Saturday, February 24, 2007


On September 5th, Ford elected Alan Mulally as president and chief executive officer of Ford Motor Company. He was also elected to the Board of Directors. Mr. Mulally was serving as executive vice president at Boeing, the president and CEO of the commercial airplanes unit, which in 2005 generated sales of $22.6 billion. He led the division since September 1998. Mr. Mulally was considered a front-runner for the top job at Boeing last year, but ultimately lost out to Jim McNerney, who joined Boeing from 3M.

Mr Mulally comes from a metal-bending business, like auto making, that is influenced by global competition, and has a unionized workforce and is subject to complex regulation and rapidly changing technologies 4 .Even then he would not be at ease in dealing with existing situation of probable bankruptcy and dismemberment with Ford. Being a manufacturing based industry, with limited overall flexibility, the overall strategy of the Ford would require at least another 3-4 years for transforming. Also, being a total outsider to ford will make his task of satisfying shareholders, more difficult. Ford hasn't gone outside its ranks for a top executive since hiring Ernest Breech away from General Motors Corp. in 1946, said David Lewis, a professor of business history at the University of Michigan who has written six books on Ford. 5

"It's hard to see what Mulally can do that others haven't tried to do, but desperate people and desperate companies will do desperate things," Lewis said. Sudol sees similarities in the industries that should help Mulally. "They're each product-driven businesses," she said. "There is a long lead time, and you're successful if your product is what customers
want." 5

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 the company’s entire 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 1 .Alan Mullaly, in his 37 year career with Boeing, also led the development of the advanced-technology 777 in the early 1990s--now the most popular twin-engine jet in its class.


The appointment of Mulally has been seen by the market as a move to utilize the experience and success in turning around the troubled manufacturing operations at Boeing's commercial-airplanes division.Longer-term changes in product-cycle decisions
(by the new CEO) could clearly take some time to yield results." … At this point, Ford already seems poised to make significant structural changes as the company prepares to announce details of its accelerated Way Forward plan later this month. The company seemed to indicate that Mr. Mulally's appointment will not change the timelines/decisions associated with those restructuring actions" quoted my analyst Himanshu Patel of J.P. Morgan.

The auto maker's plan after Mulally joined ,builds on the 14 plant closures and 30,000-plus job cuts announced in January. Ford's new plan adds two additional North American plants to the closure list and targets $5 billion in cost cuts by the end of 2008, but pushes back a target for North American profitability by one year to 2009. 2 The company targets to close seven vehicle manufacturing sites and plans to have an optimum capacity at that point. According to Mr.Mark Field, Executive Vice President of Ford Motor Company and the President of the Americas, that it would make little financial sense to close all seven plants in a short period of two years.


Bill Ford, who said he would remain "extremely active" in the business, praised Mulally as "an outstanding leader and a man of great character." He noted that Mulally had applied many of the lessons from Ford's success in developing the Taurus to Boeing's creation of the revolutionary Boeing 777 airliner. That experience, chronicled in the book, "Working Together," by James P. Lewis, tells how the leadership principles Mulally learned from Ford and developed at Boeing may be applied to other businesses.
"Clearly, the challenges Boeing faced in recent years have many parallels to our own,"

Bill Ford said. "One of the three strategic priorities that I've focused on this year is company leadership. While I knew that we were fortunate to have outstanding leaders driving our operations around the world, I also determined that our turnaround effort required the additional skills of an executive who has led a major manufacturing enterprise through such challenges before," Bill Ford wrote in an email to Ford employees on September 5th "That's why I'm very pleased to announce that Alan Mulally, who turned around the Commercial Airplanes division of The Boeing Company, will become our president and CEO, effective immediately. Alan has deep experience in customer satisfaction, manufacturing, supplier relations and labor relations, all of which have applications to the challenges of Ford. He also has the personality and team-building skills that will help guide our Company in the right direction."


The Ford family controls about 40% of the company's voting shares, through their ownership of all its Class B stock and holdings of common stock. The dividend stream has been a spectacular annuity that over the years has helped various family members to own a football team, fund museums and philanthropic causes, and even promote the Hare Krishna movement.


