When you look at the Ford Focus, you are looking at the future of a company that once came close to losing it all.
Small, fuel-efficient and built on a platform that allows Ford to produce half a dozen different cars from the same underpinnings, the Focus is a key part of a product lineup that marks Ford’s recovery from the meltdown that nearly destroyed the U.S. car industry.
When the economy went south in 2008, Ford was already in deep trouble, with falling sales, excess plant capacity, and a complex lineup of vehicles that cost too much to produce. The new Focus is a “world car,” designed to sell around the globe – and to erase the perceptions of the not-so-distant past, when Ford was best known for gas guzzling, roll-over prone SUVs like the second-generation Explorer.
That generation of Explorer came to define the troubled reign of ex-Ford CEO Jack Nasser, an imperious cost-cutter who led the company on an ill-advised diversification program. By the same token, the Focus symbolizes the leadership of Alan Mulally, the walk-on-water CEO who brought Ford back from the dead.
Mulally came to Ford from Boeing, where he learned about complex manufacturing and products aimed at worldwide markets. Like the jetliners he helped design at Boeing, the compact Focus is a vehicle that features rationalized design and international appeal.
The Focus is built on what Ford calls its C-Platform – a set of core components that is also used to build the Escape SUV, the C-Max eco-car, and the Transit utility van. The Focus is the world’s best-selling vehicle nameplate – in 2014, Ford expects to sell 1.1 million.
The Focus symbolizes Ford’s remarkable turnaround. Although they came to a head in 2008, the company’s problems began years before. By 2005, Ford insiders realized that the company was running on empty – sales were falling, and the company’s cash was being rapidly depleted. In a business that demands huge capital to fund product development, this was a crisis – CFO Don Leclair warned the board that the company was going broke.
Ford faced many of the same industry-wide problems that Chrysler and GM did: high labour costs, excess plant capacity, and a health-care burden that added an estimated $2,000 to the cost of every vehicle it made.
But Ford also had unique problems of its own. Under Nasser, Ford embarked on a flawed diversification campaign that burned through cash while failing to produce a return on investment. The company acquired a series of boutique European car brands (including Jaguar, Land Rover and Volvo) and spent hundreds of millions on mystifying corporate entities that were supposed to broaden Ford into a vast consumer-services company – Nasser had snapped up e-commerce operations, car distribution networks, junkyards and auto-repair shops.
Although Nasser left the company in 2001, the problems he helped create had a lasting impact. Ford made too many products, its costs were too high, and it lacked corporate focus. What came next was an extraordinary act of reinvention and risk taking, compounded by sheer luck.
Although he was the heir to one of the world’s greatest industrial dynasties, Ford CEO Bill Ford Jr. (the great-grandson of Henry Ford) realized that the company was failing under his leadership, and set out to find someone else to run the company. After a frustrating hunt, Ford hired Mulally.
Under Mulally’s leadership, Ford made a series of key strategic manoeuvres. The company dumped its European car brands and sold the consumer-services operations that Nasser had collected.
But Ford was still hemorrhaging money due to falling sales, high costs and chronic overcapacity. (Ford lost $12.7-billion in 2006.) Facing bankruptcy, the company took a massive gamble, raising nearly $24-billion by mortgaging its most valuable assets – factories, buildings and even its best-known trademarks, the Ford blue oval and the iconic Mustang logo.
The massive loan turned out to be the company’s lifeline. When the North American economy tanked, Ford used its borrowed money to keep the company going and fund restructuring while GM and Chrysler were forced to take government bailouts and declare bankruptcy.
In hindsight, Ford’s loan looked like a brilliant move – the financial crisis hit less than two years later, making credit unavailable. “The timing turned out to be great,” says David Cole, chairman emeritus of Michigan’s Center for Automotive Research. “That money changed everything.”
The financial crisis enabled Ford and its fellow U.S. auto makers to make changes that gradually returned them to profitability. The Big Three extracted major wage cuts from the United Auto Workers union, dozens of manufacturing plants were closed, and product lines were streamlined to reduce parts counts and manufacturing complexity.
Under Mulally, Ford has reduced its plant capacity by about 35 per cent, but has also increased output through production efficiencies and a rationalized product lineup based on a series of global car platforms that can be used to build multiple vehicle models – a strategy epitomized by the Focus.
The results are documented in the bottom line – in the third quarter of 2014, Ford posted a pretax profit of $2.6-billion. Cole says Bill Ford’s decision to bring in Mulally to run his family’s company was a brilliant move that called for the Ford scion to put his ego aside: “It’s hard to admit that you’re not the best guy for the job, but he knew it had to be done. Mulally turned out to be the perfect choice. He transformed the company.”
FORD: SALES IN CANADA
Cars and Light Trucks
Market share: 16.3%
Source: DesRosiers Automotive Reports
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