When the achievements of Alan Mulally, Ford Motor Company’s president and chief executive, are finally added up, the occasion of January’s Detroit motor show will figure large. It was then, in a genuine shock to other automobile firms, that Mr Mulally unveiled the Ford Focus Electric. The latest product of the 107 year old company, the battery-powered car is seen as a game-breaker not just for Ford but for the industry. Not only will the car compete on price with the Nissan Leaf, Europe’s car of the year in 2010, it will charge up faster and probably run longer between plug-ins.
As such, the Focus Electric and its first cousin, the Focus Hybrid, will maintain the momentum of one of the most remarkable comebacks in American business history. Indeed the hybrid model, much to the chief executive’s satisfaction, has outdone arch-rival General Motors because it will have a range of 500 miles, significantly longer than GM’s Chevrolet Volt.
Even better, Mr Mulally rolled out the vehicles in Ford’s home town of Detroit. He could hardly have made a clearer statement that Ford has achieved “the biggest business turnaround of the Great Recession,” as one analyst put it.
In an extraordinary and highly eventful four years, Ford has recovered on three fronts under its unlikely chief executive. It has ground its way out of a crippling mountain of debt. It has re-engineered its global business under the One Ford slogan, releasing a parade of award-winning automobiles that sell worldwide instead of in separate markets. It has achieved a profit, an achievement considered unthinkable when Mr Mulally was parachuted into the firm. And, unlike its other ‘Big Three’ rivals GM and Chrysler, Ford has done so without a cent from Washington.
Although Ford is not entirely out of the woods yet, the facts speak for themselves. In 2010 Ford earned a pre-tax operating profit of $2.9bn – a 650 percent turnaround on 2009. At the same time Ford’s ranking in its heartland US market jumped 1.4 percent – a giant-sized gain in a country where the titans of the global automotive industry are engaged in an endless battle for a point or two at a time. Ford also took over the top spot from Toyota as the best-regarded car brand. Astonishingly, Mr Mulally even achieved a successful revival of the Taurus brand, previously considered extinct.
And outside America and the UK, where it’s been active for much of the 20th century, Ford achieved breakthroughs in the emerging Asia Pacific and Latin America markets – vital territories for the automotive giants.
Along the way, Moody’s awarded Mr Mulally’s turnaround its own seal of approval by rating up its bonds with the verdict that Ford now has “an economic model that is clearly more robust and competitive, capable of maintaining a significant improvement in its performance over the course of time.”
Air to auto
Startlingly, until four years ago the leader of the rescue mission hardly knew anything about the automobile industry – and even less about the firm with the famous blue oval badge. His vehicle of choice at that time was a Lexus built by the current enemy, Toyota. As the sceptics said when he took over, Mr Mulally would find himself hopelessly out of his depth. He was an aerospace guy, hired from Boeing where he was number two, the father of the 777. Even his mother tried to dissuade him from taking the impossible job. “Alan, you’re not a car guy,” she warned.
So how did the aircraft guy achieve this feat in an alien industry? Highly summarised, he did so through a relentless focus on reality, an impatience with any failure to deal with problems, a refusal to accept automotive folklore, a willingness to fire second-raters, and an openness that came as a breath of fresh air in Dearborn, Detroit. Combined, those qualities make for a highly transparent management style.
And he’s in a hurry, says his immediate boss, executive chairman Bill Ford Jnr: “Alan is not a very complicated person. He is driven.”
That drive comes from a sense of mission. “I am here to save an American and global icon,” Mr Mulally declares simply. Others see Ford’s saviour as turbo-charged by a delight in the challenges, risks and, ultimately, the reward of the job. “If enthusiasm is measurable in automotive terms, Mr Mulally is 16 cylinders of it, pedal to the metal,” wrote Automotive News.
Yet when he took over it seemed that no amount of cylinders could save Ford from a slow extinction and, as many feared, an eventual takeover by much more efficient and profitable Japanese brands. In a nutshell Ford had far too many models as well as brands, and some of those models had more options than buyers knew what to do with. Some women buyers, it was reported, were reduced to tears when confronted with the dashboard of the Lincoln Navigator and its 128 options.
The firm also had too many employees with excessively generous benefits, too many plants, much too much debt and, as insiders now concede, too much in-fighting between turf-conscious, power-hungry senior executives.
Man with a plan
Mr Mulally took up residence in a house three kilometres away from the plants – he can see them from his window – and launched into a fact-finding mission. Carrying notebooks everywhere he went, the newcomer studied up on the company, talking to everybody, scribbling notes and typing them up. Eventually, they filled five binders that gave him a fresh overall picture of what had to be done.
