Engineering a Comeback

Ford Motor Company CEO Alan Mulally has a one-track mind, and the single-mindedness has served him well. Under Mulally, a spectacularly successful transplant from Boeing, Ford avoided bankruptcy in 2009—unlike General Motors and Chrysler, which required billions of dollars in taxpayer bailout money.

Mulally’s simple business plan—too simple, critics said—is called “One Ford.” Given half a chance, he can and will corral a visiting reporter with an exhaustive, and exhausting, micro-explanation of the plan, why it works, and how it saved Ford. “You know me, I like to talk about this stuff,” he told us in a mile-a-minute interview in Las Vegas earlier this year. “Let me know if I’ve thrown too much at you and I’ll slow down and let you catch up.”

It’s hard to catch up with Alan Mulally. Seen from a distance, introducing a new model at an auto show perhaps, he comes across as an earnest, can-do Midwestern engineer. And he certainly is that, having grown up in Lawrence, Kan., where he was so inspired by John F. Kennedy’s 1962 “we choose to go to the moon” speech that he jumped up, said “I’m ready,” and followed that path all the way through to flight training and an aeronautical engineering degree at the University of Kansas.

Mulally is friendly and folksy, but the impression of an affable crew-cut character who’d be great leading the team that designs fenders for Tauruses fades when you meet him in person. There’s a focused intensity there that helps explain how Mulally remade Ford’s disparate and undisciplined management into an effective team that, starting in 2006, rebuilt what was then a fleet of gas guzzlers into an all-new product line of right-sized cars and trucks slotted just right for a competitive world market. Ford is profitable again, and Mulally walks on water in Detroit.

Midwestern-bred executives can come off as aloof—General Motors’ Rick Wagoner and Fritz Henderson come to mind—but Mulally is something new in Detroit. He’s touchy-feely, grabbing onto people to make sure they have his attention, and posing for pictures with his arm around your shoulder, even if you didn’t ask. It’s a bit of an act—the young Mulally sat up close in church to watch how the preacher worked the crowd—but because of the inherent sincerity it doesn’t come across as slick.

Asked a simple question about the range of the new Ford Focus electric car, Mulally clasped a reporter firmly on the shoulders and gradually pulled him closer until they were eye to eye. “One… hundred… miles,” he said slowly, then abruptly released the dazed scribe and strode off, calling back over his shoulder, “But our new C-MAX plug-in hybrid has 500 miles of range. Buy a Ford!” (In this video, Ford executives reach out to dozens of influential bloggers, inviting them to the 2012 Ford Focus test drive event in Spain.)

Perhaps because he didn’t come up through the stratified ranks at Ford, but instead spent 37 years making airplanes at Boeing, Mulally wasn’t held back by traditional Big Three roadblocks. Nobody told him he couldn’t build cost-effective “world cars,” or that battery vehicles were for display only. And nobody stopped him when he radically simplified the way Henry Ford’s company works and thinks.

The strategy, simple or not, definitely works: In 2006, Ford lost $12.7 billion, its worst performance ever. In 2010, the company had net income of $6.6 billion, its biggest profit in a decade. A stock price so low ($1.25 a share) that it prompted “you want fries with that?” jokes in 2008 has now rebounded into the $12 to $14 range. It’s no wonder that Ford showered Mulally with stock bonuses worth $56.5 million, and gets nervous when it thinks of what will happen when the 66-year-old executive retires.

One World, One Plan

“One Ford” covers the whole global enterprise, from product quality and fuel efficiency to manufacturing plants, corporate culture and the company balance sheet. Mulally has been preaching and promoting the plan as Job One since the day he arrived as something less than the first choice of then-Ford CEO and family scion Bill Ford.

In many ways, “One Ford” is simply Mulally’s Boeing strategy transferred to a related transportation industry. When Boeing was reeling from a $2.6 billion annual loss in 1997, Mulally pinpointed the problem as inefficiencies in production, bad relationships with suppliers, unrealistic delivery dates—and management that deflected blame. That’s a classic parallel to what led Detroit to its nadir in 2008, and the solution Mulally applied corralled and focused management in very much the same way as his tough medicine at Ford.

Mulally tends to make it all look easy, and his self-effacing manner is part of his charm. “We haven’t had to change a thing, that’s the real easy part,” he told us, reaching into his pocket and handing over a “One Ford” business card—it was even autographed. The card handoff is a ritual with everyone Mulally meets, because the plan is at heart so simple that its essence fits on a tiny square of cardboard—and it has his name on it.

