The cult of personality that had long held sway at Ford was being replaced by a new regime of results. But some privately expressed concern that too much was riding on Mulally’s shoulders and wondered if his would be a permanent revolution or just another failed coup.
*Ford announced that Fields would no longer be using a corporate jet for personal travel on January 18, 2007. While the cost of his weekly flights had been significant, it is worth noting—as Fields did to me at the time—that he worked on the way to and from Florida, something that was certainly more difficult to do on a commercial jet.
*In the interim, the marketing position was downgraded, and Bacus was never made an officer of the company.
†In this capacity, Fowler worked closely with Joe Hinrichs, then head of manufacturing for North America. Both men reported to Dave Szczupak, who retired shortly after Mulally was hired.
*Because Fowler was not part of the senior leadership team, he was not invited to the first executive meeting with Mulally.
*Many of us thought this was unprofessional and did not participate.
*Chief Technical Officer Richard Parry-Jones did have this title at one point, but in name only.
*The reason electrical was different was that Ford realized it simply did not have the engineering talent to maintain separate electrical teams in each region at that time.
†Kuzak had been pushing for a less parochial approach to product development ever since he was called back to Dearborn. When Bill Ford had summoned him for a review of the company’s hybrid programs, Kuzak had advocated the creation of a common global platform for all of them. But Kuzak’s style was so understated and Ford’s culture was so impervious to change that it was unlikely that he could have made much of a difference without the backing of a forceful figure like Alan Mulally.
CHAPTER 9
The Best and Worst of Times
It is failure that is easy. Success is always hard
—HENRY FORD
On January 7, 2007, guitars shrieked, spotlights danced, and a hundred camera flashes popped as Alan Mulally rode onto the stage in Detroit’s Cobo Arena in a new Ford Five Hundred, an enormous Blue Oval glowing on the screen behind him. He emerged to the cheers of Ford Motor Company employees who laced the capacity crowd of automotive journalists from around the world. This was Mulally’s first auto show, and nothing in the aerospace industry had prepared him for it. He had done plenty of air shows, but those were subdued affairs compared to the North American International Auto Show, an annual spectacle of enormous proportions in which the world’s automobile manufacturers struggled to outdo one another before the assembled automotive press.
At the first auto show in 1907, Henry Ford had revealed his plans for the Model T—the car that would turn his modest Michigan start-up into one of the biggest manufacturing companies in the world. Now, exactly one hundred years later, the star of Ford’s show would not be a car, but a computer. Dubbed “Sync,” it was the product of a collaboration between the Dearborn automaker and Microsoft Corporation. It allowed motorists to connect their cellular telephones or MP3 music players to their automobile—either with a USB cable or a wireless Bluetooth connection—and control them using voice commands. Drivers could make calls, answer their phones, read text messages, or choose songs without taking their hands off the wheel.* It was nothing short of revolutionary, and it drew more attention than most of the cars and trucks shown in Detroit that year.
And it almost did not happen. A month before Sync’s scheduled unveiling, working prototypes had not yet arrived in Dearborn. But when Bill Gates is personally overseeing a project, things have a way of working out.
Sync was the common solution to both companies’ problems. Ford wanted its own in-car infotainment system to challenge General Motors’ OnStar system, a subscription-based service that used live operators instead of computers. Microsoft wanted to establish a beachhead inside the automobile—that elusive space between work and home where millions of people somehow managed to survive without its products. In 2003, the software giant set out to change that, beginning work on a voice-activated system that would allow motorists to control their phones and iPods while driving. It also began looking for partners in each of the world’s major automobile markets to put it on the road. Microsoft inked its first deal with Italy’s Fiat SpA in 2005.* In the United States, Microsoft initially approached General Motors, for the simple reason that it was the biggest player. But GM already had OnStar and was not interested in swapping it for an untried alternative from a company that was not exactly known for its flawless launches. Ford was next on Microsoft’s list. The two companies had been working together since the Nasser era. Though the plug had been pulled on some of those early ventures, the two companies still had a good relationship thanks to the mutual admiration of their respective chairmen. Bill Ford was impressed by Gates’ inventiveness; Gates appreciated Bill Ford’s “vision for how technology can improve the car experience.” That was about as much praise as he could muster for any other business leader. But despite their affinity, Gates said nothing to Ford about Microsoft’s new system until GM passed on it. Then, in April 2005, the Microsoft chairman traveled to Dearborn to present a $1 million donation to the Henry Ford Museum. Bill Ford was there, too. After the ceremony, Gates told him that he had an idea for the perfect collaboration. Later that summer, Ford and Microsoft began getting in sync.*
Ford originally planned to introduce the new system in the Explorer. But when Mark Fields was briefed on the program after taking over the Americas group a few months later, he rejected that idea. Fields recognized that Sync offered Ford something it desperately needed—a way to connect with young car buyers. To do that, Ford had to put it in a car they would actually buy. There was only one such car in Ford’s entire North American lineup: the Focus. Sync in a cheap compact was cool. Sync in a big SUV was just another piece of technology to bedevil their parents. Fields made the switch. Sync would debut in the Focus that fall, then spread rapidly to the rest of Ford’s showroom.