Ford Motor has been sinking since 1999, when profits reached a remarkable $7.2 billion ($5.86 per share) and pretax income was $11 billion. People even speculated that Ford would soon overtake General Motors (nyse: GM - news - people ) as the world's No. 1 automobile manufacturer.

Dearborn-based Ford’s turnaround plan aims to cut $5 billion in costs by the end of 2008 by slashing 10,000 white-collar workers and offering buyouts to all of its 75,000 unionized employees. The loss including restructuring costs was Ford’s largest quarterly loss since the first quarter of 1992, when the company lost $6.7 billion due mainly to accounting changes.Ford said special charges for the third quarter of 2006 totaled $5.26
billion before taxes. The charges included $2.2 billion to re-value assets in North America and $1.6 billion to decrease the value of Jaguar and Land Rover assets.

Ford also took an $861 million charge for jobs bank benefits and employee separations due to its plans to idle factories in North America, a $259 million charge for continued global personnel reduction and a $437 million charge for the cost of employee retirements that occurred earlier than planned. The company also reported a $99 million gain due to the release of a reserve from excise taxes in South America due to a recent court ruling. Ford also said it plans to restate its earnings for 2001 due to accounting errors involving derivative transactions in its credit company. The restatement is expected to affect financial results from 2001 until the third quarter of this year. Derivatives are manufactured financial instruments based on movements in prices of stocks or other securities and are used to help holders avoid big losses. 7


Last year Chevrolet outsold the Ford division for the first time since 1986. Despite an extensive mechanical update, the much-improved Ford Explorer, which had been the world's best-selling sport utility vehicle, fell behind the dated Chevy TrailBlazer in sales last year. (It did not help that the new Explorer looked just like the model it replaced.) The long-neglected Ranger, which had been the top-selling small pickup, fell behind both Toyota Motor (nyse: TM - news - people ) and Chevrolet, and after 20 years, the company has never been able to build a competitive minivan.

The problem, of course, is product, or the lack of it, combined with weak designs, poor marketing and the turbulence in the management ranks. An ex-Ford man says, "They spend $7 billion a year for product, and there isn't any."

The company has not slated a replacement for the rear-wheel-drive Ford, Mercury and Lincoln sedans, although that is where industry growth seems to be coming. Twenty-first-century vehicles, such as the Ford 500 and Freestyle, which were supposed to help turn the company around, came to market with uninspired styling and underpowered motors. The company's newest models are descended from a Mazda6 platform. In the latest round of silliness, the company recently announced that its Lincoln division will begin a transition from well-known vehicle names such as Town Car and Navigator to alphanumeric gobbledygook such as the MKX. 7

Now Ford is skidding out of control. With just $5.8 billion loss in the third quarter--“We are dealing with our business realities,” said Ford’s recently hired CEO Alan Mulally in an interview on CNBC. “For the next three quarters, year-over-year
[earnings results] will be a little bit worse.” Ford’s disappointing July-September earnings performance brings Ford’s losses to $7.24 billion for the first nine months of the year.In a conference call with reporters and industry analysts, Mulally called the latest earnings results unacceptable, but said he was encouraged by Ford’s progress in turning itself around by emphasizing more fuel-efficient vehicles. 6

2. Ford Looks to Reshape Business Model, Executive Says. By JOHN D. STOLL,DOW JONES NEWSWIRES September 18, 2006 2:56 p.m.
3. Ford Family's Cash Faucet Goes Dry .By GINA CHON and RACHEL EMMA SILVERMAN. September 16, 2006; Page A10
4. Mulally's Hire by Ford May Be Too Late:by Doron Levin.
5. Boeing exec flies the coop: Ford hires Mulally to turn things. Chicago Sun-Times, Sep 6, 2006 by Francine Knowles
6. Ford loses $5.8 billion in the third quarter:Nation’s second biggest automaker cites costs of restructuring plan. MSNBC News Services Updated: 1:01 p.m. ET Oct 23, 2006.
7. Backseat Driver Ford: Overhaul Time--Again. Jerry Flint

copyright@2007 written as part of academic article.