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Alan Mulally: Producing Cars With Passion and Involvement

Alan MulallyAlan Mulally is president and chief executive officer of Ford Motor Company. He also is a member of the company’s board of directors.

Prior to joining Ford in September 2006, Mulally served as executive vice president of 
The Boeing Company, and president and chief executive officer of Boeing Commercial Airplanes. In that role, he was responsible for all of the company’s commercial airplane programs and related services. Mulally also was a member of the Boeing Executive Council and served as Boeing’s senior executive in the Pacific Northwest.

Mulally was named Boeing’s president of Commercial Airplanes in September 1998. 
The responsibility of chief executive officer for the business unit was added in March 2001.

Previously, Mulally served as president of Boeing Information, Space & Defense Systems and senior vice president of The Boeing Company. Appointed to that role in February 1997, he was responsible for Boeing’s defense, space, and government business.

Beginning in 1994, Mulally was senior vice president of Airplane Development for Boeing Commercial Airplanes Group, responsible for all airplane development activities, flight-test operations, certification and government technical liaison. Earlier, he served as Boeing’s vice president of engineering, and as vice president and general manager of the 777 program.

Mulally joined Boeing in 1969 and progressed through a number of significant engineering and program-management assignments, including contributions on the 727, 737, 747, 757 and 767 airplanes.

Throughout his career, he has been recognized for his contributions and industry leadership, including being named one of “The World’s Most Influential People” by Time magazine in their 2009 “Time 100” issue, “Person of the Year” for 2006 by Aviation Week magazine and one of “The Best Leaders of 2005” by BusinessWeek magazine.

Mulally previously served as co-chair of the Washington Competitiveness Council, and sat on the advisory boards of NASA, the University of Washington, the University of Kansas, Massachusetts Institute of Technology and the U.S. Air Force Scientific Advisory Board. He is a member of the U. S. National Academy of Engineering and a fellow of England’s Royal Academy of Engineering.

He also served as a past president of the American Institute of Aeronautics and Astronautics (AIAA) and is a former president of its foundation. Additionally, Mulally served as a past chairman of the board of governors of the Aerospace Industries Association.

Mulally holds bachelor’s and master’s of science degrees in aeronautical and astronautical engineering from the University of Kansas, and earned a master’s in management from the Massachusetts Institute of Technology as a 1982 Alfred P. Sloan fellow.

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This Conversation took place on February 26, 2010, when Alan Mulally was in Seattle to address a Prosperity Partners lunch. Participating in the Conversation were Peter Morton, retired Boeing vice president and advisory committee member for Ethix, and Al Erisman, co-founder and executive editor of Ethix.

Ethix: You probably are not driving your Lexus anymore.

Alan Mulally: When I was at Boeing I had a Lexus LS430. When I arrived at Ford, they had a press conference. We think of aviation as big, but nothing prepares you for the size of the automobile industry. Ford is a huge company, the seventh largest corporation in United States and the 17th largest in the world, and their coverage is incredible. I had never seen such a press conference. They must have had several hundred journalists, either on the line or there in Dearborn, and the journalists said, “So, Mr. Mulally, we understand you drive a Lexus. And that you said it is simply the finest car in the world. What does that mean for you at Ford?”

And I said, “That is true. I really think the Lexus is the finest car in the world. But I came to Ford to make the very best cars in the world. That’s why I am here!” It drew a lot of laughter, but I really think we are getting there. You should see some of the cars we are putting out. And talk with the drivers of these cars.

Entering Ford

What did you find when you first entered Ford?

When I arrived, Ford had fallen behind in fundamental enabling technology on quality, fuel efficiency, safety, and really smart design. These are things that Ford was known for over its greater-than-100-year history. Also within the month that I arrived, we reported that we had lost $5.8 billion in the third quarter with this fantastic plan. I reminded myself why I had come, and it all starts with a compelling vision. What are we about, why are we to coming work, what are we going to contribute our lives to?

The first thing that I wanted to do was to pull everybody together around a compelling vision, and I found that in Henry Ford’s original vision. It was best characterized by a full-page advertisement that he ran on January 24, 1925, and the headline was “Opening the highways to all mankind.” He talked about a grand business, safe and efficient transportation, making great products, and contributing to a better world. Henry Ford was the first one to make an electric car. He was also the first one to run cars on biofuels. He also manufactured using 80 percent recycled material. He was at the center of economic growth, energy independence, and a strong environment.

