American Icon

by Bryce G. Hoffman

  1. Devaluation, along with contagion

  2. Corporate implosion—this time it could be hedge funds

  3. Companies exposed to the commodity cycle

  4. Banks with large exposures to selected assets could get devalued

  Hughes-Cromwick told Mulally that the odds of a recession were as high as 1-in-3. She was surprised by how little this seemed to worry him.

  “You just have to deal with the realities and face it together,” Mulally said with a reassuring smile. “You have just got to be relentless in matching production to demand. You can’t let those stocks build.”

  He asked her to stay on top of the situation and make sure any bad news was highlighted in her weekly reports.

  Now those reports were getting more dire. After a closed-door meeting with a commissioner from the U.S. Securities and Exchange Commission in February, Hughes-Cromwick wrote a note to senior executives warning that the proliferation of subprime mortgages was posing a real danger to the nation’s financial system.

  “The subprime market has the potential to instigate volatility across other asset classes. Subprime bonds in equity indexes are plunging,” she wrote on February 13. “[There is] potential for this sector, along with hedge funds, to generate systemic risk.”

  Hughes-Cromwick also said she was concerned that federal regulators seemed to be relying on the financial industry to police itself.

  On March 4, she sent another note to Don Leclair listing all the warning signs that had preceded previous recessions, and compared those to the current data for leading economic indicators. She concluded that the economy was “vulnerable” and estimated the risk of another recession at as high as 30 percent. A few days later, she sent another note to Ford’s treasurer.

  “I remain concerned about subprime and other potential systemic risk,” Hughes-Cromwick cautioned.

  In their Thursday SAR meetings, Mulally and his team studied her reports with growing anxiety.

  Clearly Ford faced a long, uphill battle back to profitability—a daunting prospect for everybody but Mulally. Belying the predictions that the harsh realities of the American automobile industry would soon grind him down, he seemed to be having the time of his life.

  In March, Nancy Miner walked into a Ford dealership in Dearborn looking for a new car. A perky salesman stepped in front of her and extended his hand.

  “Hi, I’m Alan,” he said. “I’m from Ford. I’m just helping out here today.”

  The woman, a visitor from New York, had no idea whom she was speaking with. She told Mulally she was in the market for a new sedan and had narrowed her choices down to a Ford Fusion and a Toyota Camry. He told her he had owned several Camrys—all good cars—but suggested the Ford was a better bet. A few minutes later, Mulally had made his first sale. In less than an hour, he made two more. Another was pending.

  It would not be the last time Mulally played at being a car salesman. This was a way for him to see firsthand how Ford’s customers approached its cars and trucks. But it also generated a huge amount of goodwill for the company. Everybody who met Mulally walked away an ambassador for Ford. He had that effect on people.

  Consumers were not the only ones being won over by Mulally’s charismatic approach. In June, he invited all of the company’s dealers in the United States to come to town for three days so that he could look them in the eye and explain the big changes under way at Ford. There were about four thousand of them. To accommodate them all, the company commandeered Ford Field—the sleekly modern indoor stadium Bill Ford and his father had built for the Lions in downtown Detroit. There Mulally outlined his “One Ford” vision and promised to work with the franchise owners to improve relations between the dealers and the company. Then he did something entirely unexpected. He asked all of the Ford employees in the stadium to stand up, turn and face the dealers, and say, “We love you.”

  “We love you,” they mumbled.

  “No!” Mulally cried. He knew that many of the dealers hated dealing with the company. They felt like no one in Dearborn cared about them or their businesses. Mulally said that was going to change today. For Ford to prosper, its dealers needed to prosper. From now on, it was going to be a partnership.

  “Look at them and say it like you mean it,” Mulally insisted. “If you do, it will become a self-fulfilling prophecy.”

  “We love you!” the Ford employees shouted in unison.

  A few weeks later, he did the same thing with Ford’s suppliers.

  In January, Mulally made his first visit to Ford’s European headquarters in Cologne. European group chief Lewis Booth and Ford of Europe president John Fleming were eager to show off their latest products and brief their new boss on the progress they were making in the region. Ford’s European operations were a poignant contrast to North America. While most of its products were being panned in the United States, the new Ford S-Max had just been named “Car of the Year” in Europe, while a redesigned Ford Transit had taken the “Van of the Year” title. For 2006, Ford of Europe had posted a profit of $469 million, while North America had lost $6.1 billion. This was why Mulally had been in no rush to get over there; he had bigger things to worry about closer to home.

  Now that he was in Europe, Mulally worked his usual charm. During a town hall meeting with about 150 German employees, Mulally brought them to their feet with his effusive praise for their products and performance. During the question-and-answer session that followed, one of the engineers asked Mulally if he could get a Blue Oval lapel pin like the one the CEO was wearing.

  “You should have one,” Mulally said. “In fact, you can have mine.”

  He stepped off the stage, went over to the man, and pinned it on his chest like a medal. German employees were still talking about it a year later.

  Booth and Fleming organized a deep dive into the company’s European progress, showing Mulally how they had already right-sized the organization there and remade the product lineup. They were careful not to draw too sharp a contrast between themselves and their counterparts in the United States, because they knew Europe had been in the same dire straits only a few years earlier. Mulally was impressed by the presentation.

