Can This Man Save The American Auto Industry?
By Dorinda Elliott / Detroit
In a makeshift ballroom at Ford Field, the Detroit Lions' stadium, a Beatles tribute band is playing I Want to Hold Your Hand, which has got the elite of Motor City moving and shaking, but not the hosts of the black-tie charity ball, William Clay Ford Jr. and his wife Lisa. In fact, the 48-year-old CEO of Ford Motor Co. is getting teased by his brother-in-law about his ineptitude on the dance floor. Turning to a reporter, Bill owns up to it. "You don't want to see that," the Ford scion says with a laugh. But he gets serious when the topic turns to his day job and what lies just around the corner for his employees: a sweeping restructuring that will bring tens of thousands of layoffs. "Honestly, I don't worry about myself," he says. "I mean, I can screw up my life, and it doesn't really matter"--a fair observation for a man who is an heir to a billion-dollar fortune. "But what I worry about is the impact all of this has on others. We're going to do what we have to do, but it's just very, very sad."
Why did Bill Ford, great-grandson of the auto company's founder, take on this responsibility when he could have left it to hired professionals? It helps to understand that he is a man of epic contradictions. His family practically invented the auto industry, not to mention blue-collar consumerism. Brilliant, cantankerous Henry Ford made the first mass-produced car, the Model T, and paid workers enough so they could afford to buy one. That makes great-grandson Bill industrial royalty: he comes from a competitive, dynastic clan that cannot be separated from the nameplate on your Mustang. But he also has a complex, even squishy side; he's a passionate environmentalist who has studied Buddhist philosophy and thinks a lot about the future of the world.
So while he worries about his employees, Ford Motor's boss believes--belatedly, perhaps--that nothing short of a cultural revolution will save the family firm, which, like General Motors, seems to have all but lost a 30-year war with Toyota and other foreign companies for dominance of the U.S. auto market. This week he is unveiling a plan, which he calls the "Way Forward," a last-ditch effort to save the company by taking some big chances. Ford has surrendered market share in the U.S. but figures that a smaller, more innovative company can stir more passion among its customers.
He wants to blow up the company's hierarchical traditions, trim the ranks of bureaucrats and encourage a climate of risk taking. He will go out on a limb with bolder car designs (in fact, one new model is called the Edge). And he will gamble that saving the planet from the car industry is the biggest long-term priority of all, so he will pour billions of dollars into eco-friendly factories and cars. Most notably, the company will dramatically increase production of its hybrid gas-electric models, promising to produce 250,000 a year by 2010, a tenfold increase from last year's output. "The old way of doing things doesn't work," Ford says. "Is [this] risky? Of course it's risky. But I tell you what: Going the way we were going is the highest risk of all."
The company's new drive for innovation includes a painful restructuring plan--closing perhaps as many as 10 of 43 plants with some 25,000 job cuts out of a total of 123,000 in North America. The cutbacks are designed to halt the company's losses on its domestic auto operations--$1.2 billion in just the third quarter of 2005--and shore up a credit rating that began to deteriorate last year to junk-bond status. Turning that around while pursuing his philosophical imperatives will be a fancy juggling act. Previous CEOs have repeatedly tried to reinvent the company without enduring success. The difference this time is that there might not be a next time.
When Ford became chairman seven years ago and CEO two years later--the first family member to run the outfit in 19 years--plenty of critics said that any guy named Ford, especially a granola-crunching one, was a bad choice for the job. A lot of people still think so. "Any insider is the wrong person to fix a Ford or a GM," argues a hedge-fund executive who is shorting Ford stock. "Insiders have too much of a connection to the status quo and the legacy of the company to make the tough decisions that are needed." Executives humored him but cringed when he announced he wanted to make his company environmentally friendly, long before Toyota's hybrid Prius became a household name. "I think that I was perceived perhaps as a Bolshevik early on," says Ford. Other comparisons were not so kind.
As his company's fortunes have fallen, Ford has wrestled with everyone from Wall Street analysts to his own board members, who have pushed him to move faster to slash costs and employees. "They said, 'Just cut it away,'" he says. "But I said, 'I don't want to do that. I mean, I've got to live with these people. And you can cut and cut away a company, but at the end, what are you left with?' I want to find a different way."
The clock is ticking for the Americans, however, and here's why: Detroit loses money on passenger cars. (Trucks have always been profitable.) The problem was a long time coming, as Japanese and later Korean automakers scored annual gains in quality, profitability and market share. But U.S. automakers were lulled into complacency in the 1990s by the supersize profits of their SUVs (light trucks, technically), which just a decade ago earned profit margins as high as 25%. Ford was an innovator with its Explorer model and just kept making them bigger. Meanwhile, the Japanese started making good SUVs too, and the competition made the profit margins shrink. When the price of gas soared, SUV sales tanked, and the U.S. companies were caught without money spinners. Ford stopped making the four-ton Excursion, which had been criticized as a gas-hungry dreadnought. GM's solution, "employee pricing" for everyone, gave away the store. Ford had to match it.