Then we decided to focus on the blue oval, the Ford logo. You can’t be world class doing a whole bunch of things.

We pulled everybody together and said, “Let’s recommit to Henry’s original vision of making the best cars and trucks in the world, creating a strong business, and contributing to a better world.” The second thing that we decided was that we needed to include everybody, all the stakeholders. When you are about something that is big and grand, everybody needs to be included: our employees, our customers, our dealers, our suppliers, the unions, the communities in which we live, the investors, and the governments federally and locally.

Then we decided to focus on the blue oval, the Ford logo. You can’t be world class doing a whole bunch of things. We divested Jaguar, Land Rover, Aston-Martin, sold most of our equity position in Mazda, and we have Volvo up for sale now. [Editor’s note: Ford completed its sale of Volvo to Chinese auto maker Geely, according to a press release from Ford on March 28, 2010. The next thing we decided was that we are going to have a complete family of vehicles, small, medium, and large, cars, utilities, and trucks, in every market around the world.

How did you just walk out of Boeing and into Ford, which is a very different kind of company?

The similarities between Boeing and Ford are incredible and the similarities are so much more than the differences at the most fundamental level. Cars are about safe and efficient transportation and so are airplanes. If you look at all of the advanced technology, they are exactly the same on the materials, the power plant, electronics, and aerodynamics. Airplanes have perhaps four million parts and a car might have 10,000 parts, but the systems integration, large-scale system detail, customer knowledge, and focused large-scale system integration are exactly the same on cars and trucks, especially in the areas of the environment, energy, and the economy.

Cars are even more of a challenge than airplanes because I believe airplanes will be the last use of fossil fuel going forward. You have to get it up in the air. Cars have this unbelievable technology roadmap to get from where we are to a greener future.

Industry Comparisons

There are even more similarities. [See Table 1 for a summary of how CEO Alan Mulally compared data between automobile manufacturing and airplane manufacturing]. The direction at Boeing was to create airplanes that could go point to point, nonstop because that is what passengers want. Similarly in automobiles, we design cars for the ultimate consumer.

Table 1—Comparison between automotive and airplane manufacturing businesses
Automobile Industry Airplane Industry
Primary Goal Safe and Efficient Transportation Same
Need for Advanced Technology Systems Integration Same
Large Scale Systems Detail
Detailed Customer Knowledge
Large Scale Systems Integration
Key Drivers Energy Same
Environment
Economy
Product Distribution Small vehicles (Fiesta and Focus) 60% Small Airplanes (737)
Mid-Sized vehicles (Fusion) 25% Midsized (757, 787)
Large vehicles (Taurus, SUVs, Trucks) 15% Large (747)
Market Distribution Americas 33% Same
Europe/Russia 33%
Asia/Pacific 33%
End Customer/Selling Point Drivers Flying Public
Dealers Airlines
Worldwide Supplier Contribution to Value Purchased from outside 70% Same

We knew a lot about the airplane customer’s customer at Boeing. How do you find out that much about the ultimate customer in the automobile industry?

I have never seen an industry that is more customer driven than the automobile industry. We seek to understand the customer in every possible way. We are looking at the demographics, interviewing people, and watching their purchase decisions and how they decide to buy a car. We interview all the time. We look at the long-term trends on why people buy a car, and understand the factors like quality, fuel efficiency, safety, smart design, and the environment that are important to them. I have never seen such a data rich environment that gives you insight on what you need to do.

We have our whole product line on this card I carry with me. For every one of the market segments, we know everything about what that customer wants. Our F150 pickup has been the No. 1 seller in the United States for 34 years. You can live in it, you can pull your house behind it, but we would get tremendous backlash from our customers and the media if we fell behind GM by just one mile per gallon.

Some think a person driving a truck wouldn’t care about these things. They care about fuel efficiency, they care about quality, and they expect you to be the best in the world. The data is all there and is continuously being fed back. If you listen and look at the data, you can pick a design point about cost, quality, fuel efficiency, safety, and smart design.

Aviation has always been so rigorous about failure modes and understanding accidents. Is this also true in the automotive industry? One of your competitors is going through a grilling right now regarding what appears to be an electronics problem.

Yes. We don’t carry the same risk because we are not up in the air with 300 people. But when it comes to the rigor on the safety, it is exactly the same. We have an added problem that the drivers of our vehicles are not as carefully trained and tested as the pilots. You cannot control what the driver is doing behind the wheel either. Using a cell phone or texting is very dangerous, but we know it is going on. Interestingly, in spite of the training, pilot error became and remains the number one issue in flight safety as well.

