The second Industrial Revolution Featured

7:00pm EDT March 22, 2005
It's been said that only a staunch anti-Communist politician such as Richard Nixon could have gotten away with his historic thaw in relations with China.

And perhaps only the great-grandson of the founding patriarch of the American mass-produced automobile could flatly predict the imminent demise of the internal combustion engine, the very device his ancestor, Henry Ford, helped pioneer more than a century ago.

At least, the younger Ford almost got away with it.

Bill Ford Jr. did, in fact, say it straight out at a major automotive conference in 2000, when he was nonexecutive chairman of Ford Motor Co., a year before he was installed as CEO.

"I believe cell-fuel vehicles will finally end the 100-year reign of the internal combustion engine as the dominant source of power for personal transportation," he said then, kicking up a stir.

With statements such as that, you might think the 47-year-old Ford, who leads America's fourth-largest company, would be a darling among environmentalists.

You'd be wrong, though.

Instead, he's mostly been caught between the incessant demands of Wall Street and his own deeply held green principles. And the more he tries to be open about the company's progress -- and sometimes lack of progress -- toward those goals, the more he opens himself up for abuse from both sides.

"Regardless of what any special interest group says or does, we're going to do what's right for our business and for the environment," Ford says. "In my view, there's no conflict between the two. I believe that improving environmental sustainability is a tremendous business opportunity."

Fuel efficiency and related environmental concerns aren't the only challenges confronting Ford, whose extended family has retained 40 percent of the voting control of the No. 2 domestic automaker. His job description also calls for figuring out how to respond to maturing auto markets in North America and Europe, and to rising interest rates and gas prices that could devastate the industry.

And he's doing it all while repositioning Ford Motor Co. for its second century.

Ford says he's trying to find the right balance between embracing the company's golden heritage -- its founder's engineering innovations and his visionary Jazz Age decision to pay workers $5 a day -- as he leads a management team embarked on remaking the company for the radically different world it faces in its second century.

Among those differences is the integration of the Internet in the company's business, and its impact on processes, policies and procedures.

"The biggest impact has probably been in our retail business," Ford says. "Some people predicted that the Internet would be the end of the traditional dealership. Instead, more and more customers are being driven to our dealers through the Internet. They are motivated and informed customers, and it makes the transaction easier and better for everyone."

Ford's vision and willingness to adapt the company to the 21st century have contributed to the company's healthier overall numbers -- 2004 net income was $3.5 billion, an increase of more than $3 billion from a year earlier, and it had total vehicle sales of nearly 6.8 million, an increase of 62,000 units over 2003

"In 2004, our company gained momentum," says Ford, "delivering more revenue and earnings, more new products, and more innovative breakthroughs, such as the Escape Hybrid, the industry's first full-hybrid sport utility vehicle."

Taking the reins during a crisis
While the company's health is strong today, for the first few years of Ford's tenure, he was working against a backdrop of crisis. He assumed command of a fundamentally broken company teetering on the brink of disaster; some even think it was on the verge of bankruptcy.

"I think he was cast into this role about 10 years earlier than had been planned," says Dr. David Cole, chairman of the Center for Automotive Research, an independent consulting organization. "The company was about to shut down; Jacques Nassar (his predecessor) had lost the people, the dealers, everybody. And there was no one else to do it."

Adds auto-industry analyst Mary Ann Keller, "What Bill Ford took over was a completely dysfunctional company."

During a couple of rounds of downsizing under Nassar, much of the company's top engineering and management talent departed, Keller says. She dates the beginning of the company's problems to the tenure of an earlier president, Alex Trottman. While things looked rosy for the company at the time -- by the late '80s it was outselling the larger GM for the first time since the '20s -- the company lost its focus while using its $10 billion in excess cash to diversify into an array of related businesses.

In the hunt for the next grand management theme, the company "essentially dismantled the operating structures and financial staffs of the foreign divisions and brought it all back to Dearborn," Keller says. "In addition to being a terrible, failed strategy, they lost a lot of talent that they've been trying to replace ever since."

So how does one fix an iconic, century-old American company that's very nearly on its knees?

"You do that by going back to basics," says Keller.

And Bill Ford has done that with abandon. Gone are the big themes and grand unifying visions. And despite his personal interest in the Internet -- he had the Detroit Lions online before other NFL teams when he ran the family-owned franchise in the '90s -- he tossed out earlier grand Internet strategies. Instead, the company has returned to its core mission -- building and selling cars the public wants.

"The immediate challenge in the last few years was stabilizing our business and getting it back on a sound operational and financial foundation," Ford says. "We've accomplished that, and I'm very proud of the way our team stepped up and did it."

A complicated man facing complicated issues
Ford's office is a testament to the staunch environmentalism of a man who, as a teen-ager, eagerly volunteered for clean-water and recycling projects. All the carpeting, curtains and furniture upholstery in his office were produced from hemp, and the ceiling tiles are made from reconstituted materials.

But his green tendencies are not the only thing setting him apart from the average American CEO. With the self-confidence that perhaps only inherited wealth and fame can bring, he seems to be something of the CEO as Boy Scout, with a number of twists: Ford is a practicing Bhuddist and a vegetarian whose favorite drink is water. He has a black belt in tae kwan do. He likes to note that he drives himself to work each day, in his favorite car, a convertible Ford Mustang.

Ford acknowledges the obvious, that he inherited a fundamentally broken company. Among the critical issues he was forced to tackle was runaway health care costs -- including coverage for retires -- an albatross that continues to dog the company. More than half of the $3.2 billion the company spent on health care last year went to retirees.

