The History of Ford Motor Company

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Ford Car
Ford Car

As the second-largest automobile company in the world, Ford Motor Company represents a $164 billion multinational business empire. Known primarily as a manufacturer of automobiles, Ford also operates Ford Credit, which generates more than $3 billion in income, and owns The Hertz Corporation, the largest automobile rentalcompany in the world. The company manufactures vehicles under the names Ford, Lincoln, Mercury, Jaguar, Volvo, Land Rover, and Aston Martin. Ford also maintains controlling interest in Mazda Motor Corporation. Ford’s financial stability was shaken in early years of the new millennium as a result of slowing sales, quality issues, and a debacle involving Firestone tires.

Origins of an American Legend

Henry Ford, the founder of the Ford Motor Company, was born on a farm near Dearborn, Michigan, in 1863. He had a talent for engineering, which he pursued as a hobby from boyhood, but it was not until 1890 that he commenced his engineering career as an employee of the Detroit Edison Company. In his spare time, Ford constructed experimental gasoline engines and in 1892 completed his first gasoline buggy. Dissatisfied with the buggy’s weight, he sold it in 1896 to help fund the construction of a new car. Ford’s superiors at the electric company felt his hobby distracted him from his regular occupation and, despite his promotion to chief engineer, he was forced to quit in 1899.

Shortly afterwards, with financial backing from private investors, Ford established the Detroit Automobile Company. He later withdrew from the venture after a disagreement with business associates over the numbers and prices of cars to be produced. Ford advocated a business strategy which combined a lower profit margin on each car with greater production volumes. In this way, he hoped to gain a larger market share and maintain profitability.

Independently in a small shed in Detroit, Henry Ford developed two four-cylinder, 80-horsepower race cars, called the 999 and the Arrow. These cars won several races and helped to create a new market for Ford automobiles. With $28,000 of capital raised from friends and neighbors, Henry Ford established a new shop on June 16, 1903. In this facility, a converted wagon factory on Mack Avenue in Detroit, the Ford Motor Company began production of a two-cylinder, eight-horsepower design called the Model A. The company produced 1,708 of these models in the first year of operation.

The Ford Motor Company was sued by the Licensed Association of Automobile Manufacturers, an industrial syndicate which held patent rights for road locomotives with internal combustion engines. Ford responded by taking the matter to the courts, arguing that the patent, granted to George B. Selden in 1895, was invalid. During the long process of adjudication, Ford continued to manufacture cars and relocated to a larger plant on Piquette and Beaubien Streets. A Canadian plant was established in Walkerville, Ontario, on August 17, 1904.

Henry Ford and his engineers designed several automobiles, each one designated by a letter of the alphabet; these included the small, four-cylinder Model N (which sold for $500), and the more luxurious six-cylinder Model K (which sold poorly for $2,500). The failure of the Model K, coupled with Henry Ford’s persistence in developing inexpensive cars for mass production, caused a dispute between Ford and his associate Alexander Malcolmson. The latter, who helped to establish the company in 1903, resigned and his share of the company was acquired by Henry Ford. Ford’s holdings then amounted to 58.5 percent. In a further consolidation of his control, Ford replaced John S. Gray, a Detroit banker, as president of the company in 1906.

In October 1908, despite the continuing litigation with the Selden syndicate, Ford introduced the durable and practical Model T. Demand for this car was so great that Ford was forced to enlarge its production facilities. Over 10,000 Model Ts were produced in 1909. Able to vote down business associates who favored more conventional methods of production, Henry Ford applied his assembly line concept of manufacturing to the Model T.

In developing the assembly line, Ford noted that the average worker performed several tasks in the production of each component, and used a variety of tools in the process. He improved efficiency by having each worker specialize in one task with one tool. The component on which the employee worked was conveyed to him on a moving belt, and after allowing a set time for the task to be performed, the component was moved on to the next operation. Slower workers thus needed to increase their work rate in order to maintain production at the rate determined by the speed of the belts.

Ford’s battle with the Selden group led to a decision by the Supreme Court in 1911, eight years after the initial suit. The Court ruled that the Selden patent was invalid. The decision freed many automobile manufacturers from costly licensing obligations; it also enabled others to enter the business.

