Have you driven a Ford Lately? Thanks to Donald Peterson you may want to.
On a very dark day in 1980, Donald Petersen, newly chosen president of Ford Motors, visited the company design studios. Ford was in the process of losing $2.2 billion, the largest single-year corporate loss in U.S. history. The future seemed equally bleak. Most Fords could charitably be described as iron thunder lizards. There was no minimum to the number of them Petersen could sell.
Petersen had come to review proposals for a new Thunderbird--the model that had been Ford's flagship but through the 1970s had grown about as exciting as a tuna trawler. He was shown the customary sketches of big, boring boxes. Ford designers, truth be told, hated their own designs. Often they had tried to propose interesting cars like the Europeans and Japanese were building. Top management always shot them down. There was only one kind of car headquarters wanted to hear about: A Car Just Like Last Year's.
After examining some sketches, Petersen looked up at the designers and asked, "Are you proud of these?' There was a pause. In big corporations people are handsomely paid not to say what they think.
"No. I'm embarrassed by them,' Jack Telnack, Ford's chief of design, answered. Then the designers wheeled out clay models of a different type of Thunderbird--aerodynamically smooth, European influenced. There was even a sporty version configured for the BMW crowd with a small high-tech engine, a five-speed transmission, and no chrome. When was the last time anyone saw a stick in a Thunderbird? Maybe 1956.
This Thunderbird design represented everything cars are supposed to be and Detroit products never are. Functionality. Taking the driver seriously. Appealing to the consumer's better judgment, rather than the market research department's lowest common denominator. Headquarters was bound to hate it.
Petersen said go ahead.
It was the day the scales finally fell from Detroit's eyes. For more than a decade American auto manufacturers had been kidding themselves into believing that imports were a fad. They paid dearly during the auto recession of the early 1980s, Ford worst of all. From 1980 to 1982, Ford lost almost $4 billion.
Ford sustained, in fact, much more severe losses than Chrysler or Lockheed, whose recoveries via bailout have been widely celebrated. Had Ford failed, the impact on the U.S. economy would have been far greater than a Chrysler or Lockheed collapse. Ford somehow slips by with little public attention, despite being number four on the Fortune 500 and the fifth-largest industrial corporation in the world.
Today Ford is back, both in money--in the second quarter of 1986 its profits surpassed GM's, despite the fact that GM sells twice as many cars--and in product quality. Dullsville cars referred to collectively as "Squaremonts' have been replaced by sporty cars that attract young buyers. The new Thunderbird, after enduring industry jeers prior to its 1983 release, has become a huge success: it is the number-one selling car in California, bellwether of the auto market and a state that in recent years has practically been a province of Japan. Automotive observers now generally consider Ford's manufacturing quality to be the best of the Big Three; Fords have pulled within striking distance of Japanese brands in the annual Consumer Reports frequency-of-repair ratings.
Meanwhile Ford has reformed itself internally, changing from a notoriously rigid bureaucracy, where managers quaked at the sight of their own shadows, to decentralized mellow-land, straight out of In Search of Excellence.
It's fair to say that Ford's comeback-- accomplished entirely without federal aid--is the most significant economic recovery in recent American history. Yet it has occurred with little public notice and with almost complete anonymity for its leader, Donald Petersen, who last year moved up from Ford president to CEO. But then his profile has never been high. Even after he took over the helm at Ford, the company's proxy statement misspelled his name.
Those left standing at the top of the organization chart are usually seen as egotists, martinets, or drones. Petersen in constrast seems like a Totally Normal Guy. He is softspoken, mild, nearly paternal: the kind of father figure who would insist that you do your homework, then bring you a cup of cocoa as you worked.
Born in 1926 on a farm in Pipestone, Minnesota, Petersen would appear on paper to be the last person in the world to lead an assault against corporate tradition. One, he's a lifer--been with Ford since 1948, never having had another employer in adulthood. Two, he's an engineer-- the first Ford CEO since Henry himself to have product knowledge, rather than training in finance or skillful selection of parents, as his primary credential. Three, he endured more than 30 years of internal feuding and tantrum-throwing on the part of Henry Ford II, former Ford president Lee Iacocca, and others in Ford corporate management, without ever publicly protesting. The most commonly used adjective for Petersen is "quiet.' For relaxation, he collects rocks. Not exactly the personality profile of a revolutionary.
"People complain that Petersen is too quiet,' said Joseph Kordick, a Ford general manager. "That's because he's listening. They don't know how to deal with a CEO who actually listens to the people beneath him.'