So behind your question is the question, “How could you come into an insular culture that is so big and different and survive?” You have to know about all of these things I have identified as being similar.

There are some differences as well. What about these?

Certainly in terms of number of parts (about 10,000 for an automobile, 4 million for an airplane) or production rates there are differences. But the similarities are stronger, I believe. And this created opportunity.

Industry Cycles

What I brought from Boeing was getting everybody together, all of the disciplines, working toward a common goal. In Ford’s case that was probably the biggest challenge. Ford was very much regionalized. Henry Ford set it up that way, though I don’t believe he thought it would continue to operate that way where each unit was autonomous. We are competing against global companies that have integrated programs and great products, and we had to get better. So I think the answer is that my experience at Boeing could not have better prepared me for coming to Ford.

So during this current economic meltdown, we had to have this unbelievable resolve to take action.

There is another big thing I learned from Boeing that was useful. The market for our products at Boeing followed the big economic cycles. We had been through the Asian financial meltdown in the early 1990s and the meltdown following the terrorist attacks on 9/11. Who would have thought that someone would use an airplane as a weapon and it would devastate air travel for a period. Now we have been going through the current economic meltdown.

Well, the automobile industry is cyclical too. The three U.S. companies, and the Japanese companies, have never had to go through it quite like they have recently. They considered all their costs to be fixed, so they keep their production up even through a recession. That jams the distribution channels with all of the vehicles, trying to get the last incremental dollar, which ruins the residual value. They would have to discount the vehicles to get people to buy them, and that actually delays the recessions. Remember all the times that we went through these cycles at Boeing, where we had to take decisive action [to] get back to profitability? Also, in every recession we designed the next new airplane. So during this current economic meltdown, we had to have this unbelievable resolve to take action. We had to go through the terrible situation of right-sizing the company, and also used this period to accelerate the development of new products.

I have done it over and over again at Boeing, and that’s what we needed to do at Ford. I really think the fact that I had done it before meant I knew it would work, I knew it was the right thing to do. We had to pull everybody together and then do it.

First Steps

Ethix: What were your first steps?

At Ford, it was OK to just be competitive, but there wasn’t a commitment to be best in class. So we decided from then on, every vehicle that we put out was going to be the absolutely best in class. We even defined best value in terms of four parameters: the quality of the vehicle, the fuel efficiency of the vehicle, the safety of the vehicle, and a smart design that we loved to look at and operate. Those are requirements that could translate to the entire team worldwide.

The next thing we decided was we needed to finance this plan. Because if you run out of money while you are restructuring to get back to profitability, and accelerating the development of new vehicles, then you don’t get a chance to continue. So that is why you saw us go out for a little “home improvement loan.” When we laid out the plan, I saw the world and the United States economy start to slow down. We needed to borrow a little bit of money for our home-improvement project. So we decided we needed to leverage all of our assets to be able to restructure and accelerate the development of these new products.

“We decided we needed to leverage all of our assets to be able to restructure and accelerate the development of these new products.” Everybody was excited and getting ready to go and see the bankers in New York, and I said, “You know, this is great, and let me know how it goes.” The room just got deathly silent and they said, “We think you need to go and present the business plan because you are the only new model we have.” What the bankers wanted to know is, “Do you have a plan?” They were not interested in getting our assets back, they wanted us to be successful. A few days later, we had raised $23.5 billion to finance this plan. That is one of the reasons we were able to restructure the business. We have been able to not only survive through the worst recession since the Depression, but actually also be positioned now with a solid foundation with the best product line of any manufacturer around the world.

Every organization has a culture. When you can walk into the organization you can feel it. How did it feel to walk into Ford?

It was different, yes. The most prominent reason is that Henry Ford set out to create a global Ford from the beginning. His dream was to make the very best cars and trucks in the world, and then offer the employees a chance to work at Ford and also be able to afford a Ford vehicle. This was unheard of at that time. Remember, he raised the wages to $5 per day when that was a lot of money.

But also he wanted to operate everywhere around the world. His model was to create wealth in each area where Ford was. This is by contrast to some companies which extract wealth from around the world and takes it back to their home country. He set this up because he thought that was a right thing to do. He wanted to be part of the economic fabric so everybody could grow, the masses could move up the hierarchy.