Although Ford Motor's new plan will hack costs, Bill Ford knows the real question is whether his company can produce cars that have the quality, style and value that drivers want. The biggest challenge is "to restore a sense of confidence, both externally and internally, in the company," he says. Despite an emotional new ad campaign that stresses innovation, the turnaround is complicated. Brands like Toyota have better reputations; their cars resell for as much as $2,500 more than American cars, according to Ronald Tadross, auto analyst with Banc of America Securities. "Ford has a revenue problem, not a cost problem. Their products just can't command enough value in the market," he says. Total sales were $164 billion in 2003; estimates for '06 are around $150 billion. Ford Motor hopes several new midsize cars with crisp styling and peppy engines--the Ford Fusion, the Mercury Milan and the Lincoln Zephyr--will help. Sales for all three have increased more than 30% each month since their October release.
Will the new designs be enough to stop the rot? Ford Motor's share of the U.S. auto and truck market has been steadily declining, from 24.1% in 2000 to 17.4% last year, while GM's shrank from 28.3% to 26.2%. To put that into perspective, Ford last year made 3.15 million vehicles, although it has the infrastructure to make 3.9 million, by Harbour Consulting's calculations. That kind of capacity utilization--79%--is hideously inefficient. The company's stock price has fallen 39% in a year--wiping out more than $10 billion in shareholder value.
Some Ford dealers complain that even its new models, like the Ford Fusion and the Mercury Milan, are still too similar. "We'd like to see more differentiation in the sheet metal, not just the inside creature comforts or the taillights," says Robert Thibodeau, owner of a major Detroit Ford dealership. Toyota, by contrast, has produced SUVs and the luxury Lexus--two totally different vehicles--even though they are built on the same platform. Some analysts argue that Ford should get rid of one of its brands, such as Mercury, and narrow its product line. The company's drab minivans may be dropped.
Ford Motor is in much better shape than GM, in part because it is smaller by about one-third in the U.S. While GM is awash in red ink, Ford Motor overall is still profitable, thanks to trucks like the F-150 and its finance and global business, which includes Mazda, Volvo and Land Rover. (Another brand, Jaguar, is losing money.) On the cost side, the U.S. carmakers are dragged down by the huge burden of benefits for retired workers, such as health care, which account for $930 of the cost of each of GM's vehicles, $560 of Ford's and only $110 of Toyota's--putting the Americans at a severe disadvantage. Ford loses $258 for every car it produces, compared with Toyota's profit of $1,698 per vehicle, according to Banc of America Securities.
The staging ground for Ford's innovation revolution is the top-secret Piquette Project. Unknown by all but the very top-level Ford executives, the program is aimed at nothing short of reinventing Detroit. It's named after the third-floor Piquette plant skunk works where Henry Ford and a group of engineers first developed the idea of the assembly line and experimented with lighter materials to create a car that could be mass-produced. The specific goals and the deadlines of the Piquette project are secret. But company officials say it harks back to Henry Ford's innovative experiments with soy-based polymers and the idea of agriculture and industry being closely linked. "The mission was, 'Could Ford design the Model T of the next century?'" says William McDonough, an expert on green architecture who is running the sustainability part of the project, involving recyclable and biodegradable materials.
The CEO thinks the attitude within the project will be contagious for the whole company. "Piquette helps institutionalize innovation," Ford says. For the most part it exists virtually, through e-mailed sketches, proposals and blue-sky ideas. A team of designers, engineers and manufacturing gurus is brainstorming everything from how to make a business plan to how production should be organized to how to employ biodegradable materials. The ultimate goal: a recycled, reusable car.
Business consultants would call that a "stretch" goal, a worthy target yet one that seems beyond a firm's capabilities. And maybe too dreamy for a company that needs to do the basics better? "I don't buy the criticism out there," says Anne Stevens, chief operating officer of Ford's troubled domestic business. "For all the reasons they say Bill's not the man for the job, I say he's the right one. At so many companies decisions are driven by quarterly results. Here we're making decisions that are about the next 100 years. How many CEOs in America are like that?"
