Ford's Mulally Hits the Road


In an interview from his drive to Washington, the Ford CEO calls the drubbing of last month "a learning experience"

Ford CEO Alan Mulally bombed last month in hearings before the Senate (BusinessWeek.com, 11/18/08) and House of Representatives in which Detroit's Big Three automakers were asking for up to $25 billion in loans. Mulally's performance was hurt in large part by the fact that most members of Congress treated the CEOs of General Motors, Ford, and Chrysler as if they were all in the same boat (or corporate jet).

Ford (F), in fact, not only has more cash on hand than GM (GM) or Chrysler. It says it may not need government money at all to outlast the recession. Safety and quality ratings have been running higher than those of its domestic rivals, according to Consumer Reports and other third-party rating entities. And the company is about to introduce Ford Fusion and Mercury Milan hybrid cars in early 2009 that beat the Toyota Camry hybrid by about 5 mpg.

But if Ford's story is a bit better than those of GM or Chrysler, its executives admit that the companies' fortunes are intertwined. They depend on the same suppliers, and if GM or Chrysler goes bankrupt, it will take some of those companies down with it. That, in turn, would play havoc with Ford's ability to maintain production and sales.

Mulally made two big mistakes before Congress: Along with the other auto CEOs, he flew to Washington in a private jet to ask for taxpayer loans. And when asked if he should take a cut in the $22 million compensation package he got last year, Mulally said: "I think I'm all right where I am."

On Tuesday, Dec. 2, Mulally was driving in a Ford Escape Hybrid, along with three other Ford executives, for two more days of Washington hearings, which start Thursday. In a phone conversation with BusinessWeek auto writer David Kiley, Mulally took a break from his turkey-salad sandwich to discuss the challenge he and Ford face.

So, you aren't driving right now?

We are rotating driving, but they tell me I shouldn't talk to you while driving, so, no.

You are a wealthy, successful guy. Are you eating bad road food and coffee from rest areas like Breezewood, Pa.?

I didn't know about Breezewood before they told me about it. They tell me we have to stop there and get our pictures taken. We stopped at a dynamite service plaza and we bought a little boxed lunch.

Were you taken aback with how you were received in Washington (BusinessWeek.com, 11/19/08) last month?

I was surprised. But going through it and reflecting on it, I really learned a lot. The enormous issues we have in the country, the economy, the financial crisis and the credit crisis, and unemployment, consumer confidence. And all these things where everyone is trying to figure out the most important thing to stabilize the economy. So my appreciation for the frustration, and my compassion for the thoughtfulness that many of the Congress people had, really went up.

It also brought home for me the sense of history that is in people's minds about the auto industry. To be able to hear firsthand the thoughts about the industry and lack of consistency of purpose and improving the automobile year after year, and letting our quality go up and down and letting our fuel economy go up and down, and the labor agreements that our managements made that really hurt our competitiveness—this is real-life stuff.

To hear all that over two days was the best thing that could have happened to me. It made me even more committed to the plan we have to focus totally on the Ford brand, sizing our production to the real demand for our products, and to balance our offerings with cars as well as trucks. Boy, did I ever learn about "getting it," and communicating that I "get it."

Do you regret brushing aside the question about whether you should take a pay cut if you end up taking government loans, flying a private jet, or if your family ends up using the Ford jets?

It was definitely a learning experience. After hearing what people had to say in the hearings and afterwards, I decided moving to $1 in salary a year was the right decision to make. I do not want anything to distract us from Ford's transformation plan and I believe in our transformation more than ever. My family already is flying commercial—unless they are with me when traveling. [A Ford spokesman confirmed Tuesday that the company is selling its five planes, but that Mulally and Chairman Bill Ford will continue to fly privately via charter and other private aviation for security and logistical reasons.]

Your situation is not as dire as GM's or Chrysler's. But I got the idea that most questioners were treating you as a monolithic organization, "Detroit." That's a problem for you, isn't it?

It is. We have stuck to the plan we put in place when I arrived two years ago. We were able to get financing in place before the credit markets turned south. But yes, it is vitally important that we tell our story better. We achieved some profitability before we got caught in the downdraft. We have a different story.

Is it impolitic in these hearings to remind members of Congress that your rivals in Japan and Europe have two big things we don't have (BusinessWeek.com, 11/19/08) in this country to make them more competitive: energy policies that create a demand for smaller, more fuel-efficient cars that they can export or transfer to the U.S. when gas prices spike, and national health care that gives them much lower costs?

I'm not sure. But what I'd say to that is that it's deeper than that. Who asked employers after World War II to take care of employee health care? Companies didn't think that up on their own. It was the government. We have submitted some initiatives in our report to Congress that deal with some of this. Things that are really important to the competitiveness of the U.S.—health-care reform, energy policy, trade, currency manipulation. We are taking a little risk on that. This is not the center of discussion this week, but we wanted to get it across.

You say you can be profitable in 2011 based on the industry selling 2 million more vehicles in 2010 than it will in 2009. That seems a little bullish.

I asked the same question. That is a very modest increase historically coming out of a recession. There are lots of reasons behind this. It's the pent-up demand. It's the scrappage of older cars. It is actually a conservative assumption.

Members of Congress clearly have been focusing on the differential that still exists right now between UAW workers and their counterparts working in Kentucky and Alabama for foreign automakers. That compensation gap would be substantially closed by 2010 or 2011 because of concessions reached in the current UAW contract. But can we expect the union to agree to speed up those concessions?

The answer to that will reveal itself later in the week. UAW President Ron Gettelfinger will be with us, and you can imagine that will be part of the conversation.

Last question, from a BusinessWeek reader, Arpit Agrawal. He says his family fleet consists of two Hondas (1995 Accord, 2003 Civic) and two Toyotas (2002 Sienna, 2009 Camry). He asks: "The Center for American Progress says that health-care and pension costs add an average of $1,500 per car [to an American vehicle]. How does Mr. Mulally expect to remain competitive with these fixed costs especially if there is a focus on smaller (lower profit-margin) vehicles?"

Stay tuned on the UAW participation on this. But I will say for now that we have to continuously improve our competitiveness. He is absolutely right in his question. We have made tremendous progress in the last couple of contracts we negotiated and even in changes the union has agreed to in between contracts. We must be genuinely competitive, not just nearly so, in the costs he is referring to, and we are getting there faster than most people realize.

Business Exchange related topics:

Leadership

Ford Motor Company

U.S. Automakers

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