A dull man of substance
One day in April, Petersen and I toured a stamping plant in Monroe, Michigan. The plant is only one hour from Ford world headquarters, yet no Ford CEO had ever seen it.
Petersen travels in a Taurus family sedan. Not a limo, not even a Lincoln. There's a phone up front and an adjustable reading light rigged into the back seat headliner. Without these extras, you can have the car the CEO of a $39 billion corporation rides in for about $12,000.
Looking at the car I wondered, Where are they going to put the steely-eyed bodyguards? The flurry of aides? There were none. Petersen is the highest-ranking person I have ever observed to travel anywhere, even down the hall, without a cavalcade of briefcase-holders and brown-nosers swirling around him.
His reception at the plant is a triumph of minimalism. A guard stands in the street to point toward the parking lot; that's it. Some plant officials show Petersen to a small, stuffy conference room--Monroe is a manufacturing facility, as opposed to an assembly plant, which means the inside is noisy and grimy. There is no evidence of any special cleanup or fuss in anticipation of the boss.
Supervisors and UAW members crowd into the conference room for a short speechmaking session during which Petersen seems uncomfortable being the center of attention. There is a monitor at one end of the conference room for the factory's closed-circuit television system; inexplicably, "Night Court' plays in the background throughout the session. Petersen asks Stan Cronenwett, the plant manager, technical questions about the Monroe operations. ("What forms does your steel arrive in, Stan?') Cronenwett talks about educational services for workers, including aid in completing high school, offered "if only in the hopes of helping them understand basic economics.'
Cronenwett gives Petersen a blue barracuda jacket like the ones plant supervisors wear. He puts it on. Then Les Burnett, Building Chairman of Local 723, hands Petersen one of the sharp black and gold softball jackets of the local, with "honorary member' stitched beneath his name. In big-industry labor relations, this just doesn't happen: most major industrial unions would be more likely to give the CEO a cement overcoat. Petersen seems genuinely pleased. He is also perplexed as to which of the jackets he should wear onto the plant floor. "We outnumber you,' Burnett notes. Petersen goes with the union label.
Petersen has invested nearly all his moral capital in a labor relations reform program called employee involvement. "At first we thought this employee involvement program was a lot of B.S.,' Burnett tells me as we walk along the factory floor, "but now we think it's for real.' He points to a wheel-making line. "See that? The hourly people control that whole line. There's no supervisor. I never would have believed I would live to see anything like that or to be saying nice things about the company.'
A few years ago Monroe was on the verge of closing. Now, though total staff is down from 3,000 to 1,750, its future appears secure. Over the opposition of UAW national leadership, the local made concessions on job classifications, which in "mature' industries are often a greater problem than wages, as they tend to force companies to retain outdated, unproductive methods. Thirty-three robots have been added to Monroe since 1982, when there was no automation. Much of the plant's new equipment comes from Japan. Watching a gigantic, $5 million, imported transfer press spit out parts, I felt a sudden delight to think that I might be witnessing Japanese capitalism selling us the rope that would be used to hang them--equipment we would use to catch back up.
Petersen spends considerable time poking around the plant, questioning workers. Then he heads to another conference room to meet with the employee involvement committee. There are 19 UAW members here, and each recites an idea his subunit has found to save money. Petersen respectfully questions each in turn, then delivers compliments. It's a slow, ritualistic session in which any Japanese manager would feel at home. Petersen shows no impatience, though this room, at the center of the production area, is even hotter and stuffier.
Some tales the workers tell confirm your worst suspicions about old Detroit. Frank Giarmo notes his department had trouble with steel provided by a particular supplier. The steel was hard to machine and had been for years. Finally Giormo's employee involvement group called up the supplier to ask what the problem was--and discovered that no one had ever told the supplier how his product was being used. The supplier quickly changed chemical formulas to make the steel more malleable.
During the session another worker, Charles Johnson, actually tells Petersen, "I'm proud to be a member of the Ford family.' Afterwards Pat McCarty, a member of the local bargaining committee, notes, "Five years ago nobody would have dreamed of saying that. Or if they had, they would have been booed down.'
Of course, even five years of enlightenment is insufficient to drive out decades of bad feelings. "It used to be that we practiced strictly two-by-four management; if anybody got out of line, we hit them with a two-by-four,' said Bob Gindorf, a Ford plant supervisor. Such attitudes die hard, and though Ford factories are becoming better places to work, some still offer the traditional mix of physical stress, mental strain, and management arrogance that is a recipe for alienation.
