Ford steers clear of potholes

By TheStreet.com

By now the story of the Ford Motor (F, news, msgs) turnaround has approached business school textbook example.

"There is already a classic case on the transformation of Ford, which describes the role of (former CEO Donald) Peterson in the 1980s in turning around Ford when they brought out the Taurus and 'Quality Is Job One' became the mantra," says Hugh O'Neil, a professor at the University of North Carolina's Kenan-Flagler Business School, who studies corporate turnarounds.

O'Neil says current Ford CEO Alan Mulally is approaching Peterson's level. "Avoiding bankruptcy in the current environment and minimizing losses as well as he has done ranks near what Peterson did," he says. "We are at the stage where there is going to be a set of worldwide players who will dominate the industry for the next 40 years, and (Mulally) has to place Ford among them."

Experts agreed that Mulally faces continued challenges, in particular maintaining and capitalizing on the momentum he has created.

'Whoa, Ford is in a different place'

In some ways, a key component of that momentum -- consumer support – got an unexpected lift in November 2008, when top executives from the three U.S. automakers went to Congress to discuss the future of the U.S. auto industry. While General Motors (MTLQQ, news, msgs) and Chrysler begged for federal aid, Ford eschewed it -- and consumers began to view the company differently.

"We were there to support our competitors," said Mulally, at a recent analysts' conference. "Whoever thought that would be a differentiating moment? (But) what everybody learned was 'Whoa, Ford is in a different place.'"

In fact, Ford had been in a different place for several years. In 2006, Ford began to cut production. Detroit and Wall Street reacted quizzically, but Ford was early to see reality. Since 2000, Ford has reduced production by 60%, from 4.7 million vehicles to an estimated 1.8 million this year.

Mulally joined Ford in 2006, and laid out a strategy that included a focus on the Ford brand, which meant getting rid of Jaguar, Volvo and other diversions, and offering a full line of vehicles, including small cars as well as trucks.

A new contract deal with the United Auto Workers enabled Ford to reduce costs enough to sell cars profitably in the U.S., just as it did in the rest of the world. Then "we decided together that every vehicle we put out would be best in class," Mulally said. "Ford always saw itself as being competitive, but in today's marketplace you can't just be competitive."

Video: Ford Fiesta's social media blitz

Additionally, Mulally said, Ford needed to leverage its global assets, becoming a single company rather than a collection of warring fiefdoms. That is One Ford, the single global platform. When people asked who might be Ford's merger partner, Mulally would say: "We're going to merge with Ford." Now, 70% to 80% of Ford's products will be on global platforms.

One Ford is key, says analyst Joe Phillippi of Auto Trends Consulting. "This is what Toyota Motor (TM, news, msgs) is good at," he says. "They build interchangeable cars throughout the world."

By contrast, he said, when Ford built a world Escort and a North American Escort, "the joke was that the only part they shared was the alternator bracket."

For now, Ford continues to face the problem that, like GM, it is a pickup truck company that also makes cars. The Ford F-Series pickup truck is America's best-selling vehicle and, in the first three quarters, 62% of all the vehicles Ford sold were trucks and vans.

"Ford's on a roll, but their biggest issue is out ahead of them," Phillippi says. "Profits on pickups and SUVs are outsized, with luxury-car margins, but these vehicles are in a long-term secular decline."

And that's one more problem Mulally must fix if he wants his performance to one day be lauded in the classroom.

This article was reported by Ted Reed for TheStreet.com.