Howes: Ford needs to change while it has the ability to change

Ford Motor Co.'s stock is stuck in neutral as Wall Street waits for CEO Jim Hackett to put his $25 billion restructuring plan into high gear.

In a report this month explaining how the Blue Oval could spend billions to shrink the business and grow the share price, Morgan Stanley complains that Ford "is not currently disclosing any substantive details," adding that "cancellation of the September investor day has contributed to investor anxiety."

And Wednesday, Moody's Investors Service downgraded Ford and delivered a "negative" outlook because of "erosion" in its "global business position and the challenges it will face implementing its Fitness Redesign program." The ratings agency cited softening profit margins in North America because of higher costs and growing losses in its other operating regions.

Hackett hears the lament, even as he understands that "the faster you can be clear with them about your path and model for earnings improvement, the bigger endorsement you'll get from them," he told The Detroit News. "The literal performance of the company is nowhere near acceptable to me, or Bill or the board. I would confirm that probably I'm here because we saw this happening."

The challenge is doing something about it — sooner rather than later. Ford's business in China, its No. 2 market, is falling off a cliff. South America is a drag on financials, still. A briefly successful turnaround in Europe is going pear-shaped, as the Brits would say, the result of missed calls on the SUV craze sweeping the continent and Britain's imminent exit from the European Union.

After six years at investment-grade, its credit ratings are hovering near junk status. Only the vaunted F-Series pickup line and profitable SUVs keyed to North American buyers are keeping the profit engine churning. That's critical as Hackett and his team push to reorganize regional product portfolios, restructure product development and explore partnership talks with Volkswagen AG.

They're introducing a product-line management process designed to bring vehicle decision-making closer to the customer; morphing from platforms to architecture models in product development to improve efficiency and cut costs; getting aggressive about restructuring financially troubled regions; and targeting a return to 10-percent margins in North America.

The thinking: it can't all happen at once. Most actions impact important constituencies that should be part of the process, lest they make the change more difficult: unions and salaried employees, plants and suppliers, dealers and governments — all of which have a stake in what Ford needs to become.

The simple truth is that Ford's base car-and-truck business is not firing on nearly enough cylinders, despite a string of record or near-record years since the start of the decade. Too many product bets languished, ranking executives say, tying up capital. Decisions lingered unmade, compounding difficult market conditions in hot markets like China and India.

Worse, superstar CEO Alan Mulally's One Ford strategy of small, medium and large cars, trucks and SUVs for the world delivered vehicles now proving to be more expensive and less appealing in growing markets with lower incomes. Too often the process produced the wrong vehicles for changing markets — in China, in India, in Europe and in the United States.

"I'm addressing something that hasn't been addressed in 20 years," Hackett said. Mulally "had a different problem, which was the survival of the business was rapidly in question. I mean, it was melting like an ice cube" in 2008 and 2009. 

"Imagine the whole industry goes bankrupt at that same time, and out of that is birthed more fit competitors. They are there now. All of them are much better than back in the day because of the bankruptcy, because of all the restructuring they had to do. What's worse than GM going bankrupt is GM coming out of it and the kind of competitor they became.

"I want our company to see our competitors are just going to get better so we have to aim for places that they don't expect us to be." And to understand this: that escaping bankruptcy in 2009 means Ford still needs to reckon with the kind of restructuring its hometown rivals did under federal bankruptcy protection.

Most of that doesn't begin to address the Auto 2.0 challenges of autonomy, mobility and electrification. They're the biggest potential changes to the personal transportation business since Henry Ford's Model T rolled off his moving assembly line. If Ford doesn't confront its too-often-complacent culture, especially evident in good times like now, it risks being left behind by industry leaders. Including arch-rival General Motors Co.

A crisis? Not yet. But as Ford's 300 top executives gather this week in Dearborn for their Global Leadership Meeting, or GLM, the message from the top will be direct: Ford has to change while it has the ability to change, hence the official theme of "Creating Tomorrow, Together."

It should start yesterday. Hackett's wonky, TED-talk style is an adjustment for an organization historically driven by data and precision, finance and engineering — not making high-stakes calls about where to invest for the future. He proposes to flip the equation, to push the product development process closer to customers and the market, to speed the rate of delivering cars and trucks to dealer showrooms, to redesign entrenched parts of the business.

He offers a story: a while back, Hackett ordered a Mustang GT convertible for his wife, Kathy. Paid for it, and waited ... going on 90 days. Then he asked one of his car guys: how long does it take to get an order filled? 

"81 days," the guy responded. 

"What was it 15 years ago?" the boss asks. "He goes, '81 days.'

"I said, 'there's no clock speed in the world in business that's the same it was 15 years ago. I don't know what it should be, but can we get it faster?"

The target is 40 days to enable dealers to fill special orders more quickly and to restock popular trim levels on hot models. It's to better serve customers increasingly accustomed to just-in-time service from the tech industry and all sorts of service providers, some available seven days a week.

Expect Ford's restructuring to come in a quickening series of pieces, because the "Big Bang" sought by The Street, complete with targets and timetables, too often can become a recipe for recrimination. That's a lesson Hackett learned the hard way as CEO of Steelcase Inc., promising to hit growth targets of the newly public office furniture maker until a recession intervened. 

"The mistakes we have — it's never going to come out of my mouth that factory labor is the issue," Hackett said. "It's not. That's not the design problem. We've been managing the head count. The company shrank dramatically in the crisis and it almost added all the cost back. We had a chance to come back and have scale advantages, but we let that slip away."

daniel.howes@detroitnews.com

(313) 222-2106

Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.