That evening I watch Petersen switch gears, attending a posh reception at the Detroit Institute of Arts. Although he does possess a few imprints of status-seeking--a seat on the Council on Foreign Relations, membership in Mensa-- Petersen looked much less comfortable than he had discussing weld spatter on the Monroe factory floor. In a crushed crowd of black ties and gowns, Petersen ends up elbow-locked about ten feet from GM chairman Roger Smith. If they ever shook hands or acknowledged each other, I missed it. Petersen doesn't like to speak about Smith or his ancient rival Iacocca. He is said to consider Iacocca an unseemly self-promoter and to hold him responsible for many of the bad vibes at the old Ford.
Another day I had the opportunity to observe Petersen introducing David Stockman to a meeting; Stockman's book The Triumph of Politics had come out just days before. On the speaker's platform, Petersen followed Hicks Waldron, CEO of Avon Products and subject of a gushing New York Times Magazine profile that somehow made him seem very important and very silly at the same time.
Waldron was smooth and sophisticated as a speaker. Petersen was awkward and less impressive. Waldron, however, effectively said nothing, delivering only applause lines and self-references. Petersen caused some uncomfortable shifting about in chairs by discussing how Stockman was making money condemning deficits for which he was largely responsible. Seeing Waldron and Petersen back to back was an excellent object lesson in the difference between a shallow man with flair and a dull man of substance.
Only their chauffeurs knew
How did Ford, and Detroit generally, get into such a mess in the first place?
In the 1970s, it did not take marketing genius to figure out that domestic producers were not listening to their customers. Fuel economy was not, as is often assumed, the only factor in the equation: imports increased their market share even in years when gas was plentiful. Quality was the key to the appeal of foreign automobiles. When consumers thought import, they thought of reliable cars in which engineering mattered more than style. When consumers thought domestic, they thought of the Ford Pinto, icon of corporate indifference.
Features were another issue. There simply wasn't an American-made car that was nimble, functional, and stayed glued to the road. While Toyota Celicas, Nissan Zs, Honda Accords, Mazda RX7s, Audi Foxes, and similar sporty foreigners were selling by the boatload, hardly any domestic cars offered so much as a tachometer. And five-speeds? Get away, m'boy, you bother me. As buyers thronged to sporty imports, Detroit just kept on stamping out self-propelled dentists' offices.
This is doubly perplexing because General Motors and Ford knew perfectly well how to make quality sports cars--they were making them in Europe. The products of GM's Opel division were well regarded by German consumers; Ford was Europe's number one producer and was considered a prestige nameplate in Britain. The bureaucracies in Motor City, though, were so mired in Not Invented Here that they resisted ideas from their own foreign divisions.
"During the 1970s there were intense debates inside the industry that centered on handling characteristics,' Petersen told me. "Management seemed to feel that car users in America, with its extraordinary expanse of wide highways and its extremely long driving distances, would never want the kinds of cars people wanted in Europe, where winding, narrow roads require much more demanding performance characteristics.'
In other words, since the U.S. had good roads, it could have bad cars.
Seeds of change were planted in the 1960s, when Ford began to rotate more executives to its European division. One purpose was a kind of initiation ritual: pledges were supposed to return to headquarters, a place employees bewilderingly refer to as "the Ford division of Ford,' grateful to be back in the company's prestige center. Instead many, Petersen among them, returned disenchanted with Ford products. "Every year we had a higher percentage of managers who had spent time in Europe and, when they came back, didn't have such built-in prejudices against functionality,' he said.
In fact, exposure to Europe helped turn Petersen into a discriminating enthusiast. He became, in the words of former Ford executive John Steward, "a plain and simple car nut, a guy who loves to look at cars, to talk about them and bomb around in them.' Petersen is a graduate of Bondurant--the California school where amateurs are taught to drive like professional race car jockeys--and has made the course a rite of passage for other current Ford executives.
Though Detroit is all about cars, being a car lover is unusual in the corporate culture there. Stuffy financial types, shocked at the thought of getting their hands dirty, traditionally dominate American auto management. It's been said that the Big Wheels of the Big Three lost touch with the declining quality of their products because they never drove them. Only their chauffeurs knew.
Nearly all Petersen's assignments at Ford, on the other hand, had been in product planning, the car-lover's end of the business. During the mid-1970s he was instrumental in pushing for a smaller, handsome new version of the Mustang to replace the lumbering "Mustang II.' The new Mustang, released in 1979, proved a durable design, continuing to sell briskly in 1986--and, like the better European designs, to look sharper rather than duller every year.
