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Steady Driver on a Treacherous Road
Alan Mulally, Chief Executive Officer, Ford

AN INTERVIEW WITH ALAN MULALLY: Ford's talented CEO is not shy about touting his company. What he sees for the economy, auto sales -- and more.

FORD CEO ALAN MULALLY SAT DOWN IN NEW York last week with three Barron's editors to share his views on the economy, the battered auto industry and, especially, his still-struggling but reinvented company.

Displaying the kind of salesmanship that any car dealer would envy, he began by flatteringly noting that Ford had followed suggestions we'd made in an open letter to him, published a month or so after he had left Boeing and took the job in Dearborn.

Three years later, few would dispute that Mulally, despite the extreme pressure applied by the global recession, the credit crisis and the crash in vehicle sales, has done an excellent job of reshaping Ford. Thanks to his pre-credit-crisis decision to mortgage the company's assets to build up capital for that restructuring, Ford is the only member of the Detroit Three that hasn't sought bankruptcy protection. What's more, the company has at least temporarily overtaken General Motors to become the largest U.S. car and truck maker.

That doesn't mean all Ford's problems are over; far from it. The company is still losing money. Its stock remains in the doldrums, despite a big gain recently. In China, Ford is a relatively weak player in a strong auto market. In Europe, it's making money, but not much. And in the U.S., Japan's Toyota and Honda remain formidable rivals, newcomers like Korea's Hyundai pose a threat, and a newly slimmed-down and more efficient GM is emerging.

But Mulally, who seems unshakably optimistic, appears undaunted by the challenges, as our discussion quickly indicated.

Barron's: You've managed to keep Ford out of bankruptcy. But has this put your company at a disadvantage against Chrysler and GM, which have used the bankruptcy process to reduce debt, dealers and workers?

Mulally: No, the bankruptcies at GM and Chrysler haven't put us at a disadvantage. Yes, they have negotiated deals with the UAW and restructured debt. But it's not my perception that GM and Chrysler have more strength in dealing with the union. If it would have been an advantage for us to go to bankruptcy, we would have gone to bankruptcy. But we think that we can recreate a viable company without that, and we are already on that path. Every company has a slightly different business model. We negotiated things that were important to us. They negotiated things that were important to them.

In fact, the GM and Chrysler bankruptcies may have helped our sales. There is a survey showing that 97% of all the people in the United States know that GM and Chrysler declared bankruptcy and are taking taxpayer money. And another study shows that new-car buyers were looking first at Ford, Toyota and Honda because of that. Buyers like our products, they like the fact that we are creating a strong long-term viable business, and they feel that they are dealing with a company that will be here for the long haul.

What about the recession? Are we coming out of it? And how soon do you see the auto market reviving?

We won't be able to say whether we're now on our way out of the recession until we can look back at it in a few years. But it may be that we are. We have just seen a 1% contraction in U.S. GDP in the second quarter, and we pretty much agree with most economists that we'll see a 1½% expansion in the third quarter, maybe a bit more than that in the fourth and a continued slow pickup over 2010. As for car sales, the current selling rate is a bit below 10 million a year, down from a peak of 16 million. Our best look forward is that we'll see around 10.5 million to 11 million for 2009, 12.5 million in 2010 and maybe 14.5 million in 2011. Now, clearly, this would be a very slow recovery, compared to what we have seen in the past, and a lot of people believe that we are being pretty conservative. For sure, at these lower rates, we aren't even at the normal replacement rates for cars, and the demand driven by the government "Cash for Clunkers" program alone is unbelievable. But it's appropriate for us to be cautious.

You've been a supporter of a cohesive U.S. energy policy. Are we getting there?

A higher gasoline tax [to discourage consumption] is one element of a comprehensive energy policy. But we need a strategy that addresses all the pieces. It must involve the consumer. We need to build energy awareness into all the other things we are doing I'm very pleased that the administration has moved energy independence up on its agenda. Ford is on track to meet the new tougher gas-consumption rules for vehicles.

Is there a chance that U.S. gas consumption has peaked, with more people buying small cars?

We look at driving habits closely all the time. In the end, the truth is that no one knows what will happen. Even though we have increased the fuel efficiency of cars by 100% and trucks by 70% since the original CAFE [Corporate Average Fuel Economy] rule was enacted in 1975, U.S. citizens are now driving something like three times the number of miles and using four times the amount of gas. Demand and prices did peak in 2007 and have since come down. But, based on history, unless the consumer is involved in a comprehensive energy policy, little will happen to change long-term habits. We assume that, over the long term, Americans will drive more and that we'll pay more for energy. So we have to improve our vehicles' fuel mileage every year.

