Stuck at side of road

Stuck at side of road,1,3868613.story?coll=chi-business-hed Ford's woes outweigh even GM's; culture, past moves costly; turnaround not
in sight
By Michael Oneal and Jim Mateja Tribune staff writers Published March 5, 2006
With all of the problems facing General Motors Corp., including the threat of bankruptcy, it's easy to forget that in many ways America's other crisis-ridden car company is in even worse shape.
Ford Motor Co. has higher non-labor operating costs than GM, its plants are less flexible, and it has lost twice as much U.S. sales volume over the last five years.
It has lagged in modernizing its factories, failed to follow up on the enormous success of hit vehicles like the Taurus and suffered a brain drain of key executives walking out the door.
Now, facing unrelenting pressure from foreign rivals like Toyota and Honda, Ford is at a crucial juncture.
In the words of Mark Fields, new head of the company's all-important Americas division, Ford must "change or die."
Given Ford's advantages over the years, this turn of events is astounding. Ford has a powerful brand, ample financial resources and an army of MBAs. It wasn't so long ago its Taurus sedan was the No. 1 car in America. Now it is getting beat by Camrys and Accords built in American plants by American workers.
The easy explanation is that U.S. carmakers start at a clear disadvantage: They are plagued by "legacy costs," the sky-high pension and health-care expenses brought on by union contracts and generations of retired employees. GM's legacy costs, in fact, are much worse than Ford's, which explains why it is the one in more short-term financial trouble.
But interviews with current and former Ford executives indicate that there are other, less obvious legacy costs as well.
Ford, they say, suffers from years of short-term thinking and billions in questionable investments. While it tried to adopt the highly-efficient management strategies pioneered by Toyota, those efforts have been hobbled by a lack of firm, consistent leadership at the top and a divisive, feudalistic corporate culture that has grown up over the years.
The result is a high-cost, inflexible operation that leaves Ford trailing even GM when it comes to efficiency.
David Cole, chairman of the Center for Automotive Research, a non-profit think tank based in Ann Arbor, Mich., estimates that excluding labor expenses, Ford's operating costs are as much as $1,000 per vehicle higher than GM's--a major competitive disadvantage. Former Ford executives say the gap between Ford and Toyota on the cost of materials has trended as high as $1,600 a vehicle.
"If GM had Ford's (operating) costs it would be gone," Cole said.
The good news is that Ford seems to have finally reached the kind of crisis that tends to inspire change. The job of turning the battleship falls to Fields, a 44-year-old executive who cut his teeth at Ford leading a much smaller turnaround at Ford's Mazda subsidiary. In Japan, Fields killed off old models, refocused the company's marketing and introduced a new line of higher-performance vehicles. Family scion William Clay "Bill" Ford Jr. is hoping he'll do the same at home. But he had to pay Fields a $1 million "retention bonus" to keep him.
Fields hasn't been timid so far. He devised Ford's January plan to slash 30,000 workers and close 14 plants by 2012--a move to bring Ford's manufacturing capacity more in line with its skidding market share. More quietly, he has been attacking a corporate culture he calls too conservative, too hierarchical and too resistant to change.
Already he has collapsed some of the bureaucracy and rewritten the rules of meetings to make them smaller and more productive. Perhaps most important, the native of Brooklyn, N.Y., has signaled that the era of diffuse, ambiguous leadership is over.
"I hold myself accountable," Fields said. "I'm trying to drive a culture of accountability, and that starts at the top. If I deliver, I should enjoy the benefits; if I don't deliver, I should suffer the ramifications."
Delivering, however, has not been Ford's strong point lately.
Analysts say the company has been in trouble ever since Bill Ford elevated Jacques Nasser to the CEO seat in 1999. Booming sales of highly profitable trucks and SUVs made for big profits in the late 1990s. But they also covered up many of the problems that are surfacing now.
