He’s going to be fabulous, Ojakli thought as Mulally—wearing his customary blue blazer, button-down blue shirt, and red tie—strode through the door and smiled confidently at the phalanx of cameramen and photographers who had crammed themselves into Room 538. Senator Dodd took one look at the crowd and joked that he should have held the hearing at nearby RFK Stadium. Mulally took his place between Nardelli and Gettelfinger at the long witness table in front of the raised dais where the senators sat, and then read a succinct opening statement that focused on the progress Ford had already made on its own turnaround plan.
“Much of the recent commentary has suggested that our companies need a new business model. I completely agree. In fact, we at Ford are well on our way to transforming our company and building a new Ford that I believe has a very bright future,” he said, pointing out that Ford had already closed seventeen factories, reduced its workforce by 51,000 employees in North America, negotiated a game-changing contract with the UAW, sold off foreign brands, and begun the process of remaking its entire vehicle lineup to break its dependency on big trucks and SUVs. “The speed and the breadth of our transformation is evident by actions just this week alone. Tomorrow at the Los Angeles Auto Show, we will introduce two all-new hybrids. Our new Ford Fusion Hybrid beats the Toyota Camry Hybrid by at least six miles per gallon. Today, we are submitting our application for direct loans, authorized by Congress last year, to help us speed advanced technologies and vehicles to the market. On Friday, we end large SUV production at our Michigan Truck Plant and we begin converting to fuel-efficient small car production.”
As crouching photographers snapped away by his feet, Mulally pointed out that Ford had returned to profitability before the economy imploded and was still trying to deal with the unprecedented industry downturn on its own.
“We believe we must join our competitors today in asking for your support to gain access to an industry bridge loan that will help us navigate through this difficult economic crisis,” he said. “We at Ford are hopeful that we have enough liquidity. But we also must prepare ourselves for the prospect of further deteriorating economic conditions in 2009. In addition, the collapse of one of our competitors would have a severe impact on Ford and our transformation plan, because the domestic auto industry is highly interdependent. It would also have devastating ripple effects across the entire U.S. economy.”
The message was clear: We are not in trouble, but the other guys at this table are. And if they go down, we could, too—unless you help us out. But it soon became clear that few on the committee were inclined to do that, at least not until they made the three CEOs and their colleague from the UAW pay for their sins.
“Why should we believe that your firms are capable of restructuring now when you were unable to do so under better conditions—more benign conditions?” drawled Senator Richard Shelby, a Republican from Alabama, home to more foreign automobile factories than any other state. “A lot of people think you’ve already failed, that your model has failed, that you’re here to get life support. You’ve burned billions collectively—the three of you—you’ve burned billions and billions and billions of dollars trying to turn around your industry.”
Shelby’s face contorted into a grimace of disgust as he addressed the three CEOs. He looked like a man surveying a pile of rotting corpses.
“I’m sure if you got twenty-five billion [dollars] you’d want twenty-five or thirty or forty more,” he sneered.
Even the supposedly sympathetic committee chairman got in a few licks.
“I support efforts to assist the industry,” Dodd said. “[But] their boardrooms and executive suites have been famously devoid of vision.”
The sharpest criticism was leveled at General Motors and Chrysler. A few senators came right out and said they thought that Ford had done more to address its faults than GM and Chrysler had. But Mulally was clearly taken aback by the sheer venom of the senators’ attacks. He did his best to respond to the committee’s often pointed questions amicably, but he was not his usual eloquent self. By the time Dodd gaveled the hearing to a close, Mulally was exhausted. He hoped the next day’s House hearing would go better. But it would prove far worse.
On November 19, America awoke to the news that all three CEOs had traveled to the nation’s capital on private corporate jets. From the reaction that sparked, one would have thought they had been carried there on the backs of Bangladeshi children.
“The CEOs of GM, Ford, and Chrysler will be back before Congress today to ask for twenty-five billion dollars they say they need or will go out of business. Yet, that hasn’t stopped them from traveling in style. Even first class isn’t good enough for those three,” declared an ABC News reporter on Good Morning America, shaking his head in disdain before cutting to a hazy shot of Rick Wagoner boarding a GM Gulfstream, followed by shaky footage of Mulally leaving the Senate hearing the day before, apparently ignoring the questions being shouted at him by the reporter. It was Fields in Florida all over again. Only this time, there was a long line of grandstanding politicians waiting to pile on, too.
“There’s a delicious irony in seeing private luxury jets flying into Washington, D.C., and people coming off of them with tin cups in their hands,” observed Representative Gary Ackerman, a Democrat from New York, during the House hearing later that day. “It’s almost like seeing a guy show up at the soup kitchen in high hat and tuxedo. It kind of makes you a little bit suspicious as to whether or not, as Mr. Mulally said, ‘We’ve seen the future.’ And it causes at least some of us to think, ‘Have we seen the future?’ I mean, there’s a message there. I mean, couldn’t you all have downgraded to first class or jet-pooled or something to get here?”
