Ford, one year later

DETROIT — He convinced Wall Street to loan him billions of critically needed dollars just before the credit crunch began and he shepherded cost cuts that led Ford Motor Co. to its first profitable quarter in two years, but the honeymoon may be over for Chief Executive Alan Mulally.

As he approaches his one-year anniversary running the No. 2 U.S. automaker after General Motors Corp., Mulally generally gets high marks for starting to right a troubled company. But questions remain about whether the former Boeing Co. executive has the product know-how to lead Ford out of its tailspin and the spine to get enough concessions from the United Auto Workers to make the company competitive again.

“I think he’s done some good things, and I think he has missed the ball a few times,” said James Schrager, clinical professor of entrepreneurship and strategy at the University of Chicago Graduate School of Business. “Overall I’d give him pretty good marks.”

Mulally, hired by then-chairman and Chief Executive Bill Ford on Sept. 5, was brought in to turn around a company that was unprepared when rising gasoline prices pushed people away from its trucks and sport utility vehicles.

Just two weeks after he started, the company unveiled another restructuring plan with more plant closures and early retirement or buyout offers to all 75,000 hourly workers. Ford at the time said it would take three years for the company to return to sustained profitability after billions of dollars in losses and said its share of the U.S. auto market would shrink to around 14 or 15 percent. It was 26 percent in the early 1990s.

Mulally began holding weekly meetings of top managers to keep the restructuring and new vehicle rollouts on track, offering help if needed and calming frayed nerves.

“The disruption and the uncertainty and the feelings of anxiety seemed to have disappeared,” said Gerald Meyers, a former chairman of American Motors Corp. who now teaches leadership at the University of Michigan.

Mulally’s best move, Schrager said, came three months into his tenure when he lined up the $23.4 billion line of credit by mortgaging Ford’s factories and even its blue oval logo. Knowing the time was right because of free-flowing credit, Mulally put other business on the back burner to focus on the financing, Schrager said.

“That was beautiful execution on his part,” said Schrager, who has studied the auto industry for 35 years.

But after Mulally’s first quarter, Ford posted the worst annual loss in its history for 2006, $12.6 billion.

Since Mulally’s arrival, Ford has rolled out several new products such as the Edge crossover vehicle, and Mulally ordered the return of the once popular Taurus by renaming the slow-selling Five Hundred sedan and Freestyle crossover vehicle.

Still, Ford’s U.S. market share has dropped from 16.5 percent the month Mulally arrived to 13.7 percent last month as it has tried to wean itself from low-profit sales to rental car companies.

Mulally can’t be held responsible for the lower sales, said David Healy, an analyst with Burnham Securities, because he had little to do with the products now on the market.

“The stuff they’ve introduced in the first year of his tenure was all pretty much in metal before he got there,” said Healy, adding that it’s too early to tell what influence Mulally will have on Ford’s future vehicles.

Schrager said Mulally has worked to fix Ford on the production side by reducing factory capacity and globalizing its design and engineering, but the key to any automaker’s profitability is whether it can design and produce vehicles for which people will pay full price.

“That’s really what he needs to do. This is a very innovative, very creative business. It’s not all about how can we make the door handles 2 cents cheaper,” Schrager said. “I think Mulally comes well-equipped on the science side, and we’re going to be able to judge him here on the artistic side.”

Jack Telnack, chief designer on the original Taurus who retired from Ford in 1998, said former colleagues have told him Mulally has set designers and engineers free to do cutting-edge work.

“The guys in the company have their day in court with him,” said Telnack. “If they can’t pull it off with the kind of leeway he’s giving them … there’s just no excuse.”

Not everyone praises Mulally. His compensation package, valued at $39.1 million for his first four months on the job, has angered rank-and-file workers who are being asked to make concessions in contract talks that are under way with Ford.

“It’s just very contradictory to try to explain to your people,” said Mark Caruso, president of a UAW local at a plant in Saline, Mich. that Ford has placed in a holding company for potential sale or closure. “Oh, come on and take concessions. Then this gets shoved in your face.”

Mulally, 62, who had extensive experience dealing with union labor from his more than three decades at Boeing, still needs cost cuts from the UAW to make Ford competitive with Japanese automakers Toyota Motor Corp. and Honda Motor Co., Meyers said.

The Detroit Three have said their labor expenses, including wages, pensions and health care for active and retired workers, are about $25 per hour higher than Toyota’s.

