Mulally agreed that negotiating the sale should be Booth’s top priority, though as the process dragged on, he began to wonder if the Brit really could bring himself to pull the trigger.
The British government was particularly concerned about the sale because the two brands were both based in the English Midlands—major employers in an otherwise depressed manufacturing region. The trade unions were anxious to see guarantees for workers and their pensions. Booth told both groups that he welcomed their input but said the final decision on whom to sell to would be Ford’s and Ford’s alone. He took great pains to make sure Ford made the right one. Booth studied the finances of the bidders to make sure they had enough money not just to cover the purchase price but also to keep both brands running. Ford would remain a major supplier to whoever ended up with Jaguar and Land Rover, so ensuring their future viability was critical to more than just Ford’s public image. Booth also demanded concrete commitments about how workers at the two brands would be treated by the new owner.
“It’s not a fire sale,” Booth told his team. “We have to do this right.”
By the fall of 2007, Ford had narrowed the field to three finalists: the two Indian manufacturers and Nasser’s One Equity Partners. Each was assigned a code name to prevent their identity from being leaked. Tata’s was “Tibet,” and it quickly emerged as Ford’s preferred customer.
Tata not only was one of the highest bidders but also had the clearest vision for what it intended to do with the two brands. Moreover, Booth quickly hit it off with the company’s chairman, Ratan Tata. He was a tough businessman but also evinced a great deal of integrity. Booth recognized him as a man Ford could deal with, one who understood the value of both properties and their unique place in the world’s automobile market. Like Ford, Tata was a family-controlled company, which also helped. And the huge multinational conglomerate had the resources not just to buy Jaguar and Land Rover but also to invest in their futures.
The unions also came out in favor of Tata. They had been terrified by the mere mention of Jac Nasser’s name and were worried a return to his control would mean a new era of deep cuts and layoffs. But Nasser’s bid was always a long shot. One Equity Partners had plenty of money, but Bill Ford was not eager to sell the brands to his onetime nemesis. The two men had set aside their differences, but Ford knew Nasser would go out of his way to rub his nose in it if he got hold of Jaguar and Land Rover and managed to turn them into profitable enterprises.
As for Mahindra, Ford quickly realized the Indian tractor company was primarily interested in Land Rover and would probably resell Jaguar as soon as it got a chance. Booth left Mahindra in the mix because it gave Ford leverage with Tata. Tata was a much larger company, and it would not have looked good back home if it lost out to its smaller rival.
On January 3, 2008, Booth announced that the Indian carmaker had emerged as its preferred bidder and said formal negotiations on the terms of a sale were now under way. In the United States, the news was met with some dismay. A few dealers objected loudly, arguing that selling the high-end English brands to an upstart Indian automaker would destroy their luxury image. But it was received rather more calmly in Britain itself, where four centuries of shared history and a love of takeout curry dampened any indignation over a sale to an Indian company. Tata already owned Tetley, one of England’s most popular tea companies, as well as the Taj hotel and resort chain. And the Indian conglomerate was well-known to the British government and labor unions because of its recent purchase of Anglo-Dutch steel giant Corus.*
On March 26, Ford announced that it had reached an agreement to sell Jaguar and Land Rover to Tata for approximately $2.3 billion. It was less than Ford had paid for Jaguar alone almost twenty years before and did nothing to make up for the billions the automaker had pumped into the brands. But Mulally was glad to see the end of them. For too long, Jaguar and Land Rover had distracted Ford from the more pressing task of getting its own house in order.* Besides, Ford needed the cash. A week earlier, Mulally had warned Wall Street analysts that the growing credit crisis was making it a lot harder for consumers to finance new car and truck purchases.
Despite the accelerating decline of new vehicle sales in the United States and other major markets, York remained bullish about Ford. He told Kerkorian that the Dearborn automaker seemed to be doing everything they had tried to convince General Motors to do back in 2006. And Ford’s stock was trading at levels not seen since the 1980s. On April 2, 2008, Kerkorian began buying. Two days later, he sent York to the Glass House to meet Mulally in person.
