CEOS UNDER FIRE
Can Ford Save Ford?
This green CEO is starting to turn things around at his great-grandfather's company. But can he do it fast enough?
FORTUNE
Sunday, November 3, 2002
By Betsy Morris
"I don't believe this," said an exasperated Bill Ford Jr.
It was midafternoon on Oct. 16, and Ford had just emerged from a gauntlet of meetings he had hoped would convince the world that Ford Motor Co. was finally turning the corner. At last he had some good news to report: Even though Ford had a net loss of $326 million in the third quarter, the company had earned an operating profit of $220 million. It would show a slight profit in the fourth quarter, too. Quality was up. Recalls were down. The company had cut its cost per vehicle by $240, it had trimmed $2 billion from overhead, and it had raised $1 billion by selling assets. In other words, there was real, measurable progress in the company's efforts to turn itself around.
Ford had delivered the news in a crack-of-dawn meeting with top lieutenants. Then, midmorning, he had patiently fielded questions from analysts and the press. Finally, he had electrified an audience of workers--his favorite kind of crowd--with a heartfelt speech. "I'm asking you to work hard. Keep the big picture in mind. Think about what really matters. Do that and nothing else," he implored to a sea of nodding heads and intermittent applause. "We've come back from adversity many times in our history. We're going to do it again. On the eve of our 100th anniversary, the stage is set for a dramatic return to greatness. We started the job; now let's finish it."
It was a chills-down-your-spine speech--Bill Ford at his best. But as is so often the case in Dearborn these days, the effect was short-lived. Between meetings Standard & Poor's had delivered another broadside. It had put Ford on credit watch for a possible debt downgrade. Bill Ford was both frustrated and incredulous. The ratings agency hadn't even waited to see his third-quarter results, never mind the formal case he was scheduled to make to S&P the following week. He didn't expect Wall Street to cheerlead. But he did expect it to give him a chance. "I just don't get it," he fumed. "I'm going to New York in the morning."
The S&P news was only the latest blow in a very bad month. The week before, Ford's stock closed at $7.15 a share, its lowest level in a decade. Its bonds were hammered so badly that the yields on some would soon begin to resemble those of junk bonds. One analyst after another downgraded the stock on a host of concerns. Would Ford be able to cover the $6.5 billion shortfall in its pension plans? Would a downgrade mean eventual trouble funding the company's debt, now a staggering $162.2 billion? Could it afford price wars so intense that it was already offering rebates of up to $2,500 on next year's models? Exceptionally strong car sales in the past three years had put the wind at Ford's back. But the company still lost nearly $5.5 billion last year, and the car business is still in the red. And in September sales began to weaken as consumer confidence plummeted. (In October, sales would fall 31%.) On Wall Street doomsday rumors about Ford were spreading, including the dire prospect that at some point it might have to go to D.C. to plead for a Chrysler-style bailout.
The situation would be a nail biter for any CEO. But consider this: Bill Ford is only 45 years old. Yes, he has spent 23 years at the company his great-grandfather founded, toiling away at 18 jobs, proving himself. Yes, he gets high marks for his smarts and his humility. But he is still so green. His resume doesn't look anything like that of a Big Three CEO. Though he was the chairman of Ford Switzerland and the head of the company's climate control division--and chairman of Ford Motor since January 1999--he has never held a top operating or finance position at the company. He didn't come bulldozing into the job. He reluctantly led a coup when he and the board lost confidence in the former CEO, Jacques Nasser, in part because quality problems were soaring and morale was plummeting. "Most guys who take this on had careerlong ambitions and come to the job rubbing their hands together," says an executive who knows Ford well. "But this guy came with his hands over his eyes, saying, 'Why me, why me, why now?' " Despite his intellect and talent, a lot of people believe he wouldn't be in the job if his name wasn't inside the blue oval. He is the not-quite-ready-for-prime-time CEO.
And boy, is this ever prime time. This is not just a bad flashback to the industry woes of the early '80s. In some ways, it's worse. There have never been price wars like these, rebates on top of no money down on top of widespread five-year free financing. Competition is fiercer than it has ever been, and domestic car buyers more fickle. Over the past few years lower-cost foreign carmakers have made serious inroads, upping their share of the U.S. car market to 54% from 42% in 1998 and upping their light-truck share to 24% from 16%. Meanwhile Ford's share of the total vehicle market slid to 21.4%, from 23% at year-end and 26% in 1995. It's no time to be a high-cost producer. But with the possible exception of DaimlerChrysler, Ford is likely the highest-cost big automaker in the world. Archrival GM, aided by two key former Ford execs who know all too well Ford's vulnerability, is strafing Dearborn, cranking up the price wars at every opportunity. Ford didn't just fall from grace last year--it fell off a cliff. What a year to make a debut as a CEO. Says Carl Reichardt, the former Wells Fargo chief and 16-year Ford director who is helping Bill Ford turn the company around: "It's a trial by fire."
FORTUNE first interviewed Bill Ford for this story last February, less than four months into the job, on the day he unveiled an ad campaign starring himself. He was clearly chagrined about it. Most of his life he'd downplayed the fact that he was a Ford. When he first joined the company, he even used a pseudonym so that he could be just like everybody else. "God, do I really want to do this?" he'd asked himself. The last thing he wanted, he said, was to be a personage. It was one thing to be recognized in Dearborn, but in Dallas?
