BUSINESSWEEK ONLINE : OCTOBER 11, 1999 ISSUE
COVER STORY

Remaking Ford
In his quest to make Ford a more consumer-oriented powerhouse, Nasser is off to a fast start

Jacques A. Nasser is on a tear. Prowling in his shirtsleeves among tables ringed with young managers in a Dearborn (Mich.) conference room, Ford Motor Co.'s new chief executive is outlining his vision of the new Ford as part of a three-day training program for newly minted junior executives. The fast-changing auto business is brutally competitive, he reminds them. And nowhere is that more true these days than within the walls of Ford. If playing at this level doesn't make ''the hair stand up on the back of your neck when you talk about it,'' he suggests, ''then go somewhere else. Go to our competition. We'd love it.''

But Nasser's fervor really starts boiling over when he describes the mentality he's trying to banish forever. He grabs a blue folder from a table and tells a story about the old Ford. ''I knew a senior officer who used to carry a list of the 50 top officers in the company with their birth dates,'' he tells them, waving the folder. Why? So the officer would know when they were retiring and he would get his next promotion. Nasser is shouting now, and the managers are frozen in their seats, barely breathing. ''There is nobody today carrying around a birthday list!'' he thunders, slapping down the folder. ''You've got to earn [a promotion]. The days of entitlement at Ford Motor Co. (F) are gone forever.''

Are they ever. Since the hard-charging 51-year-old executive took over in January, he has picked up the whole organization by the lapels and shaken it. His goal? To reinvent the 96-year-old industrial giant as a nimble, growth-oriented consumer powerhouse for the 21st century, when a handful of auto giants will battle across the globe.

That's why Nasser has declared war on Ford's stodgy, overly analytic culture. In its place, he envisions a company in which executives run independent units--cut loose from a stifling bureaucracy and held far more accountable for success and failure. And with a consumer focus at the heart of his retooled Ford, he's banking on a future in which designers, engineers, and marketers someday will do a far better job of anticipating the wants and needs of car buyers.

He's hardly there yet, but Ford's new CEO is off to a jackrabbit start. In his first nine months, Nasser seems to have more initiatives in the works than a used-car dealer has negotiating ploys. Since January, he has spent $6.45 billion buying Volvo, revved up efforts to overhaul the way Ford designs its cars, and launched plans to increase Ford's luxury-car sales. And with an innovative deal Nasser struck in early September with Microsoft's (MSFT) MSN CarPoint service, he's moving far faster than other auto makers to embrace the Net.

ALL STARS. That's not all. Nasser soon plans to unveil an organizational shakeup that will rock Ford's units around the world. Moving away from the centralized authority established by his predecessor, Alex J. Trotman, Nasser is creating semi-autonomous businesses out of the company's brands and regions, such as Ford of Europe and Ford of South America. And to sharpen profits, he's pushing to spin off Ford's low-margin parts operation, Visteon Automotive Systems (page 140), even as he trolls for higher-margin services. He already has taken tentative first steps toward a risky cradle-to-grave strategy in which Ford will have a hand in everything from auto repair to junkyard recycling.

To help him out, Nasser has recruited an all-star team of executives, including a key designer of Volkswagen's new Beetle and the man who revived BMW's luxury line. Indeed, with DaimlerChrysler (DCX) in turmoil and General Motors (GM) still run by its old guard, Nasser's Ford is suddenly the place to be for ambitious Motown executives. ''Nasser is positioning Ford to make a quantum leap,'' says consultant Noel M. Tichy, an adviser to General Electric Co. (GE) CEO Jack Welch, who is now working with Ford. ''He wants his legacy to be that he did for Ford what Welch did for GE.''

It's an ambitious strategy--and if he pulls it off, Nasser will have created not just one of the best global auto companies but one of the best global companies, period. Yet it's also full of risks, not least of which is that he may simply be pushing too hard and in too many different directions to put his stamp on the place. Within the once-hidebound corridors of Ford's headquarters, there's a sense of excitement and uncertainty about where Nasser is going. ''Ford is an amazing place right now; we haven't seen a personality like Jac's in this business for so long,'' says David E. Cole, director of the University of Michigan's Office for the Study of Automotive Transportation. ''It's either going to explode in greatness--or it's going to explode.''

