American Icon

by Bryce G. Hoffman

  By the 1980s, Ford was fighting for its life once again—this time against new competitors from Japan. Ford and the other Detroit automakers had been ceding sales to the import brands for a decade, and many doubted whether the Big Three would be able to mount a counterattack. Then Ford stunned the automotive world with the most radical new design in years. In 1985, it unveiled the Ford Taurus, a streamlined sedan with rounded corners that featured the tighter suspension and precise steering more typical of European automobiles. Critics said it looked like a jellybean, but it was a hit with consumers and pushed Ford’s profits past GM’s. The Taurus was so successful that General Motors and Chrysler were soon copying Ford’s aerodynamic design, as were the Japanese.

  For a while, it seemed like Ford might finally have learned its lesson. It introduced an upgraded version of the Taurus in 1992 that was even better than the original. The Taurus became the bestselling car in America, seizing that title from the Honda Accord. But Ford’s investment in the popular sedan soon petered out. In 1997, Toyota’s Camry claimed its crown, and the Taurus was soon relegated to rental car fleets. “When production finally stopped in 2006, few even noticed.

  Ford’s overreliance on a single product was surpassed only by its overreliance on a single man. In the beginning, that man was Henry Ford. Instead of leading a team of managers, Ford preferred to rule his industrial empire like a potentate. He had a good eye for talent and initially tried to fill his court with able executives, but he often drove them away once they began to exert significant influence over his organization. Ford was even unwilling to share power with his own son. Edsel Ford replaced his father as the company’s president after the family bought out the other investors in 1919, and he held that position until his death in 1943. But Henry Ford still made all the decisions, large and small, often countermanding any orders his son tried to give. He even rehired men Edsel had fired.

  Though Henry Ford did not create Ford Motor Company by himself, he often acted as though he had. James Couzens, the company’s first general manager, played the prudent businessman to his mad inventor—at least until he resigned in 1915.

  “Mr. Couzens said that, while he was willing to work with Mr. Ford, he could no longer work for him,” wrote another early Ford executive, Charles Sorensen. “The paradox is that but for Couzens and his organization and domination of sales and finance Ford Motor Company would not have lasted long.”

  William Knudsen, a manufacturing prodigy who helped orchestrate the company’s shift to mass production, was also driven away—right into the arms of General Motors. There he became head of Chevrolet, leading it past Ford in factory output by 1931.

  “Mr. Knudsen was too strong for me to handle,” Henry Ford later conceded. “You see, this is my business. I built it, and as long as I live, I propose to run it the way I want it run.”

  Instead of capable executives with their own ideas, Ford preferred to surround himself with yes-men and hired guns like Harry Bennett, the éminence grise with reputed underworld connections whom he hired to keep order at the River Rouge factory complex. Bennett was quickly promoted to chief of the Ford Service Department, which under his leadership grew into the largest private police force in the world. Men like Bennett fostered an enduring culture of intrigue and backstabbing among Ford’s senior leadership. Employees lived in fear of being fired by capricious managers and thought carefully before answering questions to make sure they gave the expected response, even if it was wrong.

  By the 1930s, Ford had become “a dark, almost gothic place, with a shadowy administration, activities shrouded in mystery, and a roster of dubious characters running rampant on the premises,” in the words of historian Douglas Brinkley, who also noted the absence of any real corporate structure at the company. “Henry Ford had preferred to receive reports on his company anecdotally, even through espionage, rather than in the numeric rationale of accounting.”

  The Flivver King, as Ford became known, ran his dominion by instinct and intuition.* The only way anyone in Dearborn knew how much cash the company had was by looking at its bank statements. Ford actually figured out how much money to set aside for accounts payable each month by weighing its bills on a scale. That might have worked for an automotive start-up, but it had long since become a liability—one the U.S. government was not willing to tolerate in a company that, in the 1940s, became a vital contributor to its “Arsenal of Democracy.”