He just did not anticipate that these divisions would become so autonomous, that they would never come together with a plan to leverage their assets worldwide. He did not try to have cars that worked in all the different markets, have supplier bases that are lined up. Further, in the U.S., all three U.S. automobile companies had signed agreements with the United Auto Workers (UAW). Over all these years, just two people had to sign these agreements. Labor costs had taken away their ability to compete in the United States. They had taken themselves right out of the game. They could not make cars profitably in the United States and compete against Toyota, Honda, and BMW.

Before I got there, the leadership of Ford decided they could not compete in cars, so they got out of the car business in United States. That is why we missed a whole generation since the Taurus. You didn’t see Ford cars because it was the plan not to make them here. They couldn’t make money on them, so they concentrated on SUVs and trucks. Everywhere else around the world, we are No.1 and No. 2 in every market making cars. So we bought Aston-Martin, Jaguar, Land Rover and 33 percent equity position in Mazda and Volvo, because they made good cars and they became our cars, not Ford. This was the plan.

There was another outcome from this autonomous behavior. Ford moved its executives around the world so frequently that they were never held accountable for the results. They were working for Jaguar, Land Rover, or Ford of Europe, Ford of Australia or Ford of Japan or Ford of China. There was no working together in Ford around the world.

The New Ford

Today, there is one Ford. There is no way Ford could compete as separate Fords. “Our goal was common platforms, common parts, working together to achieve a common mission.” They were trying to compete against the BMWs, the Toyotas, and Hondas in the world, and all of these were global companies. So over four years we invested about $12 billion a year to achieve one Ford, completely changing the whole product line. By the end of next year, we will have the most complete product line in cars. Our goal was common platforms, common parts, working together to achieve a common mission.

For example, at the small end, Fiesta is on a common platform with 80 percent common parts around the world. The new Focus has 85 percent of the parts that are the same anywhere in the world. Now you can imagine what that meant to the culture in all the organizations. Each product came together as a single organization with a product leader. And we had a single engineering head who worked across all product lines, a single head of manufacturing, HR, technology, and the like. We had done this at Boeing, but it was unheard of for Ford — this working together for a common purpose. Once people figured out the value, that they could make a Focus or a Fiesta or a Fusion and it was all the same, and it leveraged all of this knowledge from all the regions, they bought into it quickly.

How far along are you in this culture change?

I would say we are three or four years ahead of where I ever thought we would be. The reason is, I have never met a more skilled and motivated workforce than at Ford. This has been a part of the history of Ford. Ford always attracted the best and brightest. It used to be that if you want to be in the automobile industry, you went to Ford. Remember the “whiz kids” ?

Because these last few years, people thought of Ford as a truck and SUV company, even though there are graduates of Ford running all the other car companies around the world because of their professional excellence. The neat thing I had the chance to do was to just pull them together around a compelling vision, a plan to do it, and then grind it out with the business plan review (BPR) every week.

Business Plan Reviews

Is this like the business plan reviews you used to hold every week at Boeing?

Absolutely. Every Thursday, 320 slides, two hours and 15 minutes. Everybody knows everything that is going on. We have a very clear statement at the top of this dog-eared piece of paper I carry with me everywhere: “People working together as a global enterprise for automobile leadership.”

Video of Alan Mulally - CEO of Ford
Watch Alan Mulally speaking about employee satisfaction with former Boeing colleague Peter Morton

Does that sound familiar? And then we add, “as measured by.” We are not going to wonder about leadership, customer satisfaction, employee satisfaction, union (United Auto Workers) satisfaction, the bankers, the stockholders, etc. We know every week what the data says.

We track the Mayflower report with data regarding employee satisfaction, for example. We used to do this at Boeing, working hard at it and never getting much above 55 percent. Our recent data showed 87 percent of the people believe the direction we are going; they believe in the management; and they are excited to be contributing to it.

The next part is to have “one plan.” The first part of the plan is to aggressively, aggressively restructure to the lower demand. When the demand came down, we aggressively restructured to the lower demand and with change between cars and trucks. The next one, at the same time, was to accelerate the development of new products and services. People want value. So this is tricky. We reduce the manufacturing by 47 percent and we have 200,000 employees left, and they are 87 percent positive because of the other good event: We accelerate and develop the new products. Why did they come to Ford? They came to make the best cars and trucks in the world. So, you are holding these two simultaneously in your hands.

The third part of the plan is finance. The most important thing is to have a finance plan to do the aggressive restructuring and the creation of new products while improving the balance sheet as you get back to profitability. If you run out of money, then you won’t get a chance to do the plan. I know they criticized us at the first because we were borrowing this money, and because of our position at the time we had to pay more in interest. But that is what allowed us to do all of this.