Having compiled all that, he set about summarising everything, like a chef reducing a sauce to its essential elements. Mr Mulally is now famous for being able to present the global company’s entire comeback strategy on a single sheet of paper. And, having determined the main elements of the task ahead, he started tackling them one by one. Here are the results.
The global workforce is now 178,000, down from 300,000, and the number of plants has been cut by nearly 30 percent to 80. Capacity utilisation has jumped to a healthy 85 percent.
He dealt ruthlessly with ruinous employee benefits secured by the United Auto Workers (UAW) union in much rosier, pre-recession times. Mr Mulally effectively gave the UAW an ultimatum: take a stake in Ford’s future by converting the benefits to stocks and cash, or face losing the lot. They took the first option and their entitlements came off the firm’s books. Next he took on the impossible, demanding that hourly rates come down to viable levels. Eventually the UAW settled from $76 an hour – a rate that essentially handed victory in showroom prices to Toyota – to $55 an hour.
So far, so good. Ford’s ill-planned and ill-fated excursion into premium brands through the purchase of Jaguar, Range Rover, Aston Martin and Volvo was draining the company of cash and resources. The first two were sold to India’s Tata Motors, Aston Martin went to a British-led consortium fuelled by Middle East debt, and Volvo was eventually snapped up by Chinese manufacturer Geely.
It could be said that all of the above were commonsense decisions that any experienced and determined manager would make. But next, the aerospace guy turned his attention to cars, more specifically the expensively high number of models that had the effect of cutting Ford’s margins to the bone, especially in a fast-downsizing world. Result? Ford now sells fewer than 60 nameplates worldwide under the Ford and Lincoln brands, down from 97. The Mercury marque has been dropped.
But even 35 percent fewer models is too many, and Mr Mulally is in the process of cutting that figure by a further 20 percent while reducing the number of platforms on which it builds cars from 25 to a dozen.
Crucially, at the same time he restored the Ford brand to primacy within the group. That was clearly the biggest decision of all and, say insiders, it was largely Mr Mulally’s.
Simplicity clearly pays in many ways, but particularly in terms of quality. As Ford manufacturing boss John Fleming explains: “Since the orderable combinations will be reduced by more than 50 percent, that means that on half of the cars, it’s significantly simpler for the manufacturing plant. Also, the ability to make a mistake is reduced.” The results showed up quickly in what had long been a discounted brand. In a JD Power survey of initial quality in mid-2010, Ford ranked number one among car brands excluding luxury makes.
Assembled assets
Perhaps Mr Mulally’s biggest coup was rejecting Washington’s offer of a taxpayer-funded bail-out, stupefying most people in the industry, not least Ford’s dealers who predicted a domino of bankruptcies as a result. Of all the former Boeing man’s moves, this was regarded as the most bold and, in hindsight, clear-headed.
Instead of taking the president’s dollar, Mr Mulally borrowed $23.5bn by taking the unprecedented step of mortgaging all of Ford’s assets to a vast consortium of bankers. Even the famous blue oval badge was thrown into the pot. But it only happened after what must have been one of the most persuasive speeches behind closed doors of the year. “I spoke to a room with over 500 bankers,” Mr Mulally recalls. “Why did they give us the money? Because we had a plan.”
That plan was to stack up enough free cash to ride the storm after the collapse of Lehman Brothers in 2008 stopped almost dead the flow of credit that underpins auto sales in the US and in most other markets. Having weathered many a cycle in his 37 years in the aerospace industry, Mr Mulally knew it was time to batten down the hatches.
With the operating finances more or less guaranteed, Mr Mulally launched a none-too-subtle reform of the corporate culture. He particularly disliked the lack of openness at meetings. Senior executives held back bad news about product development lest it reflect badly on them, while others answered their Blackberrys during presentations or talked over their colleagues, infuriating the new boss. In short order he banned Blackberrys and established ground rules for meetings.
“If somebody starts to talk or they don’t respect each other, the meeting just stops,” Mr Mulally told Fortune in the middle of the revival. “They know I’ve removed vice presidents because they couldn’t stop talking because they thought they were so damn important.”
Otherwise many of his managerial measures were simplicity itself. For instance, he insisted on colour-coding reports, with green standing for good, yellow for caution and red for problems needing an immediate fix. At the first few meetings, to Mr Mulally’s surprise, all the reports were marked green.
“We lost $14bn last year,” the stunned boss told them. “Is there anything that’s not going well?” At the next meeting the reports came marked with all colours.