Others have tried to change the company and failed. The last CEO, Jacques Nasser, once considered a hero, shook things up with tough performance evaluations and a hyperaggressive management style that alienated workers, dealers and suppliers. He also diversified the company into noncore businesses such as Internet ventures and a repair-shop chain while going on an acquisition spree of luxury brands. After Bill Ford fired Nasser and stepped into the CEO job, his gentler approach was a relief, yet some industry executives are skeptical. "So far, the company's driving him," says Gerald Meyers, former CEO of the defunct American Motor Co. and an expert in crisis management. "He needs to say, 'This is not about the past, this is about the future--we need some shock and awe.' Is Bill Ford prepared to do that? I don't see it so far." Counters Mark Fields, president of Ford's Americas division, who put together the restructuring plan for North America: "You don't have to be a tyrant to be tough." Certainly, anyone willing to ax 30,000 jobs is no pushover.
Corporate cultures are notoriously change resistant, and this is not just any corporation. The company ethos is steeped in the history of the Ford family. Henry was a compulsive innovator, although not a particularly good manager. Bill inherited the independent mind and high expectations of his great-grandfather. As a student at Princeton, he wrote a senior thesis titled "Henry Ford and Labor: A Reappraisal." Today the culture needs a lot more of its founder's inexhaustible curiosity than it does its later devotion to spreadsheets. "Bill is the first Ford since Henry Ford to have the ability to operate mentally with no boxes," says Douglas Brinkley, a historian who wrote Wheels for the World, about Ford Motor. "He is wide open to possibilities, and that's the same way Henry was."
To get a sense of how plodding Ford Motor can be, talk to Vance Zanardelli, whose windowless office is tucked away in the Research and Innovation Center. Zanardelli, who is working on cutting-edge hydrogen research, has experienced firsthand Ford's roadblocks--and how the new leadership is trying to remove them. When his team unveiled the prototype it had developed for a hydrogen-powered internal-combustion car to top Ford executives in 2001, "Bill just loved it," Zanardelli says. "Everyone else raised all the reasons it wouldn't work." Despite the boss's enthusiasm, Zanardelli ran into budgetary problems and decided to go around the bureaucrats standing in the way. When he got an unexpected call from the human-resources department, he figured he was going to be fired for insurrection. Instead, Joe Laymon, group vice president of human resources, urged him to "be bold and do the right thing"--encouraging his maverick behavior. "There was a fear of failure," says Laymon, of the cultural legacy. "We need to instill in people that it's O.K. to fall off the bike."
Coming up with exciting designs will be crucial to Ford's success. Until recently, with the exception of a new Mustang, an instant hit, Ford has failed to produce cars that have energized the market. Peter Horbury, the company's director of design and Volvo's former design chief, whom Ford brought to Detroit in 2004, was stunned by Ford Motor's rulebound ways. "I told the designers to just get on with what they were doing," he says, "and they looked at me terrified, like, What does that mean?" The designers were so used to following orders that Horbury needed first to develop with them a basic company design language before encouraging them to use it to become more innovative. "I think we're getting it now," says Horbury. As an example of the new thinking, he points to the Fusion, a sporty, affordable midsize sedan that Ford hopes will compete with the Toyota Camry, a perennial top seller that also boasts a new design.
In creating a management team for his new vision, Ford deliberately chose executives who have either come from other companies or spent time at divisions overseas, where they developed fresh perspectives. Fields, a baby-faced former sales and marketing guy with a smooth, confident touch, returned to Detroit in September after 10 years overseas, where he turned around Mazda in a difficult Japanese environment and then took on troubles at Ford in Europe, which is now profitable. "[Ford] has given me and my management team [the leeway] to turn the ship around," says Fields. "But he expects us to deliver--and told us that." Anne Stevens, who heads manufacturing in North America, is a tough-talking engineer from New Jersey ("You got a problem with that?" she says with a laugh) whose style contrasts notably with Ford Motor's mild-mannered Midwestern culture. Fields and Stevens, often referred to as Mark and Anne in the same breath, are the people Bill will rely on to steer the turnaround.
Bill Ford was never particularly comfortable with his country-club world, anyway. His father William Clay Ford, brother of longtime chairman Henry II, chaired Ford Motor's finance committee and bought the Detroit Lions. His mother Martha Parke Firestone (yes, that Firestone) was already an auto blueblood. Although educated at the elite institutions of Hotchkiss and Princeton, Bill was especially interested in labor and what working people do. His passions tended toward sports, American history and the environment. His parents hoped he would not grow up a snob, and his mother drove him across town to play hockey in a working-class league instead of in the fancier Grosse Pointe, where he grew up. He still plays twice a week--right wing--in a competitive league.
