Icon Car Company

August 12, 2018

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FordGrille.jpgAssociated PressA 2011 Ford Explorer sport utility vehicle sits on a lot in Vermont. Thanks to improved vehicles, such as the Explorer, Ford has been able to reverse years of massive losses and post solid profits.

CLEVELAND, Ohio - During the worst recession in half a century, an American icon that lost its luster has become a profitable success story.

The resurgence of the company that invented mass production of the automobile has been dramatic and painful. It's a tale of shiny new cars and shuttered auto plants, lucky breaks and tough decisions.

While there have been numerous significant changes at Ford, most of the financial success comes from three key factors: better vehicles, lower costs and being financially solvent when the economy collapsed.

In January 2006, Mark Fields, Ford president of the Americas, issued his manifesto at the Los Angeles Auto Show. He wasn't being subtle.

Associated PressFord President of the Americas Mark Fields talks to workers at the company's Chicago Assembly Plant in 2007 as they launch the Taurus sedan.

"Change or die."

The crowd was skeptical. A lot of people didn't think Ford could change. It had been losing ground to competitors for decades, and the meager profits it was able to post in 2005 came entirely from its financing arm. It lost $4 billion making and selling cars and trucks.

"It's time to play offense, " Fields said a few weeks later. "It's time to fight back. We are doing what it takes to be America's car company. We are doing what it takes to give customers and our employees a reason to believe in Ford again."

MarkFields.jpgThen he spelled out an all-too-familiar plan of job cuts and plant closures. It sounded a lot like the 2002 restructuring plan that cut 35, 000 jobs and closed five plants, or General Motors' plan in 2005 to close plants and cut 30, 000 jobs.

Ford finds a new 'Way Forward'

The plan looked more like the continual shrinking of the domestic auto industry than a major rebirth of an industrial icon. Fields said the cost cuts could keep the company alive while it prepared to launch great new cars and trucks. He promised the company would be profitable by 2008.

Associated PressFord President and Chief Executive Alan Mulally takes part in a panel discussion in 2007.

Initially, Mulally didn't change the restructuring plan, saying Fields hit all of the major things the company needed to change - lowering production costs, getting vehicles to market faster and using Ford's global capabilities by bringing cars designed in Asia and Europe to the United States.

In November, he added one seemingly minor element to that plan - financing.

Getting into deep debt

"We all thought it was a bold move, " said Anthony Pratt, director of PwC Autofacts, the automotive research arm of the accounting firm formerly called PriceWaterhouseCoopers. "At the time, people thought it was really risky."

Industry watchers saw the loans as a big statement that Mulally was going to do things differently, but it wasn't clear how. He still planned to stick to Fields' plan of plant closures and product launches.

Bruce Belzowski, a research scientist at the University of Michigan's Transportation Research Institute, said Mulally was bringing a bit of the airline business to Ford.

"It wasn't unusual at Boeing to put all of their resources on the next airplane, " Belzowski said. "They were going for broke, going all or nothing on the plan."

Mulally.jpgFord lost nearly billion the year it took out those loans. And at the time, General Motors was winning more attention for product launches with new vehicles such as the Chevrolet Malibu.

The conventional wisdom in 2007 was that Ford was at least a year behind GM in restructuring its business. GM looked like it was headed for greener pastures while Ford was full of promises that were years from being met.

No one knew that an economic downturn that would rival the Great Depression was a year away.

Associated PressFormer General Motors Chief Executive RIck Wagoner (left), Ford President and CEO Alan Mulally and former Chrysler CEO Bob Nardelli answer questions at a Congressional hearing to discuss possible bailouts for the industry in 2008. When asked if he would work for per year to get an emergency loan, Mulally said he liked his current salary.

'I think I'm OK where I am'

Early in the year, Ford acknowledged that it wouldn't turn a profit in 2008 as Fields had promised. Mulally said the cost-cutting was working, but the rapid increase in gasoline prices was hurting sales of the company's most profitable trucks and sport utility vehicles.

Mulally said the company would turn a profit in 2009, hopefully, as long as conditions got better.

Instead, they got much worse.

Hostile lawmakers berated the executives for poor management. They complained that they flew to the capital instead of driving. They asked how much executives were willing to give up to get loans, asking Mulally if he was willing to work for $1 per year.

That turned out to be the moment that Ford separated itself from GM and Chrysler.

"I think I'm OK where I am, " Mulally said. As the heads of GM and Chrysler pledged to work for $1, Mulally kept a compensation package that paid him nearly $18 million for his work in 2008.

Because of the massive loans Mulally had taken out, Ford had the cash needed to stay alive during the recession without getting a government loan. PwC's Pratt said Mulally's 2-year-old decision to borrow cash looked brilliant in hindsight.

"They didn't have a crystal ball to see the depth of the downturn, but they were prepared, " Pratt said.

Congress rejected GM and Chrysler's requests for government loans. But President George W. Bush approved emergency bailouts for them. In 2009, President Barack Obama's administration ran the troubled automakers through government-funded bankruptcies.

The public starts to notice

Following the auto-market collapse of late 2008, sales continued to fall in 2009. Ford's numbers were awful, but they weren't as bad as its competitors.

Ford Motor Co.2010 Ford Fusion

On top of that, the cars that Ford was selling were attracting higher prices than it had been getting before the collapse. Ivan Drury, an analyst with consumer research site Edmunds.com, said avoiding the bailouts caused many buyers to consider Ford products. When they did, they found that the company's lineup was better than many of them had expected.

"They had so many new vehicles with redesigns or refreshes that it makes it that much easier to justify the extra price, " Drury said. That trend has continued, with Ford's average sale prices up about 5 percent last year, he added.

AutoCEOs.jpg ford-fusion.jpg
Source: www.cleveland.com
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