Ford had always been at its best when things were at their worst. The end of 2008 was no exception. Though sales continued to fall along with Ford’s bank balance, Mulally’s leadership team gelled like never before. For the first time in the automaker’s history, all of the senior executives were working together as a team—not just Monday through Friday, but on Saturdays and Sundays, too. Mulally did not have to twist anybody’s arm to get them there. With the entire industry falling apart around them, most would have been too nervous to be anywhere else than around the big table in the Thunderbird Room, studying one another’s charts and fine-tuning the plan. They showed up each morning offering to help one another, suggesting ideas and volunteering personnel and resources. They did not try to hide the true extent of the problems they were grappling with, nor did they try to blame them on others. Each came prepared with the latest data and, with the others, figured out how to deal with its ramifications.
Some of these sessions focused on the economy, the banking system, and the U.S. government’s efforts to aid both. Others concentrated on Ford’s suppliers, dealers, and competitors. The status of GM and Chrysler was also a frequent topic. At one point the list of issues being covered each day ran thirty items long.
Instead of waiting for each Thursday’s BPR meeting, the entire leadership team was now reviewing Ford’s finances every day. Ford’s cash position was that precarious. Lewis Booth made sure that each of the four business unit leaders knew exactly where they stood financially. He also made sure that they understood how important it was to try to find cash flow offsets for the losses they were incurring. He emphasized the word try, because he knew there was no way to match the mounting losses. But he kept pushing people into doing a little bit more than they thought they could. So did Mulally.
“Find a way,” he said. And he said it a lot.
With the effort to globalize product development continuing, Derrick Kuzak challenged the directors of each engineering facility and design studio to figure out what else they could cut in light of these newfound efficiencies. Other executives did the same thing in their own departments. Joe Hinrichs and his team began a careful study of Ford’s most efficient plants to figure out what they were doing differently and see if it could be applied elsewhere. A year earlier, the company had opened a new joint-venture factory in Nanjing with its Chinese partner, Chang’an Motors. The Chinese automaker had introduced some money-saving tooling practices at the facility. Now Hinrichs ordered the rest of Ford’s factories to adopt them. The team also came up with a plan for yet another round of salaried job cuts in North America, shaving a further 10 percent off the payroll. After three years of aggressive cost cutting, there was not much fat left to trim at Ford. These cuts went right to the bone. Bonuses paid to Mulally and other executives were also eliminated, merit pay increases were frozen, and benefits for white-collar workers were cut. Jim Farley reduced advertising spending. Another 3,300 salaried positions were axed at Volvo, too, along with 700 outside contractors. Finally, Ford’s treasury team began preparing equity-for-debt swaps aimed at reducing interest expenses. Ford had been on track to meet its 2008 cost-reduction goal of $5 billion. These new cuts almost tripled that figure.
People were scared, and getting more so every day. But Alan Mulally still walked the corridors of World Headquarters with a smile on his face. If he passed people looking glum, he would pat them on the back, maybe even give them a hug, and tell them to cheer up.
“Is our plan still going to work?” one executive asked him, giving voice to the same doubt that was growing in everyone’s mind but Mulally’s.
“Of course,” Mulally said.
“But what if it doesn’t?”
“I said it’s going to be okay.”
“Well, what does that mean?”
“It means that we are doing everything we can to look at the world the way it is, and modify our plan as required. So, whatever happens, we’ll have given it our very, very best,” Mulally said. “You don’t have to go home and worry. You don’t have to stay up at night. You’re not isolated. You’re not by yourself. We’re going to come back together in the business plan review and get it right.”
Booth spent a lot of time trying to estimate GM’s and Chrysler’s cash flows. The finance staff went over every public statement and SEC filing with a magnifying glass trying to figure exactly when they were going to run out of cash. At the time, some observers thought Rick Wagoner was playing up GM’s woes in order to get government aid. Booth and his team believed GM’s situation was actually worse than its CEO was letting on.
Though Ford began to plan for the bankruptcy of both General Motors and Chrysler, Mulally could see no way to prevent the uncontrolled collapse of his crosstown competitors from bringing down the entire automobile industry. The recession would turn into a full-scale depression. Toyota and Honda shared his concern. With Ford’s Project Quark team, they were doing their best to prepare for it and limit the damage. But Mulally knew it would not be enough. The industry could not save itself. It needed Washington’s help.
*Farley’s prognostication was nearly perfect. Actual light vehicle sales in the United States in 2009 totaled 13,194,493, according to Ward’s Autodata. It was the lowest annual tally since 1992.
*The company ended the third quarter of 2008 with $29.6 billion in cash and available credit.
†The amount varies because of the seasonality of demand.
*U.S. law even required Ford to seek the approval of a supplier before it could begin discussions with Toyota and Honda about that company.
CHAPTER 16
Mr. Mulally Goes to Washington
When you get a whole country—as did ours—thinking that Washington is a sort of heaven and behind its clouds dwell omniscience and omnipotence, you are educating that country into a dependent state of mind which augurs ill for the future.