The fourth part of the plan is “One Team.” One team, leveraging around the world.

And the bottom line? “Profitable growth for all.” Because if you are not growing, you are dying. So what is the result of this? The third quarter, we are back to profitability. Fourth quarter, we gave guidance for profitability and free cash flow for this year and next year. We have increased market share 15 out of the last 16 months. We decreased incentives, so we have increased net pricing. We were just named Car and Truck of the Year, North American International Auto Show, and we have the finest lineup, the very best quality in fuel efficiency and safety. The Fusion, at 41 miles a gallon, is eight miles a gallon better than Toyota Camry. I mean this: We are making the best cars and trucks in the world.

There must have been some people when you came in who said, “I don’t go along with this.” Did you lose some people along the way?

Yes. I shared with everybody that it is OK. Here is where we are going. If the working together does not work for you or if making a commitment to make the best cars and trucks in the world instead of just being competitive doesn’t work for you, it is okay. But it is probably best if you just move on, because you are going to be unhappy, we’ll be unhappy, if you can’t subscribe to the behaviors. All we are asking is: working together, developing relationships, communicating clearly, listening to each other, seeking to understand before you seek to be understood, being emotionally resilient, finding a way. We want to enjoy the journey and each other and have fun, but never at each other’s expense. I didn’t go to Harvard to get a bunch of words about behavior, we are just doing it.

Ford is unbelievable when it comes to process. The minute you decide something, bam! Into the fabric, into the performance management plan it goes!

How did the leadership change after you came in?

Not much has been written about this. I did not throw out everybody and bring in all my friends. In fact, 80 percent of the people who are on the team were here when I arrived, though 60 percent are in different positions on the team. That is because I wanted to access all their knowledge. These people have been all over the world, these are fabulous global leaders, but they needed to get in the right position where they can contribute.

One of the reasons I was able to move so quickly is that I had all this domain knowledge. When they bought in, they bought in. They believed this is absolutely the right thing to do. I have never seen a team at every position that has better technical excellence, and they all have taken their working together skills to another level.

If I attended a BPR, would I see your direct reports there along with their mentees?

Yes. We do it the same way we did at Boeing. The Ford culture had been so different. When they went to a meeting, they would have this huge book with all the answers. The bosses would ask questions and keep drilling until the presenter was humiliated and had to give up. Now nobody has any books. It is all on the BPR charts. There are no action items and we invite guests.

The difference from Boeing is that Ford is so much more global. We are all networked together. Here is downtown Shanghai, Beijing, Bangkok, Cologne Germany, and they are all sitting there with their guests. The leaders go through 320 charts, with red, yellow, and green indicating status, and with all the changes marked in blue. The other thing about Ford is they are so much more process-oriented because they have to be. The volumes are so great that if you have a problem, you must catch it very quickly or you are just going to have this pile of vehicles! It is not like airplane rates.

Getting People Involved

Ethix: It sounds like you have people really engaged. Henry Ford is widely quoted as having said, “Why is it that I always get the whole person, when what I want is a pair of hands?” That sounds like he was trying to build a very unengaged culture.

“Coming together is a start, staying together is progress, working together is success,” Henry Ford.Mulally: I admit I had not heard that quote until I saw it in the material you sent me. But let me see if I can offer a perspective on that statement because Henry Ford said a lot of radical things, indicating great insight. He said, “Coming together is a start, staying together is progress, working together is success.” We thought we had invented that statement at Boeing! [laughter]

But his context was very different. He pursued vertical integration. The assembly line at the Rouge is probably the highest quality, most productive assembly line in the world. It is located today as it was then along the Rouge River, where they used to bring in the ore. He made everything. He started with raw materials like ore on one end, and out came the cars at the other end. It was completely 100 percent integrated. At that time, he could not get reliable suppliers at that scale, so he did it all himself. His vision was to open up the highways to all mankind, to let everybody be able to drive. So he did this on a huge scale.

To make this work on such a large scale, he had perfected the moving line, automating all of the pieces of the job. The idea of the assembly line was done by the butchers first, allowing people to work at their own station rather than moving to the work, but Henry Ford perfected this on a large scale. What dominated his thinking was being very reliable at that job, because the processes were so interdependent. It is not that he was trying to make the worker into a robot, but making the system work required a reliable worker. That means no freelancing or making changes, because then you are just meddling.

