American Icon (50 page)

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n June 17, 2008, Bill Ford and Alan Mulally flew to Las Vegas to find out what Kirk Kerkorian’s intentions were from the man himself. They met at his Bellagio casino. When they arrived, they were led through a maze of hallways lined with original artwork to an elegant suite with a private garden and pool. It was an opulent setting that even managed to wow the wealthy Ford. But Ford brought along a surprise of his own—a secret weapon in the form of board member Richard Manoogian. Manoogian was the white-haired chairman of Masco Corporation, a major manufacturer of cabinets and other home amenities. He was also Armenian, and his father had been a good friend of Kerkorian. The Manoogians were hugely respected in the Armenian community, and it was unlikely that Kerkorian would lie to Manoogian’s face.

Kerkorian did not seem inclined to lie at all. With wavy steel-gray hair and bushy eyebrows, he was both gracious and charming, and his energy and facile intellect made it hard to believe he had just turned ninety-one. He told Ford he thought his company was on the right path and said he was happy to be along for the ride.

“This is going to be a friendly investment,” he assured him.

Bill Ford doubted that.

During the meeting, it became clear that York was not the close personal adviser he had portrayed himself to be. He was a hired gun who got a percentage of the profit off any deals he put together for Kerkorian. He was not Kerkorian’s right-hand man, as many in Detroit believed. That job belonged to Alex Yemenidjian, another Armenian who also was present at the meeting. This came as a surprise to Ford, and he could not help noticing that neither Kerkorian nor
Yemenidjian seemed to be paying much attention to what York had to say. Clearly York’s ideas were not entirely aligned with his employer’s intentions. That would have been more reassuring if Ford had been able to fathom just what Kerkorian’s intentions were.

Before they left, Manoogian wrested a pledge from Kerkorian that he would not try to go behind Ford’s back as he had done with General Motors and Chrysler. Kerkorian promised him that he had no hidden agenda, that he was only interested in Ford because he thought it had become a good investment with Mulally at the helm.

Despite these assurances, the meeting did little to ease Bill Ford’s concern. Kerkorian seemed amiable enough, but Ford did not trust him. Mulally was not worried; he thought York had some good ideas. But Mulally did not have Bill Ford’s experience or his memory of the pair’s earlier exploits. The executive chairman was not about to let his guard down.

In June, just days after successfully concluding his initial tender offer for 20 million shares, Kerkorian announced that he had purchased another 20 million, increasing his stake in Ford to 6.5 percent.

Bill Ford assembled a team to deal with the Kerkorian threat. His attorneys were confident that there was nothing Kerkorian could do to outmaneuver the family, but given the recent internal debate, he did not want to take any chances. In a war room at World Headquarters, the team began gaming out an array of possible scenarios, trying to figure out what Kerkorian’s next move would be and how Ford could block it. In September, Ford adopted a poison pill plan that was aimed at safeguarding $19 billion in deferred tax benefits. It would also kick in if Kerkorian increased his Ford holdings by another 50 percent.

But Ford would never have to worry about that. The economic tsunami that Leclair had long feared finally arrived that fall, battering car companies and casino moguls alike. Ford became too risky for Kerkorian, who was now struggling to shore up his investment in MGM. In October he began unloading his Ford shares. By then Ford had much bigger problems to worry about than Kirk Kerkorian.

Storm Warning

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n March 5, 2008, Ford Motor Company CEO Alan Mulally placed a call to U.S. Federal Reserve chairman Ben Bernanke.
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“We’re very concerned about the economy and the credit crisis,” Mulally told the central bank chief, explaining that vehicle sales in the United States were falling off fast and credit was drying up. “It looks like there is a recession underway.”

Five days later, Mulally called U.S. Treasury secretary Henry “Hank” Paulson and said the same thing.
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Neither of the men disputed Ford’s assertion, but both said it was too early to tell for certain.

In fact, the United States had been
in a recession since December. As Mulally laid out his concerns for Secretary Paulson,
rumors were spreading on Wall Street that the giant investment bank Bear Stearns was running out of cash. Five days later, Bernanke was brokering a fire sale of what was left of the bank to JPMorgan Chase. The unraveling of the subprime mortgage market that began in 2007 was bringing down Wall Street. The credit markets began to seize up, unemployment rose, and nervous consumers kept a tight grip on their wallets. Many of those still willing to buy a big-ticket item like a new car found it difficult to get a loan as banks and finance companies turned their
backs on the riskier consumers they had been trying so hard to woo just a few months earlier. Used car prices began to fall as more cars were repossessed, making it hard to get a good price for trade-ins. The collapse of the housing bubble that had precipitated the crisis in the first place was also having a more direct impact on automobile sales. In 2007, some 2 million Americans had used the equity in their homes to purchase new vehicles. That represented
one out of every nine purchased in the country. Now that equity was evaporating.

