Losing market share, Ford faces overhaul

The automaker's new CEO helped turn around aerospace giant Boeing, but the car industry is in worse shape.

If only turning around a car company were as easy as turning around a car – or an airline manufacturer.

The new chief executive of the Ford Motor Co., in his most recent role, successfully guided aerospace giant Boeing through a wrenching downturn as the 9/11 terrorist attacks reduced demand for air travel.

At Boeing, Alan Mulally gained experience dealing with union labor, a global supply chain, and building products that contain everything from sheet metal to complex electronics.

Those are skills that Ford desperately needs. The No. 2 US automaker confronts declining market share, mounting losses, and a major shift in consumer preferences toward fuel-efficient cars.

But some of Ford's biggest challenges are ones that Mr. Mulally never faced at Boeing.

Where commercial aviation is dominated by two companies, the auto industry has become a tangle of global rivals – with Chinese automakers now scrambling to become exporters alongside those from Japan, Germany, and South Korea.

Where Boeing and Airbus sell their planes to dozens of airlines, success in the auto industry depends on catering to millions of consumers.

"Boeing is not that much like General Motors" or Ford, says Peter Morici, a University of Maryland economist. Carmakers "produce a complex consumer good that has to be mass-marketed and has substantial branding issues."

The fierce competition puts pressure on Mulally, even though he's an outsider, to move quickly.

The challenge is twofold, analysts say: to cut costs and to rev up the pace of new products that can provide future revenues.

Early this year, the company announced plans to close 14 plants and shed 30,000 workers by 2012.

But sagging sales in recent months have compelled the company to do more. This week, chief executive officer, Bill Ford Jr., stepped aside in favor of Mulally.

The move comes as Ford's share of the US market has plunged from more than 20 percent in 2002 to 17 percent last month. Ford's overall sales through August are down 10 percent from the same period in 2005, while the sales of Toyota have risen 11 percent. At that rate, Toyota could soon pass Ford as No. 2 in the US.

"What Ford is facing is really elevating the urgency" of restructuring, says David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich. "One of the real values of bringing somebody in from the outside is it helps to reinforce the sense of urgency."

Like Ford, General Motors is closing plants, reducing its workforce, and adapting to a market where consumers are increasingly more interested in cars than the light trucks and sport-utility vehicles that have led the US market for years.

"GM is still in the better position," says Jesse Toprak, an auto analyst at Edmunds.com. GM's restructuring efforts appear to be moving at a faster pace. It is rolling new products out the door faster this year – albeit with an emphasis on large trucks. Its daily sales rate rose slightly last month, while Ford's fell 16 percent, according to Ward's Automotive Group.

But both companies face a similar long-term conundrum. Thirty years ago, the Big Three US carmakers duked it out in a battle of the brands. GM's Cadillac division fought Ford's Lincoln brand in much the same way that Boeing's 747 competes with jumbo jets made by its rival, the European consortium Airbus.

Now, Chrysler, long No. 3 in the US, is foreign owned and is being outsold by Toyota. Honda is also nipping at its heels.

Nor is it just Asian carmakers that are ascendant. European brands have seen their US sales rise 9 percent this year, even as the overall US market for light vehicles shrank more than 4 percent.

Ford may end up selling some European divisions. But analysts say a true turnaround will depend on cutting US labor costs – a tough fight given the strength of the United Auto Workers union – and developing products more quickly.

"Identify [market] segments that are big and growing" and fill holes in the product line, advises Tom Libby, a senior industry analyst at J.D. Power near Detroit. "Then put in place a plan that will replace the products on a competitive time frame against Toyota and Honda."

Those companies come out with all-new versions of their cars, such as the Civic or Camry, every five years or so. Ford hasn't done that, and sales of models such as the once top-selling Taurus have suffered.

To some extent, Mulally has been through this before, leading Boeing's commercial aircraft turnaround. After falling behind Airbus in orders since 2000, Boeing is poised to be on top this year. He cut the labor force and sped up assembly. And he knows about designing complicated products from scratch. "An airplane is designed like an automobile," Mulally told analysts this week in a conference call. "Fuel-efficiency and safety and reliability are absolutely critical."

Cars, however, are a different animal, says Dr. Morici. And within the car business, Ford has the unusual dynamic of family control – with 40 percent of the stock's voting rights in the family's name.

Morici wonders whether Bill Ford, who plans to continue an active role as chairman, will offer enough autonomy to CEO Mulally and other top managers.