Today a high concentration of the vehicles parked in the executive lot at the company's headquarters in Dearborn, Michigan, are driver-oriented small cars--Mustang SVOs and 5.0 GTs, Thunderbird Turbo Coupes, Merkur coupes built by Ford of Germany. ("Merkur' is a made-up word designed for Eurosnob appeal. In Germany, the car is called a Ford.) Looking at the group a long-term company veteran noted, "Five years ago that lot was strictly LTDs and Mark IIIs.'
Though Petersen was able to sell his fellow managers on the virtues of small cars like the downsized Mustang, he met resistance to his plan to shift the company as a whole toward European-style cars. "In 1980 the continuing majority view within the industry was that cars such as the Thunderbird Turbo were simply going too far,' he explained. "They said a driver-oriented [American] car could simply never sell. It was tremendously frustrating.'
What finally changed attitudes? The withering losses of the early 1980s. "I'd like to think we could have reformed the company without that shock. But realistically, I doubt it very much,' Petersen said.
Louis Lataif, A Ford vice president, put it this way: "A large organization will keep right on doing whatever it's doing as long as the profits hold out. Individual buyers [in the 1970s] were telling us they didn't like the products, but as an organization we didn't hear them until the message was written in big, big numbers.' Like billions.
The $3 billion car
In 1980, Ford had one ace in the hole, the Escort subcompact, for which planning had started in 1976. Escorts hit the market in 1981. Moderately priced and reasonably well built, they have become the world's top-selling subcompact overall. (Ford, despite number-two status, has several number-one models because GM issues cars in multiple renditions.) Escort helped Ford avert bankruptcy but not regain profitability, because subcompacts are the least profitable type of car. An "upmarket' success was essential if Ford wanted to earn money again.
After taking his early gamble on the Thunderbird, Petersen made an even bigger leap, into the Taurus/Mercury Sable, intended to be the company's primary offering in the intermediate class where the numerical bulk of auto sales occur. If Ford was going to bounce back financially, it would be Taurus, not Escort or Thunderbird, that would represent the cash cow. This decreed a cautious approach--a strategy gospel to Detroit, where intermediates are all but interchangeable. Instead, Petersen decided to go for broke. He decided Taurus would be the first Detroit attempt at a crossover car--targeted at the typical family buyer, yet imbued with European handling characteristics and functionality.
Taurus, Petersen decreed, would be European in every detail: tight handling, no mushy ride; exterior styling dictated by aerodynamics; interior styling dictated by ergonomics. Ford engineers dissected an Audi 5000, which they considered to have the world's easiest-operating trunk, and designed the Taurus trunk mechanism accordingly. They laboriously analyzed the Toyota Camry hood balancing mechanism to determine why it worked better than Ford's, and patterned the results into Taurus. The "detent' of dashboard switches--the clunks and clicks made--was redone until the switches felt solid, not like they would come off in your hand. Even the configuration of the engine compartment was designed, to ease maintenance.
Anyone with more than a casual interest in cars values such subtleties: they are the essence of the German approach to auto engineering. But could Ford, a mass manufacturer garnished with Madison Avenue hype, sell these touches to suburbia? When Taurus plans leaked, even the automotive "buff books' and Petersen was going in over his head--making a car too refined for the average American to appreciate.
Petersen says his years in product development had convinced him that it wasn't hype that sold cars: cars sold cars. And he wanted a car the company could sell on its merits. "I can remember long conversations with the creative people at our ad agencies,' he said. "I'd go through their ads and circle hyperbole, underline excessives, cross out the obviously touched-up photographs. I'd say, what's the matter, aren't our cars good enough as it is? Eventually I decided that if they had to exaggerate what the cars were about to sell them, it was our [management's] fault, not theirs.'
Through the auto recession years of the early 1980s Petersen sank more than $3 billion into Taurus development. That means that during the same period Ford was sustaining record losses, it was making record product investments, something industrial policy deepthinkers say American corporations never do. Ford's losses correspond almost exactly with Taurus development costs; in a sense the company's troubles were the price of forcing itself to make a quality car.
The gamble paid off. Taurus and Sable, released the day after Christmas in 1985, are the auto world's hits of the year. Both are selling with a three-month back order, with their assembly plants running double shifts. Ads for the cars talk strictly about features and function, not baseball bames. Detroit is finally making a buck by not underestimating the intelligence of the American public.
In pursuit of quality, G.M., Ford, and Chrysler each have initiated various internal reforms. Ford's are the most striking.
