American Icon

by Bryce G. Hoffman

  “We’re going to lose billions of dollars this year,” he said, eyeing each executive in turn. “Is there anything that’s not going well here?”

  Nobody answered.

  That was because nobody believed Mulally when he promised that honesty would not be penalized. In the past, high-level meetings were arenas for mortal combat at Ford. Executives entered the room with keen eyes, searching for flaws in one another’s plans. They examined their own presentations beforehand like generals surveying their lines for weak points. They were sure Mulally was just trying to set them up, and none of them was foolish enough to fall for such an obvious trap.

  But Mark Fields was beginning to feel like a man with nothing to lose. The Glass House was rife with rumors of his impending demise. He was the most obvious threat to the new CEO, so it would be only natural for Mulally to take him out. That was how things had been done in Dearborn for as long as anyone could remember.

  Those thoughts were weighing heavily on Fields’ mind as he prepared his slides for the next BPR meeting. When he got to the one showing the status of the North American product programs, he paused. As usual, they were all green. He stared at the line for the new Ford Edge, which was due to launch in just a few weeks. Production had already begun at the company’s factory in Oakville, Ontario. But there was a problem.

  The day before, Fields had received a call from Bennie Fowler, Ford’s quality chief. His people had already signed off on the Edge, certifying that it was okay to begin shipping the cars to dealers. The first ones were already being loaded onto train cars in Canada as they spoke. Now Fowler informed Fields that a test driver had reported a grinding noise coming from the suspension. Technicians had examined the vehicle in the field but had been unable to figure out what was causing the problem.

  “We don’t know what it is,” Fowler told Fields. “But we need to hold the cars until we find out.”

  The Edge was Ford’s next big thing—its first true crossover, aimed squarely at the heart of the industry’s hottest new segment. Fields knew that delaying the launch might bring down the as-yet-unfathomed wrath of their new CEO. Then again, shipping a vehicle with a potentially serious problem was certain to do that. It was the end of the year, the time when Ford executives traditionally pulled out all the stops and cut whatever corners might be necessary to hit their sales targets. But that was the old Ford. Mulally had already made it clear that he did not want any vehicles shipped that were not ready.

  “Okay, let’s hold the launch,” Fields told Fowler. “I don’t like it. But I want to be safe, rather than sorry.”*

  It was a tough decision, but Fields now faced an even tougher one. It was one thing to delay a launch; telling everybody about it in the Thursday meeting was something else entirely. Before Mulally, it would have been like throwing chum into shark-infested waters. Fields’ colleagues would have ripped him to shreds. Besides, he reckoned, maybe the noise would turn out to be nothing and the new crossovers would be on their way to showrooms before anyone outside his own team even noticed the delay. Then again, maybe not.

  Late that Wednesday, Fields was going over his slides with his head of manufacturing, Joe Hinrichs. When the product program slide popped up on the screen, Hinrichs looked stunned. He pointed to the red box next to the Ford Edge.

  “Are you sure you want to show that?” Hinrichs asked.

  “Joe, is it red?”

  “Yes.”

  “Well, we’re going to call it like it is,” Fields said.

  As his turn approached the next day, Fields figured he had a fifty-fifty chance of walking out of the room with his job. By now, he assumed there was a good chance he was going to lose it anyway.

  Somebody has to figure out if this guy is for real, he thought as he studied Mulally, trying to divine his mood. If I go out, it might as well be in a blaze of glory.

  Fields began with his overview of the business environment in the Americas. He called for the slide showing the region’s financials. Then there it was—the product program slide. Fields tried to be nonchalant.

  “And, on the Edge launch, we’re red. You can see it there,” he said, pointing at the screen. “We’re holding the launch.”

  There was dead silence. Everyone turned toward Fields. So did Mulally, who was sitting next to him.

  Dead man walking, thought one of his peers.

  I wonder who will get the Americas, another mused.

  Suddenly, someone started clapping. It was Mulally.

  “Mark, that is great visibility,” he beamed. “Who can help Mark with this?”

  Bennie Fowler raised his hand. He said he would send some of his quality experts to Oakville right away. Tony Brown, Ford’s vice president in charge of purchasing, said he would contact all of the relevant suppliers and ask them to check their components.*

  Now we’re getting somewhere, Mulally thought.

  However, when the team reconvened the following Thursday, Fields was still the only one willing to admit that he had a problem. The rest of the slides were still green. The truth was that many of the other executives were surprised to see him at the meeting. They assumed he had been taken out back and summarily executed when no one was looking. Some expected the ax to fall during this week’s session. But when that meeting ended with Fields still in charge of the Americas, most of his peers had reached the same conclusion he had: Mulally was true to his word. He said he wanted honesty and he meant it. It was not a trap.

  A week later, everyone’s slides were splattered with more red than a crime scene. There was plenty of yellow, too.

  As Mulally stared at the rainbow of colors, he did not know whether to laugh or cry.

  Now I know why we’re losing so much money! he thought. But they trust me. They trust the process. We finally have it all out in the open. Now we can start fixing it.

  Mulally would later call this the defining moment in Ford’s turnaround. He had always believed he could save Ford Motor Company. After that meeting, he knew he would. All he needed was a plan.

