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Are We There Yet?

According to Greek fable, slow and steady wins the race. But the characters that demonstrated this enduring proverb were likely on familiar turf. And they didn't have to satisfy an impatient investment community. Such is not the case with Ford Motor Co. as it tries to put its troubles behind. Employing Aesop's strategy, it strides purposefully if gradually toward revitalization. But in the midst of

According to Greek fable, slow and steady wins the race.

But the characters that demonstrated this enduring proverb were likely on familiar turf. And they didn't have to satisfy an impatient investment community.

Such is not the case with Ford Motor Co. as it tries to put its troubles behind.

Employing Aesop's strategy, it strides purposefully — if gradually — toward revitalization. But in the midst of a bewildering business landscape, the auto maker finds itself being prodded from behind by anxious analysts, while choking on the dust of swifter competitors.

“We said in January this is a 5-year plan, and that some of the elements would take a couple of years to happen,” Chairman and CEO Bill Ford Jr. says during a “road show” to reassure Wall Street. “Well, of course, the world's an impatient place and everyone's saying, ‘Are you there yet?’”

And as if there isn't enough pressure to pick up the pace, 2003 marks the auto maker's centennial. Regardless of its performance in the market, Ford will endeavor to celebrate the milestone at every opportunity.

Don't be surprised if there are pitfalls. Because, as in the ancient allegory, 2002 has seen considerable ebb and flow, with Ford alternately gaining and losing ground with pitiable regularity:

  • Just as icy relations with its dealer network begin to thaw, Ford proposes a 3-year, 60% reduction in the rebates it pays to members of its elite Blue Oval certification program.

  • As the auto maker's stock price creeps slowly upward after hitting a sub-$7 trough it hasn't seen in 10 years, Standard & Poor's hammers its credit rating with a downgrade. Less than three weeks later, Moody's and Fitch pen more favorable reviews, but Wall Street remains wary.

  • Surveys suggest Ford design strikes a chord with the public, and that improved quality is shrinking warranty claims. But the No.2 auto maker continues to be plagued by recalls — including nearly 1 million units of Focus and Taurus/Sable in the fourth quarter.

  • As Ford begins to show signs of organizational stability, the sales and marketing arms of Lincoln Mercury are told to vacate, by summer 2003, the Premier Automotive Group's (PAG's) California palace. Destination: back to Dearborn, MI from whence they came in 1998.

  • Further to the above, President and Chief Operating Officer Nick Scheele is the subject of disquieting whispers. Why? Because David Thursfield takes on one of Scheele's responsibilities. Thursfield — named president-international operations and global purchasing — is now the one to whom Premier Automotive Group (PAG) Chairman and CEO Mark Fields must report.

Scheele deflects such gossip with aplomb.

The Thursfield move, which also sees James Padilla become president-North America, is a simple matter of consolidation, Scheele says.

Padilla continues to lead all operations involving development, manufacturing, marketing and sales of Ford, Mercury and Lincoln vehicles in the U.S., Canada and Mexico.

Thursfield, meanwhile, oversees Ford of Europe, Ford Asia Pacific, Ford's South American operations, PAG, Mazda Motor Corp. — of which Ford owns 33% — and purchasing.

His anticipated contribution as purchasing chief likely will benefit the auto maker most.

Back to the race.

“The person who is 15% into a marathon and says what the finishing time is going to be, is probably going to get it wrong,” Scheele tells Ward's in his corner office on the top floor of Ford world headquarters in Dearborn, MI. “We're into a long-run proposition … In the broad scheme of things, we're doing OK.”

On the heels of a year that saw the auto maker lose $5.45 billion, Ford has posted back-to-back profitable quarters. And in all three quarters this year, its earnings per share beat consensus estimates.

Commensurate with its Big Three compatriots, however, Ford's market share through the first 10 months of 2002 shows a decline — from 24% to 21.8%. This, despite a stronger-than-expected market that Scheele reluctantly forecasts at “the high 16s.”

But Honda, Nissan, Toyota, Hyundai, Kia, Mitsubishi, Subaru, BMW, Mercedes, Audi and Volkswagen brands all show year-over-year penetration that is either flat or improved.

