Copyright © 2012 by Bryce G. Hoffman
All rights reserved.
Published in the United States by Crown Business, an imprint of the Crown Publishing Group, a division of Random House, Inc., New York.
www.crownpublishing.com
CROWN BUSINESS is a trademark and CROWN and the Rising Sun colophon are registered trademarks of Random House, Inc.
Library of Congress Cataloging-in-Publication Data
Hoffman, Bryce G.
American icon: Alan Mulally and the fight to save Ford Motor Company /
by Bryce G. Hoffman.
p. cm.
1. Ford Motor Company. 2. Automobile industry and trade—United States—History.
3. Mulally, Alan R. I. Title.
HD9710.U54F636 2012
338.7′629222092—dc23 2011037155
eISBN: 978-0-307-88607-1
Unless otherwise indicated all photographs are courtesy of Ford Motor Company.
Jacket design by David Tran
v3.1
To MSN and MSH,
and to my parents, Ned Hoffman and Billie Crowley,
for a lifetime of support
CONTENTS
Cover
Title Page
Copyright
Dedication
AUTHOR’S NOTE
Prologue
CHAPTER 1
The House That Henry Built
CHAPTER 2
Broken
CHAPTER 3
The Man on the White Horse
CHAPTER 4
The Boldest Move Yet
CHAPTER 5
The Revolution Begins
CHAPTER 6
The Plan
CHAPTER 7
Betting the Farm
CHAPTER 8
Assembling the Team
CHAPTER 9
The Best and Worst of Times
CHAPTER 10
Family Strife
Photo Insert
CHAPTER 11
Watershed
CHAPTER 12
Selling It Like It Is
CHAPTER 13
Ripe for the Picking
CHAPTER 14
Storm Warning
CHAPTER 15
The Sum of All Fears
CHAPTER 16
Mr. Mulally Goes to Washington
CHAPTER 17
Breaking with Detroit
CHAPTER 18
By Their Own Bootstraps
CHAPTER 19
Turning the Corner
CHAPTER 20
Proof Points
CHAPTER 21
The Road Ahead
ACKNOWLEDGMENTS
NOTES
BIBLIOGRAPHY
AUTHOR’S NOTE
When I first started covering Ford Motor Company for the Detroit News in 2005, the automaker was fighting for its life. I had no idea whether Ford would win or lose, but I knew it would be a great story either way—the end of an American icon, or its salvation. For the sake of Ford’s employees, its investors, its dealers, the communities it operated in, and the nation itself, I hoped it would succeed. But I would write its story either way.
With that in mind, I kept careful notes from each of the hundreds of interviews I conducted over the next five years. As the Ford beat reporter at the Detroit News, I had a front-row seat for most of the events chronicled in this narrative. But I also knew there was much more to this story than had ever been told. When the time came to finally write the Ford story in its entirety, I knew that I would have to conduct many more interviews.
Once it was clear that the company had pulled off one of the most amazing turnarounds in history, I contacted Executive Chairman Bill Ford Jr. and Chief Executive Officer Alan Mulally and told them about my plan to write a book chronicling their epic achievement. I told them that I believed it was a fundamentally positive story that would be that much more compelling if it was told truthfully and in its entirety. To their credit both men agreed, offering Ford’s full cooperation with this project. I promised them nothing in return but fairness and accuracy.
Over the next year, I conducted more than a hundred interviews with players large and small in this drama. Many of these were conducted in person, and many lasted for several hours. All of them were conducted with the understanding that I could use any information discussed, provided that I did not attribute it to a particular source. This anonymity was necessary because many of the men and women I interviewed were still employed by Ford Motor Company and were only willing to speak frankly if such protection was guaranteed. “Where direct quotes appear, they are excerpted from previously published material. The final chapter is the exception to these rules. I wanted to give Alan Mulally an opportunity to speak directly to you, the reader, and share his thoughts about the events described herein.
With the help of the men and women I interviewed, I have reconstructed relevant dialogue wherever possible. This was done with the utmost care. When dialogue appears in quotes, the wording comes from the speaker, from another participant in that conversation, from contemporaneous notes, or from a transcript. Dialogue that does not appear in quotes is paraphrased or reflects the inability of the participants to remember the exact wording. “Where the specific thoughts of an individual are rendered in italics, they come directly from that person or from someone he or she shared those thoughts with at the time.
In the few cases where participants disagreed about the events described in this book, I have done my best to resolve those discrepancies by relying on primary source material. Many of the people I interviewed for this book shared their personal notes, calendars, and other documentary information. My research also benefited from a wealth of primary source material from Ford itself. I was given access to “top secret” company documents, internal memos, and archives. This level of access has never been granted to any other author or reporter. Much has been written about Ford’s turnaround and the fall and rise of the U.S. automobile industry in general. The information in this book in some cases contradicts what has already been published. When it does, the reader can be certain that I have rigorously relied on this documentary evidence to establish the facts.