  “You guys have to keep it going while we sort out the rest of the business,” he told them. “What’s your better plan?”

  Booth and Fleming were not entirely sure what he meant. Mulally explained how important it was for them to keep improving and not be satisfied with the success they had already achieved. They needed to keep raising their targets to stay ahead of the competition and the external business environment. That was why all of the charts they put together for the weekly BPR meetings needed to look five years out. It was not just about coming up with a plan, Mulally said, it was also about coming up with a better plan at the same time. He left Booth and Fleming feeling upbeat, but with the knowledge they still had a lot more work to do.

  Mulally had made his first trip to Japan as Ford’s president and CEO in December. It was something of a pilgrimage—and a surprising one for the head of America’s second-largest automaker. He went specifically to see Toyota—Shoichiro Toyoda, that is, the head of the Toyoda family and honorary chairman of Toyota Motor Company.* Mulally had made no secret of his great admiration for the Japanese automotive juggernaut. He believed Toyota had become what Ford had once been: an agile, innovative manufacturer of products that made people’s lives better. Toyota was lean, well organized, and immensely profitable.

  Officially, the purpose of Mulally’s visit was to find out if Toyota was willing to allow its suppliers to sell Ford more of the parts it needed to produce hybrids.† He also wanted to find out if the Japanese automaker was willing to work with Ford to develop new powertrain technologies. But Mulally also had a more secret agenda. He wanted to see if Toyota was open to even closer collaboration with Ford. Maybe even an alliance. The answer to all of these questions was a polite, but firm, “No.”

  At the end of February, Mulally made a second trip to Asia.
This time he stopped in Hiroshima to visit the partner Ford already had in Japan, Mazda. The executives there viewed Bill Ford’s decision to hire Mulally as a positive development. They knew that Mulally had made many visits to Japan during his years at Boeing and had a real appreciation for the nation’s manufacturing prowess. He quickly impressed them with his knowledge of Mazda, too. It was a cordial visit, but Mulally dropped a subtle hint that the relationship with Ford was not something the Japanese automaker should take for granted.

  “Ford cannot continue to take care of Mazda forever,” he said. “I look forward to Mazda becoming stronger and learning to stand tall.”

  Mulally took his role as cheerleader in chief seriously. Ford’s employees had been down for so long, they needed someone to show them which way was up. But first he had to show several thousand of them the door.

  A total of 8,000 salaried employees had signed up for early retirement or buyout offers after the company announced that it would be eliminating 10,000 salaried positions in the United States by 2008 as part of Mark Fields’ Way Forward acceleration the previous September. On February 28, 2007, some 6,000 of those white-collar workers piled their possessions in file boxes, handed their ID badges to their bosses, and shuffled to their cars with heads hung low, a Ford security guard following close behind.* A few whispered the words to a protest song written by an anonymous employee to the tune of the Beatles’ “Yesterday” that had been making the e-mail rounds for the past couple of weeks:

  Yesterday

  Unemployment seemed so far away

  Now it looks as though it’s here to stay

  I was employed, just yesterday

  Suddenly

  My boss said they had no use for me

  I walked out with Ford security

  My Ford career stopped suddenly

  Yesterday

  The same day, Ford announced that its board of directors had voted to increase Mulally’s bonus from $5 million to $6 million for his four months of work in 2006. The timing could not have been worse. Suddenly the company’s cheerleader in chief was looking more like Ebenezer Scrooge.* The United Auto Workers were already in a huff over Mulally’s insistence that some executives continue to receive bonuses, despite the company’s staggering 2006 loss. Bill Ford recognized that Mulally’s windfall would provide more fuel for that fire, so he asked Joe Laymon to call UAW president Ron Gettelfinger to give him a heads-up before it was announced.

  “He was deserving of being recognized,” Laymon told the union boss, noting that the recent $12.7 billion loss was not Mulally’s fault. “We’re not talking about an average guy. We’re talking about a guy who we need to help us save the company.”

  Gettelfinger did not see it that way. The two men agreed to disagree, but the union boss warned Laymon that there would be an outcry from the workers. And there was. Mulally took a few punches in the press, too, which was already ridiculing his recent decision to revive the Taurus name.

  Mulally never got over his initial perturbation at Ford’s decision to drop the once-bestselling car from its lineup and had been trying to figure out how to bring it back ever since that first visit to the Product Development Center. Ford’s marketing people had explained to him that its replacement, the Ford Fusion, was the best car the company had in North America and was already making a name for itself thanks to positive reviews in Consumer Reports and other influential publications. Changing its nameplate back to Taurus would only confuse consumers, they warned.

  “Fine,” Mulally said. “What about the Five Hundred?”

  The Five Hundred was supposed to be Ford’s flagship. But its bland styling and an almost total lack of marketing support had made for a weak launch in 2004, and sales had never really taken off. Despite its homely looks, the Five Hundred was actually a decent automobile. It was based on a rock-solid platform from Volvo with a five-star safety rating and was even available with all-wheel drive. And as Mulally had tried to convince reporters at the North American International Auto Show in January, its appearance had been improved—though one of the designers in charge of that makeover had described it as “lipstick on a pig.”