Mulally’s experience with Boeing makes the chances good for a competitive contract agreement, Meyers said.

“He’s got a soft touch that I think he’s got a good shot at accomplishing a large part of his objective in cutting down those legacy costs,” Meyers said.

Talk to us

More in Herald Business Journal

Members of Gravitics' team and U.S. Rep. Rick Larsen stand in front of a mockup of a space module interior on Thursday, August 17, 2023 at Gravitics' Marysville facility. Left to right: Mark Tiner, government affairs representative; Jiral Shah, business development; U.S. Rep. Rick Larsen; Mike DeRosa, marketing; Scott Macklin, lead engineer. (Gravitics.)
Marysville startup prepares for space — the financial frontier

Gravitics is building space station module prototypes to one day house space travelers and researchers.

Orca Mobility designer Mike Lowell, left, and CEO Bill Messing at their office on Wednesday, Aug. 16, 2023 in Granite Falls, Washington. (Olivia Vanni / The Herald)
Could a Granite Falls startup’s three-wheeler revolutionize delivery?

Orca Mobility’s battery-powered, three-wheel truck is built on a motorcycle frame. Now, they aim to make it self-driving.

Catherine Robinweiler leads the class during a lab session at Edmonds College on April 29, 2021. (Kevin Clark / The Herald)
Grant aids apprenticeship program in Mukilteo and elsewhere

A $5.6 million U.S. Department of Labor grant will boost apprenticeships for special education teachers and nurses.

Peoples Bank is placing piggy banks with $30 around Washington starting Aug. 1.
(Peoples Bank)
Peoples Bank grant program seeks proposals from nonprofits

Peoples Bank offers up to $35,000 in Impact Grants aimed at helping communities. Applications due Sept. 15.

Workers build the first all-electric commuter plane, the Eviation Alice, at Eviation's plant on Wednesday, Sept. 8, 2021 in Arlington, Washington.  (Andy Bronson / The Herald)
Arlington’s Eviation selects Seattle firm to configure production plane

TLG Aerospace chosen to configure Eviation Aircraft’s all-electric commuter plane for mass production.

Jim Simpson leans on Blue Ray III, one of his designs, in his shop on Friday, August 25, 2023, in Clinton, Washington. (Ryan Berry / The Herald)
Whidbey Island master mechanic building dream car from “Speed Racer”

Jim Simpson, 68, of Clinton, is using his knowledge of sports cars to assemble his own Mach Five.

Yansi De La Cruz molds a cheese mixture into bone shapes at Himalayan Dog Chew on Thursday, Sept. 21, 2023 in Arlington, Washington. (Olivia Vanni / The Herald)
Give a dog a bone? How about a hard cheese chew from Arlington instead!

Launched from a kitchen table in 2003, Himalayan Pet Supply now employs 160 workers at its new Arlington factory.

Inside the new Boeing 737 simulator at Simulation Flight in Mukilteo, Washington on Wednesday, Sept. 20, 2023. (Annie Barker / The Herald)
New Boeing 737 simulator takes ‘flight’ in Mukilteo

Pilots can test their flying skills or up their game at Simulation Flight in Mukilteo.

An Amazon worker transfers and organizes items at the new PAE2 Amazon Fulfillment Center on Thursday, Sept. 14, 2023, in Arlington, Washington. (Ryan Berry / The Herald)
Amazon cuts ribbon on colossal $355M fulfillment center in Arlington

At 2.8 million square feet, the facility is the largest of its kind in Washington. It can hold 40 million “units” of inventory.

A computer rendering of the North Creek Commerce Center industrial park in development at 18712 Bothell-Everett Highway. (Kidder Mathews)
Developer breaks ground on new Bothell industrial park

The North Creek Commerce Center on Bothell Everett Highway will provide warehouse and office space in three buildings.

Dan Bates / The Herald
Funko president, Brian Mariotti is excited about the growth that has led his company to need a 62,000 square foot facility in Lynnwood.
Photo Taken: 102312
Former Funko CEO resigns from the Everett company

Brian Mariotti resigned Sept. 1, six weeks after announcing he was taking a six-month sabbatical from the company.

Cash is used for a purchase at Molly Moon's Ice Cream in Edmonds, Washington on Wednesday, Aug. 30, 2023. (Annie Barker / The Herald)
Paper or plastic? Snohomish County may require businesses to take cash

County Council member Nate Nehring proposed an ordinance to ban cashless sales under $200. He hopes cities will follow suit.