Ford's Mulally in Cruise Control, Fails to Rev-Up Investors

Ford Motor Co.'s new chief executive officer, Alan Mulally, says he must regain the trust of U.S. customers to recoup sales and restore profit. Winning back investors may take longer.

Mulally will give a progress report to shareholders today in his first annual meeting since joining Ford from Boeing Co. eight months ago. As an outsider CEO, he invokes comparisons to Carlos Ghosn, who in 1999 was dispatched by Renault SA to rescue Nissan Motor Co. Both executives were charged with shaking up companies racked by record losses.

Of the two, Mulally faces bigger hurdles as he tries to resurrect the second-biggest U.S. automaker. With Ford's domestic market share sliding for the 12th year, he must overhaul a product line dependent on fuel-thirsty trucks as gasoline costs more than $3 a gallon for the third year in the U.S., and try to wrest further concessions from the United Auto Workers union. Unlike Ghosn, he lacks experience as an auto executive.

``Ghosn is blunt, aggressive and tough-speaking but had a relatively docile union,'' said John Casesa, managing partner of Casesa Shapiro Group LLC, a New York-based consultant. ``Mulally is cordial, friendly, diplomatic, with a workforce that is much more resistant to change.''

So far, Ford investors aren't betting on a comeback: the company's shares have fallen 4 cents to $8.35 since Mulally's appointment was announced Sept. 5. Of 15 analysts surveyed by Bloomberg, only two rate the stock ``buy.'' Five rate it ``sell,'' and eight ``hold.''

Ghosn's Beginning

Mulally may find some consolation in Ghosn's early record at Nissan. Shares of Nissan fell 8.8 percent in 1999 after his April 12 arrival in Tokyo. They have since tripled to more than 1,200 yen as Ghosn chalked up six years of record profits.

Ghosn promised a profit for the year ended March 31, 2001, and delivered. Ford has pledged to end losses by 2009 and indicated that any profit will be small.

In 2006, Mulally's predecessor, William Clay Ford Jr., said stemming the loss of U.S. market share was his priority for the year. Achieving that goal has since been delayed indefinitely. Mulally expects the market share of the Ford, Lincoln and Mercury brands to drop to as low as 14 percent from 16.4 percent last year.

``We have to win back the trust of customers,'' Mulally said last month at the New York auto show. ``The way you do that is sales, marketing, word of mouth.'' @@page@@

Record Loss

Investors are more focused on Ford halting losses that reached a record $12.6 billion in 2006. The company borrowed $23.4 billion last year to pay for worker departures and cover operating losses. It projects a $17 billion cash drain over the next three years.

``They're in a precarious situation,'' said John Novak, an analyst with Morningstar Investment Service Inc. in Chicago. Ford still hasn't provided detailed financial targets, he said. Novak rates Ford the equivalent of a ``hold'' and doesn't own shares.

In this year's first quarter, Ford's loss narrowed to $282 million from $1.42 billion a year earlier. Profit grew at Ford's European unit and Europe-based luxury brands, while losses widened in North America.

Mulally, in an interview last month, said the reduced loss ``shows the business plan we put in place to turn around this great company is beginning to really work.''

Dan Genter, president of RNC Genter Capital Management, a $2.5 billion fund, is a former investor in Ford bonds. He's not planning to buy notes until the automaker attains investment grade; Ford's bonds have been at ``junk'' levels since 2005.

Mulally ``is a strong executive, but he's an unproven commodity'' at Ford, Genter said. ``Number one, he doesn't have any auto experience.''

Company Overhaul

At Nissan, Ghosn spent about six months interviewing employees to identify the company's problems. On Oct. 18, 1999, he announced a plan to cut production capacity by 25 percent in Japan and to trim 14 percent of Nissan's workforce by March 2003.

Mulally, by contrast, has been implementing a restructuring plan largely devised before he arrived. Ford announced its North American overhaul in January 2006 and said in mid-September that it was speeding up scheduled plant closings.

Mulally has mostly retained executives already in place when he took over. For his main outside hire, he selected Jerry Calhoun, Boeing's former lead labor negotiator, as Ford prepares to bargain with the United Auto Workers union.