  As Ford’s factories retooled to produce the bombers and jeeps that would help win World War II, the War Department worried about leaving these essential industries in the hands of such a mismanaged corporation. Washington seriously considered taking over the company after Edsel, whom most outsiders viewed as the lone voice of reason inside Ford, died in 1943. Instead, the navy ordered Edsel’s son, Lieutenant Henry Ford II, to resign his commission and report for duty in Dearborn. The elder Ford initially tried to prevent his grandson from exercising any real authority, just as he had done with Edsel. But in September 1945, the increasingly enfeebled patriarch was finally persuaded to cede control of the company to his namesake.

  Though young and inexperienced, Henry Ford II understood that fundamental changes were needed at the automaker—and needed fast. He personally fired Bennett and the rest of his grandfather’s henchmen, replacing them with real businessmen like Ernie Breech, whom he lured away from the far more sophisticated General Motors, and a group of management savants from the Army Air Forces, the legendary Whiz Kids. Together they created a modern corporate structure and instituted disciplined business practices that soon became a model for other companies. At the same time, Ford’s new boss ordered his managers to begin treating their employees and one another with respect. He promised that the truth would no longer be punished and encouraged a new openness with the outside world as well. But it did not last. As Henry Ford II grew more confident in his own abilities, he also became more jealous of his position as head of the company. Hank the Deuce, as he was soon nicknamed, began to pit one executive against another. Ford’s managers began to worry more about their own careers than the success of the company.

  “Henry Ford II’s imperial style led to impulsive decisions from which there was no appeal and to a continual shuffling of the executive deck chairs,” wrote journalist Alex Taylor III, who began covering Ford in the 1970s. “The sharp-elbowed company politics were embedded in Ford culture. Old Henry Ford and his thuggish subordinate Harry Bennett had instilled a rule of fear in the 1920s and 1930s that never entirely vanished.… Even into the 1980s, executives worried about wiretaps and electronic listening devices that would allow their conversations to be overheard. Unlike at GM, it was rare for Ford executives to hang on to their jobs until retirement; almost everyone was vulnerable to being toppled. The Dearborn company became known as a place where tough guys win.”

  No one was tougher than Lee Iacocca, the marketing genius who was promoted to president in 1970 after his Mustang revived America’s love affair with Ford. But Iacocca created his own cult of personality that threatened to divide the company into warring camps. Henry Ford II began to see Iacocca as a threat to his own authority and fired him in 1978 after learning that he had contacted board members behind Ford’s back in an effort to protect his position. Iacocca went on to save Chrysler—at least for a while.

  Just when it seemed like the corporate intrigue at Ford was reaching new heights, Hank the Deuce announced that he was retiring. In 1980, he turned the company over to Philip Caldwell, a far more reserved Ford executive who would become the first non-Ford to serve as the company’s chairman and CEO. For a time, it seemed as if Ford might become just another boring bureaucracy, like General Motors. But Caldwell’s successor, Donald Petersen, quickly ran afoul of a new generation of Fords. Petersen resented the easy ascension of Edsel Ford II and William Clay Ford Jr. to the company’s board of directors in 1988 and refused to appoint either of them to a board committee.

  “I’m not a caretaker for anybody,” he told Fortune
magazine at the time. “I admire the fact that [Edsel and Bill] are trying very hard to go as far as they can. But being a Ford does not give them a leg up. The principle we must operate on is that selection to top management is based solely on merit.”

  Petersen spent the next two years trying to hold his ground, but it was a battle he could not win as long the Ford family maintained controlling interest in the company. He resigned in 1990, just as the automaker was entering its most profitable decade ever.

  I once asked a Toyota executive if there was anything he admired about Ford Motor Company.

  “Yes,” he said after reflecting for a moment. “Their ability to overcome adversity.”

  The company may have been unable to learn from its mistakes, but Ford was a survivor. It was the Rocky Balboa of the automobile industry—at its best when it was against the ropes. It could take punches and come back swinging. Every time someone wrote Ford off, there it was back in the center of the ring with its gloved hand thrust into the air. But it could not handle success. Like the fictional fighter, Ford kept falling back into its old habits, growing soft and complacent once the danger had passed.

