American Icon (52 page)

Any doubts about the depth of GM’s distress were dispelled in July when Bill Ford’s secretary appeared in his doorway to announce an unexpected phone call.

“It’s Rick Wagoner,” she said. “He wants to talk to you.”

Bill Ford was surprised. He nodded, hit the remote control he carried in his pocket that closed the door, and picked up the telephone. GM’s CEO got right to the point.

“
You know, I think it’s really time we put our companies together. We should talk,” Wagoner said. “We could come over there.”

Ford was stunned. He asked Wagoner to repeat what he had just said.

A few days later, Wagoner arrived at the Glass House with GM president Fritz Henderson and Chief Financial Officer Ray Young. They were whisked up the executive elevator to Bill Ford’s personal conference room on the twelfth floor. The executive chairman was waiting there, along with Alan Mulally, Controller Peter Daniel, and Deputy Counsel Peter Sherry. Once again Wagoner got right to the
point. He wanted to know if Ford would consider a merger. Together, he said, they could create an American automotive powerhouse strong enough to withstand the crisis that now threatened to take down the entire industry. Wagoner and the other GM executives were clearly worried. They were running out of money. They did not come right out and say it, but it was there between the lines.

Mulally had no desire to marry Ford to another struggling automaker. When he took the job, he had told Bill Ford that he was only coming to Dearborn to fix his company—not sell it, dismantle it, or merge it. That was still his intention. Moreover, his plan was all about narrowing Ford’s focus, not expanding it. But the world was changing. With the entire automotive industry falling apart, Mulally knew that he had to seriously consider every option. So he listened to what GM had to say and asked a lot of questions.

What would they do about all the overlapping brands?

Where were the synergies? What could they combine, consolidate, and eliminate?

How would the new company be governed?

Wagoner’s answer to that one made it clear that, although General Motors was the one coming to Ford, its old arrogance remained intact. He said that, since GM was the larger of the two—both domestically and internationally—it would obviously be in charge.

“In most mergers, market cap is what counts,” one of the Ford men pointed out, noting that Ford was worth about $10 billion, while GM was only worth about $7 billion. GM also had far less cash and much greater liabilities.

Wagoner suggested that they could work that out later. If not, GM would take its proposal to another automaker.

Mulally did not think much of that threat, nor did he think much of Wagoner’s pitch. It did not take him long to conclude that a merger with General Motors would be a step back to where Ford had been, not a step forward to the leaner, more focused company he was striving to create. As he listened to Wagoner and the others describe the challenges facing GM and the ways they were trying to deal with them, he became more confident than ever that his plan was the right plan for Ford. He and his team just needed to stick to it, no matter how
hard that became. Bill Ford agreed. He thought Wagoner was being incredibly arrogant, but that was GM’s way. But both Ford and Mulally were deeply distressed by what Wagoner’s proposal said about the state of his company.

The next call was for Mulally. This time it was from Chrysler chairman and CEO Robert Nardelli.
^*
The two men were both outsiders in Detroit and had developed a decent rapport over the past couple of years. Nardelli said he needed to talk to Mulally face-to-face, and soon. He brought Chrysler president Tom LaSorda to the Glass House. Mulally had Ford’s corporate counsel, David Leitch, at his side. Like Wagoner, Nardelli did not beat around the bush.

“Why don’t the two of us—or all three of us—get together and keep our separate storefronts, but combine our back offices?” he asked. “We could get a lot of efficiency and reduce a lot of cost.”

This was a more interesting idea, but as they talked through it Mulally realized that there was no way to do what Nardelli proposed and still maintain the clarity of brand focus that he was trying to achieve at Ford. It would certainly save money, but it would also make everything that much more complicated.

Once again he decided to stay the course. But both meetings made Mulally a little nervous.

Wow!
he thought.
If these guys are coming after us, it’s getting much worse than we realized
.

I
t was not just the American car companies that were suffering. In June, Toyota announced that it was slowing truck production and warned of lower-than-expected profits. Honda and Nissan also announced production cuts and profit warnings. As truck sales continued to plummet, GM and Chrysler began idling their pickup, SUV, and minivan plants. But Mulally did not believe demand for these
vehicles was ever going to return to its previous highs. He had a far more radical solution in mind—one that would finally break Ford’s decades-long dependence on trucks.

On the same day Ford reported its record second-quarter loss, the company announced that it would retool pickup and SUV factories in the United States and Mexico to produce small cars and crossovers from Europe.
^*
Bringing these vehicles to North America had always been part of Mulally’s plan to create a global product lineup and achieve greater economies of scale. But with the price of gas pushing past $4 a gallon in the United States, it became more urgent than ever to get these fuel-efficient vehicles into U.S. showrooms. Importing them was not an option. With the United States now in the midst of a serious recession, exchange rates made that prohibitively expensive. However, just as Mulally had promised, the game-changing contract that Ford negotiated with United Auto Workers in 2007 now made it possible to build those cars in the United States profitably. Mulally acknowledged that this rapid retooling would be a challenge—particularly given the company’s dwindling cash reserves—but the alternative was to keep making the same old gas-guzzlers that consumers were abandoning in droves.

“
We’re doing it faster, which gets us to a profitably growing Ford even sooner,” he said optimistically. “It’s using proven products that we know and proven technology. It’s utilizing all the assets that Ford has—and that other people don’t have.”