The end of the housing boom was also accelerating the demise of the truck market because so many of the pickups sold had been purchased by companies and individuals employed in the construction sector. Truck sales had been trending downward since the end of 2005. Ford, in keeping with Mulally’s dictum to match production to demand, had been reducing factory output accordingly. But in January, the price of crude oil passed $100 a barrel for the first time ever, and demand for pickups and sport utility vehicles began to fall far faster than Ford had forecast. In April cars outsold trucks for the first time in the United States since 2000. Consumers were trading in their gas-guzzling trucks and SUVs in record numbers, and Ford still had nothing more economical to offer them besides a couple of money-losing hybrids and the same old North American version of the Focus. The company’s designers and engineers were hard at work on a new generation of fuel-efficient cars and crossovers, but the first of these would not arrive in U.S. showrooms for more than a year. It was 2006 all over again. Mulally’s turnaround plan was about to jump the tracks just like Mark Fields’ Way Forward plan had done exactly two years earlier.

By May, Ford was in crisis mode. Mulally’s weekly SAR meetings had become daily sessions. The average price of gasoline in the country was $3.50 a gallon, and the truck market was in free fall. In the first two weeks of the month, full-size pickups tumbled from
about 11 percent of the U.S. market to just 9 percent. That represented the loss of approximately 10,000 sales a day in Ford’s most profitable segment. And every day the numbers got worse. As sales plummeted, the price of steel and other raw materials was rising, further eroding Ford’s margins. Before each meeting, the latest data was plugged into
Ford’s projections. Each day, Ford’s financial forecast fell further and further below Mulally’s targets. The team struggled to find additional cost savings to offset these mounting losses, but by Friday, May 16, they were out of options. The next day, Mulally called Ford of Europe chairman Lewis Booth one more time to see if there was anything else he could do to boost sales on the other side of the Atlantic. The answer was no. Though Ford was still making money in Europe, the market was beginning to sag there, too.

On Tuesday, May 20, Ford’s senior executives gathered in Mulally’s office to go over the numbers one more time. They squeezed in around his rectangular conference table. It was more cramped than the Thunderbird Room, but this would be a short meeting. There was no need for slides, either; they all knew how bad the numbers were. Mulally could read it on their faces. They were each given a draft of a press release that summed up Ford’s situation.

“Have we looked at all the data?” Mulally asked. “Does this reflect everybody’s view?”

All the executives nodded.

“Is there anything else we can do?”

They all shook their heads.

Two days later, on a conference call with industry analysts and reporters, Mulally began reading one of the most difficult statements of his career.

“Based on everything we can see on the outlook for fuel prices, we do not anticipate a rapid turnaround in business conditions. We have analyzed the data, and our best judgment is that a large part of the recent changes are structural as opposed to cyclical,” he said. “We have assessed our ability to find other offsets internally, and we believe we have identified about as much as we can without damaging the long-term health of our business. As a result, our judgment is that it will be extremely unlikely we can achieve profitability in 2009 for either North America or for our automotive business in total.”

Once again, it looked like Ford was going back on its word. And that was something Alan Mulally had promised it would never do again.

Mulally went on to announce even deeper production cuts in North America and said further downsizing moves would be necessary. But
he said that the one thing Ford was not going to do was curtail its investment in new vehicles.

“The most important thing we do for the long-term success of the Ford Motor Company is deal with this reality and structure ourselves to deliver the vehicles that the customers want, in the amount that they want, and also to absolutely continue to invest in the new, more fuel-efficient smaller and midsize cars and utilities that people really do want,” he said. “So as tough as this is, by taking these steps now and continuing the acceleration of our transformation, it’s exactly what we need to do to create an exciting and a viable, profitably growing Ford for the long term.”

That evening, Mulally received the 2008 Manufacturing Achievement Award from the Society of Automotive Engineers at a banquet in Detroit. The day’s news cast a pall over the dinner. As Mulally accepted his award, his media handlers glanced warily at the throng of reporters waiting in the back of the room. There would be no softball questions tonight. To pass the time, the Ford PR people tried to tally all the promises the company had broken. They hoped this would be the last. When Mulally finished with his speech, he stepped off the stage and made his way through the still-admiring crowd of engineers with a smile on his face. But as the journalists leapt to their feet and readied their recorders, his smile began to fade. When a reporter asked Mulally if the decision to abandon his 2009 profitability pledge had damaged his credibility, the otherwise ebullient executive simply snapped, “No comment,” and turned away.