Nasser spent his time--and billions of dollars--acquiring Land Rover, Volvo and Aston Martin. But a lack of investment caused Ford's core business to atrophy. Ford's Taurus--once the industry's top-selling car--lingered without a remake, leaving it vulnerable to Toyota's Camry and Honda's Accord. GM, meanwhile, was investing heavily in upgrading its factories, making them more flexible and much cheaper to operate.
The result was demoralizing.
"Nasser discouraged or drove out a lot of talented people by focusing on short-term profits at the expense of long-term investment in cars and trucks," said Jim Hossack, vice president of AutoPacific, an automotive research and consulting firm. "He made a lot of people think that the best contribution they could make to Ford was to stay home."
Bill Ford sacked Nasser in 2001 and cut 4,000 people in a restructuring. But Ford's global automotive operations still lost almost $4 billion last year. Automotive News reported in January that between 2000 and 2005, Ford had lost more than 1 million units of sales volume in the United States, or 25 percent of its total. Over the same period, GM lost 461,373 units, or 9.4 percent of its volume. The Chevrolet brand gained volume.
Since Nasser, management has been in an almost permanent state of flux. Ford has had a parade of operating executives and sales chiefs--some lasting only months. And over the last year, the company has lost a number of key executives, including the heads of product development, manufacturing and hybrid technology.
Bill Ford, meanwhile, signaled that he was never really interested in the CEO job. Before he picked Fields as savior, he tried unsuccessfully to hire turnaround whiz Carlos Ghosn, the chairman of Nissan and Renault. He also tried and failed twice to woo former Chrysler chief Dieter Zetsche before the German-born executive was recalled to headquarters to be DaimlerChrysler's CEO.
What's most striking--and telling--about this period of management turmoil is how different it is from the way Toyota operates. Consistent leadership, teamwork and investment in the future are the hallmarks of the Toyota system.
"It requires leadership behavior that is long-term and contemplative," said University of Michigan professor Jeffrey Liker, author of the "The Toyota Way." "It requires a way of working together and reaching a degree of consensus. This is a set of things that don't come naturally to a traditional U.S. manufacturer like Ford."
In Japan, product development and manufacturing collapse into a single streamlined system. One chief engineer is responsible for each car model and has authority to marshal any of the company's global resources to get it produced. Designers and engineers work directly with manufacturing executives to develop cars that can be manufactured efficiently. This system is renowned for driving problems to the surface early and producing cars with consistently high quality.
"You have to be willing to fail in the short term to succeed in the long term," said David Meier, a former Toyota Group Leader in its Georgetown, Ky., factory. "It takes nerve and guts. Someone has to take a firm stand."
According to current and former Ford executives, the company hasn't exactly excelled at firm stands and teamwork. Rather, a fractious bureaucracy has operated in what Fields calls "chimneys." Functional areas like marketing and manufacturing have tended to worry only about their own success--not the success of the entire organization. Product development has been split into numerous groups all around the world--each with their own engineers, budgets and priorities. Until recently, for instance, the Americas division alone had five different product development groups devoted to Lincoln-Mercury, SUVs, family cars, youth-oriented vehicles and trucks. As part of his turnaround plan, Fields created a single development group.
As executives sought to protect their empires, meetings of the Americas group often devolved into blame fests, not problem solving sessions, said one former member of the group. Worse, a lack of firm leadership meant the company was often run by committee where everyone had a vote. This led to slow decision-making and a dysfunctional lack of accountability.
"I remember one unbelievable meeting where we debated, are we a democracy or aren't we?" the executive said.
Fields recognizes this is a problem. "We still have a lot of work to do so that meetings are where we make decisions rather than debate and everyone thinks they have a vote," he said. "We should have a participatory process, but at times this isn't a democratic process and the guys at the top have to make the decisions and be held accountable for those decisions."
A good example of how Japanese teamwork trumps Ford's chimney culture is a product strategy called "platform sharing." What it means is equipping several models with common innards while designing "top hats," or outer shells, that look entirely different. Figuring out how to develop cars with common parts that actually look and feel different requires a shared vision throughout the organization and teamwork at all levels. It has many benefits--all of which lower costs and improve profits.
