American Icon (48 page)

Next, Barlow and his team turned to the advertisements themselves. Farley knew that he needed to make people care about Ford again. He consulted with a behavioral psychologist who told him the best way to do that would be to put a human face on the company. So Farley told Barlow to use real people in the ads, starting with Ford’s own employees. They would talk about cool features like Sync and the soy foam Ford had begun using in its seats, as well as their personal commitment to the company’s turnaround. Ford’s cars and trucks would appear as bit players in these spots, because Farley thought most of them were still not ready for prime time. But it was an evolutionary strategy. As the first fruits of Mulally’s product renaissance emerged from the pipeline, the ads would shift from actual employees to real customers talking about how much they loved their new Fords. Once Ford’s vehicles leapt ahead of its rivals’, the ads would evolve again to feature owners of competing products test-driving Fords and reacting to their superior qualities and features. All of these spots, from the first to the last, were unscripted and featured real people saying what they really felt. It was all about authenticity.

“We need to have a conversation with the consumer,” Farley told Mulally when he unveiled his plan. “It’s not talking heads, it’s not corporate speak.”

Although Mulally loved it, the Drive One campaign was a tougher sell with the board. A few of the directors thought Alan Mulally should be the star. Some members of the Ford family had been lobbying to bring back Bill Ford as the company’s pitchman. But Farley succeeded in persuading them all to give his strategy a chance.

In his first focus groups with consumers, Farley discovered that the mere presence of a Blue Oval on a car’s grille was enough to reduce what they thought it was worth by thousands of dollars. Participants were shown an automobile with the brand badge masked and asked how much they thought it was worth. Farley watched through a two-way mirror as the tape was removed, and he could see their smiles turn to frowns when they discovered it was a Ford. Again they were asked to put a price on the vehicle. This time the number was a
lot lower. When Farley had run the same test at Toyota, it had always gone up.

The Drive One campaign was designed to address the perception issue by focusing on the four areas where Ford had made the most progress: quality, safety, sustainability, and innovation. Farley called these the four pillars of the Blue Oval brand, and told Barlow and his team that every ad had to focus on one of them. More important, every new Ford product had to embody them.

The first television spots debuted during the finale of the supremely popular
American Idol
in April 2008. They were an instant success. For the first time in years, people were talking about Ford. So was billionaire investor and Las Vegas casino mogul Kirk Kerkorian. In fact, he was trying to buy up as much of the company’s stock as he possibly could.

Ripe for the Picking

K
irk Kerkorian was a gambler, but the risks he took were always carefully calculated. Born in California to Armenian immigrants in 1917, he dropped out of school in the eighth grade and earned his pilot’s license by milking cows for a flight instructor. When World War II started, he went to Canada and signed up with the Royal Air Force’s Ferry Command—a group of daredevil pilots whose job was flying new aircraft from factories in Canada to their squadrons in embattled England. It would have been a milk run except for the fact that doing so required them to push the planes to the very edge of their operational range. Hundreds died trying, but the pay was a thousand dollars a month for those who made it home alive. Kerkorian
did it thirty-three times. He pocketed his pay and used the money to start a small charter service after the war that flew between Los Angeles and Las Vegas.

There he became one of Sin City’s original high rollers. In 1962, Kerkorian bought eighty acres on the Strip for just under $1 million, leased it to the builders of Caesar’s Palace, and made $4 million off the deal before selling it to the casino for another $5 million in 1968. He used that money to buy MGM, and he used the profits generated by the movie studio to start building casinos of his own. In 1986 he sold the MGM Grand casinos in Las Vegas and Reno to Bally Manufacturing Corporation for $594 million. By 1990, Kerkorian was one of the richest men in America—one with a sudden interest in
the automobile industry. He started buying shares in Chrysler and, in 1995, launched a failed takeover bid for the company with its former CEO Lee Iacocca. Later he sued to block the sale of Chrysler to Germany’s Daimler-Benz, but was again unsuccessful. In 2005, Kerkorian began buying up shares in General Motors and tried to force the Detroit automaker into a three-way marriage with France’s Renault and Japan’s Nissan. When that also failed, the billionaire casino tycoon turned his attention to Ford Motor Company.

Kerkorian kept a close eye on Ford throughout 2007. In July, the company surprised Wall Street with a $750 million profit. Just nine months after he arrived in Dearborn, Alan Mulally had Ford back in the black for the first time in two years. But the company’s sales continued to slide and Mulally warned that things would get worse before they got better. Ford lost $380 million in the third quarter but still beat analysts’ expectations. However, by the end of the year, Ford’s domestic sales had fallen 12 percent—the most of any full-line manufacturer, making Toyota the number-two automaker in the United States. Ford fell to third place for the first time in seventy-five years. Ford also missed its sales targets in Asia but reported big profits in Europe and South America, where turnaround efforts were already well under way. Ford lost $2.7 billion for the full year in 2007. That was a big improvement over the $12.6 billion loss the company posted a year earlier, but Mulally and Chief Financial Officer Don Leclair were increasingly concerned about the deteriorating economy and the impact it was having on car and truck sales. In January 2008, they announced another round of belt-tightening. Ford offered more generous buyouts to its remaining 54,000 factory workers in the United States and told salaried employees to prepare for additional downsizing. Ford was bracing for a major recession.

