|01-09-2010, 10:56 PM||#1|
Fords Bet: Its A Small World After All
Posted via FF Mobile
HE blew into the Ford Motor Company in 2006 as an outsider from a different industry, and he was hailed as the latest in a long line of purported saviors of a faltering, century-old automotive icon.
At the time, skeptics in the clubby world of auto executives whispered that the newcomer, Alan R. Mulally, would be swallowed up by the complexities of the car business, his ebullient personality smothered by the feudal infighting for which Ford had long been famous.
Yet three years into his tenure as chief executive — and with a host of still nettlesome challenges awaiting him — Mr. Mulally has thus far proved to be the unifying figure that Ford has needed for decades.
His vision is distilled in the laminated, wallet-size cards carried by tens of thousands of Ford employees that spell out his management principles beneath a simple heading: “One Ford ... One Team ... One Plan ... One Goal.” And on Monday, at the opening press conference of the 2010 Detroit auto show, Mr. Mulally will unveil the car that embodies his strategy for returning Ford to its status as a leader in the global auto industry.
That car, the new Ford Focus, is arguably as important to Mr. Mulally as the Model T was to Henry Ford, the founder. Despite some previous efforts, the Focus is Ford’s first truly global car — a single vehicle designed and engineered for customers in every region of the world and sold under one name. It is small, fuel-efficient and packed with technology and safety features that, Mr. Mulally believes, will appeal to consumers in Europe, Asia and the Americas.
The car also represents what Mr. Mulally calls the “proof point” of everything he has done since joining Ford after a 37-year career with Boeing: he hopes that the vehicle will provide a rolling blueprint for generations of Ford cars to come.
“If we were going to be world-class, we needed to pull together and leverage and use our global assets around the world to create a powerhouse ‘One Ford,’” he said in an interview in his office at Ford’s headquarters. “It’s exactly why we are here.”
In an industry populated by naysayers and familiar with wrenching disappointment, Mr. Mulally’s doubters have largely disappeared because he has already delivered more than what was expected of him when he replaced Ford’s chairman, William C. Ford Jr., as chief executive.
One of Mr. Mulally’s first, prescient acts in 2006 was to borrow $24 billion, which later gave Ford the cash it needed to stave off the government-sponsored bankruptcies of its crosstown rivals General Motors and Chrysler. He has also shifted Ford’s emphasis away from trucks and sport utility vehicles to cars and crossover vehicles, and dumped luxury brands like Land Rover, Jaguar and Aston-Martin that were consuming Ford’s resources and distracting management.
Perhaps most important, Ford has shrunk drastically, shedding jobs and factories to better align its production with demand. For decades, Ford executives and workers labored inside a bureaucracy that made decision-making cumbersome and often undermined dexterous responses to market shifts. It was a system that also withstood repeated efforts by others to streamline it.
But under Mr. Mulally’s hand — and in response to a downturn that threatened the very existence of Detroit’s Big Three — Ford has finally started to run a tighter ship.
All of this is beginning to show up in Ford’s bottom line. It reported $1 billion in earnings in the third quarter of 2009, its first profitable quarter in nearly two years. Mr. Mulally, however, says he doesn’t expect Ford to become “consistently” profitable until 2011. (Coincidentally, that’s when the new Focus will begin appearing in sizable volumes in the United States and Europe.)
While the Focus is only one of several new products on the way, it is the centerpiece of Ford’s transformation from a truck-heavy manufacturer to a producer of smaller, lighter and more environmentally friendly passenger cars.
The impact of the Focus on Ford’s global operations is even more significant. While Ford has been an international company since early in the 20th century, its overseas divisions have long operated as semiautonomous units geared to individual markets.
In the 1990s, Alexander Trotman, then its chief executive, developed a plan called Ford 2000 to standardize some vehicles around the world. The new system saved money, but the products it yielded were successes in some markets and flops in others. The initiative was summarily dropped by Mr. Trotman’s successor, Jacques A. Nasser.
Upon his arrival, Mr. Mulally took his own shot at knitting together Ford’s far-flung operations, seeking the economies of scale that a “world car” could bring.
“Why are we doing it this way?” he asks. “Because we believe the customer requirements are going to be more the same around the world than they are different.”
INDUSTRY analysts have long derided Detroit automakers as being overly fixated on the United States market and unable to see how vehicles designed for Europeans and Asians could appeal to American consumers.
