Safety standards were not the only thing the United States and European Union differed on either. E.U. lawmakers were pushing for tighter restrictions on carbon dioxide emissions, while the U.S. Congress was preparing tough new fuel-economy targets. Designing products for worldwide consumption would require Ford to serve both masters.
Mulally found the American mileage restrictions particularly galling. Known as the corporate average fuel economy, or CAFE, regulations, they established sales-weighted mileage standards for all of the automakers. That meant a company could produce as many gas-guzzling SUVs as it wanted, as long as it also made a similar number of fuel-efficient compacts. Most other nations used high fuel taxes to dissuade drivers from choosing inefficient vehicles. CAFE put the onus on the car companies. It appealed to America’s libertarian sensibilities, but it forced automakers to produce cars that nobody wanted to buy and then sell them at a substantial loss. In a nation with some of the lowest gasoline prices on the planet, there was little incentive for consumers to choose a small car—particularly when most of their neighbors were tooling around in enormous trucks.
When Mulally studied the data, he found that, despite the billions of dollars spent by automakers to meet the CAFE requirements, the American people were driving farther, using more gasoline, and importing more oil than they were when the first limits went into effect in 1975. He made the mistake of sharing his findings with Congress during a hearing on even tougher proposed standards before the House Subcommittee on Energy and Air Quality on March 14.
“When the CAFE law passed in the 1970s, the goal was to reduce our dependence on foreign oil,” he told lawmakers. “Frankly, that did not work.”
The members of Congress were not accustomed to this sort of candor—particularly from the CEOs of companies who were the target of new regulations they were about to vote on. One lawmaker asked the representatives of the other car companies on the panel if they agreed with Mulally. Their answers were far more equivocal. But Mulally was not finished. He reminded the legislators that, despite their best efforts, consumers were still the ones who decided what they drove. If Washington wanted them to drive smaller cars, the government should consider other alternatives, such as a higher tax on gasoline. Many of the lawmakers bristled at Mulally’s implied criticism of their approach to the problem and made sure he knew it.
Mulally was surprised by the animosity he felt emanating from the dais during this first visit to Capitol Hill as the head of Ford Motor Company. At Boeing he had worked closely with the federal government on a number of issues, and his presence was always welcomed—particularly by politicians eager to get a piece of Boeing’s production in their district. There was a lot less love for the American automobile industry.
These guys act like we’re running guns or smuggling drugs! he thought as he listened to the legislators rail against Detroit’s intransigence on the fuel-economy front. This is going to make things a lot harder.
Mulally was not opposed to better gas mileage or reducing greenhouse gases. He proved that a few weeks later by naming the company’s first vice president of sustainability, environment, and safety engineering, Sue Cischke, who would also be the first woman on his senior leadership team.
“I firmly believe we are at an inflection point in the world’s history as it relates to climate change and energy security. The time for debating whether climate change is real has past,” Mulally said in an e-mail to employees announcing Cischke’s appointment on April 23. “It is time for a conversation about what we, as a society, intend to do to address it.”
The task of fixing Ford became Mulally’s all-consuming mission. He got to the office early each morning. He was already answering e-mails by 6 A.M. He worked until dinnertime, then went home and spent the rest of the evening reading reports, retiring early. He worked seven days a week. Mulally rarely saw his family, though he scheduled regular telephone calls with his wife, children, and mother.
During one conversation with his mother in early 2007, Mrs. Mulally complained that the Dodge van at the senior center she frequented in Lawrence kept breaking down. Since her boy was now the CEO of one of the world’s largest automobile manufacturers, she thought he might be able to help them out. Mulally asked the local Ford dealer to meet with his mother and some of the other ladies at the senior center to pick out a new E-Series van. But she was soon back on the phone complaining that there were too many choices—185 to be exact, and that was not counting all the different colors and upholstery options.
Mulally thought that was ridiculous, but as he studied the order books for other vehicles, he discovered that the problem was not limited to the E-Series. The number of different configurations available for each Ford car and truck was staggering. A customer buying a 2007 Ford Mustang V-6 deluxe model could choose from 16,000 different combinations of colors, upholstery, and features. Building all those different variants taxed Ford’s factories and created a huge amount of work for designers, engineers, and suppliers. It also limited the company’s ability to achieve real economies of scale. Ford’s Japanese competitors offered far fewer choices. Mulally ordered the sales and marketing team to pick the most popular combinations and eliminate the rest. By the time the next version of the Mustang came out a few months later, the number of buildable combinations had been reduced to just 200.
As for the senior center, Mulally personally delivered a fifteen-passenger van on March 17. The oldsters promptly christened it “the Mulally Trolley” as his white-haired mother showed off her successful son, who stuck around to serve as grand marshal for Lawrence’s St. Patrick’s Day parade. He rode down Locust Street with his mother in the back of a red Mustang convertible, both of them waving to the cheering crowd. No astronaut ever enjoyed a better homecoming.
