• U.S.

Can Alan Mulally Keep Ford in the Fast Lane?

3 minute read
Bill Saporito/Dearborn

Pulling off the biggest business turnaround of the Great Recession has been a pretty good second act for Alan Mulally, the CEO of Ford, who turns 65 on Aug. 4. He arrived at Ford in late 2006 after 37 years at Boeing, amid some sniping that he wasn’t a “car guy” — as if the car guys in Detroit were doing a bang-up job. Yet if Ford is going to change gears from world-class survivor to world-class manufacturer, Mulally will have to show that he is indeed a car guy — just his own kind of one.

He’s about to get the chance. This year the company is introducing new models that will reflect Ford’s strategic direction and test its ability to create cars that Americans want to buy even without getting a discount. The Fiesta, which debuted in May, is evidence of Ford’s commitment to producing profitable small cars. It’s a spiffy-enough $13,300 subcompact, available in four-door sedan and five-door hatchback models. The car was largely designed in Germany but meets the demands of American buyers: it’s sporty, smart, thrifty, cool.

(See the most exciting cars of 2010.)

Ford’s most important new family member arrives later this year, when the company unwraps the latest version of the Focus, which will be the first global car built from the ground up based on Mulally’s signature strategy, known as One Ford. In its broadest sense, One Ford means selling the same model, built the same way, in all markets. About 85% of the Focus’ parts will be common to all regions. One Ford is possible because the world’s consumers are becoming more alike: they value quality, safety, fuel efficiency and design. This allows Ford to meet global needs with fewer models and thus ratchet costs down, since the company can engineer a single Focus to sell everywhere.

(See the 50 worst cars of all-time.)

If One Ford works as planned, a series of benefits will rain down on the company and its suppliers. Perhaps the biggest of them is that quality improvement will become almost a mathematical certainty. “Since the orderable combinations will be reduced by more than 50%, that means that on half of the cars, it’s significantly simpler for the manufacturing plant. The ability to make a mistake is reduced,” says Ford manufacturing boss John Fleming.

These compounding cost improvements could help Ford earn a ton more money. Soleil Securities says Ford has the potential to boost operating profit margins to about 13%, from the current 7%; that jump would create an additional $7 billion in operating profit on projected 2011 sales of $118 billion. Ford could use those extra profits to pay down its $27.3 billion debt or even restore a dividend, which was dropped in 2006 and has cost Ford family members tens of millions in annual payouts.

(See photos of Detroit’s beautiful, horrible decline.)

That’s assuming the cars sell. The upcoming Focus is key. “That’s where they can make their money,” says Cars.com’s Patrick Olsen. “But they have to prove the value of that car. You are not going to build your future on the Fiesta.”

This article originally appeared in the August 9, 2010 issue of TIME.

See photos of Ford CEO Alan Mulally.

See the top 50 American roadside attractions.

More Must-Reads from TIME

Contact us at letters@time.com