Even if it looked like Ford could make it on its own today, there was no guarantee that it could tomorrow—particularly with the fate of the other two domestic automakers still undecided. It was still far from certain that any of the automakers would get a penny from Washington, and if General Motors or Chrysler collapsed, all of Ford’s assumptions would have to be reevaluated. With the capital markets frozen, there was nowhere else the company could turn.
When the team reconvened the following day, Mulally could read the fear on many of the faces. Ford’s blunt Australian controller Peter Daniel got right to the point.
“What if GM were to go down or Chrysler were to go down?” he asked.
There was awkward silence. He broke it with a have-your-cake-and-eat-it-too solution. What if Ford asked for a $9 billion line of credit but promised that it would only use it as a last resort? If it did, the company would submit to whatever terms the government had already imposed on GM and Chrysler. Otherwise it would continue to follow its own turnaround plan. Ziad Ojakli said it would be a tough sell, particularly in the middle of a transfer of power when politicians were looking for simple solutions, but he agreed to see what he could do.
Bill Ford was thrilled when Mulally told him he thought the company could make it on its own without a bailout. It was what he wanted. It was what the family wanted. It was what his great-grandfather would have insisted on, regardless of the risk. He also was worried that Washington would insist on the family ceding its control of the company to the regular shareholders as a condition of direct financial aid.
The board of directors was a little more concerned about the plan. It wanted to know what Ford was giving up and whether it could return to Washington later if the situation got worse. The outside directors were reluctant to exclude any option—including bankruptcy. As Ford’s cash reserves dwindled, they were once again worrying about their fiduciary responsibility to Ford’s investors. A Chapter 11 filing would wipe out all of the stockholders, but the secured bondholders might walk out of federal court with at least a portion of their investment. Normally directors are not legally required to worry much about bondholders, but that changes when a company is on the verge of insolvency. Corporate counsel David Leitch assured the board that the threshold had not yet been reached, but the directors were still nervous. A couple of them had already resigned.
Sir John Bond and Jorma Ollila both left the board in October, saying they needed to focus on their own companies. With the global economy imploding, that was understandable. Bond was the chairman of Vodafone Group, and Ollila was the chairman of both Nokia and Royal Dutch Shell. The crisis at Ford was requiring frequent trips across the Atlantic at a time when their own corporations also were contending with the global economic catastrophe. But bankruptcy also carried a much bigger stigma in Europe. If Ford failed, their careers might be in jeopardy. Senior director Irv Hockaday tried to talk them out of resigning. He knew it would not look good to Wall Street. But Bond and Ollila could not be swayed.
Now, a month later, Hockaday was more sympathetic. He and the other independent directors decided the time had come to hire outside counsel to advise them on bankruptcy, the bailout, and related issues. After all, Bill and Edsel had the family’s attorneys advising them; the independent directors wanted someone at the table looking out for their interests, too. They also wanted to be certain that all the possibilities were being thoroughly evaluated. They hired Richard Beattie of Simpson Thacher, who specialized in helping boards navigate crises. They also made certain he understood whom he was working for.
“You are not representing anybody but the independent directors,” they told Beattie. “That means you are not representing the Ford family.”
They told the same thing to Goldman Sachs, which was also advising the outside directors.
All of this made for a crowded boardroom. It also meant Leitch had to work extra hard, fulfilling his regular duties while also acting as an intermediary between the various legal factions. But he understood why the board wanted the extra insurance. Bill Ford did, too, although he hated it. It felt like the summer of 2006 all over again—particularly with all the talk about bankruptcy.
A Ford bankruptcy would be the end of America’s last great industrial dynasty. The family would be wiped out along with the rest of the shareholders. Ford Motor Company would almost certainly survive, but the descendants of Henry Ford would no longer control it. For Bill Ford and his relatives, it would be an ignoble end to their ancestral legacy. Bankruptcy would be a huge blow to Mulally as well. If Ford filed for Chapter 11 protection, he would not be remembered as the man who saved Boeing, only as the man who lost Ford. The independent directors could no longer afford to be sentimental, though. They wanted to know what bankruptcy would mean for the company as a whole.
Mulally and his team had been studying that issue for a while. A Chapter 11 filing would erase Ford’s debt and perhaps even void its contract with the UAW, but it would also do incalculable damage to the company’s image and the Ford brand. All the hard work of the past two years—the quality gains, the new products, EcoBoost and Sync—would be lost behind a cloud of epic failure. It was a real question whether anyone would even buy a car from a bankrupt automaker. That same question was being asked throughout the American automobile industry, as well as in Washington. The general consensus was that the answer was no. At the time, the idea of a “prepackaged” or “quick-rinse” bankruptcy had yet to become part of the public discourse. The board still thought of bankruptcies as slow, messy affairs. For now, at least, they were willing to give Mulally and his team more time to prove Ford could fix itself.