It's also a pretty heady place to be for a restless, Lebanese-born outsider. Since starting as a young manager in Australia 31 years ago, he has spent nearly all of his career in the far reaches of the Ford empire, bringing along Jennifer Nasser, his wife of 26 years, three daughters, and a son. Nasser early on showed the impatience with Ford's bureaucratic fiefdoms that still fuels him today. He recalls that when he left in 1977 for Ford's struggling Philippines unit, his boss warned: ''If you leave, you'll never come back to Ford of Australia.''

He did, though, returning to turn the troubled unit around in 1990 before moving on to do the same in Europe. By the time he finally hit headquarters in 1994 to head product development, Nasser had developed a nimble entrepreneurial style, says Robert A. Lutz, an ex-Chrysler vice-chairman who was once Nasser's boss at Ford. ''Jac learned to make decisions in smaller markets where you could make fast decisions without a lot of bureaucratic oversight from Dearborn,'' says Lutz, now chairman of battery maker Exide Corp. Recreating that experience for a new generation of Ford managers--even those at Dearborn--drives many of the changes Nasser is pushing today.

But why such a rush to tear things up? After all, Ford is already the strongest player in the global auto industry--thanks to the trail Nasser blazed on his way to the corner office. Back in 1996, when Nasser was elevated to chief of global auto operations, Ford had the worst profits from total vehicle sales of any U.S. auto maker, and two-thirds of its $4.4 billion net income came from financial services. Nasser swept in like a tornado, chopping car models and jobs and squeezing suppliers for a cumulative $6.2 billion in savings.

But Nasser--who has come to despise his ''Jac the Knife'' sobriquet--did much more than cut costs. His push for more creative design has been instrumental in allowing Ford to seize the lead in the red-hot markets for pickups and sport-utility vehicles. The result: Ford is now the world's most profitable auto maker, with $5.9 billion in net income from continuing operations last year. Thanks to its purchase of Volvo and its increased control of Mazda, Ford looks likely to overtake GM for the global sales crown by 2001. And car buyers aren't the only ones pleased. Ford's stock price has risen 130% since the end of '96, outracing the 71% gain of the Standard & Poor's 500-stock index as well as its global auto rivals.

But now, Nasser needs to take his game up a notch. For if Ford appears to be firing on all cylinders, in fact it's hitting on just one: trucks. Torrid SUV, minivan, and pickup sales in North America contributed 64% of Ford's operating income last year, though they accounted for just 45% of vehicle revenues. Meanwhile, car sales in North America bring in barely 12% of profits. Ford makes just $489 on its average car sale, says John A. Casesa, an analyst at Merrill Lynch & Co., compared with a fat $1,785 on each truck. ''Cars in North America--that's been a downer for us,'' Nasser admits.

Just as alarming, there are signs that Ford's truck profits are getting squeezed. Toyota (TOYOY), Honda (HMC), Mercedes, and BMW are rushing to cash in on the truck-profit bonanza with a flood of new pickups, SUVs, and minivans of their own. Chrysler and GM are piling on rebates unthinkable a few months ago. The heightened competition, coupled with recent tight supplies, trimmed Ford's F-150 pickup sales nearly 8% in August. That's one reason Ford's stock is down 15% this year.

GLOBAL GLUT. Nasser's cost-cutting also did little to patch up Ford's woeful overseas operations. Facing mounting losses in South America, Ford announced a $2 billion restructuring of its Brazilian unit on Sept. 22. Things aren't much better in Europe, where Ford eked out only $245 million in profits in the first half, on sales of $14.6 billion (page 142). Morgan Stanley Dean Witter's Stephen J. Girsky says he hoped strong North American results would buy Nasser room ''to fix the rest of the world. [But] Ford may be running out of time.''

