Shifting Into First?
Shortly after William C. Ford Jr. and Jacques Nasser were anointed in September to run Ford Motor Co., a top company executive surprisingly voiced publicly what is driving the new management team.
“We plan to be the best auto company in the world,” said Peter Pestillo, the company’s vice chairman. “And we haven’t ruled out being the biggest.”
Such bluntness is uncharacteristic of Ford, a conservative, tradition-bound, family-controlled company that has played second fiddle to General Motors Corp. for nearly 70 years.
The official line from Ford is that size doesn’t matter. But in the insular confines of Detroit, the company has long chafed at its status as the Avis of car and truck manufacturers.
Now, for the first time in several decades, Ford has a legitimate shot at knocking GM from its perch. It could soon pass GM, the world’s largest company, in annual revenue and is not far behind in global market share. A recent report by consultant PricewaterhouseCoopers predicts that Ford will produce more vehicles than GM by 2005 even without any major acquisitions.
“Ford is one of the hottest auto companies in the world,” said Wesley Brown, analyst with Nextrend, a Thousand Oaks auto consulting firm. “They have a realistic chance at surpassing GM.”
The ascension of Ford comes as GM continues to fight an uphill battle to staunch its market share losses. GM, which once held 50% of the U.S. market, now controls just 29.5%. It lags rivals in manufacturing efficiency, and some analysts criticize its new vehicles as unstylish and without spirit.
Ford insists its focus is not on getting bigger than GM but on being better than its cross-town rival and other competitors on all fronts. What is clear is that Ford is undergoing its biggest upheaval since Henry Ford II took over the company from his grandfather in 1945.
Providing a unique combination of dynasty and dynamism, Chairman Bill Ford--the 41-year-old great-grandson of founder Henry Ford--and Chief Executive Nasser, 51, are on a fast-paced crusade to transform the old-line industrial giant into a technology-driven growth company with a consumer focus.
Since assuming their positions in January, Ford and Nasser have left an indelible imprint on the world auto industry while becoming the most talked-about Detroit odd couple since Henry Ford II and Lee Iacocca.
The two engineered Ford’s surprise acquisition in January of Volvo Cars of Sweden for $6.45 billion. They are attracting talented outsiders to rev up the company’s Ford, Lincoln, Mercury, Mazda, Jaguar, Volvo and Aston Martin brands.
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The firm is diversifying into other auto-related businesses such as service and used parts. It is consolidating and modernizing dealerships. It is bringing new products to market quickly. It is launching safety and environmental initiatives ahead of regulatory mandate.
“We are carving out a unique path,” Bill Ford said in an interview at his office in Dearborn.
Not surprisingly, the speed, intensity and timing of the cultural changes are unsettling to some of the auto maker’s 345,000 employees. After all, this is not a desperate company but one that has posted profit of $34 billion in the last 6 1/2 years, including a record $4.3 billion for the first six months of this year. Ford cut $5 billion in operating costs over the last two years. Its manufacturing operations are the most efficient of the domestic auto makers and its labor relations the best.
Yet some longtime employees are finding themselves forced into early retirement with unfavorable performance reviews or passed over for top jobs they have been waiting years to fill.
“Stress levels are high and morale levels are low,” said Rick Mills, a veteran employee.
While Ford officials are aware of the employee unease, they are focused on bigger worries. They point to major threats emanating from the rapid consolidation and globalization of the auto industry, as well as the emergence of new technologies that are changing consumer needs and desires.
“Any business that is satisfied with the present state of affairs is deluding itself,” Nasser said. “Sitting still or moving at a snail’s pace is effectively moving backward.”
There is no idling at Ford these days. Rather, the management team is busy turbocharging one of the great icons of American industry with a new corporate culture that demands that workers see their jobs from a consumer’s perspective.
The auto maker is investing millions of dollars and thousands of man-hours in intensive training programs designed to make all its employees teachers and leaders. Ultimately, it wants each to act like an entrepreneur.
“This is no longer a conservative company,” said David Cole, executive director of the Office for the Study of Automotive Transportation at the University of Michigan. “It’s now an aggressive, risk-taking company.”
For all this, Ford’s make-over is not convincing to everyone. After sending its stock up 89% last year as the company cut costs, Wall Street is now taking a wait-and-see attitude on its future. Ford shares are hovering around $50, and its price-to-earnings ratio is just 9, placing it in the middle of the auto pack but far from the 30 to 40 P/Es of hot technology firms.