He hadn’t figured out the continuous quality-improvement methodology of the Japanese. There you do the precise process all day long, then you ring a bell, you stop, you go put on a different uniform, you come back out, and you look at the areas where you could improve. Then you put the change in, you validated it, and you get all that done before 6 o’clock the next morning when you turn production back on again. This is the process improvement part of the methodology introduced to us by [W. Edwards] Demming and the Kaizen methods from the Japanese.

We need a very reliable process for improvement every day, because we make so many vehicles. Then when you create a new vehicle, you take all lessons learned from the last vehicle and apply them to the new model. So, you have that small incremental continuous improvement where you want everybody’s hearts and minds, not just their hands. Then the new design team and engineering and manufacturing work together for big improvement on the next vehicle. Isn’t that cool?

On airplanes, we only did the completely new model once every 12 to 15 years. Our biggest challenge was preserving the lessons learned for when we did the next one. Here, we are working improvements at a very fast pace.

Dealing With Bad News

How do you deal with bad news in the midst of this rapid process?

There is no bad news. It is just the way it is. There is a status, and you must know what the status is. So when we are going through the BPR process with 320 charts, every red and yellow is celebrated. What’s not acceptable is to cover up the real status, because that just doesn’t work for anybody. You can’t be holding information, not saying that you have a problem, believing you can manage it in secret. You don’t have days, you don’t have hours, you need to know what the problem is right away in this fast-paced world. And this is particularly true in the automotive industry, where a production line of vehicles can pile up very quickly!

We didn’t start at Ford with this kind of openness. This was something that had to be learned, and here is an example. Mark Fields runs the Americas for us, including the plant in Oakville, Canada, where we are making the new Edge. It’s a fabulous vehicle, by the way, but it took a couple of months to get the data flowing properly. In the first three or four BPRs I participated in, all 320 of the status charts were green. So, I just stopped for a second, and said, “You guys, you know in the last year we lost $14.7 billion. Is there anything that is not going well?” It was one of those defining moments.

You must make it safe to talk the truth.You must make it safe to talk the truth. I had learned about this at Boeing. It is not about acting all warm and fuzzy, but you have to know everything to make good decisions, and to get there you have got to make it safe when something goes wrong. If you yell at somebody when they put a yellow up, it is going to be green next week. They are human beings. So next week Mark is presenting the Edge launch. He has an issue with the hydraulic lift gate on the back, and he showed red on that launch. The room got very quiet. Deadly quiet. Everyone is wondering if it is going to be OK. Will Mark be back next week? What is the price for a red?

So I start clapping, and they are all looking at me. I said to Mark, “That is fabulous visibility. Are there any of us here that can help you, is there anything you need?” Immediately, purchasing and manufacturing engineering stepped up to help. By the next week we were ready to launch the vehicle.

In three weeks it went from green on all 320 charts to a review that looked like the rainbow. We were looking at the areas needing attention, and keeping track of all those rainbows, and the pressure went to working together. Since all of the leaders are there at these meetings, and they bring guests, you must say the way it is and you must work the problem areas. Can you imagine the pressure on Mark if he comes back the next week and says, “I have decided not to work on that red one! I just got busy.” You make commitments to each other, and the only commitment is that you are going to find a way.

I remember when I first arrived at the military side of our business at Boeing, and we were going through the briefing. The general has asked 55 questions, someone wrote down all the action items, then we couldn’t remember who had which action item. We never formally collect action items in our reviews. You have to present the chart again next week and say what you have done about it.

Future Automobiles

Tell us about the future of automobiles. You mentioned environmentally green, but what are some other things?

Automobiles are at the center of three huge global issues that we’re facing: the economy, energy, and the environment.This is terribly exciting. Automobiles are at the center of three huge global issues that we’re facing: the economy, energy, and the environment. Many people think about energy and the environment, but the automobiles industry is right at the heart of economic growth as well. We are 14 percent of the U.S. GDP, representing five million jobs. This is just incredible business. There are nine jobs associated with every job at Ford in United States.

At Ford in particular, our No. 1 objective is to be part of the solution for all three of these huge global issues. It wasn’t always that way with the automobile industry in United States. After testifying before Congress early on, I felt like I was running drugs or guns. I learned that the automobile industry has had a history of standing tall for what they stood against. We even opposed seat belts!

But part of this history came about because the automobile industry is highly regulated, with the government adding more and more requirements that were expensive and slowing everything down. The industry just got into this habit of opposing things instead of figuring out how to be part of the solution and working it.

