As Ford’s executives were putting together the company’s viability plan, Ray Day’s communications team had been working with Ford’s advertising agency to develop a new public relations campaign to further distance the company from GM and Chrysler and capitalize on its decision to forgo a bailout. To underscore the urgency of their mission, Day pointed to a recent Saturday Night Live skit that had lampooned Mulally along with other Detroit CEOs.
“We are all being painted with the same brush,” he said. “We need to tell our own story. We need to tell people that Ford is different.”
Day’s people spent their Thanksgiving holiday building an entirely new website from scratch—www.thefordstory.com—that included detailed information about everything Ford had accomplished in its turnaround, the proof points of its progress, product information, congressional testimony, and videos starring Bill Ford, Alan Mulally, and other executives talking about Ford’s transformation. When the site was finished, they e-mailed the link to dealers and employees, encouraging them to pass it on to their friends and customers. They also encouraged dealers to take out advertorials in their local newspapers talking about why Ford was different.
Day began coaching the other executives to make sure they missed no opportunity to underscore the difference between Ford and the other American automakers in their conversations with policy makers, analysts, and reporters. He warned them to avoid the temptation to talk smack about GM and Chrysler.
“Don’t gloat,” Day said. “If they ask you about what’s going on with them, just say, ‘I can tell you about Ford.’ ”
Bill Ford did a masterful job of doing just that on Larry King Live later that month, turning every question about why the American automobile industry deserved a bailout into an opportunity to remind the host and his viewers that Ford was different.
“Our plan is working. Our market share is picking up. I believe we’re headed exactly where the country wants us to go,” he told King. “We’re not asking for any federal money. We’re trying to pull ourselves up by our bootstraps and make it on our own.”
By the time the second hearing recessed, it was clear that General Motors and Chrysler were going to get something, but it was not at all clear what.
On December 10, the House approved $14 billion in emergency funding to keep the two automakers afloat until the incoming Obama administration could figure out a more permanent solution. It was supposed to keep their lights on until the end of March. But the Senate rejected it the next day after the UAW refused to accept wage concessions that were part of the compromise deal. With concern over the fate of GM and Chrysler now threatening to make the already dire economic situation in the United States worse, President Bush reluctantly stepped up and wrote a check.
“In the midst of a financial crisis and a recession, allowing the U.S. auto industry to collapse is not a responsible course of action,” said a visibly frustrated Bush when he announced his decision on December 19. “It could send our suffering economy into a deeper and longer recession, and it would leave the next president to confront the demise of a major American industry in his first days of office.”
The president gave GM and Chrysler a $17.4 billion loan* and told them they had until March 31, 2009, to put together comprehensive restructuring plans that proved they could become viable companies. If they could not, they would be forced to file for Chapter 11 reorganization. Bush also demanded “meaningful concessions” from “management, labor unions, creditors, bondholders, dealers and suppliers.” The terms were somewhat vague, but it was a long list. The government ordered caps on executive compensation, an end to bonuses for the top executives at both companies, the immediate sale of all corporate aircraft, and strict limits on expenses. GM and Chrysler were required to trade two-thirds of their debt for equity and extract painful concessions from the UAW. They had to get the union to agree to end the jobs banks, align wages and work rules with the Japanese transplants, and restructure their VEBAs to allow the two companies to cover at least half of their outstanding obligations with stock instead of cash. GM and Chrysler were also required to demonstrate their ability to meet the government’s tough new CAFE requirements and begin manufacturing green vehicles in the United States. Finally, both automakers had to seek the government’s approval for any expenditure of $100 million or more.
There was no mention of a line of credit for Ford. However, after studying the terms Washington was imposing on GM and Chrysler, no one in the room was keen to join them on the dole. But many thought it would sure be nice to have Uncle Sam pointing a gun to the head of the bondholders and the UAW and demanding concessions on the company’s behalf. Mulally told them to get over it.
“We, through our own wits, have to participate in this historic restructuring of American automobile industry that the government is leading at GM and Chrysler, and we have to make sure that we are not disadvantaged in the process,” he said before breaking out in a smile and waving his copy of the terms sheet in the air. “And we have their plans!”
*The terms of the 2007 Ford-UAW contract required Ford to establish a temporary asset account with $2.3 billion in marketable securities. In January 2009, Ford replaced those with a promissory note that matured on December 31, 2009, and paid the VEBA 9 percent interest.
*The CEOs of General Motors and Chrysler also prudently elected to drive this time.
†That would prove far easier said than done. Given the state of the economy, there were few buyers for a fleet of used corporate jets. As they sat in Ford’s hangar waiting for one, the company still had to spend a considerable sum maintaining the planes. And because Ford’s security people would not countenance Mulally using a commercial carrier, the company had to spend even more money chartering jets whenever he traveled. Because Edsel Ford owned the local charter company, the company paid a premium to use a service from out of the area. In the end, Ford’s jet costs actually went up substantially as a result of the debacle, and dozens of Ford transportation employees lost their jobs. But at least Congress and the media were satisfied.
