The End of Detroit

by Micheline Maynard

  But Schroer won’t be there to see that happen. Early on a Friday in June 2003, Creed was driving into the executive garage at Auburn Hills to attend a marketing meeting, only to see Schroer pulling out. The executives rolled down their windows, and Creed asked Schroer where he was going. “That meeting’s about me,” Schroer said. With Chrysler losing ground as GM piled on incentives, Schroer had been pushed out and replaced with Joe Eberhardt, a German executive who had been in charge of Mercedes’s sales in England. Eberhardt’s appointment meant that the top three jobs at Chrysler—chief executive, chief operating office and head of sales and marketing—now were in German hands. And only two years after the crisis that brought Zetsche and Bernhard to Auburn Hills, these German executives faced another financial emergency. Zetsche, like Ghosn at Nissan, had been able to bring Chrysler back to profitability in quick fashion, only to see the company falter in 2003. He vowed that Chrysler would be back on track in 2004, but in the meantime, it had fallen behind.

  There are many similarities between Chrysler and Nissan, leading to comparisons between the turnaround efforts. Both companies have strong leaders, both are leveraging the assets of their various partners—Nissan by sharing platforms with Renault, Chrysler by drawing from the expertise of Mercedes, and by sharing development of cars with Mitsubishi and engines with both Mitsubishi and Hyundai in a $1 billion project. Both, too, are using design as a key in their comeback efforts. And there’s another similarity: Just as Ghosn has promised that a Japanese executive eventually will be in charge again at Nissan, Zetsche and Bernhard have pledged to put Chrysler back in American managers’ hands, even though in 2003 it looked as if just the opposite was happening.

  Until the unexpected reversal of fortune, it seemed that Zetsche would eventually go back to Germany to succeed Schrempp and that Bernhard would run the company when he left. All that now appears on hold, until Chrysler can again be put back on track. Bernhard, always candid, signaled that he knew the task would not be an easy one. Sounding very much like Carlos Ghosn, Bernhard said, “We don’t look for short-term successes. We have to get things right, or we will get things terribly wrong. Failing is not an option. We can’t, we will not, fail.”

  At precisely 10 A.M. on June 16, 2003, the one hundredth birthday of Ford Motor Co., a door opened inside the Ford Conference Center across the street from the Henry Ford Museum and Greenfield Village in Dearborn. Into an auditorium came the five living generations of the Ford family, nearly 80 in total. Almost like a scene from The King and I, the parade began with a stream of handsome youngsters, the boys in blue blazers and khaki pants, the girls in neat summer dresses and skirts, followed by their smartly attired parents, uncles, aunts and eventually the elder generation of Fords, led by William Clay Ford, Sr., grandson of the company’s founder. His son, Bill Ford, Jr., watched the process, beaming, from a stage at the front of the room, where he presided as chairman at Ford’s annual shareholders’ meeting. “Your support means more to me than I could ever express,” Bill Ford said. It was a day awash in nostalgia for Ford and everything that the Ford name represented, capping a five-day celebration of the company’s centennial.

  The festivities had been in the planning stages for more than six years—and on the surface, they were a success. Indeed, the weekend saw the Ford family bask in admiration from thousands of Ford owners, employees, dealers and retirees who had descended on Dearborn. They cheered at concerts by Toby Keith and Beyonce Knowles, sighed in delight at dozens of classic Ford cars and gazed in fascination at the machinery in the new Rouge manufacturing plant. They lined up for autographs from Anne Ford and Charlotte Ford, Henry Ford II’s daughters, and Bill Ford Junior’s cousins, snapping pictures of the normally private women as if they were Hollywood stars. “They’re our royalty. They’re our Kennedys,” effused Guy Gordon, news anchor at Detroit’s Channel 7, which broadcast special reports from the centennial festivities every night.

  But as it staged the celebration, the auto company was trying to surmount its latest crisis. Since 1998, when Ford had smashed profit marks, it had gone from being Detroit’s strongest auto company to the one whose future seemed most unclear. Whereas once there was talk of Ford surpassing GM as the largest player in the U.S. car market, Ford’s market share by 2003 had plummeted; it lost $6.4 billion in 2001 and 2002, almost as much as it earned in 1998. Its executives insisted they would return Ford to profitability in 2003, with net income of about $1 billion, a pittance compared with its performance in better years; not so long ago Ford would have earned more than that in a single quarter. Compared with the swift results achieved at Nissan by Carlos Ghosn, Ford’s pace seemed merely plodding.