The first thing I wanted to change was to switch over and be the part of the answer. That’s why you saw me on TV testifying for the 2007 Energy Independence and Security Act. I have also been supporting the Department of Energy advanced R&D programs for switching cars to hybrids and electrical hydrogen. And of course I love this stuff being a scientist, as you guys are, because technology and innovation is the key.

So what are the issues? Economic development. We want growth, right? We also want to move to a comprehensive energy policy. We are importing 68 percent of our oil, and the people who we are buying it from don’t like us. It is not really a healthy thing.

It is not that we have a shortage of oil around the world, but the big pockets have been found, and it costs so much money and takes so much time to find the other oil and bring it to market. And whether you agree with it or not, it is just compelling to do everything we can to support the environment, for us to be sustainable. You can stop arguing about whether the temperature went up a degree or two.

We have children.

Right. We don’t want to keep wiping out all the forests. There is a reason to take care of this beautiful earth. There is a reason why it looks so cool from space.

So economy, energy, and the environment — and you are going see me everywhere on these issues. What is our energy policy? Where are we going to go as the United States? The automobile industry can resolve these things. At the end of the day, if we are going with electricity, we must generate clean electricity because that is the biggest parameter for the environment. We need a systems solution.

We have so much room to improve the internal combustion engine, just on turbocharging and direct fuel injection. Right now, with the new lightweight high-strength alloys, we are improving the fuel efficiency by 25 percent on the vehicles for this year, and we are reducing the CO2 emissions by 15 percent. We will have it across our complete product line, so when you make a change in one place, it affects everything else so you can make a huge difference through a large scale. Others are working on small pieces of the solution, like GM with their Volt and Nissan with their Leaf. They make good advertising, but they are just technology demonstrators. They don’t make any sense from a systems or a business viewpoint.

So, the first thing is to improve these vehicles, every one of them, keep improving the efficiency, the quality, the fuel efficiency, CO2 reduction, and safety. Then you move to hybrids, just like the Fusion hybrid we talked about. But hybrids are really tough from a business case, because you are carrying two powertrains — a petrol or diesel engine, and an electric motor — and the batteries that you need. Lithium ion batteries like the Volt is carrying weigh 700-pounds. It might seem neat, but you can’t take your family, because you are riding around with your battery. They also wear out, and we don’t have a good recycling plan for batteries.

We need big-time R&D focused research on batteries. You want to charge them quickly, you want them to work in hot and cold, and they need to be part of the grid. The whole grid in the United States is sized for peak hours of air conditioning in California. We have no batteries that can store enough electricity. But you can see a world where you get capable batteries storing, sharing, and generating electricity all the time. Electricity is moving between your house and your car. Can’t you see that world? When we get really efficient batteries and really efficient vehicles, we will be on our way to a sustainable world.

The other energy source that we are working on is hydrogen. Because you take hydrogen, mix it with platinum, out comes water at the tailpipe, electricity goes to the electric engine and life is good. Now, the trouble is, just like electricity, you need to have an infrastructure for hydrogen. That’s why in the United States, we are going to keep pushing to get to an energy policy and a manufacturing policy that says where we want to go. Because anytime we decide what we want to do, we can do it. This is America. Once we decide where we are going, that will just unleash this innovative engine. It is like going to the moon. Those compelling visions will set off a whole set of technology and innovation to find solutions.

Working With the Government

You and your fellow automotive CEOs were brought in to testify before Congress, and took some criticism for traveling there in private jets. But you also stood with your competitors in making the case for financial help from the government even when you didn’t need the help. Tell us about this.

I was surprised at the criticism of the planes. After all, I am an airplane guy too! But I understood that they were in a very difficult position. This was just one year and two months ago, and we were really in a difficult position as a country at that time.

I am a capitalist. I believe that the market should allocate precious resources by the purchase decision. This is America and that is the way it ought to be done. That is what makes us strong. That is why we use technology and innovation like nobody else, because the market will decide the allocation of precious resources. So you must make things that people want and value. If you do, you live. If you don’t, you need to go away.

But the reason that I went to Washington, D.C., was for the good of the industry, but also, more importantly, for the good of the United States of America. Two presidents believed, and all the economists believed, that the automotive industry is so big and important to the economy that failure of the industry would have taken the U.S. economy from a recession to a depression. And GM, the world’s largest corporation, was completely bankrupt. And so was Chrysler.

