Why Ford Will Make It

Includes: F, GM
by: Kenneth Chester

These are interesting times in the American automotive industry. Foreign or domestic, Asian or European, pretty much every automaker that sells new vehicles in the United States has been affected by the economic crisis in recent months. From the out-of-sight gasoline prices to the virtual disappearance of automotive financing, no dealer has been immune.

Yet, while General Motors (NYSE:GM) and Chrysler LLC are receiving a lifeline of sorts in the form of loans from the American taxpayer, there is one domestic automaker who didn’t receive or seek a loan from the Federal Government – the Ford Motor Company (NYSE:F).

Interesting – Ford, like General Motors has been a fixture in the American marketplace as a major industrial company for over 100 years. Also similar to General Motors, its workers are represented by the United Auto Workers (UAW) union and also like GM fields a wide ranging product line-up not just in the United States, but around the world.

So you may ask, why is Ford in somewhat better shape than General Motors during this major economic downturn? The answer begins with the following names: W. Edwards Deming, Phillip Caldwell, Harold Arthur “Red” Poling and Jacques Nasser.

To understand the Ford Motor Company of today, you must first take a journey back to its founding. Henry Ford’s family was Irish immigrants that came to America in 1832, settling in Dearborn, Michigan. After the invention of his Quadricycle in 1896, Ford would actually start three different automotive companies – two of which survive in some form to this day. (His 2nd automotive company became Cadillac which was the only GM division to be purchased for cash -- $4.5 million in 1909.)

The Ford Motor Company was organically global almost from its founding, usually choosing to introduce the Ford brand around the world as opposed to purchasing existing automotive makes. It only recently ventured into purchasing automotive companies during the last part of the previous century (Jaguar, Aston Martin, Volvo) and the beginning of this one (Land Rover). But the seeds of Ford’s current solid basis started back in the early 1980s when it was losing twice as much money as the Chrysler Corporation, which had received Federal loan guarantees.

Then Ford CEO Phillip Caldwell, the first non-Ford family member to head the company since its founding, orchestrated one of the most dramatically successful turnarounds in business history. Together with Harold “Red” Poling, executive vice president of North American Automotive Operations who implemented Caldwell’s aggressive cost cutting strategy, the duo “saved” the Ford Motor Company. But cutting costs alone doesn’t increase revenue. Ford had to address its reputation for building vehicles of subpar quality. For that, they turned to a well-known quality guru – W. Edwards Deming.

Dr. Deming is perhaps best known for his work in Japan, where from 1950 onward he taught top management and engineers methods for the management of quality. This teaching dramatically altered the economy of Japan. He is regarded as having had more impact upon Japanese manufacturing and business than any other individual not of Japanese heritage. In recognition of his contributions, the Union of Japanese Science and Engineering (JUSE) instituted the annual Deming Prizes for achievements in quality and dependability of product.

Ford brought Dr. Deming into the fold in the early 1980s. As a result, the automaker was able to increase production, plant utilization and vehicle quality dramatically without the addition of any new assembly plants.

The automaker detoured slightly under CEO Alex Trotman with an ill-advised reorganization and a second failed attempt at the development and sale of a “world car” (Ford Monteo / Contour / Mercury Mystique).

Jacques Nasser, who became Ford’s CEO in 1999, was probably most beneficial to the company by his departure in 2001. Although he tried to increase company value with a number of non-automotive acquisitions, he allowed the company to take its eye off of the core business of quality vehicle manufacturing. The naming of William Clay Ford, Jr. as CEO in 2001 allowed Ford to address the important corporate issues and get back to the basics of high-quality, high-value vehicle manufacturing.

As a result, the company sold most of its recent acquisitions – both automotive and non-automotive. This laser-focus has also allowed the company to position itself to weather the current storm as Ford saw the clouds forming as early as 2006. The company mortgaged its buildings and factories to raise cash. Although it claimed it needed $17 billion, it raised a total of $26 billion – just in case.

Disclosure: None.