Thursday, August 23, 2007

Article in August 23, 2007 Detroit Free Press

Mulally upbeat despite setbacks

Ford misses a key sales target in July

BY SARAH A. WEBSTER
FREE PRESS BUSINESS WRITER

Ford Motor Co. missed a key target for sales of new cars and trucks in the United States last month, according to the automaker's latest internal report card, which was released to employees Wednesday and obtained by the Free Press.

Cost savings are on track despite challenges, the report says, and employee optimism continues to grow, "but sales in July did not meet expectations."

Still, Ford Chief Executive Alan Mulally remains optimistic about Ford's future.

At a dinner with journalists Wednesday night -- set, in part, to commemorate Mulally's first year as the company's CEO -- Mulally said his vision for a new Ford, which is more centered than ever on the namesake blue-oval brand worldwide, is taking root.

"I think we are nearly a year ahead of where I thought we'd be on pulling together the assets of this tremendous corporation," he said.

Mulally said he remains committed to his management team and the company's 2009 profit objective. That's despite the recently missed sales objectives and a troubled housing and credit market, which he characterized as a "headwind" to the company's turnaround plan.

At one point, Mulally wrapped his arms around the two top executives who flanked him, Mark Fields, who oversees Ford's operations in the Americas, and John Parker, who oversees Asia and Africa, and expressed how much he appreciated the knowledge of his leadership team. He called them "the very best of Ford."

"Everybody is making progress, even though Mark has the hardest job right now," Mulally said.

With the support of Chairman Bill Ford, the former Boeing Co. executive has sought to encourage a culture of honest feedback and accountability at the family-controlled Dearborn automaker.

Mulally's leaders worked hard to convey the message that they are a team Wednesday night.

At one point, Lewis Booth, who oversees Ford of Europe and the Premier Automotive Group, which oversees the Jaguar, Land Rover and Volvo brands, remarked: "We trust each other."

Measuring their effort

The monthly report cards are intended to reinforce the message of Ford's more transparent approach, with a straightforward examination of the most recent measures and results.

Stabilizing sales to American consumers -- separate from government and rental-car sales -- is crucial to Ford's plan to stop losing money in North America and to limit job cuts to the 44,000 already under way. Ford's percentage share of the U.S. retail market had been hovering around 13%, but it fell to about 12.5% in July, the report shows, noting that the figure was "below forecast and below first-half trend."

Ford's retail sales made up 10.6% of the industry's total sales in July, against a target that appears to be more than 11%.

Overall, Ford's sales fell 19.1% in July, as its share of the total market, including those discounted fleet sales, fell from 16% to 14.8%.

What's worse: Ford's low share is coming in a surprisingly weak market. Ford and General Motors Corp. have both recently cut their expectations of total sales for the year, and analysts now expect the U.S. market in 2007 to be the smallest in almost a decade.

The disappointing results came from the F-Series pickups, crossover utilities and certain car lines, Ford said in the report.

Rising costs for raw materials are creating new challenges for Ford's cost-cutting efforts, which had been a major reason Ford earned an unexpected profit in the April-to-June quarter. Prices for rhodium, palladium, aluminum and copper all rose substantially from December 2005 to June 2006, but Ford still met cost-cutting targets in July. Despite the missed targets and new challenges, employee morale seems to be on the upswing, internal surveys of Ford's employees in the Americas show. More than 60% of workers now have a positive outlook for Ford.

Some progress made

Soon after Mulally took the helm last September, the company announced a revamped turnaround plan that called for closing 16 plants and freshening the entire lineup of Ford, Mercury and Lincoln vehicles by 2010.

The company seems to be making some progress in that effort.

After losing a record $12.6 billion in 2006, Ford has beat earnings expectations for the first half of 2007. So far this year, the company has earned $468 million.

But the company's ailing North American unit remains troubled, losing $4.2 billion on a pretax basis through the first half. Ford's retail market share in the United States began to stabilize at about 13% of the retail market. But with the housing and financial markets shaken in recent months, industry sales have slumped, and Ford is feeling the pain.

While most industry analysts and insiders give Mulally high marks for winning over his team with his positive, Midwestern personality, the former Boeing Co. executive's first year in the auto industry has not been marked by big, dramatic moves.