American Icon

by Bryce G. Hoffman

  What Mulally wanted was a dialogue between Dearborn and the rest of the company that would create consensus. Mulally understood that Ford’s global operations were too complex to be run centrally out of Dearborn, but he also appreciated the tremendous cost savings and efficiencies that could be gained by eliminating duplicate efforts around the world and creating real economies of scale.* During one of his first press conferences, Mulally was asked if Ford was considering a merger.

  “Yes,” he said. “We’re going to merge with ourselves.”

  As an aeronautical engineer, streamlining was as dear to Mulally as pork to a politician. He had spent his entire professional life figuring out how to reduce drag and improve aerodynamics. Now he began applying these same principles to Ford’s product portfolio. He asked for a chart showing every car and truck the company made around the world. To his dismay, none existed. So Mulally went to the websites of each of Ford’s divisions and printed out pictures of all of their offerings. Then he asked his secretary for scissors and glue. When she brought them, she found Mulally sitting at his conference table with printouts spread all over it. He took the scissors and started cutting out pictures of each vehicle made by Ford and its subsidiaries. Then he divided them by region and started pasting them together on pages like a kid working on a school project. When he was finished, Mulally counted them all. Ford and its subsidiaries were making and selling ninety-seven different nameplates around the world.†

  Way too many, Mulally thought as he studied his handmade charts.

  He picked up the scissors and started cutting again.

  Mulally would later share his charts with Ford’s board of directors. Before their December meeting, he commandeered a conference room and mounted blowups of them on the wall. When the directors had gathered at World Headquarters, he ushered them into the room. Mulally stood there silently as they studied his handiwork. As he expected, they were as overwhelmed as he was by the dizzying array of cars and trucks. Mulally had no trouble convincing them that Ford needed to radically simplify its global lineup.

  Mulally also wanted to streamline Ford’s organizational chart.

  It was clear to him from the start that too few people reported directly to the CEO. He had already removed one level of bureaucracy by getting rid of Steve Hamp and eliminating the position of chief of staff. But that still left Mulally with a convoluted management structure riddled with overlapping responsibilities and tangled chains of command. The head of communications for Ford of Europe was a good example: He reported directly to the vice president of communications in Dearborn, which meant the president of Ford’s European group had little knowledge of what this key subordinate was doing or why. On the other hand, the head of product development for Ford of Europe did report to the head of Ford’s European group, but he had little contact with his counterpart in the United States.

  Mulally wanted to replace this confusing command structure with a matrix organization like the one he had employed at Boeing. It divided the company neatly into business units and functional areas. Boeing had a matrix organization in place for engineering when Mulally was coming up in the company. He was quick to appreciate its value as a young engineering manager because it kept him informed of what was going on in other aircraft programs. When he was promoted to president of the commercial airplane division, he extended it across the entire organization. At Boeing, Mulally’s matrix organization had divided functions by aircraft program rather than region, treating each model as its own business unit. That meant that, in addition to a director of human resources for the entire commercial aviation division, there were separate HR chiefs for the 777, 767, and 747 programs.

  As Mulally figured out how to make this system work at Ford, he studied the automaker’s past attempts at creating a matrix organization—particularly Alex Trotman’s ill-fated Ford 2000 initiative. Trotman had created global functions without mirroring them in each business unit or making them all direct reports to the CEO. That meant that there was a global head of information technology, but no head of information technology for Europe. And the chief information officer did not report directly to the CEO. At the same time, the business units were stripped of their responsibility for profit and loss, effectively eliminating regional accountability. After the failure of Ford 2000, the pendulum had swung back in the other direction. The company that Mulally inherited had once again divided itself regionally. A few functions, such as human resources and legal affairs, were still organized globally, but most of the global positions had been eliminated. Responsibility for things like manufacturing had reverted back to the regions.

  Mulally believed his system offered the best of both approaches. It made each business unit fully accountable, but also made sure that each key function of the organization—from purchasing to product development—was managed globally in order to maximize efficiencies and economies of scale. Mulally wanted to create one Ford and fully leverage the company’s global assets, but he also wanted the business units to remain in place to stay on top of the unique challenges and opportunities presented by each market. His approach was designed to break down the barriers to communication that existed inside the automaker and involve all of the company’s leaders in the task of fixing Ford.

  Mulally took another piece of paper and drew a table. He made columns for each of Ford’s four business units: the Asia Pacific, European, and Americas groups, as well as Ford Credit. Above these, Mulally wrote “Customers” to signify that these were the parts of the organization that faced the outside world. Down the left side of the table, he created rows for each function, from finance and product development to human resources and information technology.* The heads of each of these would report directly to him, as would the heads of each of the four business units. Each function would have a regional director in each business unit as well, and these individuals would jointly report to the head of their division and the head of their function. Under Mulally’s system, the head of communications in Ford of Europe would report to both the president of Ford’s European group and the vice president of communications in Dearborn. This system significantly increased the number of people who reported to Mulally directly and eliminated additional layers of bureaucracy, such as Mark Schulz’s position—president of international operations.

