Mulally's Job One: Global overhaul

CEO wants to use Toyota model to streamline Ford
Bryce G. Hoffman / The Detroit News

Ford Motor Co. President and CEO Alan Mulally said Friday that he plans to weld Ford's disparate regional divisions and brands into a single global operation capable of competing with the company he most admires in the world: Toyota Motor Corp.

Mulally, who joined Ford six weeks ago, delivered the message in an hour-long interview Friday with The Detroit News that covered the myriad challenges facing Ford today and his plan for reversing crippling financial losses that threaten the company's future.

The 61-year-old former Boeing Co. executive expressed optimism but did not sugarcoat Ford's problems or the need for a fundamental and far-reaching reorganization of the company.

"There's not one Ford. There's Ford of North America, there's Ford of South America, there's probably three Fords that make up Ford of Europe. There's Australia. There's China, India -- there's a lot of Fords, and they're operated very separately as business units," Mulally said. "We've got to go from where we are to leverage our global assets to compete as one company going forward."

And the clock is ticking. Mulally said the company must turn around its struggling North American operations by 2009 or risk running out of cash. To do that, he will need concessions from the United Auto Workers next year as he works to erase a $3,400 per vehicle cost disadvantage. Mulally said he is prepared to take his case directly to union workers if need be to get them on board.

Out of many comes one
While other executives have tried unsuccessfully to unravel the twisted strands of Ford's business structure, Mulally is confident he can hammer out a leaner, more transparent and focused company. In fact, if Ford was not so inefficient, he would be more worried.

"I look at that as nothing but opportunity," he said. "If you were a lean machine, doing a turnaround like this would be terrifying. But this is a very complex place, and there's a lot of opportunity to consolidate and simplify."

That means better integrating Ford's global operations and taking a hard look at its brand portfolio. He strongly hinted Ford would eventually appoint global product development and manufacturing czars.

"We are going to rationalize the brands, rationalize the product lines," he said.

Mulally also wants to find ways to build more cars and trucks off common platforms, sharing as many parts as possible while still giving consumers what they want. He pursued a similar strategy at Boeing, reducing the company's portfolio of more than a dozen airplanes to four.

Ford had already launched some initiatives in this direction, but Mulally wants to see these efforts increased and spread to all levels of the company -- starting at the top.

Ford has long been a balkanized company, plagued by infighting between different regions and business units. These turf wars have scuttled the best efforts of more than one Ford executive, but Mulally says he has found a way to cut through the ossified fiefdoms.

Every Thursday morning, he presides over a four-hour meeting with his senior staff. All of the company's divisions are represented, and each is required to give a frank assessment of their status and progress. He asks direct questions and expects clear answers. These meetings are a bully pulpit he uses to drive accountability and ensure cooperation and execution.

The Thursday meetings replace countless smaller meetings that took place every week in different parts of the company.

Mulally found Ford had no shortage of plans when he took over. There were marketing plans, manufacturing plans, sales plans and product plans. He is trying to merge them into a single overreaching plan that keeps everyone in the company on the same page.

Mulally said he does not blame Ford's employees for the company's woes. He holds management responsible. "I'm quite pleased with the talent I've found in almost every discipline," he said.

He is also quick to temper his often brutal assessments of Ford's problems and mistakes with compliments about the talent and dedication of his team.

The home front comes first
While he is thinking globally, Mulally made it clear that fixing Ford's North American automotive operations has to come first.

Ford continues to lose ground in the U.S. marketplace to foreign rivals. Over the past 12 months, its share of that market has dropped to 17.9 percent from 18.7 percent -- and that includes sales of its foreign nameplates like Volvo and Land Rover. The company's core Ford, Lincoln and Mercury brands account for only 16.8 percent of U.S. vehicle sales. A decade ago, these brands accounted for one out of every four cars and trucks sold in the United States.

Last month, Ford reported a $5.8 billion third-quarter loss, and more bad news is expected in the last three months of the year. Internal projections obtained by The News in September suggested the company could lose as much as $9 billion before taxes this year, though that figure now appears to be conservative.