  Bill Ford’s leadership of Ford was seen as a valuable link to Detroit’s glorious history, a unique asset that no other auto company could boast. But Ford did not seem to be attacking his task with vigor, more a sense of pained responsibility. And no matter how valuable the distinction of being born a Ford—he frequently said that he “bleeds Ford blue”—he did not have the hands-on training, the background or the business acumen that other CEOs typically receive. In contrast to GM’s chief executive, Rick Wagoner, who has been a senior executive at GM since 1992, when he was named chief financial officer, Bill Ford had never held a corporate position that important before becoming Ford’s chairman in 1998 and its chief executive in 2001. Aside from his board seat, his most significant job had been as head of its climate control division. And, stymied in his efforts to gain more authority within the company, he quit Ford in the mid-1990s, concentrating on the family’s Detroit Lions football team and coming up with a strategy to return to the company as its chairman, with Nasser as CEO. He had never envisioned that he would eventually hold both positions, or that he would have to assume responsibility so fast. It was on-the-job training under the toughest pressure imaginable.

  Slight in stature, with a genial, low-key personality, Ford is known to show up after a morning run for a double espresso at a coffee bar in Ann Arbor, Michigan, where he moved his family several years ago, without anyone paying a moment’s notice. (That wasn’t the case in Dearborn, where he had to stop going to the Starbucks near his office because he’d be asked to pose for pictures or listen to a complaint about a Ford car.) Despite his famous name, and despite the commercials in which he appeared on behalf of his company, Ford lacked the buzz of a Ghosn or the snappy determination of GM’s Wagoner. (But he retained his casual style. “Now we’ll move on to the more mundane stuff,” he said at one point as the annual meeting progressed.)

  The most difficult situation that Ford ever faced was the crisis that befell the auto company in 2001. Only three years before, Ford had reveled in record profits, earning nearly $7 billion in 1998, out of a collective $16.7 billion in net income earned by all three Detroit companies. Ford’s performance stood as an industry record until 2002, when it was broken by Toyota. Bill Ford was not yet a household name when 1998 began, but behind the scenes, he was maneuvering for power. With Nasser, an Australian by birth, Lebanese by descent, Ford had concocted a plan that would elevate Nasser, head of Ford’s automotive operations, to CEO, replacing Alexander Trotman, with Ford as chairman. It was a combination that dazzled the industry: the 41-year-old chairman, bursting with enthusiasm about the future of the company, and the 49-year-old CEO, vowing to vault Ford to a position of industry leadership. The pair seemed destined to run the company for a generation, and when they were through, it seemed possible that Ford could eclipse GM. No small ambition, but the only thing small about Nasser was his size.

  Nasser was an executive in a hurry. He departed from the industry’s long-held practice of rising with an entourage. True to the saying, Nasser moved swiftly by traveling alone. Beginning in Australia, he climbed Ford’s ladder primarily through its operations outside the United States, and it was as head of Ford of Europe in the early 1990s that most people became aware of him. Nasser bustled with nervous energy, setting a frantic dawn-till-evening pace that wore out the pe
ople who worked for him. He had his sights set well beyond the auto industry. His pacesetter was Jack Welch, the chief executive of General Electric. And like GE, known best for being a standout company first and a maker of lightbulbs, aircraft engines and other products second, Ford, in Nasser’s vision, had a future beyond the auto industry. He wanted it to join the pantheon of the best consumer products companies and retailers, like Disney, Nordstrom and Nike, known first for their reputations. He thought Ford could expand far beyond its Dearborn roots. So he took the company on a buying spree, first snapping up Volvo Cars for $6.45 billion (a price immediately criticized as too high), then purchasing a collection of ventures, from junkyards to Internet sites. All that was great when Ford was enjoying prosperity. But when the Firestone crisis hit, Ford stumbled in a devastating way.

