When Fortune magazine asked Ford CEO Alan Mulally about his employer's health, he “ignored the industry convention of talking up future models as a source of improved profitability.” Instead, Big Al focused on how much money the automaker has in the bank. That Ford obtained said cash by borrowing it makes his claim more than a bit disingenuous. As a general rule, healthy automakers rely on selling cars and trucks to generate operating cash. Yet Mulally reckons a bird in hand is better than one in the bush— no matter how you captured it. When a reporter from the Detroit Free Press asked Mulally if he’s willing to draw “a line in the sand” to prevent further sales losses, the Ford CEO was adamant: “Absolutely not.” Translation: Ford is ready to play “How low can you go?” Before contrasting Ford’s woes with the relative success of Audi, the article raises a salient question regarding Ford’s strategy. “If you work at Ford, what kind of incentive is it to be told that the company is trying to reach the bottom but doesn't know where the bottom is?” A psychologist would say you must experience the depths of despair to enjoy the highs of ecstacy. Is this also true for a corporation?
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I think what Mulalley is saying is that there are more important metrics than market share.
If Ford were in a position where it was profitable and the product pipeline was in good order to improve profitability to 7-10% of revenues, I think he can be proud, whether Ford’s US market share is 25% or 10%.
I view it more as an alcoholic bottoming out. It may or may not EVER happen.
Hopefully this is a good sign. Mulally was smart enough not to take the bait, and also smart enough not to say something he would regret in the future.
Also reassuring people they have the cash to work with is the first thing to do. Now let’s see if they know what to do with that money.
As we all know money talks and BS walks.
Maybe Ford should call up Robert McNamara out of retirement to take over.
As proven at Boeing, Mulally is no fool.
He seems to actually have a more realistic approach. At least he seems to understand and acknowledge that the question of Ford surviving in the short run is all about the ledger and accounting. Which is ironic because they are in the mess they are in because the pre Mulally Ford bean counters killed off their golden geese so to speak.
I think he is just playing poker with that statement. He is saying that if anyone wants to try to run him out of business it will not work. I don’t think he has that good a hand though.
He’s telling nervous investors to stop looking at sales because despite falling sales in the U.S. this year Ford’s revenues in North America have actually been up. Look at the SEC filings, not the sales data.
He’s not stupid either. He won’t let his marketshare hit 10%, for example. At some point, Ford’s fixed costs are too high to support that level. Ford ended the year with 14.8% marketshare. They can cede another point or two before things are really bad from a fixed cost perspective. That means they can turn incentives down even if Toyota, for example, is going to push them to grow. There’s some good rev management that can be done there.
RobertSD,
Ten years ago, when Ford had 24% share, falling, people said the same thing about Ford not being able to cope with market share below 20%.
The keys for Ford will be:
- more flexible manufacturing to take advantage of shifting currency values and changing consumer demands
- aligning structural costs with retail demand, and
- streamlining and consolidating the product development process
These are the keys at any market share level. My point is that we are too fixated on this measure, rather than on profitability or revenue growth.
Why are people so fixated on market share in the auto sector? Do you buy beer, batteries or toothpaste based on relative market share? What about health services — how’s your surgeon’s market share? What about your plumber?
I think “Big Al” needs to go back selling airplanes…and Ford needs an actual car guy.
P71_CrownVic: “I think “Big Al” needs to go back selling airplanes…”
Why?
P71_CrownVic: “I think “Big Al” needs to go back selling airplanes…”
But it was veteran car guys that got Ford in its current mess in the first place.
There are is one very big parallel between the large aircraft business and the car business: You succeed when you build a product that everyone wants. The Boeing 787 is the most successful (measured by orders before first delivery) commercial transport aircraft ever, by a very wide margin. Why? The airlines that ordered it will benefit from lower operating costs and an improved product (customer comfort). Boeing also correctly gauged the change in the way airlines will be operating in the near future. As hub airports fill up, the inevitable trend will be toward more non-stop flights between city pairs. The 787 is specifically designed to operate in this environment. Aside from the initial novelty, who, in their right mind, wants to be stuffed into an A-380 for 8 to 12 hours with 550 other people after having suffered through one or more connections to get to the big bird? I don’t.
The big question is how to apply the same sort of realistic look at the future of the market so as to provide the right products that will sell at good margins. It’s likely that it’s much tougher in the auto biz…
Didn’t Robert McNamara pass away a few weeks ago?
“But it was veteran car guys that got Ford in its current mess in the first place.”
Most of Ford’s problematic management culture belongs directly at the feet of the meddling Ford family heirs.