When the United States became involved in World War I (April 1917), the Ford Motor Company placed its resources at the disposal of the government. For the duration of the war, Ford Motor produced large quantities of automobiles, trucks, and ambulances, as well as Liberty airplane motors, Whippet tanks, Eagle submarine chasers, and munitions. In 1918, Henry Ford officially retired from the company, naming his son Edsel president and ceding to him a controlling interest. But, in fact, Henry continued to direct company strategy and spent much of his time developing a farm tractor called the Fordson. He also published a conservative weekly journal, theDearborn Independent. Edsel, who was more reserved and pragmatic than his father, concerned himself with routine operations.

At the end of the war Henry and Edsel Ford disagreed with fellow stockholders over the planned expenditure of several million dollars for a large new manufacturing complex at River Rouge, near Detroit. The Fords eventually resolved the conflict by buying out all the other shareholders. Their company was re-registered as a Delaware corporation in July 1919. The River Rouge facility, built shortly afterward, was a large integrated manufacturing and assembly complex which included a steel mill of substantial capacity.

Cash-Strapped in the 1920s

Between January 1 and April 19, 1921, the Ford Motor Company had $58 million in financial obligations due, and only $20 million available to meet them. Convinced that Ford Motor would be forced into bankruptcy, representatives of several large financial houses offered to extend loans to the company, on the condition that the Fords yield financial control. When the offer was refused, the bankers retreated, certain that they would soon be called upon to repossess the company.

With little time available, Henry Ford transferred as many automobiles as possible to his dealerships, who were instructed to pay in cash. Almost immediately, this generated $25 million. Next, Ford purchased the Detroit, Toledo & Ironton railroad, the primary medium of transportation for his company’s supplies. By rearranging the railroad’s schedules, Ford was able to reduce by one-third the time that automotive components spent in transit. This allowed him to reduce inventories by one-third, thereby releasing $28 million. With additional income from other sources, and reduction in production costs, Ford had $87 million in cash by April 1, $27 million more than he needed to pay off the company debts.

The Ford Motor Company’s only relationship with banks after this crisis was as a depositor. Moreover, despite poor financial management, Ford maintained such strong profitability that it offered to lend money on the New York markets, in competition with banks. With large quantities of cash still available, Ford acquired the financially troubled Lincoln Motor Company in 1922.

Edsel Ford was more enthusiastic about the development of the aircraft industry than his father, and in 1925 persuaded his fellow shareholders (all family members) to purchase the Stout Metal Airplane Company. His close friend William Stout, who was retained as vice-president and general manager of the company, developed a popular three-engine passenger aircraft known as the Ford Trimotor. Nearly 200 of these aircraft were built during its production run.

After 18 years producing the Model T, the Ford Motor Company faced its first serious threat from a competitor. In 1926, General Motors Corporation introduced its Chevrolet automobile, a more stylish and powerful car. Sales of the Model T dropped sharply. After months of experimenting with a six-cylinder model, Ford decided to discontinue the Model T in favor of the new Model A. On May 31, 1926, Ford plants across the country were closed for six months while assembly lines were retooled.

That year Ford voluntarily reduced its work week to five days, declaring that workers should also benefit from the success of the company. Ford was also one of the first companies to limit the work day to eight hours, and to establish a minimum wage of $5 per day. At Henry Ford’s own admission, these policies were instituted more to improve productivity than to appease dissatisfied (and unrepresented) workers.

The British Ford Company was formed in 1928 and shortly thereafter the German Ford Company was founded. Henry Ford recognized the Soviet Union as a market with great potential, and like a number of other American industrialists, he fostered a relationship with officials in the Soviet government. Later, Ford participated in the construction of an automobile factory at Nishni-Novgogrod.

The economic crisis of October 1929, which led to the Great Depression, forced many companies to close. Ford Motor managed to remain in business, despite losses of as much as $68 million per year. By 1932, economic conditions became so difficult that the Ford minimum wage was reduced to $4 per day. But for its Model A, which sold 4.5 million units between 1927 and 1931, Ford’s situation would have been much worse.

