With his bright smile, open face and lick of light brown hair, Alan Mulally looks like an overgrown boy scout. If Richie Cunningham of Happy Days had never met the Fonz and gone straight into business, he might have turned out like Mulally. “Gee, Dominic, that’s a kinda neat way to ask that question,” he chirps at one point during our interview.
Don’t be fooled. Mulally may look and sound preppie, but he is a killer preppie. He starts his day at 5.15am, is “relentless”, according to associates, and has let people go for chatting at the back during his weekly management meetings. He is nice, very nice, but it’s a nice I wouldn’t want to get the wrong side of. Mulally’s driven nature helped to save Ford — it was the only one of the big three Detroit carmakers not to go into Chapter 11 bankruptcy protection this year — and has won him the crown of Sunday Times Business Person of the Year.
The 64-year-old, an aeronautical engineer by training, is too smart to claim Ford, the world’s fourth-biggest car group, is safe just yet. It made a $1 billion profit in the third quarter of the year, a towering achievement in a cut-throat industry struggling with a recession-driven slump in sales. “None of us is really out of the woods,” he said. “But we have a good fundamental business that will get stronger as the economy starts to grow.”
Ford avoided the great Detroit car crash of 2009, but now has to fight rivals that were kept alive with government money. Isn’t Mulally riled that both his Detroit rivals were bailed out by the taxpayer?
“No, I’m not. The advantages of not going through bankruptcy far outweigh the advantages of going through it. These guys [GM and Chrysler] are going to have to slow down their investment in new products, and customers care about products.
“They were failed enterprises. Just think about everyone that got wiped out in Chapter 11 — the shareholders and the bondholders. In there are the same banks that we borrow money from today and, because we honoured our commitments, we couldn’t have a better relationship with them.”
To understand the nature of Mulally’s achievement, you have to go back three years to his appointment. Ford was floundering, on its way to a $12.6 billion loss for the year. Its bonds were reduced to junk status by credit-rating agencies, and most analysts and commentators thought it would be the first of Detroit’s big three to fail. It was caught in the jaws of a vice; aggressive low-cost competition from Japanese and other Asian carmakers on one side and on the other the ever-mounting costs of generous pension and healthcare plans set up in the days when carmaking in America was a licence to print money.
For a group known for dash and vision throughout its 106-year history — the perfection of mass production, founder Henry Ford’s plan to put the world on wheels — it seemed paralysed by its burdens. Bill Ford Jr, a scion of the founding and still-controlling family, had been made chief executive as well as chairman, the first family member in a generation to hold the top executive job.
Under the previous boss, Jac Nasser, Ford had gone on a spending spree, adding to its stable of international brands. With the fat profits made from selling pick-ups and light trucks to affluent American customers in 1990s, Ford built up a portfolio that included Jaguar, Land Rover, Aston Martin, Volvo and Mazda. But then American profits dried up, and Ford was sinking. Bill Ford was smart enough to realise he needed help, and went looking for it.
Mulally was an unlikely appointment. He was a Boeing man through and through, having worked at the planemaker for 38 years. His big achievement was as the chief architect of the Boeing 777, the first of the big twin-engined airliners that have come to dominate long-haul routes. He was made boss of Boeing’s commercial aircraft division in 1998, but later missed out on the chief executive’s job.
Recruiting an outsider was a bold stroke for Ford. The accepted wisdom in Detroit was that you had to be a “car guy” to run one of the big three and, at Ford, that you had to come up through the rigours of the company system. Mulally had neither distinction.
It didn’t take him long to start shaking things up. The profusion of marques — and a profusion of management fiefdoms — were his first targets.
“I did a lot of due diligence before I arrived, and I clarified that after I got here,” said Mulally. “Ford had moved from the blue oval to being a house of brands. And we had really strong operations round the world, Ford in Europe, China, Australia — but they all operated autonomously. So here was the world’s 17th largest company, and it was operating as a group of regional outfits with no global scale, even though it was competing against the best global companies.”
Greater centralisation was the order of the day — and a sell-off of some of the most famous names in the car industry. Aston Martin went to the Kuwaitis. Jaguar Land Rover to the Indians (Tata Motors paid £1.35 billion, which looked cheap until sales of luxury cars fell off a cliff in the autumn of last year). Volvo is heading for China. Last week Ford said it had reached an outline deal to the sell the Swedish carmaker to Geely, a Chinese carmaker, with the handover expected to take place in the second quarter of next year.
It was an abrupt about-face. Ford’s original plan in buying the different brands was to spread risk, and, through companies like Jaguar and Volvo, get access to the kind of high-margin sales to which it could never aspire. It looked a sound strategy, certainly sound enough for the good and the great on the Ford board to back it for years. It did not, however, stand up to the kind of basic, ground-up scrutiny that Mulally loves.