  To his credit, Nasser reacted quickly once reports of the exploding Firestone tires escalated. He took to the airwaves in a series of ads to defend the safety of the Ford Explorer, assuring viewers that his family rode in an Explorer. He defended the company in numerous appearances and interviews. But Nasser—or Ford’s public relations department—slipped up when Congress came knocking. Ford turned down an invitation by Rep. Billy Tauzin’s subcommittee to testify on the situation, even though the CEO of Bridgestone, the Japanese parent of Firestone, agreed to appear. The criticism of Ford was brutal, and the company was forced to backtrack. Nasser got his comeuppance when he was forced to sit behind the speakers’ table for hours into the evening before getting a chance to speak. He could not fidget, talk on a cell phone, or leave the room—agony for someone like him. Furthermore, the Firestone crisis sparked a division within Bill Ford’s own family. His mother, Martha, is a Firestone, and the Ford and Firestone companies had been linked for more than 90 years. Harvey Firestone was one of Ford’s first tire suppliers, and he often joined Henry Ford, Thomas Alva Edison and whoever the president of the United States was at the time on camping trips. (A photograph depicting one outing hangs on the wall behind Bill Ford’s desk.) However, Firestone angrily severed its ties with Ford amid the furor. And the situation prompted Bill Ford to skip a speech he had promised to give at the 2000 Firestone family reunion. He sent his mother, wife and children instead.

  The Firestone situation eventually died down, and Nasser might have outlasted it, but his internal conflicts and Ford’s slipping performance conspired to force his ouster. Nasser felt Ford was laden with too much deadwood—too many lifetime employees who were collecting generous benefits and a hefty paycheck with too little productivity. He vowed to shake them out of the company, and he instituted an evaluation system that assigned grades for performance. In the past, Ford’s evaluations had been relatively benign and hardly anyone was fired or demoted, though many were invited to take early retirement or were shifted elsewhere in the company. Under Nasser’s grading system, however, job levels were no longer guaranteed to those who did not achieve. Employees who repeatedly were rated as underachievers were in serious danger of losing their jobs. At the same time, Nasser instituted leadership development programs, personally mentoring the candidates he felt were the most promising. And he brought in a completely new management team, with 40 percent of his vice presidents coming from the outside, including companies like GE, Whirlpool and RJR Nabisco.

  The moves put Ford into an uproar, and on top of it, the Firestone crisis had cost the company dearly. After dozens of profitable quarters during the 1990s, Ford began to slip. Out of eight quarters in which Nasser was chief executive, Ford was profitable in only five. By 2001, the company was on track to billions of dollars in losses: It would lose $6.4 billion over 2001 and 2002, almost as much as it had earned during its record year in 1998. By October 2001, it had become clear that Nasser had to go. Though there had been rumors of nasty exchanges between Nasser and Bill Ford throughout his brief tenure—one story, which Ford denied, had them coming to blows on the twelfth floor, where the executive offices were located—the final parting of the ways was actually handled in a gentlemanly fashion. According to Ford, Nasser came to his office at 5 P.M. on October 29 and said he had decided to leave for the good of the automaker. The next morning, a work crew arrived at his office, bearing big rolls of bubble wrap. Shortly afterward, Ford strode to the front of an auditorium in Ford’s world headquarters, to the applause of gathered employees. “We need to get our focus back on the basics of our business, back to building great cars and trucks,” he said.

  But Ford didn’t seem to know where to look for help. He didn’t have his own troops to replace Nasser’s management team, a number of whom had left with Nasser or were now planning to depart. He had no go-to guy or experienced surrogate who could carry out his orders with full authority. Years before, Henry Ford II relied on a British aristocrat, Walter Hayes, for blunt direction and P.R. advice. But Hayes, sadly, died just as Bill Ford became chairman, and no one that savvy emerged to replace him. “The one thing Ford needs is individual leadership that moves the organization. It’s a huge company. As long as there is fuzzy thinking and lack of clarity, it is delaying what needs to happen,” said Jeremy Anwyl, the president of Edmunds.com. “I’m sure he’s committed to the company, but we’re talking about a superhuman effort. I’m not sure he’s interested in that, and if he’s not up to it, he should delegate it.” Stephen Girsky, the veteran auto industry analyst for Morgan Stanley and a longtime friend of Ford, shared Anwyl’s concern. He worried that Ford didn’t have lieutenants he could trust to get the organization in line and the company up to speed with GM and Chrysler, let alone face the challenge from its import competitors.

