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O
ne day that November, a junior manager in Ford’s communications department went to the supply cabinet, looking for some
paper clips. There was just one box, and when she opened it, it had just one paper clip in it. She grabbed it with a frustrated sigh and marched to the nearest administrative assistant.

“We’re out of paper clips,” she said curtly.

The woman looked up from her filing.

“I know,” she said.

“Well, are you going to order some more?”

“I can’t,” said the secretary. “You’ll have to get approval from Ray Day.”

“You want me to ask the vice president of communications to buy paper clips?” the manager asked incredulously. “You’ve got to be kidding!”

“I’m sorry,” the younger woman said evenly. “But there’s a new policy. All office supply requisitions require the approval of a vice president.”

The older woman shook her head and went to Staples.

Meanwhile, at Ford Credit, a group of employees were standing around a dying philodendron, plucking brown leaves from its stem. One man poked his finger in the soil and shook his head.

“It’s bone dry,” he said. “Nobody’s been watering it.”

Another administrative assistant came over with a bottle of drinking water and emptied it into the sere soil.

“They’ve canceled the plant service,” she said. “We have to water them ourselves.”

Similar scenes were playing out across the company as fall turned to winter in Dearborn. Employees who had been working amid empty cubicles found their departments consolidated with others so that entire floors—and in some cases, whole buildings—could be closed off and shut down. Lights were turned out, instead of left on all night long. Thermostats were nudged down, even as the first snowflakes began to fall outside. Trips were canceled, as travel was restricted to essential business only. They even stopped washing the windows. At every level of the company, managers were being told to find ways to save money. They required little convincing. The newspapers told the story every morning: The American automobile industry was collapsing.

Ford had always been at its best when things were at their worst. The end of 2008 was no exception. Though sales continued to fall along with Ford’s bank balance, Mulally’s leadership team gelled like never before. For the first time in the automaker’s history, all of the senior executives were working together as a team—not just Monday through Friday, but on Saturdays and Sundays, too. Mulally did not have to twist anybody’s arm to get them there. With the entire industry falling apart around them, most would have been too nervous to be anywhere else than around the big table in the Thunderbird Room, studying one another’s charts and fine-tuning the plan. They showed up each morning offering to help one another, suggesting ideas and volunteering personnel and resources. They did not try to hide the true extent of the problems they were grappling with, nor did they try to blame them on others. Each came prepared with the latest data and, with the others, figured out how to deal with its ramifications.

Some of these sessions focused on the economy, the banking system, and the U.S. government’s efforts to aid both. Others concentrated on Ford’s suppliers, dealers, and competitors. The status of GM and Chrysler was also a frequent topic. At one point the list of issues being covered each day ran thirty items long.

Instead of waiting for each Thursday’s BPR meeting, the entire leadership team was now reviewing Ford’s finances every day. Ford’s cash position was that precarious. Lewis Booth made sure that each of the four business unit leaders knew exactly where they stood financially. He also made sure that they understood how important it was to try to find cash flow offsets for the losses they were incurring. He emphasized the word
try
, because he knew there was no way to match the mounting losses. But he kept pushing people into doing a little bit more than they thought they could. So did Mulally.

“Find a way,” he said. And he said it a lot.

With the effort to globalize product development continuing, Derrick Kuzak challenged the directors of each engineering facility and design studio to figure out what else they could cut in light of these newfound efficiencies. Other executives did the same thing in their own departments. Joe Hinrichs and his team began a careful study of Ford’s most efficient plants to figure out what they were doing
differently and see if it could be applied elsewhere. A year earlier, the company had opened a new joint-venture factory in Nanjing with its Chinese partner, Chang’an Motors. The Chinese automaker had introduced some money-saving tooling practices at the facility. Now Hinrichs ordered the rest of Ford’s factories to adopt them. The team also came up with a plan for yet another round of salaried job cuts in North America, shaving a further 10 percent off the payroll. After three years of aggressive cost cutting, there was not much fat left to trim at Ford. These cuts went right to the bone. Bonuses paid to Mulally and other executives were also eliminated, merit pay increases were frozen, and benefits for white-collar workers were cut. Jim Farley reduced advertising spending. Another 3,300 salaried positions were axed at Volvo, too, along with 700 outside contractors. Finally, Ford’s treasury team began preparing equity-for-debt swaps aimed at reducing interest expenses. Ford had been on track to meet its 2008 cost-reduction goal of $5 billion. These new cuts almost tripled that figure.

People were scared, and getting more so every day. But Alan Mulally still walked the corridors of World Headquarters with a smile on his face. If he passed people looking glum, he would pat them on the back, maybe even give them a hug, and tell them to cheer up.

“Is our plan still going to work?” one executive asked him, giving voice to the same doubt that was growing in everyone’s mind but Mulally’s.

“Of course,” Mulally said.

“But what if it doesn’t?”

“I said it’s going to be okay.”

“Well, what does that mean?”

“It means that we are doing everything we can to look at the world the way it is, and modify our plan as required. So, whatever happens, we’ll have given it our very, very best,” Mulally said. “You don’t have to go home and worry. You don’t have to stay up at night. You’re not isolated. You’re not by yourself. We’re going to come back together in the business plan review and get it right.”

