Originally Posted by Wall Street Journal; December 22, 2006

Mulally's 'First Impressions

After Alan Mulally took the helm of Ford on October 1, he sent a company-wide email on Oct. 13 titled "First Impressions." Below is the full text of the message.

Here is the text of the email:
I've been on the job -- officially anyway -- for two weeks. In that time I've had a lot of interaction with people, but I realized there will never be enough hours in the days to see and talk to everyone. So I thought I would write to all of you with some initial thoughts and impressions.

Perhaps not surprisingly, I've spent a lot of time with our leadership team reviewing our plans, asking questions, and evaluating our prospects. Bill Ford was completely candid about the challenges we face, so I came into this with my eyes wide open. We have some very big decisions to make about what kind of business we need to become. And, as you well know, this is an extraordinarily gut-wrenching time at Ford Motor Company, particularly as we become smaller in some of our core areas, such as North America. Some very good and loyal people are going to leave this company between now and next summer, and that's going to be tough on everyone.

And yet, people are the reason I'm so excited about being here. I've met so many Ford Motor Company employees who want to work together to help this company find its footing again and grow. They are bursting with ideas, and they share them with me when they send me emails, stop me in the hallway or run into me in the cafeteria. They want me to know how great this company has been in the past, and how it turned around its fortunes just when the future seemed bleakest. Ford people know the talent that we have in our product development area, and the great resource we have in our dealer networks. And they know we can restake our claim as history's best example of a company that enriches the lives of all its stakeholders: investors, customers, dealers, suppliers, employees, our union partners and the countries and communities in which we live.

It wouldn't take anyone very long to realize that Ford people are winners by nature. The sense of pride in the value Ford has always created in more than a century is obvious and justified. And it is encouraging that there are so many areas of excellence we can point to within our company right now. But pockets of success aren't enough. Not today. Not in this competitive environment. We need success across our entire enterprise. To get there, we need to have a universally agreed to and understood business plan. It needs to be a single plan, and it needs to work for the entire company. Competitors may try to "divide and conquer" us; I'm determined we are not going to do that to ourselves. So we need to set such a plan in place and ensure that everyone knows how we're doing against it. We need to agree on the urgent issues, and we need to work together as never before to achieve our objectives.

I've started weekly Business Plan Reviews with the senior leadership team. Together we look at one set of data on one screen. We talk to each other with candor and respect. We are all determined to get to one plan for our company. We will all participate, and we will all support each other's efforts to succeed. I don't yet know everything I need to know about Ford, but I do know that this is the only way I can work.

There are lots of details to come, but I can tell you with certainty that our plan will be built around three priorities:

• PEOPLE: A skilled and motivated work force.
• PRODUCTS: Detailed customer knowledge and focus.
• PRODUCTIVITY: A lean global enterprise.

With these as priorities we will build our business model with a clear view of our competitive environment and our own financial circumstances. And together we will answer the most fundamental questions. What are the critical elements needed for a compelling business plan? How accurate are our assumptions? How do we get losses behind us and once again create profitable growth for all?

I know that the people of Ford have been through some tough times in the past few years. I wasn't here to share that with you, but I am here now to help move us forward. For me it is at once the most humbling and exciting prospect of my professional life. But I can tell you from previous experience that as demoralizing as a slide down may be, the ride back up is infinitely more exhilarating. And there is no better feeling than knowing that your personal contribution is helping to move this great enterprise forward again.

Everyone loves a comeback story. Let's work together to write the best one ever.

Thank you!

Originally Posted by Wall street Journal; Page 1

DEARBORN, Mich. -- At a board meeting at Ford Motor Co.'s headquarters last week, new chief executive Alan Mulally surprised directors by asking them to follow him from the boardroom, down a flight of stairs to his secret "war room." Unlocking the door, Mr. Mulally gave them a few minutes to review papers mounted on all four walls. "This is 'The Plan,' " he told them, according to people familiar with the situation.

