Ford Motor

The story of Ford Motor begins, of course, with the life of Henry Ford. Born in 1863 on a farm in rural Michigan, he had an aptitude for things mechanical. In the 1890s, while working as an engineer for the Edison Illuminating Co. in Detroit, he tinkered first with a small internal combustion engine, and then with a vehicle propelled by such a device. In 1896 he completed his first version of a horseless carriage--an invention that was then only a decade old.

The crude product, which Ford called a Quadricycle, was a stepping stone to a more refined vehicle completed in 1898. The following year he left his job at Edison and formed the Detroit Automobile Company, the city's first car maker. The venture survived only about a year, however, being forced to dissolve when Ford's backers declined to invest any more in the money-losing operation.

Ford rebounded after driving one of his creations in a car race in Grosse Point in 1901 and winning an upset victory. The achievement encouraged his backers to set up Ford in a new company. Yet after Ford showed himself to be more interested in a new racing car he was designing than the vehicle the company was planning to sell, the investors gave him the boot. After Ford's departure, they adopted the name Cadillac Automobile Co., which would later become the luxury car division of General Motors.

For a while Ford continued to pursue his racing car ambitions, but in 1902 he and a new partner, Alex Malcolmson, joined the hundreds of entrepreneurs seeking fortune in the production of passenger cars. The following year the venture, now known as Ford Motor Company, began producing (with the help of various subcontractors) an automobile designated the Model A.

The car was well received, and the company soon reached an output of 25 vehicles a day. In 1904 three new products--the Model B, the Model C, and the Model F--were announced. With a price range from $800 to $2,000, they appealed to customers with varying means. Malcolmson believed that making more expensive cars would be more profitable, so he pushed Ford to go further upscale with the Model K, a luxurious touring car with a six-cylinder engine.

Ford, however, was beginning to develop the strategy that would make him famous. He pushed the idea of making an inexpensive car that would be affordable to a much wider portion of the population. Introduced in 1908, the Model T was not only relatively cheap at $825; its appeal was also based on its innovative transmission, its novel ignition system (which did away with the need for dry-storage batteries), and its use of components made of lightweight but sturdy vanadium.

The Model T revolutionized daily life, first in the United States and then in many other parts of the world. Automobiles were transformed from a novelty for the rich into the basis for mass mobility. The change was most dramatic in rural areas, where the car--which was especially well suited to bumpy country roads --made farm life much less isolated. By the end of the First World War, nearly half of all the cars in the world were "Tin Lizzies," as the Model T came to be called. Eventually some 15 million of them would be sold.

The Model T was also significant because of how it was made. Ford applied the time and motion techniques of Frederick Taylor to his factories, and in 1913 he introduced the first moving assembly line. Ford also shook up the industry by raising the wages of his workers, a step that was taken to reduce labor turnover. In addition, Ford kept lowering the price of the Model T and even gave rebates to customers when sales rose above a certain level.

During the First World War, Henry Ford spent a large amount of money subsidizing an independent peace initiative, but he also won a contract from the U.S. Navy to produce Eagle boats designed to fight German submarines. After the war, Ford, who bought out his fellow shareholders in 1919, stepped up production of tractors, and in the mid-1920s he started producing airplanes. Yet he resisted updating the Model T, which had come to look drab and old-fashioned next to the flashier cars being produced by General Motors and other companies. After much anguish--including pressure from his son Edsel, who had been given the title of president in 1918--Ford relented, and in 1927 the Model T production line was shut down.

That same year the company introduced, with great fanfare, a new Model A, which incorporated many of the advanced in automobiles that had emerged since the birth of the Model T two decades earlier. Yet the retooling required for the new car was far behind schedule, so that production fell well below demand. Other companies filled the void, and Ford Motor lost its first place position in the industry to General Motors. The company faced further travails during the Depression, but used price cuts to raise demand. By this time Ford was also producing in Canada, Britain, Germany, and a dozen other countries; there was even a licensing arrangement with the Soviet Union.

