Ford Motor Company President and CEO Alan Mulally recently gave Stanford Graduate School of Business students an offer they couldn't refuse — putting themselves into the driver's seat of the second-largest car company in the United States.
In his talk to a packed house at Bishop Auditorium on Feb. 3, Mulally outlined the unsettling scenario he faced when he took over the helm of the Detroit-based automaker in 2006. With car sales down, Ford was about to lose $17 billion. Relations with labor unions were strained. While the company operated worldwide, there was scant dialogue among different operating units on ways to improve business.
"So, that's the situation," Mulally explained, pulling out a pencil and sheet of paper. "OK — what would you do?"
Audience members shouted answers ranging from shuttering dealerships to cutting dividends to slicing pension benefits to investing more money in research and development. One student's suggestion to simply "create trouble for your rivals" got a big laugh and a pointed piece of insight from Mulally: "That was not part of the plan, although that's what happened," he said. "We're certainly a real pain right now."
In his wide-ranging "View From The Top" speech, Mulally outlined how Ford overcame its dark days to become a profitable enterprise that's racking up car industry quality awards, creating new technologies — and definitely creating trouble for competitors.
Mulally, who joined Ford after serving as executive vice president of The Boeing Company and president and chief executive officer of Boeing Commercial Airplanes, was instrumental in the turnaround. Time magazine named Mulally one of the world's 100 most influential people in 2009. He serves on the President's Export Council, formed last year to advise the Obama administration on ways to encourage companies to increase exports and enter new markets.
The second largest of America's "Big Three," Ford was the only major U.S. automaker to avoid bankruptcy in 2009. The company earned $6.37 billion during the first nine months of 2010, its largest profit since 1998 and the most of any global automaker. Its Ford Fusion Hybrid was named Motor Trend's Car of the Year in 2010.
Ford's transformation didn't come easily, Mulally explained.
As an example, he recounted his first day on the job at the company's world headquarters in Dearborn, Mich. "I drive in, and there is not one Ford vehicle in the garage," he said incredulously. "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."
He went on to refocus attention on core Ford products, close plants, cut personnel, sell some brands, including Jaguar and Land Rover, and discontinue the Mercury brand. At the start of this year, the company was down to 80 plants and 178,000 employees — a 40% reduction in personnel from when Mulally came on board.
The company used money saved to design new products, including the popular Ford Fusion sedan, and create new opportunities. It expects to add 7,000 employees in new areas of focus during the next two years, Mulally said. A new, more fuel-efficient model of the Ford Explorer, being built in Chicago, will mean 1,200 new jobs there, said Mulally, plus another 600 jobs with 100 suppliers throughout the United States.
In addition, Ford is contributing to economic expansion in many parts of the world. The company is experiencing "fabulous growth" in Brazil, Russia, India, and China. Ford is one of the fastest-growing companies in rapidly expanding Asia, he said. "It's really exciting now to grow and provide all these great opportunities."
When asked to talk about his biggest mistake, Mulally couldn't think of one. Instead, he supported the tough actions taken to make Ford profitable and competitive. "I don't know how we could have moved any faster, and I am so pleased about how we pulled together," he said.
However, Mulally did initially wonder if testifying before Congress in 2008 on behalf of rival automakers GM and Chrysler's pleas for federal bailout money was wise. Ultimately, he decided since those troubled car companies create about 15% of the nation's economic output, letting them slide into bankruptcy would have jolted the country from a recession into a depression. "I was there supporting my competitors for the good of the world," he said. "It was a serious situation. I don't have any remorse for that, and I wouldn't have done anything differently."
Meanwhile, Ford has paid back $14.5 billion of the $23.5 billion it borrowed to fund its turnaround.
Those moves are all part of being a leader, Mulally said. "Every one of those suggestions is a courageous decision, which comes from having a point of view about the future and having your conviction that you're going to have a comprehensive plan to implement that compelling vision." Before the speech began, business school Dean Garth Saloner introduced a guest sitting in the front row with Mulally. Arjay Miller, 95, was president of Ford from 1963-1969 before being named dean of Stanford GSB where he served for a decade in the 1970s. Miller smilingly acknowledged an enthusiastic welcome from the student audience.