American Icon (67 page)

The investment bankers who had been handed the keys to the American automobile industry knew nothing about the complex web of relationships that sustained car and truck manufacturing in the United States and around the world. Nor did they understand how working capital flowed through the industry. Brown did his best to school them. He explained how all the major manufacturers depended on the same supply base to keep their factories running. He showed them how the collapse of one major supplier could trigger a cascading catastrophe that might bring down the entire manufacturing system. He helped them understand how difficult it was to change suppliers, particularly when heavily engineered components or proprietary technologies were involved. It took a while, but they got it—at least enough to keep them from making an already bad situation worse.

Brown argued against just throwing money at the suppliers. The sector needed to consolidate in order to create a healthy industry. So he lobbied for a more selective approach that would provide aid only to the most critical companies. But that was too complicated for Washington. The government set up a $5 billion fund for troubled suppliers, though the borrowing rates were so high that most of the money went untouched.

A more effective scheme was channeling federal funds to suppliers through General Motors and Chrysler. Before the Obama administration forced them into bankruptcy, it made it clear that their suppliers would still get paid. This had a calming effect on the entire industry, because it suggested that everyone’s biggest fear—the collapse of the American supply base—would be avoided. Washington even gave Chrysler and GM money to pass on to those suppliers who needed it most. That was fine with Ford because many of those companies also provided parts for its cars and trucks.

M
eanwhile, Ford was struggling to play catch-up with General Motors and Chrysler on the labor front. Washington had forced the UAW to give those companies the same concessions Ford had negotiated with the union, but the government had not stopped there. The Auto Task Force also pressured the UAW to accept additional concessions, including a freeze on wages for entry-level workers and even more flexible work rules. More important, the Obama administration ordered the union to waive its right to strike both companies when the current contracts expired in 2011.
^*
This put the resurgent Ford at tremendous risk. UAW president Ron Gettelfinger and Vice President Bob King had no interest in striking Ford—either now or in 2011. They understood that returning to the overly generous terms of the pre-2007 labor agreement would undermine everything Ford had accomplished with their help. They were convinced that the best thing they could do to protect their members’ jobs was ensure that the companies they worked for stayed in business. But they were also elected leaders, and Ford was worried that their increasingly militant membership might force the union’s hand in the future.

Ford wanted the same guarantees as General Motors and Chrysler. Getting the UAW back to the bargaining table was not hard. After the last agreement was ratified in March, Ford manufacturing chief Joe Hinrichs had asked Gettelfinger to leave the door open.

“The government is involved now, and we don’t know how this is all going to play out with GM and Chrysler,” Hinrichs said. “If something significant changes, we need to get back together and talk about how we’re going to remain competitive.”

The two sides quickly hammered out an agreement that would give Ford the same protections as GM and Chrysler. In exchange, Ford would pay each UAW member a $1,000 “quality bonus.” But there
was a problem. Gettelfinger and King were not sure they could sell the deal to their members. The rank and file were following Ford’s progress closely, and some were beginning to question whether they had already given the company too much. Workers had been willing to make sacrifices when the automaker was fighting for its life, but Ford was making money again. The company was becoming a victim of its own success.

“People I’ve talked to feel like they’ve given up enough,” said Gary Walkowicz, a member of the UAW bargaining committee at Ford’s Dearborn Truck Plant. “They feel they shouldn’t have to give up any more.”

He and other dissidents began organizing opposition to the new Ford agreement before the terms were even announced. Ford and the UAW leadership decided to wait for the right moment before putting the new accord to a vote. But the news kept getting better.

Thanks to Cash for Clunkers, Ford’s sales in the United States were up 2 percent in July. Congress initially appropriated $1 billion for the scrappage program. That money was supposed to last until November, but it had run out by the end of the first month. The White House asked dealers to keep offering the incentive and pressured lawmakers to release another $2 billion in early August to keep Cash for Clunkers going for another month. On August 14, Ford boosted factory output yet again and, two weeks later, added extra shifts at its Dearborn Truck Plant and Kansas City Assembly Plant in Claycomo, Missouri, to keep up with demand. Ford posted a 17 percent increase in August. European sales were up, too, thanks to the scrappage programs on the other side of the Atlantic.

Sales finally dropped in September when the Cash for Clunkers program expired. On October 14, the company and the union announced the tentative agreement, and Gettelfinger hastily summoned local union leaders to Detroit, where he urged them to support ratification. Some, such as Walkowicz, refused. Gettelfinger gave the locals only until the end of the month to vote on the agreement, because he wanted workers to cast their ballots before the October sales results were released.

But Ford’s relative success was only part of the problem. UAW members remembered how the company’s board of directors had backfilled Mulally’s February pay cut with stock options; they wondered what Ford had up its sleeve this time around.

The task of convincing workers to support the latest round of concessions fell to King, who had emerged as Gettelfinger’s heir apparent. Like many of his members, King thought Ford was asking for too much. He was an idealist who believed the right to strike was sacrosanct. But he was also a good soldier. King kept his feelings to himself and traveled from plant to plant trying to convince workers to vote for the deal with Ford. At more than one factory, King was booed off the stage.

UAW members formally rejected the deal on October 31. As a result, Ford would have to go into the 2011 national contract talks with a target on its back.

