On April 6, Ford made a $3 billion payment to the revolver. On June 30, the automaker made a $3.8 billion payment ahead of schedule to the UAW’s retiree health care trust, or VEBA. Ford also announced that it had reached an agreement with the union that would let it pay off the rest of its VEBA obligation with cash at a 5 percent discount. A year earlier, the company had convinced the UAW to let it cover half those obligations with stock. Now Ford had enough cash to make that unnecessary. Not that the UAW would have minded. The VEBA made a nice profit off the stock warrants Ford had already given the fund when it sold them at the end of March, netting $1.8 billion for union retirees.
Current employees were also sharing in Ford’s success. Ford restored profit sharing with its U.S. factory workers in January, writing each of its approximately 43,000 UAW-represented employees a check for $450. The automaker also lifted a freeze on merit pay increases for salaried workers and began restoring some of the benefits that they had given up in the depths of the crisis.
Dealers were also benefiting from Ford’s turnaround. In 2009, their average profit in the United States was fifteen times higher than it was in 2008. It was a poignant contrast to the hundreds of GM and Chrysler dealers fighting to get their franchises back, as well as to the Toyota dealers whose mechanics were working around the clock to replace accelerator pedals.
Mulally was not doing too bad, either. In March, Ford revealed that his compensation for 2009 totaled almost $18 million in cash, stock, and stock options. Even Bill Ford was finally getting paid. Five years after he gave up all compensation, it was announced that the company’s executive chairman would receive $4 million in cash and more than $11 million worth of stock options. He immediately donated $1 million of that to a college scholarship fund for the children of Ford employees.
Just as Mulally had promised his team back in 2006, the ride back up was turning out to be a lot of fun. All their hard work was finally paying off. Each week, each month, each quarter was better than the last. Instead of fighting to survive, they were now playing to win. Ford’s quality ratings were the highest of any nonluxury brand. Ford no longer had to discount its products in order to convince buyers to test-drive one; customers were now willing to pay more for a car that had a Blue Oval on the grille. And new ones were arriving in dealer showrooms at one of the fastest rates in the industry.
On July 26, Mulally pulled the wraps off the all-new Ford Explorer in New York City’s Herald Square, which Ford had filled with dirt and pine trees for the occasion. This reinvention of Ford’s bread-and-butter SUV got 30 percent better fuel economy than the old Explorer and cost $1,000 less. Just like Henry Ford a century before, Mulally had figured out how to make Ford’s products more efficiently and was passing the savings on to consumers.
The company was in growth mode again. In the first six months of 2010, Ford announced billions of dollars’ worth of new investments in Asia, Africa, Europe, South America, and the United States. These were all about delivering on Mulally’s vision of a more balanced global footprint for the company—one that would end its long dependence on the North American market. The world was changing. The United States was emerging from the Great Recession, but it now seemed unlikely to reclaim its former economic supremacy. Ford’s future lay elsewhere.
With the problems at home largely fixed and Ford’s North American business restored to profitability, Asia became Mulally’s top priority. China and India were fast becoming the center of a new economic order, but Ford had been late to the game in both countries and was still struggling to catch up.
Mulally decided it was time to export his revolution. At the end of 2009, he tapped Joe Hinrichs to lead a top-to-bottom transformation of Ford’s Asia-Pacific group modeled after the turnaround in North America. The young manufacturing chief replaced the aging John Parker, who had done little to make up for the years of mismanagement that preceded him. It was just the sort of opportunity the ambitious Hinrichs had been waiting for, and he threw himself into it with his customary zeal. He flew back and forth between Dearborn and Shanghai, figuring out what Ford needed in China, then returning to World Headquarters to lobby for it in person.
China was now the world’s second-largest automobile market, and Ford had neglected it for too long. The first problem Hinrichs identified was a lack of product. The company was doing well in the segments it competed in, but Ford sold only five models in China. He put together a plan to bring more than a dozen new vehicles to market. He ordered a major expansion of Ford’s manufacturing base in the country, breaking ground on two new assembly plants and an engine factory. He also began drawing up plans for a new transmission plant. Finally, Hinrichs launched an aggressive expansion of Ford’s Chinese dealer network, adding a hundred more stores—mostly in smaller cities and inland provinces where demand was growing.