  The board was impressed by Mulally’s new organization. Now all Mulally had to do was decide who should head each group or function.

  He also had to deal with Ford’s brands. Mulally thought there were too many of these, too. Ford had not been able to manage the Blue Oval, let alone the seven other brands that made up the company. Each of these brands faced unique challenges. Coping with them was spreading the automaker’s already weak bench even thinner and consuming precious working capital the company could no longer spare. It had already pumped billions into these brands, and most were still losing money. As he was putting together his plan for the board, Mulally had listed each one: Ford, Mercury, Lincoln, Aston Martin, Jaguar, Land Rover, Volvo, and Mazda. Then he drew a line through each one of them except for Ford.

  Getting rid of the rest would be a tougher sell than streamlining the product portfolio and organization chart. He could not get rid of Lincoln or Mercury yet, because too many dealers in North America depended on them. The European brands presented a different set of challenges.

  Owning legendary marques like Aston Martin and Jaguar had been a source of pride for the company and the Ford family. These European brands lent an air of worldliness and sophistication to what had always been a midwestern company that produced more utilitarian products for the masses. Many of the descendants of Henry Ford also drove them. So did many Ford executives, as Mulally had noticed to his dismay when he first arrived in Dearborn. That was one more reason he wanted them gone. But Bill Ford and other directors were fond of the European subsidiaries. They had approved massive investments in these brands because they were convinced Ford needed world-class luxury vehicles to truly compete in the globa
l market. Land Rover was profitable, they reminded Mulally. Some also believed that Jaguar was poised to turn the corner. It took a while, but Mulally was able to convince the board that his strategy of focusing on the Blue Oval made sense, given the company’s finite resources. By the end of the year he was able to persuade the board to sell Jaguar and Land Rover and consider a sale of Volvo. Bill Ford still wanted to keep it, but said he would not stand in Mulally’s way if the new CEO could put together a compelling case to sell the Swedish brand. Lincoln was staying, at least for now, because Mulally had been persuaded that Ford needed at least one luxury marque. Mercury would get a temporary reprieve, but only until the company could make Lincoln strong enough to stand on its own.

  The rest was easy. The board fully supported Mulally’s desire to better leverage Ford’s global scale, negotiate a competitive contract with the UAW, and redouble its efforts in Europe and Asia. In the past, Mulally explained, Ford had been overly dependent on big trucks and its U.S. business. He wanted to change that. He showed the directors a slide with two pie charts. The first represented Ford’s global product offerings, and it was divided into three equal slices labeled small, medium, and large. The second represented Ford’s global revenue. It, too, was divided into three equal segments, representing Asia, Europe, and the Americas.

  “We need to offer a full family of vehicles—cars, crossovers, and trucks,” Mulally told the directors, explaining that this was the surest hedge against fluctuating fuel prices and changing consumer preferences. “We also need to split the business evenly among each of the three regions so that problems in one part of the world no longer threaten the entire organization.”

  This was the essence of Mulally’s plan, which he summed up with just two words: “One Ford.” As Mulally watched the directors nodding in agreement, he knew he had found what he was looking for—a catchphrase that summed up everything his revolution stood for, a rallying cry. But there was more. On November 14, as he was finalizing his presentation for the board, Mulally finally managed to distill everything down to four simple points, which he now shared with the directors:

  Aggressively restructure to operate profitably at the current demand and changing model mix.

  Accelerate development of new products our customers want and value.

  Finance our plan and improve our balance sheet.

  Work together effectively as one team.*

  These were the four nails that Mulally would hammer home in every meeting, every speech, and every interview. Fields’ accelerated Way Forward plan would take care of the restructuring, at least in North America. Smaller cuts would be needed in Europe and elsewhere. Mulally’s Thursday BPR meetings were making his executives work together as a team. He was still looking for the right person to lead the development of new products, but that could wait. His next priority was point number three: He had to figure out how to pay for it all.

  *The Renaissance Center had actually been built by Henry Ford II in the 1970s as part of a largely unsuccessful effort to revive the city’s faltering economy. Ford had long since moved out, and GM purchased the building for pennies on the dollar in 1996.

  *The Ford Edge and Lincoln MKX crossovers were pilot programs for GPDS, but work on them had already begun when it was implemented.

  †Before GPDS, the total number of engineering changes for each part had averaged between ten and fifteen, depending on the type of vehicle.

  *For a reproduction of the complete advertisement, see the photo insert.

  *Mulally liked to contrast Ford’s organic development to that of Toyota, which had focused solely on the domestic Japanese market until the late 1950s, when it began exporting internationally as part of a calculated growth strategy. Unlike Ford, Toyota expanded as single, global entity. Though it would go on to establish product development and manufacturing facilities around the world, Toyota’s operations remain centralized in Japan. While Mulally found inspiration in Toyota’s model, it was actually closer to Trotman’s Ford 2000 strategy than Mulally’s own plan—a fact that would come back to haunt the Japanese automaker later.

