Outsider set to put Ford back on the road

The Ford name is ubiquitous in Detroit

The Ford name is ubiquitous in Detroit. Bill Ford Jr, chairman of Ford Motors, owns the Detroit Lions football team, which plays at Ford Field.

Not far away is the Henry Ford Health System, one of the city's top hospitals. But suddenly the company that Henry Ford started 103 years ago has, for the first time in its history, an outsider as chief executive - neither from the family nor a lifetime Ford employee.

Alan Mulally knows why the call came. As the man flown in from Boeing starts running Ford, he will have seen all the problems the car maker faces: sliding sales, half-empty factories, poor productivity, an inflexible workforce, huge and growing losses and rock-bottom morale.

Mr Mulally will join Ford's other directors at a board meeting next week to put the finishing touches to a plan aimed at reversing years of falling shares in the key North American market and missed financial targets (markets put a probability of about 40 per cent that Ford will default on its bonds or file for bankruptcy within five years).

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It will mark the third attempt in less than five years to reinvigorate the company. Mr Ford acknowledged in a memorandum to the company's 300,000 employees last week that "the business model that sustained us for decades is no longer sufficient to sustain profitability".

Until recently Ford's woes were eclipsed by a crisis at GM, which has racked up heftier losses and is considered by many to be in a more fragile financial state.

GM's North American operations lost $6.8bn (€5.3bn) before tax in the first half of this year, compared with $243m at Ford. Nonetheless, the troubles at Ford (which incurred a worldwide net loss of $1.3bn in the latest six months) are arguably deeper and more intractable, because they are rooted in a culture that is both flawed and deeply ingrained.

Amid the gloom infecting Ford's boxy headquarters in Dearborn, near Detroit, there are precious few bright spots: the Mustang muscle car is doing well - Canadian sales hit a six-year record last month.

Cast an eye further afield, though, and Mr Mulally - as well as Ford investors - can find an example to counter the pessimism in Michigan. That example is Fiat, long the basket-case of the European car industry but, under a new leader, now back on the autostrada and motoring.

The parallels between Fiat's position two years ago and Ford today are striking. Both have taken a decision, rare in the car industry, to parachute in a leader with no executive automotive experience (in the case of Mr Mulally, no motor experience at all).

Both have strong family shareholders unwilling to cede control of the company. Both companies have high-profile executive chairmen far more experienced in the company than the chief executive they recruited.

Just as Bill Ford has surrendered the chief executive's post to Mr Mulally, Luca di Montezemolo, a long-standing friend of Fiat's controlling Agnelli family, spent many years as chief executive of Ferrari, a Fiat subsidiary.

Finally, both Mr Mulally and Sergio Marchionne, who took the helm of Fiat in June two years ago, inherited business strategies drawn up by their predecessors - plans in which markets have little confidence.

Yet Mr Marchionne has succeeded in turning Fiat from a company that, in his words, "somehow lost its ability to compete" into a profitable business, winning back market share and beating the targets he inherited.

Certainly, the task will be difficult at Ford, a company seen by many as plagued by bureaucracy and a way of life that insiders characterise as "meetings about meetings". This sluggishness became evident even as Ford - like GM and Chrysler - saw profits soar in the late 1990s from surging demand for sport-utility vehicles and pick-up trucks.

Ford was in the forefront of the rush to SUVs and pick-ups. Its flagship Explorer became America's most popular SUV, with sales reaching a peak of 445,000 vehicles in 2000, equal to 11 per cent of Ford's total US unit sales.

Ford spearheaded the transformation of the pick-up truck from a working vehicle to one that millions of American families wanted in their driveways.

In addition, Ford poured resources into hammering together a global luxury-car group. Having bought Jaguar in 1989, it added Aston Martin, Volvo and Land Rover over the next 11 years.

But it took its eye off the bread-and-butter North American car business. It allowed the Taurus, for years the US's best-selling car, to age, then further damaged the brand by pushing it into car-rental and other fleets.

The neglect of the car business is hitting home at a time when high fuel prices, rising interest rates, a slowdown in the housing market and intensifying competition has dampened demand for Ford's SUVs and trucks.

Such setbacks have been accompanied by management departures. The one constant has been the Ford family. Henry Ford's descendants - among them Bill Ford, aged 49, his three sisters and 13 cousins - own about 5 per cent of the equity but control 40 per cent of the voting stock.

Bill Ford's father, William Clay Ford Sr, and cousin Edsel also sit on the board. But Bill Ford's tenure has been marked by missed deadlines and shifting targets. First, he outlined a "revitalisation plan" that promised to produce $7bn in pre-tax profit within five years.

Then, as it became obvious that the target would not be met, Ford devised another turnround plan, known as The Way Forward, which was unveiled with much fanfare in January.

The Way Forward calls for the North American operations to return to profitability by 2008 through, among other measures, the closure of 14 factories and 30,000 job cuts.

Eight months on, Ford is clearly still struggling to find a real way forward. A pledge to reverse market-share loss this year is unlikely to be met.

At Fiat, the approach Mr Marchionne took had two main thrusts: fixing the finance and changing the culture, which, like Ford, was inward-looking and resisted outsiders.

He cleared out many top executives, removing the rigid hierarchy and creating a top team of young managers he refers to as "my kids".

Could Mr Mulally take the same approach?

Like Mr Marchionne, he has arrived to find some parts of the business already on the block and a wide-ranging review of the rest under way, conducted by Kenneth Leet, a former Goldman Sachs banker recruited to Ford last month.

Aston Martin, the British luxury car brand, is being sold by UBS, with a price tag put by insiders at close to $2bn, although analysts believe it is worth far less.

The troubled Jaguar brand, together with 4x4 specialist Land Rover, are also expected to be put up for sale within the next couple of months, while Sweden's Volvo and a stake in Ford Credit, the finance arm, could be sold if necessary.

Mr Mulally was known at Boeing for his skill in aircraft design. If he can find a way to transfer that ability to cars, perhaps he can put Ford back on the road.