  It was good enough for Mulally. But when Ford announced that the refreshed 2008 Five Hundred would henceforth be known as the Taurus a month after the Detroit show, there was a great deal of snickering among veteran automotive reporters. It seemed Mulally was the only one who still thought the Taurus name had life in it. It did not help that the new car was also significantly more expensive and a lot larger than the old Taurus. It spoke to a lack of understanding of the more subtle nuances of the automobile business. In fact, sales of the Taurus née Five Hundred would continue to disappoint. But Mulally knew what none of his detractors did: The company’s designers were already hard at work on a far better version of the automobile. Mulally ordered them to make this one count—and to get it done in record time.

  Derrick Kuzak, Ford’s new global product development chief, was already making real progress with the company’s engineering and design departments. His teams continued to improve Ford’s Global Product Development System, taking the original Mazda approach to new levels. Mulally had been a big proponent of computer-aided engineering and testing at Boeing, and pushed for a more rapid migration to digital design tools at Ford. Kuzak also gave his engineers more time to actually engineer by reducing the number of meetings required at each step of the design process. By the middle of the year, he and his team were well on their way to reducing the engineering cost of a new vehicle by 60 percent and cutting the time to market by 25 percent or more. These gains would have been impressive anywhere. In Detroit, they were unheard-of.

  Under Mulally, the status of engineers inside Ford improved dramatically. People in other departments listened to what they had to say, because Mulally had convinced everyone that better cars and trucks were the key to Ford’s revival. All employees at every level of the company now knew their most important job was supporting Ford’s global product renaissance.

  Mulally’s new multinational approach even extended to design. Before he was hired, the company was simultaneously developing two distinctly different design languages. In North America, designer Peter Horbury was still focusing on “bold, American design,” while his counterpart in Europe, Martin Smith, was winning wide acclaim in automotive circles for what he called “kinetic design.” Unlike Horbury’s chunky, chrome-heavy approach, Smith’s style was all about curves and fluid shapes and making cars that looked like they were moving even when they were standing still.

  “Pick one,” Mulally said.

  Kuzak and his team decided to focus on Smith’s kinetic design theme. Though there would be minor variations to account for regional requirements, this look would define all of Ford’s globally available vehicles going forward—in other words, most of the company’s lineup. A few products that were specific to certain regions, such as the Ford Mustang and F-150 pickup, would retain their local flavor, albeit with a nod to this overarching look.

  Agreeing on a common design language made it easier to create vehicles for the world market. But that was not the only reason Mulally insisted on it. It was also about building Ford’s brand. He wanted a Ford to be instantly recognizable as a Ford whether it was in Detroit or Dresden, São Paulo or Shanghai. And he did not want it to stop with the exterior. Mulally insisted that this commonality extend to the look, feel, and placement of knobs and switches—even the way a Ford door sounded when it was closed. Kuzak had already been working in this direction in North America before Mulally arrived. He referred to the approach as “Feels right, sounds tight.” Now he had the brief to take it around the world. Together, all of these attributes would form what Kuzak referred to as the Ford brand DNA—a genome that was designed and engineered to convey quality, innovation, and style.

  “It’s all aimed at creating a design that creates a visceral reaction in people,” he explained. “We want people to have strong, emotional reactions to our products.”
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  The rapid pace of the revolution in Dearborn began to silence the skeptics who had doubted the ability of an outsider to make sense of such a complex business. But Mulally was finding the automobile industry a lot more complicated than he had anticipated—particularly when it came to labor relations and government regulations.

  As he studied Ford’s contract with the UAW, Mulally was dismayed to discover that Ford could not close factories in the United States without the consent of the union. Even then it had to continue to pay idled workers and cover their benefits until new jobs could be found for them. Nor could the company force them to relocate. This was a real problem in places like Edison, New Jersey, where about 160 workers remained on the Ford payroll three years after their plant—the only one in the region—had been shut down. The only option was buyouts. Ford was offering generous packages to all of its UAW-represented employees as part of Fields’ accelerated Way Forward plan, but the whole idea of paying people to leave the company was hard for Mulally to swallow. When he slashed Boeing’s workforce after the September 11 attacks, it had all been accomplished with the stroke of a pen. In the automobile industry, nothing was that simple.

  Mulally was also learning about the dizzying array of rules and regulations imposed by governments around the world on Ford and its products. There were no global standards for cars and trucks; the United States followed one set of rules, while most of the rest of the world followed another. Turn signals, for example, were required to be amber in most countries, but in the United States, the rear ones could also be red. In Europe, additional indicator lights were required on the side of the vehicle, but those were optional in the United States. Changing the color of a taillight lens was relatively simple, but changing the position of the front bumper to meet the different standards in Europe and the United States was a major engineering feat. In Europe, the emphasis was on protecting pedestrians; the U.S. rules were designed to protect vehicles and the people riding in them. Crash tests were also conducted differently in different regions, each subject to different standards. All of this made Mulally’s dream of homogenizing Ford’s global lineup a stretch goal for the company’s designers and engineers.