American Icon (2 page)

Five years before, Bill Ford had taken charge of the company
and tried to salvage what was left of its name and his. For a while, it seemed like he might succeed. Quality started to improve. Ford became the first American automaker to bring a hybrid to market. And a few of its products had begun to win praise from critics. But consumers remained wary. Too many of them had bought Fords in the past and were not going to make the same mistake again. Meanwhile, rising gasoline prices were scaring those customers who were left away from the big trucks and sport utility vehicles that were the source of most of Ford’s profits. At the same time, Ford found himself unable to overcome an entrenched, careerist culture that resisted all change and put individual advancement ahead of corporate success. In their dark-paneled offices, executives plotted ways to undermine one another’s efforts, while on the factory floor, union bosses jealously defended their members’ rich benefits and scoffed at attempts to boost productivity. A year earlier, Ford had tapped Mark Fields, president of the company’s more successful European division, to lead a restructuring of its core North American automotive business. Fields put together a bold plan to cut the business back to profitability by shuttering factories and slashing jobs. But it was not bold enough. The company was still hemorrhaging money and market share and seemed unable to stanch the bleeding. Japan’s Toyota Motor Corporation had just outsold Ford in the United States for the first time.

When Bill Ford took over as CEO in 2001, he had promised that the company would be making $7 billion by 2006. Instead, it was about to post a loss of nearly $6 billion for the third quarter alone—the company’s worst quarterly result in more than fourteen years. Investors were losing patience. Once a blue-chip stock, Ford’s shares were now trading in the single digits, and its debt had fallen deep into junk bond territory. Analysts had begun to whisper the word
bankruptcy
.

GM and Chrysler had many of the same problems, but most on Wall Street believed those companies were in a better position to address them. The prevailing view was that GM would save itself by better utilizing its immense global assets, while Chrysler’s 1998 alliance with German automaker Daimler-Benz AG seemed to offer a different
way out of the mess the American automobile industry had become. The analysts had crunched the numbers and concluded that Ford would run out of road first.

But no one had factored in Alan Mulally.

In less than three years, both GM and Chrysler would be bankrupt, and a resurgent Ford would wow Wall Street with quarter after quarter of profits at a time when most companies were still reeling from the worst economic crisis since the Great Depression. Mulally would be heralded as the architect of one of the greatest turnarounds in business history.

But none of it would come easy. Mulally would have to weld Ford’s disparate regional divisions into a single, global operation and take a sledgehammer to the ossified fiefdoms that had divided the company for decades. And Ford would be forced to mortgage everything—right down to the Blue Oval itself—to secure the financing necessary to fund Mulally’s revolution.

“I was right—Ford’s problems weren’t as bad as Boeing’s,” Mulally would later confide in me. “They were much, much worse.”

The House That Henry Built

W
hile many of Ford Motor Company’s problems were shared by the rest of Detroit, the Dearborn automaker also faced some challenges all its own. Ford’s woes had not begun with the arrival of the Japanese in the 1960s or the oil crises of the 1970s. The company had been struggling with itself since Henry Ford started it on June 16, 1903. It invested massively in game-changing products, and then did nothing to keep them competitive. It allowed cults of personality to form around larger-than-life leaders, but drove away the talent needed to support them. And it allowed a caustic corporate culture to eat away at the company from the inside. These were birth defects that could be traced back to the automaker’s earliest days. Henry Ford liked to boast that he had created the modern world. In many ways, he had. But he also created a company that was its own worst enemy.

Henry Ford began that company with a simple vision: “I will build a car for the great multitude. It will be large enough for the family, but small enough for the individual to run and care for. It will be constructed of the best materials, by the best men to be hired, after the simplest designs that modern engineering can devise. But it will be so low in price that no man making a good salary will be unable to own one—and enjoy with his family the blessing of hours of pleasure in God’s great open spaces.”

Ford made good on that promise with his Model T, a simple, reliable, no-nonsense car that transformed the automobile from a rich man’s toy into a means of transportation for the masses.
^*
When the Model T went on sale on October 1, 1908, most cars cost a small fortune. It started at $850—less than $20,000 in today’s money. “Even You Can Afford a Ford,”
the company’s billboards proclaimed. But Ford did not stop there.

As demand for these Tin Lizzies grew, the pioneering manufacturer began building them on the world’s first moving assembly lines. This cut
the average time it took to produce a Ford from thirteen hours to just ninety minutes. But workers got bored on Ford’s assembly lines, and turnover was high. So, in January 1914, the company stunned the world by announcing that it would pay workers $5 a day. It was more than twice what most other laborers made at the time. As news spread, tens of thousands of men—particularly in the underdeveloped South—threw down their picks and hoes and headed for Detroit. Ford’s $5-a-day wage sparked one of the largest economic migrations since the California Gold Rush and created the industrial middle class. As Henry Ford would later boast, it also made his workers as reliable as his machines. Mass production allowed Ford to cut costs and boost efficiency. He passed the savings on to consumers and made his money on the added volume. Henry Ford claimed that every dollar he shaved off the price of his car bought him a thousand new customers. By 1925, the price of a Model T had dropped to $260—just over $3,000 today—and Ford was making more than 1.6 million of them a year.

