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The company's new drive for innovation includes a painful restructuring plan--closing perhaps as many as 10 of 43 plants with some 25,000 job cuts out of a total of 123,000 in North America. The cutbacks are designed to halt the company's losses on its domestic auto operations--$1.2 billion in just the third quarter of 2005--and shore up a credit rating that began to deteriorate last year to junk-bond status. Turning that around while pursuing his philosophical imperatives will be a fancy juggling act. Previous CEOs have repeatedly tried to reinvent the company without enduring success. The difference this time is that there might not be a next time.
When Ford became chairman seven years ago and CEO two years later--the first family member to run the outfit in 19 years--plenty of critics said that any guy named Ford, especially a granola-crunching one, was a bad choice for the job. A lot of people still think so. "Any insider is the wrong person to fix a Ford or a GM," argues a hedge-fund executive who is shorting Ford stock. "Insiders have too much of a connection to the status quo and the legacy of the company to make the tough decisions that are needed." Executives humored him but cringed when he announced he wanted to make his company environmentally friendly, long before Toyota's hybrid Prius became a household name. "I think that I was perceived perhaps as a Bolshevik early on," says Ford. Other comparisons were not so kind.
As his company's fortunes have fallen, Ford has wrestled with everyone from Wall Street analysts to his own board members, who have pushed him to move faster to slash costs and employees. "They said, 'Just cut it away,'" he says. "But I said, 'I don't want to do that. I mean, I've got to live with these people. And you can cut and cut away a company, but at the end, what are you left with?' I want to find a different way."
The clock is ticking for the Americans, however, and here's why: Detroit loses money on passenger cars. (Trucks have always been profitable.) The problem was a long time coming, as Japanese and later Korean automakers scored annual gains in quality, profitability and market share. But U.S. automakers were lulled into complacency in the 1990s by the supersize profits of their SUVs (light trucks, technically), which just a decade ago earned profit margins as high as 25%. Ford was an innovator with its Explorer model and just kept making them bigger. Meanwhile, the Japanese started making good SUVs too, and the competition made the profit margins shrink. When the price of gas soared, SUV sales tanked, and the U.S. companies were caught without money spinners. Ford stopped making the four-ton Excursion, which had been criticized as a gas-hungry dreadnought. GM's solution, "employee pricing" for everyone, gave away the store. Ford had to match it.