For weeks, questions have been swirling about the future of the Ford and its Chairman William Clay Ford Jr., great-grandson of the company's founder. On Tuesday the nation's second-biggest automaker took a big step toward answering some of those questions.
Ford named Boeing executive Alan Mulally to be its new chief executive officer, as Bill Ford ceded operational control after a troubled five-year stint at the helm. He will remain actively involved as the company's "executive chairman," he said.
Mulally, who was also elected to Ford’s board of directors, was a 37-year veteran of Boeing Co., serving most recently as executive vice president and head of its commercial airplane unit. He was a bold choice for the Dearborn, Mich.-based automaker, but a necessary one, according to Rebecca Lindland, senior automotive analyst at Global Insight.
“I think [the appointment] makes a lot of sense,” Lindland told CNBC. “We have been clamoring for a seasoned turnaround expert, and when you look at the automotive industry and the aviation industry, so many of their issues are similar that I think this makes a lot of sense.”
“You need forward thinking, out-of-the-box thinking, and that is what this guy will provide,” Lindland said. “The company needed fresh blood like nothing else.”
Mulally has been praised for engineering a resurgence of Boeing’s commercial airplane unit over the past several years, and with the automotive firm in dire need of a turnaround expert, he might prove to be just what Ford needs, said Kevin Reale, an analyst at Boston-based AMR Research.
“Alan was able to focus [Boeing] on where the industry was headed, which is what Ford needs in the current automotive landscape,” said Reale.
The move to appoint an industry outsider as CEO comes with Ford under growing pressure from analysts and investors after losing $1.44 billion on the first half of 2006. Sales so far this year are off 10 percent from year-ago levels.
Creating buzz around Ford
The news of Mulally’s appointment, effective immediately, caps weeks of intensifying developments that have created a buzz around Ford.
In late August former Treasury Secretary Robert Rubin stepped down from Ford’s board, citing potential conflicts with his employer Citigroup, where he serves as chairman of the executive committee.
That raised the prospect that the struggling automaker might be consulting its bankers about a major deal, perhaps including the sale of its consumer finance unit, Ford Motor Credit.
Ford also recently said it may sell off the prestigious British sports car maker Aston Martin. Other reports have Ford considering going private or possibly angling for a role in the Renault-Nissan alliance led by industry guru Carlos Ghosn.
Big changes do appear to be coming down the highway. To deal with mounting losses and a dwindling market share, Ford is cutting its U.S. production by 21 percent this year and is expected to announce more changes soon that would go beyond those detailed in its “Way Forward” recovery plan, delivered in January. Those plans called for the closure of 14 plants and 30,000 job cuts by 2012.
But larger issues remain for Ford, critics of the company say. These include whether the company sell or close ailing brands like Jaguar and Lincoln Mercury. The company also is suffering from an exodus of top executives and managers as well as tumbling sales of bread-and-butter vehicles like the F-Series pickup truck.
“Ford is good at cutting costs, but it’s not very good at selling product, and that’s what brings in the money,” Lindland said last week.
“The company needs to get people into their showrooms,” she said. “The baby boomers are the ones who rode Nissan, Toyota and Honda to where they are today, and there are lots of them who have never darkened the door of a domestic automaker’s showroom. That is why we don’t anticipate many big changes for the domestic automakers like Ford for decades. Baby boomers are in their peak buying years.”
Drastic changes make sense at Ford, said Daniel Gorrell, a vice president at research and consulting firm Strategic Vision in San Diego.
“[Ford is] caught up the general malaise of domestic automobile industry,” said Gorrell. “It’s under siege [from Asian automakers], and it hasn’t really demonstrated an ability to get over its problems. The business environment is very difficult for them now, and their mix of products no longer reflects what consumers are looking for. Demand has fallen away from their usual moneymakers — large trucks. All the investment they put in that area didn’t pay off, and now they are in a pinch,” Gorrell added.
Ford is hardly alone in the challenges it faces. The entire industry is dealing with the prospect of a slowing U.S. economy, high fuel prices and rising costs for raw materials like steel and aluminum. General Motors Corp. and DaimlerChrysler face the added hurdle of high health care and pension costs as well as potentially thorny union contract negotiations.
“These situations are not necessarily new, but all the planets have aligned over the last quarter or two, so that every U.S. automakers is looking at their own plans to right-size their business and their liabilities in the future,” said Michael Robinet, an automotive analyst at CSM Worldwide.
But Ford also has a unique set of problems. Its highly profitable line of pickup trucks is struggling amid persistently high gasoline prices. In August sales of the F-Series pickup truck — long the country’s best-selling vehicle — fell 15 percent from the year before. Overall truck sales were down 21 percent for the month.
Senior managers and executives are looking to leave the company, if not the industry, according to a recent report in The Wall Street Journal, which cited industry recruiters.
News reports also have suggested that Ford might try to forge an alliance with Renault-Nissan. Currently General Motors is considering a tie-up with the French-Japanese alliance and its charismatic leader Ghosn, which some analysts think would make more sense and deliver more synergy benefits than a Renault-Nissan tie-up with GM.
“A deal with Ford would make far more sense than one with General Motors,” said Patrice Solaro, a Kepler Equities analyst. “Not only are the synergies between Ford and Nissan on the North American market larger, but in Europe a deal with Ford would also generate more opportunities than with GM.”