  *Mulally’s emphasis on facts and figures was reminiscent of the data-driven regime the Whiz Kids introduced at Ford after World War II. This group of U.S. Army Air Forces veterans applied the same statistical methods they had used to manage the air war over Germany and Japan to the business of making automobiles.

  *It took several weeks for the BlackBerry rule to sink in. During the next few BPRs, several executives neglected to turn off their devices. When they got a message, the electrical signal would generate static in the teleconferencing system. Mulally would grimace and scan the table, trying to identify the offender.

  *The number of people included in each meeting would expand considerably as Mulally implemented his matrix organization. New rules on guests would also be implemented. More details of the final BPR process will be presented in chapter 20.

  *Ford would later restate this as a loss of $5.2 billion. Either way, it was its biggest quarterly loss since the first quarter of 1992, when the company lost $6.9 billion.

  *Fields’ decision was reminiscent of Ford’s decision to delay the launch of the Ford Escort in 1980 because unresolved issues with the vehicle would have flown in the face of the company’s new motto: “Quality Is Job One.”

  *The problem was quickly resolved, and the Ford Edge began shipping in early December.

  CHAPTER 6

  The Plan

  Progress is not made by pulling off a series of stunts. Each step has to be regulated. A man cannot expect to progress without thinking.

  —HENRY FORD

  Alan Mulally began working on his plan to save Ford Motor Company on the plane ride back to Seattle after his first meeting with Bill Ford. He had fleshed it out since then, but its broad outlines remained the same: Ford needed to drastically downsize its automotive operations to match the real demand for its products, overcome its dysfunctional corporate culture, and negotiate new labor agreements with the United Auto Workers to close the competitiveness gap wi
th its foreign rivals in the United States. But Mulally was also working on what he called his “better plan,” to ensure the company’s long-term success and prosperity. Right now that included things such as globalizing product development and creating a new generation of cars and trucks that people actually wanted to drive. Finally, he had to figure out how to pay for it all.

  Mulally knew he still had a lot to learn before he could finalize his plan, and he threw himself at that task like a senior before finals week. Even as he assembled his brain trust inside the Glass House, Mulally cast a wide net outside the company in an effort to learn everything he could about the automaker and the automobile industry as a whole.

  I’ve got to make some big decisions, he thought. I need to know what people are thinking about Ford.

  So Mulally started making telephone calls. He rang up industry experts like David Cole at the Center for Automotive Research and talked to Ford’s financial advisers at Goldman Sachs. He even called veteran journalists like Forbes columnist Jerry Flint, who had been covering Detroit for nearly fifty years. It took a while for Mulally to convince the cantankerous old reporter that his call was not a prank. Mulally commissioned studies from consulting firms like Deloitte, Booz Allen Hamilton, and Common Ground. He read analysts’ reports, clipped newspaper articles, and even cut out cartoons that he thought summed up the situation. He took copious notes and collected everything in white three-ring binders. The material from Common Ground alone filled a five-inch binder. Mulally read each one cover to cover. He also read old financial reports, white papers, and internal studies that his predecessors had ignored.

  After seeing how poorly Ford’s products fared in Consumer Reports, Mulally grabbed Ford’s head of engineering for North America, Paul Mascarenas, and Doug Szopo, the head of product planning, and flew to the magazine’s test facility in Connecticut. On the way, he told the two men to keep their mouths shut during the visit.

  “We’re going there to listen,” Mulally told them. “We’re not going there to rationalize the feedback that we’re getting.”

  They nodded. But they had a hard time remaining silent when the head of Consumer Reports’ automotive testing division, David Champion, lit into the new Ford Edge.

  “It is disappointing,” Champion told Mulally. “The interior fit and finish is poor, the steering woolly, and the design of the tailgate makes it very hard to lift.”

  Mulally thanked Champion for his honest feedback. By the time the Ford jet landed back in Detroit, Mulally and his traveling partners had already had a long discussion about how to address these issues.

  Champion may have offered more specifics, but Mulally was hearing the same things from everyone he talked to. Ford had let itself go. The company made good cars and crossovers in Europe, but most of the products it sold in the United States were boring and uncompetitive. Consumers thought of Fords as unreliable gas-guzzlers—if they thought about them at all. Suppliers hated working with the company because it always provided inflated production estimates. Dealers felt like they were being lied to about the fate of the Mercury brand. Investors winced every time they looked at the company’s stock price. And employees were bitter over the endless stream of layoffs, angry about the extra work those cuts shifted to their shoulders, and worried about their futures.

  But Mulally learned that people also wanted Ford to succeed. There was still a lot of love for the iconic brand. Many harbored fond memories of better days and better products. More worried about what the failure of Ford would say about America itself. It had taken the automaker decades to destroy the goodwill created by the Model T, the Mustang, and the $5-a-day wage. Mulally was convinced that consumers would forgive and forget, if only they were given a reason to believe in Ford again.

