Unlike the other two firms comprising the Detroit ‘Big 3’, Ford Motor Company has managed to avoid filing for Chapter 11 in the worst recession to hit the US auto industry in decades. The firm is moving closer to sustainable profitability at much lower volume. Many say that Ford CEO and President Alan Mulally can take considerable credit for that. Big corporate turnarounds aren’t easy, but as he tells Dave Leggett, the important thing is to have a vision and act decisively.
- Mulally on industrial recovery: “We think that there is going to be a slower and longer recovery than we have seen in the past, so we’ve planned for that.”
- On Ford’s position today: “We have taken our production down to real demand, restructured ourselves to get back to profitability, divested the non-core brands to focus on Ford, focus on the full product line and continued to invest in the products that people want and value.”
- On the foresight three years ago to mortgage assets as part of the business plan: “Of course the bankers thought that was a very viable plan and that’s why they loaned us $23.5 billion. At the time, we also had in that plan a cushion in case the world economy slowed down even more.”
- On the importance of cash in the bank: “We are on a very sound financial footing right now. We have sufficient liquidity, we have reduced our cash-burn dramatically. You can just see the amount of money we have in the bank and the cash-burn…”
- On One Ford and integration: “We have these fabulous Fords in Europe and Asia-Pacific, with probably the best geographical split of any company but they were operating very independently – so we pulled all those together.”
- On divesting premium brands: “We love the other brands and they’ll do great for somebody else, but the decision we were taking was to create a viable Ford.”
- On Ford’s supplier relations when he took the job: “I was astonished and disappointed, when I arrived, at the relationship we had with our suppliers.”
- On Ford’s supplier relations now: “I am so proud that three years later we have moved up dramatically and our trajectory is very positive. You can’t move up in their eyes unless you are starting to include them as a partner, starting to share with them the production data, you’re including them up front in the design – all the things that are important to them to let them be successful. They’re very pleased with us.”
- On business turnaround parallels with his Boeing experience: “People say, ‘how did you know to move so decisively?’ and part of the reason is that I had just been through it.”
- On not needing to file for Chapter 11: “It’s one of the biggest advantages that we have…That Ford is different seems to be resonating with everybody.”
- On Ford quality and not chasing sales volume in the US: “The incentives are going down and over the last six months our market share has gone up every month. The incentives are going down because people not only perceive, but they know, that when you buy a Focus or a Fusion or a Taurus or an Escape you are getting the very best vehicle in that class, competitively.”
- Mulally’s ever-changing ride: “I drive a different car every night – either a Ford vehicle or one of our competitors’.”
Go deeper with GlobalData
DL: What are your thoughts on the crisis facing the US auto industry in general?
AM: We think that the economy is near the bottom and the industry is near the bottom and that most of the fiscal and monetary stimulus is starting to work. We see an expansion of economic activity in the fourth quarter and a further expansion in 2010.
We also think that there is going to be a slower and longer recovery than we have seen in the past, so we’ve planned for that.
From a crisis point of view, it’s not over, but it is so much better right now looking forward than it was a year ago.
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By GlobalDataIf you’re asking about the crisis, I’ll toss in one more part…
Clearly, in Ford’s case, the fact that three years ago we started on this transformational plan to very aggressively and decisively take many decisions to position Ford for a profitable, growing future – we’re very pleased about that.
We have taken our production down to real demand, for example, restructured ourselves to get back to profitability, divested the non-core brands to focus on Ford, focus on the full product line and continued to invest in the products that people want and value. And we’re focused on being best in class for quality, fuel efficiency and safety…
So, all of those things that we did during the crisis have now positioned us to profitably grow the company – which we are now doing.
DL: Ford’s move to mortgage its assets and raise cash when it did a few years ago certainly looks shrewd with hindsight; what was your thinking at the time? Did you foresee how bad things would get?
AM: I didn’t think it would be as bad as it is. But what was going through our minds and what we were dealing with three years ago was a slowing US economy and we were also starting to see a slowing global economy. And we also saw fuel prices going up.
We put together a plan to deal with that but also to create a long-term viable business and that’s the plan that we took to the bankers to raise the money. We did that in the context of presenting the business plan that would help us restructure through the slowdown, but that would also help us keep accelerating the development of new products and also to leverage our assets worldwide.
Of course the bankers thought that was a very viable plan and that’s why they loaned us $23.5 billion. At the time, we also had in that plan a cushion in case the world economy slowed down even more. And the combination of it slowing down a lot, and us making a lot of progress on restructuring allowed us to continue to invest at the full level we wanted to and also avoid the financial crisis that some of our competitors ran into.
DL: And you are pretty confident about Ford’s position today, looking forward?
AM: Oh yes. We are on a very sound financial footing right now. We have sufficient liquidity, we have reduced our cash-burn dramatically. You can just see the amount of money we have in the bank and the cash-burn.