“
We are fiscally conservative,” Mulally said the day the latest cost-cutting moves were announced. “We wanted to make sure we had enough cash to ride this out.”

Ford’s stock price fell precipitously in the early weeks of 2008. On January 15, it closed below $6 a share for the first time since 1986. Kerkorian knew a deal when he saw one. The Dearborn automaker was struggling, but it was doing something that its crosstown
rivals had refused to do for decades: deal with reality. It might not be pretty, but Kerkorian was sure it would yield positive results in the not-too-distant future.

Or at least Jerry York was sure it would.

Jerome “Jerry” York was Kerkorian’s man in Detroit, his adviser on all things automotive since Kerkorian’s ill-fated bid to take over Chrysler in the 1990s. York had started his career in the automobile industry as an engineer for General Motors in 1963. He moved to Ford, where he worked in product planning from 1967 to 1970. He joined Chrysler in 1979, worked his way up to CFO under Iacocca, and was the leading candidate to succeed Iacocca when he retired. After being passed over for the top job at Chrysler in 1993, York left the automotive industry for a brief stint as IBM’s CFO before joining Kerkorian’s Tracinda Corporation in 1995. Since then, he had been Kerkorian’s eyes and ears in the Motor City, and he liked what he saw and heard about Ford.

In 2006, Kerkorian had forced GM to give York a seat on its board of directors. In addition to pushing for an alliance with Nissan and Renault, the fiery York had insisted on a comprehensive restructuring plan that included getting rid of non-core brands like Saab, Hummer, and Saturn. GM had rejected York’s proposal. Now he noticed that Ford’s new CEO seemed to be following it to the letter. Still bitter about GM’s brush-off, York had grown to despise the Detroit carmaker, its board of directors, and its CEO, Rick Wagoner. He relished the idea of a resurgent Ford leaving GM in its dust.

“
It’s pretty damn clear to me that Ford has a huge sense of urgency compared to GM,” York told Kerkorian. “They are so fucking far ahead of them it’s not funny.”

I
n June 2007, Ford asked investment banks Goldman Sachs and Morgan Stanley to begin soliciting bids for its two remaining British luxury brands, Jaguar and Land Rover.

They were two of the most storied brands in automotive history. Jaguar was famous for making drop-dead-gorgeous sports cars, while Land Rover was known worldwide for its high-end sport utility
vehicles. They were also about all that was left of the once-great British automobile industry. Both brands oozed class and sophistication, but they were also notorious for their abysmal quality. That had improved markedly under Ford’s tutelage, particularly at Jaguar, but Land Rover still had the lowest quality rating of any brand. But at least it was making money—quite a lot of it, actually. During some quarters, Land Rover was Ford’s most profitable automotive unit.
^*
Jaguar, on the other hand, was a bottomless pit that Ford had been shoveling cash into for years without any sign of it delivering a return on that investment. Ford had bought the luxury brand for $2.5 billion in 1989. That was significantly more than most analysts thought it was worth at the time. Since then, the Dearborn automaker had poured approximately $10 billion into Jaguar.

Ford was not required to break out Jaguar’s financial results, but the
Detroit News
obtained a copy of a secret internal report that revealed it had lost more than $715 million in 2006 alone. Jaguar was improving, but according to that analysis it would be years before it turned a profit. Ford was furious when the newspaper published those numbers. Some employees were subjected to polygraph tests in an effort to find out who leaked the report. Mulally had mostly put an end to this sort of overreaction. It was bad for morale and smacked of the old Ford. But this one was different: It might have cost Ford the sale of the money-losing brand.

With losses like that, no serious buyer would have been willing to take Jaguar without Land Rover. Separating the two brands would have been next to impossible anyway because Ford had consolidated most of their business operations to reduce costs. So Ford put them up for sale together.

Within weeks, dozens of bids were submitted. They came from Russian oligarchs, private equity funds, and a couple of Indian automakers that had not yet made their debut on the world stage. Ford and its bankers sifted through the offers, rejecting those that were too low or came from undesirable elements. Several of the Russians were weeded out simply by inviting them to meetings in the United
States. They were unable to obtain visas. Kerkorian’s Tracinda Corporation was among the early bidders, but it quickly dropped out. The more serious offers came from Cerberus Capital Management, which had just purchased a majority stake in Chrysler
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; Ripplewood Holdings, which tapped former Ford president Sir Nick Scheele to lead its effort; TPG Capital, which owned Italian motorcycle manufacturer Ducati; Apollo Management, which specialized in leveraged buyouts; British-based Terra Firma; JPMorgan’s One Equity Partners, led by former Ford CEO Jacques Nasser; and the two Indian companies, Mahindra & Mahindra and Tata Motors.