Even playing cards or games at home was practically a contact sport. "It was always kind of 'last man standing' stuff," says Sheila, his older sister by five years. "Being the only boy, Billy didn't want to get beaten by his dumb sister, and I certainly didn't want to get beaten by my dorky brother." Being into sports, says Sheila, who played on the tennis team at Yale, taught the young Fords a sense of meritocracy. "It didn't matter who you were," she says. "You either played well or you didn't."
Nor did Ford always assume he would work for the family firm. "He was a bit of a rebel as a young man," says Robert Kreipke, in-house corporate historian. "There was a bit of the 'corporations are the bad guys' thing. He wrestled with that. But in the end, he thought he could maybe change things from the inside." He has worked all over the company, from the assembly line to the labor-relations department to running Ford's Switzerland operation. When he became chairman, Ford pushed two projects that have since become important signs of where the company is heading: he rebuilt the Rouge plant, which now has a roof of green grass, skylights and a program that turns polluting paint fumes into hydrogen fuel cells, and produced the Escape Hybrid, the first SUV hybrid to hit the market.
The skeptics still call Ford a hypocrite. Some environmentalists challenge him for producing huge, smog-spewing trucks. Ford counters that his job is to make the company as environmentally sound as possible while making a profit. The new F-250 Super Chief concept truck, unveiled at the Detroit Auto Show in January, epitomizes the company's dual mission: the gigantic, superdeluxe truck is equipped with everything big, including brown leather club chairs and flat-screen TVs. The surprise is that it is designed to run on any one of three fuels: hydrogen, a mixture of 85% ethyl alcohol or gasoline.
Among workers, Ford's sincerity has won him loyalty. When an explosion ripped through the Rouge plant in 1999, he ignored warnings not to get involved and rushed to the site. He gave cash and a credit card to an aide, instructing him to get to the hospital and cover all expenses. Over the following days, he attended funerals and stayed close to the family members. "That was something you don't see from most CEOs," says Walter (Jeff) Washington, president of Local 900 of the United Auto Workers. "It really touched people."
Ford Motor's efforts to cut costs, go green and produce more exciting cars can already be found in some of its 2007 models. But by one measure, Ford is still heading in the wrong direction. Last week Moody's downgraded Ford's debt to a lower "junk" rating, saying it's unlikely the company will be willing to stop the slide in market share. Still, says childhood friend Mark Higbie: "Bill has picked his horse, and he's going to ride it until it crosses the finish line."
For now, Bill the boss has the support of his family, which controls 40% of the company's voting shares, worth about $1.2 billion. If there is friction, it may lie in the rivalry between Ford and his cousin Edsel, the son of Henry II, who lost out in the race for the chairman's job after a lengthy competition. Edsel, who is chairman of the Salvation Army, has said he backs Bill. Edsel's wife Cynthia says, "It's frustrating that they talk about this 'thing' with Edsel because it couldn't be farther from the truth. The family totally supports Bill. Plus, he's doing a great job for now." But those last two words may be telling.
And yet, squeezing a tea bag between his fingers as he talks, Bill Ford can sound like just another overstressed working parent. He leans forward in his shirtsleeves and launches into an impassioned conversation about kids, the struggle to balance work and family, how to plan vacations with four children's conflicting school schedules and the exhausting demands of Saturdays, running from basketball games to other activities from dawn until dusk. "It's insane, isn't it?" he says. But despite Ford's light touch, there is a sense of destiny in the air these days at his company. "This is a great American story, and the last chapter has not yet been written," says Steven Hamp, Ford's brother-in-law and chief of staff. "The outcome matters not just to our company but to our country. It's time to get inspired, strap on our guns and kick some butt."
Bill Ford has an even bigger legacy in mind. He wants Ford Motor to lead in alternative-fuel technologies, proving his belief that you can make profits and do good at the same time. If he succeeds--and the odds aren't necessarily in his favor--Ford Motor could help save the U.S.'s manufacturing base. "Bill could go down as a truly historic American figure, like his great-grandfather," says Brinkley, "or he could just be a guy who watched over the collapse of a family company."
Ford certainly doesn't talk like a guy who is about to become history's roadkill. "My goal is to fight Toyota and everybody else and come out on top," he says. Eventually Ford hopes to engage Washington--and the country--in a broad dialogue about such urgent issues as energy policy, health care and the future of manufacturing. "Sure I'd like to play a role," he says. "But it doesn't do much good for me to be out trying to solve national and world issues if we're not fixing ourselves." That, of course, would be Job 1. [This article contains a table. Please see hard copy or pdf.] DETROIT'S DOWNER U.S. market share
1990-2005
GeneralMotors Ford DaimlerChrysler Toyota Honda
Volkswagen Sources: Power Information Network, a division of J.D. Power and Associates
With reporting by Joseph R. Szczesny / Detroit