The get-together was hastily arranged by Don Leclair, who was a longtime friend of York. Not that Mulally needed much persuading; he had read about York’s efforts to reform GM and was eager to meet the industry gadfly face-to-face. The meeting ended up being something of a lovefest. York told Mulally how impressed he was with the changes he was making at Ford. Mulally told York how much he had thought of his ideas to save GM. As York stood up to leave, he told Mulally and Leclair that his boss Kerkorian was “interested in investing in Ford.” After York briefed Kerkorian on the meeting, Tracinda bought another 6.5 million shares.
On April 24, Ford reported its financial results for the first three months of 2008. Once again the company was back in the black, with a surprise profit of $100 million. But no one in Dearborn was smiling. The same day Mulally announced those better-than-expected earnings, he also announced that Ford was slashing production in North America by 100,000 units in the second quarter and said deep cuts to the company’s white-collar workforce would be necessary to protect the automaker from the economic crisis it now openly anticipated. The rising price of oil and other commodities was eroding Ford’s margins, and 4,200 hourly workers had signed up for the latest buyouts—about half as many as the company needed. Yet another round of buyouts would begin soon, but Ford recognized that its factory workers shared its own concern about the economy. They were reluctant to give up their guaranteed employment in an uncertain job market. Nonetheless, Mulally promised that Ford would continue to do whatever was required to make good on his pledge to deliver a full year of profits in 2009.
Kerkorian played his hand four days later. On April 28, his company issued a press release announcing that he had amassed 100 million shares in Ford since April 2 and planned to tender a public offer for 20 million more at a premium of a buck a share over the latest closing price. That would give Kerkorian more than 5 percent of the company—not enough to force its hand, but too much to ignore.
“Tracinda has been following Ford closely since the company released its fourth quarter 2007 results which indicated that Ford’s management was starting to achieve highly meaningful traction in its turnaround efforts. Last week this was reinforced by Ford’s first quarter 2008 results, achieved despite the difficult U.S. economic environment,” it stated. “Tracinda believes that Ford management under the leadership of Chief Executive Officer Alan Mulally will continue to show significant improvements in its results going forward.”
News of Kerkorian’s interest in Ford sent shock waves through the company and the family. The Ford heirs were scheduled to hold their regular spring meeting on May 3. Many arrived demanding to know what Bill Ford was going to do to protect them and their investment from one of the most disruptive forces in the American automobile industry. It had been only a year since he had welded the schism in the family shut, and Ford was not about to let it start opening up again. He assured his relatives that there was nothing Kerkorian or anyone else could do to win control of the automaker without their consent. Ford also told them that Kerkorian’s sudden interest in their company made it more important than ever for the family to remain united behind Mulally.
Bill Ford did not know it, but York was already making discreet inquiries, asking people how much it would cost to buy out the Ford family. It was not clear that Kerkorian knew about it, either. But York had been salivating ever since he read about the split in the family a year earlier. He was c
onvinced that, once the crack was opened, it would only get wider and deeper. For years York had been dreaming of leading a successful car company. With Kerkorian’s money behind him, he just might have a chance to become part of the miraculous comeback taking shape in Dearborn.
On May 9, Kerkorian sent a formal offer to Ford shareholders. In it he revealed that York had met with Alan Mulally and Don Leclair and informed them of Tracinda’s interest in Ford. Neither Mulally nor Leclair had mentioned York’s comments to Bill Ford, and he was not happy. When the executive chairman learned that Leclair had been having one-on-one conversations with Kerkorian’s emissary, he became furious. Ford wanted to know just what Leclair had been up to with York and Kerkorian.
The truth was Leclair was growing increasingly alarmed by the state of the economy and increasingly worried about Ford’s ability to ride out a storm of the magnitude he believed was about to strike. Leclair was a master of game theory and wanted to keep Tracinda close at hand in case the company needed to raise additional cash quickly. By the middle of 2008, there were few other options left. Ford also had feelers out to sovereign wealth funds at the time and was even talking to the Chinese. Leclair knew that he could issue additional equity and get Kerkorian to buy it. Mulally, too, was keen to keep every funding option open. But he was also flattered by York’s gushing admiration and viewed Kerkorian’s interest as a powerful endorsement of his turnaround plan. Mulally insisted that it was all just a big misunderstanding.
