Ford's Formidable Challenge

Dec. 21, 2004
Chairman and CEO William Clay Ford Jr. faces environmental, manufacturing, marketing and financial issues as he continues to remodel Ford Motor Co. in its centennial year. Is he up to the job?
Ford At-A-GlanceFord Motor Co.Founded 1903
  • Revenues (2001) $162.4 billion
  • Net loss (2001) $5.45 billion
  • Vehicle sales (2001) 6.991 million William Clay Ford Jr. Chairman and CEO 45 years old
  • B.A. Princeton University
  • M.S. in Management, Massachusetts Institute of Technology
  • Married, two daughters, two sons The Sierra Club isn't giving William Clay Ford Jr. a free ride. But neither is the 700,000-member organization rejecting the much-publicized environmental credentials of Ford Motor Co.'s chairman and CEO. Although the activist environmental group derisively dubs the fuel-inefficient Expedition sport utility vehicle "the Ford Valdez," the Sierra Club continues to believe that Bill Ford is committed to significantly improving the Dearborn, Mich.-based company's environmental record. "Bill Ford set far-reaching environmental goals when he took over, and in recent assessments of the company's standing, meeting those goals has been frequently mentioned as one of the major challenges facing the company," says the San Francisco-based group. "We want to encourage him to stay the course." In fact, successfully steering a course between profits and miles-per-gallon is only part of one of the challenges confronting the 45-year-old grandson of Henry Ford, the company's founder. In the company's centennial year and in an automotive world of intense competition and increasing consolidation, Bill Ford is being called on to inspiringly remodel a corporation whose manufacturing, marketing and financial performances remain less than world-class. Wrong Way Their trajectory is heading the wrong way," states Michael S. Flynn, director of the office for the study of automotive transportation at the University of Michigan's Transportation Research Institute in Ann Arbor. That certainly has been true of Ford's common stock and its credit rating. For example, less than two months ago on Dec. 4, 2002, a share of Ford stock traded at $10.15, 43% below its Dec. 4, 2001, price of $17.24 and 57.3% below is Dec. 4, 2000, price of $23.81. Last year Ford's credit rating was lowered to near-junk-bond triple-B status. The situation with Jaguar, a line of British premium-priced cars that Ford acquired for $2.5 billion in 1989, symbolizes several of the challenges that face Bill Ford. "Jaguar is losing money with more volume, operating in more market segments than they ever did before -- and they can't make it work," asserts CEO coach Stephen Payne, founder and president of Leadership Strategies, a Princeton, N.J., consulting firm. Particularly with the down-market, X-type Jaguar, "they've confused all their traditional customers" and left new customers wondering just what it is that they are buying, he contends. "They are tarnishing the trophy." Payne does not blame Bill Ford for making a mess of Jaguar. But Payne does wonder if Bill Ford, who is sometimes portrayed as being more of a people person than an aggressive action-oriented executive, is up to making the kinds of tough strategic decisions that Payne believes the CEO job demands. "I think he, himself, has admitted he was a sort of a reluctant CEO," states Payne. Well, maybe not. "I didn't campaign to become CEO, but when I saw that our business was headed in the wrong direction, I didn't hesitate to step in," Bill Ford stresses. Thirteen months ago, shortly after taking the CEO job in fall of 2001, he announced an ambitious revitalization effort that includes introducing 20 new or "freshened" products in the U.S. by mid-decade, reducing the cost of supplied parts, divesting "non-core" assets, discontinuing such low-margin models as the Mercury Cougar and Ford Escort, and laying off several thousand salaried and hourly workers. "We've improved quality, cut costs and are launching the biggest wave of new products in our history," he reports on the results so far. Along the way, Bill Ford has been getting good marks for the quality of the new management team he has assembled. COO Nick Scheele once was chairman of Ford Europe, and David Thursfield, now group vice president for international and global purchasing and formerly CEO of Ford Europe, is cost-cutter-in-chief. "Scheele is a strong executive," says Michigan's Flynn. "He had a good track record at Jaguar, and they needed somebody with a good track record in a car division. Thursfield by all reports is more interested in the manufacturing of cars than in the cars themselves. And that's unusual. But if you want to be an efficient manufacturer, you got to have factory rats, too." Bill Ford brought former CFO Alan Gilmour back from retirement to be CFO again. "Gilmour, of course, is very well respected, had a tremendous career at Ford, [is] very highly thought of by the Street and very highly thought of in the industry as well," says Flynn. "That's a good sign. That should restore some confidence." Eyes Off The Road Yet for more than a year, Bill Ford appears to have been garnering more interest than have most of Ford Motor's cars. A case in point: the Ford Taurus, which Flynn calls one of three outstanding passenger cars sold in the U.S. during the last 15 years. (His other two leaders are the Honda