American Icon (69 page)

N
one of this was lost on investors. Ford’s stock price closed above $11 a share on January 6—the first time since 2005. It passed $12 on March 2. And the numbers just kept getting better. Ford made $2.1 billion in the first three months of 2010. Though the automobile market remained weak, each of Ford’s business units—North America, South America, Europe, Asia-Pacific, and Ford Credit—posted operating profits that were substantially higher than a year before. The company’s share of the U.S. market increased by two and a half percentage points, to 16.6 percent, Ford’s largest quarterly share gain since 1977. Sales were up in the rest of the world, too. And Ford was no longer burning cash.

“We are encouraged by our continued progress this quarter, and remain focused on delivering the key aspects of our plan, which have not changed: Aggressively restructure to operate profitably at the current demand and the changing model mix, accelerate the development of a new products our customers want and value, finance our plan and continuously improve our balance sheet, and work together effectively as one team leveraging our global assets,” Mulally told analysts and reporters when the results were announced on April 27. “The recovery is gradual, consumer confidence remains relatively weak, and the global auto industry continues to wrestle with excess capacity. But we are committed to remain absolutely focused on executing our business plan while developing even a better plan for the future.”

Mulally’s focus was now on improving Ford’s balance sheet and beginning the long, slow march out of junk bond territory. The terms of
Ford’s massive 2006 financing deal stipulated that all the assets it had pledged to secure those loans would be released once its revolving line of credit was paid off and two of the three major agencies restored the company’s credit rating to investment grade. So Ford continued to chisel away at its debt, which was the one advantage General Motors and Chrysler still had over the Dearborn automaker. Those companies had shed theirs in bankruptcy court; Ford had to do it the old-fashioned way—by paying it back. Bill Ford was coming under increasing pressure from some of his relatives to restore dividends, but he backed Mulally’s decision to focus on fixing the balance sheet first.

On April 6, Ford made a $3 billion payment to the revolver. On June 30, the automaker made a $3.8 billion payment ahead of schedule to the UAW’s retiree health care trust, or VEBA. Ford also announced that it had reached an agreement with the union that would let it pay off the rest of its VEBA obligation with cash at a 5 percent discount. A year earlier, the company had convinced the UAW to let it cover half those obligations with stock. Now Ford had enough cash to make that unnecessary. Not that the UAW would have minded. The VEBA made a nice profit off the stock warrants Ford had already given the fund when it sold them at the end of March, netting $1.8 billion for union retirees.

Current employees were also sharing in Ford’s success. Ford restored profit sharing with its U.S. factory workers in January, writing each of its approximately 43,000 UAW-represented employees a check for $450. The automaker also lifted a freeze on merit pay increases for salaried workers and began restoring some of the benefits that they had given up in the depths of the crisis.

Dealers were also benefiting from Ford’s turnaround. In 2009, their average profit in the United States was fifteen times higher than it was in 2008. It was a poignant contrast to the hundreds of GM and Chrysler dealers fighting to get their franchises back, as well as to the Toyota dealers whose mechanics were working around the clock to replace accelerator pedals.

Mulally was not doing too bad, either. In March, Ford revealed that his compensation for 2009 totaled almost $18 million in cash, stock,
and stock options. Even Bill Ford was finally getting paid. Five years after he gave up all compensation, it was announced that the company’s executive chairman would receive $4 million in cash and more than $11 million worth of stock options. He immediately donated $1 million of that to a college scholarship fund for the children of Ford employees.

J
ust as Mulally had promised his team back in 2006, the ride back up was turning out to be a lot of fun. All their hard work was finally paying off. Each week, each month, each quarter was better than the last. Instead of fighting to survive, they were now playing to win. Ford’s quality ratings were the highest of any nonluxury brand. Ford no longer had to discount its products in order to convince buyers to test-drive one; customers were now willing to pay more for a car that had a Blue Oval on the grille. And new ones were arriving in dealer showrooms at one of the fastest rates in the industry.

On July 26, Mulally pulled the wraps off the all-new Ford Explorer in New York City’s Herald Square, which Ford had filled with dirt and pine trees for the occasion. This reinvention of Ford’s bread-and-butter SUV got 30 percent better fuel economy than the old Explorer and cost $1,000 less. Just like Henry Ford a century before, Mulally had figured out how to make Ford’s products more efficiently and was passing the savings on to consumers.

The company was in growth mode again. In the first six months of 2010, Ford announced billions of dollars’ worth of new investments in Asia, Africa, Europe, South America, and the United States. These were all about delivering on Mulally’s vision of a more balanced global footprint for the company—one that would end its long dependence on the North American market. The world was changing. The United States was emerging from the Great Recession, but it now seemed unlikely to reclaim its former economic supremacy. Ford’s future lay elsewhere.