Ghosn hired Shiro Nakamura from Isuzu Motors Ltd. to head design in 1999, a coup since it was rare for a well-known designer to change companies in Japan at that time. @@page@@

Broader Problems

Mulally faces broader problems than Ghosn did at Nissan, some analysts said.

``At Nissan, the problems were more confined,'' said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Michigan. ``Manufacturing was good, the products were good. Nissan had overcapacity. It was like a surgeon cutting out a couple of big tumors. Once they're gone, away you go.''

Nissan sold about 700 billion yen ($5.8 billion) in assets in three years, closed five plants and 10 percent of its dealerships, eliminated 21,000 jobs and cut its number of suppliers in half.

At Ford, Mulally plans to close nine plants by next year and 16 by 2012. The company has said it will reduce the number of dealerships it has in the U.S. but hasn't disclosed specific targets. It is cutting 40,000 jobs in North America.

In the 1990s and the first part of this decade, Ford relied on F-Series pickup trucks and Explorer and Expedition sport- utility vehicles to produce profits. Customers have bought fewer of those vehicles in the past two years as gasoline prices have soared. Also, car-based SUVs such as Toyota Motor Corp.'s Highlander and Honda Motor Co.'s Pilot have taken sales away from truck-based models such as the Explorer.

Reviving Taurus

Changes to Ford's product line have been limited. Mulally revived the Taurus name for its Five Hundred range of sedans. Next year Ford will introduce a seven-passenger ``people mover'' called the Flex, after the company exited the minivan market.

``I think they have enough product in the pipeline to allow them to stabilize,'' said Erich Merkle, an auto analyst at IRN Inc., a consulting firm in Grand Rapids, Michigan.

Also under development are the Fusion midsize car and the Edge wagon, both based on affiliate Mazda Motor Corp.'s Mazda6 sedan. A redesigned Super Duty pickup, which accounts for 40 percent of F-Series sales, went into production late last year while the F-150, which accounts for the remainder, is due in 2008.

Union Talks

Ford held 25.7 percent of the U.S. market in 1995, the last time it gained market share. Reaching that level again ``is not going to happen,'' Merkle said. ``I'd be happy if they can stabilize at 14 percent and be profitable.''

While customers may be holding out for new Ford models, investors are also keeping an eye on this year's national contract talks with the United Auto Workers.

``The biggest hurdle is how they deal with the UAW,'' said Mirko Mikelic, who helps manage $21 billion in fixed-income assets, including Ford bonds, at Fifth Third Asset Management in Grand Rapids, Michigan. ``Getting them to reduce hourly wages and benefits is really tricky.''

Ford hasn't discussed in detail what it's seeking. Sean McAlinden, an analyst at the Center for Automotive Research, said in February that the company wants union backing to cut wages and benefits by 20 percent.

UAW President Ron Gettelfinger, in an interview on WJR-AM radio in Detroit, called such concessions unnecessary. ``They went through this huge financing; they have a ton of cash,'' Gettelfinger said. ``That company is in great shape.''

Toyota Threatens

In 2005 the union granted health-care concessions to Ford and General Motors Corp. Only 51 percent of UAW members at Ford voted to ratify the accord, a sign of how unpopular the agreement was. The union will resist further health-care givebacks, Gettelfinger said March 28.

While Mulally tries to revamp Ford, Toyota is gaining share in Ford's home market. Toyota passed Ford as the No. 2 worldwide seller of cars and trucks in 2003 and catapulted over GM as the top seller worldwide during the first quarter. Toyota is poised to pass Ford as No. 2 in the U.S. this year.

``They are seizing share by the hour,'' said Dan Dalton, who directs the Institute for Corporate Governance at Indiana University. ``Why would anyone believe Ford or GM is in a position to face off against Toyota?''

Investors want to see results before returning to Ford, said Dan Poole, who helps manage $34 billion, including Ford shares, at National City Corp. in Cleveland.

``Nobody wants to be the first in the door,'' he said. ``If things start to look better, we can show up amazingly quick.''

Others aren't so sure Mulally can make that happen.

``His honeymoon grace period isn't going to last,'' said Morningstar's Novak. ``People are going to ask seriously whether this thing can be turned around.''