Plus we are doing all the investment that we want to in new vehicles – small, medium and large, cars, utilities and trucks, to make highest quality, highest efficiency, highest safety… All of that investment is in there, and we have also given guidance that we are on our way back to profitability in 2011.
So, we are on a very sound financial footing and we are creating a very strong business.
DL: Ford will be back in the black in 2011 then?
AM: Yes, both on profitability and free cash-flow. Both are very important – one is the daily operations and the other also includes investment for the future. So, continue to invest and still generate free cash-flow.
DL: Can you put the ‘One Ford’ strategy in context?
AM: Three years ago we pulled everyone together, inside the company and outside the company, the investors, the employees, dealers, suppliers – everybody, around this same plan that we took to the banks. And so all the stakeholders were included.
We decided we needed to move aggressively to restructure ourselves in the face of a slowing economy and we were the first auto company to do that. We decided to take down production to real demand and not to keep production up by discounting.
At the same time we had to accelerate, not slow, the R&D and investment in new products and also make sure we have enough liquidity – which is why we went to the banks – and then start improving our balance sheet, which we have been doing over the last year, both on paying down our debt and raising equity.
And the big one for Ford was to use our resources worldwide, because we have these fabulous Fords in Europe and Asia-Pacific, with probably the best geographical split of any company but they were operating very independently – so we pulled all those together.
So, there’s our goal – leadership in automotive, with a plan to do it. And of course our ultimate goal is to profitably grow for the good of everybody.
We also identified expected behaviours: Foster functional and technical excellence; Own working together; Role model the values; and it’s a business so we need to Deliver results. [F-O-R-D – it’s on the One Ford laminated card that Mulally helpfully pulled out of his pocket]
And the way we do that, the way we treat each other, we spelled it out so everybody knew exactly what their expected behaviour was.
DL: Is there a point at which you say you’ve done it, created ‘One Ford’ or is it an ongoing process?
AM: It’s ongoing, forever. That’s why I like the profitable growth forever, because every year – on the revenue side and the productivity side we ought to be improving.
DL: What do you say to those who have criticised the decision to divest premium brands, such as Jaguar and Land Rover, brands with great heritage that could have been valuable to Ford in the long-run?
AM: All the brands that we had are fabulous brands. When I arrived we had a house of brands. And clearly when you are facing a crisis like the whole automobile industry was facing worldwide, we decided that the most important thing we should do is focus on the Ford brand, because that was like 85% of our business anyway.
The brands that we had are great brands. There are people that want to buy them, nurture them and they’ll be great…but for us to be successful we decided that we had to put all of our energy, all of our attention into the Ford brand.
That’s why now you can see a family of Ford vehicles coming together on global platforms – Fiesta, Focus, Fusion, Taurus, Edge, Escape, Flex, the SUVs, the trucks. If you look at that complete family now, we were able to do that because everybody in the entire corporation was focused on that family.
We have the simplest family – we went from 97 different nameplates to around 20, with those divestitures. So you can imagine the capital allocation, the focus on fuel efficiency and quality and safety, plus having all the vehicles…we did that because we focussed on Ford.
We love the other brands and they’ll do great for somebody else, but the decision we were taking was to create a viable Ford.
DL: Can you say anything about how close Ford is to the sale of Volvo Cars?
AM: We have it ‘held for sale’ which in accounting terms means that we are close to divesting it. And our talks are progressing with potential buyers.
It’s a great brand. The nice thing is we have continued to invest in Volvo while we are talking to potential buyers, so it’s going to continue to be a great brand.
[Latest: US: Ford confirms Geely as preferred bidder for Volvo Cars]DL: Could Ford retain a stake in the company?
AM: No speculation on that at this point, but clearly the transition will be an important part of the sale, because we have a lot of pieces of the product in the production system that are integrated – just like Aston Martin and Jaguar Land Rover, the transition is important.
We have done that very well with the brands that we have divested and we are committed to the success of Volvo long-term.
DL: How have you addressed the issue of supplier relations?
I was astonished and disappointed, when I arrived, at the relationship we had with our suppliers. Within a few weeks of arriving I went to see suppliers and they had just come out with a supplier survey that rated us as the worst OEM that they dealt with.
That really didn’t work for me because I look at our suppliers as absolute key partners – they represent 70% of the dollar value of every vehicle. And so much of the innovation – in quality, fuel efficiency, safety and productivity – is led by our suppliers.
So I am so proud that three years later we have moved up dramatically and our trajectory is very positive. You can’t move up in their eyes unless you are starting to include them as a partner, starting to share with them the production data, you’re including them up front in the design – all the things that are important to them to let them be successful. They’re very pleased with us.
DL: Did you find when you joined Ford that having a non-automotive perspective meant that you could see things others couldn’t?
