Business: Ford’s Touch of Chrysler Flu

A job for Henry II’s successor

It was a poignant milestone in automotive history. Last weekend movers cleared out the four-room, twelfth-floor corner suite in Dearborn, Mich., from which Henry Ford II for most of the past 34 years had run the auto empire founded by his grandfather. Though Ford, 62, will remain as board chairman, he has stepped down as chief executive, ending three generations of day-to-day family management at the nation’s third largest industrial firm. His departure is not at an auspicious time in Ford’s fortunes. The domestic auto business faces serious problems, but Henry Ford, following a careful three-year transition of power, is leaving Philip Caldwell, 59, the company’s first nonfamily chief, to deal with them.

There are rumblings that Ford could lose up to $700 million on its U.S. car business in 1979. In the first half, earnings from domestic operations were 51% lower than in the same period in 1978. Once U.S. car and truck sales accounted for well over half of Ford’s automotive profits; now they produce less than one-third, and all of that comes from trucks. In fact, Ford suffers from a milder case of the problem that afflicts Chrysler: Americans have not been buying big, heavy cars. But unlike Chrysler, Ford is earning money because it has hugely profitable overseas operations that easily offset the domestic losses.

Ford’s share of the U.S. auto market has dropped from 23.5% at the end of 1978 to 20.9%, its lowest in a decade. It is selling 15% fewer cars than it did last year (vs. 9% for Chrysler). With a 75-day backlog of unsold cars, Ford has had to lay off indefinitely 22,600 hourly workers, about 10% of its labor force.

Like their colleagues at Chrysler, Ford executives blame most of their troubles on the 1979 fuel crisis. Says Caldwell: “Those gas lines did more than anything else to turn our industry upside down.” But a major problem was what Henry Ford concedes to be “poor planning,” and he accepts much of the blame. Four years ago, he said no to arguments that Ford should build a front-wheel-drive subcompact for the 1979 model year; front-wheel drive means shorter hoods, lighter weight and, consequently, less use of fuel. Concerned by the size of the investment gamble, Henry Ford demurred. That was a mistake. When the gas lines reappeared, and Americans shifted to small cars, Ford was still offering its decade-old Pinto. GM, with its snazzy new fuel-sipping, front-wheel-drive X-cars, pulled away from both Chrysler and Ford. GM now has 46% of the U.S. auto market, and imports have 21.5%.

Ford will introduce a front-wheel-drive subcompact code-named Erika by next fall. In the meantime it has just completed a costly effort to downsize its big gas-gulping Lincoln Mark VIs, Cougar XR-7s and Thunderbirds for the 1980 model year and to boost its fleet average fuel economy 13% to an industry high of 21.6 m.p.g. But for a while, Ford’s only real strong points will be its overseas operations and its brisk truck business.

There is little chance of a Chrysler-type financial Armageddon. Ford remains a globe-girdling, diversified corporation with 1978 earnings of $1.6 billion on revenues of $43 billion. Its glass, steel and aerospace operations boast record earnings, as does its international automotive business, which ranks second only to Volkswagen outside North America. And Caldwell is a cool, analytical manager who is credited with turning around international operations, which produce two-thirds of Ford’s profits. Can he rebuild domestic sales? Cautions Caldwell: “This is a long-lead business. A lot will come two to three years from now.”