—HENRY FORD
During the congressional hearings on the new CAFE standards back in 2007, Alan Mulally had learned to his dismay that the United States government did not think much of the nation’s automobile industry. The Republicans who controlled the White House saw Detroit’s automakers as a pack of stumbling dinosaurs, hamstrung by a union that they were too timid to take on, ceding the market to foreign rivals that built better products for less money. The Democrats who controlled Congress regarded the three car companies as peddlers of polluting products who had spent thirty years resisting regulations that would have made them cleaner, greener, and more competitive. To politicians of both parties, the Detroit Three were an embarrassing counterpoint to the innovation of Silicon Valley and the profitability of Wall Street. Instead of iPods and IPOs, they had given the nation blighted cities and rusting factories.
Since that eye-opening trip to Washington, Mulally had done what he could to convince the Bush administration and Congress that Ford Motor Company wanted to be part of the solution, not part of the problem. It was in that spirit that he had reached out to Treasury secretary Hank Paulson and Federal Reserve chairman Ben Bernanke, offering to be their canary in the coal mine—their eyes and ears on the bleeding edge of the Great Recession. And it was in that spirit that Ford had dropped its opposition to the tough new mileage mandates Congress had been calling for in exchange for help financing the cost of developing the new technologies necessary to meet them.
The result was the Energy Independence and Security Act, which Congress passed and the president signed in December 2007. It established a new CAFE target of 35 miles per gallon by 2020. Such fuel-economy gains would only be possible through a broader rollout of hybrids, electric vehicles, and other innovative technologies like Ford’s EcoBoost system. So the legislation authorized the U.S. Department of Energy to provide low-interest loans to automakers, both foreign and domestic, to help cover the cost of creating the manufacturing infrastructure necessary to produce these more advanced products. Then Congress refused to fund the loan program it had authorized.
When automobil
e sales began to fall in early 2008, Ford and the other American car companies quietly began looking for help from Washington. All three agreed that it would be more effective to work together to build support for one proposal. Ford suggested they make funding the Energy Department loans their top priority. The program was an ideal complement to Mulally’s product strategy, which was all about shifting production to more fuel-efficient vehicles. Ford could finance the investment necessary to do that through the federal loan program and save its own money for operating expenses. The other companies would enjoy the same benefit if they took advantage of the program. Ford saw it as a way for Washington to help without giving direct aid to the industry. After all, the loan program had been set up to help the automakers cope with the cost of new federal mandates.
But General Motors and Chrysler had their own ideas. GM wanted Washington to provide big tax breaks for customers who bought its Chevrolet Volt, a plug-in hybrid that it hoped would make Chevy cool again. The Volt was still a work in progress and was likely to cost far more than most consumers could afford—unless Uncle Sam was willing to help them out. Chrysler was in such a state of flux that it was not entirely sure what it wanted. Unable to reach an agreement, each automaker pursued its own agenda.
Ford stuck with the Energy Department loans. On June 21, Representative John Yarmuth, a Democratic congressman from Kentucky, visited Ford’s Louisville Assembly Plant with House Speaker Nancy Pelosi. Yarmuth was a vulnerable freshman, and the plant tour was designed to shore up his support among union members. Ford did it as a favor to Pelosi, but the automaker made it clear it wanted something in return. Sue Cischke, Ford’s vice president of sustainability, and Joe Hinrichs, Ford’s vice president of manufacturing, asked Pelosi to do what she could to get the loan program funded. She promised to make that happen, but as the months went by there was still no progress. And the economy was only getting worse.
Despite a growing sense that the entire domestic automobile industry was now fighting for its life, General Motors continued to downplay the severity of the situation and lobby for the Volt. Ford’s Washington office concluded that GM’s senior executives were not giving an honest assessment of the company’s situation to their own lobbyists. Chrysler’s team in Washington was beginning to sound alarm bells, but remained too distracted by the perpetual churn at the top of their own house to make much of an impact.
Everything changed a few days after GM’s merger meeting with Mulally. On July 30, the three CEOs convened for a previously scheduled caucus to discuss their efforts in Washington. Mulally had decided to try one more time to convince GM’s Rick Wagoner and Chrysler’s Bob Nardelli to make common cause with him on the Energy Department loans. In typical Mulally style, he spent several days preparing for the meeting. This time he would overwhelm the other two CEOs with a barrage of irrefutable data that he was convinced would leave them with no choice but to join Ford. He was just getting started when Wagoner interrupted him.
“This is really important,” GM’s CEO agreed. “Let’s get behind this. Let’s do this together.”
Nardelli was nodding. Mulally never got to finish his presentation.
This sudden change of heart made it clear to Mulally that his competitors were desperate for aid of any kind. If he had any doubts that GM and Chrysler were in real trouble, they were gone now.
For a Detroit automaker, Ford enjoyed a decent rapport with the administration of President George W. Bush. Two of the company’s top executives—General Counsel David Leitch and Vice President of Government and Community Relations Ziad Ojakli—had been respected White House staffers and maintained close connections with their former colleagues. But with two wars and an imploding housing bubble, Bush had little time for the automobile industry. That began to change in 2008. Administration officials were grateful for Ford’s insights into the state of the economy and supported the company’s effort to win funding for the Energy Department loans, but when and how to fund those loans was up to the Democrat-controlled Congress. However, there would soon be someone else in the White House, and Ford did its best to ensure that the next president was sympathetic to the automobile industry.