Booth spent a lot of time trying to estimate GM’s and Chrysler’s cash flows. The finance staff went over every public statement and
SEC filing with a magnifying glass trying to figure exactly when they were going to run out of cash. At the time, some observers thought Rick Wagoner was playing up GM’s woes in order to get government aid. Booth and his team believed GM’s situation was actually worse than its CEO was letting on.

Though Ford began to plan for the bankruptcy of both General Motors and Chrysler, Mulally could see no way to prevent the uncontrolled collapse of his crosstown competitors from bringing down the entire automobile industry. The recession would turn into a full-scale depression. Toyota and Honda shared his concern. With Ford’s Project Quark team, they were doing their best to prepare for it and limit the damage. But Mulally knew it would not be enough. The industry could not save itself. It needed Washington’s help.

Mr. Mulally Goes to Washington

D
uring the congressional hearings on the new CAFE standards back in 2007, Alan Mulally had learned to his dismay that the United States government did not think much of the nation’s automobile industry. The Republicans who controlled the White House saw Detroit’s automakers as a pack of stumbling dinosaurs, hamstrung by a union that they were too timid to take on, ceding the market to foreign rivals that built better products for less money. The Democrats who controlled Congress regarded the three car companies as peddlers of polluting products who had spent thirty years resisting regulations that would have made them cleaner, greener, and more competitive. To politicians of both parties, the Detroit Three were an embarrassing counterpoint to the innovation of Silicon Valley and the profitability of Wall Street. Instead of iPods and IPOs, they had given the nation blighted cities and rusting factories.

Since that eye-opening trip to Washington, Mulally had done what he could to convince the Bush administration and Congress that Ford Motor Company wanted to be part of the solution, not part of the problem. It was in that spirit that he had reached out to Treasury secretary Hank Paulson and Federal Reserve chairman Ben Bernanke, offering to be their canary in the coal mine—their eyes and ears on the bleeding edge of the Great Recession. And it was in that spirit
that Ford had dropped its opposition to the tough new mileage mandates Congress had been calling for in exchange for help financing the cost of developing the new technologies necessary to meet them.

The result was the Energy Independence and Security Act, which Congress passed and the president signed in December 2007. It established a new CAFE target of 35 miles per gallon by 2020. Such fuel-economy gains would only be possible through a broader rollout of hybrids, electric vehicles, and other innovative technologies like Ford’s EcoBoost system. So the legislation authorized the U.S. Department of Energy to provide low-interest loans to automakers, both foreign and domestic, to help cover the cost of creating the manufacturing infrastructure necessary to produce these more advanced products. Then Congress refused to fund the loan program it had authorized.

When automobile sales began to fall in early 2008, Ford and the other American car companies quietly began looking for help from Washington. All three agreed that it would be more effective to work together to build support for one proposal. Ford suggested they make funding the Energy Department loans their top priority. The program was an ideal complement to Mulally’s product strategy, which was all about shifting production to more fuel-efficient vehicles. Ford could finance the investment necessary to do that through the federal loan program and save its own money for operating expenses. The other companies would enjoy the same benefit if they took advantage of the program. Ford saw it as a way for Washington to help without giving direct aid to the industry. After all, the loan program had been set up to help the automakers cope with the cost of new federal mandates.

But General Motors and Chrysler had their own ideas. GM wanted Washington to provide big tax breaks for customers who bought its Chevrolet Volt, a plug-in hybrid that it hoped would make Chevy cool again. The Volt was still a work in progress and was likely to cost far more than most consumers could afford—unless Uncle Sam was willing to help them out. Chrysler was in such a state of flux that it was not entirely sure what it wanted. Unable to reach an agreement, each automaker pursued its own agenda.

Ford stuck with the Energy Department loans. On June 21,
Representative John Yarmuth, a Democratic congressman from Kentucky, visited Ford’s Louisville Assembly Plant with House Speaker Nancy Pelosi. Yarmuth was a vulnerable freshman, and the plant tour was designed to shore up his support among union members. Ford did it as a favor to Pelosi, but the automaker made it clear it wanted something in return. Sue Cischke, Ford’s vice president of sustainability, and Joe Hinrichs, Ford’s vice president of manufacturing, asked Pelosi to do what she could to get the loan program funded. She promised to make that happen, but as the months went by there was still no progress. And the economy was only getting worse.

Despite a growing sense that the entire domestic automobile industry was now fighting for its life, General Motors continued to downplay the severity of the situation and lobby for the Volt. Ford’s Washington office concluded that GM’s senior executives were not giving an honest assessment of the company’s situation to their own lobbyists. Chrysler’s team in Washington was beginning to sound alarm bells, but remained too distracted by the perpetual churn at the top of their own house to make much of an impact.

Everything changed a few days after GM’s merger meeting with Mulally. On July 30, the three CEOs convened for a previously scheduled caucus to discuss their efforts in Washington. Mulally had decided to try one more time to convince GM’s Rick Wagoner and Chrysler’s Bob Nardelli to make common cause with him on the Energy Department loans. In typical Mulally style, he spent several days preparing for the meeting. This time he would overwhelm the other two CEOs with a barrage of irrefutable data that he was convinced would leave them with no choice but to join Ford. He was just getting started when Wagoner interrupted him.