The economy of Detroit was heavily dependent on large, locally based industrial manufacturers and when companies less successful than Ford were forced to suspend operations, a banking crisis developed. The Ford Motor Company, and Edsel Ford personally, extended about $12 million in loans to these banks in an effort to maintain their solvency. But these efforts failed and the banks were forced to close in February 1933. Ford lost over $32 million in deposits and several million more in bank securities. The principal Ford bank, Guardian National, was subsequently reorganized by Ford interests as the Manufacturers National Bank of Detroit. Ford’s largest business rival, General Motors, having suffered a similar crisis, emerged with control over the National Bank of Detroit.

The implementation of President Roosevelt’s New Deal made conditions more favorable to the organization of labor unions. But Henry Ford, who had supported President Hoover in the election, advised his workers to resist union organization, and in 1935 raised the company’s minimum wage to $6 per day.

In 1937, the United Automobile Workers (UAW) union began a campaign to organize Ford workers by sponsoring the employee occupation of a Ford plant in Kansas City. The conflict was resolved when Ford officials agreed to meet with union representatives. That same year, there was trouble at the River Rouge complex. Several men distributing UAW pamphlets at the gates were severely beaten by unidentified assailants, believed to have been agents of the Ford security office. Following an investigation by the National Labor Relations Board, Ford was cited for numerous unfair labor practices. The finding was contested, but eventually upheld when the Supreme Court refused to hear the case.

The War Years

In 1940, Henry Ford, who opposed American involvement in World War II, canceled a contract (arranged by Edsel) to build 6,000 Rolls-Royce Merlin aircraft engines for the British Royal Air Force, and 3,000 more for the U.S. Army. In time, however, public opinion led Ford to change his mind. Plans were made for the construction of a large new government-sponsored facility to manufacture aircraft at Willow Run, west of Dearborn.

Unionization activities climaxed in April 1941 when Ford employees went on strike. The NLRB called an employee election, under the terms of the Wagner Act, to establish a union representation for Ford workers. When the ballots were tabulated in June, the UAW drew 70 percent of the votes. Henry Ford, an avowed opponent of labor unions, suddenly altered his stand. He agreed to a contract with union representatives which met all worker demands.

The company devoted its resources to the construction of the Willow Run Aircraft plant. Eight months later, in December 1941, the Japanese bombing of Pearl Harbor resulted in a declaration of war by the United States against Japan, Germany, and Italy. Willow Run was completed the following May. It was the largest manufacturing facility in the world, occupying 2.5 million square feet of floor space, with an assembly line three miles long. Adjacent to the plant were hangars, covering 1.2 million square feet, and a large airfield. The airplanes produced at this facility were four-engine B-24E Liberator bombers, the Consolidated Aircraft version of the Boeing B-24. Production of aircraft got off to a slow start, but after adjustments the rate of production was raised to one plane per hour, 24 hours a day. During the war, other Ford Motor plants produced a variety of engines, as well as trucks, jeeps,–4 tanks,–10 tank destroyers, and transport gliders. The company also manufactured large quantities of tires, despite the removal of its tire plant to the Soviet Union.

Edsel Ford died unexpectedly in May 1943 at the age of 49. At the time of his death, Edsel was recognized as a far better manager than his father. Indeed, Henry Ford was often criticized for repeatedly undermining his son’s efforts to improve the company, and the managerial crisis which occurred after Edsel’s death is directly attributable to Henry Ford’s persistent failure to prepare capable managers for future leadership of the company.

Edsel had been responsible for much of the company’s wartime mobilization and his absence was deeply felt by his aging father, who was forced to resume the company presidency. In need of assistance, Henry Ford sought a special discharge from the Navy for Edsel’s son Henry II. The navy complied, citing the special needs of Ford management during wartime. Henry Ford vigorously prepared his grandson to succeed him. By the end of the war, when the Willow Run plant was turned over to the government, Ford had produced 8,600 B-24E bombers and over 57,000 aircraft engines.

In September 1945, Henry Ford II, aged 28, was named president of the Ford Motor Company. The inexperienced man could not have started at a worse time. No longer supported by government contracts, the company began to lose money at a rate of $10 million per month. The source of the problem was Henry Ford I’s financial management policy, specifically designed to perplex the Internal Revenue Service and discourage audits. The severe economic conditions after the war made Ford’s finances an albatross.