Accord and the Toyota Camry.) "Ford kind of let that Taurus brand weaken," Flynn says. "Their redesigns became weaker. They didn't seem to be investing in maintaining the brand, the way Honda maintains the Accord or Toyota the Camry." As a brand, Ford has not exactly gone from hero to zero, but "very, very few consumers out there are looking day-in and day-out to see what Ford is up to," stresses Steve Saxty, executive director of the automotive practice at FutureBrand, a unit of the Interpublic Group. Ford desperately needs to have consumers seeing what it's up to and talking excitedly about its products, he insists. Sooner rather than later, Ford needs "something special in the marketplace that shows them to be fast of foot again," something more striking and convincing to consumers than last year's successful revival of the Ford GT, says Saxty, who has held product-design and senior sales and marketing positions at Ford. Jaguar and Aston Martin are two brands in Ford's garage that seemingly could help generate the customer excitement that Saxty believes is crucial to the company's future success. Yet, Jaguar and Aston Martin along with Volvo and Land Rover are high-maintenance, secondary brands, Saxty says. They consume a disproportionate amount of management time. Says Ralf Kalmbach, a Munich-based vice president of Mercer Management Consulting, the company has had "a significant problem" positioning the premium automotive group (PAG), Ford's collective name for Jaguar, Aston Martin, Volvo and Land Rover. "They still do not have a strategy . . . which will be a successful one for the PAG," he contends. For Land Rover and Aston Martin, says Kalmbach, the challenge is to regain share in a market that has relatively few consumers while maintaining a strong brand name. For Volvo and Jaguar, the problem is that demand is running far lower than anticipated, he says. "Could Ford sort itself out quicker without those brands? Yes, it probably could," says Saxty. "Should it dispose of those brands? No, it probably shouldn't." While the sale of the brands might please Ford investors in the short term by reducing debt and allowing management to focus elsewhere, such premium-priced brands are probably among the higher-profit lines of Ford's future, he says. "No one is necessarily sure which is the right direction to take." However, there's no doubt that Ford must raise its level of quality if it's to be successful over the long term. "If that company has got any chance of staying in business, it clearly needs to get its quality right," Saxty insists. He and several other auto experts stress that the quality of North American-made vehicles must come up to the level of quality of those manufactured in Europe, where in Germany, for example, the Ford Focus is top-rated for quality. This past November problems with battery cables and suspension-assembly bolts forced Ford to recall 572,795 Ford Focus 2000 and 2001 model year vehicles sold in North America. "When the [Focus] came here [to the U.S.] it simply wasn't viewed by Ford North America as so central or critical to its lineup that it should get special attention -- where in Europe I think it did," says Michigan's Flynn. Acceleration Without getting into an executive blame game, Bill Ford acknowledges that Ford Motor made serious manufacturing, marketing and strategic mistakes in recent years. "We lost some of our focus on our core business during the dot-com craze," he says. "That won't happen again. "Ford of Europe actually began refocusing on the basics of the business several years ago. Our European operations have improved quality, lowered costs and have delivered a steady stream of great new products. What Ford of Europe has done has served as a blueprint for the revitalization plan we launched in North America in January of 2002. The full benefit of what we are doing won't be felt until mid-decade. [But] we're on track and moving in the right direction. Our goal now is to accelerate our efforts and get results faster." Bill Ford believes that "if we do our jobs right," Ford Motor's goals of being both environmentally and financially green "won't be in conflict -- especially in the long term." For example, he notes a new assembly plant being completed in the Ford Rouge Center will feature "world-class" lean and flexible manufacturing processes and "breakthrough" environmental methods for storm-water management, energy use, air quality and soil restoration. "This new facility was less expensive to build and will be less expensive to operate than a conventional assembly plant. It not only will improve the environment, it will save us money," he says. "As far as our products go, we know that customers want clean, fuel-efficient vehicles that don't compromise on the features and functionality they need. The company that delivers those products to them will be successful and profitable. We will be that company." The verdict on Ford's success -- the man and the company -- won't be forthcoming for a couple of more years. Ford's 2002's financial results, scheduled for release in mid-January, aren't the final judgment. "The thing that we all tend to forget is that you can't walk onto the bridge and say 'turn around.' It's a battleship. It takes a long time to turn around," stresses Michigan's Flynn. Bill Ford says, "I'm in this for the long run."
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