The only problem with asking for a line of credit was that it required Ford to return to Washington for the second round of hearings in December. After the public pillorying that Mulally and the other CEOs had endured during the first round, some on the team wondered if the company should bother asking for anything at all. But Mulally felt strongly that Ford needed to be there to support General Motors and Chrysler in their request for funding. The hearings would also provide an ideal stage for a very public split with the other Detroit automakers. If the first round was any indication, media coverage would be intense.
Having decided to withdraw its request for a bridge loan, there was no need for Ford to plead poverty this time. But Mulally knew he still had to tread carefully. Ford needed to trumpet its own relative success without making its competitors look so bad that Washington would find them unworthy of a bailout. Getting GM and Chrysler the help they needed was the best way to ensure that Ford did not need any help of its own.
Congress had given the automakers until December 2 to submit complete details of their restructuring efforts and their time lines for restoring profitability. Mulally and his team worked feverishly to prepare a comprehensive filing that would meet these requirements but also highlight the difference between their company and the other two American automakers. It would be Ford’s declaration of independence from old Detroit. Mulally decided to share the entire plan. It was the best way to show Congress and the American people that Ford got it, that it recognized its past mistakes, had learned from them, and was in the middle of a top-to-bottom transformation that would allow it to compete with all comers and prove to the world that the United States was still a great manufacturing nation.
They worked through the Thanksgiving holiday. Mulally split up the task, asking all of the executives to prepare the portions pertaining to their specific areas. He asked Leitch to stitch the pieces together, vet them legally, and make sure the tone was correct. The entire team met at World Headquarters on November 24, 25, and 26. They took off Thanksgiving Day itself, but most of them spent it working on their portion of the document at home, glancing up from their laptops to watch the Detroit Lions lose to the Tennessee Titans or putting them aside for a quick bite of turkey and stuffing. They were back in the Thunderbird Room on November 28 and continued to meet several times a day until December 1. That mor
ning, Ford announced that it had begun a review of Volvo’s future with an eye toward selling the Swedish carmaker. That evening the team huddled around the conference table in Mulally’s office going over the latest draft one more time. They continued tweaking it until they were all satisfied. Mulally thought it struck exactly the right note:
As a company and as an industry, we readily admit that we have made our share of mistakes and miscalculations in the past. We would ask Congress to recognize, however, that Ford did not wait until the current crisis to begin our restructuring efforts, and that much of what we describe below are actions we have taken and decisions we have made about the future that have already put us on a path to long-term viability.… We note that Ford is in a different situation from our competitors, in that we believe our Company has the necessary liquidity to weather this current economic downturn—assuming that it is of limited duration. If the downturn is longer and deeper than we now anticipate, however, access to government financing would be important to help us be able to continue to implement our Plan and benefit when the economic recovery inevitably arrives. While we hope we do not have to access the loans, we believe it is critically important that loans are available to us and the domestic auto industry.
In addition, the credit markets currently remain frozen and are not available to finance the industry’s cyclical needs. This means that our liquidity through 2009 could come under increasing pressure if a significant industry event, such as a bankruptcy of one of our competitors, causes a disruption to our supply base, dealers and creditors.
We are acutely aware that our domestic competitors are, by their own reporting, at risk of running out of cash in a matter of weeks or months. Our industry is an interdependent one. We have 80 percent overlap in supplier networks. Nearly 25 percent of Ford’s top dealers also own GM and Chrysler franchises. That is why the collapse of one or both of our domestic competitors would also threaten Ford.
For Ford, the availability of a government line of credit would serve as a critical backstop or safeguard against these conditions as we drive transformational change in our Company. Accordingly, given the significant economic and market risks that exist, Ford respectfully requests that government funding be made available to us, in the form of a “stand-by” line of credit, in the amount of up to $9 billion. This line of credit would be a backstop to be used only if conditions worsen further and only to the extent needed.
Mulally was satisfied, but Booth was still frowning.
“We really need to have this page look better,” he said. “Could we have some boxes that kind of call out key points or quotes?”
It was late. All the secretaries had gone home for the night. There was no one left in the building but the top executives and a few of their aides. Leitch was exhausted and he knew next to nothing about desktop publishing, but he agreed to try. He went home and spent the entire night trying to figure out how to create text boxes in Microsoft Word.
This is what I went to law school for? he thought as he worked his way through the thirty-one-page document, picking out the best quotes. But Leitch had spent enough time in Washington to know they were the only part of the document most of the lawmakers would actually read.