The stock’s performance is a reflection of the fact that the auto industry, despite all the talk of the new economy, is still broadly regarded as a cyclical one that can burn cash at alarming rates in a downturn.
Also of concern with Ford is its heavy dependence on its North American operations and increasing reliance on truck sales for profit. Its car sales have slumped, largely because many consumers see the lineup as uninspiring.
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Meanwhile, Ford is struggling in Europe despite a new product lineup. Europe is highly competitive and will become more so as the Japanese gain entry as trade barriers come down. Ford is losing money in South America, where it is trying to regain its footing after dissolving a joint venture with Volkswagen of Germany. Slow to invest in Asia and Eastern Europe, it is poorly positioned to take advantage of potential growth in those regions.
Another worry is that success tends to give way to arrogance in the auto business.
“There is a question whether Ford’s recent success can breed more,” notes analyst Stephen Girsky of Morgan Stanley Dean Witter.
The company’s history is storied. Inventor Henry Ford founded it in 1903, and his Model T brought the auto to the masses. He perfected the moving assembly line and paid workers a princely $5-a-day wage.
But as the Depression enveloped the nation, Ford was outflanked by GM with a range of vehicles “for every purse and purpose.” GM passed Ford in U.S. sales in 1931, a lead it still holds.
When Henry Ford II became chairman in 1945, the company was in chaos. He hired the Whiz Kids, a group of Ivy League outsiders who installed modern financial controls. Ford became publicly owned in 1953, though the family retained control with 40% of the voting stock. The next two decades represented a golden era in which Ford challenged GM’s supremacy but came up short.
Henry Ford II, the world’s most recognized industrialist with an infamous jet-set lifestyle, retired in 1980. His company by then was losing money at an alarming rate in the face of a Japanese onslaught.
The family then turned to a succession of professional managers to nurse Ford back to health by closing plants and laying off workers. By the early 1990s, Ford had recovered. But in 1993, Chairman Alex Trotman began an ambitious reorganization--dubbed Ford 2000--to lower costs and speed vehicle development through a global approach to production, engineering and design.
When the effort stalled, Trotman turned to Nasser to jump-start it. The Lebanese-born, Australian-bred executive boldly killed money-losing car lines and moved Lincoln-Mercury headquarters to Southern California.
At the same time, the Ford family quietly pushed for the promotion of Bill Ford Jr. as chairman. The board agreed to split the company’s top jobs, giving Bill Ford responsibility for long-range strategy and Nasser day-to-day operational responsibility.
Nasser is a hard-charging taskmaster with a fondness for double-breasted suits and 20-hour workdays. A truly global executive, he has worked on five continents for Ford and speaks several languages. Detractors call him Jac the Knife, a derisive reference to his obsessive cost-cutting demands.
Bill Ford is an American blueblood, educated in private boarding schools and at Princeton University and MIT.
The boyish-faced Ford speaks regularly of upholding the history and heritage of the company. He describes the family’s control as a “competitive plus” that keeps raiders at bay while allowing a focus on the long term.
Since taking over in January, Ford and Nasser have forcefully articulated a vision of making Ford Motor the “world’s leading consumer company for automotive products and services.” The strategy combines obvious steps with bold strokes and has at times caught the competition off-guard.
One such maneuver was the swift all-cash purchase of Volvo Cars in January, as Ford Motor outmaneuvered several other auto makers and positioned itself to be one of the top luxury car providers worldwide.
Volvo immediately adds 400,000 vehicles to Ford’s annual volume of 6.8 million, helping it to close the production gap with GM, which makes 8.2 million vehicles annually. (Ford does not count Mazda Motor Corp.’s 1 million annual production in its total, despite holding a controlling 33.4% stake in the Japanese company.)
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Sweden-based Volvo fills an important gap in Ford’s luxury lineup. The auto maker hopes to compete more effectively against DaimlerChrysler’s Mercedes-Benz, BMW and Volkswagen’s Audi by tapping into a more youthful, more female group of consumers than do its own Jaguar and Lincoln lines.
To execute the strategy, Nasser hired former BMW product development chief Wolfgang Reitzle, who resigned from the German auto maker in February after being passed over for the chief executive job. He is charged with increasing Ford’s luxury vehicle sales worldwide from 250,000 in 1998 to 1 million within a decade.