“There’s nothing revolutionary about selling the same car around the world,” says John Casesa, an industry consultant. “Toyota does it. BMW does it. But the Detroit companies were always disproportionately run around their North American strategy.”
In that regard, the Focus is Ford’s first big bet that it can effectively sell a single, largely uniform car — with variations to come later — in several global markets. Currently, the company has three engineering “platforms” serving what the industry calls the C-car segment — essentially, compact vehicles the size of a Toyota Corolla or a Honda Civic. The three platforms account for annual sales of about 1.1 million vehicles, although the various models are substantially different inside and out.
The new Focus is built on one platform for all markets, from Shanghai to Seville to Seattle. The platform is also flexible enough that it can be adapted for different body styles, whether hatchbacks or small crossover vehicles.
Within a few years, Ford expects to sell as many as two million vehicles a year off the new C-car platform and to save billions of dollars in costs by avoiding multiple platforms.
“The Focus represents the first tangible evidence of a global strategy,” says Mr. Casesa. “For the first time, Ford is executing it and not just talking about it.”
A YOUTHFUL-LOOKING 64-year-old with close-cropped red hair and a toothy smile, Mr. Mulally is relentlessly optimistic and perpetually in motion. Educated in engineering at the University of Kansas, a father of five and married for nearly 40 years, he can be so exuberant that he’ll sometimes hug people the first time he meets them.
But Ford executives quickly learned that beneath that sunny disposition was a demanding and competitive executive.
“The very first conversation I had with Alan was around the opportunities that we had never taken full advantage of here at Ford,” says Derrick M. Kuzak, a 30-year Ford veteran and the head of global product development.
Mr. Mulally saw Ford as a messy conglomerate of brands, divisions and international businesses that obscured its best asset: the Ford brand and its blue oval badge.
Why, he asked executives repeatedly, did the company insist on pouring money and resources into Volvos and Jaguars when its Ford product line was a mishmash of Mustangs, S.U.V.’s and pickup trucks?
“We made a strategic decision to move from a house of brands to a laser focus on Ford,” Mr. Mulally says. “That brand clarity was going to be absolutely essential and a competitive advantage.”
He was also prepared to stake Ford’s future on a thesis that consumers around the world are becoming more and more alike, and that what they want in a car is the same in China and India as it is in Germany or the United States.
After all, customers in disparate markets were already showing preferences for the same attributes in cars: safety, technology, fuel efficiency and appearance. The Internet was allowing car buyers everywhere to pore over the specifications of vehicles available in the United States or Europe, enabling consumers in developing countries to home in on quality products in mature markets and empowering them not to settle for lesser products.
“Everybody knows everything, and everybody knows what’s available,” says Mr. Mulally. “You look at the reasons people buy vehicles, and all those requirements are coming together.”
The first planning sessions for the global Focus kicked off in late 2007, a year after Mr. Mulally came aboard. He told executives that it was crucial to design a single model that could serve many markets, and challenged the conventional wisdom that parts of the car had to be tailor-made for different regions of the world.
Gunnar Herrmann, head of the Focus project, recalled how Mr. Mulally kept referring to his years of developing airplanes that were the same no matter where they flew.
“He said, you guys are always doing multiple doors on these cars; at Boeing, we have only one door,” Mr. Herrmann remembers.
Mr. Kuzak and Mr. Herrmann were assigned to create a development team that had European engineers and designers at its core, but also included members from Asia and the Americas. Mr. Herrmann assigned the team to develop a “program paper” that laid out projections for production volumes, market-share targets and competition. He says he ended up receiving a hefty document larded with traditional Ford approaches to doing business.
The paper was 150 pages long and contained separate analyses for Europe, Asia and North America. Rather than zeroing in on common goals for the three regions, the sections emphasized the differences. Mr. Herrmann says he threw it back at the team. “Where is the common denominator here, so we can do a single car?” he recalls asking.
His boss, Mr. Kuzak, had spent his three decades with Ford working here and abroad and was keenly aware of how the company’s past practices could weigh it down — and how important it was to embrace Mr. Mulally’s emphasis on global product development.
“It would allow us to bring our vehicles to market quicker than we have ever been able to do in the past,” Mr. Kuzak says. “The benefits were in the neighborhood of 25 percent to almost 50 percent quicker time to market.”
So the Focus team ended up rallying around a few main objectives. The car had to drive and handle like a European sedan and have the creature comforts like wireless Internet access that American consumers demanded.
