John S. Wolfe

Ford President and CEO Alan Mulally poses with a photo of ASU W.P. Carey School of Business students following his April 1 speech as the Dean’s Council of 100′s Executive of the Year.

Speaking to the Dean’s Council of 100 of the W.P. Carey School of Business April 1, Ford Motor Co. President and CEO Alan Mulally presented the automaker’s story as if it were a case being taught in a management class.

It’s September 2006. Ford is struggling. It’s a global company but a regionalized one, with little synergy.

In its home country, Ford was simply producing large trucks and SUVs. It couldn’t make a car profitably in the United States.

Its competitiveness had slipped on quality, fuel economy, safety and value. The U.S. economy was weakening.

Ford was losing money on every vehicle it built, and it was “running out of cash,” Mulally told the crowd of 250 at the Camelback Inn in Paradise Valley.

Ford’s board brought in Mulally, an outsider who had risen over 37 years to become executive vice president of Boeing, to take the reins of the company. On his first day, he drove into the garage below the corporate headquarters in Detroit and didn’t see one Ford. There were Jaguars, Aston Martins, Volvos and Land Rovers, produced by Ford’s sister manufacturers.

Everyone associated with Ford wanted to know: What was this guy going to do?

Mulally, in town to be honored as the Dean’s Council 2010 Executive of the Year, launched a five-step plan.

“First, we had to decide what we wanted to be,” said Mulally, a Kansas native with degrees in aeronautical and astronautical engineering.

He went back to the company’s roots and found a quote from Henry Ford in 1925: The Ford vision was “Opening the highways to all mankind.”

“We needed a plan and we needed hope,” Mulally said.

To do anything would first require drastic action. Ford cut $14 billion from its budget and was determined to match its capacity to actual demand. The payroll would eventually be cut by 47 percent.

Next, Ford would accelerate development of new vehicles. That was its core competency and it would create vehicles that appealed to consumers.

Third, Mulally urged employees to build vehicles that would be the best in their class. They needed to excel in design, fuel economy, safety and value. It created a hybrid, the Fusion, that would outperform the Toyota Prius by 41 mpg to 33 mpg.

The fourth step was Ford “needed a home improvement loan.” The company needed resources – he thought $10 billion would suffice – and presented a new business plan to 500 bankers. In two weeks he had commitments of $23 billion.

Last, Mulally – who has a master’s degree in management from MIT – pulled together everyone in Ford. He told them, “We need to work as one global company. One Ford.”

“We need to be market-driven and customer-focused.”

How does this all look now, three and half years later?

Ford is on a roll.

Its market share in the United States has gone up 17 of the last 18 months. It has paid back $10 billion in debt. Unlike GM and Chrysler, it didn’t need a government bailout in 2009.

“We will be solidly profitable in 2011,” Mulally said.

When he asked the table of Ford dealers in the room, “How are you feeling?,” there was enthusiastic applause.

To turn things around required the efforts of everyone associated with Ford, he said.

As he had seen at Boeing, Mulally instituted a business-plan-review meeting at the executive level for every Thursday that required leaders to use stoplight colors – green, yellow and red – to reflect how initiatives were proceeding. He was stunned when, at one of the first meetings, virtually every sign was “green.”

“Folks,” he recalled saying. “We just lost $14.6 billion. Is there anything not going well?”

When one manager reported a “red” on a project, he wasn’t run out of the meeting and transferred to Toledo. He was praised by Mulally. Pretty soon the managers were more concerned about the company’s success and less about praise or blame. “The color charts began to look like a rainbow,” he said. Candor and cooperation replaced fear.

About 70 percent of those Ford executives still work there, although he noted that 80 percent of those are probably in different positions.

“You’ve got to get the right people in the right positions,” he said.

Mulally was also adamant that Ford needed to become more competitive on costs.

“We’re fighting for the soul of America’s competitiveness in the global economy,” he said. “And it will only be OK if we’re competitive on our cost structure.”

The number of employees, wages of $75 per hour, union contracts, healthcare benefits and retiree benefits were preventing that, he said.

“I shared Ford’s vision and (told the unions) this is what we need to do to be competitive,” Mulally said. “If things didn’t work out, we would need to leave (and manufacture vehicles overseas).”

The straight talk worked.

Ford and the union agreed to a restructuring that reduced hourly wages from $75 to $50 per hour, while also introducing entry-level wages of $14 to $16 an hour. The UAW also took retiree health benefit liabilities off Ford’s balance sheet.

“I have a lot of respect for (UAW president) Ron Gettelfinger,” he continued. “We trusted each other.”

Ford began manufacturing the Taurus sedan in Chicago.

“We can be competitive in the car market,” Mulally said. “We agreed that we both wanted profitable growth for all.”

Ford, with operations around the globe, is the seventh-largest corporation in the world. Henry Ford espoused a philosophy that each country’s plant could improve business in that country, Mulally said.

The problem was, Ford was too decentralized. Mulally took steps to reduce the number of Ford nameplates from 97 to 20.

One car, the Fiesta, is the No. 1 seller in 19 of 20 European countries. It will become available in the United States in June. It is generating a lot of buzz through a social-media campaign led by 100 sponsored bloggers, a $14,000 price and advanced electronics like an iPod dock.

“Seventy-four percent of the U.S. knows the Fiesta is coming, and that it is a cool car,” he said.

The Ford Fiesta, which is being made in Mexico, will become available in the United States in June.