U.S. lawmakers need a dose of what’s good for Ford

July 23, 2010

U.S. lawmakers could learn from Ford. Four years ago the Detroit automaker, along with Chrysler and General Motors, was beset with crippling debt, huge employee liabilities and middling products. That’s when the company brought in Alan Mulally as chief executive. He and his team kept Ford out of bankruptcy, unlike its two domestic rivals, and have turned the company into a popular brand with better U.S. earnings than a decade ago.

Of course, a company boss has more power to force change than politicians trying to revive Michigan, Ford’s home state, or to tackle deficits in Washington. And much of what Mulally has undertaken was not rocket science. He sold or closed troublesome brands like Jaguar, Land Rover, Volvo and, most recently, Mercury. And he shifted much research, development and production from local silos to global platforms, saving a chunk of costs.

But these were hard decisions that were far from painless: thousands of workers lost their jobs, while those remaining have had pay and benefits slashed. And it is no small feat to convince enough of Ford’s now 178,000 employees to change old habits and follow the new leader’s plan.

A degree of luck was involved, too. For example, the company’s U.S. union workforce was younger than GM’s, so Ford’s retiree liabilities were not as large. And Mulally managed perfect timing with a $23 billion capital-raising at the end of 2006. The buffer helped Ford withstand the financial crisis without a bailout from the U.S government. Avoiding bankruptcy also boosted Ford’s reputation, which was already rising as the quality of its vehicles improved.

Now, the company is slashing its debt — by $7 billion last quarter — and looks sustainably profitable. In fact, Ford’s North American auto business posted a stunning 11.2 percent pre-tax operating margin. That’s not only a 26 percent increase on the first three months of the year, it’s better than Ford managed in 2000 at the height of the SUV boom when it sold almost twice as many vehicles, according to Barclays Capital.

Politicians in DC and Michigan can only wish for Mulally’s kind of success with their problems. It used to be said that what’s good for GM is good for America. Now maybe the better example is Ford.

2 comments

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I don’t understand how any of what you wrote can translate to legistlators. Should they hope to be lucky is their timing of selling treasuries? Should they try to cut the age of the average gov’t employee? Should they reneg on pensions? Should they hack and slash spending in other gov’ts they took over?

My prescription? 1) End the wars; 2) simplify tax codes and close loopholes; 3) 5% VAT. These three measures alone could close gov’t deficit by $1T/yr… ie ALL OF IT! Thoughts?

Posted by CDNrebel | Report as abusive

We can’t really compare Congress and Ford Motors until the lobbyists find a way to buy Ford’s management.

Posted by Trouble | Report as abusive