On the development side, the savings are enormous in terms of time and money. Designing and engineering a single model can cost as much as $700 million, industry executives say. But adding a new top hat to an existing model can cost just $180 million.
The manufacturing savings are also huge. Building three or four cars using a large percentage of common parts means the manufacturer can buy those parts in much greater bulk, increasing economies of scale and driving down the price. Sharing platforms also allows for several models to be built in the same plant, keeping the line full and avoiding unused manufacturing capacity.
Toyota's Georgetown plant, for instance, primarily makes Camrys and Avalons--two sedans built on the same platform. But it also makes Solara coupes and, if need be, Sienna mini-vans and the Highlander SUV. Ford's Atlanta plant, on the other hand, is highly productive in building Ford Taurus and Mercury Sable models. But since it was equipped to build only those cars, it has fallen partly idle now that the Sable has dropped out of production and sales of the Taurus have waned.
The numbers tell the story: Michael Bruynesteyn, an analyst with Prudential Equity Group, estimates that the Georgetown plant used all of its capacity last year. Ford Atlanta, meanwhile, was only 75 percent full. That meant Ford's massive investment in Atlanta's machines and parts was earning a negative return 25 percent of the time. Even worse, it meant that Ford had to pay UAW workers who didn't have enough to do. No wonder the Atlanta plant is one of the unlucky 14 Ford plans to shut down.
According to Bruynesteyn's research, Ford trails the industry in flexible manufacturing. Only 22 percent of its production comes from flex plants, versus 46 percent at GM and closer to 90 percent at Toyota. He estimates that Ford will almost double that percentage by 2007--partially by closing inflexible plants. But because rivals will be improving, too, "Ford will still trail substantially behind the leaders," Bruynesteyn concluded.
Ford is hardly blind when it comes to product sharing and flexible manufacturing. Ford's Torrence Avenue plant in Chicago is among its most flexible. It produces the Ford Five Hundred and Mercury Montego sedans, as well as the Ford Freestyle crossover vehicle. In 2008, Torrence may get a successor to the Lincoln Continental.
Fields also points out that Ford is knee deep in platform sharing. The Volvo S40 sedan, the Mazda3 sedan and Europe's Ford Focus sedan share a platform, as do the Mazda6, the Ford Fusion, the Mercury Milan and the Lincoln Zephyr, which are produced at a flex plant in Hermosillo, Mexico.
But former executives say the question isn't intent--it's execution. Because Ford has so many engineering fiefdoms and a lack of strong leaders to force them to cooperate, agreeing on a shared design or dividing up development responsibilities can turn into a dogfight. One former executive, for instance, said because of turf battles, the percentage of common parts on the Mazda6-Fusion platform is only 30 percent, well behind the Japanese. This means Ford isn't getting the full benefit of economies of scale in parts buying. Instead, it is forced to hammer on suppliers for lower costs, creating financial problems for them.
Fields wouldn't comment on Ford's percentage of shared parts, but has pledged that Ford will cut $6 billion in materials costs by 2010, primarily by working more closely with fewer suppliers and designing common component systems. At the same time, he insisted too much commonality can be a bad thing.
"While sharing components we had to be surgical in our approach and tune suspensions and the driving dynamics of each vehicle so they were different and delivered what people expected of each brand," he said. "We have a high percentage of commonality. We could go to 99.9 percent and just change the name badge, but customers aren't fooled by that anymore."
Critics, however, point out that Toyota and Honda--even DaimlerChrysler--manage to differentiate their products nicely and still drive commonality of parts much higher than Ford. Analysts largely agree that Ford must do a better job.
