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The intensity of the media coverage took Mulally by surprise. Boeing may have been a big company, but few journalists followed it closely. Ford, on the other hand, was the subject of continuous scrutiny by the local, national, and international media. Scores of reporters followed every twist and turn of the company’s travails. Now they also followed Mulally like a pack of hounds. A scribe from the
Detroit Free Press
tracked down his elderly mother in Kansas. Mulally resented this intrusion into his family life and never forgave the reporter. Mulally told his children to be careful about who they talked to and about what they posted on sites like Facebook. But he also loved the attention. He started each day by reading the press clippings, and he had a tough time when reporters drew attention to Ford’s many problems.

“Don’t make this a scuzzy story,” he warned during an early interview with the
Detroit News
. “I’ll burn your house down!”

Then he burst out laughing. But no one was entirely sure he was joking.

T
he financial results that Ford released a few weeks after the Detroit auto show were certainly no laughing matter. On January 25,
the automaker posted a record loss of $12.7 billion for the previous year.
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Much of that was due to one-time charges incurred as it idled factories and laid off workers. But the company’s loss from continuing operations was still $2.8 billion.

“We fully recognize our business reality and are dealing with it,” Mulally said in a conference call with reporters and analysts that morning. “We have a plan and we are on track to deliver.”

But Ford was already missing some of that plan’s key targets—a fact that came to light a few weeks later when the
Detroit News
obtained a copy of an internal company report card in February. It showed that Ford had fallen short of its January sales goal in the United States by 10,600 vehicles—the equivalent of an entire point of market share. Worse, the report card indicated that the company expected its U.S. sales to remain below plan for at least the next couple of months. Ford had hit its material cost reduction target in January but was not on track to hit its targets for the rest of the quarter. Ominously, the document noted that these metrics were “key indicators of progress toward achieving profitability by 2009 for North American automotive operations.” Finally, the report card showed that, according to the latest internal morale survey, Ford employees were not buying into Mulally’s revolution. Less than half said they were optimistic about the company’s future. That was even lower than the previous year. The goal
had been 60 percent.

The report card was another calculated risk by Fields. Mulally had insisted on honesty and transparency—not just in the Thunderbird Room, but throughout the company. Fields decided a monthly report card was a good way to keep employees informed about the automaker’s progress, or lack thereof. Before it went out, most at Ford had no real idea of just how bad things were. They knew their stock was not worth as much as it had been, and they could count the empty desks, but there was little communication from the top. Even before Mulally’s arrival, Fields had tried to rectify this with weekly webcasts
on the company’s intranet. Now he was taking that one step further by sharing some of the actual data from the Thursday BPRs with the U.S. workforce. And he planned to do it every month.

Mulally approved. The report cards would show everybody in the company where Ford was falling short of its turnaround goals, and he hoped this would inspire them to work harder. But not everyone agreed. Not surprisingly, Chief Financial Officer Don Leclair was the lead dissenter.

“This stuff is going to get out,” he warned Fields after he saw a draft of the first report card.

Fields knew he was right. After all, Ford leaked like a sieve. Fields himself had been furious when the
Detroit News
printed the details of his original Way Forward plan the day the board approved it, and he knew it was only a matter of time before someone sent the newspaper a copy of his report card, too. But Fields also knew that most of the data it contained would have to be made public eventually, either during the monthly sales briefing
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or in the company’s quarterly financial filings.

“Listen, we’ve made the commitment, and I’ve made the commitment, to communicate regularly with our folks so they understand where we are,” he told Leclair. “It gives them the motivation to improve.”

Leclair persisted in his objections, but Mulally backed Fields. That did not stop a panicked Leclair from calling his rival when the story broke to say, “I told you so.”

“So what? It is what it is,” Fields replied. “On balance, there’s a lot more benefit to the company in our employees knowing where we are. It’s going to become public knowledge anyway, because we can’t seem to keep a secret.”

The same thing happened in March. Fields sent out his report card, the
Detroit News
got a copy, and Leclair got angry. This time, however, the charts on the report card did not include the actual numbers. Those had been removed. There had also been some thoughtful
discussions about which metrics to include and which to leave out.
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But there was far more concern about what this data actually showed.

Most things that Ford could control directly—quality, engineering costs, and the like—were on plan. But the company could do little about rising raw materials costs. Sales were also tricky. Some of the levers Mulally was pulling to improve the company’s long-term fundamentals were having a negative impact in the short term. Nowhere was that more obvious than in the sales numbers. For years Ford and the other Detroit automakers had offered consumers big cash incentives to make up for the shortcomings in their products. As a result, many cars and trucks were sold at a loss. These deals also eroded the resale value of those vehicles, making them that much less attractive compared to the imports. Incentives were a hard habit to break. But Ford was trying, and that was costing the company some customers.

