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Can Bill Ford Defeat His Green Goblins?

As automaker runs out of gas, nature bunny great-grandson steers into a hole

Shikha Dalmia
June 1, 2006

If those of us in the Wolverine State had to pick one candidate for divine intervention—Ford Motor Company or General Motors—we would be well advised to pick Ford. The company is not more worthy of heavenly help, but under its greener-than-thou chief executive officer Bill Ford, who has dragged America's number two automobile manufacturer into an acute existential crisis, it needs even more help. Absent a miracle, Ford might well go down the tubes—and take Michigan with it.

It is no secret that the Big Two automakers are in Big Trouble. Delphi Corp., GM's biggest supplier, recently declared bankruptcy in order to void its extravagant union contracts. Meanwhile, the United Auto Workers union—never shy about killing the golden goose—recently authorized a strike against Delphi. Should the strike actually go forward, it may ring the death knell of GM, which, after six consecutive quarters of losses, has neither the cash reserves nor the inventories to weather such an event.

But if GM's losses are more serious, Ford's are more intractable. Ford cut thousands of white collar jobs last year and plans to eliminate 30,000 more by 2008. It will shutter 14 factories over the next few years. Its debt has been trading at junk level for about a year. And it posted its worst quarterly loss earlier this year (even bigger than GM's), partly as a result of the expensive buy-out packages that it was forced to pay to reduce its bloated workforce.

Radical cost-cutting measures might stanch the company's losses, they won't restore its profitability. What the company needs, sorely, to regain its health are exciting cars that people will buy at full price without bribes of zero interest loans and Dell computers. But these products have eluded Ford for years now.

Nor is this a surprise. Under Bill Ford, the company, the majority of which is still owned by the Ford family, can't make up its mind whether the automobile—his great-grandpa's invention—is a boon to humanity or a blot on the face of Mother Earth. Where Henry, the founder of the company, was a proud promoter of the automobile, his great-grandson worries whether or not the automobile is compatible with "sustainable development."

Henry Ford had an ideology too—a noxious mix of anti-Semitism and anti-unionism, as a matter of fact. But he kept his business separate from his politics and raised the wages of his workers well over industry norms to fuel demand for his cars. But Bill Ford, a former member of the Sierra Club, is more interested in setting the "pace in the industry on important environmental and social priorities, such as reducing water consumption, conserving energy, recycling and reusing non-renewable materials, eliminating toxic materials, establishing codes of working conditions and safety in our plants and supply chain, and addressing public health issues from HIV/AIDS to cancer to juvenile diabetes." Everything but making cars.

The company's inner conflict between saving itself and saving the planet is particularly acute when it comes to pick-up trucks and SUVs—until recently its most successful products.

Last month, Ford partnered with TerraPass, a group that invests in alternative energy sources, to launch a website that would allow owners of these gas-guzzlers to calculate the greenhouse gases they emit in a year. It would then direct them to invest in companies that produce clean technologies to offset these emissions.

But investors need no invitation from Ford to put their money elsewhere. Ford stocks were trading at a 15-year low a few weeks ago and are worth a modest $7 or so today, compared to $25 in 2001.

This is not Ford's first foray into environmental correctness since Bill Ford took over the company in 1999. Ford was the first automaker to withdraw from the Global Climate Coalition—a coalition of manufacturers lobbying against the Kyoto Treaty's mandates against greenhouse gas emissions.

Last year, after Toyota overtook Ford as the world's second biggest automaker (behind General Motors), one might have thought Ford would devote every dollar it could muster to improving its products and recapturing its lost market share.

Instead, Ford launched a multi-million-dollar advertising campaign—complete with full-page ads in The New York Times and 60-second radio commercials—to publicize that Toyota was not the only one holding the bragging rights to making hybrids. Ford was making these money losers too.

Worst of all, Bill Ford has repeatedly called on the government to impose a gas tax to discourage sales of SUVs. "We can't be in the business of dictating what the customer wants to buy," he says—implying, of course, "but the government can."

Nor is this simply feel-good PR designed to earn brownie points with the enviros. The company's environmental mission has become inextricably entwined with its business strategy. Ford has convinced itself that the public's growing environmental conscience combined with stricter government regulation against greenhouse gas and other emissions means that the future will belong to greener car makers.

To this end, the company has decided to bump up its annual hybrid production from 25,000 now to 250,000 by 2010. But it typically costs $6,000 more to manufacture a hybrid than a gas-powered car, according to Ford insiders. The best estimates suggest that the company loses $2,000 to $3,000 on every hybrid it sells.

It is stunning that Ford would increase by ten-fold production on such colossal cash-suckers when it is inches away from bankruptcy. But it justifies its decision on grounds that Toyota is jacking up its hybrid production to 1 million by 2010.

The big difference is that for Toyota hybrid production is about PR, not about reviving its flagging fortunes. And Toyota can well afford to splurge on such gambits given that its market capitalization—the total value of its outstanding stock—is $200 billion, about 15 times more than Ford's. Hybrids might one day yield a profit. But the question is whether Ford will still be in business when that happens.

The repercussions of Ford's failure to come up with a winning business strategy won't be limited to its glass-and-steel headquarters in Dearborn; they will be felt all over the state. Home foreclosure rates in neighboring Oakland County, the fourth richest county in the nation, have doubled in the last two years, The Wall Street Journal reported recently. Area restaurants and other businesses have drastically slashed prices. People are severely cutting back discretionary spending on all kinds of services from landscaping to spa treatments, adding to a sense of general gloom in the area.

People could leave the state for greener pastures—as opposed to greener corporations—elsewhere, except that it's not so easy for those of us who have homes here. Property values have slumped in the past two years and many homes are staying on the market for months even after deep cuts in the original asking price.

Our fates therefore depend a great deal on Bill Ford exorcising the environmental gods and devoting himself angst-free to the task of making cars that people will buy, just as great-grandpa did.


Shikha Dalmia is Senior Analyst


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