The rivalry can only get fiercer. With each megamerger--just in the past year, Daimler Benz acquired Chrysler, Ford bought Volvo, and Renault took a big stake in Nissan (NSANY)--the industry is moving closer to the day when a handful of companies have the scale to squeeze purchasing and manufacturing costs and plow billions into new models. In the meantime, the world is awash with capacity: The industry can make 20 million more cars and trucks than it can sell.

To keep Ford on top of that scrambling heap, Nasser has snatched up some of the hottest management talent in the world. First up, three years ago, was James C. Schroer, a former RJR Nabisco marketing chief who was working as a Booz, Allen & Hamilton consultant when Nasser recruited him to be Ford's global marketing vice-president. He has been put in charge of building up Ford's brands, especially its weaker Mercury and Ford nameplates. Next, in October, 1997, came J Mays, the 44-year-old hotshot who sketched the first eye-catching designs for what became VW's new Beetle. And Chris Theodore, an engineer known for work that helped make Chrysler's bread and butter minivans a hit, came on board to run large- and luxury-car development in March.

The biggest coup, though, was scooping up former BMW whiz Wolfgang Reitzle to take control of Ford's four luxury brands: Jaguar, Volvo, Lincoln, and Aston Martin. Reitzle, who had been the German auto maker's No. 2 executive, won much of the credit for its resurgence in the '90s. He joined Ford in March after he lost out in a boardroom shakeup. His arrival at Ford signaled Nasser's determination to turn Dearborn into a sort of Camelot for car mavericks.

Perhaps the most daunting challenge for Nasser's new management team will be to capture the magic that Ford found in trucks and sprinkle it onto the car side. So far, the most visible changes have come in the already-profitable luxury-car unit, where Reitzle is moving quickly to expand sales and margins. Reitzle envisions saving costs by sharing parts or even whole chassis between the brands, but ''only where the customer can't see or feel it.'' First up: the surprisingly stylish Lincoln LS and $42,500 Jaguar S-type introduced this year, both of which are selling well.

''BABY JAG.'' Reitzle's toughest task, though, will be to boost Ford's luxury-car sales from 650,000 units last year to 1 million by 2004. To succeed, he'll have to broaden the market for new Jags and Volvos without tarnishing their images. The first test for Volvo comes with the more affordable S40 sedan and V40 wagon, now showing up in the U.S. starting at around $23,000. And in two years, Jaguar, too, will take a leap with its downright thrifty $30,000 ''Baby Jag.''

Still, it's one thing to create Jaguars with sizzle; it's another to bring excitement to more plebeian cars such as the Taurus. That's why one of Nasser's highest priorities has been revamping how Ford designs its vehicles. His overhaul started when, on arriving in Dearborn, he banished Ford's longtime practice of updating aging models to match those of top competitors. He has also ended the dependence on overly quantitative analysis and market research based on showing preordained options to focus groups.

The shortcomings in Ford's old design approach led to some classic missteps. Take the 1995 Windstar minivan. Ford looked at research that asked customers if they wanted an additional sliding door on the driver's side. Having never seen one, a third said yes, a third said no, and the rest said maybe. Ford stayed with three doors, while Chrysler, with a stronger gut sense of its buyers, went for the fourth. It became a smash hit, and it cost Ford $560 million to catch up.

Now Nasser is pushing designers, engineers, and marketers to develop a similar kind of customer understanding. To shake his troops out of the old mind-set, they are sent to a Consumer Insight Center for a daylong course in how to listen to consumers and engage them in dialogue. From there, small teams are sent out for eight weeks of ''customer immersion.''

So it was that Richard Parry-Jones, Ford's product development chief, found himself club-hopping in London one recent morning until 4 a.m. with about 20 teens and twentysomethings. It made for an odd scene: Parry-Jones, 48, a Welsh-born man with thinning hair and a business suit, hanging out discussing music and fashion with a hairdresser and a clothes designer. Although Parry-Jones won't point to any specific changes that will result from his nocturnal adventures, Nasser's hope is that by getting customers in uninhibited settings, the car folks can get a better intuitive feel for what they want.