The posted pages contain charts, graphs and lists of Ford products and markets -- his road map to turn around the troubled auto maker. There are also photos of Ford executives in charge of various divisions, to show who is accountable. Pages are coded in red, yellow and green, indicating the severity of the problems.

Red-coded charts show Ford's plunging U.S. market share, its North American financial forecast and its material-cost disadvantage. Yellow charts show Americans' move away from SUVs and trucks. Green charts show Ford's effort to cut nearly half its 82,000 North American factory workers through buyouts.

The fate of this automotive icon rests on the aggressive plans of Mr. Mulally, a former Boeing Co. executive who has spent his career outside the auto industry. His emerging agenda calls for Ford to plow through "gut-wrenching" change to achieve profitability by 2009. To cover losses and fund a radical restructuring effort, he has mortgaged nearly all of Ford's assets -- including its blue oval trademark. He wants to borrow from the plan he used at Boeing, where he slashed the number of aircraft models to four from 14.

At Ford, he's likely to pare the auto maker's eight brands in favor of more uniform and efficient models that have a "Ford feel." Still unclear is how he plans to tackle one of his biggest challenges of all: getting more drivers behind the wheel of a Ford.

His course of action contrasts with the turnaround strategy of his cross-town rival General Motors Corp., which rushed out new versions of popular SUVs and pickups and sold the majority stake of its financing arm rather than sell a brand. While GM recently has pared its operating losses, Ford posted losses of $7 billion for the first nine months of the year, stemming from restructuring costs and a weak performance in its core North American operations.

Mr. Mulally's 87-year-old mother, who still lives in his native Kansas, grasps the gravity of the repair job. In weekly letters to her son since he took over at Ford three months ago, she initially began: "To my favorite car guy." Last week she added: "And fix-it man."

Mr. Mulally, 61, was the surprise choice to become Ford's new president and CEO on Sept. 5. Bill Ford, then chairman and CEO, told his board he wanted to give up chief-executive duties at the company, which has been weighed down by high gasoline prices, high costs and intense foreign competition. Mr. Ford, 49, and his board pledged to give Mr. Mulally, a top executive at Boeing, considerable operating leeway before he agreed to take the job.

Mr. Mulally grappled with downsizing and restructuring at Boeing after the 2001 terrorist attacks. He cut the work force to 50,000 employees from 120,000, while reducing the time to build a typical airliner by 50% and introducing the fastest-selling new airplane ever.


"I've seen this movie before," Mr. Mulally told his new executive team when he took over Oct. 1. In a companywide email, he predicted: "Some very good and loyal people are going to leave this company between now and next summer, and that's going to be tough on everyone." But he added: "As demoralizing as a slide down may be, the ride back up is infinitely more exhilarating." (Read the full text of the email.)

Ford shares have dropped 13% to just over $7 a share since the Mulally announcement. Some of his ideas have been tried, unsuccessfully, at Ford before. And while Mr. Mulally is likely to succeed in trimming costs, the big question is: How can Ford generate more revenue? Despite Mr. Mulally's push to overhaul Ford products to meet shifting demand toward fuel-efficient vehicles, nearly every new car and truck Ford will unveil in the next couple years was approved before he took over.

"As a long-term investor, what we need to see is real, reasonable proof to believe they can sustain market share, that they can stop the slide," says Patrick Nolan, global auto analyst with TIAA-CREF, a powerful pension fund that holds about 12.8 million Ford shares. "We haven't seen that yet."

Ford's U.S. market share has plunged to 16% from 25% since 1995. Toyota Motor Corp. is expected to pass it as the No. 2 selling auto maker in the U.S. next year.

Mr. Mulally says Ford has made organizational changes in marketing and sales in order to better "communicate our great product line." He cites reviews from numerous publications in recent months that lauded Ford's Fusion, Mustang and F-250 Super Duty truck, and says the company needs to tell its product story more effectively.