Labor reform came first. "The adversarial relationship with labor had reached the point of dysfunction,' Stewart said. "People were really ready for something different.' In the early 1980s Ford hired a gifted labor relations manager named Peter Pestillo at about the same time Donald Elphin, the brightest light of the UAW, took charge of the union's Ford division. The program of employee involvement, roughtly what the Theory Z proponents call quality circles, was initiated. Assembly-line workers actually started talking to the "salary side'--their supervisors.
In a key test of employee involvement, early Taurus mock-ups were taken to a Ford assembly plant in Atlanta and handed over to the workers for their analysis. This may sound like an obvious, common-sense step--production people are bound to see things engineers miss--but in the long-running saga of mutual throat-cutting that is modern labor relations, the thought of management going to workers for advice is radical.
Production workers examining Taurus suggested numerous changes, noting for example that interior assembly required several screws of only marginally differing sizes; they were replaced with a standard screw.
In another case, workers gave Ford marketing advice. A compact called the EXP, similar to the model year. Layoffs were in the cards for the Wayne, Michigan, plant where Escorts and EXPs are made.
Rather than bewail the situation, UAW members at Wayne expropriated a few surplus EXPs and tinkered with them until they had assembled an alternative--a new model having more sheetmetal in common with Escourt, which cut overhead and made the car more attractive. Management was persuaded to keep the workers' concept in production as the "Escort EXP.' Now selling briskly, the Escort EXP has performed a demographic miracle of sorts for a domestic industry plagued with aging customers--its buyers' median age is 24.8, lowest of any car sold in the U.S.
As worker relations improved, a system called Statistical Process Controls--which sounds like the product of a bad MBA thesis but is said to separate meaningful information from eyeglazing data--was instituted at Ford with the aid of a management guru named Dr. Edwards Deming. Edwards Deming is not well known to the general public, but is both a villain and a folk hero in Detroit. During the 1960s and 1970s, Deming, spurned by the Big Three, worked in Japan advising Japanese automakers on how to drive their American counterparts crazy.
Ford Motors had attempted something like Statistical Process Controls in the 1950s, when Robert McNamara was running the company. Petersen was then aligned with McNamara's Whiz Kid faction. "Meetings with McNamara were the most exhilarating experience of my life at the time,' Petersen said. "He would sit around absolutely barraging us with questions, like a professor, then listen very closely to the answers, which not many other people in the company did. I'd go home at night exhausted.'
The Whiz Kid attempt to initiate quality controls in the 1950s failed to translate this exhilarating talk into action. "I was too top-down, I think,' Petersen explained, using correct Search of Excellence argot. "The plants had all the charts, plastered on every wall. But plant managers could sense nobody was really paying attention to it in the corporate hierarchy. After a while they quietly took down the charts and went back to business as usual. And Dr. Deming went to Japan.'
McNamara's departure in 1960 to join the Kennedy administration as secretary of defense, after just 33 days as Ford president, taught Petersen a hard lesson of corporate survival. "I resolved to avoid as much as I could being identified strongly with some superior or to be seen as part of any particular clique, even if it was the clique on top at the moment,' he said. It would be years before Petersen was back on the star track.
The $1.2 million memo
What the UAW now calls "enthusiastic cooperation' at the factory level is, Ford comptroller David McCammon says, a primary reason the company judges its care quality to have improved 51 percent since 1980.
In a sense figures like this constitute an admission that the Detroit products really were as bad as they seemed. What would you think of a publication that announced it was now 51 percent more accurate? In another sense the figures are important signs of honesty. I expected Ford officials to be cagey, avoiding any direct confession of past failings. Instead they spoke incessantly about how bad the company used to be. A typical comment, from Stewart: "Ford was very badly authoritarian in its management style. Goals were short term, profit was God.' Another, from John Turner, a trainer in Ford's new management system: "There are 16 references to Ford in In Search of Excellence. They are all negative.'
Yet while relations with hourly workers were being brought into the future, Petersen seemed hesitant to extend the same level of progress to the salaried side. Here the shadow of Henry Ford II, who remains on the board and in control of nearly 40 percent of the company's stock, continued to fall across Dearborn. It was painful enough, from the Deuce's ego standpoint, that Petersen was fundamentally changing the Ford product line. How could he restructure headquarters without repudiating the founder's son altogether?
The swiftness with which Henry II took the heads of those who displeased him was not exactly secret. The Deuce fired three Ford presidents in the 1970s, including Iacocca, and though now gone from Dearborn to retirement in Palm Beach, Henry II knows he could have another trophy for his mental mantelpiece at a moment's notice.
