Is Ford Going to Make It?
If you haven’t been following this story in the newspaper, on television, or on the internet, Ford Motor Co. is in tremendous trouble. They are failing miserably from a financial perspective, they are losing sales volume and market share, they are hemorrhaging workers, shutting down plants, their senior managers are jumping ship, they have a new CEO from outside the auto industry that is supposed to get them out of this free-fall, and worst of all, there is nothing in the product pipeline for the next couple of years that looks like the blockbuster sales hit they so desperately need.
How bad is it? Just looking at the financial aspect of the current situation yields the following: Ford’s market share in the U.S. market is now at 16%, down from 25% in 1995. Toyota will undoubtedly pass them as the No. 2 auto company in sales in the U.S. in 2007. Ford lost $9 billion USD in the first three quarters of 2006. The company estimates that their losses in 2007 will exceed the up-to $10.5 billion they forecast losing in 2006 and that their market share will drop to 14.7%. Company officials estimate that they will burn through $17 billion in cash the next three years trying to get the company back on track. To sustain that effort, Ford has borrowed $24 billion USD through a financing package that was made possible by putting up the whole company (even including rights to the Blue Oval brand) up as collateral. Ford is literally and figuratively betting the farm on their turnaround, which they predict will happen in 2009, the year they anticipate being out of the red. If they fail, they will have nothing left of any value to call their own.
Of course, the staggeringly dire financial condition of Ford begs the question of whether their leadership is up to the task of executing a massive turnaround successfully. From what I can see, Alan Mulally, the new CEO, recently of Boeing, is a good pick to lead the company during this difficult time. I think he is damn good at fixing a manufacturing company, he is tough without being mean and that he will expend every effort to make good things happen at Ford. I like Ford’s chances with him at the helm. As you get down to the next level of senior management there at Ford, though, there are some possible question marks, starting with Mark Fields, Head of North America for Ford. I want to be proven wrong, but he seems like a guy who knows the right things to say about what should happen, and makes those utterances with a great deal of confidence, but is not skilled enough to actually make those things happen. And as to why I’m singling him out when there are others that are suspect – if Ford North America doesn’t get fixed, then nothing else matters. Too early to tell at this point whether my uneasiness with him is justified, but if my intuition is wrong, I’m prepared to issue a public mea culpa when he does something wonderful for Ford. The mid-level managers seem like a pretty strong group in the aggregate, allowing for the usual exceptions, and Ford would do well to give the ones who can stick around a voice in turning things around, since they’re a lot closer to the front line than the senior managers. And finally, the actual production workers – this much-maligned group has always deserved better leadership than what they’ve had, and if they get it, I think they’ll surprise a lot of people with their productivity and quality results.
So, if we assume that they have the money and the horses in management to turn things around, and they’ll make the hard choices in terms of cutting brands, cutting costs and personnel, then we arrive at product. This is where things get really tough in terms of the turnaround scenario. Jaguar, Aston Martin, and Land Rover are very likely to be sold off in 2007. Volvo is on the bubble, but even if it manages to weather the brand-cutting storm, it doesn’t have enough volume to pull Ford out of the abyss. Everything that’s going to be sitting on the blacktop for sale at Ford-Mercury-Lincoln dealerships across the United States in the next two years was already set for production before their new CEO arrived; and what they have for sale now runs the gamut between not-so-good and good, with nothing except the F-150 pickup and the Mustang coupe considered top dogs in their respective segments. Ford’s full-size SUVs and their Lincoln-Mercury clones are among the leaders in their segments, but those segments are getting smaller by the day. The new Ford Edge is a good vehicle, and the new Ford Fusion/Mercury Milan is a very good vehicle, but it doesn’t seem likely that either one is going to dominate the sandbox they play in out in the marketplace. Ford did some preview shows last week for the automotive press in which they showed some future production cars, some concepts, and some concept drawings, but by all accounts, there was no show-stopper in the group of future production cars, and the concepts are, well, concepts. It’s going to be awhile before anything that is now a concept can make it to market as a production vehicle. And frankly, there is no guarantee in the car business that a great concept vehicle can be transformed into a great production vehicle. Things that make the concept vehicle so endearing and attractive on the display stand frequently get lost along the way as the car moves to the reality of the production line. Add in the fact that a stagnant auto market is forecast for next year, and that means that a shell-shocked Ford has to take market share away from some very strong competitors in a flat market and has to do it with decidedly average product. That’s a pretty tough hill to climb.
So, what can Ford do for the next 24 months in terms of product? Not very much, the answer turns out to be, but here are some humble suggestions.
Shamelessly raid whatever you can from the expensive brands that are leaving (engines, platforms, etc.) and work it into Ford vehicles wherever possible. High-end components in a mass-market brand can do wonders for sales. Look at the current Chrysler 300C with the last-generation Mercedes-Benz hardware underneath.
Take a hard look at the Ford of Europe and Ford Australia lineups and see if there’s anything there that Americans might want to buy. The Ford Focus C-Max was just named Europe’s Car of the Year, the Ford Focus ST is a wonderful little rocket, and those cars might just sell in the United States as the price of gasoline keeps going up. The Australian Ford Falcon is a good rear-wheel drive platform that could be used as a potential performance car platform here in the States.
Address, when feasible, the known shortcomings of the vehicles that aren’t selling currently, i.e., the horsepower deficit of the Ford 500. Put an engine in it with more horsepower, regardless of whether you get the horsepower through larger displacement or boost. Offer a flagship version with even more horsepower and AWD to get all that power to the pavement. You won’t have a BMW-eater, but you sure as hell ought to be able to embarrass a Toyota Camry or a Honda Accord.
You have some wonderful designers and engineers working for you. Take whatever concept car that people exclaim over and make it show up in undiluted form in a showroom as soon as possible. If you have to water it down in looks and/or performance, then don’t do it. Go on to the next one. You don’t need any more mediocre iron in your lineup.
Those are my general product suggestions for the short-term. Long-term, it gets more complicated, but the next 24 months is what Ford needs to get though first.
Can Ford turn around their business before the borrowed money runs out? It’s going to be tough. Very tough. In the car business, having great product solves a lot of problems and having lousy product makes all of your problems ever so much more formidable. I think Ford can actually turn it around, but almost everything they do (stopgap measures, big ideas, etc.) in the next 2-3 years is going have to work, and even if that’s the case, they’ll still need to be a little lucky here and there. I want them to succeed but I am a realist, and the truth of the matter is that Mr. Mulally and colleagues have a lot of hard work and a lot of sleepless nights ahead of them.