Prologue
On September 5, 2006, I followed a public relations executive backstage at the media center inside Ford Motor Company’s world headquarters in Dearborn, Michigan. My minder knocked, stuck his head in the side door, and waved my colleague, Detroit News columnist Daniel Howes, and me through. Inside, the great-grandson of Henry Ford was smiling like a lottery winner. Bill Ford Jr. had just resigned as the automaker’s chief executive officer.
“You look happy,” Howes observed as Ford took a long swig from a bottle of water handed to him by an aide. Ford laughed.
“You have no idea!” he exclaimed as the world’s automotive press shouted into cellphones and pounded away at laptops on the other side of the curtain. “My wife is happy! My kids are happy! I’m happy!”
The man standing next to him was also smiling as he pumped my hand and slapped my shoulder. A few minutes before, Alan Mulally had become Ford’s new CEO.
“Doesn’t it worry you that the man who you’re replacing is doing the I’m-going-to-Disneyland dance?” I asked Mulally.
He flashed what would soon become his trademark grin.
“You don’t know much about me yet, Bryce, but let me just tell you one thing,” Mulally said. “No matter how bad Ford Motor Company’s problems are today, they aren’t as bad as Boeing’s were on September 12, 2001.”
The lanky, gingerbread-haired Kansan was president of the Boeing Company’s commercial aviation division. And though few outside the upper echelons of corporate America had heard of him, Mulally was already famous in business circles for having sav
ed the aircraft manufacturer from collapse after the terrorist attacks on New York and Washington five years earlier prompted most of the world’s airlines to cancel their orders for new planes. Now, Bill Ford was asking him to save another American icon.
Ford may have been the company that put the world on wheels, invented the moving assembly line, and created the industrial middle class, but its glory days were long past. Together with General Motors Corporation and Chrysler Corporation, it had been a powerful engine of prosperity in postwar America. For half a century, from the 1920s to the 1970s, Detroit’s Big Three dominated the U.S. automobile market, accounting for five of every six vehicles sold in the country. That market was still the largest in the world, but their share of it had been declining for decades. During the boom years of the 1950s and 1960s, American automakers had grown fat and complacent as new competitors emerged in Europe and Asia, studied their methods, and figured out how to beat them at their own game. That era of easy profit created a culture of entitlement in Detroit that afflicted management and labor alike—inflating salaries, wages, and benefits until they became the envy of the world. Success was viewed as a birthright, not something that had to be fought for and won. As the Big Three’s share of the market had shrunk, they had not. At least not fast enough. They all had too many factories, too many workers, and too many dealers. Generous union contracts negotiated in better times had created enormous legacy costs that their foreign rivals did not have to bear. And none of the American companies had the stomach for the radical reforms that were now necessary just to stay in business. Wall Street had begun a deathwatch, waiting to see which of the Big Three would fail first. Most of the money was on Ford, which had become infamous for lackluster designs, poor quality, and managerial infighting.
Five years before, Bill Ford had taken charge of the company and tried to salvage what was left of its name and his. For a while, it seemed like he might succeed. Quality started to improve. Ford became the first American automaker to bring a hybrid to market. And a few of its products had begun to win praise from critics. But consumers remained wary. Too many of them had bought Fords in the past and were not going to make the same mistake again. Meanwhile, rising gasoline prices were scaring those customers who were left away from the big trucks and sport utility vehicles that were the source of most of Ford’s profits. At the same time, Ford found himself unable to overcome an entrenched, careerist culture that resisted all change and put individual advancement ahead of corporate success. In their dark-paneled offices, executives plotted ways to undermine one another’s efforts, while on the factory floor, union bosses jealously defended their members’ rich benefits and scoffed at attempts to boost productivity. A year earlier, Ford had tapped Mark Fields, president of the company’s more successful European division, to lead a restructuring of its core North American automotive business. Fields put together a bold plan to cut the business back to profitability by shuttering factories and slashing jobs. But it was not bold enough. The company was still hemorrhaging money and market share and seemed unable to stanch the bleeding. Japan’s Toyota Motor Corporation had just outsold Ford in the United States for the first time.
When Bill Ford took over as CEO in 2001, he had promised that the company would be making $7 billion by 2006. Instead, it was about to post a loss of nearly $6 billion for the third quarter alone—the company’s worst quarterly result in more than fourteen years. Investors were losing patience. Once a blue-chip stock, Ford’s shares were now trading in the single digits, and its debt had fallen deep into junk bond territory. Analysts had begun to whisper the word bankruptcy.
GM and Chrysler had many of the same problems, but most on Wall Street believed those companies were in a better position to address them. The prevailing view was that GM would save itself by better utilizing its immense global assets, while Chrysler’s 1998 alliance with German automaker Daimler-Benz AG seemed to offer a different way out of the mess the American automobile industry had become. The analysts had crunched the numbers and concluded that Ford would run out of road first.
But no one had factored in Alan Mulally.
In less than three years, both GM and Chrysler would be bankrupt, and a resurgent Ford would wow Wall Street with quarter after quarter of profits at a time when most companies were still reeling from the worst economic crisis since the Great Depression. Mulally would be heralded as the architect of one of the greatest turnarounds in business history.