AM: Well, that’s kind of hard for me to answer. People have commented that Ford has taken a dramatically different direction in the last three years compared with the other auto companies.
And you can just look at the decisions Ford has made versus our competitors and it’s almost the opposite; on house of brands, on the quality of our products, on full product line, on being best in class, our relationship with suppliers, with our dealers, with bankers…
All I know is that coming in, and having been through economic cycles worldwide, focussed on products, focussed on customers, it was clear to me that this was what we needed to do.
Whether somebody from inside the industry could have done that, kind of remains to be seen, because it hasn’t been done. Ford does stand apart and maybe part of the reason is that Ford has a business leader who is an engineer, a customer person, a market-driven person that’s from the outside of the auto industry.
Having said that, sometimes I am asked about the differences and similarities between the two industries and there is so much more in common between airplanes and cars than there are differences. The business cycles are similar. Airplanes are sold to the airlines but they are really designed for the travelling passengers; cars are sold to dealers, but really designed for the final customers. Both industries involve very advanced, highly complex and sophisticated technologies and very global businesses.
So I felt very comfortable coming from the global airplane business to the, in Ford’s case, global car business.
DL: And in turning a company round, there are parallels?
AM: Absolutely. People say, ‘how did you know to move so decisively?’ and part of the reason is that I had just been through it. I had been through the Asian economic crisis, through bird flu, through SARS, war in Iraq, economic slowdowns, 9/11. Every one of those things had a dramatic impact on industries worldwide.
And you have to look at the fundamentals, pay attention to the outside. You have got to have a point of view about the future, about where the company is going and on your products…and then you have got to move decisively when things slow down; restructure, get back to profitability, continue to invest in the future.
And all the time, you need a laser focus on what the customers want and value.
The other important thing is to stay liquid and manage your cash. You have to make sure you have enough money so that you can keep on investing even in the tough times – or you get further behind, as some of our competitors are today because they stopped investing.
DL: To pick up on the cash point, how important do you think it is for Ford to have avoided filing for Chapter 11?
AM: It’s one of the biggest advantages that we have because what the consumers are telling us is that they absolutely want the cars and trucks that they value and appreciate; but right behind that they want to know that they are buying from a strong business, a company that is going to be there for them, that has a long-term perspective, that is going to continue to invest. They want to know that you are creating a strong business.
And they also want to know that you care. That you care about the world, that you care about sustainability, that you care about them. Things like quality, fuel efficiency and safety – in addition to the coolest cars. They want to know that you are contributing to them and to a better world.
The fact that we are doing these things, the fact that we are paying back our loans, the fact that we have a long-term perspective and that we will continue to invest in the toughest of times – for them – that has really given us an advantage in the marketplace.
DL: How do you communicate that kind of message while maintaining a kind of sensitivity to the plight of your rivals?
AM: Information is ubiquitous and everybody knows who has been in Chapter 11. I have seen surveys suggesting that 97% of the adult population in the US knows that GM and Chrysler have been bankrupt. And they also know that through this process they are owned by the US government, which means they are using taxpayers’ money to try and recover. They also know that Ford is not doing that and has a viable business.
And they also know that we are competing against the best in the world – it’s not just a Detroit thing. We are making the best cars and trucks in the world and we are competing against the best in the world.
There is a lot of appreciation out there and goodwill for Ford, not only on making great products, but also for creating a strong business and doing it on our own.
Many more people are considering Ford products now, something that is being further reinforced as we introduce smaller and more fuel-efficient cars leveraged off our global platforms.
That Ford is different seems to be resonating with everybody.
DL: When I interviewed Mark Fields a couple of years ago, he made the point that while Ford product quality is getting better, there’s a lagging ‘perception gap’ in the US with what people actually think and that Ford was therefore working hard to communicate its quality advances. Two years on, is that perception gap still there?
AM: It is closing very fast.
Let me give you some granularity on this…
In Ford’s case, if you look at the SUVs and the trucks, they are the finest quality, competitively. They are the most fuel efficient, safest and they offer the best value, have the best capability. Look at the F150; that represents 30 or 40 years of industry leadership.
Because we weren’t competitive on cost – through our UAW agreements – in the US, then it was very hard for us to make smaller vehicles and make money on them. So we didn’t have consistency of purpose in smaller vehicles.
You go to Europe where there are Focuses, Fiestas, Mondeos, the S-Max – they are world class cars and there’s consistency of purpose so that they get better every year.
This question usually gets asked in association with the United States. And there’s a reason why people didn’t think of the cars as being very neat: because they weren’t very neat. When they are not neat and are not as competitive on quality, fuel efficiency and value, then you end up discounting them more to get people to buy them.
