Ford: Will Mulally Be Able to Continue His Masterful Job?

Right now Ford (F) is sort of the JPMorgan Chase (JPM) of the car industry, or at least the remnants of the American headquartered car industry. Alan Mulally, the Boeing (BA) veteran that came in to restructure the company, is garnering the same sort of praise as Jamie Dimon. Both are viewed as adults who avoided the excesses of their competitors and now stand to reap the benefits of being dominant survivors.

Mulally came to Ford in 2006 after a 37 year career with Boeing. Originally derided for not being a “car guy” he set about rationalizing the company as well as preparing it for the fire storm that came. He shuttered plants, shed 50,000 workers, reduced the size of the product line from 97 to 20 and most presciently mortgaged just about everything Ford owned in order to build up a cash cushion of $23 billion.

The most obvious result of his labors is that Ford has been able to avoid the clutches of the federal government and has ample funds to see it through the recession. Its first quarter loss of $1.4 billion was exceptional when compared to GM’s loss of $6 billion and Toyota’s (TM) $7.8 billion gusher of red ink. Its U.S. market share has risen to 13.2% from 12.2% a year ago and it is number two in European sales versus three a year ago.

Still, for all of that, one has to think that Mr. Mulally must have recurrent nightmares about what the future is going to look like for Ford. All the cash that it raised comes with a price. The company has $28 billion in debt, about the same as GM with its $27 billion millstone. But, of course, that’s about to change.

Mulally has to look down the road and see a GM and Chrysler waiting for him largely relieved of debt service and owned by an amalgamation of the same union with which he must negotiate and the federal government. Two parties with something to prove and limitless resources with which to prove it.

Make no mistake, the government will not allow GM to fall on its face. For better or worse the Obama administration has over-committed to the rescue of the industry and cannot produce less than its survival. Chrysler is and always will be an afterthought — if push comes to shove it can be folded into GM — but GM will succeed no matter the cost.

So Mulally will be left to do battle with his streamlined company, dynamic new products and, at least for a time, probably more trust from the car buying public. He will be up against a government unafraid to rewrite the rules of the game at any time and a union that might well prefer to control his company as well.

Will Mulally and Ford persevere and prosper? Not if team Obama want GM to persevere and prosper.

Tip your hat to Alan Mulally, for he’s done a masterful job. In another era he might well have had a small niche in industrial history. Most likely he will end up as a footnote.

Comments

[belseware:]

Tom:

I can't believe you're suggesting that the Federal Government might act in a predatory way in the auto industry and attack Ford. After all, the Federal Government does not have any expertise in the auto industry, and has already messed it up mightily with mostly pointless regulation. I would think they have learned from their mistakes, and will back off. For example, they might actually let a bankruptcy court handle Chrysler (and GM).

Full disclosure, I am a Ford retiree, and--yes--this is sarcasm.

May 12 01:13 PM

[Tomas04:]

Quit kissing Ford's you know what. Mullaly has done a masterful job huh? They have a few months worth of cash because they happened to mortgage their future. They have shed no more jobs than GM has. The media loves to suck up to people when they are up and kick people when they are down.

May 12 01:23 PM

[Thadeus III:]

More negative rhetoric. Sorry I even read the drivel anymore.

May 12 01:25 PM

[Thadeus III:]

Tomas04 . . . I agree. It DOES seem like more negative rhetoric againt GM and Chrysler. Ford is just living on borrowed time. GM has cut more jobs than Ford over the last 10 - 15 years and has gained more quality recognition from J.D. Power and others. But lets grand stand F . This economy is sick folks. With wages eroding because of businesses pushing for a global wage structure American buying power is on the serious decline. I don't see Ford escaping these weak economic conditions. America could use some more support for ALL it's original American Brands!

May 12 01:30 PM

[Speedzzter:]

Just like racing last Saturday at Darlington (where bankrupt Chevrolet swamped Ford on the "Track Too Tough to Tame"), whether “Mulallyism” will continue working (and how well) depends a lot on forces beyond FoMoCo’s control.

Will appliance motorist Americans pay more for value-added, European-quality small cars, or will they abandon American cars in increasing numbers for cheaper soulless Asian “commodity” sleds?

Will possible nationalization of GMAC give “Government Motors” and FIAT-Chrysler a huge advantage in financing?

Will the U.A.W.’s plea to “turn off lights in Tokyo and Seoul” end up in a trade war?

Will the $7,800,000,000.00 loss by the Evil Empire (Toyota) awaken them to a new round of brutal predatory moves?