Unable to bring the company’s finances under control, Henry II hired Ernest R. Breech, a General Motors executive and past chairperson of Bendix, in 1946. Breech was placed in charge of two groups–a managerial group and a financial one. The first one was comprised of several managers hired away from General Motors, and the second group was made up of ten talented financial experts who had served with the Air Force Office of Statistical Control. The Air Force group included Robert S. McNamara, J. Edward Lundy, Arjay Miller, and Charles Tex Thornton; they spent several years reconstructing the company’s system of financial management.

Henry Ford I, who had retained the title of chairperson since 1945, died in April 1947 at the age of 83. Henry II and Ernest Breech were then able to implement their own strategies for recovery, and these included the adoption of the proven General Motors management structure, and the decision to establish the Ford Motor Company in foreign markets. In its first year under Breech, the company registered a profit and it continued to gain strength in the late 1940s and early 1950s. Breech’s top priority was strict adherence to a financial plan with strong profit margins; unfortunately, this proved to be at the expense of developing automobiles for an increasingly complex market.

Over the previous two decades, the Ford Motor Company had been a notable pioneer and achiever in the industry, and it was the first company to cast a V-8 engine block (1932). Ford had produced its 25 millionth automobile in 1937 and the following year its Lincoln Division introduced the Mercury line, which proved highly successful in the growing market for medium-priced automobiles. Ford’s good image had been further enhanced by its contributions to the Allied effort in World War II; even Josef Stalin had kind words for the enterprising American company.

Before he died, Henry Ford I had created two classes of Ford stock. The B Class was reserved for family members and constituted the controlling 40 percent voting interest. The ordinary common shares were to be retained by the company until January 1956, when they were to be offered to the public for the first time.

Two years after Henry I’s death, in 1949, the company unveiled a number of new automatic styles. But while the cars were practical, and to a degree fashionable, the company no longer appeared to be a pioneer; indeed it gained a reputation, not wholly justified, as being an imitator of General Motors.

Regaining its initiative, the Ford Motor Company decided to introduce a new model to fill a gap in the market between the Ford and Lincoln-Mercury lines. In 1958, the much heralded 410 horsepower Edsel made its debut. It was a terrible flop. Ford’s market researchers had been very wrong; there was no gap in the market for the Edsel to fill. After just two years, production of the ill-fated car ceased–110,847 units had been produced, at a loss of some $250 million.

The 1960s-70s

The 1960s saw many changes at Ford: dissatisfied with his secondary role in the company decision-making, Henry Ford stripped Breech of his power, replacing him with Robert McNamara. But McNamara left the Ford Motor Company in 1961 to serve as Secretary of Defense in the Kennedy administration. Many of McNamara’s duties were taken over by Arjay Miller, who succeeded the interim president, John Dykstra, in 1963.

The Ford Motor Company purchased the Philco Corporation in 1961 and established a tractor division in 1962. The following year, Ford introduced its highly successful Mustang; more than 500,000 of these cars were sold in 18 months. The man most responsible for developing the Mustang was a protege of Robert McNamara named Lee Iacocca.

In another move intended to assert his authority over management, Henry Ford II dismissed Arjay Miller in 1968 and named Semon E. Knudsen as president. Knudsen, a former executive vice-president at General Motors known for his aggressive personality, found himself in constant conflict with Henry Ford, and after 19 months he was replaced by Lee Iacocca. Iacocca was a popular figure, highly talented in marketing and sales, but like Knudsen, he frequently disagreed with Henry Ford.

Ford Motor Company subsidiaries in Europe entered a period of strong growth and high profitability in the early 1970s, and these subsidiaries produced components for the Pinto, a sub-compact introduced in the United States in 1971. Pinto models from 1971 to 1976 and similarly configured Bobcats from 1975 to 1976 drew a great deal of attention after several incidents in which the car’s gas tank exploded in rear-end collisions. The unfavorable publicity from news reports damaged Ford’s public image, as did wrongful death litigation.