In March, Alan Mulally arrived to sprinkle his pixie dust on unsuspecting Chinese customers. When Harriet Luo arrived at the Dongchang Ford dealership in Shanghai to pick up her new blue Focus, Mulally was waiting there with the keys and a hug. The poor woman was almost speechless.
“This is totally beyond my expectations,” she stammered.
Ford’s share of the Chinese market was just 2.6 percent. Volkswagen was the market leader with 13 percent, and General Motors came in second with an even 9 percent. Even Suzuki sold more cars in China than Ford did. But Mulally was undaunted, as usual.
“Now we are here,” he declared at the Dongchang dealership. “I have made [Asia] the highest priority for Ford.”
India was next on Ford’s to-do list. It was a challenging market where Ford had to compete with some of the cheapest automobiles in the world. Three-wheelers were still considered an attractive transportation option by many middle-class consumers. So Ford took the tooling for the old Fiesta that had just been retired, moved it to a factory in Chennai, slapped a fresh face on it, slashed the price to about $7,700, and reintroduced it as the Ford Figo. It was a breakout success, racked up more awards than any other car in the market, and nearly tripled Ford’s sales in India by the end of 2010.
Mulally was there for the launch, being serenaded by sitars, decked out in floral garlands and anointed with vermilion. During the trip, he also took time to address more than 5,000 Ford of India employees.
“Ford India rocks!” he declared to the startled crowd, which was unaccustomed to this sort of informality. “It could not be going better! That’s my report!”
Mulally left them smiling in his wake.
Europe was also posing new challenges for Ford. The end of scrappage programs across the region brought a decline in sales, followed by increasingly fierce competition that saw most automakers stacking ever-larger piles of cash on the hoods of their cars to lure buyers. Unlike in the United States, the economic crisis had not brought a fundamental restructuring of the automobile industry there. In fact, the help manufacturers had received from the various European governments during the downturn was contingent on them keeping their plants open and workers employed. As a result, all of the automakers—including Ford—emerged from the Great Recession with too much capacity and too few customers.
By April, Ford’s sales in Europe were beginning to slip. At Mulally’s insistence, Ford tried to resist joining the incentive war even though that meant ceding market share to rival brands. He knew enough of Ford’s history by now to understand the role incentives had played in bringing down the Big Three in the United States. They undermined resale values, cheapened the brand image, and ate into profits. But the pricing pressure in Europe would prove impossible to resist.
Mulally decided it was time for a change there as well. He gave Joe Hinrichs’ old job to European Group president John Fleming and promoted Volvo chief Stephen Odell to chairman and CEO of Ford of Europe once the Volvo deal closed.* Mulally had been impressed with Odell’s tough-love approach to the Swedish brand. He had cut thousands of jobs in a socialist country and gotten away with it. More important, Odell had almost returned
Volvo to profitability by the time Ford handed the keys to the Chinese.
On March 28, Ford had reached a definitive agreement to sell Volvo to China’s Geely for $1.8 billion. It was less than half of what Mulally had hoped to get for the brand, but even this amount proved to be a stretch. In the end Geely was barely able to come up with enough cash to close the deal. Ford accepted a $200 million note in order to leave the new owner with enough money in the bank to keep Volvo running. The important thing, at least as far as Mulally was concerned, was that Ford had eliminated its last major distraction. When the Volvo deal closed on August 2, all of the foreign brands were gone. Most of Ford’s stake in Mazda was, too, and the company would sell another 7.5 percent before the year was finished.† That left one more name on Mulally’s hit list: Mercury.
