Alan Mulally’s Ford Is One Focused Carmaker

by Susan J. Aluise | December 12, 2011 11:17 am

Alan Mulally’s Ford Is One Focused Carmaker

dowleadersig 247x300 Alan Mulally's Ford Is One Focused Carmaker[1]Bill Ford Jr. has a lot to be happy about these days. Iconic Ford Motor (NYSE:F[2]), founded by the current Ford chairman’s great-grandfather Henry, has driven back from the economic precipice with new products, a laser-focused business plan and a strengthening balance sheet that let Ford reinstate a dividend[3] after a five-year lapse. Even the Ford family’s Detroit Lions — which hasn’t had a winning season in the National Football League since Ford bought Land Rover from BMW — could make the playoffs after a 12-year drought.

Chairman Ford can thank Ford President and CEO Alan Mulally for just about all that, except the Lions’ resurgence. And as rumors that Ford was seeking Mulally’s successor[4] rocketed through the sector at Internet speed last week, investors understandably wondered whether Ford’s good times could keep rolling without Mulally at the wheel.

Mulally unquestionably has delivered a slew of improvements. When he walked through the door in September 2006, Mulally realized at once that many of Ford’s models were off target and its plethora of brands — including Mercury, Land Rover, Jaguar and Aston Martin — were distracting at best. Fixing challenges that deep would take patience and extraordinary will. It would also take time — a commodity Mulally knew he didn’t have in abundance.

Recognizing that the economy was heading into a storm, Mulally incurred nearly universal wrath for putting all of Ford’s assets in hock to build up a $23.6 billion “rainy day” fund. But when the Great Recession hit with a fury, Ford was ready — and didn’t have to hit the federal government for bailout money like archrivals General Motors (NYSE:GM[5]) and Chrysler.

In just five years, the 37-year Boeing (NYSE:BA[6]) veteran and former president and CEO of the aircraft manufacturer’s commercial airplanes unit, has taken a sluggish, unwieldy carmaker that lost $12.7 billion in 2006 and has turned it into a leaner, meaner competitor that earned $6.6 billion last year.

In the first nine months of 2011, Ford has matched its income for the full fiscal 2010. It also has a new four-year deal with the United Auto Workers union that raises costs by only 1%. That’s not a bad second act for the aerospace engineer who took the revolutionary Boeing 777 program from rough sketch to reality.

It was no simple task. The secret to Mulally’s success: focus. Not just the car of that name — although the 2012 Focus Electric had star power[7] when Mulally drove the prototype around the David Letterman set back in August. Mulally’s focus on Ford has been key to the automaker’s turnaround.

In a speech earlier this year at the Stanford School of Business, Mulally illustrated why Job One was reestablishing the Ford brand. He discovered the root of Ford’s problems on his first day working at Dearborn, Mich., headquarters. “I drive in, and there is not one Ford vehicle in the garage,” he told the audience. “There are all these Aston Martins and Jaguars. I remember thinking to myself, ‘I wonder what all the people in this building are working on. I don’t think it’s Ford’. And Ford was 85% of the business.”

That’s when Mulally determined to shift gears. He sold off Jaguar, Aston Martin and Land Rover and folded the Mercury brand, getting the company’s focus back on Ford. Indeed, the automaker’s revival is closely tied to Mulally’s “One Ford” focus — a cultural and strategic shift executed under the theme: “One Team. One Plan. One Goal.”

“One Ford” is the rallying cry for the company’s development of a global car platform that would streamline the manufacturing and launch of new models in different markets by using common design elements and parts. The first fruit of the automaker’s so-called C-segment common platform is the 2012 Ford Focus.

That’s not to say Ford is flying high with no fear. It still must find ways to boost global sales — particularly in Asia, where its market share reportedly is less than 2%. And the recent reversals of fortune at Toyota (NYSE:TM[8]) and Honda (NYSE:HMC[9]) won’t last forever. While Ford has made great strides in beefing up its balance sheet, it still has a way to go before its corporate debt reclaims investment-grade status. And it just might be time to pull the plug on Lincoln, the laggard luxury brand.

Another challenge: Winning over investors who have remained cool, pushing the stock some 36% lower so far this year. It’s now trading at around $10.75, up somewhat from the early October low of $9.37.

Despite media speculation over his possible exit, the 66-year-old Mulally is going as strong as ever and has no apparent reason to leave Ford anytime soon. But good companies make solid succession plans to ensure smooth leadership changes. Companies whose market value is closely tied to a leader can take a hit if they don’t have a solid plan in place. Recall investors’ initial dismay when Steve Jobs announced he was stepping down as Apple‘s (NASDAQ:AAPL) [10]CEO earlier this year.

So it’s likely that Ford will appoint a chief operating officer in the near future whom Mulally can mentor for a couple of years. Once Ford’s credit rating returns to investment grade — which could happen by next year — Mulally likely will announce his planned retirement date shortly thereafter, says Automotive News[11].

Who might be in line to succeed Mulally when he eventually steps down? Here are the three hot prospects:

  1. Mark Fields. Now president of Ford’s Americas division, Fields is the odds-on favorite. He’s been Mulally’s right-hand man in the turnaround and is a true believer that Ford is on the right road. It doesn’t hurt that he has a close relationship with Bill Ford.
  2. Joe Hinrichs. Promoting Hinrichs to head Ford’s Asia/Pacific and Africa operations in 2009 — and giving him the coveted title of chairman and CEO of Ford Motor China — suggests Chairman Ford is hedging his bets. If Hinrichs can dazzle in the world’s largest auto market, he might be able to steal some of Fields’s thunder.
  3. John Krafcik. The outsider on the short list, former Ford exec Krafcik is the CEO of Hyundai Motor America, who has boosted the South Korean company’s competitive position and reputation. Krafcik is the ultimate “car guy”: When he was a Ford engineer in the 1990s, he once street-raced Bob Lutz (who’d later become vice-chairman at GM) down an expressway in a Taurus. Lessons learned. He’s innovative, passionate — and he hates to be passed.

In the meatime, Mulally is firmly in Ford’s driver’s seat with eyes focused sharply on the rough road still ahead.

As of this writing, Susan J. Aluise did not hold a position in any of the stocks named here.

Endnotes:
  1. [Image]: http://investorplace.com/wp-content/uploads/2011/11/dowleadersig.jpg
  2. F: http://studio-5.financialcontent.com/investplace/quote?Symbol=F
  3. Ford reinstate a dividend: http://investorplace.com/2011/12/ford-dividend-buy-f/
  4. seeking Mulally’s successor: http://online.wsj.com/article/SB10001424052970204903804577082413943017598.html
  5. GM: http://studio-5.financialcontent.com/investplace/quote?Symbol=GM
  6. BA: http://studio-5.financialcontent.com/investplace/quote?Symbol=BA
  7. Focus Electric had star power: http://www.insideline.com/ford/focus/2012/ford-ceo-mulally-takes-focus-ev-to-letterman.html
  8. TM: http://studio-5.financialcontent.com/investplace/quote?Symbol=TM
  9. HMC: http://studio-5.financialcontent.com/investplace/quote?Symbol=HMC
  10. AAPL) : http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL%20%20
  11. Automotive News: http://www.autonews.com/article/20111209/BLOG06/111209862/1503

Source URL: http://investorplace.com/2011/12/alan-mulally-ford-succession/
Short URL: http://invstplc.com/1nslJMA