How Ford Earned its Blue Oval Back

When Alan Mulally took over as CEO of Ford in September 2006, the storied automaker was losing money on every car it produced, staring at a $17 billion annual loss, and getting trounced by the likes of Honda and Toyota on the global stage. “We were going out of business,” Mulally recalled matter-of-factly in a recent interview. The situation was so bad that David Neeleman, CEO of JetBlue, recently said he thought Mulally was “insane” for taking the job.

Ford faced disaster, but unlike GM and Chrysler, the ailing auto-maker didn’t take a dime of taxpayer money. Instead, shortly after Mulally became CEO, Ford mortgaged all of its assets in order to secure a $23.5 billion loan. Among other things, that meant turning the iconic blue Ford oval, one of the world’s most famous trademarks, into collateral.

This past week, over five years after taking out what Mulally calls “the world’s largest home improvement loan,” Ford was able to regain its logo out of hock when credit-rating agency Moody’s raised the company to “investment” status, becoming the second agency to do so after Fitch. (Ford regained the Mustang and F-150 trademarks as well, along with control of the company’s headquarters and factories — which were also put down as collateral.)

It’s a symbolic — and historic — capstone for the 66-year-old Mulally, who is considered responsible for one of the most dramatic turnarounds in U.S. corporate history. In January, Ford announced its third straight annual profit – over $20 billion last year – and the company’s shares have rebounded to over $10 from $2 at the height of the financial crisis. Ford’s U.S. sales are higher than they’ve been since 2004, and the company plans to add 12,000 new U.S. jobs over the next few years.

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So how did he do it? Mulally’s most important achievement was leading “a cultural revolution” at Ford, says Bryce G. Hoffman, a veteran auto journalist and the author of American Icon: Alan Mulally and the Fight to Save Ford Motor Company. “When Alan joined Ford, the company was at war with itself,” says Hoffman. (Bill Ford famously said the company had “more palace intrigue than the Kremlim.”) “The corporate culture was notoriously dysfunctional, even by Detroit standards,” Hoffman says. “Alan forced executives who had been at each other’s throats to work together.” Mulally says his over-arching goal was to re-focus on Henry Ford’s original vision of making safe, affordable and efficient transportation available to everyone.

Mulally started by radically simplifying Ford’s product portfolio, which had swelled to become a disorganized “house of brands,” shedding Aston Martin, Volvo and Jaguar, and reduced to fewer than 20 the number of models coming off the assembly lines. But even with a simplified product portfolio, Ford’s bloated cost-structure meant it couldn’t make small cars profitably in the United States. In a key innovation, Mulally revamped Ford’s manufacturing lines to operate with 70% of the same parts, leading to unprecedented assembly line management, which has allowed the company to tweak production based on consumer demand and oil price trends. Mulally also made a bold commitment to energy efficiency, re-tooling the assembly lines to make cars that run on regular petrol, ethanol, natural gas, as well as a range of battery-powered electric vehicles.

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Mulally then negotiated a landmark agreement with United Auto Workers, the nation’s largest auto union, to shrink the workforce and cut retiree health-care costs. The process was painful: Between 2005 and 2008, Ford reduced its headcount by over 60,000 workers. But in the end, the company was able to decrease its overall production costs by nearly 50%, and reduce its average wage rate from $78 per hour to $52 per hour, making it globally competitive.

Mulally also invested heavily in high-tech, pushing his designers to embrace new lightweight materials and the latest electronics. Ford’s SYNC in-cockpit interface, which it developed with Microsoft, now understands 10,000 voice-commands, and can be linked with a driver’s mobile phone. Cutting-edge technology has become so central to Ford’s mission that Mulally now likes to call the company’s vehicles the “mobile app of choice” for the U.S. auto consumer. “Technology and innovation are the foundation of the Ford plan,” he says.

For Mulally, Ford’s rebirth is about more than fuel-efficiency and the latest high-tech toys. “We are fighting for the soul of America,” he says. “Manufacturing and U.S. competitiveness are so important, and we’re so pleased and proud to be creating an exciting, viable, profitably growing company that’s hiring again and competing on the world stage.” But despite the symbolic milestone of the return of the blue oval, the 66-year-old CEO says he’s staying in the driver’s seat, with no plans to retire.