On June 2, Ford summoned reporters to a hastily organized press conference at the Product Development Center in Dearborn. Rumors were once again circulating among dealers that Mercury’s demise was imminent. This time the rumors were true. Mark Fields explained the rationale behind Ford’s decision to kill the seventy-two-year-old brand. Mercury sales were declining and now accounted for less than 1 percent of the U.S. market. Ford was not spending much on the brand, but what it was could be better spent on Ford’s luxury marque.
“We are very proud of [Mercury’s] history, but we are now looking forward,” Fields said. “We’ve made a lot of progress with the Ford brand. Now’s the time to do that with Lincoln.”
Privately, Ford executives acknowledged that the only reason they had kept Mercury alive for this long was that the company lacked the resources to revive Lincoln. Jim Farley had been plotting a top-to-bottom transformation of Lincoln ever since he was hired away from Toyota’s Lexus division in 2007. Now he finally had the money to do it. His goal was as ambitious as any Ford had set. Having bested Toyota on the quality front, Farley wanted to out-Lexus Lexus in the luxury segment. Ford began spending big on a major makeover of its luxury lineup. But Farley knew that new products would not be enough. Toyota had entire assembly lines dedicated to Lexus production where cars were put together to the most exacting standards in the industry. Lincoln was too small for its own factories, so Ford would have to raise the bar at its existing plants. It would also have to convince dealers to invest in their showrooms. Farley wanted them to exude luxury, just like the products he planned to fill them with.
Ford’s previous attempts to restore Lincoln’s lost luster had made little headway. Under Mulally, the brand’s products had improved. Some of them, like the Lincoln MKS sedan and MKT crossover, could already compete with the best in the world in terms of styling and features. But they were overpriced—particularly for a brand that still had a lot of explaining to do. Mulally was still not convinced that Ford needed anything but the Blue Oval, but he was willing to give Farley one more shot at Lincoln.
On July 23, the company reported earnings of $2.6 billion for the second three months of 2010—its best quarter since 2004. Ford’s stock closed above $13 a share four days later. But some on Wall Street began to suspect that they were being played. Quarter after quarter, the company was beating analysts’ estimates. Some were now wondering if Ford was purposely managing down expectations so that it could exceed them. The truth was that everyone inside Ford was just as surprised. Each quarter was coming in ahead of the company’s projections. At lower levels of the company, there may have been some fudging going on: Some regional managers had figured out that, in Mulally’s Ford, it was better to lowball their estimates than risk being held accountable for missing their targets. That was the downside of his insistence on accountability. But after years of overpromising and underdelivering, it was better for Ford to err on the side of restraint.
The changes Mulally had made to Ford’s culture were no longer limited to the upper echelons of the organization. At each level of the company, managers tried to emulate his inclusive and data-driven approach. Every department now held its own weekly BPR meeting, and similar sessions were held regularly at the national and regional level. Morale soared to an all-time high as Ford employees saw their work recognized and found managers increasingly willing to listen to their ideas and concerns. Reporters noticed the change, too. Ford had stopped leaking.
The press still had plenty to write about, though.
Ford’s success had made its CEO a celebrity. On January 15, Mulally was named “Industry Leader of 2009” by the Automotive Hall of Fame, which called him “the overwhelming and obvious choice.” Automobile magazine had already named Mulally “2010 Man of the Year.” Barron’s added him to its annual list of the thirty most-respected CEOs in the world, while Automotive News lauded him as “Industry Leader of the Year.” Mulally was voted “Businessperson of the Year” by the readers of Fortune and “CEO of the Year” by those who followed MarketWatch. The Detroit News named him “Michiganian of the Year.” Even the president of the United States jumped on the Mulally bandwagon, naming Ford’s CEO to his Export Council on July 7.
But Mulally’s biggest fan was Jim Cramer, host of CNBC’s Mad Money.
“[Mulally] is the greatest turnaround artist of all time—not our time, all time,” the hyperactive host declared on June 30. “The guy has already worked his turnaround magic at Boeing, and now at Ford he’s taken a laggard and turned it into an industry leader!”