Are we in for a “lost decade” of stagflation and constrained credit?

Will Ford’s bloated and greedy dealer network offset advances in product?

Has Ford’s failure to adequately tend the youth market for a generation written off millions of vehicle purchasers for a lifetime?

Will Ford’s myopic shilling for a “Cash for Clunkers” bailout alienate vintage vehicle collectors, hot rodders, and enthusiasts?

Will the import-centric automotive press give Ford’s new products a fair shake?

Are these outside forces “too tough to tame?”

It is alarming that according to some estimates, Ford only stands to gain one in every four sales lost by GM and Chrysler. Losing seventy-five percent of the “conquest” sales to the import invaders is even worse than Ford’s disappointing record against the Hendrick Chevrolet juggernaut. It is emblematic of Ford’s decades of uncompetitiveness in certain market niches and the built-up brand capital of the predatory invaders.

Thus far, Mulally’s sold a lot of chair shuffling, reductions-in-force, and blue sky futurism. While thankfully Ford is not in as bad of shape as its crosstown rivals (much because of Mulally’s cash-conserving/mortga... instincts), it is not clear whether Ford’s next generation of value-added cars will reverse the flow of red ink.

However, if the current Mustang/Camaro/Challenger and Hendrick/Roush-Fenway battles are any indication, Ford still may not have learned how to throw a knockout punch. Or dominate. Or cross the finish line first when conditions are “too tough to tame.”

May 12 01:41 PM

[Sasha B:]

Great article. I admired Ford for standing tall, but I never thought that in the end Ford's competitor will control Ford's employees. That's messed up.

May 12 02:03 PM

[griffinforest:]

I find this whole article laughable. The whole point of Ford being ahead is because they heeded conservative voices at least a year if not more (2006-2007) and took steps and morgaged everything in site. Will they remain a winner? Only time will tell, but if things comes together as they have so far, Ford can take a well deserved laugh at all of us who saw their demise. Let us hold them up as a model of success until proven otherwise

May 12 02:06 PM

[optomist1:]

Hmmmm....Masterful Job? okay; cumulative losses for the past three years of $30B, no real or meaningful reduction in the per vehicle labor costs, but rather placing part of the onerous retire/employee legacy costs under a different cup. The Motown Malaise continues. Mr. Mullaly has done or can take credit for one accomplishment, mortgaging and restructuring debt while commercial money was still available. This, may me luck or it may be planned regardless, his performance has been anything but Masterful. Given the gut wrenching changes in Detroit and Dearborn, one might expect to see meaningful structural changes in the big three's broken business model. Thus far, they are merely nibbling around the edges of the cost structure problem.

This type of euphemistic blog is in stark contrast with Ford's recent re-announcement that it will begin manufacturing hybrids at its former SUV plant in Wayne, MI Similar to GM with the EV-1 debacle, much too little much too late. Their PR department is doing a good job of pumping the stock....they would fare much better dedicating these financial resources to producing better vehicles that fit the public's needs. Imagine that with each "hybrid vehicle" Ford must pay a fee to the firm they licensed the gas/electric hybrid technology from...Toyota.

As a resident of Michigan, I know I am not alone in my aversion to supporting this house of cards.

We can only pray for real change....maybe when the Lions hit the .500 mark!!!

May 12 04:24 PM

[elcopone:]

Talking purely on product, Ford does seem to have momentum (very recently) and for that Mullay should be praised. Sure, he's had a product blunder here and there (See: Taurus, I mean 500, err I mean Taurus), but overall the lineup has been moving in the right direction.

As others point out though, the debt structure is not sustainable. It may have bought them some time but they still have a tremendous debt burden, too large a dealer body, large legacy costs, and a unionized work force. This all points to continued losses.

But again, talking purely product and marketing, he has done a good job for a "non car guy."

May 12 05:10 PM

[sethmcs:]

Ford has a built in gain of 3+ billion gain from debt swap of 10 billion due to be booked in the second quarter. They have been methodically managing their balance sheet. Watch out shorts if they make another debt swap offer after completing common stock offering.

May 12 06:07 PM

[Fighting Yoda:]

There is too much surplus capacity in the auto industry. Unless GM and Chrysler (at least one of them) are taken out, Ford cannot survive. Ford has cash for now - it will last for another year. With the way recession is going auto sales will continue to fall - or not reach even the 10 Mi mark for next several years. Foreign auto makers are in better financial shape to offer incentives, and even take losses - they will out muscle Ford.

As regards GM and Chrysler no one is going to but cars from a Govt and labor union owned company - they will limp along till they die in a couple of years.