W
ith the problems at home largely fixed and Ford’s North American business restored to profitability, Asia became Mulally’s top priority. China and India were fast becoming the center of a new economic order, but Ford had been late to the game in both countries and was still struggling to catch up.

Mulally decided it was time to export his revolution. At the end of 2009, he tapped Joe Hinrichs to lead a top-to-bottom transformation of Ford’s Asia-Pacific group modeled after the turnaround in North America. The young manufacturing chief replaced the aging John Parker, who had done little to make up for the years of mismanagement that preceded him. It was just the sort of opportunity the ambitious Hinrichs had been waiting for, and he threw himself into it with his customary zeal. He flew back and forth between Dearborn and Shanghai, figuring out what Ford needed in China, then returning to World Headquarters to lobby for it in person.

China was now the world’s second-largest automobile market, and Ford had neglected it for too long. The first problem Hinrichs identified was a lack of product. The company was doing well in the segments it competed in, but Ford sold only five models in China. He put together a plan to bring more than a dozen new vehicles to market. He ordered a major expansion of Ford’s manufacturing base in the country, breaking ground on two new assembly plants and an engine factory. He also began drawing up plans for a new transmission plant. Finally, Hinrichs launched an aggressive expansion of Ford’s Chinese dealer network, adding a hundred more stores—mostly in smaller cities and inland provinces where demand was growing.

In March, Alan Mulally arrived to sprinkle his pixie dust on unsuspecting Chinese customers. When Harriet Luo arrived at the Dongchang Ford dealership in Shanghai to pick up her new blue Focus, Mulally was waiting there with the keys and a hug. The poor woman was almost speechless.

“This is totally beyond my expectations,” she stammered.

Ford’s share of the Chinese market was just 2.6 percent. Volkswagen was the market leader with 13 percent, and General Motors came in second with an even 9 percent. Even Suzuki sold more cars in China than Ford did. But Mulally was undaunted, as usual.

“
Now we are here,” he declared at the Dongchang dealership. “I have made [Asia] the highest priority for Ford.”

India was next on Ford’s to-do list. It was a challenging market where Ford had to compete with some of the cheapest automobiles in the world. Three-wheelers were still considered an attractive transportation option by many middle-class consumers. So Ford took the tooling for the old Fiesta that had just been retired, moved it to a factory in Chennai, slapped a fresh face on it, slashed the price to about $7,700, and reintroduced it as the Ford Figo. It was a breakout success, racked up more awards than any other car in the market, and nearly tripled Ford’s sales in India by the end of 2010.

Mulally was there for the launch, being serenaded by sitars, decked out in floral garlands and anointed with vermilion. During the trip, he also took time to address more than 5,000 Ford of India employees.

“Ford India rocks!” he declared to the startled crowd, which was unaccustomed to this sort of informality. “It could not be going better! That’s my report!”

Mulally left them smiling in his wake.

Europe was also posing new challenges for Ford. The end of scrappage programs across the region brought a decline in sales, followed by increasingly fierce competition that saw most automakers stacking ever-larger piles of cash on the hoods of their cars to lure buyers. Unlike in the United States, the economic crisis had not brought a fundamental restructuring of the automobile industry there. In fact, the help manufacturers had received from the various European governments during the downturn was contingent on them keeping their plants open and workers employed. As a result, all of the automakers—including Ford—emerged from the Great Recession with too much capacity and too few customers.

By April, Ford’s sales in Europe were beginning to slip. At Mulally’s insistence, Ford tried to resist joining the incentive war even though that meant ceding market share to rival brands. He knew enough of Ford’s history by now to understand the role incentives had played in bringing down the Big Three in the United States. They undermined resale values, cheapened the brand image, and ate into profits. But the pricing pressure in Europe would prove impossible to resist.

Mulally decided it was time for a change there as well. He gave Joe Hinrichs’ old job to European Group president John Fleming and promoted Volvo chief Stephen Odell to chairman and CEO of Ford of Europe once the Volvo deal closed.
^*
Mulally had been impressed with Odell’s tough-love approach to the Swedish brand. He had cut thousands of jobs in a socialist country and gotten away with it. More important, Odell had almost returned Volvo to profitability by the time Ford handed the keys to the Chinese.

On March 28, Ford had reached a definitive agreement to sell Volvo to China’s Geely for $1.8 billion. It was less than half of what Mulally had hoped to get for the brand, but even this amount proved to be a stretch. In the end Geely was barely able to come up with enough cash to close the deal. Ford accepted a $200 million note in order to leave the new owner with enough money in the bank to keep Volvo running. The important thing, at least as far as Mulally was concerned, was that Ford had eliminated its last major distraction. When the Volvo deal closed on August 2, all of the foreign brands were gone. Most of Ford’s stake in Mazda was, too, and the company would sell another 7.5 percent before the year was finished.
^†
That left one more name on Mulally’s hit list: Mercury.