*It was the same story the next day at the hearing before the House Committee on Financial Services, but by then Ford was barely part of the debate.
*The money would come from the TARP fund that Secretary Paulson had fought so hard to prevent the automakers from accessing. This was partly to ensure that the Democratic Congress released the other half of the $350 billion authorized for the fund. In fact, $4 billion of the $17.4 billion short-term bailout would only be given to the automakers if those monies were released.
CHAPTER 18
By Their Own Bootstraps
Then why flounder around waiting for good business? Get the costs down by better management. Get the prices down to the buying power.
—HENRY FORD
The e-mails and telephone calls started coming in right after Alan Mulally’s speech on Capitol Hill. Ford Motor Company noticed a huge jump in traffic on its websites as well. The letters began arriving a few days later. They all said the same thing. Thank you. Thank you for not asking for our money. Thank you for fixing your problems on your own. Thank you for showing us that the can-do spirit that made America great is not dead.
A letter Mulally received from Donna Benner in Carnelian Bay, California, was typical. “I was very impressed with your recent refusal to request tax payer funds for your company in the form of bailout money from the government,” she wrote. “In fact, I was so pleased with your stance on the matter that I decided then and there to buy a new Ford.”
Benner traded in her Infiniti QX4 for a Ford Escape Hybrid in January.
James Saultz Jr. from Deer Park, Texas, wrote admiringly to Mulally. “I appreciate your stand for capitalism, and hope that you can make it last,” he said, adding that he had just finished writing a very different letter to General Motors’ CEO, Rick Wagoner. James said he planned to trade in his BMW for a Mustang.
Others bought stock instead of a car to show their support. Dealers were
hearing the same thing. They began phoning in urgent orders for more brochures because so many people were coming into their showrooms to express their support for Ford and take another look at its cars and trucks. One dealer in Texas told how a woman pulled onto his lot in a brand-new Jeep and asked to trade it in for a Ford. She said she was embarrassed to be seen in a vehicle built by a company that could not survive without a government handout.
Ford’s pollsters reported that, within ten days of the second round of hearings on Capitol Hill, 95 percent of the American people knew that General Motors and Chrysler were asking Washington for a bailout. Fifty-two percent knew that Ford was not. Two weeks after the hearings, 48 percent of consumers surveyed said they were more likely to consider a Ford product for the next car or truck as a result. Mulally had never been prouder. His team had come together like he always knew they would. Together they had found a way to fix Ford. And the American people were giving the company credit for doing it.
“This has turned out to be quite an opportunity for us, because it has put a real spotlight on Ford. We just need to continue to tell our story,” Mulally said a few days after the December hearing. “It’s going to help people know that they’ve got great choices with Ford—that we’re well on our way, that we’re financially viable, that we’ve got great products, a great production system and that we’re making tremendous progress.”
As if to underscore that point, the U.S. Environmental Protection Agency released its official mileage number for the new Ford Fusion Hybrid that December. With 41 miles per gallon in the city and 36 miles per gallon on the highway, it was a big blow to archrival Toyota, roundly beating the Camry Hybrid to claim the title of most fuel-efficient mid-sized sedan in America.* The knockout blow came a couple of weeks later when the agency announced that the nonhybrid version of the new Fusion also beat the nonhybrid versions of both the Camry and Honda Accord. The previous version of the Fusion had been one of Ford’s strongest products since its launch in late 2005, but with dramatically improved styling and mileage numbers like these, Ford was now taking the fight to the Japanese—challenging them in the segment they had owned since 1997, when the Camry lapped Ford’s aging Taurus.
And Ford had a new one of those, too.
On January 11, 2009, a beaming Mulally unveiled a completely redesigned version of the Taurus at the North American International Auto Show in Detroit. It was the car he had been dreaming about reviving since his first visit to Ford’s design studio back in 2006. Ford’s designers had done the impossible. They had transformed the lackluster Ford Five Hundred into a jaw-dropping new flagship that trumpeted Ford’s reemergence as a leader in automotive styling. And they had done it in record time. The new Taurus was originally planned as a 2011 model, but with the company fighting for its life, Mulally had ordered an unprecedented acceleration of the program. Derrick Kuzak’s team cut an entire year out of the development process. They actually dispensed with clay models and designed the entire vehicle virtually. That and a lot of late nights allowed them to push Ford’s new Global Product Development System to its limits.
These new Fords were the first fruits of Mulally’s promised product renaissance. And they were just the beginning. The same day that Mulally pulled the sheet off the new Taurus, Bill Ford announced an aggressive new electrification strategy, detailing plans to bring a new hybrid, a plug-in hybrid, and two battery-powered electric vehicles to market by the end of 2012. It was more of what America wanted to hear.
But no one at World Headquarters was celebrating yet.