Ford’s Michigan Truck Plant, which produced the full-size Ford Expedition and Lincoln Navigator SUVs, would close in December and be retooled to produce the new global Ford Focus and other vehicles based on the same compact platform. Production of the big SUVs would be moved to Ford’s Kentucky Truck Plant in Louisville. Another Ford factory in Kentucky that was currently producing Ford Explorer SUVs, the Louisville Assembly Plant, would also be converted to manufacture additional models off the new platform. Finally, Ford’s Cuautitlán Assembly Plant near Mexico City, which produced
F-Series pickups, would be converted to produce the new Ford Fiesta for the American market. Ford also announced that its Twin Cities Assembly Plant in St. Paul, Minnesota—scheduled to close in 2009—would remain open until at least 2011 to continue production of Ford’s aging but fuel-efficient Ranger compact pickup.

In addition to the six new models it promised to bring to the United States from Europe, Ford said it would double both hybrid production and the number of hybrid models it offered in 2009. The company would also double its North American four-cylinder engine capacity by 2011. All of this would go a long way toward making Ford’s lineup one of the most fuel-efficient in the industry. But the automaker had something even better in the works for consumers seeking relief from the prices at the pump.

O
n a beautiful summer evening in August 2008, I was riding with Ford Americas president Mark Fields in a heavily modified Lincoln MKS sedan at a leisurely pace down a country road running alongside Lake Michigan.

“People think environmentally friendly cars are boring,” he said, glancing over at me with a wicked grin. “Watch this.”

He punched the accelerator and the Lincoln leapt forward with an explosive burst of power that threw me back against the passenger’s seat.

“This will put a smile on your face,” Fields said, as the trees on either side of the road became a blur. “But you get twenty percent better fuel economy with fifteen percent less CO
₂
. I call it the great taste, less filling school of powertrain technology.”

Underneath the hood was Ford’s secret weapon in the war against rising fuel prices—a new engine technology called EcoBoost that combined turbocharging and direct fuel injection to produce more power from a smaller motor. It would not arrive in showrooms for another year, Fields explained, but the company was sending a message to worried consumers: Ford felt their pain. Help was on the way.

Ford had begun work on EcoBoost more than seven years earlier. Neither of the underlying technologies was new. Turbochargers are
centrifugal compressors driven by an engine’s exhaust gases that increase the pressure of the air entering the motor, resulting in more power. The French began using them on their fighter planes in World War I. GM first began using them in high-performance automobiles such as the Chevrolet Corvair in 1962. Direct fuel injection allows for better dispersion of gasoline inside the cylinder, which in turn allows for higher compression and more aggressive ignition timing, both of which translate into better performance. German automakers were already combining the two technologies in high-end sports cars to boost horsepower and torque. Kuzak and others at Ford recognized that, instead of making powerful engines more powerful, the same sort of system could be used to make smaller, more fuel-efficient motors as powerful as larger, thirstier ones. They began developing four-cylinder engines with the power of a V-6 and V-6 motors with the power of a V-8.

By the end of 2005, Kuzak was pushing EcoBoost as a cheaper, better-performing alternative to hybrid powertrains. But it was a tough sell. Many Ford executives doubted that consumers would embrace the idea that smaller was better, particularly in the United States, where customers were conditioned to believe that more cylinders equaled better performance. Others thought Ford’s money would be better spent on more hybrids, pointing to the breakout success of Toyota’s Prius. But Kuzak had done the math. An EcoBoost engine would only add a few hundred dollars to the price of vehicle. Hybrids might boast better mileage numbers, but they also cost thousands of dollars more. Both technologies would raise the price of a vehicle, but customers would recoup the added cost much more quickly with EcoBoost.
^*
Moreover, Kuzak argued that Ford could actually do more to reduce greenhouse gas emissions and fuel consumption with the system because it would be accessible to many more motorists. That made a lot of sense to Bill Ford, who saw EcoBoost as a return to Ford’s roots as democratizer of technology. His great-grandfather had not invented the automobile, but he had made it available to the
masses. EcoBoost was a way to do the same thing with green technology. He approved the EcoBoost program in early 2006.

Marketing vice president Jim Farley had also become a big proponent. His research had identified fuel economy as Ford’s greatest opportunity. Despite the company’s impressive quality gains, consumers were still wary of the brand. However, if Ford could promise them unbeatable gas mileage, too, Farley was convinced they would be willing to give its cars another chance. As gasoline prices continued to rise, he pushed for an even more aggressive rollout of EcoBoost.

A month after announcing its retooling plan, Ford declared that EcoBoost—slated to debut on the MKS in 2009—would be made available on 90 percent of Ford’s other cars and trucks by 2013. Mulally also authorized additional investment in new transmissions, including fuel-saving dual-clutch designs. He ordered a new push to accelerate the introduction of more hybrids, plug-in hybrids, and electric vehicles.

All of this would require massive investment at a time when other automakers were cutting their product development budgets to offset the dramatic decline in sales. Ford would have done the same thing a few years before. Mulally knew that he could probably still make good on his promise to return Ford to profitability in 2009 if he curtailed investment in new vehicles, as GM and Chrysler were doing. But he had not come to Dearborn to keep Ford on life support. If Ford kept its foot on the gas while everyone else slammed on the brakes, it could leap ahead of the competition and emerge from this economic crisis with one of the strongest product lineups in the industry.