American Icon (68 page)
Authors: Bryce G. Hoffman
F
ord’s sales were back up in October even without government incentives, increasing 3 percent year-over-year. Ford had now gained market share in twelve of the last thirteen months. The industry as a whole was up, too, though not as much as Ford. The worst was over. The recovery would be slow, but the market was coming back. And not just in the United States. Ford continued to gain ground in Europe and South America. The company now had enough cash and enough confidence in the future to announce a $2.3 billion investment to expand production in Brazil. Ford was no longer just surviving. It was starting to grow.
The good news kept coming. November was up, too, with sales of the Ford Fusion leaping 54 percent after
Motor Trend
magazine named it “Car of the Year.” European sales were up nearly 20 percent. December was Ford’s best month since May 2008 in the United States. Sales were up a whopping 33 percent. Ford gained more than a point of market share in the United States in 2009—the company’s
first full-year gain since 1995. And 2010 was looking even better. The company announced that it would increase North American factory output to 550,000 vehicles in the first three months of 2010—58 percent more than the same period in 2009.
On December 2, Ford’s shares closed above $9 for the first time in more than two years. Taking advantage of the rally, the company issued another $1 billion worth of new stock. Once again the market did not seem to mind. Three weeks later, the price passed $10. It was
the first time since 2005 that Ford’s shares had traded in the double digits.
That month, I had dinner with a small group of Wall Street financiers in Detroit. They represented the investment banks and private equity firms that, along with the American taxpayers and the UAW,
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now owned the new General Motors. They were already frustrated with Ed Whitacre Jr., the man Washington had just tapped to lead the still-struggling automaker after firing former CFO Fritz Henderson, whom it had asked to replace Rick Wagoner less than nine months before.
“What they need is another Alan Mulally,” one of the bankers opined, drawing vociferous agreements from the rest of the table.
It had become a common sentiment, both in Detroit and on Wall Street. But in Dearborn, Mulally and everyone else in the Glass House knew it was not that simple. Under his leadership, Ford’s once-fratricidal executive corps had been transformed into a team, and that team had just saved the company from the biggest crisis in its long and difficult history.
Every December, Ford’s board of directors hosted a dinner for the company’s senior management. That December, Irv Hockaday toasted them all, invoking the memory of Henry V at Agincourt and quoting from the famous band-of-brothers speech that Shakespeare had him deliver before the English army, outnumbered six to one, faced the French onslaught and emerged victorious.
“Those are the kind of odds you guys have overcome,” Hockaday said as he raised his glass.
A few weeks later, Ford reported its financial results for 2009: a full-year profit of $2.7 billion. Mulally had kept his word after all.
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Another particularly galling move, at least for Ford, was the judge’s decision to let General Motors keep its deferred tax assets. Normally these would have been forfeited entirely, since the company that emerged from bankruptcy was a different legal entity. However, since Washington was a major investor, they were transferred to the new GM.
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Ford and the other American automakers began phasing out the asbestos brake pads in the 1970s, but the pads continued to be used in some vehicles until the early 1990s.
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Ford was worried that Washington might start exempting GM and Chrysler from some federal regulations to reduce their manufacturing costs, but that never happened.
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Ford was actually asking the government to allow Ford Credit to become an industrial loan company (ILC). It could not have become a bank holding company, but ILC status would still have allowed it to borrow at more attractive rates.
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The no-strike clause was the idea of Fiat CEO Sergio Marchionne. He told the Obama administration that he would not invest the time, money, and energy required to fix Chrysler only to see his work undone by the UAW in the next round of contract negotiations. President Obama felt the same way. He was expending a great deal of political capital to save these companies and did not want the union to undo all of his heavy lifting in 2011.
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The UAW became part owner of the new GM when it accepted stock in lieu of cash to cover a portion of its VEBA obligations.
Proof PointsWealth is nothing more or less than a tool to do things with. It is like the fuel that runs the furnace or the belt that runs the wheel—only a means to an end
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—H
ENRY
F
ORD
O
n
August 28, 2009, off-duty California Highway Patrol officer Mark Saylor, his wife, their thirteen-year-old daughter, and his wife’s brother, Chris Lastrella, were traveling on State Route 125 near San Diego in a 2009 Lexus ES 350 when Saylor discovered that he could not stop the car. In fact, it was accelerating. As they passed the “End Freeway” sign going 120 miles per hour, Lastrella pleaded with a 911 dispatcher for help.
“Our accelerator’s stuck!” he cried as the car literally ran out of road. “We’re in trouble. There’s no brake!”
A few seconds later, they were all dead. So was Toyota’s once-unassailable reputation as the automobile industry’s quality leader.