  †This figure included Ford’s European luxury brands and Mazda.

  *Most of these were obvious, but Mulally wanted to make sure he did not forget any. So he imagined that he was starting a company from scratch and tried to think of all the different people he would need to hire to staff it.

  *This was the final wording Mulally presented to the board of directors. What he actually wrote on November 14 was:

  1. Aggressively restructure

  2. Accelerate the development of competitive new products that people want and value

  3. Secure the financing

  4. Need working together and leadership

  CHAPTER 7

  Betting the Farm

  Borrowing for expansion is one thing; borrowing to make up for mismanagement and waste is quite another.

  —HENRY FORD

  In November 2006, Alan Mulally listened as Ford Motor Company’s chief financial officer, Don Leclair, and treasurer, Ann Marie Petach, went over the pitch the automaker was about to make to the nation’s largest investment banks. Ford was hoping to borrow at least $18 billion to help pay for the company’s turnaround and insulate it against the economic turbulence looming on the horizon. It was a lot to ask for a struggling domestic car company, even in a time of easy credit. But the presentation was persuasive, and Mulally was smiling by the time the pair finished.

  “That’s really impressive,” he told them. “Let me know how it turns out.”

  Leclair and Petach shot each other a nervous glance.

  “We need you to give the presentation in New York,” Leclair told Mulally frankly. “You’re the only new model we’ve got.”

  A few days later, Mulally was on his way to New York. It would be his first pilgrimage to Wall Street as Ford’s CEO.

  Though he would later claim credit for convincing Ford to take out “the biggest home improvement loan in history,” work on the financing deal that helped save the automaker was already well under way by the time Bill Ford offered Mulally the job. Ford had become convinced that, regardless of who he found to lead the company, they were going to need a huge amount of cash to fund any restructuring.

  It was an argument Carl Reichardt had been making for years as Bill Ford’s finance guru. His mantra was “Cash is king,” and he repeated it often—not just to Ford himself, but also to the rest of the finance team and the board of directors. Even when the company still seemed headed for the big profits Bill Ford had promised Wall Street, the veteran banker had urged him to think beyond the next quarter.

  “Earnings are important, but what’s really important is cash—cash, cash, cash. We ought to be looking at our liquidity,” Reichardt told his protégé. “You can never have enough liquidity, particularly if you think you’re going to have to restructure.”

  Something else was also becoming clear to Reichardt in the months before he retired from Ford’s board of directors. He told Ford that the days of loose lending were coming to an end.

  “You don’t know when that window is going to close,” Reichardt warned Ford before stepping down in April 2006. “You ought to grab as much as you can while you can.”

  But the real push for maximum funding was coming from Leclair. Ford’s CFO was becoming increasingly concerned about the company’s finances. Like Reichardt, he was worried about the state of the credit markets. But Leclair was even more worried about Ford’s ability to borrow money. The automaker’s credit rating was falling fast, even as demand for its bread-and-butter pickups and sport utility vehicles waned. At the same time, Leclair was convinced that the sales projections for new models prepared by Mark Fields and other executives were far too rosy. Regardless of what might happen with the broader credit markets, Leclair was convinced that Ford’s own borrowing window would soon be slammed shut by the banks. In a meeting with Bill Ford that spring, he urged his boss to authorize one last, big push to borro
w as much money as possible—even if it meant using secured loans. That was something Ford hoped to avoid. It would be seen as a sign of desperation. But Leclair said Ford was desperate, and he was adamant that the company needed to avail itself of every option. Bill Ford told Leclair to see what the banks were willing to do.

  By the summer of 2006, Leclair and Petach were hard at work on what would become one of the biggest financing deals in the history of the automobile industry. As Bill Ford and Joe Laymon were wooing Mulally, the finance team had already begun feeling out the big investment banks. The news was not good. If the automaker wanted access to serious money, it would need collateral—and not just a few aging factories or pieces of developable real estate. To get the sort of cash Ford was looking for, the banks wanted the automaker to mortgage nearly everything: Ford Credit, Volvo, and all of its domestic assets. The alternative would have been a bundle of asset-specific loans, but the banks were not particularly keen to end up with the title to, say, a car factory in Wayne, Michigan. If Ford defaulted on its new loans, they wanted everything.

  Reichardt and Leclair had been right: The borrowing window was closing. It would still be months before mortgage brokers started turning away unemployed roofers with no proof of income, but for the Dearborn automaker the credit crunch had already arrived.

  The man whose name was on the building now faced one of the most difficult decisions of his life. Bill Ford was confident he had found the man who could save his company, but he knew that the sweeping, global restructuring he and Mulally were discussing would not be cheap. Ford also knew that Leclair was right. The company was running out of time. If Mulally had not changed his mind and agreed to leave Boeing, it would have been out of options, too. Bill Ford had to make this count. He hated the idea of gambling with his family legacy, but without sufficient financing they would almost certainly lose the company anyway. He decided to risk everything for one last, heroic effort.