In April 1977, Henry Ford II reduced Iacocca’s power by creating a new executive triumvirate. Iacocca was a member of this, along with Ford himself and Philip Caldwell. But a year later, Ford added his brother William Clay Ford to the group and relegated Iacocca to a subordinate position; then within a few months, Ford suddenly fired Iacocca and installed Caldwell as president. Henry Ford was battling stockholder allegations of financial misconduct and bribery at the time and his dismissal of Iacocca made him more unpopular than ever. Iacocca went on to head Chrysler Corporation.

Henry Ford made a critical decision and a very misguided one. He cancelled development of a small car which had been proposed by Iacocca and which was intended to succeed the aging Pinto. Thus, as the Japanese compacts became increasingly popular in the United States, Ford found itself quite unable to compete. Adding to its woes, Ford, along with other U.S. car manufacturers, was obligated by Congressional legislation (particularly the Clean Air Act) to develop automobiles which would emit less pollutants. Henry Ford relinquished his position as chief executive officer to Philip Caldwell in October 1979. The following March, Ford retired and gave the chair to Caldwell, while retaining his seat on the board of directors.

Ford Motor Company encountered severe economic losses as a result of a reduction in market share, as well as the high costs incurred by labor contracts and the development of automobiles that met the new federal standards. In 1980, the company lost $1.54 billion, despite strong profits from the truck division and European operations. Ford lost a further $1.06 billion in 1981 and $658 million in 1982 while trying to effect a recovery; its market share fell from 3.6 percent in 1978 to 16.6 percent in 1981.

Company officials studied Japanese methods of industrial management, and worked more closely with Toyo Kogyo, the Japanese manufacturer of Mazda automobiles (Ford gained a 25 percent share of Toyo Kogyo in November 1979, when a Ford subsidiary merged with the company). Ford imported Mazda cars and trucks, and in many ways treated Toyo Kogyo as a small car division until the Escort, its successor to the Pinto, reached the showrooms. This new compact was modeled after the Ford (Europe) Erika; another version of it, the Lynx, was produced by Ford’s Lincoln-Mercury division.

Caldwell transferred the talented manager Harold Poling from the European division to the United States in an attempt to apply successful European formulas to the American operation. In the restructuring that followed, several plants were closed and more than 100,000 workers were dismissed. Ford’s weakness in the market was a major concern of the unions; consequently, the company inaugurated a policy of employee involvement in plant operations and was able to secure more favorable labor contracts. Productivity improved dramatically.

In 1984, with costs reduced, Ford started to repurchase 30 million shares (about 10 percent of the company’s stock). Its production of cars in Mexico was increased, and through its interest in Kia Motors, output was stepped up in South Korea. The following year, Ford introduced the Taurus (another version, the Sable, was produced by its Mercury division), a modern full-size automobile which had taken five years to develop at a cost of $3 billion. The Taurus proved highly successful and won several design and safety awards.

Sales and profits reached record levels in 1984, and in 1986 Ford surpassed General Motors in income for the first time since 1924. In addition, Ford’s market share increased to just under 20 percent. Ford Motor purchased several companies in the mid-1980s, including the First Nationwide Financial Corporation and the New Holland tractor division of Sperry, which was later merged with Ford Tractor. Ford also purchased a 30 percent share of Otosan, the automotive subsidiary of the Turkish KoXGroup. The attempted acquisition of the Italian car maker Alfa Romeo in 1986 failed, due to a rival bid from Fiat.

Challenging Early 1990s

The diversification into financial services that began in the mid-1980s continued in earnest throughout the rest of the decade, as each of the major U.S. car manufacturers sought to insulate themselves against the cyclical nature of their business. Ford spent $5.5 billion acquiring assets for its financial services group during the latter half of the decade, including a $3.4 billion purchase in 1989 of The Associates, a Dallas-based finance company. That acquisition, completed the same year Ford purchased the venerable British car manufacturer Jaguar Cars Ltd. for $2.5 billion, made Ford the country’s second largest provider of diversified financial services, ranking only behind Citicorp. With plans to eventually derive 30 percent of the company’s profits from financial service-related business, Ford entered the 1990s with $115 billion worth of banking-related assets, a portfolio that provided the company’s only bright moments during the otherwise deleterious early 1990s.

