Ford?s plan for survival

[FoMoJo]

article

For the last six weeks, Ford Motor Co.'s top executives met almost daily to craft a plan to keep the company solvent in the face of the worst financial crisis in decades. Surrounded by black-and-white photographs of Henry Ford and the Model T in the Thunderbird Room on the 11th floor of Ford's world headquarters, they waged a battle to decide Ford's future.

CEO Alan Mulally and his leadership team worked through lunch, taking quick bites of Caesar salad as the global credit crisis deepened and automobile sales collapsed. With gasoline prices falling, some argued that Ford should abandon its costly plan to retool North American truck factories to produce smaller, more fuel-efficient cars from Europe. Others pushed to curtail future investment in key products like the F-150 pickup that have seen sales drop off dramatically in recent years.

Global product development chief Derrick Kuzak -- backed by Mulally -- countered: If Ford has a future, it depends on delivering a new generation of class-leading cars and trucks that people actually want to buy. They fought off every challenge to one of the most ambitious product plans ever put together, albeit at the cost of thousands of jobs.

"We're only going to be in business if we create products that people really do want and value," Mulally told The Detroit News in an exclusive interview Tuesday. "This is the essence of creating a viable Ford."

Unlike rival General Motors Corp., which has curtailed its investment in some new vehicles to conserve cash, Ford is betting the business on new cars in a make-or-break bid to turn the company around before time runs out.

Ford's latest launches have done little to arrest its decade-long decline in U.S. market share, and it is far from certain that the cars and trucks in Ford's pipeline will be enough to turn the tide. Yet, Wall Street analysts such as Eric Selle of JPMorgan say this is the only way forward for an automaker that has wasted too many years producing lackluster products that barely covered its costs.

"The status quo is no longer acceptable," he said. "Abandoning the product plan would have been a bad move."
Ford has demonstrated that it can make money off its small cars in Europe, Selle said, adding that the concessions it won from the United Auto Workers union last year should allow Ford to do the same thing in this country.

Crunching the numbers
In Mulally's Thursday morning meetings, already the stuff of legend in Detroit, Ford's top executives review the company's progress on the turnaround plan. By the end of September, the full magnitude of the global credit collapse was becoming all too apparent to Ford and the company needed to take urgent action to shore up its liquidity.

The weekly meetings became daily sessions. Mulally summoned the leaders of Ford's Asian and European operations to Dearborn. Along with Ford Americas President Mark Fields, Kuzak and other key executives, they began looking for ways to conserve Ford's liquidity.

Each time, they would emerge from the Thunderbird Room with orders for their respective teams, which would then work long into the night crunching numbers and running models.

They worked Saturdays and Sundays, poring through the company's business plan looking for places to shave more costs. But the discussion always returned to the product plan.

Vehicle programs are a huge expense. Cutting one is an easy way to balance the books. GM is postponing new investment in its pickups to save money. Chrysler LLC canceled part of its product portfolio earlier this year. Some at Ford wanted to do the same thing.

"It was like, OK, which one do you want to cut out? Which one do you think we don't need? Remember, this is to stabilize our position in the marketplace and actually grow. We're not going to stabilize anything" if we keep cutting, Mulally said. "You have to allow that debate to happen, because we had to still come up with all of the hard actions."

Kuzak told The News that he saw little point in preserving cash at the expense of Ford's lineup.

"Outstanding products are the heart of any turnaround of our business and its future success," he said. "The whole intent from the beginning was to protect the product plan and the capital spending and engineering that goes with it and look for every other element of cash that isn't directly tied to the products."

Mulally's turnaround plan is based on consolidating Ford's worldwide operations to better leverage its global scale. Kuzak said many elements of that plan are ahead of schedule, and he challenged his department heads around the world to study their budgets to determine what could be eliminated in light of these newfound efficiencies. Other executives did the same.

Bonuses, advertising cut
They also began a careful analysis of Ford's most efficient operations, like its new joint-venture factory in Nanjing, China. Chinese partner Changan had introduced some cost-saving tooling practices there that Ford rushed to implement at other facilities around the world.

As part of this effort, executives decided to cut another 10 percent of the company's salaried payroll in North America. Benefits, including the bonuses paid to Mulally and other senior executives, are being cut. So is advertising.

Ford was already on track to cut at least $5 billion in annual operating expenses because of its earlier restructuring actions. These new cuts, announced Friday, are expected to save another $8 billion to $9 billion.

At the same time, Ford is transferring money from its lending arm, Ford Credit, to the parent company and will continue debt-equity swaps to raise additional capital. These actions, combined with the possible sale of assets like its stake in Japan's Mazda Motor Corp.   are expected to raise another $6 billion to $8 billion through 2010, when the full benefits of the new UAW contract kick in.

The product plan remains largely intact. In the end, Ford only delayed one new product program -- a European crossover that had not even been announced. It is also postponing plans to offer a diesel version of the F-150, as well as the freshening of a few of its poorer sellers in the United States.

Because Ford's plan assumes no help at all from the federal government, some of these actions could be reversed by a federal bailout. And Mulally said Ford's approach should help make the case for government assistance.

