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Some of these decisions—like the one absolving General Motors
of all liability for past wrongdoing—put Ford at a real disadvantage. Years earlier, all three American automakers had become the targets of costly class-action lawsuits seeking compensation for mechanics and others exposed to asbestos, which was used on brake pads until the early 1990s.
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Early on, Ford and General Motors had decided to make common cause, agreeing to share the cost of defending the lawsuits and split any settlements or judgments against them. One day that summer, one of GM’s attorneys called Ford corporate counsel David Leitch and told him a federal judge had just ruled that responsibility for the asbestos claims would not be transferred to the new GM.

“We don’t have any more liability in this,” the GM lawyer said with barely concealed glee. “It’s all yours.”

There was stunned silence when Leitch broke the news to his colleagues in the Thunderbird Room the next morning.

“Wait, you mean they’re going to get to walk away from their lawsuits?” someone asked. “They’re not going to have any asbestos liability? Is that right!?”

“This is the way our bankruptcy system works. They get a fresh start,” Leitch said calmly. “Sure they’re getting a lot of advantages. Do you want to go there, too? We still can.”

Nobody did. As jealous as Ford’s executives might have been about the ease with which the two other Detroit automakers were undoing decades of mismanagement, none of them wanted to trade places with their bankrupt competitors. Ford was benefiting greatly from its decision to pass on a government bailout. Though the entire industry continued to struggle, Ford continued to gain market share in the United States and around the world. In May, its U.S. sales were down less than 25 percent—the smallest decline of any of the six largest manufacturers. Both Toyota and Honda reported 41 percent drops. Lincoln sales were actually up year-over-year. It was the only brand to report positive numbers.

Demand was also beginning to pick up. Overall U.S. sales had
been increasing month-over-month since March. On June 2, Ford announced that it was increasing second-quarter production by 10,000 vehicles and adding another 42,000 to its third-quarter production schedule—this at a time when many GM plants and all of Chrysler’s U.S. factories were idle. Washington was now guaranteeing the warranties on GM and Chrysler products, but many Americans were still wary of buying a vehicle from a bankrupt manufacturer. In May, Ford added insult to their injury by introducing a new program to help Chrysler owners pay off their vehicles and trade them for a Ford car or truck.

“There are a lot of people out there that don’t like the concept that government is running these companies,” explained Ken Czubay, head of U.S. sales and marketing for Ford. “They’re also disillusioned by the resale value of their products.”

By then, the residual value of Chrysler products had fallen by nearly 50 percent.

Even the government-backed dealer consolidation campaign turned out to be something less than the panacea it initially seemed. In May, Chrysler announced that it would eliminate some 800 dealers under the controversial program. GM axed about 1,100.

Jim Farley was furious when he broke the news to the rest of the team.

“Here we are, fighting it out store by store,” said Ford’s vice president of global marketing, sales, and service. “We’re crawling around on our knees with our rifles, and they wake up and a third of their dealers are gone! They hit the fucking lottery!”

But his anger soon gave way to relief. In their fury over losing their franchises, many of the GM and Chrysler dealers destroyed customer lists and account information. It got even messier in December when Washington—bowing to angry constituents—reconsidered and allowed those dealers who had been cut to appeal. Farley was soon thankful that Ford had been left with its less coercive approach. Most of the Ford dealerships that closed sold out to other franchise owners who usually did whatever was necessary to ensure a seamless transition. They purchased customer lists from the defunct dealership and even offered jobs to best salespeople and service writers. It was slow
and still left some dealers feeling like they had been strong-armed by the company, but it was working. The company had already convinced 670 Ford and Lincoln-Mercury franchises to close or merge with another dealer—a 16 percent reduction of its retail footprint in the United States.

Still, each day brought new surprises for Mulally and his team. The U.S. government had never gotten so intimately involved in the operations of private corporations. There was no rulebook for any of this; Washington was clearly making it up as it went along. And that made Ford very nervous.
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The government provided debtor-in-possession financing for both General Motors and Chrysler, which would otherwise have been impossible for either company to get. Washington was now spending taxpayer dollars to pay for advertising touting the benefits of GM and Chrysler products over competing Fords. Those companies were also using taxpayer dollars to offer bigger incentives in an effort to win back sales. Even more troubling for Ford was the fact that the government was using General Motors’ former lending arm, GMAC, to offer attractive financing terms to buyers that Ford simply could not match.

The government began taking over GMAC in December, trading $5 billion in cash for preferred stock in the company. By May, Washington had injected another $8.4 billion into the finance company and gained majority control. Meanwhile, the U.S. Treasury Department had transformed GMAC into a bank holding company, giving it access to capital from the Federal Reserve at the same low rates banks were charged. Ford was fuming. Its own application to grant Ford Credit similar treatment had been held up for months.
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And Washington did not stop there. At the government’s behest, GMAC was now functioning as the lending arm for Chrysler, too. Mulally began
to openly question whether the government was bending the rules in favor of the companies it now owned.

“We want to make sure we’re not being disadvantaged,” he told Treasury secretary Timothy Geithner and Federal Reserve chairman Ben Bernanke.

Mulally also took GMAC to task for the sweet deals it was making to GM and Chrysler customers.

“If they’re a bank, they need to start acting like one,” he said. “They need to put their shareholders—the American taxpayers—first.”