But none of it would come easy. Mulally would have to weld Ford’s disparate regional divisions into a single, global operation and take a sledgehammer to the ossified fiefdoms that had divided the company for decades. And Ford would be forced to mortgage everything—right down to the Blue Oval itself—to secure the financing necessary to fund Mulally’s revolution.
“I was right—Ford’s problems weren’t as bad as Boeing’s,” Mulally would later confide in me. “They were much, much worse.”
CHAPTER 1
The House That Henry Built
Business men go down with their businesses because they like the old way so well they cannot bring themselves to change. One sees them all about—men who do not know that yesterday is past, and who woke up this morning with their last year’s ideas.
—HENRY FORD
While many of Ford Motor Company’s problems were shared by the rest of Detroit, the Dearborn automaker also faced some challenges all its own. Ford’s woes had not begun with the arrival of the Japanese in the 1960s or the oil crises of the 1970s. The company had been struggling with itself since Henry Ford started it on June 16, 1903. It invested massively in game-changing products, and then did nothing to keep them competitive. It allowed cults of personality to form around larger-than-life leaders, but drove away the talent needed to support them. And it allowed a caustic corporate culture to eat away at the company from the inside. These were birth defects that could be traced back to the automaker’s earliest days. Henry Ford liked to boast that he had created the modern world. In many ways, he had. But he also created a company that was its own worst enemy.
Henry Ford began that company with a simple vision: “I will build a car for the great multitude. It will be large enough for the family, but small enough for the individual to run and care for. It will be constructed of the best materials, by the best men to be hired, after the simplest designs that modern engineering can devise. But it will be so low in price that no man making a good salary will be unable to own one—and enjoy with his family the blessing of hours of pleasure in God’s great open spaces.”
Ford made good on that promise with his Model T, a simple, reliable, no-nonsense car that transformed the automobile from a rich man’s toy into a means of transportation for the masses.* When the Model T went on sale on October 1, 1908, most cars cost a small fortune. It started at $850—less than $20,000 in today’s money. “Even You Can Afford a Ford,” the company’s billboards proclaimed. But Ford did not stop there.
As demand for these Tin Lizzies grew, the pioneering manufacturer began building them on the world’s first moving assembly lines. This cut the average time it took to produce a Ford from thirteen hours to just ninety minutes. But workers got bored on Ford’s assembly lines, and turnover was high. So, in January 1914, the company stunned the world by announcing that it would pay workers $5 a day. It was more than twice what most other laborers made at the time. As news spread, tens of thousands of men—particularly in the underdeveloped South—threw down their picks and hoes and headed for Detroit. Ford’s $5-a-day wage sparked one of the largest economic migrations since the California Gold Rush and created the industrial middle class. As Henry Ford would later boast, it also made his workers as reliable as his machines. Mass production allowed Ford to cut costs and boost efficiency. He passed the savings on to consumers and made his money on the added volume. Henry Ford claimed that every dollar he shaved off the price of his car bought him a thousand new customers. By 1925, the price of a Model T had dropped to $260—just over $
3,000 today—and Ford was making more than 1.6 million of them a year.
It was an impressive figure for the time, but it was nearly 200,000 fewer than the company was making just two years before. Despite the massive price cuts, sales of the Model T were slumping. So was Ford’s share of the market, which peaked in 1921 at 61.5 percent. Other automakers, like General Motors, were regularly introducing new models—each one an improvement over its predecessor. The Model T had seen few updates. It was old technology, yet Henry Ford stubbornly refused to begin work on a replacement. He thought it was all the automobile the average person needed. When his engineers began work on a new prototype anyway, Ford destroyed it with a sledgehammer. But Ford’s dealers were clamoring for something new. So was his son, Edsel. By the time Ford finally began work on his new Model A in 1927, demand had fallen so dramatically that he was forced to close his factories and lay off 60,000 workers.
As Ford retooled, General Motors passed it to become the largest automaker in the world. Many thought Ford was finished. But on November 28, 1927, people all over America waited in line for hours outside dealerships for a glimpse of the first new Ford in twenty years. It did not seem to matter that the only thing inside most of the stores was a cardboard cutout. By the end of the day, more than 10 million people—10 percent of the U.S. population—had seen the Model A. It combined the Model T’s practicality with something entirely new to Ford customers: style. Thousands placed orders on the spot. Ford’s factories surged back to life, unable to keep up with the unprecedented demand for its new car.
Within two years, the company had sold more than 2 million Model A’s and its share of the domestic market doubled. Yet once again, Henry Ford rested on the laurels of his phenomenal success as his competitors continued to improve their offerings. The next new Ford would not arrive in showrooms until 1932. By then, other manufacturers were introducing new models every year, and Ford was losing money. Fortunately for the Dearborn automaker, its new flathead V-8 motor was another innovative hit. But Ford would not really begin to diversify its product lineup until after World War II, and even then it would continue to make the same mistake with products like the Thunderbird and the Mustang.
American Icon Page 1