Cramer did not stop there. He had an enormous hundred-dollar bill printed with Mulally’s mug replacing Benjamin Franklin’s and emblazoned with the motto “In Mulally We Trust.” When he was done using it on his show, Cramer sent it to Mulally, who displayed it proudly in his office.
On August 4, Mulally turned sixty-five—the unofficial retirement age at Ford. In Dearborn, few executives ever made it that far. But Mulally insisted that he was not going anywhere yet. Though he had brought Ford back from the brink in the middle of the most serious crisis to confront the automobile industry in eighty years, his work in Dearborn was not yet finished. Mulally still wanted to redeem Ford’s mortgaged assets. And once he had done that, he wanted to give the Ford family and the rest of the company’s shareholders their dividends back.
Bill Ford seemed inclined to let him.
“He’s staying until 2025,” the executive chairman joked when asked if he had thought about a successor.
With all the press Mulally was getting, it was the sort of joke Ford found himself making a lot. But his laughter masked some real concerns about who would replace the man some were beginning to regard as one of the greatest CEOs ever.
Bill Ford saw no reason to bring in another outsider. He was convinced that each of the company’s top executives had internalized Mulally’s revolution and made his precepts their own. Because of Mulally’s matrix organization and Thursday-morning BPR meetings, they each knew everything there was to know about every aspect of the business. Vice President of Human Resources Felicia Fields could rattle off the names of the three bestselling Ford cars in China just as surely as quality czar Bennie Fowler could detail the latest debt action.
By the end of 2010, it was Mark Fields’ job to lose. Mulally initially had high hopes for Jim Farley, but the marketing maven had turned out to be something of a mad scientist—a true genius who was capable of coming up with big ideas, but who had demonstrated some serious shortcomings in the people-skills department. Mulally also saw a lot of potential in Joe Hinrichs, but he was a generation behind Fields. There was still time for him to hone his skills in Asia. More important, Bill Ford himself made no secret of the fact that his money was on Fields. The chairman was impressed with the way Mark Fields had swallowed his anger at being upstaged by Mulally, embraced his cultural revolution, and become his keenest student. Ford was equally impressed with Fields’ loyalty.
“It’s my decision,” Ford reminded me when I asked about it.
A much bigger concern for Bill Ford was complacency. He had seen Ford become a victim of its own success before, and he was determined to break that cycle.
“It’s
something that I think about all the time,” he confided. “How do we not go back to where we were? How do we stay lean and hungry? And how do we continue to foster innovation? A lot of that does fall to me. I am the institutional memory around here.”
In September 2010, Alan Mulally marked his fourth anniversary at Ford Motor Company. With the automobile sales slowly recovering around the world and the worst of the supplier crisis subsiding, there was no longer a need for daily meetings. But Mulally and his team still gathered every Thursday in the Thunderbird Room for their weekly BPR and SAR meetings. By now the entire process had been refined to the point of routine.
The first meeting in September was typical. The team convened at 7 A.M. sharp, taking their places at the round table. There were now fourteen black leather executive chairs—one for each of the regular attendees: Chief Financial Officer Lewis Booth, President of the Americas Mark Fields, Ford Credit CEO Mike Bannister, Vice President of Global Product Development Derrick Kuzak, Vice President of Global Manufacturing and Labor Affairs John Fleming, Vice President of Global Purchasing Tony Brown, Vice President of Quality Bennie Fowler, Vice President of Sustainability, Environment and Safety Engineering Sue Cischke, Chief Information Officer Nick Smither, Vice President of Human Resources and Corporate Services Felicia Fields, General Counsel David Leitch, Vice President of Global Marketing, Sales and Service Jim Farley, Vice President of Communications Ray Day, and, of course, Mulally himself.* He took his usual seat directly opposite the big projection screen. Joe Hinrichs was at Ford’s new Asian headquarters in Shanghai but participated through the company’s teleconferencing system. Steve Odell did the same from Cologne, while Vice President of Government and Community Relations Ziad Ojakli tuned in from Washington. There were chairs for each of them off to the side for the times they were present in Dearborn.
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