What about cars and trucks powered by alternative energy?

The internal-combustion engine and the diesel engine are going to be around for a long time. The most important thing is to keep improving those, especially with new lightweight materials and better electronics. Our current hybrids are the Ford Fusion sedan and the Escape SUV, but we will see more. Hybrids will always be a challenge because you are carrying two powertrains -- the gasoline engine and the electric motor. The biggest problem right now is the batteries, but we are working on that. We will have small-scale production, starting in 2011, of an all-electric Focus compact car. Hydrogen-powered cars will start playing a role further out, but the difficulty there is the required infrastructure in refueling stations.

Your recent results were better than Wall Street had expected. What's ahead?

Cash burn in the second quarter was $1 billion, down from $3.7 billion in the first quarter, leaving us with $21 billion in the bank. We think we will be profitable and have positive cash flow in 2011. We have had a robust plan over the past few years, and we have stress-tested it. We now have a track record of knowing what we are doing, and we continue to make a lot of progress. But we still need a significant cushion to deal with unknowns going forward. Things are still pretty fragile. We love our bankers. We are going to pay them back, early if possible.

What about market share?

We're gaining it. But we don't want just growth; we want profitable growth. Market share is kind of a result of running a healthy business. We are going to continue to match our production to real demand. You have to offer big incentives when you produce too many vehicles.

[continued]
 

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Discussion Starter #2
You're not only producing fewer cars, but you're offering fewer brands now.

During the toughest of times, we decided to focus on the Ford brand. It was absolutely clear to me that we had to move from a house of brands to brand clarity around the Ford nameplate. So we divested Aston-Martin. We divested Jaguar. We divested Land Rover. We have separated Volvo out for sale, and we are talking to potential buyers. We reduced our equity position in Mazda. We now have a laser focus on the Ford brand. Look at what the government did with GM. By shedding brands, they're creating a Ford look-alike because that's what is needed to make a viable company.

Everyone said that changing the culture at Ford would be the most difficult part of the job. Ford has a lot of talented people, but the company was so regionalized that pulling people together around the world and getting those with different skills to work together was the hardest part.

We also made another strategic decision, that in every market around the world we would serve every market segment, everything from trucks to small cars. [At this point, Mulally drew a chart showing much of Ford's global vehicle lineup, starting with the small European Ka, which the company hasn't yet decided whether to introduce to North America, and going up in size to the Fiesta, Focus, Fusion and Taurus cars, the Edge crossover, the Explorer, F-Series trucks and minivans.] This is the finest car lineup that Ford has ever had, and could be the finest car lineup in the industry in the U.S. Concessions are going down, incentives are going down, net pricing is going up. We changed our entire design team because we wanted to create the best designs in the world -- the way they look, the feel.

In the past, critics, including us, have faulted Ford for not bringing more of its European cars to the U.S. and Canada.

We are bringing global cars to North America, starting with the Fiesta in 2010. By 2013, at least seven Ford brand nameplates -- 80% of our production -- will be on global platforms. That means common parts and large cost savings. This is dramatic: When I came to Ford three years ago, we had 97 nameplates. Now we have just 59. Can you imagine what that means in terms of being able to focus efforts? In addition, because market segments contract and expand, we're pushing toward more flexible plants. Almost all of our plants are going to have flexible body shops in the next two or three years, so they can build several vehicles. That, combined with fewer platforms, will make us very, very flexible. All our plants are now more efficient. Many are half of the size they were in terms of the number of employees. We did all that by working in a collaborative way with the union.

You've been trimming dealers, too.

We are right-sizing the dealer network. Everybody says we didn't cram down on the dealers like [GM and Chrysler] are doing. Well, we didn't have to. We have been consolidating our dealers for a number of years now, taking out nearly 20% over recent years, and the only issue that we have left is that we still have a few too many Ford dealers in the big metropolitan areas. Everywhere else throughout the U.S., we're in great shape. We've got the best dealer network in the business.

A big industry concern is the health of the suppliers, who've been devastated by the sales downturn.