  Those factors are a large reason why Ford has been enveloped in speculation that it is facing a significant restructuring, possibly in a Chapter 11 bankruptcy. At the annual meeting in June 2003, Bill Ford took pains to dismiss the speculation and members of the Ford family vowed they would hang on to their shares in order to prevent the restructuring from happening. In an interview with the New York Times, Anne Ford noted that the car business was “so cyclical. Ford was on top for so long and General Motors was not. We’ve gone through this before, so we’re all prepared. But you can’t be too prepared.” She added, “We back Billy and everything he’s tried to do.” While the Ford family’s faith is an immeasurable asset, there is never any guarantee in the tumultuous auto business that a family will always stand strong. The Ford family’s vow to keep their shares is one thing; whether they would contribute their own money to fund the company’s future is another. Witness the Agnelli family at the Italian automaker Fiat; when their company hit upon rocky times in the late 1990s, they sold a 5 percent stake to General Motors in a bid to raise much-needed cash.

  As another defense, Ford officials point to the company’s hefty cash balance, which stood at $26 billion in spring 2003, and its ability to tap capital markets. But Ford needs every penny of that cash as a hedge against a swift and sudden industry downfall, because it no longer enjoys the sterling credit rating it held during its glory years in the 1980s and 1990s. In 2000, Chrysler proved just how fast an auto company could burn cash when it was caught off guard by an industry slowdown. It ran into trouble again in 2003 when it failed to offer incentives fast enough to keep pace with GM. As Ford learned with the Firestone tire situation, a crisis can knock the wind out of an unsuspecting company very swiftly, and Ford, to analysts, seems particularly vulnerable.

  And there is another reality at play. The American marketplace has never been kind to No. 2 companies in any industry. They face problems from above them and beneath them. They must deal, first, with the difficulty of competing with their industry’s largest player, which by nature has more resources, and second, with the constant nipping at their heels by smaller and sometimes wilier players. In the airline business, United Airlines was forced into bankruptcy in late 2002; it was not as broad or efficient as the biggest carrier, American Airlines, and significantly, it had high costs that made it impossible to fend off attacks from nimble, low-fare airlines like So
uthwest and JetBlue. The retailing industry’s second-biggest company, Kmart, also had to file for Chapter 11 protection in 2002, unable to battle the strength of Wal-Mart and fend off the rivalry it faced from well-defined smaller players such as Target and Kohl’s. In the movie business, the huge studios can occasionally console themselves with monster hits, but the vast majority of Academy Awards go each year to Miramax, the leading independent studio, which is able to put together beautifully written scripts that appeal to today’s most talented stars. In all those industries—airlines, retailing and entertainment—there are lots of choices, and simply being a big player is no protection.

  At its heart, Ford’s revitalization campaign is based on the slogan “Back to Basics,” and its executives talk of 50 new models that it plans to introduce in the United States over the next five years, from cars to crossovers to more luxury cars. Yet consumers will have to be convinced that these models are right for them, because plenty of auto companies, from Toyota and Honda to Hyundai, offer good, basic vehicles. The market is not crying out for more choices. “From an economic standpoint, Ford could go away, and the marketplace wouldn’t miss them,” Anwyl said. That would have been hard to imagine in the 1980s, when cars like the Taurus were admired for their styling and quality, and in the 1990s, when Ford’s SUVs and other truck models were flying out of showrooms, many at sticker price or more. For many years, Ford was considered on a par with Toyota, in part because of its corporate slogan, which pledged, “Quality Is Job One.” But it would be hard to make that same assertion today. The company lost endless amounts of goodwill over the past few years with substandard quality, the Ford Explorer situation aside. The old jokes about what the letters in the name Ford stand for—“Found On Road, Dead”—aren’t funny to owners of the small Ford Focus, a European-rooted car that has been recalled more than a dozen times in the past four years, or to buyers of the first Ford Escape sport utilities, which suffered five recalls in its first month on the market. By 2003, Ford, once the industry’s best-built brand, had been eclipsed by a flood of competitors on quality surveys, including Korea’s Hyundai. And as the Ford Thunderbird proved, the company had trouble getting the quality right on one of its showpieces.