A tennis buff who once considered going pro, Mr. Mulally spent 37 years at Boeing, where he helped develop many of its products. In the mid-1990s, he became known as the father of the twin-aisle Boeing 777, which flies farther than any other long-haul passenger aircraft. Reflecting his love of drawing, he'd scrawl a chubby airplane when he signed letters at Boeing. Mr. Mulally was passed over for the top job at Boeing in favor of the company's current chief, James McNerney.

Shortly after his arrival here, Mr. Mulally and his new troops bought books to better understand one another. The new CEO read the 1926 classic "Today and Tomorrow" by Henry Ford. He also met with the Ford family at the Henry Ford Museum complex early on. Ford managers began passing around "The Machine That Changed the World," often cited by Mr. Mulally for its in-depth story of Toyota's manufacturing operation.

Mr. Mulally immediately dusted off his Boeing playbook. He instituted the same Thursday meetings, a longtime tool for formulating business plans. For the weekly meetings, out were cellphones, BlackBerrys, side conversations, mean jokes, personal opinions, turf battles, and bathroom breaks (unless urgent and quick). In were candor, data, results, more data, and applause for executives who show progress.

His first Thursday gathering at Ford went badly, underscoring the challenges he would face. After Mr. Mulally asked each business head to present his results and forecasts, he complained that the numbers didn't make sense. "Why don't all the pieces add up for the total corporate financials?" he recalls asking.

"We don't share everything," he says one manager replied, explaining that Ford executives ran their units without meshing with other divisions, occasionally holding back some information. Mr. Mulally was floored. The next week, executives came back with complete figures.

"Data can set you free," Mr. Mulally tells associates. He prodded executives embarrassed of their results to bring them to the table -- and post them on the war-room wall. "You can't manage a secret," Mr. Mulally says he tells them.

When one manager offered up the poor performance of his unit, some Ford executives were stunned by Mr. Mulally's reaction. He applauded, saying: "Great visibility." Mr. Mulally coached his team on using the colored graphs and lists. "We got to the yellows and the reds pretty quickly...within a month," the CEO says.

When a color improves, "it's a chance to celebrate," he adds. Executives began clapping as many as a dozen times per gathering. This fall, when Ford delayed the launch of the Edge, its new "crossover" -- a smaller SUV on a car platform -- the sheet was coded red. As the company smoothed out kinks in the manufacturing process, the chart turned to yellow. Once the Edge was launched, the color changed to green. After a three-week delay, it arrived in showrooms earlier this month.

Mr. Mulally also scrambled to familiarize himself with Ford's vehicles. Recently, on a table in his office, he laid out 12 different metal rods that Ford uses to hold up a vehicle's hood. He wanted to demonstrate to managers that this kind of variation is costly but doesn't matter to consumers.

Mr. Mulally began driving a different Ford car to and from work each day. In the early-morning darkness one day, he climbed into a Mercury Milan and tried to turn on the light. The switch wasn't in the place he expected. He needed to get out of the car and turn on the garage light at his home in Dearborn to locate the car's light switch.

On another day, in a Ford Escape, he hit what he had learned to be the light switch. The windshield wipers came on. In a Mustang later this fall, he found that the wipers and lights were in still different positions.

"One day I'm turning on the lights and another day it's the windshield wipers," he complained to Americas product head Derrick Kuzak, who subsequently was promoted to Ford's global product leader. "Why so inconsistent?"

Mr. Kuzak noted that Ford had a longstanding practice of each product line operating independently, which resulted in differentiation in a bid to produce a "unique car." Mr. Mulally says he replied: "World-class companies don't operate this way."

Originally Posted by Wall Street Journal; page 2

The new chief executive has demanded that product engineers create uniform parts that most Fords can share, which he believes will lead to leaner and more reliable production.

Mr. Kuzak now is working to create a "Ford feel" for all its vehicles -- much the way BMW has. He is considering incorporating a light switch and driver seat from the new Ford Fusion -- which recently beat Toyota's Camry and Honda's Accord on reliability in Consumer Reports magazine -- in more Ford vehicles.