May 13 01:34 AM

[thinkb4uwrite:]

Ford may not only survive but may exceed expectations... and possibly for one good reason...their trucks.

A subcompact or a 4-door hatchback or will never do the work of a pickup or flatbed truck. With GM soon under micromangement of the government (a number of seats have already been allotted to the federal government on GM's new board of directors) we will likely see a company that sets all the standards for passenger transportation products in a new utopian society.

The government's ability to carry this out may be due to nothing more than their ability to hike Federal taxes on gasoline. Who else is there to see that trillions in deficits now necessary to fund a moribund 'economic recovery' get paid off.

Their actions will hamstring car makers for as long as necessary and force the industry to make passenger cars precisely as defined to meet the draconian government standards. In particular, passenger utility and fuel efficiency. Those firms that make trucks which must be designed to the meet the specifications of business and heavy industry will not be as subject to the new regulations.

Those firms that have established themselves in producing reliable trucks will not only survive but will possibly see the only real profits allowed in the government's new utopian age of transportation. Ford has always appealed to meeting a role that trucks must play in creating efficient and profitable businesses. Its a fair bet that Ford's prior dominance in medium and heavy duty mid-sized trucks and vans will deal them a winning card even in the extended economic recovery.

May 13 05:28 AM

[dw57:]

not sure why we are so pro Ford, considering at you noted that huge debt that was the result of hocking every thing in 2006 (when they could), which is more of a lucky move than any thing else (had GM done it too, they probably wouldn't be in their mess today). and considering what they told the government last year, they will be looking for help later this year. because unless the car market hits more than 10 million units this year (improbable to impossible) they will need a loans also. and all of the things you point at that Ford did, GM has done also. now they (GM) are about to be bankrupt (no doubt of that) and will close even more stuff (no doubt of that either) and if they come out (iffy but doable), they will be tough again but much smaller, having reduced much faster than Ford can out side of bankruptcy (though Ford has been able to piggy back on GM/Chrysler labor moves till now. but bankruptcy will change that).

May 13 09:57 AM

[User 413257:]

Nothing like showing your complete ignorance on a public website for all to see. Ford has cut its salaried & hourly workforce in the US by 50% over the last three years.

Ford has significantly more than a few months worth of cash. GM has done precious little to control costs and is still running around Detroit like nothing is wrong. If you want to talk about failed leadership look no further than GM.

On May 12 01:23 PM Tomas04 wrote:

> Quit kissing Ford's you know what. Mullaly has done a masterful job
> huh? They have a few months worth of cash because they happened to
> mortgage their future. They have shed no more jobs than GM has. The
> media loves to suck up to people when they are up and kick people
> when they are down.

May 13 11:26 AM

[User 413257:]

No real or meaningful reduction in per vehicle labor costs? Check your facts on every statement in your response to this article.

How is Ford's announcement even remotely similar to GM's EV-1 debacle or too little too late for that matter?

Ford was first with a Hybrid SUV in 2005 and it is still in production. Ford is now producing the highest mileage mid sized sedan in the form of the Fusion Hybrid.

Ford paid a licensing fee to TOYota for its first generation hybrid platform as a defensive measure as there were similarities between the two systems. The system was designed and engineered in house by Ford. There are no TOYota licensing fees in its second generation platform that is used in the Fusion.

How much cash did the venerable TOYota bleed in the first quarter? Let me tell you as you can't seem to get the facts straight.

TOYota lost $7.7B
GM lost $6B
Ford lost $1.4B

Who is managing their business and costs?

On May 12 04:24 PM optomist1 wrote:

> Hmmmm....Masterful Job? okay; cumulative losses for the past three
> years of $30B, no real or meaningful reduction in the per vehicle
> labor costs, but rather placing part of the onerous retire/employee
> legacy costs under a different cup. The Motown Malaise continues.
> Mr. Mullaly has done or can take credit for one accomplishment, mortgaging
> and restructuring debt while commercial money was still available.
> This, may me luck or it may be planned regardless, his performance
> has been anything but Masterful. Given the gut wrenching changes
> in Detroit and Dearborn, one might expect to see meaningful structural
> changes in the big three's broken business model. Thus far, they
> are merely nibbling around the edges of the cost structure problem.
>
>
> This type of euphemistic blog is in stark contrast with Ford's recent
> re-announcement that it will begin manufacturing hybrids at its former
> SUV plant in Wayne, MI Similar to GM with the EV-1 debacle, much
> too little much too late. Their PR department is doing a good job
> of pumping the stock....they would fare much better dedicating these
> financial resources to producing better vehicles that fit the public's
> needs. Imagine that with each "hybrid vehicle" Ford must pay a fee
> to the firm they licensed the gas/electric hybrid technology from...Toyota.
>
>
> As a resident of Michigan, I know I am not alone in my aversion to
> supporting this house of cards.
>
> We can only pray for real change....maybe when the Lions hit the
> .500 mark!!!

