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Ford CEO Alan Mulally was the toast of the Paris Auto Show in September.
By Phil LeBeau
CNBC
updated 11/11/2010 11:49:38 AM ET 2010-11-11T16:49:38

September, when this glamorous European capital is buzzing, is an exciting time to be in the City of Lights. For Ford CEO Alan Mulally, it was an especially good year.

In a city where U.S. products are often treated with disdain, Ford was the toast of the annual Paris Auto Show. As the man in the driver's seat, Mulally was greeted as a rock star for engineering one of the biggest turnarounds in the auto industry’s history.

"Today Ford is in a different place,” he told a group of press and Ford executives at the Parte de Versailles exhibition hall. “(We’ve) returned to profitability faster than we had forecast."

That road to profitably has been extremely bumpy for Mulally and the iconic American company. When he took the wheel in 2006, Ford was veering badly off track - losing a staggering $17 billion that year alone. Its U.S. operations were bleeding cash. The company was struggling to absorb a string of acquisitions that included Aston Martin, Jaguar, Land Rover, Mazda and Volvo.

“Most importantly, we didn't have a full family of vehicles in the United States,” Mulally told CNBC. “And each of our vehicles were not best in class. So, with that kind of background, we were losing market share and we were losing money.”

It was a stunning fall for a company that just a few years earlier had been raking in the cash. But Ford’s winning streak in the go-go '90s gave way to a bleak new decade of recalls, recessions and high gas prices. Ford's bread-and-butter trucks and SUVs stopped flying off the lots, and its lineup of cars — including the once hot-selling Taurus — had gotten old and stale.

"We strayed from what got us to the top of the mountain, and it cost us greatly,” said Bill Ford Jr., great-grandson of company founder Henry Ford, and the man then running the company.

In 2006, he made a painful self-assessment. He decided to ask the company’s board of directors for help.

“At the time, I was chairman, I was CEO, I was COO and I was president,” he said. “I was wearing all the hats. And they said, ‘Well, what do you need? Are you looking for a CEO or COO?’ I said, ‘I really don't much care. What I want is the right person.’"

Related: For Ford's Mulally, big bets are paying off

The right person was Alan Mulally – then halfway across the country running Boeing’s commercial airplanes division. When the two men finally connected they clicked immediately. But inside Ford headquarters, not everyone was sold on Mulally. Ford recalled that some executives wondered aloud whether Mulally had the right background or fully understood how complex the company was.

“And Alan said, "Yeah, I think I do have a sense of how complex it is,” said Ford. “’You make a vehicle that has 3,000 moving parts. I make one that has 30,000 moving parts and has to stay in the air. So talk to me about difficulty and complexity.’ And that kind of shut everybody up.”

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One of Mulally's first decisions was to bring a small group of Ford executives to the test track run by Consumer Reports, whose annual ratings influence millions of U.S. car buyers. Mulally and his team got a blunt assessment of Ford's quality.

“I wouldn't have touched a Ford vehicle eight years ago,” said David Champion, Consumer Reports’ director of automobile testing.

What followed were brutal, high-level meetings in a command center one floor below Mulally office – a place known as the Thunderbird Room. It’s where Ford’s top executives meet to review the company’s operations and flag problems. When Mulally arrived in 2006, no one dared admit anything was wrong. That would soon change.

At a meeting to review the launch of a new model crossover SUV, the Edge, Mark Fields, head of Ford’s Americas division, had some bad news. There was a problem with one of the hydraulic parts that would force a delay of the launch for a couple of weeks.

The room “got deathly quiet,” Mulally recalls. And then the company CEO started applauding.

It was a defining moment — a small gesture signaling an enormous change. Almost immediately, other executives felt free to admit they, too, had problems.

CNBC Special Report
Ford: Rebuilding an American Icon

Mulally's solution was a plan he called "One Ford.” To fix the company, he would slash Ford's North American workforce by 40 percent and sell its subsidiaries. Ford would accelerate development of new products, redesigning the Taurus, Focus and Fiesta models, while cutting dozens of older models, including the Crown Victoria and jettisoning the entire Mercury brand.

"You just can't be world class on 97 different things,” he said. “Plus, we had different production systems for each of those brands and each of those models."

Mulally's plan was ambitious and would cost far more money than the company had on hand. So in November 2006, Ford management rolled the dice and mortgaged nearly every asset the company owned -- even the signature blue oval -- to borrow the cash.

"I'll never forget walking into the Waldorf Astoria - 520 bankers all looking at their cufflinks and listening to our plan to create a viable Ford.” He said. “And within two weeks we had raised $23.5 billion.”

CNBC full coverage: Rebuilding an American icon

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It was a colossal gamble. But two years later, when the economy crashed in 2008 and plunging car sales left showrooms empty, Ford had enough cash to ride out the storm. General Motors and Chrysler staggered to Washington to plead their case to Congress for taxpayer-funded lifelines. Mulally went to the Capitol to support his competitors -- because if GM and Chrysler went out of business, dozens of suppliers might follow, dragging Ford down with them.

The hearings, he later told a meeting of Ford car dealers, were “surreal.” Both Chrysler’s then-CEO Robert Nardelli and General Motors then-CEO Rick Wagoner enthusiastically agreed to accept a dollar-a-year salaries in exchange for the bailout.

"So they got to me and they said, ‘What about you, Mr. Mulally, would you work for a dollar a year?’” he recalled. “I thought about it and I said, ‘No, I think I'm OK where I am.’"

Refusing that government bailout delivered Ford an unexpected and priceless advantage that dealers saw right away. Riding that wave of good will, Ford rebounded.

After bottoming in early '09, sales took off. By that summer, Ford was posting sales gains among the best in the industry. Customers returning to Ford showrooms found something else — improved quality.

By 2010, Consumer Reports — which had pummeled Ford a few years earlier — had elevated several models near the top of its lists.

Even President Obama has enjoyed basking in Ford's comeback.

“Ford made some good decisions that put it in a better position than some of its American competitors - particularly around their financing situation,” Obama told CNBC on a recent tour of Ford’s plant on the south side of Chicago. “So Ford should be congratulated. What I'm excited about is the fact that Ford is doing what GM and Chrysler are both doing, which is they are retooling for the future."

For now, Mulally is on a roll. But it's not something he can take for granted.

The United Auto Workers may want to reclaim concessions they made when the car industry tanked. And sooner or later, Ford will face new competition from the more than 40 auto manufacturers in China.

But having steered the company back from the abyss, Ford's CEO has a moment to savor.

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Video: Rebuilding Ford

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