TOPICS > Economy

Ford CEO Promises Shift to Smaller Cars, Greater Efficiency if Industry Survives

December 3, 2008 at 6:10 PM EST
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By the week's end, lawmakers will review business plans submitted Tuesday by Detroit's Big Three. Ford CEO Alan Mulally explains his auto company's proposal to avoid bankruptcy.
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GWEN IFILL: The CEOs of the big three automakers are headed back to Capitol Hill tomorrow, bringing with them even more dire predictions of imminent collapse.

JIM PRESS, president, Chrysler: Right now, if one of the companies went bankrupt, as has been said, it would take others with them. Instead of a recession, if we lost the industry — 4.5 million jobs would be infected — it could be a depression at some point.

GWEN IFILL: Chrysler, General Motors, and Ford, whose sales have dropped to a 25-year low, are asking Congress to approve at least $25 billion in government help and possibly as much as $35 billion.

General Motors is in the worst shape, reporting it needs $4 billion just to get through the end of year, and $18 billion by the end of next year.

Chrysler is asking for an immediate cash infusion of $7 billion.

And Ford is requesting a $9 billion line of credit that could grow if the other companies fail or economic conditions worsen.

If the federal government steps up, all three CEOs have promised to slash their multimillion-dollar salaries to a dollar a year, reduce the number of brands they offer; close dealerships, produce more fuel-efficient vehicles and squeeze additional savings from labor contracts.

Union leaders, who held an emergency meeting in Detroit today, said they would do their part. Ron Gettelfinger is the president of the United Auto Workers.

RON GETTELFINGER, president, United Auto Workers: We’re going to make modifications. We’re not opening the contract, if you will. We make modifications, which under our constitution we have a right to do. But then we take them back to the membership, and I’ll just leave it at that.

GWEN IFILL: Gettelfinger said the government has made fewer demands of other companies.

RON GETTELFINGER: AIG or Bear Sterns or Citigroup, nobody asked them for anything. No oversight, no anything. Look, here’s the plan. You want the plan? Here it is: Oversight? Bring it on. U.S. government gets equity in the companies? You got it. No dividends? There it is.

I mean, so I think this is a big difference than Company A out here raising their hand and saying, “I need help.”

GWEN IFILL: In contrast to their last Washington appearance, the CEOs paid closer attention to atmospherics, leaving their private jets at home and traveling the 500 miles from Detroit in hybrid cars.

A 'transformational plan' for Ford

Alan Mulally
CEO Ford
We're going to really focus on the Ford brand. We've divested all of non-core brands, like Astin Martin and Jaguar and Land Rover. We've reduced our ownership in Mazda.

GWEN IFILL: And the man you just saw, Ford's chief executive, Alan Mulally, joins me now. Welcome.

ALAN MULALLY, CEO, Ford: Thanks, Gwen. Glad to be here.

GWEN IFILL: Ford's car sales plunged 30 percent last year; $7.7 billion you burned through in the last quarter. Why is it that what you're asking the government for, why are you a good bet?

ALAN MULALLY: Well, clearly, we're in a very, very tough economic situation in the United States, and something that we're all very worried about, and especially with the financial crisis and the lack of credit. The economy is slowing, and our industry is slowing.

And as you pointed out, the sales for the industry is down, at the lowest levels we've seen in 30 years.

Now, having said that, we started on a transformational plan of Ford nearly two-and-a-half, three years ago, where we decided we're going to really focus on the Ford brand. We've divested all of non-core brands, like Astin Martin and Jaguar and Land Rover. We've reduced our ownership in Mazda, and we also are looking at strategic alternatives now for Volvo, including a sale.

So Ford has a very, very clear, focused plan to focus on Ford, to bring out a full product line, small, medium, large cars, utilities and trucks, and absolutely be the industry leader in quality, fuel efficiency, safety, and affordability.

GWEN IFILL: Does your plan matter if G.M. or Chrysler stumble and fall? Do they take you down with them?

ALAN MULALLY: Well, that's a very, very serious consideration, Gwen. And, you know, what we have testified and what we're going to talk about again tomorrow is that the automobile industry in the United States is very interdependent, with all of our suppliers, all of our dynamite dealers. And these suppliers support all of the auto manufacturers.