We testified in support of GM and Chrysler getting temporary help from the government because, if they went into a free-fall, they would have taken the supply base with them. On the other hand, we had something like 20% overcapacity among suppliers in the U.S., so some consolidation was necessary. We're watching this very carefully because it is still very tough for the suppliers. There have been a lot of failures, and I absolutely expect more.

One last question: Some of your competitors are ahead of you in China, which seems to be the only healthy car market now. What's ahead for you there?

A large portion of our plan is to expand in Asia-Pacific. In the future, we think about a third of the worldwide market will be Asia-Pacific, about a third will be Russia and Europe and about a third will be the Americas. The Chinese are going to continue to make better and better cars. Any foreign company in the automobile industry in China needs a partner. We are doing car ventures with Chang'an Motors and commercial vans with Jiangling. We have had no real trouble with intellectual property rip-offs. Our point of view, long term, is that the Chinese are going to make better and better cars. But it is not us versus the Chinese. The Chinese are our partners.

Coming attractions
Here are some of the new or redesigned vehicles in Ford's U.S. pipeline. In addition, Ford may add others not listed, including a compact sedan and a compact crossover, over the next three years.

2010 MODEL YEAR
Ford Taurus
(large car)
Ford Fusion (midsize car)
Mercury Milan (midsize car)
Mustang (sporty car)
Transit Connect (compact van)
Lincoln MKZ (luxury car)
Lincoln MKT (crossover)

2011 MODEL YEAR
Fiesta
(subcompact)
Edge (minivan)
Explorer (sport-utility vehicle)
F-Series Super Duty (large pickup)
Lincoln MKX (luxury SUV)

2012 MODEL YEAR
Focus
(compact car)
C-Max (small minivan)
Escape (small SUV)
Mercury Mariner (small SUV)
Lincoln MKS (luxury sedan)
 

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From connecting many dots, I would agree that many underpinnings and nameplates are coming from Europe. The Kuga and Mondeo are prime candidates for our market, but who knows if they will keep their proper names or get stuck with the US names such as Fusion and Escape. Looking at the car list above, I would guess they would keep the US names. I like Mondeo better than Fusion, but actually like Escape better than Kuga. I still am terrified that anything that comes to the US will be dumbed down and turned into more half-assed attempts. The Fiesta is Ford's first chance to undo years of damage. Even reading in Car & Driver this weekend, they expect the US Fiesta to have way less than the Fiesta Movement cars from Europe.
 

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Interesting comment about the Ka, aside from the fact that many feel the new Fiat 500 based version isn't as much fun as the old one, if Fiat are going to make the 500 suitable for sale in the US, then it would probably be relatively inexpensive for Ford to follow suit with the Ka.

It will be interesting to see what happens with the Mondeo, this is a very sophisticated car, and one that is much more expensive to produce that something based upon fully amortized Volvo underpinnings. I remember when it was previously sold in the US, but was more expensive and smaller than the Taurus, so was doomed from the start.
 

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The scary thing is that now we are seeing Ford fall back into what the yhave ALWAYS done in the USA...be lead by the nose of the so called experts (various consulting companies) to fatten up, dumb down, and fumble with otherwise GREAT products from Europe, that can be produced at reasonable cost, IF they refrain from buggering up great product in the interest of "tailoring" the product to meet the needs of the US market.

The Fiesta is a amazing product JUST as it is from FoE. Yet even though Ford brought the European model to the US and is convincing potential buyers to take a serious look at them... Ford in Dearborn is CHANGING it (aside from the neccessary DOT/EPA) critical items like seating and major styling cues that have been clearly praised by the US customers that have seen the European product.

Ford WHY change something if it works for the ROW and can be produced at reasonable cost for the US!?!?!?!

Concerning the Mondeo MKI (Ford Contour) I think its failure was one of inept marketing and potentially intentional sabotage by Ford Dearborn as if it was successful it woud have stolen sales from the crappy Taurus and shown the incompentnce of the US division. This cars failure was the result of Ford in Dearborn protecting their turf from Koln.....It had happened many times before with the old Fiesta (replaced by the horrible US Escort) the XR4Ti (dumbed down from the excellent Sierra) and the European Granada of the mid eighties as well.
 

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Woozers, 2012 is the year listed for N.A. Focus??????

I knew the launch had been pushed for later but I did not think North America would be 1 whole year behind Europe Focus launch.

Could it be a typo?
 

