Oil prices have just hit record highs, and the nastiest recession since WWII has the country in its grip. Ford’s line-up of bloated, heavy vehicles is piling up like cord-wood on the dealer’s lots. The only car selling is its “Americanized” global compact. Ford stock is priced in cents, and bankruptcy rumors are swirling. The top exec hired a year earlier is intelligent, unassuming and straight-talking. He commits Ford to building “higher quality products with stronger customer appeal…emphasizing smaller, more efficient cars”. Ford in 2008? No, it’s 1981.
Like Allan Mulally today, Donald E. Peterson was an atypical choice when he was promoted to the Presidency by the Ford family in 1980. An engineer, development executive, and genuine piston-head, Peterson was also the antithesis of Lee Iacocca, whom he replaced. Never in modern history has an automotive CEO been so devoid of spin and hyperbole. No wonder Ford of the eighties looked to Japan for inspiration.
Peterson learned of Toyota’s use of quality guru Edward Deming’s techniques, and uses Deming and corporate guru Peter Drucker in the first coherent US automaker assault on “total quality”. As measured by owners, vehicle quality improves 60% from 1980 to 1987.
The aerodynamic 1983 T-Bird launches a dynamic wave of efficient, exciting and successful passenger cars. The Turbo-Coupe has the world’s first fully computer controlled (EECV-IV) integrated turbocharged fuel injected engine.
The Ranger successfully takes on the long-established Japanese compact pickups, becoming the category best seller for many years.
The Fox-body Mustang reinvents and dominates the pony-car class with its balance of light weight and V8 power at an affordable price.
In the biggest single auto product gamble in modern times, the 1986 Taurus is launched. It leapfrogs the competition, and sets the packaging and dynamic standards for the modern US-market sedan. Taurus soon sells 400k units per year, taking away the best-seller crown from Accord by 1992.
Peterson employs Japanese “just in time” production methods at Ford, and the Atlanta Taurus factory becomes the most efficient auto factory in the US (including Japanese transplants).
Peterson’s honest, cooperative, non-political management style motivated the management ranks as never before, and his deep experience in car development as a car enthusiast assured that Ford’s products were consistently more dynamic than the competition.
In trend-setting, car-conscious California, Ford becomes the number one selling brand, selling passenger cars successfully while GM and Chrysler have already become terminally irrelevant there except for trucks (and Corvettes).
Profits explode, and Ford becomes the most profitable car company in the world in 1986-1987. “F” becomes a Wall Street darling as its stock goes from 68 cents in 1981 to over $10 in 1987, resulting in an 1342% gain.
But what really separates Peterson from the rest of his ilk is that he totally keeps his perspective, candor, and most of all modesty, to the end of his term at Ford, despite the phenomenal success that was fully his doing. In stark contrast to Iacocca, who had to be dragged out of Chrysler kicking and screaming well past his usefulness, and then tried to weasel his way back several more times, Peterson consciously and quietly retired two years early in 1990 at the age of sixty-three. He wanted a new management team to have a running start in dealing with the clouds he clearly saw gathering in Ford’s horizon.
In an exceedingly frank and prescient farewell discussion with thirteen journalists the day before he retired in 1990, Peterson expresses grave concerns about the future of the US auto industry. According to one reporter: “…his terse answers were sobering. The word survival came up a lot because it’s no joke to ask how much of a home-grown auto industry will exist a generation from now.”
“Because of the deep partnerships of the Japanese companies with their suppliers, changes can be implemented predictably and rapidly. The steady loss of state-of-the-art manufacturing technology in the US manifests itself in the longer product cycles and lower real or perceived quality of the domestic automakers”.
Peterson goes on to say: “there’s this nibbling away, this gradual erosion that’s occurring that nobody sees very well, I don’t think. It bothers me a lot.”
He ends with: “the manufacturing sector in the US is going through the same process now as the agricultural sector went through in prior generations…we have to accept that it (manufacturing) will generate a far smaller percentage of the employment of the people of the United States than it does now or did 10 years ago. There will be far fewer jobs.”
Those words spoken twenty years ago seem remarkably prophetic, especially in light of the future bankruptcy of GM and Chrysler, and Ford’s narrow escape itself. Allan Mulally has charted a similar course for Ford’s salvation, emphasizing efficient European cars and quality.
