Jeff Riedel
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Quarter after quarter for almost two years, the news out of Ford Motor (F) was astonishingly good. Under Chief Executive Officer Alan Mulally, who'd joined the company from Boeing (BA) in 2006, Ford had not simply avoided bankruptcy and a federal bailout, it had turned itself into the world's most profitable automaker. It beat analyst estimates for seven consecutive quarters and drove its stock to a nine-year high of $18.79 on Jan. 27, up from $1.26 on Nov. 19, 2008. Last year, hits such as the Fusion family car and Fiesta subcompact propelled sales of Ford models upward at twice the rate of the overall market. And the 65-year-old Mulally, a gifted and relentlessly upbeat salesman, wasted no opportunity to look into the eyes of analysts and reporters, squeeze their forearms, and remind them how "fabulous" Ford had become.
Late last year, however, Mulally began to see some new signs of trouble. Inside the Thunderbird Room on the 11th floor of Ford's Dearborn (Mich.) headquarters, the windowless conference chamber where Mulally meets around a circular table with his 15 top executives every Thursday at 7 a.m., some of the news suddenly wasn't good. At these 2 1/2-hour meetings, known as BPR for business plan review, he requires his direct reports to post more than 300 charts, each of them color-coded red, yellow, or green to indicate problems, caution, or progress.
At the BPR, Ford Chief Financial Officer Lewis Booth might give an update on debt reduction, or Americas chief Mark Fields might go over the mix of red, yellow, and green on new model launches. (Fields is famous for being the first Ford executive to put up a red light four years ago when he delayed the launch of an SUV because of a balky tailgate, earning him applause from Mulally for his candor.) Afterward, the adjoining Taurus and Continental rooms are papered with these charts so Mulally can study them. As the CEO likes to say, "You can't manage a secret. When you do this every week, you can't hide."
The Ford executive who couldn't hide in December and January was European chief Stephen Odell. His slides told Mulally that heavy discounting was going on in the European Union, a market where there were too many car factories and too few buyers. Mulally had assured analysts that Ford would make money in Europe, but the risk of a fourth-quarter loss was rising. As the rectangles on Odell's slides turned from green to yellow to red, Mulally decided not to follow his competitors into the bargain basement. He was trying to elevate Ford's reputation; unloading cars at just above cost might have helped his quarterly return, but he was certain it would hurt his brand. "So we gave up a little bit of market share," Mulally says. "Even though that meant taking a hit to our guidance, it was the right thing to do for the long term."
What Mulally did not do was offer revised guidance to Wall Street. As a result, on Jan. 28 Ford shocked investors by posting a $51 million pretax loss in Europe—one that helped drive a companywide 79 percent fourth-quarter profit decline to $190 million, or 5 cents a share. On an adjusted basis, Ford came in 18 cents below analysts' forecasts. And despite earning $6.6 billion for the year—the most since 1999 and a stunning reversal from the $30 billion Ford lost from 2006 through 2008—investors suddenly seemed to believe Mulally had lost his touch. Ford stock traded down 13 percent to $16.27, the biggest one-day decline in 20 months.
Moving into damage control, Mulally told a conference call of analysts and reporters that he would review how Ford communicates with Wall Street to better manage expectations. Three days later he insisted that he'd done all the communicating he needed to do.
"I'm very proud of the way we provide the most accurate guidance that we can," Mulally said in a Jan. 31 telephone interview with Bloomberg Businessweek. "We really believe we gave very good guidance. We have a track record of exceeding everybody's expectations, so I'm sure they were building a little bit of that in."
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