O
n October 28, Ford announced that it had finally found a potential buyer for Volvo. China’s Geely Group was named the preferred bidder for the Swedish brand, which Ford had officially been trying to unload for the better part of a year. The truth was that Geely had been trying to buy Volvo for years, but it had taken Ford this long to realize that it could not do better.

Chinese car companies did not rate much higher than Russian oligarchs, and Geely was hardly in the forefront of the Chinese automobile industry. This was no state-owned enterprise backed by the full might of the Communist Party, with all of the clout, connections, and capital that implied. Geely was the brainchild of baby-faced entrepreneur Li Shufu. The
son of a farmer from the eastern coastal province of Zhejiang, Li decided to skip college and instead borrowed 2,000 yuan from his father and set up a business making refrigerator components in 1984. By the time he was twenty-one, Li was selling his parts nationwide, but new government regulations put him out of business in 1989. Undaunted, Li decided to try his hand at building motorcycles. In 1994 he took over a failing state-owned motorcycle
company and turned it into China’s bestselling domestic brand. Finally, he turned his attention to automobiles—a simple commodity he once described as “four wheels and two sofas”—starting Geely Automobile in 1997. Geely soon muscled its way into the largely state-controlled car business with dirt-cheap models such as the
Geely KingKong, which sold for less than $6,000.

In 2006, Li decided he was ready for the big leagues. He brought his imaginatively named MR7171A sedan to the North American International Auto Show in Detroit. Unable to rent space on the show floor, he set up his stand in the hallway outside and passed out mustard-yellow day planners to the few journalists who wandered by to chuckle at his embarrassing excuse for an automobile. It was so cheaply put together it made a Yugo look downright bespoke.

That was the image of Geely that Ford still had in mind when Li came to Dearborn two years later and asked if he could buy Volvo. The answer was no—even Ford was not that desperate.

Yet.

By the end of 2008, Ford was no longer in a position to be picky. No one else had expressed any real interest in Volvo—at least no one with cash. And after the collapse of Lehman, that included just about everyone. Li’s products were improving, and he was earning a reputation in China as a real businessman. Director John Thornton approached Li during a visit to Beijing and told him Ford had reconsidered. Chief Financial Officer and former Volvo chairman Lewis Booth would head up the negotiations. He still had serious reservations about selling to Geely.

“These guys aren’t going to be able to run a company like Volvo,” Booth told his team. He ordered them to slow-walk the talks, hoping to draw out another, more respectable buyer.

Even the Chinese government was concerned. China was on a buying binge, and the last thing Beijing wanted was for an inexperienced Chinese company to botch the purchase of a well-known brand. A few already had. But Li was ready. He had assembled
a team of advisers capable of addressing each constituency’s concerns. It included Rothschild’s top automotive banker, Meyrick Cox, and Jennifer Yu, the daughter-in-law of former Chinese president Jiang Zemin.
Geely also hired former Volvo CEO and onetime Ford marketing boss Hans-Olov Olsson. Li knew this was his chance to make a name for himself outside of China, and he was determined not to blow it. Over the next several months, he did everything Ford demanded and more to prove that he was serious. Booth actually started to like him. Li was youthful, extroverted, and charismatic. And he was trying so hard to make everyone happy—Ford, the increasingly anxious Swedes, and the Chinese Communist Party.

It became apparent to Booth that Li was spending a huge amount of time, energy, and probably resources convincing the Chinese government that he was worthy of owning what would become China’s first global automotive brand. During one meeting with Booth, Li got a call from Beijing. He excused himself, walked over to a corner of the room with his mobile, and spent the next ten minutes shouting into it and waving his hands. When he was finished, he slipped the telephone back into his pocket and returned to the table as though nothing had happened.

“Is everything okay?” Booth asked.

“Oh, yes,” Li smiled.

Booth decided that Ford could do a lot worse than a man like Li. But there were still real concerns about selling Volvo to a Chinese company, and most of those concerns dealt with intellectual property. Many of Volvo’s products included important proprietary technology that Ford also used in its own cars and trucks. Geely wanted it all. Ford said no. Geely relented, but Ford was still concerned it might take it anyway once it had the schematics. And Ford did not want to fight it out in the Chinese courts, which were notorious for their utter disregard for international patent law. David Leitch came up with a novel solution. He proposed that any disputes over intellectual property would be resolved outside of China through binding arbitration.

Once Geely agreed to that, it all came down to the details. Negotiations between Geely and Volvo’s unions began in earnest after Ford formally announced that the Chinese automaker was its preferred bidder in October. As with Jaguar and Land Rover, Booth was the conscience of the sale, constantly raising questions about how Geely planned to deal with Volvo’s employees. He also spent a lot of
time dealing with the Swedish government, which bristled at the idea of such an iconic Swedish brand being sold to a Chinese company. But there really was no other option. A group of Swedish investors, the Jakob Consortium, tried to jump into the fray, as did a group of Americans led by former Ford executives, but neither of these groups could muster enough financing to make a serious bid. Geely still had not completed its own financing, but by the end of 2009 Ford was confident that it could. In December, Mulally announced that Ford hoped to sign a formal agreement with Geely in the first quarter of 2010 and close on the deal by the end of June.