best among mainstream brands last year, with 93 customer complaints per 100 vehicles during the first three months of ownership compared with 117 for Toyota Motor Corp.’s Toyota brand, according to J.D. Power. Ford revealed plans for three new electric or hybrid vehicles on Jan. 10 and said it will hire 750 engineers this year.
“Ford’s improving quality, and the relatively high rate at which it’s introducing fresh products in the showroom, is translating into better market share,” says Jonathan Chou, an analyst at Baltimore-based T. Rowe Price Group Inc., which held 9.9 million Ford shares as of Sept. 30.
To keep rolling, Mulally is requiring new models introduced from 2012 to 2020 to weigh 250 to 750 pounds less than their predecessors. If they can’t achieve best-in-class fuel economy, he won’t approve them.
“Every engineer needs to think about weight as one of the most fundamental elements,” Kuzak says.
Ford faces tough competition in lightweight design. Honda Motor Co. trimmed 104 pounds from its 2011 Odyssey minivan compared with the previous model.
“To improve fuel-efficiency and reduce greenhouse gases, one of the most important and cost-effective ways is reducing weight,” says Ed Cohen, Honda’s vice president for U.S. government affairs.
Hyundai Motor Co. cut 220 pounds from the 2010 Sonata’s metal body after dropping the V-6 engine and adding turbocharged and gas-electric hybrid versions of its four-cylinder model. Even Lamborghini SpA introduced a 570-horsepower concept car in September that’s 750 pounds trimmer than its current Gallardo supercar.
Not everyone is convinced that lightweight designs are the future. Mulally’s weight trimming turned into a nightmare at Boeing. The Dreamliner is more than three years late because Boeing had to reinforce the fuselage to prevent layers of composite plastic from separating.
Eric Noble, head of consulting firm The Car Lab in Orange, California, says customers don’t care about weight when a gallon of U.S. gasoline costs about 25 percent less than it did at its 2008 peak of $4.11. New crash-safety requirements are so demanding that they’ll force regulators to delay fuel-economy improvements, Noble predicts.
“It will take more or much more expensive materials to meet safety requirements,” he says. “Vehicles will tend to get even heavier, since there’s so much competition, raising prices isn’t an option.”
‘How Small Can You Go’
Automakers are torn between shedding weight to boost fuel economy and adding pounds to meet safety standards, says Bill Surber, executive director of product development at Magna International Inc., a Ford parts supplier in Aurora, Ontario.
“It’s a question of how small can you go and still make it safe enough,” he says. A smaller SUV or truck would mean smaller profits at Ford, where pickups account for a third of U.S. sales and produced about half of earnings last year.
Kuzak chose Jim Holland as the Explorer’s chief engineer in a bid to prove naysayers wrong and save one of the auto industry’s most famous nameplates. Holland says his team had a big motivation to succeed: They saw thousands of colleagues lose jobs during the recession.
‘It Changed Us’
“You never, ever forget that,” Holland, 50, says in an office surrounded by empty cubicles. “You’ll never see that sense of complacency here again. It changed us. It changed me.”
To rescue the Explorer, Holland abandoned the truck-style frame and adapted underbody components from the Taurus sedan. That helped boost the fuel economy of the V-6 model to 17 mpg in city driving from 14 mpg and to 25 mpg on the highway from 20 mpg, the best among all similar vehicles.
Holland says a four-cylinder version coming in June will do even better. The turbocharged engine generates 237 horsepower, 13 percent more than the V-6 it replaces, while enabling the seven-passenger Explorer to get the same mileage as a five-passenger Toyota Camry with a V-6 engine, Holland says.
Kuzak says taking out weight forced him to change his team’s mind-set. In the past, each engineer was responsible for making his or her part as robust as physics allowed. Even after Kuzak’s diet, the 4,355-pound Explorer still weighs 13 percent more than it did in 1991. Without Ford’s weight crusade, meeting safety regulations and adding the room inside that customers wanted would have added an additional 411 pounds, Holland says.
‘That’s Too Heavy’
To show how things have changed, Holland takes out a color-coded diagram and points to the wishbone-shaped control arms that attach the front wheels to the underbody. The arms have to be strong enough to absorb vibration because every pothole telegraphs road shocks through them to the steering wheel.
Engineers started with a 15-pound design adapted from the Taurus. Then they compared the arm with the ones in competitors’ models. Engineers made similar charts for about 2,000 Explorer parts, down to the nuts and bolts. The control-arm chart showed that Ford’s part outweighed rivals’.
“Wait a minute, guys,” Holland told them. “That’s too heavy.” He asked engineers to consider all of the parts that connect the wheels to the body. “The light-bulb moment was when we looked at this as a system,” he says.
Engineers carved holes in the arm and made an adjacent part, called the knuckle, out of lightweight aluminum, something they’d never done. With the arm and knuckle sharing more weight-bearing responsibility, the arm could handle a 15 percent bigger load while weighing 2 pounds less, Holland says.