At its most basic level, “One Ford” is shorthand for reining in Ford’s global operations and getting them all working on the same agenda. Before Mulally, Ford’s overseas subsidiaries were semi-independent kingdoms that frequently duplicated effort. For example, Ford of Europe and Ford North America traditionally developed separate versions of the compact Ford Focus—aimed at similar customer needs and wants, but with almost no common components.

The North American version of the Focus was routinely built from scratch for a market that bumped along at around 220,000 cars annually. Until Mulally took over, the Focus was an afterthought for a domestic operation fixated on profitable SUVs and trucks. But the new 2012 Focus is based on a global platform with more than 2 million units worldwide.

Today, 10 different Ford models ride on the same platform, sharing about 80 percent common parts, often in areas customers never see. The cars and trucks are visually different, but can be built on the same assembly line—a strategy that generates huge economies of scale.

The basic concept isn’t original. Rival GM is doing many of the same things, for instance with the “world car” compact Cruze, and Toyota’s rapid rise was enabled by its skill in building multiple models off the same global platform. And Mulally’s version of platform sharing isn’t exactly a secret sauce—he insists on sharing it with the world.

Maybe the plan isn’t novel—in fact, it’s been adapted even by electric car companies like Tesla Motors, which is building a Model X crossover on the platform of its forthcoming Model S sedan—but the way it was communicated is revolutionary. Many worthy plans have failed because they weren’t well executed, but Mulally made sure his simple vision was made into a priority and driven home relentlessly and consistently to everyone at the company.

Mulally traveled to New York in early June for meetings with Wall Street investors, and he told them what he’s been saying since he arrived at Ford. “The plan that got us here is exactly the same plan that’s going to take us forward,” he said. “We haven’t changed a word of this for nearly five years.” After fixing the fundamentals, the plan through 2016, he said, is to deliver profitable growth.

Mulally says Ford will grow by 50 percent in the next five years, and the company wants to sell more than 8 million vehicles worldwide by 2016—with a special focus on largely untapped Asian markets. Ford is also hiring—its plans include 7,000 new people for U.S. operations alone by 2013.

Avoiding the Bailout

If there’s a knock on Ford under Mulally, it’s the fact—somewhat ironic—that Chrysler and GM got a competitive leg up through bankruptcy and restructuring. Not only did Chrysler and GM get a government bailout, bankruptcy also allowed them to shuck off billions of dollars in debt.

But Mulally will definitely be remembered for the forward thinking that saved Ford from the ignominy of government ownership. The company didn’t run out of money, but it well could have. One of Mulally’s first acts as CEO in 2006 was borrowing $23 billion, backing the timely loan with everything the company owned, up to and including, it was said at the time, the famous blue-oval badge.

Once the U.S. recession and credit freeze hit in 2008, GM and Chrysler couldn’t get access to easy money, and Ford’s pre-recession borrowing looked much more like a stroke of genius than a desperation move.

Mulally, whose pre-emptive move probably reduced the bailout bottom line by $30 billion, is now facing questions about that heavy borrowing. But he says most of the debt has or will be repaid, and having cash on hand allowed Ford to keep investing in new products while its rivals had to cut back. But he admits that the double whammy of high gas prices and the U.S. financial meltdown was a calamity that even he didn’t foresee in 2006.

“But we stuck with the plan, we stayed on the plan, and we’re very pleased that today we have a foundation now,” Mulally said in New York. “Not only have we fixed the fundamentals of the business, but we kept investing in the product.”

What Mulally Has Wrought

Mulally has electrified Ford in more ways than one. The “One Ford” strategy included his plan for electric, hybrid and plug-in hybrid cars, also shrunk down to fit on a business card. The vanguard vehicle, an electric Transit Connect van, rolled out in 2010, followed by an electric version of the Focus this year and both hybrid and “Energi” plug-in hybrid versions of the C-MAX multi-purpose vehicle (MPV) in 2012.

The plan was clear but the execution has been a bit muddy. The Transit Connect, which should be tapping into a ready-made audience for zero-emission commercial vehicles in corporate fleets, has instead trickled out. (Big federal sales are on the wish list.) And Ford is decidedly low-key about the prospects for the electric Focus, predicting that production will total just 5,000 to 10,000 globally for the first few years.