On March 12, Ford closed on the sale of Aston Martin. Bill Ford had put the bespoke British brand up for sale in August 2006, just before Mulally was hired. It was the one recommendation from the Project Game Plan team that everyone could actually agree on. Mulally wholeheartedly endorsed the move; he would have just as soon put “For Sale” signs on Jaguar, Land Rover, and Volvo at the same time. But at least this was a start. The brand of choice for fictional superspy James Bond was sold to a consortium of investors led by motor racing entrepreneur David Richards and backed by Kuwaiti capital. The deal added another $848 million to Mulally’s war chest and began the difficult process of dismantling Ford’s house of brands.*
Mulally felt like he was moving at light speed. He had only been at Ford for six months, but he had already fundamentally transformed just about every aspect of the business—and bigger changes were in the offing. Mulally had figured out where Ford needed to go, and he could not wait to get there.
Outside the auto shows and financial briefings, he had been spending much of his time briefing analysts and reporters on his four-point plan to save the company. By the time Mulally took the podium at the New York International Auto Show on April 4, most could recite each point verbatim. When he delivered the same stump speech there that he had been giving since January, it began to sound a bit stale—particularly to the Wall Street analysts who were always looking for some new tidbit of information to feed into their models.
During a one-on-one with Mulally shortly after the New York show, I told him that people seemed to be growing tired of hearing about his four-point plan and wanted something new.
Mulally looked at me with sincere incredulity.
“But, Bryce, we’re still working on this plan,” he said. “Until we achieve these goals, why would we need another one?”
He was right. Ford did not need a new plan. But the analysts were growing impatient. And they were not the only ones. The Ford family was starting to ask some tough questions, too.
*Later versions would add additional features, including vehicle diagnostics, traffic reports, turn-by-turn navigation, and even a program that could call 911 in the event of a crash.
*Fiat’s “Blue&Me” system was l
ess advanced than Ford’s, offering fewer features. Under the terms of its agreement with Microsoft, it was initially only available in Europe. That changed when Fiat began selling cars in the United States again in 2011.
*The formal negotiations were conducted by Ford director Robert Rubin, Derrick Kuzak, Bill Gates, and Martin Thall, the head of Microsoft’s automotive division.
*These included the Ford Interceptor concept, a modern reimagining of the muscle car as a full-size sedan, and the Ford Airstream concept, a futuristic space probe on wheels whose chief feature was an LED lava lamp. Once the show was over, both would be rolled into the warehouse, never to be seen again. A third prototype, the Lincoln MK-R concept, would at least provide the framework for the future Lincoln MKS sedan. In addition to the Five Hundred, Ford also unveiled a freshened version of the North American Focus.
*Before 2006, the most Ford had ever lost was $7.4 billion in 1992. The 2006 figure was far from the worst in the industry, though: General Motors had lost a staggering $23.4 billion, also in 1992, when accounting changes undercut both automakers’ earnings.
*Each month, Ford held a conference call with analysts and reporters to go over its U.S. sales results. Most of the other major automakers did as well.
*After a few months, Ford’s public relations team realized they could use these report cards to draw attention to positive news that might otherwise have been ignored. The communications staff figured that any information we obtained surreptitiously would be deemed more newsworthy. Once we realized what Ford was up to, we stopped writing about the report cards.
*The Toyoda family spells its name differently than the company founded by its patriarch, Sakichi Toyoda, in 1926. Toyota sounds almost the same as Toyoda but has more auspicious connotations in the Japanese language.
†Ford was still dependent on key components from Japanese suppliers that were part of the Toyota keiretsu, and these companies limited the number of parts the Dearborn automaker could purchase annually.
*The rest of the 8,000 would leave later that year. Another 2,000 salaried employees would get pink slips, since there had not been enough takers for the voluntary separation program.
*The board also approved a new bonus scheme that tied executive bonuses to the same performance metrics that were used for other salaried employees. Mulally had insisted upon this to make the point that everyone was on the same team and should be judged accordingly. The board also required executives to begin paying their own greens fees when they golfed.
*Under the terms of the sales agreement, Ford retained a $77 million stake in Aston Martin—not enough to have any say in its operations, but enough to retain a modicum of the prestige associated with the marque.
CHAPTER 10
Family Strife
A business which exists to make one man or one family rich, and whose existence is of no moment when this is achieved, is not solidly founded.
—HENRY FORD
On a pleasant Saturday in April 2007, the heirs of Henry Ford once again converged on Greenfield Village to discuss the fate of Ford Motor Company. This time they were not alone. The principals of Perella Weinberg Partners, two of the most well-connected dealmakers on Wall Street, had been invited to address the Fords. Bill Ford had hoped his decision to step aside as the automaker’s chief executive would mend the rift that had begun to form inside the family. Now it seemed like those long-simmering tensions were about to boil over.
