Ford CEO Mulally shares Toyota’s vision

By dancurranjr On April 4th, 2009

ford fusionWith its crosstown rivals on the ropes, Ford Motor is painting itself as Detroit’s standout — the only U.S. automaker weathering the auto sales depression without taxpayer life support.

While that may be a short-term accomplishment, Ford is reaching for much more. CEO Alan Mulally is trying to guide the 105-year-old company closer to the model of a foreign rival he makes no secret of having long admired: Toyota.In doing so, the company is anticipating how the auto world may be realigned by the time the global economy finally rebounds.

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“I would love people in the future to say, ‘There’s Toyota and Honda and Ford,’ ” says Ford’s North American chief Mark Fields. “We have the goods to do it.”

In more than two years on the job, Mulally has tried to instill in Ford Toyota-like discipline and global product integration. He is intent on polishing into a jewel the Ford brand that had been allowed to become ho-hum. Like the Japanese company’s famously long view, Mulally wants to look decades down the road, not months.

Make no mistake: Ford’s emulation of the industry’s halo company doesn’t mean it’s in the same league, yet. Not with the heavy debt load it still is trying to cut, a product portfolio in the U.S. still lacking in highly profitable small cars, and improved reliability still trying to erase missteps of past years in consumers’ minds.

“Ford is being Ford. They aren’t in as good of shape as you think,” says Jim Hall of 2953 Analytics.

Ford was the financially sickest of the Detroit Big 3 when Mulally took over. That’s hard to believe now with the situation so dire for General Motors (GM) and Chrysler. In recent days, the Obama administration forced out GM CEO Rick Wagoner and gave it 60 more days of limited financial support along with orders to accelerate a drastic restructuring and downsizing. And it judged Chrysler as no longer able to stand alone, giving it 30 days to conclude an alliance with Italy’s Fiat as a condition of receiving a loan to facilitate the combination.

Ford has tried to float above that turmoil, even as March sales figures due out today are likely to show the industry’s worst downturn in decades has yet to hit bottom.

Similarities between Ford, Toyota

The interest of Mulally, who used to drive one of Toyota’s Lexus luxury cars before he joined Ford, in his Japanese competitor is more than a case of if-you-can’t-beat-’em. The two companies have several things in common: Both still are heavily influenced by their founding families, the Fords and the Toyodas. Both innovated production methods that set standards for the industry. Both set new marks for the treatment of industrial workers.

Lately, they’ve added a few more common attributes to that list:

  • Finances. For the moment, both are losing money, but surviving. Toyota has socked away a lot of savings. Ford lacks that kind of cushion, but Mulally swears it has enough cash to weather the recession without a dime of government loans.

As the economy boomed in late 2006, Mulally raised $23.4 billion in fresh capital by mortgaging much of the company’s assets. Despite the credit squeeze that choked off sources of more cash and the industry sales collapse, Ford was able to weather a record $14.6 billion loss in 2008. Now Ford is trying to reduce its unsecured debt by two-thirds and its overall debt from about $36 billion to about $25 billion through a cash-for-debt swap to bondholders that expires Friday.

Toyota, too, is expecting to report a big loss for its 2008 fiscal year which ended Tuesday — an estimated $3.8 billion.

  • Quality. Ford’s quality is improving, independent surveys show, even if the word hasn’t exactly broken out on the bicoastal cocktail party circuit.

Ford’s domestic brands — Ford, Mercury and Lincoln — all were above average in J.D. Power and Associates’ 2009 Vehicle Dependability Study. Mercury, in fact, was fifth, right behind Lexus and Toyota.

“Their best performance in five years,” says Power’s Dave Sargent, vice president of automotive research. And he says this took real work. “Quality is not something you can spray on the vehicle.”

Closely watched Consumer Reports also lauded Ford in its latest check of reliability. Of the 12 Ford-brand cars and trucks listed, nine, or 75%, got its “recommended” rating. That tied the percentage for Toyota-brand models. By contrast, GM’s Chevrolet had only 21% of its models recommended, and Chrysler’s Dodge had none.

  • Labor. There’s no avoiding the fundamental difference between Toyota’s and Ford’s factories in the U.S: Ford is a union shop, and Toyota, by and large, is not. But Ford just negotiated concessions with the United Auto Workers that Ford says will save $500 million a year and make its labor costs fully competitive with Toyota’s in the U.S. over the next of couple years.
  • Profitable cars. Toyota has thrived on a consistent lineup of dependable high-volume cars with names that consumers recognize — and pay a premium for: Camry and Corolla. Ford once had a top seller in the Taurus, but largely abandoned its commitment to cars to chase higher profit margins in pickups and SUVs.