The company issued a statement to that effect. Bill Ford told Mulally not to let it happen again, and the board admonished both Mulally and Leclair to be more careful. The board accepted Leclair’s explanation of the situation, but it hurt the CFO’s standing with Bill Ford and the other directors. They were well aware of the disruptive role Kerkorian and York had played at GM and Chrysler, and they were not about to let history repeat itself. The directors made it clear that no matter how many shares Kerkorian acquired, he would not be able to buy a seat on Ford’s board the way he had on GM’s.
On June 17, 2008, Bill Ford and Alan Mulally flew to Las Vegas to find out what Kirk Kerkorian’s intentions were from the man himself. They met at his Bellagio casino. When they arrived, they were led through a maze of hallways lined with original artwork to an elegant suite with a private garden and pool. It was an opulent setting that even managed to wow the wealthy Ford. But Ford brought along a surprise of his own—a secret weapon in the form of board member Richard Manoogian. Manoogian was the white-haired chairman of Masco Corporation, a major manufacturer of cabinets and other home amenities. He was also Armenian, and his father had been a good friend of Kerkorian. The Manoogians were hugely respected in the Armenian community, and it was unlikely that Kerkorian would lie to Manoogian’s face.
Kerkorian did not seem inclined to lie at all. With wavy steel-gray hair and bushy eyebrows, he was both gracious and charming, and his energy and facile intellect made it hard to believe he had just turned ninety-one. He told Ford he thought his company was on the right path and said he was happy to be along for the ride.
“This is going to be a friendly investment,” he assured him.
Bill Ford doubted that.
During the meeting, it became clear that York was not the close personal adviser he had portrayed himself to be. He was a hired gun who got a percentage of the profit off any deals he put together for Kerkorian. He was not Kerkorian’s right-hand man, as many in Detroit believed. That job belonged to Alex Yemenidjian, another Armenian who also was present at the meeting. This came as a surprise to Ford, and he could not help noticing that neither Kerkorian nor Yemenidjian seemed to be paying much attention to what York had to say. Clearly York’s ideas were not entirely aligned with his employer’s intentions. That would have been more reassuring if Ford had been able to fathom just what Kerkorian’s intentions were.
Before they left, Manoogian wrested a pledge from Kerkorian that he would not try to go behind Ford’s back as he had done with General Motors and Chrysler. Kerkorian promised him that he had no hidden agenda, that he was only interested in Ford because he thought it had become a good investment with Mulally at the helm.
Despite these assurances, the meeting did little to ease Bill Ford’s concern. Kerkorian seemed amiable enough, but Ford did not trust him. Mulally was not worried; he thought York had some good ideas. But Mulally did not have Bill Ford’s experience or his memory of the pair’s earlier exploits. The executive chairman was not about to let his guard down.
In June, just days after successfully concluding his initial tender offer for 20 million shares, Kerkorian announced that he had purchased another 20 million, increasing his stake in Ford to 6.5 percent.
Bill Ford assembled a team to deal with the Kerkorian threat. His attorneys were confident that there was nothing Kerkorian could do to outmaneuver the family, but given the recent internal debate, he did not want to take any chances. In a war room at World Headquarters, the team began gaming out an array of possible scenarios, trying to figure out what Kerkorian’s next move would be and how Ford could block it. In September, Ford adopted a poison pill plan that was aimed at safeguarding $19 billion in deferred tax benefits. It would also kick in if Kerkorian increased his Ford holdings by another 50 percent.
But Ford would never have to worry about that. The economic tsunami that Leclair had long feared finally arrived that fall, battering car companies and casino moguls alike. Ford became too risky for Kerkorian, who was now struggling to shore up his investment in MGM. In October he began unloading his Ford shares. By then Ford had much bigger problems to worry about than Kirk Kerkorian.
*It earned approximately $1.5 billion in 2007.
*Daimler, which had lost patience with its American “partner,” sold about 80 percent of Chrysler to Cerberus for $7.4 billion on May 14, 2007.