"When you get into a Ford vehicle blindfolded, you should know immediately it's a Ford by the feel," Mr. Kuzak now says.

As part of his push for uniformity, Mr. Mulally is moving Ford to combine its global operations, modifying its current structure of separate businesses by brand and region. Mr. Mulally was shocked to discover that the plan before his arrival was to "operate our eight Fords."

In the executive suite he shares with Chairman Bill Ford, Mr. Mulally says he asked Mr. Ford why he hadn't integrated the company.

He says Mr. Ford agreed that integration was desirable, but told him it was difficult. Every time Ford had considered forcing integration, a new hit product -- such as the Explorer, Taurus or F-series truck -- would come along and propel profitability without tough changes, explained the fourth-generation Ford leader.

Ford has tried before to cut vehicle-development costs through the strategy of engineering a car once to serve markets world-wide. In the 1990s, Ford also tried to undertake a sweeping reorganization to run as one company, globally, rather than as a collection of regional fiefdoms. But these prior efforts failed, in part because the company's executives and managers resisted the pressure to give up their turf.

Mr. Mulally wants to cut the number of unique vehicles Ford makes in order to take better advantage of economies of scale. GM has been doing that since 2005. Toyota has been using the strategy even longer.

Mr. Mulally's push for fewer models means executive changes. Some of those affected include allies of Mr. Ford. For instance, Mr. Mulally told Mark Schulz, Ford's 54-year-old head of international operations, that he would be changing jobs to a different role, with direct business-line responsibility.

Mr. Schulz, a longtime fly-fishing and ice-hockey buddy of Mr. Ford, retired instead. Mr. Schulz couldn't be reached for comment.

Other recent departures include Bill Ford's brother-in-law Steve Hamp, Ford's chief of staff; David Szczupak, Americas manufacturing head; and Anne Stevens, chief operating officer of Americas group.

One part of "The Plan" has already been accomplished: the $23.5 billion financing to cover losses and fund the costly turnaround effort. The financing -- the first time in Ford's 103-year history it has pledged core operations as collateral -- initially was drawn up in the spring as a way to fund Ford's credit unit.

But as the second and third quarters showed the depths of Ford's struggles and cash burn, Ford realized it must borrow "as much as we could," says Don Leclair, Ford's chief financial officer. Ford's total cash burn is $17 billion through 2009. Messrs. Mulally and Leclair hit the road for the new financing package -- and persuaded bankers to lend more to Ford than first offered.

This week, Morgan Stanley issued a rare "buy" recommendation to investors on Ford stock. The big securities firm handles some of Ford's investment-banking business and was one of the financial firms participating in the latest Ford loan deal.

"While this is not a one-man story, new leadership is part of our call," Morgan Stanley said in its report. "We would re-evaluate our thesis if [Mr. Mulally] were to exit."

Meantime, Mr. Mulally is reaching out to Wall Street and industry experts. Last week at lunch at Rockefeller Center's Sea Grill restaurant in Manhattan, he met with veteran auto analyst John Casesa. Mr. Mulally "is prepared to quickly address sacred cows," Mr. Casesa says. "I think the brand portfolio should be at the top of the list."

Mr. Mulally says he is "reviewing the portfolio" of Ford's brands.

While Ford is expected to sell its Aston Martin, Jaguar and Land Rover brands, the fate of Ford's Volvo brand will be a key indicator of Mr. Mulally's direction and how far he will go in simplifying the company's roster. The chairman, Mr. Ford, has told associates he loves Volvo and its reputation for safety.

At last week's board meeting, as Mr. Mulally led directors down to his new war room, Bill Ford remarked to director John Thornton, former Goldman Sachs president and a close friend: "Alan's the perfect guy for our situation," according to a person familiar with the matter.

"I couldn't agree more. Thank God for that," Mr. Thornton replied, according to this person. "We don't have a second chance. This is it."