On January 29, the automaker announced a staggering loss of $14.6 billion for 2008. It was Ford’s biggest loss ever. But there were a few pieces of good news hidden in the otherwise dismal numbers. In the fourth quarter, Ford’s core North American automotive operation lost only $1.9 billion—just $400 million more than it lost during the same period a year before, when the economy was still relatively strong. Analysts had been expecting a much deeper decline, given the dramatic drop in sales. It was proof the company’s cost-cutting efforts were working. In the United States, Ford’s sales were down more than 20 percent for the full year. That was worse than the industry as a whole, which was down 18 percent. But for the last three months of 2008, the company’s sales were down less than the industry average. That meant the automaker had gained market share in October, November, and December. At the same time, Ford’s cash burn rate had cooled to $5.5 billion in the last three months of 2008. But the automaker only had $24 billion in cash and credit combined left at the end of the year—including the $10.1 billion still left in its revolving credit line.
Mulally said that would be enough. Despite the grim figures, he told analysts and reporters that Ford would not cut back on product spending, nor would it reconsider its decision to forgo a bailout in the United States.
“Our pipeline is full,” Mulally said during a conference call after the results were released. “Ford has sufficient liquidity to make it through this global downturn and to maintain our current product plans without the need for government bridge loans.”
But Ford would pull its revolver.
At 7:45 that morning, the Ford CEO had called Timothy Geithner, who had just been confirmed as the new secretary of the Treasury three days earlier. Mulally started by congratulating the grandson of a former Ford vice president* on his appointment, went over the company’s financial results, and then told him that he was going to take more than $10 billion out of the nation’s fragile banking system.
“We’ve talked to everybody,” Mulally said, uncertain of how the new Treasury secretary would react. “We think it’s okay.”
Before making its decision to draw down the revolver, Ford treasurer Neil Schloss had personally called each of the fifty banks underwriting it to let them know what was coming and make sure they could fund their portion. Given the state of the economy, he was not certain all of them could. All of the banks funded—except for Lehman, which was no longer among the living and had taken $900 million worth of Ford’s liquidity with it to the great beyond.
The loss of Lehman had a lot to do with Ford’s decision. Internally, the company’s executives had always agreed that they would call the revolver only as a last resort. Many of them—including Chief Financial Officer Lewis Booth—would later say this was the toughest decision they had to make during the crisis, because it meant Ford was playing its last ace. Under normal circumstances, Wall Street would have taken it as a sign that Ford’s end was nigh. But the Great Recession had created a new normal. Ford had already lost a tenth of its credit line when Lehman failed in September, and several of the banks that were underwriting the remaining $10.1 billion were barely hanging on. Schloss was spending a good portion of each day checking up on them, and he was worried that Ford’s line of credit was about to get even smaller. Pulling it was the only way to preserve it. Ford hoped most analysts would understand that, and the company promised not to use any of the funds to cover operating expenses.*
“I understand,” Geithner said.
Mulally was relieved. The last thing he had wanted was to tick off the secretary of the Treasury during their first conversation.
“We continue to manage the business on our own,” Mulally assured him. “We started our restructuring a while back, and we plan to keep going.”
After Ford’s CEO got off the telephone with Geithner, he called Federal Reserve chairman Ben Bernanke and told him the same thing. Bernanke, too, understood.
Keeping Ford’s promise not to use the money from the revolver to cover operating expenses would require the finance team to monitor the company’s cash position in real time. Schloss and his staff were constantly reassessing how much money they were going to need for near-term operations and shifting whatever they could forward until sales began to rebound. Ford needed between $8 billion and $10 billion to keep the lights on and the factories humming. Not counting the money from the revolver, its bank balance dropped to right around $10 billion before sale
s and revenue began to rebound. At best, Ford had only a couple of billion dollars’ worth of breathing room.
As precarious as Ford’s finances remained, they were a lot better than GM’s and Chrysler’s. Both companies had retained bankruptcy counsel and were struggling to meet the requirements set forth as a condition of their bridge loans. The Bush administration had given them until February 17 to prove that they could negotiate the concessions from their bondholders and the United Auto Workers, and meeting that deadline was supposed to be a condition for further federal funding. But January was almost over and there was still little sign of progress. It was not looking good for either of the automakers.
Ford’s labor team was growing impatient. Joe Hinrichs and Marty Mulloy* had made it clear to the union that Ford needed similar concessions if it was going to make it without taxpayer assistance. UAW president Ron Gettelfinger was sympathetic to Ford’s position but refused to negotiate anything with the company until he had signed deals with both of its competitors. His position was understandable. Gettelfinger was only at the bargaining table because Washington had a gun to his head. And Washington had said nothing about Ford. All Hinrichs and Mulloy could do was watch and wait.
That was exactly what they were doing one night in Mulloy’s office inside World Headquarters when Hinrichs suddenly leapt out of his chair, grabbed a marker, and started doing math on a blank flip chart. Mulloy looked over his shoulder and saw that Hinrichs—who had come to Ford from General Motors—was adding up GM’s debt, the amount it still owed to the UAW-run VEBA health care trust, and the company’s unfunded pension liabilities. When Hinrichs was finished with his calculations, he stepped back and shook his head.
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