“How did it go today? Did you serve? Did you make a difference no matter what it is, small, large, whatever you call it, did you make a difference?” Two presidents made that judgment call to invest in the automotive industry, and we will never know what would have happened if they hadn’t. Subsequent to that we had the financial meltdown, so it was probably more right than not. When we went to the first hearings, we were asked just to share with everybody the importance of the industry and I looked forward to that. We realized about 15 minutes into the discussion that they had figured out we were really important. If they were going to invest in them, they wanted to see if these companies had viable business plans.

At the second hearing, we moved to viable business plans and in a 4 minute and 32 second speech, I got to give the Ford plan. I received this unbelievable round of applause. In hindsight it might have been one of the highlights of getting a chance to serve. That turned out to be a defining moment for Ford, because within a couple of weeks, 97 percent of all the people in the United States knew that GM and Chrysler were bankrupt and 74 percent of the people knew that Ford had a different plan and they were considering Ford as their next purchase. Isn’t that incredible?

Are you concerned about the incredible debt the U.S. is accumulating?

We have got to live within our means. Because of our deficit financing, we are very dependent on a whole lot of people around the world to keep this lifestyle and operational flow. It is not healthy. The debt that we have will squeeze out private investment. It will be a drag on economic development. Not only the debt that we have now, but we keep passing more budgets that don’t balance. We are now working our way back to a balanced budget, and we just have to do it.

But I would go even further. Our markets are targeted by people who want to make things that people want, and they are manipulating their currencies. They have targeted us with these products, and so we must get back to the fundamentals of running the United States within our means, and being in control of our destiny — each of us living within our means. We can’t keep using our home equity as our ATM card. We must talk trade, we must implement what we believe in. We believe in fair trade, so the markets should establish the currencies. There is a reason why we haven’t signed some of these free-trade agreements because they are not free trade. We can’t export right now with all the trade barriers that we have. So the United States knows what to do, we have the principles we are founded on, but until we get the United States organized where we are not dependent on everybody else, it is going to limit our options on how fast we can go forward. This is a defining moment for the United States.

Personal

What prompted you to make the switch to Ford?

I got a call from Bill Ford. I had never thought that I would ever choose to leave Boeing. I had the honor to serve on the design team for every Boeing airplane except the 707. I thought that I would get a chance to contribute one more time to what would be the replacement of the 737.

Bill Ford, Executive Chairman and the great grandson of founder Henry Ford (right) and Alan Mulally, President and CEO Ford Motor Company, converse before the 2008 annual shareholders meeting. (Photo by: Sam VarnHagen/Ford Motor Co. , May 8, 2008)

And then Bill [Ford] called. When you get a call to serve and you don’t say no right away, then you know you are in trouble! Nicki and the kids and I all got onto the Internet and started checking out Ford. We grew up in a small town in Kansas where the Ford blue oval stood above everything else. The Ford dealer took care of us. Ford is the fabric of every small, medium, or large community in the United States. The more I understood about it and the situation they were in, the more I realized that I was being asked to serve another American global icon. At the end of the day that is why I decided to join Ford. I will always love Boeing and the lessons I learned there. Working at Boeing, and with the state of Washington, have absolutely enabled me to contribute to the Ford Motor Company.

Who are the mentors in your life?

When people ask me that, I think they are looking for Abraham Lincoln or Mikhail Gorbachev, both rightful heroes. Gorbachev walked away from Lenin, it changed my life. But true mentors go beyond the big names.

I am constantly learning and inspired by all of us. Every one of us is a leader. Every one of us can make a difference by what we do, what we commit ourselves to, and the way we treat each other. It is just inspiring to me, so I like the visible examples too. But I’ll never forget what I learned from Peter [Morton, one of the interviewers] and the way we learned to work together. We changed a whole company. It is all about the inherent goodness of people, that people really do want to contribute to important things, they want to contribute their life to making a difference. They want to, at the most primitive level, love and be loved, right? And when you switch that over to love and be loved in that order, life gets really good.

So, I am constantly inspired and motivated and learn from everybody I have worked with, but it all gets started at this fundamental thing about committing ourselves to things that are really important.

And I don’t know where I switched over. I grew up in Boeing, just like you, and I saw these guys yelling and screaming at each other. We all got sucked into it. And then, for whatever reason, I decided that didn’t work. Peter came to this conclusion a little earlier than I did. He explained it to me and it changed everything.

And in the end, we are serving. You know at the end of the day, you ask, “How did it go today? Did you serve? Did you make a difference no matter what it is, small, large, whatever you call it, did you make a difference?”

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