Says Scheele: “Do we want to do more? Do we want to go faster? Do we want to achieve higher goals? Yes, yes and yes, we do.”

How is Ford clinging to such hope? By changing the culture of excess that gripped the Glass House during the tenure of Scheele's predecessor as president, former CEO Jacques Nasser.

Divestiture continues. (Sale of the Nasser-acquired Kwik-Fit auto service unit was finalized Nov. 15, albeit for $1.1 billion less than its 1999 purchase price.)

Also divested this year were dealerships Ford bought and ran as part of a project that was intended to improve the distribution network, but instead infuriated dealers.

Non-core business is taking a back seat at Ford: Waste is now the devil in Dearborn.

Wasted money, wasted time and wasted material are seen as obstacles to building cars, trucks and sustainable profitability. Like the plodding tortoise, there will be no wasted motion at Ford — beginning with design, engineering and the supply chain.

Central to the goal of eliminating waste is Thursfield and a program he is overseeing called “Team Value Management” (TVM). It involves joining forces with suppliers and descending, like hit squads, on vehicle programs.

The mission: increase commonality, improve process and carve out cost by changing specifications — without diminishing product performance.

Well-established in Europe, TVM's track record shows no single project that produces a cost saving under 10%, Thursfield says. He expects to have more than 20 teams operating in North America by year's end, and more than 60 by mid-2003.

Not coincidentally, the auto maker is under orders from the chairman to excise $1 billion in overhead.

That's cited as a reason Ford is cutting back on its Blue Oval bonuses to dealers who meet the auto maker's customer satisfaction standards.

Ford dealer bonuses currently are 1.25% of new-vehicle invoice prices. That cost Ford an estimated $700 million last year.

Ford initially planned to cut the Blue Oval rebate multiple to 0.50% in 2005. Now it's looking at keeping it intact until that year, then scrapping it.

It could spark another Ford-dealer feud, such as the one that occurred when Ford from 1998-2001 ran its own dealerships in certain markets.

“We told dealers we were sorry,” Scheele says of that admitted failure. “We committed to them to do what we felt was necessary to repair the relationship… I think things are better. But you kind of wish you'd never got into it.”

There remains another in-house race. Ford is changing its manufacturing capabilities to realize maximum benefit and flexibility.

Next year, Ford's assembly plants in Norfolk, VA, and Kansas City, MO, will be retooled to build the next-generation F-Series. But those plants will also have the capability to accommodate an additional platform — each having the potential to support four derivatives.

By decade's end, 75% of Ford's North American assembly operations and all of its global assembly plants will have such capability.

While there are no plans to do so, Ford's flexible plants will have the capability to build — simultaneously — body-on-frame and unibody vehicles featuring front-wheel drive and/or rear-wheel drive.

All Ford needs now is the right vehicles to build. While this year sees immediate introduction of the all-new 6.0L V-8 Power Stroke turbodiesel engine and 5-speed automatic Torqshift transmission in '03 F-Series Super Duty pickups, there is little else to excite.

Coming late next year are vehicles such as Ford Escape SUV Hybrid as well as the Ford Windstar minivan and its Mercury cousin, Monterey, both new from the inside out.

“In large part, they are talking about cost reductions and a pumped-up product pipeline that really won't be fully in effect until 2003 — or even later,” says Burnham Securities auto analyst David Healy.

Scheele remains confident.

“We have got probably the best-ever prototypes I've ever seen,” he says, referring to the next-generation F-Series, due as an '04. “And we've got some attribute vehicles, which we had a year ago, where we really did a lot of work that commonly you would not do until later in the program. I believe it will pay off as we move into launch. But we're not there yet.”

And Taurus?

“Conceptually, yes. Taurus will stay,” Scheele says, confirming Ford's famous sedan will not be relegated to fleet status.

The problem with Ford's car lineup rests between Focus and Taurus, he adds. “I think there is a gap in that size range. It's the business case for that size vehicle that we need to examine.”

Like the tortoise, Ford wants to move forward — steadily, not impulsively — as it seeks the right solution at the right time.

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