He caved, finally, after becoming convinced that the effort could help Ford's image. But he had two conditions: that the ads mention not just Henry Ford but his other great-grandfather, Harvey Firestone, and that he not have to speak from a script. "I do not want to be Lee Iacocca saying, 'Buy this car.' I can't do that." So the ads were extemporaneous--Bill Ford speaking off the top of his head.
At the time the ad campaign was uppermost in his mind; the problems at Ford did not seem so severe. Bill Ford was still transitioning from the role of chairman, which he loved, to a CEO job he'd resigned himself to. He'd gotten a ton done since October. He had helped hammer out a turnaround plan that would close five plants, eliminate 35,000 jobs, and cut $9 billion in costs by mid-decade. He was already breathing easier about the health of Ford Credit, having delegated its oversight to Carl Reichardt, the retired Wells Fargo CEO. He had overhauled his management team, which had been decimated during the Nasser years. He had even made a tortured peace with the prospect of layoffs. "I hate it," he said. "But if we don't [have layoffs], we endanger the livelihoods of everybody else here." He'd zeroed in on the nitty-gritty too, starting with a product development effort gone so awry that Ford said the company was using 126 different kinds of fuel caps on its vehicles in Europe alone. "It's a lot of blocking and tackling," he said. "It's not sexy. It's a lot of hard work."
It was not, frankly, what he'd had in mind all those years he'd spent working inside Ford, hoping he would one day have a chance to make his mark. Back then he had envisioned something a bit more lofty and strategic, like the chairman's job he'd gotten in January 1999, the same time Nasser had been named CEO. That role had allowed him to think big thoughts and dream big dreams. He had time to meet with environmentalists and work on strategies to make cleaner cars, build nonpolluting factories, and turn Ford into a model corporate citizen. In that job he could goad the system. But as CEO, Bill Ford was the system. He had muted the rhetoric and put his idealism on the back burner. "You don't always get to pick your shots," he said sadly.
At this particular moment last winter, his biggest dream was much more immediate: to cut costs while improving the product lineup. "It's pretty clear what we have to do," he said. "We don't have a lot of options."
Over the next few months, as the situation at Ford changed, so did Bill Ford. By June he was clearly sobered by the immensity of the task and at times discouraged. There was a big difference between setting strategy and implementing it, a problem he now confronted almost hourly. "We're still trying to put the brakes on a freight train," he said. "We've got to stop it before we can turn it around." The Mustang S197 team had tried to slip by him a plan that didn't meet profit targets, promising him they could fix the problem on the fly. (They knew Bill Ford was in love with the Mustang.) He nixed it. The engineers working to boost SUV fuel economy 25% by mid-decade told Ford in May they might not meet that target. "Damn it," he told them. "Meet it!"
By then Ford had learned that his job required him to be as much shrink as businessman--something every decent manager quickly realizes. He told some of his executives that he occasionally wondered if he should have gotten a psychology degree instead of a business degree. For instance, he found himself having to manage tension between the laid-back Nick Scheele, the former chairman of Ford Europe whom he'd tapped to be his president and COO, and the more combative David Thursfield, the former CEO of Ford Europe, whom he'd made group VP of international and global purchasing. Ford also had to fend off Wolfgang Reitzle, the head of Ford's premier automotive luxury group, who was pushing Ford for more power. Reitzle left in April with a fat consulting contract to keep him out of the arms of GM.
Ford looked increasingly to old-timers he trusted. He wasn't afraid to surround himself with strong people ("I need all the help I can get," he admitted). He'd already turned to Carl Reichardt, not just for his financial expertise but also for his skills as a mentor and coach. In May he lured battle-tested Allan Gilmour out of retirement to do a second stint as Ford CFO. In his prior 34-year career at Ford, Gilmour had also been president of the automotive group, EVP of the international division, and head of Ford Credit. Gilmour was credible with Wall Street. And as Ford likes to put it, he was "not running for sheriff."
By June Bill Ford found himself pulled in every direction. Gilmour ticked off the litany of issues that had recently ended up in Ford's office. "What are we going to do to fix the seatbelt on the Thunderbird? The launch of the Navigator and the Expedition at the Michigan truck plant--why are we short of seats? What are we going to say to the press in New York? What is the content of next year's centennial celebration? What are we going to say about technology at the Paris Auto Show? The Canadian labor negotiations--who is going to be responsible for that? What is the marketing cost of our units compared with GM and Chrysler and the Japanese? What do we do about that? Who met with the East Coast dealers last week? What did they say?" says Gilmour. "You name it. All the time."
"The worst part of the job," Ford said then, "is the fear of the unknown. Every day there is something"--whether it's the Sierra Club criticizing him in its ads or rumors that certain car models might be unsafe. "Every day somebody walks out on strike somewhere. The nature of the job is, you only hear problems--I guess that's what a CEO's job is--but good news is few and far between. And if there is good news, they forget to tell you.
"What keeps me up at night is that we're not moving fast enough," he continued. "That the competition out there is so good and we dug ourselves such a hole, particularly in the cost area and the quality area, that we are not ..." He paused, as if contemplating the unthinkable. "Yes, we are making progress, but are we making it fast enough? If the economy really implodes, we have no margin of error."