In January, Ford announced a sweeping restructuring plan that aimed to idle 14 factories and eliminate 30,000 factory jobs and cut another 4,000 salaried positions by 2012. The plan was supposed to return Ford's North American automotive operations to profitability by 2008.

But Wall Street was unimpressed with Ford's timetable. Analysts demanded more immediate cuts, pointing out that rival General Motors Corp. had managed to convince 28,000 blue-collar workers to take buyouts between March and June. Meanwhile, gasoline prices were rising, and demand for Ford's profitable pickups and sport utility vehicles was falling fast. And increasingly desperate suppliers -- themselves reeling from rising raw materials costs -- were bucking Ford's efforts to get pricing concessions.

On Sept. 5, Bill Ford resigned as CEO and handed the company's reins to Mulally. An accelerated restructuring plan was unveiled 10 days later, with Mulally's tacit endorsement. But Ford insiders say the new CEO is already looking at additional cost-cutting moves.

"We have got to turn around North America and be profitable by 2009," he said. "Because if not, you just keep losing cash and pretty soon you run out."

Learning from the Japanese
Mulally intends to learn from Toyota's production system, which he called "the machine that changed the world."

"I'm a disciple of the Toyota production system," Mulally said, explaining that he became a student of the Japanese automaker while working as an engineer at Boeing and has traveled to Japan to study how Toyota's factories operate. "This system of continually improving the quality, putting the variations into the product line that people want and doing it with minimum resources and minimum time is absolutely where we have to go. If you look at Ford, it's the antithesis."

Analyst Kevin Reale with AMR Research said Toyota is not the only company Ford is lagging behind when it comes to global integration. GM has been pursuing a similar strategy and has a head start on Ford. What Mulally has going for him, Reale says, is experience.

"He's really going to turn Ford into a global company," Reale said. "I don't think he's going to take any prisoners."

As the head of Boeing's commercial aircraft decision, Mulally cut more than half the company's work force when its order book was decimated after the Sept. 11, 2001, attacks and went on to lead a successful counteroffensive against Europe's Airbus.

But even union leaders give Mulally grudging respect because of his honesty and candor. Now, he hopes to bring those same qualities to play in the 2007 contract negotiations with the UAW -- talks he said will be a "defining moment" for Detroit.

"It's all about competitiveness," he said. "You can't compete with a $3,400 disadvantage."

That is how much more it costs Ford to produce a vehicle than top foreign competitors, Mulally said, adding that a big chunk of that cost comes from wages and benefits.

UAW leader Ron Gettelfinger understands this math, Mulally said, but it may be tough for Gettelfinger to convince rank-and-file members to make the sacrifices necessary to make Ford competitive. Mulally said he respects the union, but will take his message to the workers if he has to.

"We are all in it together. I want the hearts and minds of all the participants," Mulally said. "We have to deal with reality."

That is exactly why Bill Ford hired Mulally, says turnaround expert John Hoffecker of AlixPartners. He said Bill Ford was smart to look outside the automotive industry. After all, Italy's Fiat SpA and France's PSA Peugeot Citroën were saved by executives from other industries.

"There's a strong realization at Ford that they need something significantly different," he said.

Finding the way back
Part of the reality Mulally is accepting is that many American consumers have turned their backs on Ford, and he said Ford has to convince them to give its cars and trucks a second chance. How? By building great vehicles like the Ford Fusion and Mercury Milan, which were just rated by Consumer Reports as two of the best new products from any automaker -- foreign or domestic.

"We are going to have to get people back in the dealerships to try Ford again," he said. "We have to show we are a viable alternative."

Ultimately, his job is to transform Ford from a big, failing company to a smaller one that has a chance to not only survive, but prosper.

"This is not new news that the automobile industry is shrinking," Mulally said. "It's been going on for four years. Nothing has changed. So we are at a defining moment. Are we going to embark on a transformation of the product line and the production system and create a viable company going forward?"