Although Henry Ford was soft on Nazism--he accepted an award from the German government in 1938—he was quick to offer the services of Ford Motor when the U.S. government began its military mobilization two years later. He built a huge plant called Willow Run to produce B-24 Liberator bombers. The facility, initially hyped as a veritable Eighth Wonder of the World, turned instead into a national embarrassment because of production problems. Edsel Ford, then trying to exercise real control in the company as his aging father grew increasingly out of touch with reality, had his own personal problems. Edsel's health steadily deteriorated, and he died of cancer in 1943. Henry Ford wanted to name Harry Bennett, his right-hand man, as Edsel's successor as president, but the family would not hear of it. To resolve the immediate problem, Henry Ford himself took over the position, but that was obviously not a permanent solution. The founder's grandson, Henry Ford II, was released from the Navy and brought back to Detroit. The young Ford had to deal with hostility from Bennett and sometimes even from his own grandfather, but finally in 1945 he was given the presidency of the company. Henry Ford I died two years later.

The automaker that Henry Ford II took over was a troubled company. The introduction of upscale Lincoln cars and the middle-range Mercury models had not prevented Ford from falling further behind both the Chevrolet division of General Motors and Chrysler. Ford was no genius, but he realized he needed help. Only a few weeks after he took over the presidency an offer of such assistance came from an unusual source: a group of ten young men who had gained recognition during the war for their skills in the Office of Statistical Control, which played an invaluable service in planning large-scale movements of supplies. As the war ended, the group, headed by Charles "Tex" Thornton--at 32 a colonel in the Army Air Force, decided to stay together and hire themselves out to a corporation. After learning of what was happening in Dearborn, they decided Ford was that corporation.

It turned out that Henry Ford II agreed. The group, which also included future Defense Secretary Robert McNamara and Arjay Miller, began work at the company in early 1946. Before long they were known collectively as the "Whiz Kids." The group adopted a take-charge attitude, but Ford brought in Ernest Breech, a financial expert who had worked for GM, to oversee their work. It was Breech who pushed the company to develop an entirely new car--the 1949 Ford--which had a sleek, aerodynamic design and was the first passenger car to have an overdrive option. The success of the new car caused Breech's stock to soar and thus prompted the ambitious Tex Thornton to depart for Hughes Aircraft. He later founded the conglomerate Litton Industries.

Between the efforts of Breech and those of the remaining Whiz Kids, Ford enjoyed a dramatic comeback in the early 1950s. Yet the bulk of the company's sales remained with less expensive cars, which threw off a lot less profit than the pricier models. So the decision was made to develop a new medium-priced car. Actually, the car was not entirely new, but Ford's public relations people cooked up the image of something that had been a decade in the making. Although thousands of names had been considered, the final choice was Edsel.

The ill-fated Edsel arrived in September 1957, in the middle of a recession and amid a turn in the market toward less expensive cars. The much-ballyhooed product was a flop. The only consolation for the company—which went public for the first time in 1956—was that a significant number of people who passed up the Edsel purchased Ford's new Fairlane, a less expensive car introduced during the same period. A few years later Ford, like GM, reluctantly responded to the rising demand for compact cars with the introduction of the Falcon. And when GM scored with its upscale small car, the Monza, Ford responded in 1964 with the Mustang.

The sporty car was a great success, and the man who took much of the credit was Lee Iacocca, an aggressive salesman who had been promoted to the head of the Ford Division in 1960. Iacocca, who intended to rise much further in the company, was incensed when, in 1968, Henry Ford hired as president a high-ranking GM defector, Semon Knudsen. Knudsen lasted only a year amid the ruthless corporate politics of the company. Fifteen months later Iacocca was a large step closer to his ultimate ambition--ruler of the Ford empire--when he was named president of the company. Yet Iacocca was not to have his final triumph. Henry Ford grew to dislike the man, and in 1978 forced him out. A year later Ford, tired of fighting off shareholder lawsuits charging financial improprieties, stepped down and handed over the reins to Philip Caldwell.

Caldwell had his hands full. As a result of the highly publicized problems of the Pinto, the quality of the company's cars had come into question. Ford, like the other two big car companies, was caught off guard by the soaring demand for small, fuel-efficient cars brought on by the oil crisis. Yet GM had moved quickly to bring out its compact X-cars while Ford struggled to find a replacement for the Pinto.

For some time the true dimensions of the company's problems in the United States were concealed by profits from abroad. It was during the 1970s, in fact, that Ford made great strides toward internationalizing its operations. The first step was to standardize designs internationally so that what was essentially the same car could be marketed around the world. The leading example of this was Ford's Fiesta, introduced in 1976.