“I start out looking at the world, looking at the business environment, our situation, then developing a plan to deal with it. I was asked to come here to fix Ford, and clearly doing the same thing we had been doing was not going to work.”
Mulally identified another, slightly less tangible flaw, a contentment with being average. “It was almost as though they [Ford management] had consciously decided to be competitive, rather than the best.”
The fruit of the centralisation plan will be seen at the Detroit Motor Show, which starts in a fortnight. There, Ford will show off its new small cars for America, which are derived from its European products. In some cases, such as the best-selling Focus, American customers will get new models a year before they are released in Europe — even though they were designed here.
The final part of the initial turnround plan was financial. Sensing that Ford was running out of cash, and that access to cash might be the big decider in the looming downturn, Mulally and then financial chief Don Le Clair made the big call to mortgage every asset the company had, including the Ford brand, to raise $23.5 billion. When debt seemed to be Detroit’s biggest enemy, it was a bold move.
“I knew the world was going to slow down, and access to credit was going to get tougher, but we needed a certain amount of money to transform the company,” said Mulally. “I just knew we had to borrow as much as we could. I went to the banks myself — there were 500 of them — and presented our plan. In hindsight, what we raised gave us enough of a cushion not only to survive the recession but accelerate the investment in new products.”
At Boeing, Mulally’s chief tool of management was a weekly review meeting, involving all the key people, at which all problems were thrashed out. He has brought this process to Ford. Every Thursday in the Thunderbird Room at Ford’s headquarters in Dearborn, Michigan, executives from round the world gather, in person and by video conference, to give updates on how they are doing. It’s dense stuff. In two and half hours the team covers 300 slides. “We are looking for any deviation from the plan,” said Mulally.
He likes everyone to concentrate, and will not tolerate whispered conversations while the main business of the meeting is elsewhere. “The worst thing is that you are not looking at the same chart, you are not listening to the same person, so you miss the opportunity to come together. We have even removed a couple of people who couldn’t accept those behaviours. It can be like poison to the organisation.”
Debt is a possible cloud on Mulally’s horizon — because Ford didn’t go into Chapter 11, an American corporate insolvency process that allows companies’ debts to be wiped out — it now has much more debt, £27 billion, than GM or Chrysler. It is doing all it can to take the pressure off, raising more than $1 billion in new equity, and $3 billion in fresh loans and starting talks with lenders about pushing back the maturity of its existing borrowings.
The company has plenty of uses for the money. Like all carmakers, Ford is grappling with the thorny question of what might replace petrol as a fuel. Mulally said he was happy with the progress being made. “The technology road map looks like this — you improve the internal combustion engine, you make them compatible with biofuels, and the next thing is the move through hybrids towards electrification. We will have all-electric vehicles next year. You really can’t choose between the technologies because you don’t know which ones are going to evolve. A lot depends on governments — they are going to have make the choices on infrastructure to support the new technologies.”
If he were a British executive, Mulally would be thinking about retirement. Things are different in America, where the heads of big companies can go on for a very long time. He said he had no plans to take a back seat. “I have never had so much fun. One thing is for sure, having done planes and cars, I’m not doing trains.”
Stalwarts who gave motor boss a run for his money
THIS may not have been a vintage year for business — recession and public anger over executive pay saw to that — but we have never had so much reader interest in who should be the Sunday Times Business Person of the Year.
Many readers emailed us to say what they thought of our shortlist of 10, and who of that elite group should carry the laurels.
Mulally had numerous supporters, including, interestingly enough, quite a few of his employees. John Varley, chief executive of Barclays, and Kate Swann, boss of WH Smith, were highly praised, with Robert Walker, Swann’s chairman, making sure he added his name to the list of her devotees.
Fittingly for someone who works in the fashion business, Angela Ahrendts, boss of Burberry, inspired some gushing tributes. “She is an inspiration ... a beacon for the Burberry brand and has steered the company through the most turbulent time,” said one.
We had interesting insights from inside companies. Peter Dranfield, who worked at BG Group for 20 years, wrote to tell us why we should pick the gas company’s chief executive, Frank Chapman. BG had faced tough competition for gas fields in Kazakhstan, but had won through largely because of the time Chapman had spent developing relationships there.
“This is just an example of what Frank does and probably one of the reasons why he has the reputation of being low profile. He is not so keen on being seen at prestigious conferences, but wants to do the things that a chief executive should do,” said Dranfield.
The executive who ran Mulally closest was another figure close to the motor industry — Ross Brawn, pictured. After Honda pulled out of Formula One, he was left as boss of a moribund team. He led a buyout and won the championship with Jenson Button. At the end of the year he sold the company to Mercedes, making £35m.
And if that wasn’t enough, last week he revealed another twist — the comeback of a little-known driver called Michael Schumacher.
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