  The crisis that Ford faced in 2006 was just the latest in a series of financial disasters that had befallen the company over the past 103 years. The first time Ford almost went out of business was in 1920. Henry Ford loathed debt, but he buried himself under a mountain of it to buy out his early investors in 1919—just as America was slipping into a depression. Inflation was rampant in the wake of World War I, and the company’s sales were suffering. But Ford was still spending big on his mammoth manufacturing complex then under construction on Dearborn’s River Rouge. As the end of the year approached, Ford had only $20 million in cash and was facing obligations of $58 million in the first four months of 1921 alone. Henry Ford closed his main factory, sacked a quarter of his workers, and sold off their equipment. He took the 125,000 Model Ts sitting outside his plants, loaded them on trains, and began shipping them to dealers along with demands for immediate payment. Until then, dealers paid for cars as they sold them. Not anymore. It was all perfectly legal, thanks to some very fine print in their contracts. By April 1921, Ford had more than $87 million in the bank. The company not only had enough money to stay in business, but also was able to slash prices and surge ahead once the nation’s economy began to recover. By the end of the year, Ford was selling more cars than ever before and controlled more than 61 percent of the market.

  Eight years later, the world was plunging into an even greater depression. Henry Ford tried to turn back the tide with his own economic stimulus program. Despite declining demand for automobiles, he offered his workers raises—an extra buck a day to spur spending—and dropped the price of his cars to make them easier for cash-strapped consumers to afford. As his competitors’ factories sputtered or closed down altogether, Ford’s continued to hum. But by 1931, the U.S. car market had shrunk by two-thirds, and even Henry Ford was forced to halt production of his Model A. He closed twenty-five factories, axed 75,000 workers, and even took back the raises of those who remained. As before, these austerity measures allowed Ford to survive, but the company lost $120 million between 1930 and 1933. General Motors, which had not hesitated to cut production and kick its workers to the curb, made it through the Great Depression without losing a cent.

  Ford prospered with the rest of the country during the postwar boom, but the U.S. automobile industry was in serious trouble by the 1970s. Ralph Nader’s Unsafe at Any Speed had destroyed the mystique that surrounded the American automobile—and American automakers—since the days of the Model T. It also helped usher in a new era of government regulation in the United States. Along with the other U.S. car companies, Ford was ordered to make its vehicles safer and reduce tailpipe emissions. Like the others, it tried to pass the cost of these expensive mandates on to consumers, even as America’s defeat in Vietnam sent the nation into a recession. As sticker prices began to rise, so did the cost of gasoline. Consumers began searching for cheaper, more fuel-efficient alternatives to Detroit’s land yachts.

  They found them in the cute compacts that had begun arriving from Japan a few years earlier. Americans started buying imports for their low price and superior fuel economy but soon discovered they were also a lot more reliable than many of the vehicles Ford and the other domestic automakers were producing.

  “I frankly don’t see how we’re going to meet the foreign competition,” Henry Ford II warned after the company’s shareholders meeting in 1971. “We may be a service nation someday.”

  After the 1973 oil crisis, the U.S. Congress imposed tough new regulations on automakers, aimed at improving fuel economy. Complying was easy for the Japanese, who were already making the most fuel-efficient cars on the road. But the rules required American automakers to make major investments in new products and new technology.

  Then, just when it seemed like things could not possibly get any worse for the Big Three, the 1979 Iranian Revolution sparked a second oil crisis. Those high-mileage Japanese compacts looked more attractive than ever to the motorists stuck in the long lines that soon formed around service stations across the United States.

  The 1970s were nothing short of apocalyptic for Detroit’s car companies. But for Ford, these challenges were just the beginning of its woes. After reports began to surface of fiery crashes involving its import-fighting Ford Pinto, the automaker was hit by a wave of expensive lawsuits. The company was even charged with murder when three teenage girls burned to death after their Pinto was rear-ended on an Indiana highway in 1978. Meanwhile, other Ford vehicles were being blamed for more than a hundred deaths and nearly 2,000 injuries caused by faulty transmissions. By the end of the decade, Ford’s products were widely regarded as the worst on the road. After posting a record profit of $906 million in 1972, the company went into a nosedive that culminated in a $1.4 billion loss in 1980. That was almost as much as Chrysler lost that year, and Chrysler was on taxpayer-funded life support.