The next day, Mulally left for Washington. There was no corporate jet this time, just a kiwi-green Ford Escape Hybrid and more than 500 miles of blacktop.* Mulally piled in with his press aide, Karen Hampton; Ford Americas group controller Bob Shanks; and John Kostiuk, the head of Ford’s motor pool. Bodyguards traveled in two other vehicles ahead and behind Mulally’s Escape. The inconspicuous motorcade spent ten hours on the road, stopping only for bathroom breaks. Mulally himself took the last stretch through Pennsylvania. A secretary packed turkey salad sandwiches, chips, and soda for the group. When he was not behind the wheel Mulally did telephone interviews. He called U.S. Treasury secretary Hank Paulson and Federal Reserve chairman Ben Bernanke to tell them about Ford’s decision to go it alone. Given the security escort the trip required, it probably would have been cheaper to take the Gulfstream. But Ford had learned the hard way that appearance counted for more than reality inside the Beltway. That morning, the automaker announced that it was selling all of its corporate jets.†
Having made it to the nation’s capital without getting lost, they drove to Ford’s Washington headquarters. Ojakli was waiting for them. He had spent much of the time since Thanksgiving working his contacts on Capitol Hill, finding out how they would react to the idea of Ford passing on a bailout. The response was positive. It was clear by now that most of Congress’s ire was focused on GM and Chrysler. This made it all the more important for Ford to distinguish itself from those companies as clearly as possible. Ojakli prepped Mulally for the next day’s session like a coach readying his boxer to get back into the ring after losing the last fight.
“Don’t answer any questions that aren’t directed at you,” he said. “Be short and to the point, and don’t get into it more than you need to.”
Then they turned to his opening statement.
“You’re talking to the American people. You’re not just talking to the Congress here,” Ojakli told Mulally. “You have a few minutes to tell the Ford story.”
It was an opportunity Mulally was eager to seize. But by now, everyone was exhausted. They just could not find the right words to say what Mulally knew needed to be said. He was getting frustrated.
“Alan, what are you really thinking?” Hampton asked her boss. She had developed an uncanny ability to refocus Mulally whenever his train of thought jumped the tracks. For the next five minutes, he delivered a brilliant extemporaneous speech that hit all the points that had eluded them.
“So, Alan, why don’t you just say that tomorrow?” she asked. “You don’t need any notes.”
“Let’s put it on a piece of paper,” Mulally said. Fortunately, everyone else in the room had been taking notes. Ojakli gathered them up, went into his office, and started writing.
The next morning, December 4, Mulally and his entourage arrived back at the Dirksen Senate Office Building for round two. This time, the room was bigger, but there were also more witnesses. Mulally, along with GM’s Rick Wagoner, Chrysler’s Robert Nardelli, and the UAW’s Ron Gettelfinger, were forced to sit and listen to a panel of pundits detail all of Detroit’s sins before it was their turn to speak. It was two hours before Mulally was asked to deliver his opening statement. But he made sure it was worth the wait.
“Since the last hearing, I have thought a great deal about the concerns that you have expressed. I want you to know I heard your message loud and clear,” he began, striking a note of contrition before launching into an eloquent speech that stood in sharp contrast to Wagoner’s excuses, Nardelli’s mea culpas, and Gettelfinger’s defensiveness.
You were clear that the business model needs to change. I couldn’t agree more. And that’s exactly why I came to Ford two years ago to join Bill Ford in implementing his vision to transform our company and build a greener future using advanced technology. Let me share with you what we have done to change from how it used to be doing business to how we do business now.
It used to be that we had too many brands. Now we have a laser focus on our most important brand, the Ford Blue Oval. In the last two years, we sold Aston Martin, Jaguar, and Land Rover, and we have reduced our investment in Mazda. And this week, we announced we are considering a sale of Volvo.
It used to be that our approach to the customers was “If you build it, they will come.” We produced more vehicles than our customers wanted, and then slashed prices, hurting the residual values of those vehicles and hurting our customers. Now we are aggressively matching production to meet the true customer demand.
It used to be that we focused heavily on trucks and SUVs. Now we are shifting to a balanced product portfolio, with even more focus on small cars and the advanced technologies that will drive higher fuel economy in all of our vehicles.
It used to be that our labor costs made us uncompetitiv
e. Now we have a groundbreaking agreement with the UAW to reduce our labor costs, and we appreciate the UAW’s continuing willingness to help close the competitive gap.
It used to be that we had too many suppliers and dealers. Now we are putting in place the right structure to maximize the efficiency and the profitability of all of our partners.
It used to be that we operated regionally, European cars for Europe, Asian cars for Asia, and American cars for the U.S. market. Now we are leveraging our global assets—innovation, technology, and scale—to deliver world-class products for every market.
It used to be that our goal was simply to compete. Now we are absolutely committed to exceeding our customers’ expectations for quality, fuel efficiency, safety, and affordability.
This is the Ford story. We are more balanced; we are more efficient; we are more global; and we are really focused.… Ford is an American company, and an American icon. We are woven into the fabric of every community that relies on our cars and trucks and the jobs our company supports. The entire Ford team—from our employees to shareholders, suppliers to dealers—is absolutely committed to implementing our new business model and becoming a lean, profitable company that builds the best cars and trucks on the road for our customers. There is a lot more work to do, but we are passionate about the future of Ford.
Mulally closed by inviting the senators to Dearborn to see what he was talking about and “kick the tires.” He was actually smiling by the time he was done. It was, many felt, his finest hour. And once he had finished telling Ford’s story, he shut up and got out of the way.*
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