Wednesday, September 06, 2006

Taking over at a company in crisis (Ford)

Taking over at a company in crisis
By James Mackintosh and Bernard Simon
Copyright The Financial Times Limited 2006
Published: September 6 2006 03:00 | Last updated: September 6 2006 03:00



Alan Mulally arrived at Ford's sprawling Dearborn headquarters yesterday to find an in-tray already overflowing with problems.

The new chief executive, the first outsider to hold the post in the company's 103-year history, will be leading a company in crisis.

Ford lost its number two position in the US for the first time since before the Second World War in July, when it was passed by Toyota in vehicle sales. Net losses so far this year have reached $1.3bn, against profits in the same period last year, while revenue has plummeted.

Things will be worse later this year, as the company is already planning for a massive 21 per cent cut in production in the final quarter, the biggest reduction since 1982. Customers have turned away not just from Ford, but from the types of vehicles where it is strongest - big sports utility vehicles and pick-up trucks.

As a result, the first serious action under Mr Mulally's leadership will be the presentation of a new restructuring plan - the second this year - to the board in a week's time. The aim, set by Bill Ford, chairman and outgoing chief executive, is to return to profit in 2008, and insiders expect exit packages to be offered to almost everyone at the company.

Equally pressing items on the to-do list include the strategy of the group. Ford has already begun the break-up of its lossmaking European luxury car division, putting Britain's Aston Martin up for sale last week.

But investment bankers close to Ford expect a decision soon on the future of Jaguar and Land Rover, with the smart money betting that the struggling Jaguar marque, at least, will be sold or given away.

On top of that, Mr Mulally faces perhaps the worst morale since Ford removed every other lightbulb as a money-saving measure during a rough patch in the early 1980s.

"All the good people have left," said one investment banker who does occasional work for Ford. "They've already lost a whole generation of people and more want to leave."

As an outsider, Mr Mulally may find breaking into the closed culture of Ford particularly challenging.

The company is plagued by bureaucracy and a way of life based on interminable meetings, characterised by insiders as "meetings about meetings".

Being new to the car industry could make his entry particularly difficult. Carmakers rarely catapult a newcomer straight to the top, with lifetime "car guys" leading every major manufacturer today apart from Fiat and PSA Peugeot Citro├źn. Jean-Martin Folz, head of the French carmaker and a former food industry executive, spent two years as understudy to Jacques Calvet, then chief executive, before taking over.

The reason is the complexity: understanding the economics of the production, distribution and sale of millions of cars and trucksin a business where designing a model typically takes several years is tough. Mr Ford was candid about the challenges Mr Mulally will face to get up to speed:"It'll be like drinking out of a firehose once he gets here."

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