American Icon (51 page)

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Authors: Bryce G. Hoffman

BOOK: American Icon
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I
t was a rare hint of frustration from a man who was so relentlessly upbeat. Just when it seemed like he had finally got Ford firing on all cylinders, the engine was running out of gas. But Mulally remained steadfastly optimistic. He was disappointed, but he refused to dwell on it. He knew that he and his team had done everything they could. The market was just deteriorating too fast for Ford to catch up.

Our plan is working
, Mulally reminded himself as he rode home to Dearborn that night, past the glowing smelters of the Rouge.
It’s just that nothing else is
.

Though the cars and trucks in Ford’s showrooms were mostly the same vehicles that had been there when Mulally was hired back in 2006, their quality had improved dramatically. With Mulally’s backing, Bennie Fowler had taken his show on the road—preaching his gospel of quality across the United States and around the globe. He started with Ford’s existing quality procedures, personally traveling to each region to make sure they were being followed. If someone had a better idea about some aspect of the process, he incorporated that into his canon. But Fowler expected every Ford factory around the world to rigorously adhere to the same quality practices. Fowler began deploying a global computer system to track customer complaints worldwide and make sure they were routed to the appropriate facility.
*
The system allowed each plant manager to review warranty claims within forty-eight hours of a customer bringing a vehicle into a dealer. In most cases, these reports reached the factory that had made that car or truck in less than twenty-four hours. Once they did, a manager would go to the station on the assembly line responsible for that part of the vehicle and speak with the worker responsible for installing it. Whenever possible, fixes were made right there on the factory floor. The manager would also visit the final inspection area of the plant to figure out how the problem had been missed before the vehicle left the plant. A company-wide report was generated every day identifying the top quality issues around the world, allowing Fowler and his team to give these special attention. The system also tracked data from third-party sources like J.D. Power and Associates, as well as the warranty costs associated with each vehicle component. These were ranked to make it easy to identify problems with a particular part or supplier. It made a big difference. Each Thursday, there were fewer red boxes on Fowler’s BPR slides.

As Ford’s quality improved, Fowler began publicly planting some very ambitious flags that raised more than a few eyebrows in the automobile industry. In 2007, he vowed that Ford would close the quality gap with its Japanese rivals by the end of 2008. That bold claim raised
some eyebrows internally as well. But Fowler had the data to back up his boast. His team had done regression analysis to figure out where Toyota would be in 2008 and made certain Ford’s own quality gains were trending ahead of that mark. Some of Ford’s public relations staff worried that he was giving the press a bat to beat Ford with later, but Fowler was not doing it for the media—he was setting a goal to motivate his team.

“We don’t play to be second place,” he reminded them.

In June, J.D. Power announced that Ford’s Mercury brand now outperformed Honda in initial quality and was just a few points behind Toyota. It was the first time anyone could remember a nonluxury American brand beating one of the big Japanese automakers. And the Blue Oval itself was not far behind.


Ford has shown consistent improvement for the past five years, despite its restructuring,” said David Letson, the vice president in charge of automotive quality at the influential firm. “No other full-line manufacturer has done that.”

Derrick Kuzak had not been idle, either. Under his leadership, Ford’s Global Product Development System had been improved and expanded. New and better digital design processes had been rolled out worldwide, further reducing development times and engineering costs. By 2008, the ninety-seven different nameplates that Ford and its affiliated brands offered when Mulally joined the company in 2006 had been reduced to just fifty-nine. Ford was on track to reduce the number of vehicle platforms it used worldwide by 40 percent over the next five years, with more than two-thirds of Ford’s entire lineup built off just ten platforms. Then the real economies of scale would kick in.

Mulally’s team approach to product development was a key enabler of all these gains. The internal realignment that began with matched pairs in 2007 had evolved into matched quints. In addition to a representative from product development and a representative from purchasing, these teams now included representatives from Joe Hinrichs’ new global manufacturing organization, Bennie Fowler’s global quality team, and Jim Farley’s global marketing, sales, and service organization. This structure cascaded down Ford’s organizational chart. At the highest level, the heads of each of these global functions formed the
ultimate matched quint. Below them, teams were formed around each major vehicle system. For example, Barb Samardzich, the vice president in charge of global powertrain engineering, was teamed with her counterparts in global powertrain purchasing, manufacturing, quality, and marketing. Teams were also formed to manage each vehicle segment, from small cars to pickups. Beneath these, other teams were formed for each individual vehicle program and for key components such as four-cylinder engines and automatic transmissions.

All of these teams had global responsibility. For example, the manual transmission team was based in Europe but was responsible for all of the manual transmissions used by Ford worldwide, while a different team based in the United States was responsible for all hybrid powertrains. Europe was responsible for small cars, even the ones sold in North America. The United States was responsible for pickup trucks, even those sold in South America. Every member of every team had a voice in every decision, but ultimate authority and responsibility resided with Kuzak as head of product development because it was product that would save Ford Motor Company and ensure its future success. All of the other departments understood that their role was to support that effort. These teams also played an important in role in Ford’s continued quality improvement. Thanks to Fowler’s tracking system, they were able to review the quality data for their particular product, vehicle system, or vehicle segment every day and were required to do so. Each team was in constant contact with a representative from each relevant supplier, too, so that any problems with that company’s parts could be addressed quickly.