Reitzle is just one of dozens of high-profile outside hires that Ford has made recently as it shakes up its culture.
“We are bringing in the best and the brightest,” Bill Ford said. “It’s healthy to have an injection of new ideas and new viewpoints into the company.”
One of the earliest outside recruits was design chief J. Mays, who helped revitalize Volkswagen in the United States with the Concept One, a retro design that evolved into the New Beetle and Audi TT.
Mays, 44, is bringing new life to Ford’s moribund car line. The fruits of that effort are just beginning to appear with such vehicles as the new Thunderbird, which will be reintroduced next year as an updated remake of the original 1950s luxury coupe.
The Thunderbird is an example of Ford’s evolving strategy to design vehicles that share the same underpinnings and many of the same parts while having distinctive looks and driving personalities. The T-bird is made on the same chassis as the new Lincoln LS and Jaguar S-type sedans, lowering development costs dramatically. This approach is allowing Ford to make low-volume niche vehicles profitably.
Ford’s financial success in recent years can largely be attributed to its strong sales of sport-utility vehicles and pickup trucks in the United States. Light trucks make up 60% of its sales, and some of its SUVs, like the Ford Expedition, bring up to $10,000 apiece to the bottom line.
But analysts worry that the consumer’s love affair with trucks could wane and note that outside the U.S., where roads are narrower and gasoline more expensive, cars still reign supreme.
“They can’t assume they will make tons of money on trucks forever,” said the University of Michigan’s Cole.
Both Bill Ford and Nasser agree but say the company is beginning to connect better with customers, anticipating their needs, as it has done so well on the truck side. They point to two key fall arrivals: the redesigned 2000 model Taurus mid-size sedan, with its toned-down styling and new safety features, and the all-new 2000 Focus compact, with its large interior space and a price lower than the model it succeeds.
“Ford is making the right moves in cars,” Nextrend analyst Brown said. “They are clearly paying more attention to what consumers want in cars.”
Perhaps Ford’s most visible effort to connect with consumers has been on the environmental front. Where Detroit has long fought emissions regulations, Ford is now embracing the environmental challenge as a competitive advantage. The company’s initiatives are being driven by Bill Ford, who sees no conflict in being both environmentalist and industrialist.
“I want to prove . . . it can’t be a contradiction,” he said. “In the future, an industrialist must be an environmentalist.”
Ford said that although the company is driven by the need to increase shareholder returns, it believes this can be done in a socially responsible way. He points to research showing that consumers are increasingly demanding corporate responsibility on issues such as safety and the environment.
Ford Motor was the first company to announce that its SUVs and pickups would meet low-emissions standards ahead of the 2004 phase-in period. It also is pushing the development of fuel-cell and hybrid-electric vehicles.
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So does this all add up to a new world order with Ford Motor at the helm?
While it is not a sure thing, analysts say it is certainly within the realm of possibility within just a few years.
If Ford acquires the two-thirds of Mazda it doesn’t already own, or acquires another significant player--it is rumored to be interested in Fiat of Italy--the company could easily pass GM in production volume. With just steady growth, Ford could leapfrog to the front if GM doesn’t reverse its slide.
The more important question then is: Does it matter? There may be some short-term marketing benefits, analysts say. But given that GM has struggled for decades in the No. 1 spot, it is a questionable mantle to which to aspire.
“Size has never been the bellwether of success in any industry,” Bill Ford said. “You can’t manage for size. But if you do everything else right, it will follow.”
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Is Quantity Job 1?
Ford Motor Co., long No. 2 in Detroit, could soon surpass General Motors in annual revenue, and it is closing the gap in global market share. A recent report by consulting firm PricewaterhouseCoopers predicts that Ford will overtake GM in vehicle sales in six years. A comparison of projected global sales of cars and light trucks for 1999 and 2005:
1999 Sales
In millions of units
Ford: 7.8
GM: 8.1
Toyota: 6.0
Renault-Nissan: 5.1
Volkswagen: 5.0
DaimlerChrysler: 4.3
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2005 Sales
In millions of units
Ford: 9.2
GM: 9.1
Toyota: 7.1
Renault-Nissan: 5.7
Volkswagen Group: 5.3
DaimlerChrysler: 4.8
Source: PricewaterhouseCoopers Autofacts Group; figures combine all brands controlled by auto maker (Ford includes Aston Martin, Jaguar, Mazda and Volvo Cars; GM includes Isuzu, Opel and Saab).