The next stage involved producing what came to be called the global car. Plants in a variety of countries were used to produce components that were brought together in several centralized assembly facilities. Ford began assembling its Escort in three countries with components manufactured by Ford factories in nine nations. This technique, "global sourcing," allowed Ford to take advantage of maximum economies of scale in the component plants, and also made it less vulnerable to strikes or other disruptions in any one country. In 1979 the company also took a 25 percent stake in Japanese automaker Toyo Kogyo (later known as Mazda), which began producing components and later engineered whole cars for Ford.

By the early 1980s Ford's deteriorating conditions in Europe meant that the company's foreign exploits were no longer making up for its domestic travails. Ford experienced three years of heavy losses, yet those abysmal conditions did not last for long. A turnaround began in 1983 (helped in part by union concessions), and by the middle of the decade Ford was rapidly gaining market share thanks to the popularity of its new European-looking Taurus and Mercury Sable models. In 1986 Ford had a larger net income than GM for the first time since 1924. The company felt confident enough to pay a hefty $2.5 billion to acquire Britain's luxury carmaker Jaguar in 1989.

The good times were not permanent. By 1990 the company's money-making machine was sputtering as the Japanese onslaught continued and Ford was slow in updating its product line. The plunge was especially dramatic in Ford's European operations.

The company sought to rebound with the 1993 introduction of a “world car”— called the Contour in North America and the Mondeo elsewhere—that could be built and sold in largely the same way around the globe. The company also redesigned its popular Taurus. In 1996 Ford increased its stake in Mazda high enough to have a controlling interest, and reached a contract with the UAW that traded job security for cost reductions and productivity gains. At the same time, the company made a big push into then-popular (and highly profitable) sport-utility vehicles and light trucks. In June 1998 Fortune celebrated the company’s prosperity with an article headlined THE GENTLEMEN AT FORD ARE KICKING BUTT.

Chief among those gentlemen was Alex Trotman, who soon retired and was replaced as chairman by William Clay Ford Jr., great-grandson of the company’s founder, while the CEO post went to Jacques Nasser, the aggressive head of Ford’s automotive division.

In 1999 Ford acquired the automotive business of Sweden’s Volvo, and thereby gained a total market share in Europe greater than that of General Motors. The following year it spun off its parts-making operation into a new company called Visteon Automotive Systems, and acquired the Land Rover line of SUVs from BMW.

Ford suffered a setback in 2000 when many of its SUVs were affected by a massive recall of tires produced by Bridgestone/Firestone. This came when the business press was reporting that morale inside the company was plummeting because of the radical organizational changes Nasser promoted. In October 2001 Nasser was ousted, and Chairman Ford took complete control of the company. Several months later, he announced the most sweeping cutbacks in two decades, eliminating 35,000 jobs, closing five plants, and dropping four models, including the famous Lincoln Continental luxury car.

To reverse several years of heavy losses, Ford emphasized profitability over volume, and he spun off the Hertz rental-car unit. He continued downsizing the company with a January 2006 announcement that an additional 14 plants and 34,000 jobs would be eliminated in North America. Later that year Ford gave up his post as CEO—which went to Alan Mulally, a Boeing executive—while remaining as chairman. Mulally continued the cutbacks, but the company faced mounting losses—a record $12.7 billion in 2006.

Seeking to profit from an emerging turnaround, veteran corporate raider Kirk Kerkorian bought a stake of about 6 percent in Ford in 2008. Kerkorian, who had previously taken positions in General Motors and Chrysler, admitted that the Ford family’s holdings made a takeover impossible, and said his aim was to help the company restructure. Yet as Ford and the rest of the industry continued to slump amid the recession, Kerkorian sold off his holdings after six months, taking a loss of about $700 million.

Kerkorian may have bailed too soon. Ford seemed to benefit from the worse condition of GM and Chrysler. Despite losing more than $14 billion in 2008, it felt strong enough to pass up the federal loans sought by its Detroit rivals, and instead eliminated some $10 billion in debt by paying off creditors, or getting them to convert their holdings into equity. Ford also sold Jaguar and Range Rover to India’s Tata Group, and reduced its holding in Mazda to 13 percent, ceding control of the Japanese automaker.

In March 2010 Ford agreed to sell Volvo to the Chinese automaker Zhejiang Geely Holding Group. In June 2010 the company announced that it would discontinue its Mercury models.