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Interview
 
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BEST OF B&E 2011 "INVESTORS, MEET ALAN. ALAN, MEET THE INVESTORS : PUBLISHED IN B&E ISSUE DATED AUG. 9, 2011"
“Alan Mulally has earned every dollar of his salary”
Arthur C. Wheaton, Director, Western NY Labor & Environmental Programs, Faculty of Industrial Relations at Cornell University and an automotive industry expert
Issue Date - 19/01/2012
 
Arthur Wheaton teaches Industrial Relations at Cornell University’s School of Industrial & Labour Relations. He is a workplace and industry education specialist for the Institute for Industry Studies. His industry coverage includes sectors like automotive & aerospace and healthcare and he specialises in industry education and workplace training, high performance work systems, negotiations and conflict resolution. He talks to B&E’s Steven Philip Warner about Ford and its much discussed CEO Alan Mulally.

B&E: When Mulally joined Ford, he had promised that he would not take home a single penny as salary till the time Ford did not return to profitability. He did that in 2009 when Ford made money. What do you have to say about this CEO?
Arthur C. Wheaton (ACW): Ford has a bright future under Alan Mulally. He has shown significant leadership without a big ego. That is an unusual combination in the auto industry. Mulally has earned every dollar of salary during these trying times. Mulally has been able to save the company without major government bailouts and has benefited from the goodwill associated with doing it on their own. But at the same time, the future promises to bring additional challenges like quality issues, government fuel economy standards, global competition, etc.. So Mulally has to be careful.

B&E: In June this year, Mulally’s announcement to make the fast-growing Asian economies (China and India) his company’s favourite hunting grounds did not go well with its investors. We did see negative responses in the stock market. The stock reached its lowest levels since 2011 started – falling by 23% since January 1. Many say that the softness in the Asian markets of late, went against the announcement. Should Mulally worry about how the stock market reacted this time?
ACW: I think the decision to expand into China and Asia is correct. China is now the world’s largest market. Ford did not have the financial or human resource capability to expand during the last decade. It is now on sound financial ground and has stabilised its loss of talented executives. Now is the right time to increase investments into fast growing or emerging markets. I think Mulally’s decision is the correct long-term investment. Even if that means some short term stock price decreases.

B&E: Ford over time has become a leaner, slimmer and a profitable machine. And it all started with the mortgaging of Ford’s assets by Mulally in late-2006. Even then the stock market had reacted adversely. Then there was the revival of the Taurus brand. Do you think these decisions of his were right?
ACW: The biggest decision Mulally made was mortgaging everything he could to build a substantial cash cushion prior to the freezing of the credit markets about three years ago. That decision dramatically increased Ford’s ability to bring new product to market and to avoid US government bailouts. So I think it was a great decision. Mulally also made the decision to revive the Ford Taurus and make it a competitive player in the medium to large car market. Today, Ford benefits not only from the actual sales of the Taurus, but also benefits from the halo effect of having an excellent car to aspire to in the future. The older Taurus it replaced was outdated and exemplified a cost cutting approach instead of a cutting edge design & technology one.

 
B&E: But there are some moves like the investment in electronics that have been criticised as failures. What do you feel?
ACW: Actually, the new technology push into electronics and the Sync and MyTouch Ford systems has been both a good and bad decision. The new hands-free sync system brought in younger buyers and increased the prices paid by customers. The latest MyTouch Ford system was not executed as well as intended. Ford’s quality reputation took a big hit this Spring with the latest JD Power quality rankings due mostly to poor execution of the electronics/customer interface. These problems can be corrected but it has been a distraction in a competitive market.

B&E: Ford is strong today – thanks to Mulally. But will Ford’s growth chart continue moving northwards over the coming years?
ACW: The auto industry is extremely competitive. A new vehicle can cost more than $1 billion to bring to market. The returns on investment are pretty small for an industry that requires massive investment. Mulally has done a masterful job of bringing Ford back into a profitable company but that does not necessarily last forever. Toyota, Honda, Nissan, Chrysler, GM, and many others have faced severe crises the last few years as well. The auto industry requires continuous attention to detail or any company can fail.

B&E: Ford, GM, VW or Toyota – which one are you most optimistic about as far as the future is concerned? ACW: In my opinion, Toyota is still in the healthiest position. All four of these companies have strong futures and I would add Hyundai to your list. Ford is out of the danger zone and is going to dedicate significant resources to bring Lincoln back to profitability. Ford also needs to invest in Germany, India and China. GM has made great progress but it has not had enough time to completely recover. There can be a five year lag between concept to new product. GM sacrificed investment in new product during its bankruptcy crisis. It will take a few more years to fully recover the product pipeline. VW is on a mission to become the number 1 car company in the world. They have a wide portfolio of brands and the integration of Porsche is not an easy task given their histories. A crisis in one or more brands could jeopardise profitability. One of the secrets of GM and Ford’s rebound has been shedding excess car brands. VW could become a victim of putting too much effort into quantity by sacrificing quality. Toyota is currently number 1 in the world in terms of production. It did not get to that position by luck. It is true that Toyota is facing major problems. It is also true that Toyota has access to a huge amount of cash or credit to address those issues. Toyota will likely learn from their mistakes and begin fixing the quality issues and supplier disruptions it is currently experiencing.
          

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