"When Henry II was here we all lived in constant fear,' said one Ford veteran. "It was death to disagree with him.' The Deuce seemed privately to enjoy setting off internal rivalries. According to John Manoogian, Ford's executive director of quality assurance, "Each division within the company was [then] chiefly concerned with its own performance and really didn't care about the other divisions, to say nothing of optimizing the final product. One division would take delight in saying that another had fouled up, instead of trying to help.'
Of near legendary status were disputes between the design bureau and body engineering, which had to translate style into metal. Though their buildings are adjacent on the Ford "campus,' officials of the two departments often communicated by memo, refusing to meet face to face. "We talked about quality all the time, but I was not personally convinced upper management was behind it,' Manoogian said.
The tenure of Phillip Caldwell, who served for five years as CEO between Henry II's retirement and Petersen's ascent, bridged the gap between the dictatorial Ford family style and the Petersen decentralized approach. Caldwell was old school, wedded to formal chains of command, but is credited with sensing his approach was wrong and laying the groundwork for the reforms Petersen carried through. He also embarrassed the company by awarding himself approximately $7 million in stock for the three worst years in Ford history. Caldwell, who left for Shearson Lehman, achieved a more admirable distinction inadvertently. His replacement by Petersen represented the first friendly transition of power in Ford Motor Company history.
While Petersen's star was low after the departure of McNamara, a serendipitious thing happened to him--temporary exile to Truck Operations. Trucks represent big money for the auto industry. In the past two years, between the advent of truck-type "family vans' like the Dodge Caravan and the general popularity of pickups and four-wheel drives, light truck sales have grown faster than car sales: the top selling vehicle in the United States right now is not a car but the Ford F-series pickup. Despite their business value, however, trucks, like European operations, were traditionally low-status to Ford top management. Headquarters directed its rigidity and paranoia inward. Petersen, freed, would have a revelation.
"As I worked at Ford through the years I just couldn't stand the infighting that was going on, the pointless jockeying for position,' he said. "Then I went to Truck Operations, which had a positive sense of self, lots of stability, and worked together as a group.
"After a while is struck me. These guys are having fun. They enjoy what they're doing. There is little petty bickering. And they are doing their job perfectly well, thank you, without a whole lot of complicated orders form a large superstructure. It was clear they knew something I didn't know.'
In the fall of 1984, as Ford's fortunes were rebounding, Petersen assembled his plan for "participatory management'--employee involvement at a white collar level. It called for writing Tom Peters-style theories directly into the coda of the world's fifth-largest corporation. Good God, Peters must have thought. They're actually taking my advice!
How could the Deuce react? Addressing the Ford management committee, he endorsed the plan. Leaving the podium, Henry II leaned over to Petersen and said, "Well, Pete, I hope you liked the sendoff I gave your new approach.' Because if it doesn't work wait till you see the sendoff I give you was written between the lines. With Henry II's assent, Petersen could act.
The company sent representatives to the "excellent' companies Peters had praised, such as Proctor & Gamble and Xerox, seeking advice. One result was putting a product manager-- someone with overall authority for a finished product, not just its parts--in charge of each new project. Quarterly departmental goals were replaced with general company-wide goals. A statement of company guiding principles was printed up for employees to carry in their shirt pockets. (General Motors would later make a similar declaration and print it on similar cards--a difference being that while the Ford card is decorated simply with a Ford logo, the GM card sports the image of Chairman Smith.) Compensation for the company's top managers was altered to focus on five-year gains, instead of short-term Wall Street ticks.
Petersen further decided that managers should hold nonstructured, no-agenda meetings-- nonstructured being as welcome a term in the normal corporate lexicon as, say, bra-less or tax increase. Richard Hartshorn, another Ford executive trainer, told me, "Caldwell wanted everything very crisp, controlled, written down in books. You'd bring these loose-leaf binders into a meeting and read from them aloud for hours. There's be a layer of nervous executives in front, followed by the "amen row' behind them, aides furiously flipping through the binders and nodding no matter what was said. It was incredibly stifling.'
All 3,000-plus top Ford managers are now slated to go through a week of deprogramming at the newly opened Ford Executive Development Center (FEDC), located on the 38th floor of a tower in the Renaissance Center. The Ren Cen is the downtown Detroit mega-project sponsored by Henry Ford II as his noble but debatable parting gift to the inner Motor City. Originally Ford's elite management tier was to move there. Petersen said no, not wanting the top handful of executives physically removed from everybody else in suburban Dearborn. He gave suites over to the new development center.