Ford’s stock between 2008 and 2010 took a similarly strong ride up, although the gain from the lowest point to the highest was a mere 689% this time. Has Ford learned its lesson, and will it avoid the mistakes that came along after Petersen?
Nice story. It reminds me of the reporters who said that Ford had learned more from the 80s recession than the other automakers because it experienced the nearest to death experience without Chrysler’s government intervention and because they didn’t have GMs deep pockets or market share at that point.
It’s strange that this has to happen again and again all the time. Especially to Ford, which unlike GM and Chrysler, was a quality car maker from the beginning. (GM and Chrysler were really just owners of a group of quality car makers) The ideas that saved them were the same ideals that old Henry stood for in it’s past, ideas that the Japanese (and the rest of the world) learned from American industries in the first place.
This last time a lot of it was due to things that Ford couldn’t control. Namely 9/11 and the lack of the govt doing anything to quell the public’s uncertainty about the future. That led to GM offering the first of the 0% financing deals that started the race to “employee pricing” AND zero/low interest loans AND a rebate and loosing money on every vehicle sold. That of course set in motion the falling interest rates in general and again the lack of the govt doing anything to regulate the predatory lending. Which eventually led to the collapse of that gold mine that sent the speculators to fuel driving it’s price way up.
That doesn’t let Ford off the hook for depending so heavily on the Explorer, F-150, Navigator and all the other trucks, while they gave car business away to Toyota and Honda. Easy fat profits on low-tech products is poison. Ford should have known better.
When Alan Mulally stepped into the cockpit in 2006, he read the future correctly, immediately hocked all their assets for a $24B line of credit, and started cleaning house. He got a lot of flack for that, but history proved him right, and Mulally became the third man to save Ford, after HF II and Petersen.
Petersen was brilliant. I bought a new Sable in ’87 and loved it. When Petersen’s successors ruined the Taurus/Sable, I knew Ford was back in trouble. It must have been painful for him to watch it happen.
So if you make an average of 10 times the profit on the trucks you should not focus on them? Acorrding to my friends Dad who was a local exec for Ford there was about an average of $500 profit on a Escort while the first incarnation of the Explorer was good for about $5000 of profit on average.
I agree that it was short sighted of Ford to sell all their patents and research data on Hybrid cars to fund the development of the Expedition. At least they were smart enough to make sure that negotiated to be able to license that tech, and developments that came from it, back.
If you’re playing the stock for short-term gain, then by all means take all the profit you can today and don’t spend a dime you don’t have to today. Just be sure you get out fast, before the future you didn’t provide for comes to pass. This is how Wall Street and most corporate CEOs operate today.
Or you could use the profits to build long-term assets and markets at the expense of short-term profits. That takes the guts and ability to fight off the Wall St. pirates.
Actually it isn’t how it works today. It’s not about current profits, nor future potential profits but sales numbers and “impressive” press releases. High profits now are always good, however you need to put some of that away for that rainy day that will eventually come. However the stock market today is heavily driven by “traders” who are only looking for the stock price to swing, not for future growth.
That mentality is part of what got Ford and GM in the trouble they were in. If they didn’t keep upping the ante, pulling demand forward, and eliminating profits Wall St would have responded to the sinking sales numbers by killing the stock price. We can thank the Dot.gone boom for making the stock market think that way, yet nothing was learned from the Dot.gone bust that proved trading on rumors, press releases, and sales that don’t bring actual profits is not the way to value a stock.
“Or you could use the profits to build long-term assets and markets at the expense of short-term profits. That takes the guts and ability to fight off the Wall St. pirates.”
The problem with that is, it makes a business a takeover target for a raider. The cash saved and stored displeases shareholders, who see themselves as shortchanged. Shareholders selling out in large numbers depresses the stock value; and then raiders speculate that buying the company, selling the parts and pocketing the war-chest is profitable – sometimes hugely profitable.
It’s a fine line that needs be walked; and it’s at the root of all the “poison-pill” plans corporations have put together. Not all of them are effective, either.
In a cyclical business like the auto industry, it’s a difficult dilemma.
Before Donald Petersen, there was Philip Caldwell who after being president of Ford became CEO when Henry Ford II retired. http://en.wikipedia.org/wiki/Philip_Caldwell I guess then Caldwell probably paved the way for Donald Petersen.