  Fortuitously, a conservative Henry Ford II had stashed away billions before stepping down as CEO in 1979. When he gave up the chairman’s job a year later, the automaker was left without a Ford in the driver’s seat for the first time ever.* But this money, along with yet another round of mass layoffs and plant closings, kept the lights on in Dearborn. So did Caldwell, Petersen, and a new generation of executives, who made quality Job One again, negotiated the first concessionary contract with the United Auto Workers, and invested in new products like the Taurus. By 1983, Ford was back in the black with a new record profit of $1.8 billion. By 1986, it was making more money than General Motors. By 1987, it was making more than all of the Japanese and European carmakers combined.

  By the mid-1990s, it seemed like all of Detroit’s sins had been forgiven. Gasoline prices were plummeting. Adjusted for inflation, they were now at an all-time low in the United States. Suddenly, big was back. All across suburbia, Americans began trading in their family sedans for truck-based sport utility vehicles. What had until then been niche products for ranchers and other outdoorsy types suddenly became, in the words of veteran auto reporter Paul Ingrassia, “the perfect complement to a Patagonia windbreaker: a fashion statement, the sports car substitute for soccer moms.”

  Ford responded to the emerging trend with the Explorer. Launched in 1990, it took only a few months to become the bestselling SUV in the world—and one of the biggest moneymakers in the company’s history. By 1995, Ford was selling more trucks than cars.* In 1997, it introduced the Expedition, an even bigger SUV that generated even bigger profits. Two years later, the company trumped that with the Excursion, an SUV so big that it could not fit in many standard car washes. Or garages. One of the first was sold to a Texas woman who returned to the dealership the next day with the roof peeled back like a sardine tin. The salesman asked if she would like a smaller model, but she insisted on another Excursion and said she would get a bigger garage instead. Environmentalists were less enthusiastic about the gas-guzz
ling behemoths. Ford, which now had the worst fleet fuel-economy average of any major automaker, was attacked by groups such as the Sierra Club. It suggested the automaker call its new SUV the “Ford Valdez” instead, in homage to the coastline-defiling Exxon oil tanker. But with so much money rolling in, it was easy to ignore the criticism.

  Ford’s SUV factories, like those of General Motors and Chrysler, had become private mints. They were so profitable that Ford often flew parts in by helicopter when supplies ran low, rather than waste time sending them by truck. Nor did the Big Three have to share their windfall. For the first time in decades, the Japanese were nowhere in sight. They were slow to appreciate the importance of this new segment and would need years to develop credible offerings. In fact, as Detroit cashed in on the SUV craze, its Japanese competitors were struggling to cope with a rising yen that ate into their margins and forced them to raise prices, making their cars even less attractive to consumers now obsessed with trucks.

  In 1998, Ford posted a stunning profit of more than $22 billion. It was the most money any automaker had ever made. A big chunk of that came from the spin-off of Associates First Capital Corporation, a financial services company Ford had purchased from Gulf+Western in 1989. But even without that boost, it finished 1999 with earnings of $7.2 billion.

  As the automaker tried to figure out how to spend all that cash, its founder’s heirs were trying to figure out how to put the Ford back in Ford Motor Company.

  Though Ford had been publicly traded since 1956, it was still controlled by the Ford family, thanks to some arcane financial prestidigitation. Once Henry Ford wrested control of the company from his original partners, he was determined to keep it in the family. Ford was always afraid that the big banks would somehow find a way to steal the business away from him. The best way to protect the company was to keep it private. But Ford later discovered something he feared more than Wall Street: inheritance taxes. In 1936, he established the Ford Foundation and arranged for most of the company’s shares to be transferred to the charity when he died, which he did eleven years later. By 1955, the foundation had become one of the most important philanthropic organizations in the world, a major international force in its own right. The Ford Foundation saw little value in maintaining its ties to the Dearborn automaker and informed Henry Ford II that it intended to sell its shares.* Hank the Deuce could not prevent the move, but his bankers did manage to set up a unique ownership structure that created two classes of shares: Class A, which would trade publicly on the New York Stock Exchange, and Class B, which would be owned exclusively by the Ford family. No matter how many shares of Class A stock were issued, these Class B shares would always wield 40 percent of the voting power.† That gave the family enough votes to veto any decision—or elect a chairman.