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I think much of the issue is that Ford NA is trying to cheapen its cars to gain profit from production. If they would sell the car at a real competitive price than a cheap price things would be a lot better. But thats the problem is that these so called experts just trash these Euro Cars because they're better than ours.
 

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Discussion Starter #9
Woozers, 2012 is the year listed for N.A. Focus??????
I knew the launch had been pushed for later but I did not think North America would be 1 whole year behind Europe Focus launch.
Usually the Model Year is one year later than the production/introduction year.
 

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Usually the Model Year is one year later than the production/introduction year.
Yes I am aware how Model Year works. But Ford N.A. original plan for Focus launch was for late fall 2010, making the Focus a MY2011. I read that the launch for N.A. was delayed and launch would happen early January 2011.
So 2011 Focus production Job1 would start approximately end of October 2010 - beginning of November 2010.

Kuzak quote as of July 19, 2009
"Ford’s product development chief Derrick Kuzak told Reuters that the North American launch of the Ford Fiesta and the redesigned Focus are on schedule for next year. Kuzak said that production of the Fiesta will kick off in Mexico in the first half of 2010, followed by the Focus in the second half."
Kuzak: Ford Fiesta and redesigned Focus on schedule for next year - egmCarTech

But if your article is correct and North America Focus will be a MY2012, then production or Job1 will start in the year 2011 with earliest launch time of March 2011.
 

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I think much of the issue is that Ford NA is trying to cheapen its cars to gain profit from production. If they would sell the car at a real competitive price than a cheap price things would be a lot better. But thats the problem is that these so called experts just trash these Euro Cars because they're better than ours.
Perfectly stated.
 

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Discussion Starter #12
At least the multi million dollar cost of development for the Fiesta has been paid by Ford of Europe.
 

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Don't forget a couple more million in the North American Branch spent on how to possibly ruin a great car.
 

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Don't forget a couple more million in the North American Branch spent on how to possibly ruin a great car.
So absolutely TRUE!!!!!!!


I still can't believe the FORTUNE that Dearborn spent mucking up the MKI Focus when the did the big "refresh" for 08. What a waste!
 

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Discussion Starter #15
Well, it's official now: the Grand C-Max will come stateside in late 2011.

And Kinetic 2.0 design will be used on smaller cars (like the C-Max), which makes me think: why did they bother to mix Kinetic 1.0 with I'm Dave on the Fiesta in the first place now that they are ditching Red-White-Bold ?
 

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I believe its now possible, I almost am scared to say that by 2012 most of the American car line up will either be totally different or having the additions of a few more vehicles from Europe.
 

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Discussion Starter #17 (Edited)
Did you see the Jay Leno Show? Why do you think Ford has offered an electric EURO Focus for that show?

I mean, the car had to be modified, so it could've been a US Focus. But no, they brought a Focus ST and had it's guts removed. Oh and they fitted Focus RS suspension on the front. A foreshadow of Ford styling to come?


vs
 

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Discussion Starter #18
From Ford.com:

Additionally, Ford is confirming that the Grand C-MAX model will also be introduced in North America in late 2011, joining the new Fiesta, the Transit Connect commercial van and the next-generation Ford Focus as one of six European-designed models promised by the company under its 'One Ford' strategy.

So what would the other 2 European fords to be introduced in the USA be?
 

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From Ford.com:

Additionally, Ford is confirming that the Grand C-MAX model will also be introduced in North America in late 2011, joining the new Fiesta, the Transit Connect commercial van and the next-generation Ford Focus as one of six European-designed models promised by the company under its 'One Ford' strategy.

So what would the other 2 European fords to be introduced in the USA be?
My guess is Kuga and Transit. I know they talk about keeping the Taurus, Mustang, and F-150 as uniquely American, and I think the Fusion will remain more American "bold" than the next Mondeo as well considering how successful it has become. I know many on here disagree, but I prefer the Fusion to the Mondeo anyway.
 

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Discussion Starter #20
Kuga as a Escape replacement? Could be: if both the Focus and Grand C-Max are made on the same platform, why not add another car using that platform. Maybe the next Transit Connect could be assembled in the US on that platform aswell.

Transit is a possibility. The E-series is aging, right? Well, it would explain why they introduced the Transit Connect as is: otherwise you may have called it 'Connect' without the Transit moniker.

But is the Fusion that popular? I thought the 2010 Taurus is now the star of the show?
 
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