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Fording Troubled Waters

August 21, 2006

The Ford Motor Company, once the epitome of American manufacturing prowess, is traipsing mighty close to what biologists call an extinction vortex -- the point of no return, beyond which recovery is impossible.

It's too bad that Ford is suffering on Bill Ford's watch. The fourth generation scion has the futuristic turn of mind that his great-grandfather had. Henry Ford turned the automobile from a rich man's plaything into a world-changing technology whose consequences, for better and for worse, define modern industrial society. Likewise, Bill Ford has thought deeply about a new vision for cars that make sense in a world where the climate is changing and oil dependence is a strategic liability.

Unfortunately, Bill's company is stuck with a dysfunctional business model that could prove to be fatal. This week, Ford implemented another dose of emergency medicine -- a 20 percent cut in fourth-quarter production. That comes only months after Ford announced grueling retrenchment plans -- closure of 14 production plants and elimination of 30,000 jobs by 2012. Ford is trying to buy breathing space until it can get crisper production systems in place and better products on the market.

Ford is losing market share and money. In 1995, 25 percent of cars sold in America were Ford products. This year, Ford's share is down to less than 19 percent. So far in 2006, the company has lost $1.5 billion.

The current business model of Ford and its crosstown rival, General Motors, is not sustainable. It was built on producing and selling gasoline-chugging vehicles that fewer people can afford to own. In their defense, Ford and GM plead that $3-per-gallon gasoline could not have been predicted. That's believable ... but only if the companies' planners had chosen to disregard the increasing twitchiness of an oil market stretched by high demand and chronic trouble in oil producing regions.

No one expects company executives to be seers, but enough questions had been raised about the dodgy prospects for cheap gasoline to have warranted a faster change of course in Detroit. Japanese automakers have already thought of this -- their manufacturing plants are flexible enough to ramp the production of different models up and down in response to market changes.

Detroit's clunky business model is a lemon that is souring prospects for domestic automakers in multiple ways, says Jim Womack, president of the Lean Enterprise Institute, a think tank focused on manufacturing efficiency. One defect is an inferior product development system for moving high-quality, gotta-have models from designers' heads to the showrooms. Others, according to Womack, include management bureaucracies that asphyxiate innovation, too many confusing brands, and customer service that isn't.

Not that the Japanese automakers are immune from screw-ups. Toyota recently was forced to recall 1 million vehicles worldwide to correct a steering problem. The Japanese manufacturing system, however, seems better calibrated for an uncertain business climate that is likely to remain so as long as cars run on petroleum products.

None of this would come as a surprise to Bill Ford. Since the day he moved into the CEO's office, he has known that cheap gas is likely a thing of the past, and has called for the country to plan ahead accordingly. It's time to consider really big ideas, such as a grand bargain that would give automakers some relief from "legacy" benefit costs and some retooling incentives, in exchange for tough fuel economy standards and much greater use of non-petroleum fuels.

Many of Ford's and GM's wounds are self-inflicted. The fate of both companies is largely in their hands. But a spin-off benefit of a strategic energy policy that reduces oil dependence would be improving the odds that both of these American icons can leave the corporate infirmary and return to health.