Thomas White Global Investing
Global Players

Global Players

May 2010

Alan Mulally, CEO, Ford

Alan Mulally

Image Credit: Renato Araujo’s work produced by Agencia Brasil under a Creative Commons license

“I am here to save an American and global icon.”

— Alan Mulally, 2009

“Improve Focus, Simplify Operations.” This kaizen-like mantra is the primary wellspring of inspiration for Alan Mulally, the CEO of Ford. Since joining the iconic car manufacturer’s management in 2006, Mulally has been instrumental in the transformation of the company. His biggest achievement, though, has been the rapid reversal in Ford’s fortunes — the firm which was perilously close to bankruptcy in 2006 posted profits in 2009.

Mulally is not an auto industry veteran, and that makes his accomplishment all the more impressive. Prior to joining Ford Mulally manned Boeing’s cockpit for 37 long years, rising from design engineer to CEO of the commercial airplane division. Known to turn loss-making divisions into profitable ones, Mulally was recognized as the force behind the triumph of Boeing over Airbus in the mid-2000s. It is this skill that Ford sorely needed in 2006, when it suffered a huge $12.6 billion loss. Recognizing Mulally’s dexterity in turning around ailing firms, Ford Chairman Bill Ford brought him on board. As it turns out, that was a judicious move.

Mulally quickly set about fixing every glitch in Ford’s growth engine. He mortgaged the company’s assets, which ranged from vehicle stocks and factories to even the company logo. The newly appointed CEO also garnered money by slashing production and selling off Ford’s luxury brands like Land Rover, Jaguar and Aston Martin. What’s more, he pared the number of vehicle models from 97 to less than 20, shuttered plants and laid off workers.

However, so bad were Ford’s problems that despite Mulally’s drastic actions, it lost $14.8 billion in 2008, the most in its 105-year history. That year, the automaker avoided a complete breakdown by using 61% of its cash savings. Fortunately, Ford had money to fall back on. General Motors and Chrysler, the other two automakers that make up the famed Big Three along with Ford, were so cash-strapped that they quietly accepted government bailouts. Ford was the only one that did not declare bankruptcy. An amazed John Casesa of auto consulting firm Casesa Shapiro later told Businessweek: “The speed with which Mulally has transformed Ford into a more nimble and healthy operation has been one of the more impressive jobs I’ve seen.”

Indeed, the aeronautical engineering postgraduate’s trademark sunny grin and smooth charm belie a razor-sharp mind and an almost clinical approach to decision-making. Mulally stoically maintains that the 50,000 job cuts and 17 plant shutdowns in recent years were absolutely necessary to keep Ford afloat.

Ford’s market share so far in 2010 is over 17%, a first for the company since 2006.

His foresight is evident in the “Way Forward Plan” he crafted soon after familiarizing himself with Ford’s workings. The key principle in Mulally’s stratagem was a shift from exclusivity to centralization. One of the first steps in his plan called for the modernization of Ford’s plants so that they would be flexible enough to build multiple models rather than just one. The CEO also wanted Ford to change its sales tactics and focus on vehicles that could be sold in many markets rather than just a few niche ones.

Mulally’s restructuring strategy was not limited to finances and operations. He envisioned a radical change in Ford’s corporate culture. Known for internal politics and bureaucracy, Ford was made up of several scattered divisions that functioned like mini kingdoms. To inculcate badly needed transparency and cooperation, he initiated the Business Plan Review system. With this, Ford’s global division heads would update Mulally on their weekly progress. “I don’t think an insider could have moved us so speedily to a ‘one-Ford culture’,” remarks Lewis Booth, Ford’s chief financial officer to the New York Times.

Mulally’s sweeping reforms seem to have paid off. In 2009, Ford recorded a profit of $2.7 billion, the first time in four years. The company also slashed its annual structural costs by $5.1 billion in 2009, which was a billion more than had been planned. The year 2010, too, has begun extremely well for Ford as it posted a $2.1-billion profit in the first quarter and a 32.3% jump in U.S. sales.

Still, it is not time yet to slip into dancing shoes. Ford has a debt of $40.1 billion and last year, the company’s interest costs alone were $1.5 billion. However, Mulally expects Ford to break even in 2011 without accepting financial CPR from the U.S. government. Finances apart, the company is debating the future of gasoline, trying to decide which green technologies it should embrace. Evidently, this is one decision Mulally has not been able to expedite. “You really can’t choose between the technologies because you don’t know which ones are going to evolve,” he tells The Times.

Mulally, who holds a pilot’s license, came to Ford as a man used to flying airplanes. But he has shown that the view from above is often what is needed.





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