It could be interesting to see an article about Petersen’s successors, Harold Arthur Poling, Alexander Trotman and Jacques Nasser who was CEO of Ford during the Firestone incident.
HF II loved the big huge mid 70′s big cars[nicknamed Barges by some], and kept them around until EPA forced change. The Panther platform, while beloved now, was a reverse engineered GM B-body platform. Ford just got lucky that GM dropped some of their big cars in 1984 and buyers went to Ford/Mercury biggies when gas was cheap again.
Not really there wouldn’t have been the time to reverse engineer it off of the downsized B and get it to market when they did. Much like GM they more or less designed a “new” “full-size” based on their intermediate platform.
Undoubtedly the loss of some of the B’s didn’t hurt sales of the Panthers.
According to David Halberstam, who wrote The Reckoning the Panther was a hacked-down version of the then-current Ford full-size. It was a bone of contention with some Ford execs that a front-wheel-drive full-size plan had been axed in favor of a “bastardized” slimming down of a current model.
After he published the book in 1983, of course, those plans for a FWD full-size were dusted off and made into the Taurus. As it turns out, both were, in their own way, winners.
But no, the B models were only motivators – not models to clone.
“The Fox-body Mustang reinvents and dominates the pony-car class with its balance of light weight and V8 power at an affordable price.”
Actaully, it was on chopping block, to be replaced by a Mazda 626 based FWD coupe. It wasn’t til word leaked out, that an uproar started and Ford relented. The Fox Stang was released in fall 1978, just refined for 1987. Affordable since it was near 10 years old, too.
This piece reminds me about how few really, really good automotive executives there are. There are a lot of average auto execs, and some below average ones too.
Peterson would be one of the good ones, as Mulally is today. I think that you may be a little hard on Lido, as I think that he was constrained in many ways by HFII and the finance guys. He did a pretty good job of bringing a very damaged Chrysler back from the dead. I need to read more about Ford’s Iacocca era.
Like you, I saw Fords become more attractive and appealing cars all through the 1980s and into the early 90s. Unfortunately, Trotman and Nasser undid a lot of the good that Peterson accomplished.
It’s easy to knock Iacocca in hindsight for cars like the Pinto, Mustang II and Granada. But those cars sold exceedingly well at the time and Lido managed to catch GM with its pants down in nearly every new market segment for the better part of three decades. Iacocca excelled because as an executive he was a rare animal – an engineer with the mindset of a salesman. He understood how to appeal to customers in a way his wonkish predecessor McNamara never could, but was smart enough to adapt to changing market realities in a way his pale facsimile and would-be successor at Chrysler, Lutz, has repeatedly proved incapable of.
Of course, Iacocca’s considerable ego was his downfall at Ford and helped spook Bob Eaton into giving Chrysler away to Daimler after he pulled that hostile takeover stunt with Kerkorkian. He may have lost his touch in the later years, too, as Chrysler relied on K-derivatives and boxy “classical” styling themes that appealed to Lee’s own Sinatra-shmoozing tastes long after the industry had moved on (although, in fairness, he signed off on the LH cars).
I read an article about the Pinto in Collectible Automobile and development of the Pinto beginning during the short tenure of Semon “Bunkie” Knudsen as president of Ford. But Bunkie didn’t stay long at Ford, I heard of rumors the reasons why Bunkie was fired was because he entered in Henry Ford II’s office without knocking at the door and treated HFII like a pal.
Ford is also, I believe, really adverse to any kind of bankruptcy, becuause, unlike the other companies, Ford is still has family ownership, it was not a publicly traded company until 1956, meaning that for 53 years of its existance it was totally private, even today, the Ford family still owns the majority of shares in Ford last time I heard, which is why they will do practically anything to avoid a bankruptcy, the minute their majority shares and stock are gone….what are they left with?
The Ford family owns a minority of the shares, but those shares have 40% of the votes, so yes, the family effectively controls the company, and will do pretty much anything to avoid BK, which would end their control (and their source of cash for private schools for the kids, nice houses, etc.).
I’d call Petersen an outstanding executive (although he was the driving force behind buying, erm, Jaguar, and he made little progress at breaking up the fiefdoms that were North America, Europe, Latin America, and Australia/Asia Pacific).
Poling was the right executive for the times (cost cutting in the early 90′s). And despite being at heart a finance guy, he seems to have had some product mojo as well, considering he was EVP of North America during development of the aero Thunderbird and the Taurus.
