It's been a long, long road for Ford (NYSE: F). America's No. 2 automaker hit the skids hard in the middle of the last decade, as overcapacity, declining sales of its cash-cow SUVs, uncompetitive models, and years of bureaucratic infighting threatened to wreck the House that Henry built.
But that was then. Now, solidly profitable, with a widely acclaimed line of hit products around the world, Ford is looking mightier than it has in years -- a fact that was acknowledged in a very public way this past week.
The upgrade that really mattered
For Ford insiders, Tuesday's credit upgrade by Moody's was a very big deal. The upgrade to "investment-grade" status -- Ford's second in two months -- was the last piece the company needed to reclaim the collateral it had pledged back in 2006.
Back then, Ford's then-new CEO Alan Mulally and Executive Chairman Bill Ford had gone to Wall Street with hat in hand, determined to borrow all they could to fund the remaking of the battered old automaker. They got over $23 billion, but at a steep price -- one that included pledging just about everything the company owned as collateral for the loan, as the bankers were far from sure that Ford could actually be saved.
"Everything" included Ford's factories, its real estate, and its headquarters building in Dearborn. But it also included the famous blue oval trademark itself, a particularly hard pill to swallow for Bill Ford, founder Henry's great-grandson. The collateral would be returned, the loan agreements said, once Ford has been upgraded to "investment grade" by two of the three major rating agencies -- a goal that seemed far off in those dark days.
But that goal was reached this past week, and it was a big one for those at Ford. Getting the Blue Oval out of "hock," as Bill Ford put it this past week, was an emotional moment; he took to the headquarters building's emergency public-address system to announce it to all hands as soon as he heard the news.
A long road back from the brink
The turnaround that Mulally engineered looks like simple genius now, but it was far from a sure thing when it was set in motion. Based on a plan that had been developed shortly before he arrived at Ford in 2006, the overhaul went against Detroit conventional wisdom in a number of ways, but Mulally was able to do the hard work of selling it internally and externally to make it happen.
The basic principles are deceptively simple: Ford should have just enough production capacity to meet demand, all of its products should be profitable, and it should run its far-flung global centers as a single integrated operation. Perhaps most importantly, the plan called for Ford to sell the same basic lineup of cars around the world -- and lavish each with the development funds and attention necessary to create a class leader.
It worked: Ford's sales are up, and the company has been solidly profitable since the second quarter of 2009. While the company's stock looked like a gamble during the dark days of the economic crisis, when General Motors (NYSE: GM) and Chrysler were headed for bankruptcy court, strong profits -- thanks to Mulally's efforts to reduce fixed costs, and to those great (and profitable) new products -- have put Ford solidly back among America's blue chips.
But there's still work to be done
While Ford's near-term survival is no longer in question, Mulally and his team still have lots of work to do. Toyota (NYSE: TM) and Honda (NYSE: HMC), which looked to have been caught off guard by the strength of Ford's most recent products, are already moving to up their respective games around the world -- as is Volkswagen (OTC: VLKAY), which wants to be the world's largest automaker by 2018. And GM's own Ford-inspired transformation is well under way, with a slew of new global products due over the next couple of years.
Meanwhile, Ford continues to lose money in Europe's struggling economy. And while Ford is spending big to expand its production capacity in China, its efforts in the Middle Kingdom have been somewhat uneven to date, though hopeful signs are emerging. This is a major development: Ford is counting on China, and Asia generally, to drive significant new sales growth starting in about 2015.
But with its return to the investment-grade ranks this past week, it's clear that Ford has already come a long, long way.
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