Ackerman had not felt the need to ask the Wall Street bankers who precipitated the economic crisis how they traveled when he voted for their $700 billion bailout a month earlier. But at least he was civil. Other representatives actually shouted at Mulally and the other two CEOs, launching verbal assaults that made the previous day’s questioning seem genteel.
“We’re not sure we trust you!” bellowed Michael Capuano, a Democrat from Massachusetts. “My fear is, you’re going to take this money and continue the same stupid decisions you’ve made for twenty-five years!”
Once again, most of their fury was directed at Wagoner and Nardelli, but Mulally took his share of abuse, too. It got to him—particularly the endless jabs about the jets. He kept reminding himself that the lawmakers had a right to be angry at the American automobile industry, but his answers started to take on an arrogant edge.
When Democrat Emanuel Cleaver of Missouri asked how much of the $25 billion Ford needed, Mulally simply said Ford would take whatever was left after GM and Chrysler took what they needed.
“ ‘Whatever’s left, I’ll take?’ ” asked the congressman, shaking his head. “This is loosey-goosey.”
It got worse when Representative Peter Roskam, an Illinois Republican, asked the three CEOs if they would be willing to work for one dollar a year, as Chrysler CEO Lee Iacocca famously had after negotiating a government bailout back in 1980. Nardelli said he would. Wagoner said he had already cut his own salary in half, but would not rule it out. Roskam gestured toward Mulally.
“We have eliminated our bonuses also, and any salary increases,” said Ford’s CEO.
“Okay. Are you willing to go down to the dollar?”
“I understand your point about the symbol and clearly the intent of what you’re asking,” Mulally replied wearily. “But we’re trying to field a skilled and motivated team also. And it’s just so important that, as we do this plan, we have the team that we need. So, I understand the intent, but I think where we are is okay.”
“Okay. Just so I’m clear, I’m not asking about the team; I’m just asking about you,” Roskam said, glaring at Mulally over his glasses.
“I understand.”
“And the answer is no?”
“Uh, I think I’m okay where I am.”
Ojakl
i, who was sitting behind his boss, cringed.
After spending most of that fall saving Wall Street from itself, Congress had lost its appetite for helping the private sector. Many lawmakers were already getting an earful about “corporate welfare” from angry constituents. Congress went home for the Thanksgiving holiday without acting on the automakers’ request, but it did offer them the consolation prize of a second chance. Pelosi and Reid would summon their colleagues back for a lame-duck session and hold a second round of hearings in December. But this time, each of the companies would be required to submit a “credible restructuring plan.”
There would be no Thanksgiving recess at Ford.
Mulally flew back to Michigan on the Ford Gulfstream, still reeling from the drubbing that he and the other two CEOs had taken at the hands of Congress. He understood why lawmakers were disappointed in the American automobile industry. He understood why they were reluctant to help. But he resented the way so many of them lumped Ford together with General Motors and Chrysler. Under his leadership, Ford had acknowledged its problems and was well on its way to fixing them when the economy fell apart. GM and Chrysler had stubbornly insisted that they knew better until it was too late. Ford was a sober alcoholic. They were two stumbling drunks. But all Congress saw was three winos.
Ford had to make a clean break. It had to banish “Big Three” from the American lexicon. It had to prove to Congress and the American people that it was different. And the best way to do that was to stop asking for their money.
We have a choice, Mulally thought as his plane circled Detroit International. GM and Chrysler don’t, but we do.
*This was a bit hypocritical. After that speech, it was revealed that Obama drove a gas-guzzling Chrysler 300C. He traded it in a couple of months later for a Ford Escape Hybrid.
†The other attendees, according to the campaign, were Jamie Dimon, CEO of JPMorgan; Mark Gallogly, founder of Centerbridge Partners; Jim Rogers, CEO of Duke Energy; Ronald Williams, CEO of Aetna; Brian Roberts, CEO of Comcast; Robert Glaser, CEO of RealNetworks; and Mulally’s old colleague James Bell, CFO of Boeing.
*Ford Credit’s president of global marketing and sales, John Noone, and assistant treasurer, Scott Krohn, also participated in some of these meetings. It is worth noting that the Federal Reserve made solid returns on all of these loans.
†Though Ford Credit was eligible to sell up to $16 billion worth of notes through the program, its peak utilization never came close to that amount. All of Ford’s notes had matured by September 30, 2009.
‡In some cases, Ford Credit even provided financing for GM and Chrysler products at Ford dealerships that carried those brands because Ford wanted to make sure those stores stayed in business.
*Before the sale, Ford owned just over 33 percent of Mazda. More than a third of the 20 percent it sold went to Mazda itself; the rest went to a consortium of Japanese banks, suppliers, insurers, and trading companies that did business with Mazda.
CHAPTER 17
Breaking with Detroit
Our help does not come from Washington, but from ourselves
—HENRY FORD
The next morning—Thursday, November 20, 2008—found Alan Mulally back at the head of the round table in the Thunderbird Room, watching the weekly slide show and wondering if Ford Motor Company could make it through the worst financial crisis since the Great Depression on its own. The numbers were still horrible. Overall industry sales were down sharply in North America and Europe. But something was happening. Ford’s sales in both regions did not appear to be down quite as much as its competitors’. It had started in October. Ford’s sales analysts cautioned it could be a fluke. Now, three weeks into November, it was beginning to look like a trend.