Senator Barack Obama certainly did not seem to be, at least not at first glance. During a speech to the Detroit Economic Club in May, he had delivered the typical Democratic critique of the industry.
“For years, while foreign competitors were investing in more fuel-efficient technology for their vehicles, American automakers were spending their time investing in bigger, faster cars,” said the charismatic candidate. “And whenever an attempt was made to raise our fuel efficiency standards, the auto companies would lobby furiously against it, spending millions to prevent the very reform that could’ve saved their industry.”*
But Ojakli and his political operatives were hearing a lot about Obama’s willingness to listen to new ideas. On June 25, Mulally put that to the test. He and a small group of business leaders met with the senator from Illinois—now the presumptive Democratic nominee—in Chicago to discuss the state of the U.S. economy and their ideas for fixing it.† Mulally did his best to convey the severity of the deepening crisis that now threatened his company, telling Obama that the rising cost of capital and declining car and truck sales had brought the entire industry to “an inflection point.”
“What is really important?” Obama asked. “How can we help you contribute to the economy?”
Mulally talked about the need to restore liquidity to the credit markets and the importance of developing a national energy policy, one that included a single standard for fuel mileage and carbon dioxide emissions. At the time, California and a number of other states were preparing their own, more stringent mandates. Complying with these different standards would be difficult, time-consuming, and costly for an industry already at the breaking point. But Ford was not opposed to greener technologies. Mulally outlined ways the federal government could help spur the development of the advanced batteries needed for hybrid and electric vehicles. He also talked about the imbalance of trade with South Korea and the restrictions that nation put on U.S. automobile sales. And, of course, he talked about health care reform. Mulally explained how insurance costs widened Ford’s competitive gap with foreign automakers. He thought Obama was a good listener. The candidate was clearly working out the details of his agenda and was genuinely interested in hearing what Ford and other major corporations had to say.
Ford’s CEO had already had a similar meeting with Republican presidential candidate Senator John McCain when he visited Michigan in February.
As Mulally worked through official channels, the company’s executive chairman was working behind the scenes to put the plight of the American automobile industry on the agenda in this election. Bill Ford believed Barack Obama had a good shot at becoming the next president of the United States. He made his first call to the candidate back in December 2007, planting the seeds for a future dialogue. By the middle of 2008, it seemed like Ford’s hunch might be correct. When it became clear that Obama had clinched the Democratic nomination, Bill Ford asked Joe Laymon to call in one more favor for him.
Though Laymon now worked for Chevron and lived in California, he still considered himself Ford’s guy, and he would do anything for his former boss. He picked up his cellphone and dialed Ron Gettelfinger’s number. The United Auto Workers still wielded plenty of power in the Democratic Party, and Laymon asked the union president to broker a face-to-face meeting between Bill Ford and Obama away from the cameras.
On August 4, the candidate’s plane landed in Lansing, Michigan. A black limousine was idling on the tarmac. When Obama got in, Bill Ford was waiting for him. On the way to his campaign speech at the Lansing Center, the two men talked about the state of the economy and the American automobile industry.
“Do you think you will need a bailout?” Obama asked Ford.
“No. I think we can get through this on our own. But I think GM and Chrysler could go bankrupt without one,” Ford sa
id. “If that happens, they could bring down the whole industry—and the rest of the economy with it.”
Obama nodded.
Ford thought the meeting went well. Obama was receptive to his concerns, and the two men seemed to hit it off. Bill Ford was already a big donor to the Obama campaign. So were many of the other Ford heirs. Laymon, also a Democrat, urged Bill Ford to publicly endorse the candidate—not as a private citizen, but as the head of Ford Motor Company. If he did, Laymon believed it would be worth a cabinet appointment, something Ford had long coveted. Together, they began to put together a plan to invite Obama to the company’s advanced research-and-development lab in Dearborn, let him give a speech about green technology, and then publicly announce the automaker’s support for the Democratic candidate.
Ojakli argued against it. He told Bill Ford that it was a dangerous gamble to endorse any candidate. If Obama lost, Ford would have no chance of working with McCain. If he won and became unpopular, Ford would be tainted by its association with the new president. Mulally also opposed the move, as did David Leitch. Some in the company accused them of only doing so because they were Republicans, but Ojakli told Ford his recommendation would be the same if he were contemplating a McCain endorsement.
“Either way,” he said, “you’re going to alienate half the voters.”
Ford decided Ojakli was right and decided not to pursue Laymon’s plan.
On August 15, Ojakli met with Keith Hennessey, director of the National Economic Council and one of President Bush’s most trusted advisers. They knew each other from the West Wing.
“Keith, let me just tell you what’s happening. We’re borrowing at rates approaching twenty percent,” Ojakli said. “If we’re in this position now, I can’t imagine where GM and Chrysler are. You’ve got a big problem.”
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