Other executives kept making the same points to Obama’s Auto Task Force.

“
Ford made sure it was never completely out of mind,” car czar Steve Rattner later wrote. “Alan Mulally phoned Tim [Geithner] regularly and often sent emissaries to me. Ford’s message was always the same: We’re struggling too, but we’re fixing the problem ourselves. Don’t penalize us because we didn’t take your money.”

But Washington was getting tired of hearing about Ford’s concerns. After Mulally complained to one administration official about the special treatment GM was getting, the man just smiled.

“You’re always welcome to take the bailout,” he said.

A
s Mulally had predicted, the U.S. government was making quick work of the problems at GM and Chrysler. Both were out of bankruptcy by mid-July. But nothing Washington did could match the gains Ford was making with consumers. In June, Ford’s U.S. sales were down just 11 percent, compared to the industry’s 28 percent decline. Ford economist Ellen Hughes-Cromwick was now convinced that a recovery was imminent, so the company announced another production increase, boosting third-quarter factory output by another 25,000 vehicles—a 16 percent increase over 2008.

And Ford was finally getting some help of its own from Washington. On June 23, it became the first automaker to receive a loan from the U.S. Department of Energy retooling program. The $5.9 billion gave Ford the capital it needed to make good on Bill Ford’s promise to introduce a full family of electric and hybrid-electric vehicles. But
this was no bailout. The loan program was set up to help Ford and other manufacturers cope with the costly new mandates Washington had imposed on the automobile industry back in 2007. Nor was this aid limited to the Detroit Three. The same day the Department of Energy authorized Ford’s loans, it also announced that electric-vehicle manufacturer Tesla Motors would receive $465 million and said Japan’s Nissan would receive $1.6 billion from the program.

Ford got even more help on July 1, when the U.S. government’s “Cash for Clunkers” program went into effect. This was something Ojakli and his team had been pushing for in Washington for months.

In January, Germany had launched its
Umweltprämie
, or “Environmental Premium,” program to stimulate demand for automobiles and encourage drivers of older, more polluting cars to trade them in for cleaner, greener models. Anyone who owned a vehicle that was more than nine years old could trade it in and receive the equivalent of more than $3,300 toward the price of a new one. It was wildly successful. By March, German car sales were up 40 percent year-over-year. Hundreds of thousands of Germans took advantage of the program, and Ford was the biggest beneficiary.

“The global auto industry may be facing its worst crisis ever, but you’d never know it at Ford Motor’s factory in Cologne,”
Der Spiegel
reported in May. “There, workers are putting in extra shifts on weekends to cope with demand for the compact Fiesta. In fact, Ford sales have been booming in Germany. Customers have placed orders for 68,500 Fiestas, Ka subcompacts, and mid-sized Fusions in the four months to April, more than triple the year-earlier figure.”

Scrappage schemes were soon popping up all over Europe. Each one drew customers to dealerships like pigeons to bread crumbs. Ford began lobbying aggressively for similar incentives in the United States. Ojakli mustered all of Ford’s heavy hitters for an unrelenting assault on the halls of Congress. He sent Hughes-Cromwick to Washington to explain how such a program would benefit the entire economy. That spring, she personally met with more than two hundred lawmakers and legislative assistants, explaining to each one how every vehicle sale sent ripples through the larger economy.

Congress finally approved the Car Allowance Rebate System on
June 18. Motorists with eligible vehicles could get up to $4,500 from the government to apply to their purchase of a new, more fuel-efficient car or truck. The effect was immediate. All across America, dealers were deluged with customers eager to trade in their aging gas-guzzler for a new, more economical car. The Japanese were the biggest beneficiaries of the program in the United States, but it helped Ford, too. Though it would still be months before the first of Ford’s fuel-efficient European models arrived in U.S. showrooms, the automaker still had plenty of vehicles that qualified for the government program. And none of them came with the stigma of bankruptcy. Ford was still selling the same old domestic version of the Focus, but the cheap compact became the
most sought-after American car, coming in fourth after the Toyota Corolla, Honda Civic, and Toyota Camry. Less than three weeks after the program was announced, Ford was well on its way to posting its first year-over-year monthly sales gain since 2007.

“Things have stopped getting worse,” a coy Mark Fields told reporters on July 21. “The question is, at what point does it start to turn positive?”

The answer came three days later when the automaker stunned Wall Street with an entirely unexpected second-quarter profit of $2.3 billion. The company’s quarterly cash burn rate was now down to $1 billion. Investors were ecstatic. Ford’s stock passed the $7 mark in trading that day and was at $8 within a week—a level not seen in a year.

Ford was back in the black. And this time it would stay there. Though sales would remain depressed in the United States and around the world, Ford was finally matching production to demand. It had done what no other American automaker had been able to do before: The company had figured out how to make money in a down market. For Ford, at least, the nightmare was over.

F
or the rest of the American automobile industry, the situation remained challenging. Suppliers were still fighting for their lives, and more of them were losing every week. Tony Brown and his Project Quark team continued to manage the situation masterfully, but it
was not always easy. Ford was forced to bail out Visteon for the second time in four years, agreeing to provide debtor-in-possession financing to the parts manufacturer after it filed for bankruptcy on May 28.