Now you can watch just the opposite. The incentives are going down and over the last six months our market share has gone up every month. The incentives are going down because people not only perceive, but they know, that when you buy a Focus or a Fusion or a Taurus or an Escape you are getting the very best vehicle in that class, competitively. And people will pay for quality and fuel efficiency and safety and all the new features that go with the cars.
Have we completely closed that perception gap on cars? No, but we are closing it really fast.
DL: Strategically speaking, what do you see as the most important issues ahead over the next 2-3 years for Ford, globally?
AM: We are in a great position in the US; we’re turning the corner, we’re increasing market share, expanding the product line – we are going to be growing in the US. We’re in a great position in Europe and in Russia. And we’re the fastest growing in some of the markets in the Asia-Pacific region, like China and India.
Clearly the major potential for Ford is to leverage these assets worldwide with a full product line for everybody in all the markets and, especially, to serve even better our Asia-Pacific customers, because that’s where all the growth is.
We are relatively new to some of these markets and we have a great set of products that we can bring to them from around the world.
So we have to keep improving in the US and Europe and really accelerate – using the One Ford plan – to bring the products to markets in Asia-Pacific. And in doing that we have to leverage our competitive advantage – which is the assets that we have worldwide.
DL: What gives you the greatest satisfaction in your role?
AM: My whole career has been dedicated to safe and efficient transportation worldwide. When you think about it, the breakdown between small, medium and large airplanes is similar to the breakdown in the auto industry of small, medium and large vehicles.
And, geographically, the markets are distributed similarly – about a third the Americas, a third Europe and a third Asia-Pacific.
So from a customer point of view, and product, it’s exactly the same set of needs to be met for safe and efficient transportation. I got a chance to contribute to every Boeing airplane in my 38 years there. I now get a chance to contribute to another global icon that serves the people of the world with the safest and most fuel efficient vehicles. It’s a reason to get up no matter what time zone you are in.
It is so exciting to serve consumers with what is such an important part of their lives.
It is about safe and efficient transportation and on top of that making it fun and exciting.
DL: What are you driving at the moment?
AM: I drive a different car every night – either a Ford vehicle or one of our competitors’. Part of our plan was to be best in class. When I first started this it was ‘My God, he’s in a Toyota!’ But pretty soon they said ‘Why is he in there? Because he says we are going to be best in class and he’s gotta know about the competitors cars and ours, so what does that mean to all of us? We had better know every vehicle because that’s the only way forward for all of us to make best in class.’
And now you’ll see them everywhere, the teams driving competitors’ cars, but Ford has always had some great benchmarking processes.
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ALAN MULALLY
President and CEO, Ford Motor Company
Joined Ford 2006
Alan Mulally is president and chief executive officer of Ford Motor Company. He also is a member of the company’s Board of Directors.
Prior to joining Ford in September 2006, Mulally served as executive vice president of The Boeing Company, and president and chief executive officer of Boeing Commercial Airplanes. In that role, he was responsible for all of the company’s commercial airplane programs and related services. Mulally also was a member of the Boeing Executive Council and served as Boeing’s senior executive in the Pacific Northwest.
Mulally was named Boeing’s president of Commercial Airplanes in September 1998. The responsibility of chief executive officer for the business unit was added in March 2001.
Previously, Mulally served as president of Boeing Information, Space & Defense Systems and senior vice president of The Boeing Company. Appointed to that role in February 1997, he was responsible for Boeing’s defense, space and government business.
Beginning in 1994, Mulally was senior vice president of Airplane Development for Boeing Commercial Airplanes Group, responsible for all airplane development activities, flight test operations, certification and government technical liaison.
Earlier, Mulally served as Boeing’s vice president of Engineering, and as vice president and general manager of the 777 program.
Mulally joined Boeing in 1969 and progressed through a number of significant engineering and program-management assignments, including contributions on the 727, 737, 747, 757 and 767 airplanes.
Throughout his career, Mulally has been recognized for his contributions and industry leadership, including being named “Person of the Year” for 2006 by Aviation Week magazine and one of “The Best Leaders of 2005” by BusinessWeek magazine.
Mulally previously served as co-chair of the Washington Competitiveness Council, and sat on the advisory boards of NASA, the University of Washington, the University of Kansas, Massachusetts Institute of Technology and the U.S. Air Force Scientific Advisory Board. He is a member of the United States National Academy of Engineering and a fellow of England’s Royal Academy of Engineering.
He also served as a past president of the American Institute of Aeronautics and Astronautics (AIAA) and is a former president of its Foundation. Additionally, Mulally served as a past chairman of the Board of Governors of the Aerospace Industries Association.
Mulally holds bachelor’s and master’s of science degrees in aeronautical and astronautical engineering from the University of Kansas, and earned a master’s in management from the Massachusetts Institute of Technology as a 1982 Alfred P. Sloan fellow.
A native of Kansas, Mulally is a private pilot and enjoys tennis, golf and reading.