The Japanese automaker blamed the problem on faulty floor mats. On November 26, it recalled 4.2 million vehicles in the United States to address the problem. But crashes continued. On January 16, 2010, Toyota informed the National Highway Traffic Safety Administration that the real problem might be defective accelerator pedals. Five days later the company recalled another 2.3 million vehicles. Four days after that, the U.S. government ordered Toyota to stop selling the affected products until it could resolve the problem. A day later the automaker pulled eight of its most popular models from the market, including the bestselling Toyota Camry. But the scope of the problem continued to widen. It would become the largest automobile recall in U.S. history, even surpassing the Ford-Firestone fiasco. Investigators
began looking at what Toyota knew and when. It soon emerged that the automaker had ignored mounting evidence of the problem for years. Toyota executives were called to Washington to explain and found themselves facing the same sort of grilling from Congress that the CEOs of the Detroit Three had endured back in 2008. With few products left to sell and its name plastered across the top of every newspaper in the land, Toyota’s sales plummeted. And Ford Motor Company rushed in to fill the void.
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s Toyota fell from grace, Ford was wowing the world’s automotive press with the car Alan Mulally and Derrick Kuzak had been talking about since their first meeting in 2006.
The new Ford Focus was finally unveiled at the North American International Auto Show in Detroit on January 11, 2010. It had been only three years since Mulally made his own debut in Cobo Arena. There were no smoke machines this time, just Mulally’s motto projected beneath an enormous Blue Oval: One Team. One Plan. One Goal. One Ford. And instead of a bland full-sized sedan, there was a sleek candy-red hatchback rotating in the spotlight.
“How beautiful and cool is our
new
Ford Focus?” shouted a triumphant Mulally, far more at ease in front of a stadium full of the world’s automotive press than he had been in 2007. “To us, this is actually more than a car. Focus is the next great example of ‘One Ford,’ brought to life in steel, glass, and technology. Focus is proof of how we are changing as a company.”
In addition to being the hottest small car ever to come out of Detroit, the new Focus was truly a global automobile, a latter-day Model T that would create economies of scale Henry Ford would have been proud of. Though the cars would be built at four plants on three continents, about 80 percent of their parts would be common worldwide—and 75 percent of those would come from the same suppliers.
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In addition to the Focus itself, the underlying architecture
would provide the foundation for at least ten different cars and crossovers, ranging from a new global version of the C-Max crossover to the Focus Electric. A total of 2 million vehicles would be built off this same compact platform and sold around the world each year by 2012.
The compact segment was now the largest, accounting for one out of every four vehicles sold worldwide. The cost savings realized by globalizing development and production would allow Ford to capitalize on this growing market and make big money off small cars. Instead of being known for its gas-guzzling trucks and sport utility vehicles, Ford would be known for its stylish compact cars and crossovers.
Even the usually sedate Kuzak was excited.
“
It will make us globally competitive like never before,” he averred.
There was no more poignant symbol of Ford’s transformation than the old Michigan Truck Plant in Detroit’s industrial suburb of Wayne. Ford had gutted the SUV factory that had once been its most profitable plant in the world. The company had rechristened it the Michigan Assembly Plant, and it was spending more than $550 million to retool the factory to produce the new Focus and Focus Electric. A few days before the auto show, Ford Americas president Mark Fields led a group of journalists on a tour of the cavernous facility—a space so large, its far walls were lost in shadow.
“Just a year ago in this plant, we were producing Navigators and Expeditions. And one year from now, we’re going to be producing the new Ford Focus,” Fields said, his voice echoing off the bare concrete. “Our intent is to have a strong manufacturing presence here in the U.S.”
Ford had crunched the numbers, and Fields proudly announced that the new American-made Focus was expected to turn a solid profit for the company. A few years earlier, that would have been impossible. But the labor agreements Ford had negotiated with the United Auto Workers in 2007 and 2009 had fundamentally altered the arithmetic. Mulally had promised Ron Gettelfinger and Bob King that he would build small cars in the United States if they would let him. Now he was making good on that pledge. The plan to shift U.S. production to Mexico had been round-filed.
The new Focus was not due to arrive in showrooms until 2011, but
other new Fords were already available, such as the Fusion Hybrid, which had just been named “2010 North American Car of the Year,” and the Transit Connect compact van, which won “Truck of the Year.” Ford became one of the biggest beneficiaries of Toyota’s troubles. Its sales soared 24 percent in the United States in January. February sales were up a stunning 43 percent, as were March’s. And Ford was making more money off every vehicle it sold, thanks to lower incentives and higher margins.