In October,
Consumer Reports
declared that Ford was now equal to both Toyota and Honda in quality. The magazine also rated the Ford Fusion and Mercury Milan the best-made nonhybrid family sedans in America.

By then Fowler had moved the flag forward once again. At a high-profile industry conference in August, he declared that Ford would not rest until it had snatched the quality crown from Toyota. And he promised to do it by the end of 2010.


That’s right, I said it. Ford Motor Company will be the quality leader,” Fowler promised, drawing audible gasps from some of the
industry veterans in the audience. “This time, we’re playing for all the marbles—and we aim to win.”

H
owever, just figuring out how to survive until 2010 was becoming a real challenge.

In May, the Detroit Three were outsold by their Asian rivals for the first time ever. Ford’s F-Series pickup, long the bestselling vehicle in America, was unseated by the Honda Civic. Ford’s bread-and-butter truck was not even number two, three, or four. Sales of the pickup plunged nearly 31 percent. Overall Ford sales fell more than 15 percent. Those numbers were bad, but the results were far worse at General Motors and Chrysler. GM’s sales were down nearly 28 percent. Chrysler’s were down more than 25 percent. The industry as a whole dropped almost 11 percent. Even Toyota was down more than 4 percent.

By June, oil was nearing $150 a barrel and the average price of gasoline in the United States was
over $4 a gallon. On June 20, Ford issued a formal warning to Wall Street that its financial results for the second quarter and the remainder of 2008 would be significantly worse than expected. Ford Credit was also losing money as the declining value of used pickups and SUVs ate away at its lease portfolio. That was particularly troubling, because the automaker had usually been able to rely on its lending subsidiary to provide some black ink even when the rest of the company was in the red. Ford responded with additional production cuts at its truck plants. It also delayed the launch of the new version of its F-150 pickup by two months because there were so many of the current model still sitting on dealer lots.

That afternoon, Mulally was asked when he expected the slide in U.S. sales to bottom out.

“It’s too early to say,” he said, explaining that the entire external environment seemed to be conspiring against Ford. “It’s the economy, it’s fuel prices, it’s consumer confidence—it’s everything.”

Ford was still on track to meet Mulally’s goal of reducing annual operating costs by $5 billion in 2008, thanks in part to another 15 percent reduction in its North American salaried payroll that had been
announced two weeks earlier and the lower labor costs it wrested from the UAW in the new contract. But Mulally acknowledged that these gains were dwarfed by declining sales and rising raw materials costs.

Many analysts thought Mulally was being overly pessimistic—perhaps even underpromising so that he could overdeliver when Ford reported its second-quarter financial results, which were due out in a month. The consensus on Wall Street was that Ford would lose 27 cents a share. The consensus was wrong.

On July 24, Ford posted a staggering loss of $8.7 billion for the second three months of 2008. It was the company’s largest quarterly loss ever and amounted to a whopping $3.88-per-share hit. The magnitude of the automaker’s loss was primarily due to one-time charges and the write-offs associated with Ford Credit, but the tectonic shift away from trucks and SUVs to more fuel-efficient cars had not helped, either. Ford’s core automotive operations in North America lost $1.3 billion, compared to just $270 million a year before. Though this was partly offset by the still-impressive numbers Ford was able to post from Europe and South America, it meant Mulally’s push to fix the company’s car and truck business in the United States was faltering. And Volkswagen was about to pass Ford to become the third-largest automaker in the world.

Thanks to the massive financing package Leclair and his team had worked so hard to secure before the gates of the global credit market slammed shut, Ford was no longer the subject of bankruptcy speculation. That had shifted to General Motors and Chrysler. But analysts were still worried about Ford’s ability to withstand a serious industry downturn.

“Ford’s liquidity remains adequate despite the prospective cash use and despite ongoing restructuring efforts,” the ratings agency Standard & Poor’s stated in a May report. “But if lower-than-expected U.S. light-vehicle sales persist through 2009 or higher fuel prices cause an even more dramatic shift away from light trucks, Ford’s liquidity could reach undesirable levels by late 2009.”

I
f things were bad at Ford, they were worse at GM and Chrysler. After insisting for years that they were far ahead of the Dearborn automaker in their own restructuring, the truth was finally coming out. They had just done a better job of hiding the magnitude of their woes—from Wall Street as well as from themselves.

General Motors would soon post a second-quarter loss of $15.5 billion. Three years earlier, CEO Rick Wagoner had assumed personal responsibility for GM’s struggling North American car and truck business, promising a sweeping restructuring that would return it and the entire company to profitability.
*
Since then, America’s largest automaker had lost more than $70 billion. And GM had less cash than Ford. In May, GM’s share of the U.S. market fell below 20 percent. It had started the year at 24 percent. In June, Chrysler’s market share fell below 10 percent and now lagged behind both Toyota’s and Honda’s. Because it was now privately held, Chrysler did not have to report its financial results, but they were presumed to be grim.

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