Unsurprisingly, not everybody took to the intruder. Mr Mulally had barely arrived before senior executives started knocking on the executive chairman’s door. Bill Ford Jnr, fourth generation of the Ford family, didn’t open it. He told Fortune: “If I had even cracked the door open an inch to let anybody complain to me or to think that there was ever any separation between the two of us, I think the culture could have overwhelmed Alan and ultimately brought the company down.”
(Some members of the extended Ford family were not entirely happy either, according to reports, about losing their dividends.)
The revival of the Taurus says a lot about the confidence of the non-car guy. The last model had been such a disaster – the family-saloon equivalent of the ill-fated Edsel – that the name had been dead, buried and forgotten. Nobody in the firm had considered resurrecting the clunker.
Such was Mr Mulally’s faith in Ford that he overruled the sceptics and decided to revive the Taurus as a premium brand, a shining symbol of the Dearborn firm’s Lazarus-like comeback. His main argument was that, because it took billions of dollars to establish a brand, there was everything to lose by not re-launching it. Also, as a highly-qualified engineer who had specialised in aeronautical and, unusually, astronautical sciences, Mr Mulally had a lot of respect for Ford’s engineers and other technical people to do the job.
The latest Taurus, released mid-2010, has been hailed as the latest expression of the revival, an automobile that embodies all the driver-friendly, in-cabin digital technology that has underpinned Ford’s recovery from the dark days of mid-2006. As an impressed reviewer wrote: “Ford has taken aim at European and Japanese luxury imports and hit the target with its re-designed and re-engineered Taurus. It can take on any BMW, Audi, Lexus or Infiniti without giving up a thing.”
By now, Mr Mulally could see that, far from hurting him, his experience at Boeing was a big help – especially in the free dissemination of information, lifeblood of a global corporation.
As he explains: “The idea is that there’s nowhere to hide and no reason to either; if you need help, everyone who can help you is present with the necessary information at hand. That’s what I’ve done for 37 years at Boeing.”
Technically, this is known as large-scale systems integration. “You can’t do it well unless everyone plays nice together,” says Mr Mulally. “A car has about 10,000 parts, and an airplane has about four million, but the technology is the same. The sophistication is the same. The parallels are incredible.”
Unlike many turnaround specialists who are better at cutting costs than building revenue, Mr Mulally had conceived an entirely different future for Ford before he sold off the premium brands like Jaguar. Here once again, the outside view helped him see the big picture.
“Everybody says you can’t make money off small cars,” he says. “Well, you’d better damn well figure out how to make money, because that’s where the world is going.”
The result was the Fiesta, a global vehicle for which the German subsidiary was largely responsible, in a bold and largely unprecedented strategy (conventional wisdom decreed that Fords designed in another country pretty much stayed in that country).
Similarly, the new Explorer SUV, which is built on a lightweight Taurus platform instead of a truck one, will be produced for 90 countries from a plant in Chicago.
The first car to get the full One Ford treatment is the latest Focus, embodying Mr Mulally’s overall strategy – one vehicle for all markets – a feat that wasn’t possible perhaps even a decade ago, say automotive experts.
This radical change of direction is based on a shrewd insight:as consumers’ tastes increasingly coincide because of the spread of global communications, it has become possible to satisfy customers with fewer models. “One spin in a Fiesta will tell you as much,” explains an automotive consultant. “It’s as much Milan as it is Milwaukee.”
Introducing new platforms
But Mr Mulally and newly recruited executives also had an insight that tomorrow’s car must be dramatically different from today’s. The result is MyFord and Sync. As Derrick Kuzak, head of global product development, said recently, the purpose is to employ information-age technology to redefine driving: “The experience [must be] so rich they refuse to give it up.”
So saying, Ford has rolled out Sync, a platform providing voice-controlled, in-cabin connectivity to electronic devices, letting the driver keep her hands on the wheel. There’s also EcoBoost, which improves economy and performance, and Blind Spot, which performs a 220-degree search before the driver changes lanes.
Not all customers embraced these developments with wild enthusiasm, especially in Asia where they knew little about Ford. But Mr Mulally is a natural salesman possessed of an almost overwhelming enthusiasm. Plus, he knows how to make an impact.
Late last year, Harriet Luo, buyer of a Ford Focus, went to collect her car from the showroom in Beijing. There to hand over the keys were Mr Mulally, Ford Asia boss Joe Hinrich and his China counterpart Robert Graziano. Naturally, the buyer’s startled reaction made the news and a big statement about Ford’s ambitions in the country.
A big part of Mr Mulally’s success is that he’s clearly very good with people and almost impossible to dislike. Although some find him over the top and almost corny at first (he often remarks how “really neat” it is to be running Ford), most quickly find his relentless enthusiasm, genuineness and optimism just about irresistible. As sister Lenexa remembers, one of his maxims is “learn something from everyone you meet.”