What was to be Henry Ford II's private office in the Ren Cen is now used as a storage room. What was to be the new corporate boardroom, now used for FEDC rap sessions, has a Kevlar shield half the size of a railroad car that can be rolled into position to seal off the windows from shots fired from the adjoining tower. This supposedly would protect the board of directors against terrorists, though a more likely threat would be Pinto owners.
The FEDC re-education camp session I attended was touchy-feely enough to warm the heart of Phil Donahue. Executives were given the outline of a business problem (Ford's venture with Mazda), then put into cute little role-playing groups to hammer out a consensus on priorities. Later a master of ceremonies in corduroys and faded sweater toted up their many mutually contradictory answers on a big board, taking eve dump suggestions in an appropriately nonjudgmental fashion.
Edsel Ford II, general marketing manager for Lincoln-Mercury, who is the Ford family's present link to the corporation, was there taking the class in good humor, his only badge of status being an inability to prevent himself from talking out of turn.
As the exercise was about to close, one of the executives called out, "Hey, you left out profitability.'
At the end of each week either Petersen or Ford President Harold Poling comes for the morning to entertain complaints about company decisions. Any executive who tries to sit sheepishly in the "amen' mode is prodded to say something tough. Neal Dorsey, a 25-year Ford manager from the tractor division, told me, "At first I thought it had to be some kind of trap. I thought, what? Am I nuts? Am I going to commit political suicide by telling had news to the boss? But now they really do want you to say what you think, even if it's critical.'
Kordick became an unofficial spokesman for the new participatory management. He appears regularly on the Ford internal television network, peppering his speech with phrases like "loving and caring,' "trust and respect,' "business approaches must be Biblically correct,' even giving people good strokes.'
"On my first day at my present position I got a minor memo with 19 senior signatures on it,' Kordick said. "I calculated that $1.2 million in annual salary had gone into clearing that insignificant scrap of paper. Obviously, it was just people covering their asses. It's staggering to think how much time we used to waste on that type of thing when we should have been looking after our customers.'
Darkness on Motown's edge
Because quotas on Japanese imports continue to shelter U.S. automakers from "basic economics,' many commentators contend that the recovery of Detroit is an illusion.
First, they say, Detroit is living on borrowed time with respect to default monopoly on large cars. At recent Japanese auto shows an ominous number of mid-sized to big machines, too big for sale in the home market, have been on display. Should the quotas be lifted or loosened, Toyota Impalas may be on the way. Meanwhile nothing is stopping Korean, Yugoslavian, or other manufacturers from going after this last market segment Detroit still has to itself. For his part Petersen says he considers imported cars to be "inevitable,' and suspects that someday Mazda, to whom Ford has gone for help in making small cars, will ask Ford for help making large ones.
Hefty profits, critics further contend, are a creature of the quotas, which by virtue of restricting supply enable Detroit to charge artificially high prices.
A variety of statistical cases too complicated to broach here can be made on the impact of the quotas. Claims that the quotas add $1,500 to the price of a typical car are probably exaggerated, but common sense dictates they must add something to the kitty, or Detroit wouldn't have wanted them so badly. A key fact often overlooked, however, is that new automaker profits have less to do with prices than with costs. Detroit has been cutting costs--mainly personnel costs--with a vengeance.
Total Ford employment declined 28 percent from 1978 to 1985, a reduction of nearly 143,000 people, although the company built nearly as many cars in 1985 as when attrition started. The axe has fallen about equally on management and labor. Comptroller McCammon speaks pridefully of "our 27th consecutive quarter with a reduced corporate headcount.' Ford recently announced that 10,000 more white collar workers would be let go by 1990.
Decreased labor costs lead directly to increased profits per car. In 1978 Ford earned $2.8 billion pretax on 6.6 million vehicles, or about $421 per sale. Lasy year the company made $3.6 billion on 5.6 million, or $643 per vehicle sold. (Improved profits from non-auto services such as financing cloud this comparison. Car prices themselves are not the explanation, as they have risen somewhat more slowly than the Consumer Price Index.)
McCammon acknowledges the cuts show Ford was featherbedded on the factory floor and in the management suite alike. Labor intellectuals have already found a darker explanation, declaring Ford's progressive management attitude merely a sophisticated diversionary tactic to turn public attention away from job reductions. Whether Ford had any choice but to cut personnel, given the competition and world overcapacity in auto production, is a subject laborites like to avoid.