As he made the short drive to the museum grounds, Alan Mulally tried not to take it personally. Until now, he had paid little attention to the internal politics of the Ford family. He counted on Bill Ford to keep the peace and watch his back. As a condition of taking the job, Mulally had asked him to handle the Ford heirs and keep them out of his hair. He warned Bill that any interference or public disagreement would jeopardize the “consistency of purpose” that was essential to his turnaround plan for the company.
“You’ve got to support me one hundred percent,” Mulally insisted.
Bill had agreed, asking only that Mulally provide his relatives with regular updates on the progress he was making. Ford said these briefings would go a long way toward deflecting the sort of problems he was concerned about. That was not an issue for Mulally, who loved nothing more than sharing Ford’s progress on his plan, but the presence of the Wall Street dealmakers at this meeting was hard to ignore. As he pulled into the parking lot, he reminded himself that Perella Weinberg was there because of an internal debate that had begun long before he was even approached by the company.
This isn’t about me, Mulally told himself. They just want to know how this is going to turn out.
For years the Ford family had been meeting about once a quarter—often in Dearborn, but sometimes in more exotic locales. These gatherings were part social occasion, part business briefing. They always featured what many participants described as “a healthy amount” of discussion and debate. But the intensity of both had increased dramatically since the beginning of 2006. This was partly a function of the deepening crisis confronting Ford and the broader challenges facing the entire U.S. automobile industry. It was also a testament to the proliferation of new media, which allowed the far-flung Fords to follow every twist and turn of their company’s travails like never before. Thanks to the Internet, even the most casually engaged members of the family were familiar with Ford’s mounting losses, declining sales, and uncompetitive products. They knew that General Motors and Chrysler each claimed to be far ahead of their company in addressing the industry’s collective woes. They had no way of knowing whether these statements were true or false, which only added to their anxiety. It did not help that many of them had never worked a day in their lives and knew little about the car business—or any other business for that matter. Every setback seemed like a catastrophe. Ford’s decision to suspend dividend payments seemed to support General Motors’ claim that it was in better shape than Ford because GM was still paying dividends to its shareholders. Family members were also getting an earful from their personal advisers. Some had lawyers. Some had financial planners. They all had an opinion about Ford Motor Company, its future prospects, and what those might mean for their clients. However, few of these advisers knew enough to have informed opinions. By the time they arrived at each quarter’s meeting, the heirs were bristling with questions.
“What’s the company doing about this?”
“How does this compare with what’s happening in the global industry?”
“How should we, the family, think of these issues that we’re reading about and hearing about?”
By the spring of 2006, these concerns were coming to a head. At the time, the board of directors was actively considering all options and the family knew it. While most trusted Bill Ford and his cousin Edsel—who was still a member of Ford’s board of directors—to look out for their interests, a growing minority worried that they were more concerned about saving the company than protecting the family’s investment. They voiced these concerns during the conclave. It was “a particularly spirited session,” in the words of one attendee, and it ended with the family asking its attorneys to begin a search for a firm that could advise the Fords on their options.
The decision to hire Mulally initially seemed to obviate the need for an outside adviser, but the issue was raised once again shortly after he started at the company. Who was stirring the pot? Many pointed the finger at Bill Ford’s sister, Sheila, and her husband, Steve Hamp.
In a family like the Fords, the usual sibling rivalries sometimes escalate into business battles. That was certainly the case between Bill and Sheila. It had long been understood in the family that Ford women would never be appointed to the company’s board of directors, let alone to the chairman’s post. Friends said Sheila resented this, just as she resented her exclusion from the family’s football franchise, which Bill ran with his father. They suggested this made her a more vocal critic of her brother, and that criticism increased after Hamp joined the compan
y as Bill’s chief of staff in late 2005.
If Hamp had been pessimistic about Ford and its future when he was chief of staff, the circumstances of his departure did little to improve his attitude. Some family members resented Mulally’s move against one of their own. But there were other causes for renewed concern on the part of Henry Ford’s heirs.
When Bill Ford took over as chairman in 1999, the family’s Class B shares had been worth approximately $2.25 billion. Now they were worth only about $578 million. The bulk of that loss had occurred long before Mulally’s name was even discussed in Dearborn, but several family members had hoped the decision to hire a new CEO would spur a rebound. It did initially. However, while Mulally’s arrival had sent Ford’s stock north of $9, the rally did not last. By the time the family convened on April 21, the company’s shares were trading for less than they had been before his hiring was announced seven months earlier. Then there was the matter of the dividends. Those Class B shares generated $130 million for the Ford family back in 1999. These payments were a significant source of income for some of Henry Ford’s heirs, many of whom also had sizable holdings of the company’s common stock. Now they were getting nothing.
Some were still worried they might end up with less than that. The recently concluded financing deal had required Ford to mortgage all of its U.S. assets. If the company defaulted on those loans, the Fords would lose control of their own name. Of course, they knew that when they approved the deal, but that was before the company posted the largest loss in its history.
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