"This issue is bigger than any one company," Ford says. "I've asked our vice chairman, Allan Gilmour, to look into health care and try to find ways to reach out to other groups that are grappling with this issue. We think it's going to take a broad-based coalition of government, business and the health care industry to solve some of the more fundamental concerns."

But that issue doesn't move itself to the forefront in the same way as Ford's ongoing environmental debate, where Ford continues to be drilled by critics on both sides of the argument.

Five years ago, the Sierra Club gave Ford Motor Co. its "Exxon Valdez Environmental Achievement award," for producing gas-guzzling sport utility vehicles. Ford (the CEO) responded by vowing to decrease SUV emissions by one-quarter in just a few years.

In 2003, the Sierra Club used the automaker's centennial celebration to take another jab. In national ads, it trumpeted "A Century of Innovation," with photos depicting then-and-now models of telephones and audio equipment. The ad's kicker: "Except at Ford." The ad noted that the Model T got 25 miles per gallon nearly a century ago, while the Explorer SUV gets just 16 miles per gallon. Meanwhile, The Wall Street Journal berated Ford for his failed strategy of "appeasement" of the environmental lobby.

Despite this, Ford pointedly refuses to acknowledge any tension between business and responsible corporate citizenship.

"Trying to make the world a better place isn't just a nice thing to do, it is a way to grow your business and become more profitable," he says. "As we move farther along into the 21st century, that's going to become more obvious to everyone. I want my company to get there first."

In other words, the rest of corporate America will catch up with his visionary ideas.

Still, Ford has scaled back some of his initial boldness in the environmental area. By fall 2002, having absorbed a full year of mounting skepticism from Wall Street, he was trying to find an artful balance between his idealism and the grittier realities of running a major company.

As he told an automotive roundtable in Paris: "Obviously, the potential of hybrid electric and fuel cells is compelling, and they've been getting huge amounts of publicity in recent years. But the internal combustion engine has stood the test of time, and has evolved into an extremely clean, efficient and inexpensive power source. It continues to be improved, and emissions are now approaching zero in some designs."

Looking ahead
As the tight economy forces Ford to cut costs by as much as a half-billion dollars, the CEO hopes innovation, rather than lopping off heads, can do the job. And here, too, Ford seems to take heart in the founder's restless tinkering. Henry Ford experimented with early ethanol blends by growing soybeans. Ford, himself, has unleashed 1,800 full-time problem-solvers, called Black Belts and trained in the vaunted Six Sigma quality-manufacturing process, to lead customer-satisfaction projects.

"In the past, the conventional wisdom was that improving quality cost money," Ford said last year at a Morgan Stanley Dean Whitter investment seminar. "But Six Sigma has proven the conventional wisdom was wrong."

The savings to Ford Motor Co. is an estimated $200 million in two years from that initiative alone. Meanwhile, the company devotes more than half of its R&D budget to environmental projects.

Ford Motor Co. has also proved it's ready to bite the bullet to catch up to Japanese competitors, which have an edge in delivering hybrid technology (a combination of gas-powered and fuel-cell engines) at affordable prices. Last year, it announced it would sell its small hybrid SUV, the Ford Escape, dubbed by some as a "guilt-free SUV," at a loss while it continues to try to slice costs.

Early results are encouraging: In April, a test in Manhattan revealed the vehicle got 576 miles on a single tank of gas, or 38 mpg in the ultimate city driving.

Ford recognizes as well that part of this equation involves continuous changes in the way the unions interact with the company. It's a lesson he learned back in 1982, when he took part in an historic round of contract talks that reshaped the way unionized auto workers and their employers related to each other.

"I was on the team during the breakthrough 1982 Ford-United Auto Workers labor talks, which launched the employee involvement movement that revolutionized the industry," he says. "I've always believed that people are a company's greatest asset. During those talks I saw first-hand what can happen when you get people involved and give them a personal stake in your overall success."

So after three-and-a-half years at the helm, Ford might be forgiven for pausing to catch his breath, now more than halfway through his five-year turnaround plan. The general sense in the auto industry is that the company has stopped the bleeding and that the patient has at least stabilized.

But there are plenty of storm clouds on the horizon, in the form of high gas prices, which threaten to end a decade of easy profits on SUVs and large trucks, and rising interest rates, which will end low-rate financing deals that drew millions of customers in recent years, temporarily swelling profits.

Analyst Keller sees plenty of remaining challenges for Ford Motor Co., from a new-model product pipeline that's thinner than she'd like to the possibility that the ailing Jaguar and Aston-Martin brands could still bleed money and make it harder to protect the core company's health.

The Darwinian global auto market doesn't provide many chances for exuberance these days, she says, only an occasional sense that one has staved off disaster for now.

"Operationally, is the company better (since he took over)? Is the morale improved, does he have a good team?" Keller says. "I think the answer is yes. I'd give him an A minus. I think he's done a good job, given the enormity of the problems."

Auto researcher David Cole sees plenty of signs of progress thus far but thinks it's too early to tell how Ford should be graded. Says the former academic: "I'd give him an incomplete."

Ford is more optimistic. In January, at a meeting in New York with investors and senior management, he outlined his plans for 2005 and beyond.

"Last year, our reinvigorated cycle plan kicked in, and we introduced more new vehicles around the world than at any other time in our 100-plus years," he said. "Looking ahead, just stabilizing our business isn't enough. Our objective is to win. For 2005 and beyond, we're going to build great products, a strong business and a better world."

And if history is any judge, Ford aims to make good on that pledge.

HOW TO REACH: Ford Motor Co., (800) 392-3673 or www.ford.com