May 13 11:57 AM

[Tdot:]

On May 12 04:24 PM optomist1 wrote:
Imagine that with each "hybrid vehicle" Ford must pay a fee to the firm they licensed the gas/electric hybrid technology from...Toyota.
----------------------...

This is False - an urban legend based on misconceptions. True - Ford does indeed produce current Hybrid Electric Vehicle technologies under a Toyota patent license, since Toyota won the patent race for HEV technologies, but there is NO FEE.

"The 2004 Ford Escape Hybrid used technology similar to that used in Toyota's Prius. Ford engineers realized their technology may conflict with patents held by Toyota, which led to a 2004 patent-sharing accord between the companies, licensing Ford's use of some of Toyota's hybrid technology in exchange for Toyota's use of some of Ford's diesel and direct-injection engine technology."

While the original 2004 press releases said that any license fees were "not disclosed", it has since then been confirmed that the hybrid and emissions technologies licenses were exchanged at no cost to either company.

May 13 01:01 PM

[Tomas04:]

Ignorance? Take it from someone who knows. GM has cut far more of their workforce than Ford has. Now go back to your talking points and find that in their.

And how much cash do you think Ford has? And if they have so much why do they want a $9 Billion line of credit from the gov't? Again, go back and find the correct talking points and I will be waiting.


On May 13 11:26 AM User 413257 wrote:

> Nothing like showing your complete ignorance on a public website
> for all to see. Ford has cut its salaried & hourly workforce
> in the US by 50% over the last three years.
>
> Ford has significantly more than a few months worth of cash. GM has
> done precious little to control costs and is still running around
> Detroit like nothing is wrong. If you want to talk about failed leadership
> look no further than GM.
>
> On May 12 01:23 PM Tomas04 wrote:

May 13 01:28 PM

[User 413257:]

Yes, total ignorance of the facts.

2006 -Ford cuts salaried workforce 30%.
2007 -Ford cuts US salaried workforce by another 10%
2008/9 -Ford cuts US salaried workforce by another 10%

I won't even go into the hourly side, but the numbers are similar if not worse.

How many plants has GM idled in the past 3 years? Ford closed 16 manufacturing plants in 2006. How many has GM closed?

Ford sold Aston Martin, Jaguar, Land Rover & sold the majority of its stake in Mazda and is publicly looking at options for Volvo. How many brands has GM sold and what do you think they're worth now? Answer: NONE/Not much.

Ford has been consolidating dealerships over the past three years and has reduced the number of dealers by at least 20%.

Again, who is managing their business and costs?

On May 13 01:28 PM Tomas04 wrote:

> Ignorance? Take it from someone who knows. GM has cut far more of
> their workforce than Ford has. Now go back to your talking points
> and find that in their.
>
> And how much cash do you think Ford has? And if they have so much
> why do they want a $9 Billion line of credit from the gov't? Again,
> go back and find the correct talking points and I will be waiting.
>

May 13 03:01 PM

[User 413257:]

Thank-you for stating facts.


On May 13 01:01 PM Tdot wrote:

> On May 12 04:24 PM optomist1 wrote:
> Imagine that with each "hybrid vehicle" Ford must pay a fee to the
> firm they licensed the gas/electric hybrid technology from...Toyota.
>
> ----------------------...
>
> This is False - an urban legend based on misconceptions. True -
> Ford does indeed produce current Hybrid Electric Vehicle technologies
> under a Toyota patent license, since Toyota won the patent race for
> HEV technologies, but there is NO FEE.
>
> "The 2004 Ford Escape Hybrid used technology similar to that used
> in Toyota's Prius. Ford engineers realized their technology may conflict
> with patents held by Toyota, which led to a 2004 patent-sharing accord
> between the companies, licensing Ford's use of some of Toyota's hybrid
> technology in exchange for Toyota's use of some of Ford's diesel
> and direct-injection engine technology."
>
> While the original 2004 press releases said that any license fees
> were "not disclosed", it has since then been confirmed that the hybrid
> and emissions technologies licenses were exchanged at no cost to
> either company.

May 13 04:40 PM