Alan Mulally's Report Card

Ford's chief executive celebrates his first year at the company. How well is he doing? BusinessWeek grades his performance

Alan Mulally's first anniversary as CEO of Ford Motor (F) is Sept. 5. The relentlessly upbeat chief still has a rough ride ahead of him. But it's tough to argue that he doesn't have the struggling automaker on the right path. The question for Ford and Mullaly is whether or not his recovery plan can succeed in the face of economic headwinds caused by the bursting of the real estate bubble and tightening of credit markets.

One of Mullaly's first moves upon arriving in Dearborn, Mich., was to institute a weekly meeting of all his senior managers. The point of the session, a practice that he imported from his previous job running Boeing's (BA) commercial airlines division, is to make sure each person is executing against the recovery plan. If there is a problem, Mulally seeks to help the managers as a group instead of letting individuals sink or swim alone—potentially costing the company hundreds of millions in the process. This was among the problems that caused Ford to run in place for the past five years.

It is because of Mulally's emphasis on accountability that we thought it fair to grade his first year at the helm.

Profit and Loss: A

Ford posted a surprise $750 million profit in the second quarter but is still expected to lose money for the whole year. It also expects to lose money next year. Mulally's turnaround plan calls for black ink in 2009.

Restructuring Savvy: B+

There's nothing wrong with having luck complement good decision-making. Mulally's swift push last fall to restructure Ford's debt and raise a total of $23.4 billion in the credit markets was a stroke of good timing, considering what would have happened had he waited until this summer when credit markets were besieged by subprime mortgage woes.

Ford will use between $15 billion and $16.5 billion for costs related to cutting the workforce and closing unneeded plants.

The decision to sell Jaguar and Land Rover seems to be right. While some doubters wonder how Ford will succeed without a strong luxury-brand portfolio that achieves higher profit margins than Ford-branded products can, he correctly saw that the two brands were a monumental drain on resources and management attention. The pending decision to sell Volvo seems riskier. But here, too, he has seen that it is difficult to integrate a Swedish premium car company that operates in a country where people can't be laid off with a North American mass market car company fighting for its survival. Rather than selling Volvo, though, it would be more refreshing to hear a plan to fix the relationship. Going to war globally with just Ford-branded cars when the automaker is far from being among the lowest-cost manufacturers is a strategy that seems fraught with problems.

I suspect Mulally would like to kill the Mercury brand and create one strong North American dealer network of Ford and Lincoln vehicles. But the strength of the U.S. franchise laws that give car dealers extraordinary leverage to resist such change are stronger than Mulally's resolve. It would cost Ford billions to buy out the underperforming dealers in its network and merge Ford and Lincoln distribution. And the company can't afford that right now.

Products: A

Mulally, of course, hasn't had time to bring any new products to market. But the changes he is driving for future years are right on target. The future Ford Fusion and European Mondeo midsize cars will be developed together. Future rear-drive cars for Ford and Lincoln are being developed with the Australian Falcon. This isn't rocket science. Indeed, it is the way Honda (HMC) and Toyota (TM) have been operating for years.

But Mulally has busted through the Ford culture and structure of regional fiefdoms that created waste and duplication throughout its global enterprise, and bedeviled his predecessors.

Marketing: B

Mulally rightly says that marketing has to be a major priority as he puts almost all the company's resources behind the Ford brand. The decision to rename the Five Hundred/Freestyle the Taurus and Taurus X for the 2008 model year was correct. His criticism of the company launch advertising of the Edge SUV was correct. He says he is searching for a global chief marketing officer to organize the company around one global brand message. But where is he or she? The search began eight months ago.

Mulally says he'd like to see "Have You Driven A Ford Lately?" come back and replace "Bold Moves." You can't turn back the clock and hope that nostalgia solves your problems. It's true that "Bold Moves" was a weak idea around which to rebuild the brand's credibility. Bringing back an old line that is identified with a time when Ford's quality was drooping isn't the right move either. Mulally is saying all the right things when it comes to the importance of marketing, but we need to see some sharper and clearer marketing direction and decisions.

Personnel: B-

Mulally hasn't brought in a single top-level talent. He has been combing through the team he inherited. And, he says, he doesn't plan to hire, for example, a chief operating officer. He likes to be hands-on. That's commendable, and probably the right move. Managers including Mark Fields (president of the Americas) and Lewis Booth (chairman of Ford Europe) seem to be dancing a new, more disciplined step under Mulally, compared with the chaos and changing plans that characterized Ford before he arrived. They certainly give the impression of buying into his program top to bottom. But it would be nice to see some top-flight new talent come in to help widen and deepen Mulally's change-agent style.

Culture Change: B+

Before Mulally arrived, many employees and managers in the company had come to view working on the Ford brand as the minor leagues. The prestige was in the truck business and the Premier Auto Group. Mulally, via a series of informal employee gatherings, has delivered the message that the Ford brand rules. He has a style that empowers employees and tends to get them to line up behind him. But there is a lot of cynicism that he must overcome. Employee morale tracking shows a slight improvement from when Mulally arrived. By his own admission, morale is not where it needs to be. Regular profits undoubtedly will help. But that's still two years away if his plan succeeds.

The Vision Thing: A

One thing that separates good CEOs from poor ones is the ability to see the field in front of them and make decisions that affect both the short- and long-term prosperity of the company. Another separator is whether employees respect, rather than simply fear, their chief executive. Mulally seems to be earning respect week to week with the rank and file because of his obvious grasp of how a global manufacturing enterprise is supposed to operate. Many of the moves he has been making are those that smart middle managers would have made had they been empowered.

Despite a huge pay package, the former head of Boeing's commercial aviation unit is earthy, and he works hard, perhaps to show that he is still a kid from Kansas who hoped to one day be an astronaut. It can seem as corny as a Kansas farm field in August at times. But the word around the water coolers at Ford these days is that Mulally is the real deal. That should carry him a long way if he keeps his plan focused. And it will make the inevitable bumps in the road from here to profitability feel a bit smoother for the whole company.

Overall Grade: A-

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