"Whoever is going to invest or loan us money wants to know we're taking the actions to create a viable company going forward," he said. "We are absolutely taking the appropriate actions. We've demonstrated that we're making progress."



Do they have a chance?

[ifcar]

"Ford only delayed one new product program -- a European crossover that had not even been announced. It is also postponing plans to offer a diesel version of the F-150, as well as the freshening of a few of its poorer sellers in the United States. "

The Explorer full redesign is already planned, the current Expedition is already a freshening and has no problems that another mild update could solve, the Taurus redesign is already planned, the Taurus X has already been replaced, the Flex has no problems that freshening would fix, the Ranger is already being replaced...

That doesn't leave much. The Fusion, Focus, Escape, and F-150 are all I seem to be missing here, and none of them are either slow sellers or due for a freshening that isn't already clearly about to happen (Fusion.)

[FlatBlackCaddy]

Ford seems to get it IMO, meanwhile at GM HQ wagoneer took a 3 hour lunch with a few business friends to the tune of 500 dollars plus a 300 dollar tip(paid for by GM corporate of course).

[GoCougs]

Ford's last chance was with the redesigned Focus, Fusion and 500 a few years ago.

Rather, it blew money on the GT, Freestyle/Taurus X, Explorer SportTrac, Edge, Flex, and probably a few others I'm forgetting. That money should have spent on bolstering the Ranger, Escape, Explorer, and the above three.

Ford is DOA without government help.

[SVT666]

This is why they hired Mulally.  Even if Ford files for Chapter 11, they at least gave it the best shot they could without government help.  GM is just delaying expenses.  The expenses are still there.

[SVT666]

Ford's last chance was with the redesigned Focus, Fusion and 500 a few years ago.

Rather, it blew money on the GT, Freestyle/Taurus X, Edge, and Flex.

Ford is DOA without government help.

The Focus is a hit in all intents and purposes and the Fusion is a popular car as well (though not as popular as the car it replaced).  The Freestyle/Taurus X was simply not marketed.  I never saw a single ad in any media (print, tv, or radio).  If they had marketed it properly it would have succeeded.  Almost all of our friends had no idea what our car was when they first saw it.  The Edge sells well, but the Flex's styling turns a lot of people off.

[ifcar]

I saw Freestyle magazine and online ads around its launch, but they were very poor.

[GoCougs]

The Focus is a hit in all intents and purposes and the Fusion is a popular car as well (though not as popular as the car it replaced).  The Freestyle/Taurus X was simply not marketed.  I never saw a single ad in any media (print, tv, or radio).  If they had marketed it properly it would have succeeded.  Almost all of our friends had no idea what our car was when they first saw it.  The Edge sells well, but the Flex's styling turns a lot of people off.

All of these were failures.

Neither the Focus nor the Fusion come close to their predecessors in sales, and Ford has had major issues in turning profit on cars.

The Freestyle/Taurus X and Flex failed in concept alone - Americans for ~20 years simply reject wagons save for the quirky legacy of a few low(er)-volume brands (Saab, Volvo, Subaru).

The Edge $$$ simply should have been dumped into the Explorer and Escape; it not only siphons sales it is simply a very, very mediocre product.

[FoMoJo]

The Focus is a hit in all intents and purposes and the Fusion is a popular car as well (though not as popular as the car it replaced).  The Freestyle/Taurus X was simply not marketed.  I never saw a single ad in any media (print, tv, or radio).  If they had marketed it properly it would have succeeded.  Almost all of our friends had no idea what our car was when they first saw it.  The Edge sells well, but the Flex's styling turns a lot of people off.

I've seen a number of Flexs on the road out our way.  It's a style people have to get used to and, I believe, many will like it.  Having just won the AJAC (best new SUV/CUV in the $35 to $60K range) should give it some exposure.  As well, my wife said she liked it which means that it has a formidable presence.  Unless the mothership sinks, I think it will do okay over the next few years.

[FoMoJo]

All of these were failures.

Neither the Focus nor the Fusion come close to their predecessors in sales, and Ford has had major issues in turning profit on cars.

The Freestyle/Taurus X and Flex failed in concept alone - Americans for ~20 years simply reject wagons save for the quirky legacy of a few low(er)-volume brands (Saab, Volvo, Subaru).

The Edge $$$ simply should have been dumped into the Explorer and Escape; it not only siphons sales it is simply a very, very mediocre product.

Yet it was/is the best selling crossover vehicle.  As well, it does not compete with the Explorer or Escape.

[FlatBlackCaddy]

This is why they hired Mulally.  Even if Ford files for Chapter 11, they at least gave it the best shot they could without government help.  GM is just delaying expenses.  The expenses are still there.

The good news is that even if ford files chapter 11 they will have a good leader to help them rise back out of it. GM looks to be stuck with rick during and after bankruptcy. This guy is a plague, if GM files chapter 11 they don't need this man and his foolish ideas ruining any chance GM has at establishing a solid foundation for the future.

[the Teuton]

Except for the Lexus incident, Mulally kicks ass.  He might be my new favorite auto exec.  Sorry, Maximum Bob.

[FoMoJo]

Except for the Lexus incident, Mulally kicks ass.  He might be my new favorite auto exec.  Sorry, Maximum Bob.

