Interview With Alan Mulally, Ford’s Chief Executive Officer
By JAY PALMER and RICHARD RESCIGNO
ALAN MULALLY KNOWS A THING OR TWO about industrial crises. In 1969, after having graduated from the University of Kansas with an engineering degree, he began his career with Boeing. Three decades and an MBA from MIT later, he was a top executive when Boeing was toppled from its position as the world’s No. 1 commercial-plane producer and had to restructure to handle the challenge from its ascendant rival, Airbus. As president of Boeing’s commercial-plane division, he is largely credited with leading the company’s successful rebirth and resurgence. That helped prepare him for the even bigger challenge he faces now.
A year ago, Mulally, now 62, was named CEO of Ford. At that time, Barron’s published an open letter to him (“Welcome to Ford; Now Save Us, Please,” Sept. 11, 2006), laying out what we thought he needed to do. Perhaps surprisingly, he has done much of what we suggested, including adopting new strategies, trying to establish a distinctive look for the core Ford brand and moving to bring some of the auto maker’s well-designed European models to the U.S.
But doubts over Ford’s long-term viability persist — just last week, it reported a 14.4% decline in August sales — and the stock (ticker: F) has declined slightly since his appointment. At a recent 7.83, it was very near its 10-year low. Recently, two Barron’s editors lunched with Mulally and some of his aides to discuss the auto industry’s outlook, Ford’s prospects and his plan to revive the Dearborn, Mich., manufacturing giant.
Barron’s: You’ve been CEO for almost precisely a year. How are things going and what are your top goals?
Mulally: Clearly, the really high priority is to focus on the Ford and Lincoln-Mercury brands, and to integrate Ford around the world around those brands. Our focus is on the Ford brand above everything else.
We are strategically rationalizing our house of brands. We now have seven — Ford, Lincoln, Mercury, Mazda, Jaguar, Land Rover and Volvo. Aston Martin has been sold, but seven is still too many. It has been widely reported that we are looking at our options regarding Jaguar and Land Rover, and those reports are accurate. But we still have some big strategic decisions to make.
So does that mean that Volvo and your stake in Mazda might also be sold, and that Mercury could be closed, as we said it should be in our open letter to you?
We think that the Lincoln lineup is a good complement to the Ford brand. And we are strategically reviewing the future of Volvo. But I can’t say anything more than that. I can’t talk about what we might or might not do.
Fair enough. But let’s hypothesize. If you did sell Jaguar, Land Rover and Volvo, that would leave you with Lincoln as your only luxury brand. Given that the luxury market remains quite strong and profitable, would Lincoln be enough?
![[Mulally photo]](http://fiestaford.wordpress.com/public/resources/images/ON-AH379_bqapho_20070908021716.jpg) |
| Alan Mulally |
Luxury can apply over lots of different markets. Can we scale up the Ford brand? Absolutely! We continue to invest in Lincoln. Can we do more? Would we maybe want to do more? Well, we are going to decide about that. What do we want to do about Mercury? We can invest the same, we can invest more or invest less. Those are decisions that we will take going forward.
You surprised a lot of analysts by reporting a $750 million profit for the second quarter. But Ford has been losing market share; it’s now a bit above 15%, not counting Jaguar, Volvo or Land Rover. Where does it bottom out, and when do you hope the company will again start to be consistently profitable?
Our plan is to aggressively restructure the Ford business in the near term to support the changing customer mix and changing market preferences, with a full product line of cars, crossovers, SUVs and trucks.
Our aim is to return to profitability in 2009 and grow profits after that. We’re looking for market share to stabilize around the 14% to 15% mark as we go through the recovery process. We are not only restructuring to get to the real demand in the near term by changing the model mix; we are also accelerating product development. About 70% of our vehicles will be refreshed or new by the end of 2008. And 100% will be refreshed or new by 2010.
A lot of Americans just won’t consider a U.S. car anymore, even though some American models consistently show up as more reliable than foreign ones. Are these potential customers lost forever? Are you making any inroads with a younger generation and new buyers?
Our top priority is to make customers aware that they do have a viable choice. We want to get Ford back to the point that our cars are considered. This starts with having great products, because you can’t promise something and not deliver it.
What about markets abroad? In the last quarter, you did quite well in South America and fine in Europe. You are also doing OK in China, for a relatively late comer to that market. What are you doing right overseas that you aren’t doing here?
In South America, we got ahead on the smaller cars that people really wanted. Europe also is doing better because of the fundamental environment; petrol and diesel prices are high there. Consumers have been making a conscious decision to buy smaller cars, and we have responded very aggressively. Our models are not only more fuel-efficient, but they have got great fit and finish, they have got great driving characteristics. The new Verve [a concept car that probably is the prototype for a small auto that will go on sale in Europe, Asia and North America sometime between 2008 and 2010] is just another car like that.
America, of course, is the last big market to recognize and appreciate smaller vehicles. Our strategy over the years, was to make bigger sport-utility vehicles and trucks because that is what customers wanted. Every once in a while, we would come out with a new car, but our real focus was on big SUVs and trucks. So again, this is a strategy change. We now plan to have a full product line of small, medium and large cars, crossovers, SUVs and trucks, and all of them will be fully competitive.
One thing we suggested in our open letter is that you should tap your European portfolio of cars and bring some over here.
Absolutely. A key part of accelerating the development of new cars and trucks — a kind of subset, if you will — is to leverage our assets around the world. Ford is, I like to say, a small large company because Ford was set up that way. All the Ford units around the world have grown very independent and very autonomous. Our aim is to have everyone sitting at the same table, so that we can all share the same purpose, the same tactics, the same strategy.
We are launching the new Verve at the Frankfurt Auto Show [this week]. It’s a B-class car [smaller than a Focus but larger than Ford's smallest vehicle, the European Ka]. What you will see in the Verve will be very indicative of the kind of styling that will mark our small cars in the future. It’s fun. It’s exciting. It has great lines; it’s very pleasing to the eye. Our future cars will all be more kinetic. Small cars give you a real opportunity to do some very creative things; they don’t have to look like a matchbox. And as we go forward, we’ll expand the product lineup further.