Touchy-feely? Sure. But it follows an approach Nasser championed three years ago to supercharge its truck fortunes. Then, a Ford designer and a consultant created generational ''value groups'' that translated the traits and tastes of consumers from different age groups into car preferences. Ford used those insights to give the '97 F-150 pickup a softly sculpted front end and more passenger room. It bucked all notions of a successful truck but became a huge hit with baby boomers.

A natty dresser given to three-button Savile Row suits and Patek Philippe watches--one of his few hobbies is collecting Swiss watches--it's no surprise Nasser has focused on design. Although trained as a financial analyst, he has long stood out: He combines financial smarts and instinctive product sense.

Those qualities brought Nasser to the fore in 1993 when he took over troubled European operations. He established that the overhaul would go far beyond head counts. Malcolm Thomas, then chief of the Mondeo car program, recalls their first meeting. ''I expected a business review,'' he says. ''What I got was Jac crawling all over the vehicle, poking here and there.'' He grabbed Thomas' hand and ran it over a rough plastic strip underneath the passenger seat. ''Feel how sharp that is? A customer wouldn't like that,'' Nasser said. It was smoothed off immediately.

That was just the beginning. The European operation was short of cash to develop the tiny new Ka. Nasser suggested shrink-wrapping the Ka's cute body around the existing Fiesta subcompact platform. Ford wound up selling 214,000 Kas in 1997. Combined with more cost slashing, Nasser lifted Europe into the black. So it made sense when Trotman tapped Nasser to head the new global product-development group in 1994. ''Nasser came to Europe as an astute businessman,'' says Thomas. ''What he demonstrated was ingenuity in creating product.''

ELAN. Today, Nasser remains a frequent Saturday visitor to Ford's design studios. And Mays receives a steady stream of notes, photos, and sketches from his boss, inspired by everything from MTV to the Pebble Beach classic-car show. ''He might see the badges on some old cars and say, 'Gosh, why don't ours look that good?''' Mays says.

It takes three to four years for a new design to hit the showrooms, so the full force of Ford's new approach is a ways off. But Mays, who moved from Germany, brought a bevy of Europeans to the team and has made no bones about his intention to shake up the old guard. The 2001 Thunderbird will be the first major Mays-influenced Ford car. He simplified the design and made it ''far more European.'' Volumes will be small, but Nasser is counting on the sleek coupe, which evokes the elan of the 1957 T-bird, to do for Ford what the Viper sports car did for Dodge--give sex appeal to a stodgy brand.

In the meantime, Ford is applying its customer insights to the marketing of new models already under way. Executives concluded that the offspring of baby boomers like products they can customize, for example. So when the $12,280 Focus small car arrives in showrooms this month, buyers will be encouraged to personalize it with kitschy add-ons, such as a ''pet package'' for a few hundred dollars.

Yet even as Nasser concentrates on improving Ford's performance with cars, he is also facing far stiffer competition in trucks. That core franchise is now under siege from Japanese and German auto makers. This summer, Toyota launched its Tundra pickup, in a class with Ford's F-150 and the Chevrolet Silverado trucks. BMW will launch its X5 SUV in December. And Toyota and Honda have jumped out ahead with car-based SUVs, the Lexus RX300 and Honda C-RV. The battle is likely to put big pressure on Ford's juicy margins.

Nasser is convinced that the key to staying ahead now is providing upscale baby boomers with even more passenger-cabin versatility and macho good looks. So next spring, Ford will unveil the Explorer Sport Trac and F-150 SuperCrew, vehicles that combine SUV cabins with pickup beds. Then it will launch the Escape, a carlike SUV. The radically new vehicles show how designers are getting freer rein, says Dee Kapur, manager of Ford's pickups: ''Ten years ago, this would not have happened in our rigid command-and-control environment.''