I thought that his Lexus reference was brilliant .  Maybe the rest of the team were a bit nonplussed but they sensed they had to kick it up a notch.

[SVT666]

I thought that his Lexus reference was brilliant .  Maybe the rest of the team were a bit nonplussed but they sensed they had to kick it up a notch.

I agree.  He got roasted over it, but I thought it was the kick in the ass Ford engineers and staff needed.

[SVT666]

All of these were failures.

Neither the Focus nor the Fusion come close to their predecessors in sales, and Ford has had major issues in turning profit on cars.

The Freestyle/Taurus X and Flex failed in concept alone - Americans for ~20 years simply reject wagons save for the quirky legacy of a few low(er)-volume brands (Saab, Volvo, Subaru).

The Edge $$$ simply should have been dumped into the Explorer and Escape; it not only siphons sales it is simply a very, very mediocre product.

I don't think the Edge is mediocre.  I had one for 3 days, and I really liked it.  I still don't understand what some are complaining about.  The Focus is back in the Top 10 with sales that were still increasing until a couple months ago when all the shit hit the fan.

[Byteme]

All of these were failures.

Neither the Focus nor the Fusion come close to their predecessors in sales, and Ford has had major issues in turning profit on cars.

The Focus is certainly doing better than the previous model, through the end of August.  The fusion has dropped below earlier year sales numbers, but hell, so what, virtually every car model is hurting compared to previous year's sales.

[Nethead]

Stick with the product to the bitter end!  
Better to make the best originals you can until you have to stop altogether than to make mediocre imitations forever!

Good work, Mulally!  The Nethead here approves!

[GoCougs]

The Focus is certainly doing better than the previous model, through the end of August.  The fusion has dropped below earlier year sales numbers, but hell, so what, virtually every car model is hurting compared to previous year's sales.

Like I said exactly - selling more cars if you can't turn a profit on them is very bad business, which is one of Ford's primary issues.

[ifcar]

Like I said exactly - selling more cars if you can't turn a profit on them is very bad business, which is one of Ford's primary issues.

That's not what you said exactly. You said exactly that they were selling worse than their predecessors, which is exactly not true.

What you're saying now is hard to argue though.

[the Teuton]

I thought that his Lexus reference was brilliant .  Maybe the rest of the team were a bit nonplussed but they sensed they had to kick it up a notch.

Do you think he still owns it or drives it to work?

[SVT666]

Do you think he still owns it or drives it to work?

He drives a Five Hundred to work.  I don't know if he still owns the Lexus or not.

[GoCougs]

That's not what you said exactly. You said exactly that they were selling worse than their predecessors, which is exactly not true.

What you're saying now is hard to argue though.

By predecessors I meant the market share the Escort and Taurus had at their peaks.

[3.0L V6]

From a structural point, Ford is in the best position of the Big 3. They have the fewest brands to spread development dollars upon, they have a world-wide operations which allows them to draw on global platforms and spread the costs over a larger market segments, they have a strong brand image worldwide (people know what a Ford is all over the world), several of their models have achieved top reliability scores lately and they have drawn upon their credit lines in advance, so this fun stuff with the credit markets doesn't affect them as much.

That being said, Ford North America has many problems:

1. The weak perception of Ford in the home market - many people got burned on flaky front-drive transmissions, blown 3.8L V6 headgaskets, and other maladies and will not return to the Ford brand ever.

 2. The UAW pensions and healthcare costs, not to mention the contract wording that makes it very difficult for Ford to adjust to market conditions - it is cheaper to flood the market with cars than to lay off employees.

3. Mercury, as it is a US only brand and lacks any definition.

4. A model lineup focused upon SUVs/trucks.

There's a bunch more too....

[Byteme]

By predecessors I meant the market share the Escort and Taurus had at their peaks.

Apples and oranges.  Their peaks were achieved under totally different conditions.

You might as well complain the Fusion isn't selling as well as the Model T did in 1923.

[Byteme]

Like I said exactly - selling more cars if you can't turn a profit on them is very bad business, which is one of Ford's primary issues.

In the short run that depends on if the sales price covers all of the variable costs.  Sometimes producing at a loss is better than not producing at all.

[GoCougs]

Apples and oranges.  Their peaks were achieved under totally different conditions.

You might as well complain the Fusion isn't selling as well as the Model T did in 1923.

The Fusion is not selling as well as the Model-T. 

In the short run that depends on if the sales price covers all of the variable costs.  Sometimes producing at a loss is better than not producing at all.

Yes - I realize that. Such a thing is popular in the home construction arena - it is cheaper to lose a bit of money on homes than it is to stop building altogether and lose your work crews and minimal cash flow - there's value in keeping the machine running in preparation for when the market improves and/or starts booming. Stop the machine and it's over.

In the auto market, there are no big swings per se. Once you've cemented the brand that's that - Ford may sell more of them, and rebates and discounts may shrink, but a Focus that has an MSRP of $15k today won't have an MSRP of $20k next year. Ford has to keep the machine running because of UAW and supplier contracts, and one would hope, are also planning to build small cars at a profit.