†Ironically, Ford executives in Britain were less worried about this. They had watched BMW botch the sale of Rover in 2000 and knew that it had done little to diminish demand for the German luxury brand.
*That deal was completed in January 2007.
*Extricating Jaguar and Land Rover from Ford would take months. Jaguar of France did not officially become part of the new Jaguar for nearly a year because of the legal hurdles that had to be overcome to separate it from Ford of France. In Russia, Jaguar and Land Rover employees worked side by side with Ford employees in the company’s business headquarters. As of 2011, they were still there, though now on separate floors.
CHAPTER 14
Storm Warning
Every depression is a challenge to every manufacturer to put more brains into his business.
—HENRY FORD
On March 5, 2008, Ford Motor Company CEO Alan Mulally placed a call to U.S. Federal Reserve chairman Ben Bernanke.*
“We’re very concerned about the economy and the credit crisis,” Mulally told the central bank chief, explaining that vehicle sales in the United States were falling off fast and credit was drying up. “It looks like there is a recession underway.”
Five days later, Mulally called U.S. Treasury secretary Henry “Hank” Paulson and said the same thing.† Neither of the men disputed Ford’s assertion, but both said it was too early to tell for certain.
In fact, the United States had been in a recession since December. As Mulally laid out his concerns for Secretary Paulson, rumors were spreading on Wall Street that the giant investment bank Bear Stearns was running out of cash. Five days later, Bernanke was brokering a fire sale of what was left of the bank to JPMorgan Chase. The unraveling of the subprime mortgage market that began in 2007 was bringing down Wall Street. The credit markets began to seize up, unemployment rose, and nervous consumers kept a tight grip on their wallets. Many of those still willing to buy a big-ticket item like a new car found it difficult to get a loan as banks and finance companies turned their backs on the riskier consumers they had been trying so hard to woo just a few months earlier. Used car prices began to fall as more cars were repossessed,
making it hard to get a good price for trade-ins. The collapse of the housing bubble that had precipitated the crisis in the first place was also having a more direct impact on automobile sales. In 2007, some 2 million Americans had used the equity in their homes to purchase new vehicles. That represented one out of every nine purchased in the country. Now that equity was evaporating.
The end of the housing boom was also accelerating the demise of the truck market because so many of the pickups sold had been purchased by companies and individuals employed in the construction sector. Truck sales had been trending downward since the end of 2005. Ford, in keeping with Mulally’s dictum to match production to demand, had been reducing factory output accordingly. But in January, the price of crude oil passed $100 a barrel for the first time ever, and demand for pickups and sport utility vehicles began to fall far faster than Ford had forecast. In April cars outsold trucks for the first time in the United States since 2000. Consumers were trading in their gas-guzzling trucks and SUVs in record numbers, and Ford still had nothing more economical to offer them besides a couple of money-losing hybrids and the same old North American version of the Focus. The company’s designers and engineers were hard at work on a new generation of fuel-efficient cars and crossovers, but the first of these would not arrive in U.S. showrooms for more than a year. It was 2006 all over again. Mulally’s turnaround plan was about to jump the tracks just like Mark Fields’ Way Forward plan had done exactly two years earlier.
By May, Ford was in crisis mode. Mulally’s weekly SAR meetings had become daily sessions. The average price of gasoline in the country was $3.50 a gallon, and the truck market was in free fall. In the first two weeks of the month, full-size pickups tumbled from about 11 percent of the U.S. market to just 9 percent. That represented the loss of approximately 10,000 sales a day in Ford’s most profitable segment. And every day the numbers got worse. As sales plummeted, the price of steel and other raw materials was rising, further eroding Ford’s margins. Before each meeting, the latest data was plugged into Ford’s projections. Each day, Ford’s financial forecast fell further and further below Mulally’s targets. The team struggled to find additional cost savings to offset these mounting losses, but by Friday, May 16, they were out of options. The next day, Mulally called Ford of Europe chairman Lewis Booth one more time to see if there was anything else he could do to boost sales on the other side of the Atlantic. The answer was no. Though Ford was still making money in Europe, the market was beginning to sag there, too.
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