Rising truck competition isn't Nasser's only problem. He must also fix Ford's troubled overseas operations for good. So he's tearing up some parts of the global structure Trotman put in place five years ago--known, ironically, as Ford 2000. Although huge cost savings have come from unifying such things as purchasing, engineering, and manufacturing globally, regional managers complain they've lost too much say over products. So next year, Nasser will give them back more power to shape local brands and marketing.

The costs of weak local management have become all too clear. In Brazil, Ford has lost a stunning four points of market share since early '98 after government moves to slow capital flight sent interest rates skyrocketing. Other big carmakers worked quickly with dealers to arrange special customer financing, but Ford dallied, and its sales plummeted. ''Management was stuck and didn't act quickly enough,'' says Diego Portillo, an analyst with Standard & Poor's DRI's global automotive group. Now, with a new head of its Brazilian unit in place, Ford plans to retire debt, repair its dealer network, and add a new small car.

Elsewhere, too, Nasser is pushing Ford to move aggressively. The topper came two weeks ago when Ford announced that it would invest an undisclosed amount in Microsoft's MSN CarPoint Web site. CarPoint will soon launch a ''build to order'' service that should let customers seek out exactly the color and features they want in a Ford. Although any orders will be filled by traditional dealers, CarPoint will sell aggregated customer data back to Ford. Nasser figures that could prove an invaluable, unfiltered view of what buyers--particularly the young ones on whom Ford's future depends--want.

Moreover, the Internet is just one part of a broader vision Nasser has of powering up Ford's sales growth and margins. To lift Ford's stock price--and boost its price-earnings ratio from 9, closer to GE's 36 or Procter & Gamble's (PG) 30--Nasser insists Ford must evolve from a car company into ''a leading consumer company for automotive products and services.'' The difference? Nasser wants to expand beyond the initial $20,000 a passenger car sells for. Over a decade, Ford figures a car generates about $68,000 in revenues--from the sales price to maintenance, spare parts, gas, and insurance. So last spring, he tapped Ford's $24 billion cash pile and paid $1.6 billion for Kwik-Fit, a chain of nearly 2,000 auto-service centers in Britain. And in perhaps the strangest move of all, Nasser even bought a small junkyard business.

SCOFFING. In theory, these deals help Ford tap into service businesses with higher returns than manufacturing. Nasser and his team also claim they will provide more of that prized consumer feedback. Running a junkyard can provide valuable information about parts durability and reliability, says Michael D. Jordan, vice-president of Ford's customer service.

Still, rivals scoff at the notion these moves will pay off. ''You don't have to own a rental-car company to learn about...the maintenance experience,'' says James E. Press, executive vice-president for Toyota Motors Sales USA, the Japanese company's U.S. auto group. Investors, too, seem uncertain. One large shareholder says Nasser's grand plan strikes him as a rush to glory. ''I told Jac, 'Become the best auto company in the world before you become the best consumer company in the world. Walk before you run.''' Nasser's response? ''He chewed me out,'' says the investor.

Nasser discounts such critics. ''They just don't get it. They're back in the nuts-and-bolts age,'' he huffs. For now, he has the support that counts most: that of Chairman William C. Ford Jr., who represents the Ford family, the controlling shareholder. By staying close to the core business, Ford sees a big difference between Nasser's move into repair shops and the company's disastrous diversification into banking and other nonauto businesses in the '80s. And he notes that the board has ''never said no to Jac because, frankly, we've bought into the strategy.''

Still, Ford's directors want Nasser to explain his long-term plans in greater detail. So they have made plans for a two-day board meeting in early October.

The pace of change is already upsetting some longtime Ford employees. Managers grumble about burnout in an organization that has been flooded with new initiatives and new faces the past five years. ''Nasser is grabbing people by the throat and threatening their careers,'' says one insider. ''They say, 'If I can get through boot camp, I'll survive.' But the boot camps just keep coming.'' Indeed, few expect Nasser to let up on the accelerator anytime soon. He has spent a career propelling himself forward at maximum speed. Now, this restless outsider is taking the entire company along on the ride.

By Kathleen Kerwin, with Keith Naughton, in Dearborn, Mich., with bureau reports

To read a letter to the editor about this story, click here.

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