  Mulally also studied the competition. The chief executives of General Motors and Chrysler had both called to congratulate him shortly after his arrival in Dearborn, but he had yet to meet either one in person. Now, as he gazed out his window at the Renaissance Center—the futuristic cluster of cylindrical towers that dominated the Detroit skyline and served as GM’s headquarters*—Mulally decided it was time to pay a visit to America’s largest automaker. On October 13, 2006, he arrived at the Renaissance Center for a meeting with GM CEO Rick Wagoner.

  Wagoner, like so many other Detroit executives, had worked his way up through the ranks in the company’s finance department and now took obvious pleasure in his own authority. Tall and imposing, Wagoner had captained his high school basketball team in Richmond, Virginia, and went on to play at Duke University. After earning an MBA from Harvard Business School, he took a job at General Motors in 1977. In Detroit, Wagoner soon found himself on the fast track. By 1992, he was already CFO. And he was only thirty-nine. By age forty-eight he was CEO. Wagoner was a good manager, but he also benefited from a strong economy and an insatiable hunger for GM’s big sport utility vehicles. Some questioned whether GM really needed another insider at the top, given its inability to overcome its own historic weaknesses.

  “An outsider could never come in here and figure it all out,” Wagoner insisted.

  That was in 2000. Over the next six years Wagoner made some impressive gains. He started globalizing product development while Bill Ford was still fighting to convince his own team to even consider such a move, and he led the company’s lending arm—the General Motors Acceptance Corporation, or GMAC—into the home mortgage business in time to cash in on America’s housing boom. Wagoner knew GM had problems, but the company was making money, and he was content to move slowly.

  “[Wagoner’s] strategy, in effect, was a big bet on continued cheap oil,” wrote journalist Paul Ingrassia. “By coincidence, in June 2004, National Geographic magazine carried a cover story titled ‘The End of Cheap Oil.’ One GM executive showed the story to Wagoner and suggested GM might be relying too heavily on trucks and SUVs. Wagoner retorted that the same faulty thinking had made GM the last company in Detroit to cash in big on the truck boom, and he wasn’t about to repeat that mistake.”

  Now GM too was paying for its overreliance on pickups and SUVs. But reality had done little to diminish Wagoner’s self-confidence. Though privately dismissive of Mulally, he received his guest graciously, welcoming him to Detroit and the automobile industry.

  “We’re fierce competitors, but we have a lot of things in common,” Wagoner told Mulally, explaining how the two companies had historically collaborated on certain issues relating to government regulation of fuel economy, emissions, and safety. “I hope we can continue to work together in the future.”

  Mulally assured Wagoner that nothing would please him more. After all, he still had so much to learn about the automobile industry. Wagoner smiled smugly. He would be happy to school the novice CEO. So Mulally began firing off a barrage of questions about everything from business cycles and product strategy to the upcoming negotiations with the United Auto Workers and the U.S. Environmental Protection Agency’s efforts to raise corporate fuel-economy averages. He sounded like a man struggling to negotiate unfamiliar terrain. It was a calculated ploy worthy of Mata Hari, and Wagoner fell for it entirely. He was more than happy to play the wise master to Mulally’s naïf. He went out of his way to demonstrate his knowledge of these issues and others that Mulally had not dared ask about. It was a good thing Mulally was already becoming famous in Detroit for his grin, because as he listened to Wagoner talk, he could not help but smile.

  These guys don’t have a clue, either, he thought. They’re in the same place we are. They have all the same problems that Ford does.

  As he was leaving, Mulally told Wagoner he would like to be able to call him in the future if he had more questions. He was just trying to be polite, but Wagoner took it as another sign of weakness. He would later claim publicly that Mulally had sought his help as he struggled to understand the industry in those early days. The truth was, Wagoner had been played so well he did not even notice.

  Mulally did not need to study Ford’s archriva
l, Toyota. He had been a keen student of the Japanese automaker for years.

  “They make products that people want, and they do it with less resources and less time than anybody in the world. They’re a magical machine,” he said in an early interview. “This system of continually improving the quality, putting the variations into the product line that people want and doing it with minimum resources and minimum time is absolutely where we have to go. If you look at Ford, it’s the antithesis.”

  At the same time, Mulally was discovering that at least a few things in Dearborn were worth keeping.

  He had granted tacit approval to Fields’ Way Forward II plan shortly after accepting the job in Dearborn, assuming it would serve as a stopgap until a new and better plan could be developed. Now that Mulally had the opportunity to study it with a better understanding of the company and its problems, he realized that Fields’ new plan was fundamentally sound. If implemented correctly, it would reduce Ford’s North American production capacity by 26 percent over the next two years, reducing its installed maximum annual production capacity to 3.6 million units by the end of 2008. That was still more vehicles than Ford’s sales forecasters thought the company needed, but the gap was much narrower than it was now. Moreover, that figure assumed each factory would be running two shifts. If as many UAW members took buyouts as the company hoped, the actual capacity would be closer to 3 million units—about equal to projected sales. The plant closures and job cuts were also expected to reduce Ford’s annual operating costs by $5 billion. At the same time, Fields’ plan promised to accelerate the introduction of new cars and crossovers. Some 70 percent of Ford, Mercury, and Lincoln products by volume would be new or significantly upgraded by the end of 2008.