It was an impressive figure for the time, but it was
nearly 200,000 fewer than the company was making just two years before. Despite the massive price cuts, sales of the Model T were slumping. So was Ford’s share of the market, which
peaked in 1921 at 61.5 percent. Other automakers, like General Motors, were regularly introducing
new models—each one an improvement over its predecessor. The Model T had seen few updates. It was old technology, yet Henry Ford stubbornly refused to begin work on a replacement. He thought it was all the automobile the average person needed. When his engineers began work on a new prototype anyway, Ford destroyed it with a sledgehammer. But Ford’s dealers were clamoring for something new. So was his son, Edsel. By the time Ford finally began work on his new Model A in 1927,
demand had fallen so dramatically that he was forced to close his factories and lay off 60,000 workers.

As Ford retooled, General Motors passed it to become the largest automaker in the world. Many thought Ford was finished. But on November 28, 1927, people all over America waited in line for hours outside dealerships for a glimpse of the first new Ford in twenty years. It did not seem to matter that the only thing inside most of the stores was a cardboard cutout. By the end of the day, more than 10 million people—10 percent of the U.S. population—had seen the Model A. It combined the Model T’s practicality with something entirely new to Ford customers: style.
Thousands placed orders on the spot. Ford’s factories surged back to life, unable to keep up with the unprecedented demand for its new car.

Within two years, the company had sold more than 2 million Model A’s and its share of the domestic market doubled. Yet once again, Henry Ford rested on the laurels of his phenomenal success as his competitors continued to improve their offerings. The next new Ford would not arrive in showrooms until 1932. By then, other manufacturers were introducing new models every year, and Ford was losing money. Fortunately for the Dearborn automaker, its new flathead V-8 motor was another innovative hit. But Ford would not really begin to diversify its product lineup until after World War II, and even then it would continue to make the same mistake with products like the Thunderbird and the Mustang.

By the 1980s, Ford was fighting for its life once again—this time against new competitors from Japan. Ford and the other Detroit automakers had been ceding sales to the import brands for a decade, and many doubted whether the Big Three would be able to mount a counterattack. Then Ford stunned the automotive world with the
most radical new design in years. In 1985, it unveiled the Ford Taurus, a streamlined sedan with rounded corners that featured the tighter suspension and precise steering more typical of European automobiles. Critics said it looked like a jellybean, but it was a hit with consumers and pushed Ford’s profits past GM’s. The Taurus was so successful that General Motors and Chrysler were soon copying Ford’s aerodynamic design, as were the Japanese.

For a while, it seemed like Ford might finally have learned its lesson. It introduced an upgraded version of the Taurus in 1992 that was even better than the original. The Taurus became the bestselling car in America, seizing that title from the Honda Accord. But Ford’s investment in the popular sedan soon petered out. In 1997, Toyota’s Camry claimed its crown, and the Taurus was soon relegated to rental car fleets. “When production finally stopped in 2006, few even noticed.

F
ord’s overreliance on a single product was surpassed only by its overreliance on a single man. In the beginning, that man was Henry Ford. Instead of leading a team of managers, Ford preferred to rule his industrial empire like a potentate. He had a good eye for talent and initially tried to fill his court with able executives, but he often drove them away once they began to exert significant influence over his organization. Ford was even unwilling to share power with his own son. Edsel Ford replaced his father as the company’s president after the family bought out the other investors in 1919, and he held that position until his death in 1943. But Henry Ford still made all the decisions, large and small, often countermanding any orders his son tried to give.
He even rehired men Edsel had fired.

Though Henry Ford did not create Ford Motor Company by himself, he often acted as though he had. James Couzens, the company’s first general manager, played the prudent businessman to his mad inventor—at least until he resigned in 1915.

“
Mr. Couzens said that, while he was willing to work
with
Mr. Ford, he could no longer work
for
him,” wrote another early Ford executive, Charles Sorensen. “The paradox is that but for Couzens and his
organization and domination of sales and finance Ford Motor Company would not have lasted long.”

William Knudsen, a manufacturing prodigy who helped orchestrate the company’s shift to mass production, was also driven away—right into the arms of General Motors. There he became head of Chevrolet,
leading it past Ford in factory output by 1931.

“
Mr. Knudsen was too strong for me to handle,” Henry Ford later conceded. “You see, this is my business. I built it, and as long as I live, I propose to run it the way I want it run.”

Instead of capable executives with their own ideas, Ford preferred to surround himself with yes-men and hired guns like Harry Bennett, the éminence grise with reputed underworld connections whom he hired to keep order at the River Rouge factory complex. Bennett was quickly promoted to chief of the Ford Service Department, which under his leadership grew into the
largest private police force in the world. Men like Bennett fostered an enduring culture of intrigue and backstabbing among Ford’s senior leadership. Employees lived in fear of being fired by capricious managers and thought carefully before answering questions to make sure they gave the expected response, even if it was wrong.