So if one of the manufacturers would go into bankruptcy and fail, we think that would cause a chain reaction with the suppliers and also come back and affect Ford, which is one reason we're here as a member of the industry, to make sure that everybody understands the importance of it and support a bridge loan, although, at this time, we do not need the bridge loan, because we believe we have sufficient liquidity.

GWEN IFILL: You're asking for a $9 million, kind of a line of credit, not actual...

ALAN MULALLY: Exactly.

GWEN IFILL: ... a loan that you would tap into right away?

ALAN MULALLY: Exactly.

GWEN IFILL: What would be the circumstances which would force you to tap into that line of credit?

ALAN MULALLY: You bet. The main thing would be a further worsening of the economy and the credit markets, you know, not opening up, because we are absolutely dependent on the consumer. This is the second -- probably next to our homes, this is the second-biggest purchase that we make.

And with the credit tightening and the economy slowing, of course all of us -- all of us consumers, our confidence is down, so if this degrades even further -- and that's one of the reasons we're here, is we'd like to ensure that there is a line of credit -- that we can make it through this recession and we can keep delivering on the vehicles that people really do want.

Increasing flexibility, competition

Alan Mulally
CEO, Ford
We're caught in the most severe downturn in the economy that we've ever experienced. And our plan is we'll be back to profitability -- even during this terrible recession, we believe that we can return to profitability by 2011.

GWEN IFILL: I said million, but obviously it's billion, $9 billion. Is it possible that that could be more as this goes along?

ALAN MULALLY: Well, we have a very good conversation with Congress about that, because during our last meeting, we decided that no one can predict the future, so we actually did a few scenarios.

If the sales stay the way they are now, if the stimulus package that we're all working on starts to work, and the industry comes back a little faster -- we even looked at a worst-case scenario, and that's how we came up with the range of the potential loan that we might need.

GWEN IFILL: If you get that, if Congress grants you that, and -- does that mean that Congress gets repaid? You have other outstanding private capital loans which are keeping you alive now. Does Congress get repaid, does the government, do the American people get repaid first?

ALAN MULALLY: Absolutely. The only thing we're asking for is a bridge loan.

We have a tremendous plan to transform our company. We're caught in the most severe downturn in the economy that we've ever experienced. And our plan is we'll be back to profitability -- even during this terrible recession, we believe that we can return to profitability by 2011 and we can start paying that loan back with interest.

GWEN IFILL: To the government first?

ALAN MULALLY: Absolutely.

GWEN IFILL: Not to these private lenders first?

ALAN MULALLY: Absolutely.

GWEN IFILL: So what happens with these UAW concessions we heard about today? We just heard them say they're going to make changes in this jobs bank for laid-off workers, this health care trust for retirees. How much money does that save? How much of a difference does that make?

ALAN MULALLY: Well, it depends on what the final agreement will be, but it clearly is a very, very important development.

And I just might back up a little bit, Gwen, and say that, over the years, in recent years, that Ford and the UAW have worked very closely together to significantly improve our competitiveness.

In the last agreement that we made, we dealt with the retiree health care. We also dealt with the basic wage structure for new hires that are coming in. We dealt with moving from defined benefits to defined contribution.

We've also dealt with the work rules to provide even more flexibility in all of our plants. So we're continuing to work to close the gap and really ensure that we are competitive with the best in the world going forward.

So these are very positive developments that we heard today.

GWEN IFILL: How much of the gap is created by labor costs? I read somewhere it's only 10 percent of the cost of a vehicle.

ALAN MULALLY: Well, clearly, the labor is one piece of it. The main costs are in the parts themselves and all the materials. But every element of an automobile cost is very, very important.

This is a global industry. It's very competitive. We've made tremendous progress, but it's never over, as we know. Every year forever, we need to continue to improve our quality and our productivity, like we're doing.

Making profits, despite the crisis

Alan Mulally
CEO, Ford
And so then we moved to, what are we going to use the money for? What is the business plan for each business going forward? And was it a bridge to a vibrant, viable future?