Trotman tried and failed to cut through the regional barriers, and, it seems to me, began the process of disinvesting in cars and throwing all of the PD funds into trucks (seemed like a good idea at the time…).
Nasser was besotted with 90′s ideas of e-commerce and “owning the customer lifecycle”, and way overpaid for acquisitions that had to be unwound after he was sacked. It was under Nasser Ford got Volvo, Land Rover, and some UK operator of junkyards (sorry, recycling centers). At Ford Credit we managed to resist the mania (except for one $100 million investment in a company alleged to have been developing a website to aggregate insurance quotes on the web, well, and way overpaying for a JV in India).
Ford bought a bunch of junkyards in the US too. It was due to proposed cradle to grave legislation that would have held them liable for the “safe” disposal and recycling of any car that they sold. So around here they bought up the biggest player who had brand (and for a while vehicle) specific yards and then closed most of them before turning around and selling the remaining facilities shortly there after the threat was gone. GM did the same thing but not nearly at the scale that Ford did.
If I recall correctly, Petersen either initially opposed the purchase of Jaguar, or, once the bidding started between Ford and GM and the price climbed, wanted Ford to pull out of the process. He was overruled by others – particularly the Ford Family.
It continues to amaze me that, every two decades or so, Ford manages to pull itself out of a death spiral with brilliant management and inspired, quality products, only to completely disregard the lessons learned and come crashing back down under the weight of its own hubris.
Twenty years ago, Ford had a reputation that rivaled Japan. Five years ago, after years of stupid acquisitions a black eye from the Firestone debacle and an overemphasis on trucks, Ford was the odds-on Detroit favorite to tank, while Rick Wagoner was being hailed for fighting off Kirk Kerkorian’s latest takeover attempt and Chrysler was riding high on the success of the hot 300. Funny how times change…
Given the cyclical nature of this industry, I’m still waiting to see if the new Focus is another ’86 Taurus or ’95 Contour.
The key is, as in any industry, is to know what the public wants, BEFORE they know they want it. Steve Jobs and Apple is a good example. Ford foresaw the return of high fuel prices, and the return to small fun cars with conventional platforms. It already had the Fiesta, the Focus and the Flex ready for production. It had the Transit Connect for business. GM squandered it’s money and time on making more profit out of trucks/ suvs and their high profit margin, while not investing in small fuel efficient vehicles alongside truck/ suvs. Now it has run out of money and time. The Chevy Volt is the Corvair of the 21st century. Not because of safety, but because it is a unique platform with high R & D costs and limited transfer to other models, as opposed to the Chrysler K Car whose platform could be made into almost anything and reducing production costs.
I grew up in a largely GM family, but it was hard not to notice what was happening at Ford during that time. The cars and trucks that Ford introduced during the 1980s were a lot more attractive than what was coming out of both GM and Chrysler.
Ford initially hit trouble when the new Thunderbird/Cougar platform (MN-12) received mixed reviews, and came in over both cost and weight targets. Then the Explorer was a smash hit, but, in the long term its success, along with strong Expedition and F-150 sales, distracted Ford from its passenger car line-up.
Then came the underwhelming 1995 Contour/Mystique and 1996 Taurus/Sable, and Ford was in trouble. The booming light-truck market allowed the company to paper over the problems, but once the Japanese invaded the SUV market and undercut the Explorer with the RAV-4 and CR-V, and gas prices rose, the chickens came home to roost.
I’m not sure that Petersen’s retirement was entirely voluntary. If I recall correctly, he opposed giving Edsel Ford II and William Clay Ford, Jr., a larger role in various corporate committees, because he felt that they didn’t have the necessary depth of experience. He also wasn’t in favor of the Jaguar purchase. He either opposed the purchase from the outset, or opposed it once a bidding war developed between GM and Ford, and the price began to climb.
I think Philip Caldwell deserves some of the credit here, he was a bean counter but that’s what Ford needed in the dark days of near bankruptcy in 1980. Also either Caldwell or Iacocca must have signed off on the Fox, the Fox body Mustang, and the Panther, which all would have been designed between 75 and 78.
The Fox and Panther kept Ford going from 78 to 83, and the Fox was still competitive enough to spin off the 83 LTD, which (Wikipedia says) was the #3 best selling passenger car in the US in 83-84. Not too bad for a 6 year old platform!