6 moves to save Ford

Does CEO Alan Mulally have a prayer of reviving the troubled automaker? Fortune's Alex Taylor says, only if...

By Alex Taylor III, Fortune senior editor

(Fortune Magazine) -- By coming into the auto industry after years of making airplanes, new Ford chief Alan Mulally has a lot to learn about cars and not much time to do it. Business really stinks at Ford, which recently announced that it's offering buyouts to all its 75,000 UAW members and cutting its North American salaried workforce by one third.

That's one of the reasons Mulally was hired - to steer the company through a downsizing and restructuring, and to sell assets. The Boeing veteran - who performed similar feats at the aircraft maker - will be finding out how to deal with an army of suppliers, dealers, labor unions, shareholders, and customers. And that's the easy part.

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Ford (Charts) has a peculiar culture that is all its own, growing out of its family control and long history as a rough-and tumble industrial company. Office politics at Ford is a contact sport. Outsiders can have a particularly difficult time if they don't make friends and learn the landscape. Mulally's to-do list better include these 6 items.

Never forget who is in charge

It's the family, stupid. They control more than 40% of the shareholder votes. Many supposedly smart executives forget that. Henry Ford II fired president Lee Iacocca in 1978 after Iacocca tried to depose him by going to the board behind his back.

CEO Don Petersen left abruptly in 1989 after stepping on the family's toes once too often. Bill Ford never felt comfortable with CEO Jac Nasser, and eased him out in 2001. Although there are more than 70 third-, fourth-, and fifth-generation Fords who show up for biannual meetings, Bill Ford is the only one who counts. He's the smartest, ablest, and has the deepest connections with the company. He has an ally in brother-in-law Steve Hamp, who's also his chief of staff.

What has escaped most observers is that Bill has retained significant power in the new setup. He stated that he would be evaluating "global strategic issues" and got a new title, "executive chairman." Among the few others who use that title: Sumner Redstone. Enough said.

Watch your back

Ford is more kingdom than company. When the king is a Ford, the jousting that goes on beneath can be intense - and occasionally fatal. Former GM (Charts) exec Bunkie Knudsen was named president of Ford in 1968 and was gone in 18 months, done in by Iacocca and his loyal cronies.

A Harvard Business School study called Knudsen's fall a "classic demonstration of what can happen when an outsider is placed at the helm of a vast, established organization with power centers jealously guarded by men who have spent their professional lives developing them."

Think that's an ancient example? Early in Bill Ford's tenure as CEO, one of his top executives ordered his subordinates not to discuss business issues with another executive who was then reviewing the company's operations. The tension between the two men crackled, and when the first one retired, the second one noted, "No tears were shed when he walked out the door."

Slaughter sacred cows

Given Mulally's age, 61, and the fact that he comes from outside the industry, he's got that whiff of being a lame duck even before he even starts. The best way to demonstrate he is actually in charge is to take bold actions that he can clearly claim as his own.

For example: Close the moribund Lincoln-Mercury franchise and move Lincoln into Ford dealerships. Nobody at Ford has ever figured out what to do with Mercury, which sells thinly disguised Ford vehicles, but Lincoln has potential as an American luxury brand, especially if Mulally can find the money for a new V-8 engine and reardrive platform.

He should announce he's going to sell the Jaguar operation (after checking with the family, of course) but keep unloved Mazda.

Weed out some tired vets and replace them with high-profile executives from outside the company. There's a big difference between executive turnover and a management shakeup.

Set up a horse race for a successor

Mulally's arrival delayed the ascension of two ambitious executives - both named Mark - who had been eyeing the CEO's job for themselves: Mark Fields, who runs North American operations, and Mark Schulz, who runs overseas operations.

Fields, known around Detroit as "Mr. Hollywood" because of his flashy attire, has been getting most of the attention since he's developing the turnaround plan for North America.

But Schulz's overseas operations in Europe, Asia, and South America have thrived - and that's where Ford's growth lies. Putting them in competition will ensure Mulally gets the loyalty of both.

Fight premature euphoria

Ford faces a couple of lean years because it doesn't have enough new-model launches. Mulally, though, should resist the temptation to which so many auto execs have succumbed.

That is: Everything in the design center looks great. New models seldom look bad there, especially when the designer is explaining how he did it.

Call Carlos

GM is deep in talks with Carlos Ghosn's Renault and Nissan about forming a three-way alliance, but Ford would gain much more than GM from a linkup. Mulally will soon know what they're proposing. When he does, he should phone Ghosn and make a better offer.

Ford would benefit from shared purchasing, platform sharing, and joint technology, while Ghosn would love to get his hands on Volvo and some of Ford's empty plants. If he could succeed in luring Ghosn to Ford, Mulally could retire and move back to Seattle, with his tenure in the Motor City deemed a huge success.

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