GWEN IFILL: When you talk about increasing quality, you've arrived here tonight in a hybrid car, and part of your plan is to shift a lot of your production to smaller, midsized, fuel-efficient vehicles.

ALAN MULALLY: Yes.

GWEN IFILL: Is it realistic to do that in the time frame you're talking about?

ALAN MULALLY: Absolutely. It's a very exciting thing, Gwen, because the amount of money that we invest in technology in the United States, in leadership, in all of the advancements for fuel efficiency are going to allow us now to bring a full portfolio of small, medium and large vehicles.

It's very interesting, because Ford, you know, clearly operates around the world. And in many of the areas of the world, fuel prices have been relatively higher.

So we have just some fabulous smaller and medium-sized cars that we're bringing into the United States very quickly to complement our leadership in the trucks and the SUVs.

So our goal, our strategy, which is -- which is very different, again, very unique, is with Ford, you're going to know exactly what the brand promise is. You're going to be able to get vehicles of small, medium and large size, cars, utilities, and trucks, and know that they're going to be absolutely the best in quality, fuel efficiency, safety, and be the very best value.

GWEN IFILL: What difference does that make if in the end the economy is such that nobody's buying cars and no one's providing financing for people to buy cars?

ALAN MULALLY: Absolutely the number-one question. The most important thing that we do as a country -- and I have a lot of confidence in the leadership -- the number-one thing we do is to stabilize the financial market, free up the credit, and turn our economy around, because all of us are dependent on a vibrant, growing U.S. economy.

GWEN IFILL: Were you surprised at the skepticism with which your appeal was greeted two weeks ago when you went to Capitol Hill?

ALAN MULALLY: I learned a lot from our conversation in the first set of hearings. And I have a lot of compassion for what the leaders in Congress are dealing with right now.

This is a very serious situation with our economy. They're very worried about that. They want to stabilize the financial markets. They want to free up the credit. They want to get the consumer confidence back again.

So we were there primarily to make sure that everybody understood the importance of the automobile industry and also what the financial condition was for each of the automobile companies.

Now, clearly, we came to a shared view on the importance of the industry and the critical nature, especially of our competitors. And so then we moved to, what are we going to use the money for? What is the business plan for each business going forward? And was it a bridge to a vibrant, viable future?

Planning for the future

ALAN MULALLY: So they asked us to give them more detail on our plans, on our business plans. We were very happy to provide that; we provided that yesterday. In Ford's case, as we've talked, we feel like we have a very good plan that we put in place a number of years ago. We're executing on that plan.

We even got back to profitability in the first quarter of this year, and we have a plan to get back to profitability again, even through this worst recession.

So I'm looking forward to continuing this dialogue and answering the questions that they have absolutely every right to have answered.

GWEN IFILL: It didn't seem like much of a dialogue last time. It felt like more of a lecture from members of Congress to you as much about the atmospherics of your arrival in corporate jets as anything else.

What did you learn from that? I mean, how much of this decision, which is going to be -- your entire future is going to depend on -- has to do with those atmospherics, which you have to appreciate? And how much of it has to do with the reality of the package you're putting on the table?

ALAN MULALLY: No, I understand. And, again, we learned a lot, and I've really enjoyed our carpooling to Washington, D.C., this time. And it's just really important.

I mean, this is -- in our case, we're not asking to access the taxpayer money now, but if it happened -- and we hope it doesn't happen -- that we absolutely owe the American public a viable plan for the future of the automobile industry and Ford.

And so these are questions that need to be answered, and it's a very serious situation. Again, we're looking forward to answering those questions.

GWEN IFILL: But just to be clear, your request for a line of credit, for a bridge loan, as you put it, depends entirely on what happens with these other two companies?

ALAN MULALLY: The other two companies are very important to the industry, and I think that everybody understands the seriousness of their situation and of the industry. And that's why, on one hand, we're standing for the industry and our competitors, but on the other hand, we're going to continue to implement our Ford plan to create a viable, profitably growing Ford for all of us.

GWEN IFILL: Alan Mulally, CEO of Ford Motor Company, thank you very much for joining us.

ALAN MULALLY: Thanks a lot, Gwen.