While Ford shrank staff because of economic necessity, managers did not take long to discover that, as with so many big hierarchies, the place runs better with fewer people around. The quality of Ford engineering, for example, has improved during a period when nearly a quarter of the engineers have been let go. "There is no question that we are happier and more effective because we are smaller,' Telnack said.
A cost that has not been cut is executive salaries. Petersen took home $1.7 million in 1985. Roger Smith of G.M. claimed a package worth about $2.1 million; Iacocca picked up nearly $15 million by exercising accumulated stock options. Technically these bundles must be ratified by shareholders, but for intents and purposes CEOs pay themselves.
After hearing Petersen tell workers at the Monroe plant that "we have no heroes at Ford, only team players,' I wondered why the captain should be paid a sum that works out to 68 times more than the typical player. More, no doubt; a lot more, to be sure. But 68 times more?
American managers like Petersen who have seen the light on Japanese principles always, by the most amazing and astonishing coincidence, overlook the fact that at Japanese auto firms the gap between executive and worker salaries is far smaller than in Detroit. This not only makes the companies more competitive--one "built-in' Japanese cost advantage Detroit for some reason doesn't like to talk about--more importantly, it helps labor relations.
Nothing could please UAW leadership more than excessive executive salaries. The windfalls gathered by Petersen, Smith, Iacocca, and a few other top managers are worth their weigh in gold to the union priesthood, which with each passing year has fewer and fewer corporate outrages to keep the members militant, ornery, and feeling like they still need union leadership. Union true believers speak with nostalgic longing of April 1982, when the UAW concluded a concessionary pact with General Motors only to learn that on the same day Roger Smith had forwarded to his board of directors paperwork for increasing executives' bonuses. The UAW was furious, of course--and also delighted. Douglas Fraser was probably popping champagne corks.
Except to a truly greedy or materialistic person, what's the practical lifestyle difference between, say, $500,000 a year and $1.7 million? Some top managers covet megabucks because they are at heart rapacious; but many others aren't-- certainly not Petersen, unless his entire persona is a facade. Salary, however, was the only subject Petersen wouldn't discuss with me. He mumbled something about how compensation reflects market levels--it wasn't very convincing, and Petersen himself didn't sound convinced. In truth, top managers want excessive salaries not so much for the additional increments of money, but for the status; it makes them feel important. This is not only a poor reflection on otherwise admirable executives like Petersen; it's poor business, and shareholders should recognize it as such.
With Detroit now finally moving in the direction of doing things right, lavish executive bonuses--at least some portion of which are made possible by protectionist quotas that penalize everyone who isn't an auto executive-- remain a worrisome sign of the old ways longing to reassert themselves.
Another dark omen is the eagerness of recovering automakers to sink newfound cash into acquiring existing firms, especially defense contractors, rather than using it to try to break the Japanese through price competition, or distributing it to those shareholders who suffered through the early 1980s slump. G.M. recently bought Hughes Aircraft, a Pentagon contractor, and Electronic Data Services, the H. Ross Perot firm that made its mark processing welfare forms for government agencies--a classic instance of the right-wing businessman who condemns Big Government while craving its riches for himself. Ford bid unsuccessfully on Hughes, and has said it hopes for other opportunities to buy defense firms.
Petersen told me what attracted him to Hughes was the prospect of "stabilized earnings.' It was hard not to hear "government guaranteed profits.' Shuffling paper assets may be good for an individual company but does nothing to increase the prosperity of society as a whole. And sinking capital into nonproductive mergers is certainly not what the Big Three said they had in mind when they demanded special economic exemptions in the first place.
Still, if any manager of a public corporation is really worth nearly $2 million a year, it's Donald Petersen. Is he in fact that most rare of leaders, the one who truly does not care about glory for himself? Selflessness can itself be a publicity ploy: in Washington, politicians use their press secretaries to plant stories about how they don't want attention. Yet Petersen has tackled the full range of supposedly intractable modern industrial issues--import competition, product quality, bureaucratic self-interest, union self-destruction--and won at every turn, without writing a book praising himself, putting himself in his commercials, or otherwise blowing his own horn. Maybe, just maybe, he is for real.
"Petersen sees the recovery of Detroit as his contribution to society,' Joseph Kordick says. "He wants to be remembered as somebody who did something useful with his life, not just another guy who clawed his way to the top of the corporate pyramid. There are plenty of those already.'
|Printer friendly Cite/link Email Feedback|
|Date:||Oct 1, 1986|
|Previous Article:||Has Ms. undergone a sex change?|
|Next Article:||The Hiroshima hustle; yet another way to fleece campaign contributors.|