The only problem with the change in plans was that it made more work for the engineers, who were already struggling to deliver the product on time. Ford’s system was originally supposed to use the same hardware as Fiat’s. But as the designers added more features and voice commands, it became clear that the processors were just not powerful enough—particularly since Ford wanted a system that could be expanded in the future. In May 2006, both Ford and Microsoft decided a more robust set of chips was needed. The first Sync prototypes arrived in Dearborn on December 21. They were not fully functional, but they were close enough to fool reporters.
Alan Mulally was not fully up and running either. The usually eloquent CEO stumbled through the first half of Ford’s press conference at the auto show with an uncharacteristically stilted delivery. Mulally hated prepared speeches, but his handlers insisted that he use a teleprompter for this important event. It was a bad idea. But just when it seemed like the jaundiced journalists might start yawning, an image flashed up on the giant screen behind Mulally that drew audible gasps from some in the arena. There was Bill Gates smiling down on his old friend from Seattle like a nerdy Wizard of Oz. The Microsoft chairman was broadcasting via a satellite uplink from the Consumer Electronics Show in Las Vegas, where Sync was being unveiled simultaneously for the world’s technology press. Sync would prove the biggest hit of both shows—a lucky break for Ford, since the automaker had nothing else to offer in Detroit other than some mid-cycle product freshenings and a few concepts that would never be built.*
Ford’s other big hit was Mulally himself. Though his performance on stage was underwhelming, he was still Detroit’s most interesting new model. As soon as Ford’s formal press conference was finished, scores of reporters scrambled onto the stage, swarming the wide-eyed CEO like a bunch of Africanized honeybees. The scrum was so intense that more than one journalist was knocked off the stage as reporters from five continents thrust their tape recorders and boom m
ikes at the beaming executive.
“I have a great team here at Ford,” he told them. “The fact that we were able to raise the money to finance the plan just shows you the confidence the people have in us, [and] you’re going to see that momentum building quarter after quarter.”
When he finally broke away from press conference and began walking the show floor to check out the competition, the rock star treatment continued. Mulally’s media handlers held the reporters at bay, but photographers followed him everywhere he went—even into the General Motors and Chrysler stands. When he surprised the leaders of both companies by showing up unannounced, they looked less than thrilled to see him. The puckish Mulally just grinned, relishing their discomfort. GM’s Rick Wagoner and Chrysler’s Tom LaSorda and the other Detroit auto brass resented the speed with which the industry outsider had become the darling of the automotive press. In their minds, they had been slogging it out in the trenches for years and getting little credit for it. Now the aerospace industry’s answer to Howdy Doody had flown into town with a four-point plan and some color-coded slides and quite literally stolen the show. His Cheshire-cat grin was plastered across the front page of every newspaper and on the cover of every magazine. Nor were Ford’s competitors the only ones gnashing their teeth. Mark Fields had been the public face of the company in the United States ever since he arrived back in Dearborn. Now he stood awkwardly off to the side as reporters swirled around his new boss.
The intensity of the media coverage took Mulally by surprise. Boeing may have been a big company, but few journalists followed it closely. Ford, on the other hand, was the subject of continuous scrutiny by the local, national, and international media. Scores of reporters followed every twist and turn of the company’s travails. Now they also followed Mulally like a pack of hounds. A scribe from the Detroit Free Press tracked down his elderly mother in Kansas. Mulally resented this intrusion into his family life and never forgave the reporter. Mulally told his children to be careful about who they talked to and about what they posted on sites like Facebook. But he also loved the attention. He started each day by reading the press clippings, and he had a tough time when reporters drew attention to Ford’s many problems.
“Don’t make this a scuzzy story,” he warned during an early interview with the Detroit News. “I’ll burn your house down!”
Then he burst out laughing. But no one was entirely sure he was joking.
The financial results that Ford released a few weeks after the Detroit auto show were certainly no laughing matter. On January 25, the automaker posted a record loss of $12.7 billion for the previous year.* Much of that was due to one-time charges incurred as it idled factories and laid off workers. But the company’s loss from continuing operations was still $2.8 billion.
“We fully recognize our business reality and are dealing with it,” Mulally said in a conference call with reporters and analysts that morning. “We have a plan and we are on track to deliver.”
But Ford was already missing some of that plan’s key targets—a fact that came to light a few weeks later when the Detroit News obtained a copy of an internal company report card in February. It showed that Ford had fallen short of its January sales goal in the United States by 10,600 vehicles—the equivalent of an entire point of market share. Worse, the report card indicated that the company expected its U.S. sales to remain below plan for at least the next couple of months. Ford had hit its material cost reduction target in January but was not on track to hit its targets for the rest of the quarter. Ominously, the document noted that these metrics were “key indicators of progress toward achieving profitability by 2009 for North American automotive operations.” Finally, the report card showed that, according to the latest internal morale survey, Ford employees were not buying into Mulally’s revolution. Less than half said they were optimistic about the company’s future. That was even lower than the previous year. The goal had been 60 percent.