When it came to designing the exterior of the vehicle, the team faced a quandary. Whereas European and American buyers appreciate flair, Chinese consumers, in particular, have more conservative tastes. In the past, Mr. Herrmann, said, Ford would have designed separate bumpers and headlights for the different markets. That approach, however, wouldn’t fly with Mr. Mulally.
In the end, the Focus team came up with a front end with a low-set, three-part grille and tapered headlights. The look is striking but not too flashy, and the team was given freer rein to make the hatchback version sportier than the four-door sedan model.
TOWARD the end of 2008, Ford conducted dozens of market research clinics with potential customers in several countries. In the clinics, the team learned that it could tailor the interior of the Focus for different regions by simply changing colors and materials rather than pursuing larger design changes that would have been more complex and expensive to manufacture.
The development process entered the home stretch last April, when the first prototypes were presented to Mr. Kuzak for a test drive. Beyond look and feel, he was focused on sound: he wanted to be sure the car was quiet when driven.“We needed to elevate customers’ perception of our cars,” he says. “When I drive the vehicle, I am the customer. We needed it to be refined.”
The team gathered at the company’s test track in Lommel, Belgium, on the day Mr. Kuzak came to test the Focus. “Any time the boss drives the prototype, you think, ‘I hope we survive this,’” says Mr. Herrmann. But after he had driven the car, Mr. Kuzak broke into a big smile. “They exceeded my expectations,” Mr. Kuzak recalls.
THE Focus is also serving as a laboratory for sweeping changes in how Ford markets its vehicles. Ford’s previous C-car models had not only different and distinct engineering platforms, but also as many as 20 advertising campaigns. James Farley, Ford’s global marketing chief, said the new Focus would have just four or five ad strategies around the world.
Mr. Farley says that in the past, Ford had to shape the ads based on vehicles’ differences. Now, any variation will be based on the campaign’s audience.
“This is not a one-size-fits-all effort,” he cautions. “But the diversity of the marketing is created by the customers we want to reach, and not by the differences in the vehicles.”
Analysts view the Focus project as a significant step forward for a company that, for years, had been burdened by the weight of its own complexity. Aaron Bragman, an analyst with IHS Global Insight, compared the new direction to Toyota’s systemic approach of building high-quality vehicles that have a singular identity and global appeal.
“In its history, Toyota’s growth was basically organic,” says Mr. Bragman. “They used the same production system everywhere, and sold the same cars everywhere. Their success was all in the execution.”
For his part, Mr. Mulally has long been an unabashed admirer of Toyota, and he relishes the comparison. He also makes no apologies for Ford’s dependence in the past on selling pickup trucks and big S.U.V.’s to earn profits. With the new Focus and other passenger cars in the product pipeline, he expects to compete head-on with Toyota, Honda and other leaders in the car market.
That won’t be easy. Japanese auto companies still dominate the small-car segment in the United States, and their customers have proved very loyal to the brands. G.M., now out of bankruptcy and well financed with government money, is also laying the groundwork for its own product offensive.
Moreover, Ford has yet to prove it can command healthy prices for cars that were historically sold on the cheap.
“The biggest issue that Ford is going to have to deal with is convincing hundreds of thousands of people to pay premium prices for small cars that used to be a bargain,” says Joseph Phillippi, a principal of Auto Trends Consulting.
Mr. Mulally promises that Ford is up to the challenge. “We can make cars and make them profitable,” he says. “You know how much money Toyota has made on cars? The new Ford can make money on all of its vehicles.”
He concedes that Ford’s rebirth is a work in progress. But within three years, as many as 80 percent of Ford’s products will be built on global platforms, Mr. Mulally says. It is the essence of a strategy to simplify a sprawling, complicated company, leverage its still vast resources and talent, and try to change its direction forever.
The company must still show that it can earn profits quarter after quarter, and not allow its costs to creep up in its pursuit of more sales worldwide. And Mr. Mulally has to be wary of overconfidence after his recent success. “There’s no question that he has to keep the pressure on constantly,” says Mr. Phillippi.
Ford did dodge the bankruptcy bullet that hit G.M. and Chrysler, and many consumers are gravitating to it precisely because the company did not need a government bailout. That momentum should help as it brings new cars like the Focus to its dealer showrooms.
What Ford won’t do is change direction again, at least not under Mr. Mulally’s watch. He promises that he — and Ford’s 200,000 employees — will not waver from his “point of view” about the future of the auto industry.
“That is what strategy is all about,” he says. “It’s about a point of view about the future and then making decisions based on that. The worst thing you can do is not have a point of view, and not make decisions.”
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