In the United States, the new version of the Ford F-150 pickup had finally arrived in dealer showrooms, and demand was surprisingly strong. The economy was still in a nosedive, but if there was one thing Ford knew, it was truck customers. The latest model proved that. It offered a host of new features that spoke directly to their needs and wants, including things like a retractable side step for easy bed access, a high-tech system that kept trailers from swaying, and even an optional dashboard office—complete with keyboard, printer, and a special mobile version of Microsoft Windows for folks who worked out of their trucks. The new F-150 also boasted better gas mileage than the previous model. It was an eye-pleaser as well. And the decision to delay its launch had only made customers want it more.
In Europe, Ford’s new Fiesta subcompact was also off to a strong start. It was peppy and fun to drive and got 40 miles to the gallon. It was also more stylish and much better built than most of its competitors. Ford was actually selling more of the sexy new models in some markets than it did of the previous version a year earlier, when the European economy was still strong.
Neither the F-150 nor the Fiesta was going to save the company by itself. Overall sales were still down sharply. But the early success of these products did suggest that Mulally’s strategy was fundamentally sound. By continuing to invest in new cars and trucks while other automakers cut back to control costs, Ford was leaping ahead of the competition. If it kept it up, it just might emerge from this recession faster and stronger than its rivals. Ford’s chief economist, Ellen Hughes-Cromwick, told the team that she believed the economy would bottom out within the next three to six months in the United States. She predicted that car and truck sales would rebound in the second half of 2009. People could only put off buying a new vehicle for so long, she said.
Even Chief Financial Officer Lewis Booth had a little bit of good news. Ford’s cash burn rate was beginning to slow. All of the cost cutting was starting to make a difference. The philodendrons had not died in vain.
Our plan is working, Mulally thought. We just have to make it through this trough.
After the slides were finished and the executives had refilled their coffee cups, Mulally reassembled his team for the special attention review session. The agenda was full, but it could wait. There was a more pressing question that Mulally wanted answered first. As he looked around the table at his team, he could not help glancing over at the wall of old photographs of the company’s founder and his early automobiles. A giant blowup of Mulally’s pocket card had been added to the wall, right next to a picture of Henry Ford and his hero, Thomas Edison. There was the Dearborn plowboy who had put the world on wheels through sheer force of will and strength of vision. If there was an archetype for the self-made man, he was it. And Mulally did not want to let him down.
“Can we make it without the government’s money?” Mulally asked his team. “Can we get through this without their help?”
There was silence as the other executives weighed the risks and potential rewards of going it alone. If Washington was writing checks, Ford would be foolish not to take one. But if it could somehow make it through this crisis on its own, it would make up for a lot of years of bad products and broken promises. Jim Farley could see the marketing potential immediately.
“This can be a moment that really separates Ford,” he said. “It can be a moment that really differentiates us.”
General Motors and Chrysler had already made it clear they would have no choice but to file for bankruptcy without a bailout.
“We’re not there yet,” Booth said. “We still have options.”
“Let’s look at them,” Mulally said.
First, there was the revolver. Ford still had not tapped its $11 billion credit line. The actual amount available was closer to $10 billion now because Lehman had been underwriting a tenth of it, but it was still there. No one wanted to touch it—partly because it would raise Ford’s interest expenses, but mostly because Wall Street would view it as a last, desperate act before bankruptcy. The fact that Ford had not significantly scaled back its investment in new vehicles also gave the company a cushion that GM and Chrysler did not have. Treasurer Neil Schloss and his team were exploring the possibility of a debt-for-equity swap to reduce the amount
of interest Ford was already paying. Then there was Volvo. Selling the Swedish brand had always been part of Mulally’s plan, but he had decided to wait until it was making money again. It was still not there yet, and the global economic crisis made it unlikely that Ford could get anything near what it had hoped to for the brand, but it could get something. Finally, there was the United Auto Workers. President Ron Gettelfinger was hinting that the union might be willing to renegotiate the terms of the VEBA to allow Ford and the other Detroit automakers to cover a greater portion of their upcoming obligations to the health care trust fund with stock instead of cash. The UAW was even willing to let them borrow back some of the money they had already set aside for those trust funds.*
By the time the team had finished going over all of these options, Mulally was beaming.
“We’re going to figure out how to do this on our own,” he said. “I believe in you, and I believe in the plan. And I believe it’s the right thing to do.”
That night, some of Ford’s executives lay awake wondering if it really was. They were not convinced the company could survive the recession, even with government aid. Most were worried Ford was about to close a door that would never open again. The automakers were already trying Washington’s patience, and Congress had made it quite clear during the first two hearings that the last thing it wanted to see was any of the companies coming back in six months or a year asking for help again. If they wanted money from Uncle Sam, the time to ask for it was now.
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