Ford: A Crisis Of Confidence
In the weeks since the first official recall of millions of defective Firestone tires on Explorers, Ford Motor Co. has rushed to assure consumers that it is doing everything possible to fix the problem quickly. The auto maker analyzed reams of data to identify the suspect tires when Firestone's own engineers couldn't. Then, it pushed Firestone to speed up the recall by allowing competitors' tires to be used as replacements. Ford even shut down three of its truck assembly plants, sacrificing $100 million in profits in order to free up new tires.
Is it enough? No matter what Ford does now, one criticism abides: It should have acted when tire problems on its vehicles first appeared overseas three years ago.
BRAND IN THE FIRE. For Ford and CEO Jacques Nasser, the mounting problems gowell beyond the recall. It's a crisis that is testing Nasser's relatively new leadership and the strength of the Ford brand. In the year and a half since he took over, Nasser has put the world's No. 2 auto maker through a giant shakeup. He has overhauled management, spent $9 billion acquiring classy brands like Volvo and Range Rover, and sped ahead of rivals to embrace the Internet. He's also made Ford's highest goal pleasing the customer, which suddenly seems almost impossible. "Jac has put his legacy on the line," says Noel Tichy, a management professor at the University of Michigan and a close Nasser adviser. "It's ironic that the year Nasser launches a huge customer satisfaction effort, he gets the largest recall in the history of the business."
Until now, Ford and Nasser had reputations for doing things right compared with the carmaker's Detroit rivals. Ford boasts the best profit margins, the hottest vehicle lineup, and the strongest momentum. By vowing to improve the fuel economy of its gas-guzzling SUVs, Ford was even looking like the carmaker with a conscience. With questions about its behavior and ultimate responsibility still unanswered, however, all that is suddenly up in the air.
These days, Nasser can think about nothing else but cleaning up the mess and containing the damage. At the company's Dearborn (Mich.) headquarters, some 500 employees have dropped other assignments to chip in, whether to line up replacement tires, help Firestone search for the defect, or order pizzas for overtime workers. The crisis is also consuming virtually all the time of top executives, who meet twice a day on the matter. Says one Ford executive: "Our reputation is at stake."
There are many people to answer to. The National Highway Traffic Safety Administration is grilling Ford for details of tire problems in the Middle East, South America, and Southeast Asia. On Sept. 6, Nasser faced tough questions on Capitol Hill during testimony before a House Commerce Committee panel. He wasn't alone: Bridgestone/Firestone Inc. CEO Masatoshi Ono also was interrogated by lawmakers that day.
Indeed, Firestone's reputation may be damaged beyond repair. But Ford's is still in the balance. If it can convince government leaders and consumers that it acted appropriately, the storm could pass quickly. But if it turns out Ford conspired to hide tire problems in other countries, or simply ignored warning signals, the auto maker could suffer mightily. "Ford clearly has more to lose here," says crisis management consultant Owen Blicksilver.
People who know Nasser expect him to be up to the challenge. And in his testimony, he showed his company's willingness to set things right by promising to voluntarily alert U.S. regulators to any problems overseas. "When we know it, so will the world," he said.
At stake: the Ford brand. Most of the 6.5 million originally recalled Firestone tires were on Ford's popular Explorer and Mercury Mountaineer SUVs, and its Ranger and F-150 pickups. Analysts estimate Ford draws 90% of its profits from those and other big trucks, like the beefy Ford Expedition and Lincoln Navigator. Since the Aug. 9 recall, Explorer sales have slipped 3%. And rivals, particularly the Japanese, are bombarding showrooms with new trucks and SUVs that could take a bigger bite out of Ford sales. But whatever consumer skepticism might be building now for the current Explorer, a newly redesigned model goes on sale early next year. Ford is currently considering whether to equip any with Firestones. So analysts expect the Explorer to recover.
Ford's North American chief, Martin Inglis, is telling managers that the recall costs will chop about $500 million off Ford's profits for the remainder of the year, and cost cuts may be necessary. Also looming: the inevitable product-liability costs. "Ford has deep pockets," says Deutsche Bank analyst Rod Lache. "Decisions from the court tend to be emotional rather than rational. So it will weigh on Ford's stock for some time." It already is taking a toll: Ford shares have slid more than $5 since the recall and hover around $25.
Ford's problem now is convincing the public that it didn't drag its feet when it first learned of tire failures on its vehicles in 1997 and 1998 in Venezuela, Saudi Arabia, and Malaysia. That could be tough. Ford's own documents show that Firestone was warning the carmaker against replacing tires in Saudi Arabia because the companies might then be required to alert U.S. regulators. Still, Ford eventually moved forward with the replacement offer even though Firestone continued to insist there was no problem with the tires. Instead, Firestone blamed improper repairs, under-inflated tires, and unique driving conditions in countries with extreme climates--all of which has made the company appear to be ducking responsibility.
LEADERSHIP VACUUM. Even so, questions remain about whether Ford officials themselves missed warning signs. When the first reports surfaced, Ford was undergoing wrenching changes. Nasser's predecessor, Alex J. Trotman, had gutted Ford's management structure beginning in 1995. But the effort to centralize manufacturing and marketing, known as Ford 2000, went too far, leaving a leadership vacuum in key markets like Europe, South America, and Asia.
After Nasser took over in 1999, he tried to fix things by putting senior executives back in charge of key global regions and giving them more autonomy to develop cars and brands that would appeal to consumers in their own territories. But Nasser, who was busy with the Volvo deal and others, never named anyone to succeed himself as head of Ford's global auto operations. With all this going on, it may have been easy for executives to dismiss complaints as regional oddities.
Can Ford regain its credibility? Nasser's attempts to reach out to the public through two recent ads have received a mixed reaction, with critics attacking everything from his Australian accent to his designer suit. Even those who are sympathetic concede that the normally charismatic Nasser appears rigid as he seeks to reassure consumers.
Perhaps no one could have done better. After all, Nasser has a strong grasp of the issues and is ultimately responsible for the company's day-to-day operations. But given the reaction, and the growing mistrust of Ford, insiders say the company is having second thoughts about whether putting its young chairman, William C. Ford Jr., on TV as the company's chief spokesman might have been smarter. The 43-year-old great-grandson of company founder Henry Ford earned high praise in Detroit in 1999 for his compassionate handling of an explosion at a Ford plant that killed six workers. But that is no longer an option. If Ford were to step in now, it would only worsen the situation by undermining Nasser, says one insider. And there is that nagging Firestone connection: Ford's mother is a Firestone descendant.
So it's up to Nasser to steer Ford through the crisis. "Nasser has the opportunity to deal with the facts and move on," says Tichy. "If he doesn't do that, his whole legacy is in jeopardy." Not to mention his company.