Is Mulally Making a Difference at Ford?
Maybe. Maybe not.
That seems to be the consensus of “experts” interviewed by the New York Times for an article published this past week, one year after Alan Mulally became President of the Ford Motor Company.
Perhaps “it’s too early to tell” would be a better answer.
Mulally has not rocked the boat at Ford, according to the Times. He has only brought in one other executive from Boeing, his former employer. He has promoted from within. Moreover, he says he is executing the restructuring plan already in place. Also, the consensus among “experts” and insiders is that he started the job at a disadvantage because he had absolutely no experience in the automobile industry. It has taken a year for him to overcome that knowledge deficit, they say.
So, is Mulally doing the job?
Mulally has one huge advantage, unusual in a publicly held company. At bottom, he need only please the Ford family, because the family controls the only shares of Ford that have voting power. (The publicly trades shares have none.) That means that he can focus on long-term changes, rather than make band-aid moves that yield short-term profits at the expense of long range improvements.
Mulally has made one move, highly publicized and undoubtedly smart, but which has not been clearly understood by many: he mortgaged the store. Mulally pledged as collateral every asset the company owned in order to get a $43 billion line of credit. That’s a smart move because bankers are all the same, whether it’s your car loan or billions for a corporation: when you really need money, they won’t loan it to you. It’s best to lock in money you might need before the need actually arises. And lock in more than you think you might ever need, because you might need it, after all.
In the media, this has been portrayed as Ford borrowing $43 billion, which it didn’t. It is merely assured that it can do so, should it chose so to do. Even analysts who ought to know better tend to assume that the $43 billion figure represents what Ford figures it needs, which is not the case.
The other thing Mulally appears to be doing is not rocking the boat. He is apparently convinced that Ford has enormous pools of talent and can produce extraordinary and exceptional products. He seems intent on creating cultural change at Ford, rather than personnel change. The Times notes that Mulally has pushed to have Ford executives see themselves as competing with all brands, not just American brands. Though this seems like a no-brainer that should have been accomplished long ago, perhaps old habits die hard. He is relying on the people already at Ford to live up to their capabilities, rather than make them feel insecure by making drastic changes.
This is fine, so far as it goes. Arranging your financial house is a smart business move. Trying to make your employees into a team is both good business and common sense.
But questions remain about the extent to which his inexperience in the auto industry will continue to be a drawback.
According to the Times, Mulally’s model is Toyota – a company, as the Times put it, “known much less for executive personalities than for its conservative line-up of vehicles focused on high quality and its regimented approach to manufacturing.”
As Robert Farago has observed in a different context, “[c]reating a product that does one thing better than anyone else is the essence of branding.” Or two, or three. But the core is to do something that is unique and is desireable to buyers, and do it better than anyone else. If Ford’s concept were to be the American equivalent of Toyota, then Ford Ford would be making a mistake. Toyota already owns the “unimaginative, but reliable” brand.
Further, both the “high quality” and “regimented approach to manufacturing” elements of the Toyota equation are factors over which Ford has much less control than Toyota. Toyota does not have to deal with the United Auto Workers. Ford does. Toyota has state of the art plants. Ford does not – it still builds cars at the Rouge complex built by the first Henry Ford. While Detroit auto executives may be understandably envious of Toyota’s manufacturing efficiencies, it would be foolish for Ford to build a business plan on the assumption that it can achieve similar manufacturing efficiencies.
Mr. Mulally may be able to make some improvements in manufacturing efficiency. He may be able to negotiate a UAW contract this fall which diminishes somewhat Ford’s labor costs. The provision of the pending federal energy bill which raises CAFE fuel economy standard to 35 mpg may not become law. At bottom, though, there isn’t realistically enough room for improvement in any of these areas for it to make a difference unless Ford sells more cars and trucks.
It is with product that Mulally’s future rises or falls.
Over that, he has very little control.
The lead time for developing an entirely new model of automobile or light truck is about five years. That means that Mulally will either succeed or fail based on products which were already under development when he became President of the company. Ford company has publicly stated that it does not expect their restructuring plan to return it to yearly profitability until 2011. Not coincidentally, Ford also says that it will have completely replaced its product line by 2011.
One suspects the Ford family understood this when it hired Mulally. The sense is that the former management, run by William Clay Ford, Jr., believed that it had already addressed the product end and wanted financial expertise and credibility which the family lacked, so as to buy time for these new products to hit the market.
For the present, Mulally will be able to look good by picking low hanging fruit, such as reviving the Taurus nameplate.
In the end, though, Mulally is probably captive to whatever is already in the product development pipeline. If his predecessor made good decisions, Mulally will get all of the credit. If his predecessor made bad decisions, Mulally will get all of the blame.
For putting himself in that position, Mulally was paid over $28 million last year. If he succeeds in buying Ford the time it needs, he’s probably worth it. But buying time is the most he can do right now.