They have more sympathy for Fields' lament that Ford suffers from history when it comes to building shared platforms. Toyota, Fields pointed out, built its North American business on shared platforms and flex manufacturing. Adding a new model is merely a matter of plugging into the existing system. Ford, on the other hand, has had to orphan older models and plants to adopt flex manufacturing. Those decisions are extremely difficult at all levels of the corporation and require contentious negotiations with the UAW.
"The complexity has been higher for us," Fields said.
Until last summer, the executive trying to fix Ford's product development process was Phil Martens. Having worked with Fields at Mazda to pump out exciting new products, Martens was trying to create a new development superoffice that would have final say on global development efforts and control over the company's vast engineering resources.
He hoped it would speed up decisions, tighten the company's focus and overcome the tendency to drift away from parts commonality as engineers in each region tried to put their own stamp on their vehicles.
Martens wouldn't comment, but sources with knowledge of the situation said his idea was scheduled to go to the board before Ford President James Padilla pulled it from the agenda. When Bill Ford chose Fields--Martens' corporate rival--as Americas chief, Martens got frustrated and left. He is now a now a top executive at Plastech Inc., an auto parts supplier.
Martens took with him the company's top North American manufacturing executive. And a number of other stars have left the company recently. One was Mary Ann Wright, the executive in charge of building the Ford Escape Hybrid, Ford's answer to Toyota's wildly popular Prius hybrid.
The Escape hybrid flew through Ford's development system, but only because it was blessed by Bill Ford himself, and therefore shielded from the usual ponderous process of committee reviews and sign-offs. Once it was reinserted into the bureaucracy to be applied to other platforms, it was bogged down by debates over how it should be produced and whether it was too costly. Frustrated by all the infighting, sources said, Wright left. She wouldn't comment.
"To lose her is just shocking," said one of her colleagues, who also got frustrated by the cultural problems and left.
By consolidating the Americas development groups into a single organization, Fields has taken at least one step in Martens' direction. He is also working on another Japanese idea. At Toyota, according to James Womack, president of the Lean Enterprise Institute, "what managers do is ask questions--they don't give answers." Fields hopes to instill the same management style at Ford.
"Our culture is that the senior guys on top have all the answers and those below must justify the thoughts of the higher-ups," Fields said. "But those on top don't have all the answers. I don't have all the answers."
Whether Fields is the man to bring order to the maelstrom at Ford remains an open question. But Womack said his best strategy is to use the crisis atmosphere for all it's worth. People forget, he said, that Toyota nearly went bankrupt in 1950 and only afterwards developed its world-beating system.
Paraphrasing Taiichi Ohno, an early advocate of the Toyota Production System, Womack said, "No one does this stuff unless they're desperate."
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A big thank you to the Tribune for writing that...
It is exactly what I think.. and have thought. Anyone who has been privy to a corporate culture knows there are things some CEO's are good at, and some things they arent.
I dont believe that acquiring Jag, Volvo or even Aston-Martin was a bad idea, it was just executed badly. And Nasser, unfortunately, was one of those guys who went more for flash than substance.
Remember a couple decades ago, the Saab 'team-build' assembly concept was getting all the news and kudos from the 'Quality Conscious' crowd. Well, the quality was there... but the product languished because of the cost of build. Question being how to keep that attitude while making the build more economical.
Where that effort SHOULD be focussed is on the design and platform implementation. It's quite possible to build a reliable car, and a subsequent reputation for reliability if its DESIGN is done by a small group with focus and purpose... let's face it, no one wants to produce a troublesonme lemon. And the Mustang is a great example of that. Since Ford stock and bond-rating is now in the dumper, now would be a good time to re-dedicate the corporate mindset to the precepts of Old Henry.
Sometimes I wonder, though, why I worry so much about Ford... given almost all my family is directly affected by the fortunes of GM. I can only suppose it's because I really like Fords. And partially because I used to work at GM... thus am biased against their union worker attitudes (though the same probably prevail at Ford plants). But it's not the workers who are at fault for this in the long run.
Yeh, I'm a Krusty old Geezer, putting up with my 'smartass' is the price
you pay..DEAL with it!
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