Another factor is his energy. Mr Mulally typically turns up for work at 5:15am and leaves around 12 hours later. He clearly likes the buzz of running a Fortune 500 giant. “I’ve always wanted to do something important, and it had to be in a big organisation,” he says.
And while you might think that one giant-sized job in a lifetime would be enough for the man who managed the development of Boeing’s 777 airliner and had a big hand in earlier models, here he is doing it all over again: “What gets me really excited is a big thing where a lot of talented, smart people are involved.”
However big his jobs have been, the aerospace (and now car) guy has always kept his feet firmly on terra firma, particularly in his native Kansas. “He’s never forgotten where he’s from,” says former classmate Greg Smith, who plans reunions for the Lawrence High class of ’63. “Some people leave Lawrence and never look back. Alan enjoys coming home.”
It was at Kansas University where he met Nikki Connell, his wife of 40 years. And shortly after being named one of Time magazine’s 100 most influential people, he was back where it all started at Lawrence High, serving as grand marshal for a parade with his 90 year-old mother alongside him in a convertible. As a thank you gesture, he recently donated a 15-passenger van in her honour to a senior citizen centre. After his mother died last year, Mr Mulally gave the keynote speech for a school fundraising.
Attaining goals
According to his early friends, Mr Mulally was always chronically ambitious. As well as studying aeronautics at Kansas University (Kansas is one of the great aviation states), he was so inspired by the Mercury astronauts later immortalised in Tom Wolfe’s The Right Stuff that he added astronautics with a view to being launched into the heavens.
But that ambition was stymied by the discovery of a form of colour blindness and he turned to aircraft design. Hence Mr Mulally’s admiration for engineers in an industry that often seems to be overtaken by the marketers. He recalls his professor’s dictum about the importance of teamwork: “If we make a mistake, we can cause people to die. So you better damn well work together.”
These days, in what must surely be his last big job, Mr Mulally retains the relentless focus of his youth. “I’m rarely offline except during major family holidays,” he admitted in a recent interview. “Then I enjoy playing with my kids, being in nature and cooking for family and friends.”
And for a man who’s on the brink of pensioner status, his facility with social and other forms of media is unusual, regularly using Flickr, Twitter and LinkedIn to stay in touch with family and friends. And – because a steel-trap mind has enabled him to reduce global problems to single sheets of paper – he still has time for a lot of extra-curricular reading about the environment, technology and other burning issues.
Despite his success at Boeing, Mr Mulally’s head-turning stint at Ford will probably be his main legacy. The hard yards covered, he’s now in the home stretch. Barring further recessions, analysts say Ford will post rising profits in 2011 and future years. Soleil Securities, a firm that keeps a close eye on the automobile industry, estimates Ford can boost operating profit margins from the current seven percent to 13 percent, adding a further $7bn to operating profits on projected sales of $118bn. The firm still has a $27.3bn debt to pay back but it’s not federal debt and, for once, the bankers are happy.
And so is Alan Mulally. Having rescued what was four years ago regarded as a brand in the doldrums, he’s after much bigger fish. “Our competition now is really Toyota and Volkswagen, because they are pursuing the same fundamental strategy — a full family of cars and best in class,” he explained in a recent interview.
As recently as two years ago, Toyota and the Volkswagen group would have laughed at such outrageous ambition – but Mr Mulally believes it’s only logical and, given his boundless optimism, perhaps even inevitable. “I’ve lived 40 years of producing safe and efficient passenger transportation – first with commercial airplanes and now with automobiles,” he explains. “And we will never, never go backwards. Every year it will get better and better.”
You could say the same for the blue oval.
Man of the Year: Alan Mulally
Born in Oakland, California in 1945, Alan Mulally is a native of Kansas. He joined Boeing in 1969 at the age of 25 after graduating in aeronautical and astronautical engineering from Kansas University. He moved steadily up the organisation, taking growing responsibility for a series of aircraft up to the 767. In 1994, he became responsible for all aeroplane development including flight tests and certification. Before being named chief executive and president of Ford Motor Company in September 2006, he was president and chief executive of Boeing Commercial Airplanes. According to the latest remuneration information for 2009, Mulally earned from Ford a total $17.9m in salary, bonuses and options.
The recipient of numerous awards, Mr Mulally has been named “Industry Leader of the Year” by Automotive News and one of “The World’s Most Influential People” by TIME magazine. He serves on the President’s Export Council, formed in 2010 to advise President Obama on export enhancement.
In his leisure time he flies a private aircraft, plays recreational tennis and reads. Married to the former Nikki Connell for 40 years, the couple have five children.