Now Ford is serious about the car business again. Ford is bringing in its best small cars from Europe, starting with the car-like Transit Connect utility vehicle, a Fiesta subcompact and a new Focus subcompact co-designed for both continents. Mulally revived the Taurus name first by sticking it on an unremarkable existing sedan, but he is about to start selling an all-new version that has gotten critical buzz for its sharp-edged looks.

  • Hybrids. Ford is the largest domestic maker of hybrids, while Toyota is the larger seller of them overall. Ford boasts that its midsize Ford Fusion hybrid sedan, just out, gets better gas mileage than Toyota’s Camry hybrid sedan, although it falls shy of Toyota’s gold-standard hybrid Prius. Ford was the first domestic automaker with a full hybrid, the small Ford Escape SUV.

Ford chief has long been a fan of Toyota

Mulally traces his admiration of Toyota to the 1990s, when he worked at Boeing. By the time he was hired away by Ford, he had become CEO of Boeing’s commercial aircraft division. He loyally jettisoned the Lexus he was driving when he was hired, but not his respect for its maker.

“I clearly have been a student of Toyota for many, many years,” says Mulally in an interview. “I absolutely believe Toyota’s fundamental premise is they are in for the long term, that they make products people want, and they are going to use minimum resources and minimum time to do that.”

Like the Toyota brand, the Ford brand name lacks glam. Mulally has summarily booted Ford’s couture collection — Aston Martin, Jaguar, Land Rover and likely soon, Volvo — to focus cash reserves and energy on reviving the core Ford name and its values.

While Mulally is lavish in his praise, he’s careful to draw a line. Ford is not trying to blindly copy Toyota, or any other company. But the Japanese giant — now the world’s largest automaker — is a worthy standard for measuring progress. “I’ve done a lot of benchmarking of Toyota over the years. I did it at Boeing,” he says.

Much of what Mulally admires about Toyota was inspired by a book about the company he read a decade ago. The Machine That Changed the World detailed the waste-reducing lean production methods that came to define the Japanese automaker.

The book’s author, James Womack, credits Mulally for moving Ford to some of the basic strengths — “blocking and tackling stuff” — that define Toyota. But he isn’t ready to elevate the Detroit automaker to the same level.

“They have a hard time sailing in a straight line,” he says of Ford. Mulally has outlined a long-term focus for Ford’s future, but Ford’s history is filled with strategic zigs and zags. Things like an SUV fixation, a buying spree on luxury brands such as Land Rover and Aston Martin and former CEO, now Chairman, Bill Ford’s insistence that Ford become the environmental automaker.

The strategy now, tuned to these recessionary times, is a back-to-basics approach that aims to highlight the no-frills Ford brand.

Some of those who know the company well caution against reading too much into a comparison to Toyota. Certainly not in financial strength, for instance.

It hurts, too, that Ford can’t command as high a price for similar vehicles. That’s a problem anytime, but it’s going to hurt even more with Ford’s next generation of vehicles to meet higher government fuel-economy rules. Turbochargers and other gas-saving technology will make cars more expensive to build — costs that need to be recouped through higher sticker prices on the sales lot. Toyota has pricing muscle that Ford currently lacks.

The guy that Ford will count on to sell smaller vehicles with bigger price tags is marketing chief Jim Farley. He believes Ford can compete, saying the new models will look, feel and perform better.

Former Toyota executive gives Ford insight

If anyone at Ford is qualified to judge how well the new models will stack up next to Toyota’s, it’s Farley. He spent 20 years at Toyota, launching the Scion line of youth-oriented vehicles in the U.S., introducing the Tundra pickup to the working class, then running snooty Lexus — before being plucked by Mulally in an industry coup.

“Ford reminds me of what Toyota was like 20 years ago,” he says. At Ford, “there is a single-mindedness to the business plan and the product execution.” That’s what Toyota had, he says. But now, “Toyota has gotten so big around the world that it’s hard to have that single-mindedness.”

He echoes Mulally’s themes — consistency of product around the world, discipline, long-term focus. Yet he notes differences. For example, Toyota has an intense bottom-up culture. Ford has always been top down.

To be more nimble, Ford has put one executive in charge of its cars worldwide. Derrick Kuzak’s mission, as he puts it, is to “make those vehicles consistent in look, sound and feel in all markets globally.”

He is reducing the number of chassis on which vehicles are built by 40% to eight.

The goal is to raise the quality of the small cars overall and make them profitable by achieving global volume. If Ford can build small cars better at less cost, it will make money in a product segment where profits have eluded Detroit makers.

To make those cars better, Ford has had to make some attitude adjustments.

“In the past, we made big boasts about how we would beat Toyota and rah-rah-rah pep rallies,” says Ford’s North American chief Fields. We “never lived up to them.”

Now the attitude is, “Let’s not beat our chests. Let’s lay out the factors that produce good quality and hold ourselves accountable.”


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