In a strategy whose very concept would have rolled heads at Ford just a few years ago, the company canceled plans to sell a seven-passenger version of the C-MAX in the United States, while keeping it on the market in small-car-dominated Europe. As part of that move, Ford said it would triple electrified-vehicle production in the United States from 35,000 now to more than 100,000 annually by 2013.

Tellingly, the company said that most of the new production would be on versions of the C-MAX; it’s obvious that Ford is still a little wary of all-electric cars. Maybe Henry Ford’s failure to achieve liftoff with an EV to be built with his friend Thomas Edison is still in the memory banks. “The electric automobile will be the family carriage of the future,” Ford said in 1914, before going back to producing gasoline cars.

From Trucks to Cars

Ford was ahead of the pack in anticipating the impact of $4 a gallon gas, shifting production from trucks and SUVs back to the kind of fuel-efficient mid-sized and compact cars that Detroit has always said it can’t sell profitably. The company also brought back the iconic Taurus sedan, which had been starved of development funds. And not only did Ford hit 41 mpg on the highway with its hybrid version of the popular Fusion, it got to 40 with the non-hybrid Fiesta subcompact. And Ford is also playing how-low-can-you-go with a new line of turbocharged three-cylinder engines (probably intended for the Fiesta) that should reach 50 mpg on the interstates.

These cars have hit the sweet spot in a market that’s swiftly moving away from the big SUVs that once brought in the bulk of Ford’s profits—when it had them. Ford was moving away from a bigger-is-better philosophy even before Mulally came on board (the huge Excursion, the last word in SUV excess, was last produced in 2005) but the new CEO dramatically ramped up the pace.

Indeed, Ford publicly chanted the green mantra long before Mulally was onboard. After all, the company was headed as president and CEO (from 2001 to 2006) by William Clay “Bill” Ford Jr., the great-grandson of founder Henry Ford. And Bill Ford is the greenest auto executive Detroit has ever seen.

Ford was in the company driver’s seat, but not in the way Alan Mulally is now. He was an effective spokesman on environmental issues for Ford, but not the commanding executive who could singlehandedly retire the received wisdom and plug in the product line. Mulally isn’t likely to speak at a Greenpeace business conference, as Bill Ford did in 2000, but he’s carried out his predecessor’s vision for a cleaner, greener company.

That strategy has in any case moved to the mainstream. Bill Ford has been calling for increasing the gas tax for a decade to increase the market for fuel-efficient cars, but now that particular banner is also being carried by Dan Akerson, General Motors’ CEO (he wants to add as much as a $1 a gallon).

In Detroit recently, Bill Ford, now executive chairman, told us that his company has “made a big bet” on electric vehicles, and is hoping to see a national energy policy that “defines what we need to do as a country.” He seemed to be exulting in the fact that Ford, dealing with a new president and a healthy bottom line, is now part of the ongoing energy dialogue. “A few years ago, we were not part of the discussion,” he said. “We have the credibility now.”

And it was plain who gets the credit for that turnaround. “Alan Mulally is a terrific CEO,” Ford said. “At—what is he, 65, 66?—he has more energy than most 30-year-olds. When he hits 98 or 99, we can talk about retirement. Because of Alan, all the members of our management team are working closely together—they used to be in different worlds.”

The prospect of a Mulally retirement makes Ford, both the man and the company, very nervous. Traditionally, auto CEOs hand over the reins at 65, and some Ford leaders clung to their jobs when new blood was needed. But nobody at Ford wants Mulally to leave.

But part of Alan Mulally’s message is “be prepared,” so some succession planning is inevitable. Bill Ford said he’d be “surprised” if the company didn’t pick its next CEO internally, and fortunately the company has a deep bench of executives trained in the Mulally Way. These include Mark Fields, the youthful head of North American sales, Jim Farley, the company’s marketing guru, and the highly regarded international product chief Derrick Kuzak. Chief Financial Officer Lewis Booth could be an interim replacement.

If Mulally does go, it won’t be for more money—in fact, he may not defect to another company, but instead to the ill-paid precinct of government work. He’s been touted as a possible treasury secretary. There’s a precedent for that, because Ford’s savior in the 1950s, Robert McNamara, went on to become JFK’s secretary of defense. That would be a gamble, of course, because many capable executives have seen their reputations crumble after stints in Washington.

For now at least, Mulally seems content to stay where he is, firmly in the driver’s seat at the Ford Motor Company.

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