Alan Mulally's Report Card

Ford's chief executive celebrates his first year at the company. How well is he doing? BusinessWeek grades his performance

by David Kiley

Alan Mulally's first anniversary as CEO of Ford Motor (F) is Sept. 5. The relentlessly upbeat chief still has a rough ride ahead of him. But it's tough to argue that he doesn't have the struggling automaker on the right path. The question for Ford and Mullaly is whether or not his recovery plan can succeed in the face of economic headwinds caused by the bursting of the real estate bubble and tightening of credit markets.

One of Mullaly's first moves upon arriving in Dearborn, Mich., was to institute a weekly meeting of all his senior managers. The point of the session, a practice that he imported from his previous job running Boeing's (BA) commercial airlines division, is to make sure each person is executing against the recovery plan. If there is a problem, Mulally seeks to help the managers as a group instead of letting individuals sink or swim alone—potentially costing the company hundreds of millions in the process. This was among the problems that caused Ford to run in place for the past five years.

It is because of Mulally's emphasis on accountability that we thought it fair to grade his first year at the helm.

Profit and Loss: A

Ford posted a surprise $750 million profit in the second quarter but is still expected to lose money for the whole year. It also expects to lose money next year. Mulally's turnaround plan calls for black ink in 2009.

Restructuring Savvy: B+

There's nothing wrong with having luck complement good decision-making. Mulally's swift push last fall to restructure Ford's debt and raise a total of $23.4 billion in the credit markets was a stroke of good timing, considering what would have happened had he waited until this summer when credit markets were besieged by subprime mortgage woes.

Ford will use between $15 billion and $16.5 billion for costs related to cutting the workforce and closing unneeded plants.

The decision to sell Jaguar and Land Rover seems to be right. While some doubters wonder how Ford will succeed without a strong luxury-brand portfolio that achieves higher profit margins than Ford-branded products can, he correctly saw that the two brands were a monumental drain on resources and management attention. The pending decision to sell Volvo seems riskier. But here, too, he has seen that it is difficult to integrate a Swedish premium car company that operates in a country where people can't be laid off with a North American mass market car company fighting for its survival. Rather than selling Volvo, though, it would be more refreshing to hear a plan to fix the relationship. Going to war globally with just Ford-branded cars when the automaker is far from being among the lowest-cost manufacturers is a strategy that seems fraught with problems.

I suspect Mulally would like to kill the Mercury brand and create one strong North American dealer network of Ford and Lincoln vehicles. But the strength of the U.S. franchise laws that give car dealers extraordinary leverage to resist such change are stronger than Mulally's resolve. It would cost Ford billions to buy out the underperforming dealers in its network and merge Ford and Lincoln distribution. And the company can't afford that right now.

Products: A

Mulally, of course, hasn't had time to bring any new products to market. But the changes he is driving for future years are right on target. The future Ford Fusion and European Mondeo midsize cars will be developed together. Future rear-drive cars for Ford and Lincoln are being developed with the Australian Falcon. This isn't rocket science. Indeed, it is the way Honda (HMC) and Toyota (TM) have been operating for years.