The U.S. auto industry is on pace for another good year.
March new vehicle and truck sales hit 1.37 million, an increase of 6% from the prior year. Analysts surveyed by Thomson Reuters expected new vehicles to sell at an annualized rate of roughly 14.7 million. This is slightly down from 15.1 million in February but up from 13.3 million a year ago.
Ahead of this positive data and the New York Auto Show slated to start later this week, The Daily Ticker's Aaron Task and Daniel Gross sat down with Detroit News Auto Reporter Bryce Hoffman to discuss his new book "American Icon: Alan Mulally and the Fight to Save Ford Motor Company," an insider's look at how Ford CEO Allan Mulally, an industry outsider, was able to turn the company around and avert bankruptcy and a government bailout.
Ford was the only U.S. automaker to save itself without the help of a government lifeline in 2008. As Dan points out in the accompanying video, the story of Ford is perhaps the only successful non-bankruptcy restructuring seen in the U.S. over the last thirty or forty years.
But as Hoffman explains, Ford's turnaround and salvation did not come easy. Hoffman was granted unprecedented access to the Ford boardroom, Mulally's office and internal documents. After months on the inside, what came as the biggest surprise to Hoffman was just how close Ford actually came to bankruptcy.
The company was bleeding nearly $100 million in cash a day in 2008 and its stock price hit bottom at $1 per share. Ford was maybe "three to six months" away from bankruptcy, says Hoffman. "They got to the point where they stopped paying to water the plants inside their buildings [and] stopped paying to wash the windows in order to save money."
Ford's biggest savior in 2008 was Alan Mulally who left Boeing in 2006 to become the CEO of the number two U.S. automaker. What did he have that others didn't?
"He had an outsider's perspective," says Hoffman. "He was able to come in and really assess what was wrong with Ford because a lot of the people who had grown up in the company's culture weren't able to take a real objective look at it."
Mulally also had a "real strong leadership approach" and was able to "cut through a lot of the board room politics. The company's corporate culture "had held Ford back for so long," says Hoffman.
In 2011, Ford recorded a $20 billion profit on $128 billion in sales and today the stock is trading around $12.67 per share. The company's success today is also in large part due to the fact that Mulally never stopped innovating and developing during tough financial times that GM and Chrysler were forced to do.
"They did not cut back on product development during the crisis," says Hoffman. "That was key to Mulally's strategy."
But Mulally didn't keep Ford from the brink all on his own. "They had some real financial talent on their board," says Hoffman. In particular, he cites Carl Reichert, former head of Wells Fargo, who saw an industry crisis coming in 2006 and advised Mulally to take out a $26 billion line of credit. As a result "[Ford] had a cushion that GM and Chrysler did not have," says Hoffman. "But as the same time it was not much of a cushion, they still had to resort to these really kind of drastic measures in order to keep the company funded."
Hoffman also uncovered a number of other surprising things about Ford that was never before reported, including:
- Ford's secret alliance with competitors Toyota (TM) and Honda (HMC) "They worked with their arch rivals, their bitter enemies to kind of help each other keep the suppliers that were critical to all of their operations in business," says Hoffman.
- Ford's secret negotiations with the UAW that led to "game-changing" labor contracts in 2007 and 2009.
- The board's push to sell the company or file for bankruptcy as well as their desire to have Bill Ford step aside in 2006.
Mulally's efforts to save Ford have not gone unrecognized. In 2011, his pay package rose 11% to $29.5 million. A previous filing in March showed Mulally received more than $30 million in stock, which had been granted as compensation in 2009.
Mulally's efforts and achievements at Ford are no doubt insurmountable, but are they worth the $140 million he's received since becoming CEO?
"I think a lot of Ford employees would tell you that he did," says Hoffman."He saved the company and he did it without taking a government bailout. They are making money, their sales are up, you know, what more can you ask for?"