Ford Death Watch 33: Good, Fast, Cheap or None of the Above?

Michael Martineck
by Michael Martineck
ford death watch 33 good fast cheap or none of the above

Last year, the Ford Motor Co. lost $12.7b. The company is carrying $188b in debt. Its bonds are non-investment grade. It’s got to the point where less than one in ten American analysts recommends the former blue chip stock. In fact, by any measure of financial health, Ford is knocking on death’s door. So why did Alan R. Mulally leave Boeing to heal The Blue Oval– aside from the $45m plus transferred into his bank account? Mulally is an engineer, a man who can’t resist taking something apart and trying to put it back together better. Or, if you prefer, Humpty Dumpty.

Mulally is looking at a lot of broken eggs. Ford’s dealer network is obese, its product line lags, UAW negotiations loom, healthcare costs outpace kudzu and the corporate culture is a capitalistic tribute to the Kremlin. But to an engineer, all things are simple. To solve even the most complex problem, just break things down into their smaller components, then repair, reengineer and reassemble. Simply put, simplify!

That is, after all, how Ford made its bones. Crazy Henry designed simple cars that were easy to operate and maintain. He built them on simple assembly lines, with simple jobs that were easy to master.

Mulally understands how things work (or don't, as the case maybe.) Upon installation, he called for a company-wide audit to find ways to cut costs and complexity. Those auditors are just now sending in their reports.

They’re discovering (surprise!) that Ford wastes an obscene amount of money on unnecessary duplication. For example, The Blue Oval builds its products on no less than 30 engineering platforms. In contrast, Honda has six platforms and Audi has four. Sure, these companies don’t manufacture a vast variety of cars. But they make money and Ford doesn’t. But wait! There’s [lots] more! No two of the vehicles Ford builds upon these 30 platforms share seat rails, springs, hood hinges and God knows what else.

Last January, Ford announced Sync, a voice-command system for phones and MP3 players. The company will start rolling out the new (soon-to-be-obsolete but that’s another story) technology in the fall– but not on Volvos or Land Rovers. The system is incompatible with Volvo and Land Rover’s existing electronics– even though the Swedish and British marques haven’t really been “foreign” for over a decade.

Analysts call it Balkanization. Ford has four disparate operating units around the world, each with its own costly management team, research and development staff and production facilities. This wouldn’t be a problem if they shared, which they don’t.

No wonder Mulally recently read his execs the Riot Act: "There's no global company I know of that can succeed with the level of complexity we have at Ford."

Mulally knows that streamlining production and development is like finding money. Audi was formed on this principle; the Volkswagen Group hangs onto the principle like grim death. By the time this century hits its early teens, Audi’s new modular MLP platform will be the one ring to rule them all.

Lotus is vending their version of a universal platform: Versatile Vehicle Architecture. While not known for mass-production, Lotus is very adept at selling its services, and they’ve had a fair amount of interest in the technology. And why not? Automotive research and development costs are not receding. It costs about $1b to create a new platform, why not do it once or twice, instead of 30 times?

But even as Mulally the engineer strives to simplify Ford’s design, engineering and production process, once again aiming to replicate Toyota’s methodology (as he did at Boeing), Ford’s entrenched bureaucracy is hard at work, striving to keep things comfortably labyrinthine.

"The managers take refuge in the structure when things get tough,” Allan Gilmour, Ford’s now-retired Chief Financial Officer and Vice Chairman told BusinessWeek. “Rather than innovate or try new ideas that seemed risky." As the popular management expression says, “Culture eats strategy for lunch.” One wonders if the engineer in charge of Ford gets it. Perhaps so. Mulally has pow-wowed with Gilmour twice since taking the reins. And Mulally ain’t no dope.

Last September, Mulally’s underlings told him the Focus loses Ford roughly $3k per sale. "Why haven't you figured out a way to make a profit?" he asked (demanded?). The suits explained that Ford needs to sell lots of Foci to maintain its corporate average fuel economy (CAFE) ratings, AND that the car is made in a high-cost UAW factory. "That's not what I asked," he replied.

There's an old engineer’s adage: you can have something good, on time or under budget. Pick two. Mulally's about to test the theory’s inverse. When you're out of money and, as your competitors jack-up their existing efficiency, out of time, can you still create something good? The answer is painfully simple.

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  • Allegro con moto-car Allegro con moto-car on Jun 12, 2007
    indi500fan: June 7th, 2007 at 2:38 pm Ford was really the class act of the Big 3 (yeah maybe that is being minor league champ) until Nasser took over in the late 90s. He managed to screw up just about everything over there in a remarkably short time. What an awesome post. Two things to consider from this thought provoking post: a) That barns that have painstakingly been built by highly qualified carpenters can easily be kicked down in a short time by any ass; and, b)that the asses should not be rewarded. Nasser left with a sizable multi-million per year retirement. Quite often these CEO retirements run in perpetuity, so even after their death all of these millions are still pumped into their estate. The one sure way to fix this is for shareholders to vote against the wishes of the Board. I do this quite frequently, but who else is doing this? Not the institutional shareholders.
  • Dkulmacz Dkulmacz on Jun 12, 2007

    I believe that according to the ‘06 annual report, the Ford auto biz had about $38B in debt . . . after the big ‘mortgage the farm’ loan. And to offset they had like $43B in cash and liquid assets. That’s hardly as sexy as $180B in debt.

  • Tassos BTW I thought this silly thing was always called the "Wienermobile".
  • Tassos I have a first cousin with same first and last name as my own, 17 years my junior even tho he is the son of my father's older brother, who has a summer home in the same country I do, and has bought a local A3 5-door hatch kinds thing, quite old by now.Last year he told me the thing broke down and he had to do major major repairs, replace the whole engine and other stuff, and had to rent a car for two weeks in a touristy location, and amazingly he paid more for the rental ( Euro1,500, or $1,650-$1,700) than for all the repairs, which of course were not done at the dealer (I doubt there was a dealer there anyway)
  • Tassos VW's EV program losses have already been horrific, and with (guess, Caveman!) the Berlin-Brandenburg Gigafactory growing by leaps and bounds, the future was already quite grim for VW and the VW Group.THis shutdown will not be so temporary.The German Government may have to reach in its deep pockets, no matter how much it hates to spend $, and bail it out."too big to fail"?
  • Billccm I had a 1980 TC3 Horizon and that car was as reliable as the sun. Underappreciated for sure.
  • Inside Looking Out I did not notice, did they mention climate change? How they are going to fight climate change, racism and gender discrimination. I mean collective Big 3.