With another diagram, in blue, yellow and red, Holland shows the smorgasbord of materials he’s using. He saved 17 pounds by making the Explorer’s hood with aluminum instead of steel and 10 pounds by crafting third-row-seat frames from magnesium. He cut 23 pounds by building the radiator frame from one piece of composite plastic instead of 11 chunks of steel.
Holland had to select from steel that came in different varieties, depending on which elements -- manganese, nickel or chromium -- suppliers mixed in.
For the front bumper, he chose steel laced with boron, which changes steel’s atomic structure so that a piece 15 percent thinner can be as much as four times stronger. Holland used so-called high-strength steel for 60 percent of the Explorer body. The industry average is 15 percent, says Jeff Makarewicz, Toyota’s vice president of materials engineering in North America.
“We’d like to understand more about how Ford is doing this,” he says.
South Side Supplier
Makarewicz says he’s impressed because high-strength steel means Ford and its suppliers must develop new manufacturing techniques.
On Chicago’s South Side, Tower International Inc. makes steel parts valued at more than $500 per Explorer. The steel all looks gray when workers load it into clamps for welding. For the 62 pieces that Tower assembles into an Explorer’s rear floor, two-thirds of the weight comes from high-strength steel, says Ken Kundrick, Tower’s vice president for technology.
Leaning over a walkway as sparks fly from welders below, Kundrick says his biggest difficulty is what’s known as springback: High-strength steel tries to return to its original form, like a ball of paper that won’t stay crumpled. That means the shape of Explorer parts has to be stamped into the high-strength steel with one stroke of a 3,000-ton press, instead of two or three strokes for traditional steel.
At a Ford stamping plant in the industrial suburb of Chicago Heights, Scott Smith is struggling to make the Explorer’s aluminum hood match up with the steel fender.
Since an aluminum sheet can crack when squeezed by the jaws of the press that stamps its shape, the corners of the hood need to be curved in an arc 2 millimeters wider than the tip of the fender. Smith says he’s trying to make corners pointier for aluminum and curvier for steel to eliminate the difference.
“Weight decisions drive our craftsmanship,” he says.
Ford pays about 30 cents a pound for traditional steel, 70 cents for high-strength steel and $1.40 for aluminum, says Matt Zaluzec, the company’s director of global materials and manufacturing research. Carbon fiber costs $15 a pound -- too much for a model on which Ford hopes to more than triple sales from last year’s 60,687. Explorer sales peaked in 2000 at 445,157. The new model starts at $28,190 -- about $1,000 less than last year’s price.
These cost pressures allowed traditional steel to compete with exotic materials.
To toughen beams that run beneath the Explorer’s doors, Holland at first wanted to fill them with composite plastic. Known as sills, the tube-shaped beams protect passengers during side crashes. Filling the beams with plastic would save 10 pounds per vehicle compared with welding steel bulkheads inside. The downside: Holland would have to spend $1.5 million for equipment to make the filler and $10 more per vehicle for the plastic.
He told engineers to work simultaneously on steel bulkheads and plastic. After 90 days, they surprised him with their discovery during a design meeting held in a studio behind three sets of locked doors to prevent Ford secrets from leaking out.
By using computers to simulate crashes, they’d pinpointed the exact spots where sills needed the most reinforcement. Steel bulkheads weighing 4 pounds more than plastic filler would fit the bill. Holland stuck with traditional steel even though it was heavier.
‘Happy as Hell’
“I was happy as hell because I didn’t have to pay for plastic,” he says. “Now, I could afford something customers would see.”
As he wrapped up his pound-busting design, Holland wanted to compare the Explorer with similarly sized vehicles. He divided the SUV’s weight by the square inches of the shadow it cast on the ground. He declines to discuss Ford’s performance in what it calls weight efficiency. The Car Lab compiled similar data for Bloomberg Markets that showed the new Explorer weighs 0.28 pounds per square inch.
Explorer now lags the Toyota Highlander by 0.7 percent compared with 11.4 percent for the previous model. The new Explorer beats Honda’s Pilot by 2.9 percent, Chevrolet’s Traverse by 6.4 percent and Jeep’s Grand Cherokee by 10.4 percent, The Car Lab says.
‘Take Baby Steps’
By 2030, Ford may cut the Explorer’s weight by 40 percent or 1,900 pounds, Zaluzec says. That would require iron-based metals for about 23 percent of a vehicle’s heft, down from 66 percent today. More aluminum, magnesium, composite plastics and cheaper carbon fiber would be used.
Though the total size of vehicles may shrink, passenger compartments would remain as big, safe and comfortable, Kuzak says.
Holland says he’d hoped to trim more fat than the 95 pounds he took out of the Explorer but is satisfied overall.
“If you wait and say you’re going to invent an all-new vehicle that’s much lighter, you’re going to fail,” he says. “You have to take baby steps now, so you’re building up this knowledge on designs you know.”
In November, Ford promoted Holland to lead product development in China. He offers a simple summation for what weight saving allows him to do.
“Keep my job,” he says with a smile.
For Ford, lightweight designs may help preserve the company’s lineup -- including big pickups and SUVs in all regions of the world. That’s a significant turnaround from four years ago, when falling shares, fleeing consumers and $23 billion in loans meant pessimism about Ford’s future hung heavy.