Ford was also trying to limit sales to rental car agencies. The vehicles it sold to companies like Hertz and the Budget Rent a Car System were deeply discounted. Ford did not make much money from these sales, and it lost even more in terms of brand image. In America, cars and trucks are as much a fashion statement as a means of transportation. Nobody wants to drive a model they see lined up like canned food in airport lots. That was a big part of why the first Ford Taurus fizzled in the end, and Mulally was keen to avoid repeating that mistake. In addition to cheapening the brand, the commercial fleet business further undermined the resale value of Ford’s products, because these customers tended to dump large numbers of hard-driven vehicles on the used car market. Ford had a team of scientists and mathematicians figure out exactly how many units the company could sell to rental car companies before it began having a deleterious effect, and Mulally told the sales team not to exceed that number.

In January—the month rental agencies placed most of their big
orders for the year—Ford’s sales dropped 20 percent. But that was not the only reason why Ford was missing its market share targets. Despite Mulally’s insistence on sticking to the facts, some of the company’s sales forecasts were still too optimistic. He continued to hammer home the need for honesty in his Thursday meetings, often devoting special attention review sessions to this topic. Even more troubling developments outside Ford were also on the agenda.

The company’s chief economist, Ellen Hughes-Cromwick, was raising real concerns about the economy. Serious and analytical, Hughes-Cromwick was a meticulous East Coaster from upstate New York who always seemed to be crunching numbers in the back of her mind, even in the middle of a conversation. She had a master’s in international development and a doctorate in economics from Clark University. She came to Ford in 1996 after teaching at Trinity College in Hartford and putting in six years at Mellon Bank.

Hughes-Cromwick was a member of the Harvard Industrial Economists Group, which had been studying the issue of mortgage-backed securities with growing trepidation since early 2006. The housing market was deteriorating and credit was getting tighter. Ford’s own cost of borrowing had gone up astronomically because of its poor credit rating. During her first meeting with Mulally on September 29, Hughes-Cromwick showed him a copy of the letter she had sent to Ford treasurer Ann Marie Petach on September 19:

Hughes-Cromwick told Mulally that the odds of a recession were as high as 1-in-3. She was surprised by how little this seemed to worry him.

“You just have to deal with the realities and face it together,” Mulally said with a reassuring smile. “You have just got to be relentless in matching production to demand. You can’t let those stocks build.”

He asked her to stay on top of the situation and make sure any bad news was highlighted in her weekly reports.

Now those reports were getting more dire. After a closed-door meeting with a commissioner from the U.S. Securities and Exchange Commission in February, Hughes-Cromwick wrote a note to senior executives warning that the proliferation of subprime mortgages was posing a real danger to the nation’s financial system.

“The subprime market has the potential to instigate volatility across other asset classes. Subprime bonds in equity indexes are plunging,” she wrote on February 13. “[There is] potential for this sector, along with hedge funds, to generate systemic risk.”

Hughes-Cromwick also said she was concerned that federal regulators seemed to be relying on the financial industry to police itself.

On March 4, she sent another note to Don Leclair listing all the warning signs that had preceded previous recessions, and compared those to the current data for leading economic indicators. She concluded that the economy was “vulnerable” and estimated the risk of another recession at as high as 30 percent. A few days later, she sent another note to Ford’s treasurer.

“I remain concerned about subprime and other potential systemic risk,” Hughes-Cromwick cautioned.

In their Thursday SAR meetings, Mulally and his team studied her reports with growing anxiety.

C
learly Ford faced a long, uphill battle back to profitability—a daunting prospect for everybody but Mulally. Belying the predictions that the harsh realities of the American automobile industry
would soon grind him down, he seemed to be having the time of his life.

In March, Nancy Miner walked into a Ford dealership in Dearborn looking for a new car.
A perky salesman stepped in front of her and extended his hand.

“Hi, I’m Alan,” he said. “I’m from Ford. I’m just helping out here today.”

The woman, a visitor from New York, had no idea whom she was speaking with. She told Mulally she was in the market for a new sedan and had narrowed her choices down to a Ford Fusion and a Toyota Camry. He told her he had owned several Camrys—all good cars—but suggested the Ford was a better bet. A few minutes later, Mulally had made his first sale. In less than an hour, he made two more. Another was pending.

It would not be the last time Mulally played at being a car salesman. This was a way for him to see firsthand how Ford’s customers approached its cars and trucks. But it also generated a huge amount of goodwill for the company. Everybody who met Mulally walked away an ambassador for Ford. He had that effect on people.

Consumers were not the only ones being won over by Mulally’s charismatic approach. In June, he invited all of the company’s dealers in the United States to come to town for three days so that he could look them in the eye and explain the big changes under way at Ford. There were about four thousand of them. To accommodate them all, the company commandeered Ford Field—the sleekly modern indoor stadium Bill Ford and his father had built for the Lions in downtown Detroit. There Mulally outlined his “One Ford” vision and promised to work with the franchise owners to improve relations between the dealers and the company. Then he did something entirely unexpected. He asked all of the Ford employees in the stadium to stand up, turn and face the dealers, and say, “We love you.”