The report card was another calculated risk by Fields. Mulally had insisted on honesty and transparency—not just in the Thunderbird Room, but throughout the company. Fields decided a monthly report card was a good way to keep employees informed about the automaker’s progress, or lack thereof. Before it went out, most at Ford had no real idea of just how bad things were. They knew their stock was not worth as much as it had been, and they could count the empty desks, but there was little communication from the top. Even before Mulally’s arrival, Fields had tried to rectify this with weekly webcasts on the company’s intranet. Now he was taking that one step further by sharing some of the actual data from the Thursday BPRs with the U.S. workforce. And he planned to do it every month.
Mulally approved. The report cards would show everybody in the company where Ford was falling short of its turnaround goals, and he hoped this would inspire them to work harder. But not everyone agreed. Not surprisingly, Chief Financial Officer Don Leclair was the lead dissenter.
“This stuff is going to get out,” he warned Fields after he saw a draft of the first report card.
Fields knew he was right. After all, Ford leaked like a sieve. Fields himself had been furious when the Detroit News printed the details of his original Way Forward plan the day the board approved it, and he knew it was only a matter of time before someone sent the newspaper a copy of his report card, too. But Fields also knew that most of the data it contained would have to be made public eventually, either during the monthly sales briefing* or in the company’s quarterly financial filings.
“Listen, we’ve made the commitment, and I’ve made the commitment, to communicate regularly with our folks so they understand where we are,” he told Leclair. “It gives them the motivation to improve.”
Leclair persisted in his objections, but Mulally backed Fields. That did not stop a panicked Leclair from calling his rival when the story broke to say, “I told you so.”
“So what? It is what it is,” Fields replied. “On balance, there’s a lot more benefit to the company in our employees knowing where we are. It’s going to become public knowledge anyway, because we can’t seem to keep a secret.”
The same thing happened in March. Fields sent out his report card, the Detroit News got a copy, and Leclair got angry. This time, however, the charts on the report card did not include the actual numbers. Those had been removed. There had also been some thoughtful discussions about which metrics to include and which to leave out.* But there was far more concern about what this data actually showed.
Most things that Ford could control directly—quality, engineering costs, and the like—were on plan. But the company could do little about rising raw materials costs. Sales were also tricky. Some of the levers Mulally was pulling to improve the company’s long-term fundamentals were having a negative impact in the short term. Nowhere was that more obvious than in the sales numbers. For years Ford and the other Detroit automakers had offered consumers big cash incentives to make up for the shortcomings in their products. As a result, many cars and trucks were sold at a loss. These deals also eroded the resale value of those vehicles, making them that much less attractive compared to the imports. Incentives were a hard habit to break. But Ford was trying, and that was costing the company some customers.
Ford was also trying to limit sales to rental car agencies. The vehicles it sold to companies like Hertz and the Budget Rent a Car System were deeply discounted. Ford did not make much money from these sales, and it lost even more in terms of brand image. In America, cars and trucks are as much a fashion statement as a means of transportation. Nobody wants to drive a model they see lined up like canned food in airport lots. That was a big part of why the first Ford Taurus fizzled in the end, and Mulally was keen to avoid repeating that mistake. In addition to cheapening the brand, the commercial fleet business further undermined the resale value of Ford’s products, because these customers tended to dump large numbers of hard-driven vehicles on the used car market. Ford had a team of scientists and mathematicians figure out exactly how many u
nits the company could sell to rental car companies before it began having a deleterious effect, and Mulally told the sales team not to exceed that number.
In January—the month rental agencies placed most of their big orders for the year—Ford’s sales dropped 20 percent. But that was not the only reason why Ford was missing its market share targets. Despite Mulally’s insistence on sticking to the facts, some of the company’s sales forecasts were still too optimistic. He continued to hammer home the need for honesty in his Thursday meetings, often devoting special attention review sessions to this topic. Even more troubling developments outside Ford were also on the agenda.
The company’s chief economist, Ellen Hughes-Cromwick, was raising real concerns about the economy. Serious and analytical, Hughes-Cromwick was a meticulous East Coaster from upstate New York who always seemed to be crunching numbers in the back of her mind, even in the middle of a conversation. She had a master’s in international development and a doctorate in economics from Clark University. She came to Ford in 1996 after teaching at Trinity College in Hartford and putting in six years at Mellon Bank.
Hughes-Cromwick was a member of the Harvard Industrial Economists Group, which had been studying the issue of mortgage-backed securities with growing trepidation since early 2006. The housing market was deteriorating and credit was getting tighter. Ford’s own cost of borrowing had gone up astronomically because of its poor credit rating. During her first meeting with Mulally on September 29, Hughes-Cromwick showed him a copy of the letter she had sent to Ford treasurer Ann Marie Petach on September 19:
There are significant shifts underway in several markets. We’re presently in the midst of a significant housing correction in the U.S. More than twenty central banks globally have been tightening policies. Typically, these developments raise the probability of some financial consequences. In the past, the financial consequences have included:
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