An economic recession crippled U.S. car manufacturers during the early 1990s, and Ford bore the brunt of the financial malaise that stretched around the globe. Domestically, car sales faltered abroad, particularly in Great Britain and Australia, Ford’s sales plummeted. In 1991, Ford’s worldwide automotive operations lost an enormous $3.2 billion after recording a $99 million profit the year before. In the United States, automotive losses reached an equally staggering $2.2 billion on the heels of a $17 million loss in 1990. The losses struck a serious blow to Ford, which as recently as 1989 had generated $3.3 billion in net income; however, the financial results of 1991 would have been worse without the company’s strategic diversification into financial services. For the year, Ford’s financial services group registered a record $927 million in earnings, up from the previous year’s total of $761 million, which left the company with a $2.25 billion loss for the year, an inauspicious record in Ford’s nearly 90-year history.

The financial disaster of 1991, however, was just a prelude to more pernicious losses the following year, as the global recession reached its greatest intensity. In 1992, with revenue swelling to slightly more than $100 billion, Ford posted a $7.38 billion loss. Although 1992 represented one of the bleakest years in Ford’s history, the worst was over, and as the economic climate improved, the company emerged with renewed vitality. Against the backdrop of successive financial losses, Ford had increased its presence in the truck and minivan market niche, which represented the fastest-growing segment of the broadly defined automotive market. Roughly 200,000 minivans and sports utility vehicles were sold in the United States a decade earlier and now, as consumers once again returned to car dealers’ showrooms, more than 2.3 million opted for minivans and light trucks, a trend that bolstered Ford’s financial position and predicated its return to a profitable future.

During this time, the gap separating Japanese and American car manufacturers’ production standards had narrowed considerably, with the U.S. manufacturers emerging from the early 1990s in a more enviable position–Ford included. As the technological and managerial race between U.S. car manufacturers and their Japanese counterparts tightened, the importance of prudent product development and effective distribution networks increased. Toward this end, Ford reorganized its production and distribution operations in mid-1994 to better respond to the changing economic structure of the numerous countries in which Ford operated facilities. Regional trading areas, rather than nation states, would represent the primary focus of Ford’s future efforts, a direction the company moved toward with its worldwide reorganization in 1994.

Ford’s notable achievements during the latter half of the 1990s were philosophical in nature, as the company attempted to replace the corporate culture of its past with a new way of thinking for the future. The proponent of Ford’s new vision was Lebanese-born, Melbourne, Australia-raised Jacques Nasser, who was named president and chief executive officer in January 1998, concurrent with the appointment of William Clay Ford, Jr., great-grandson of the founder, as chairman. Two years before his historic promotion–at age 51, Nasser became the youngest, non-family chief executive in the company’s history–Nasser was named president of Ford’s worldwide automotive operations, and he did not like what he saw. The company had the lowest profits from total vehicle sales of any U.S. automaker, an alarming statistic that Nasser began to improve by slashing costs. His cost-cutting efforts earned Nasser the nickname Jac the Knife, but once he was named Ford’s chief executive in 1998, the characterization of his influence took on an added dimension. Nasser’s aim was to replace the corporate culture of decades past with an entrepreneurial style that placed a much more intense emphasis on the customer. He continued making his trademark cuts in costs, realizing $5 billion in savings between 1997 and 1999, but he also worked toward instilling a new ethos at Ford.

As part of the new movement espoused by Nasser, the company’s Lincoln-Mercury division was relocated from Detroit to Irvine, California, an unprecedented move for a major U.S. automaker. Nasser wanted the division to attract younger customers–Lincoln’s typical customer was 63 years old, Mercury’s was 56 years old–and to be closer to suppliers and to emerging auto trends. Nasser wanted the division to breathe new life into itself away from the scrutiny of company headquarters, to benefit from a more entrepreneurial-driven perspective.

The changes at Lincoln-Mercury typified the profound currents of change sweeping through Ford at the century’s end. Much remained to be done to achieve Nasser’s vision of a fundamentally revamped Ford, but by the end of the 1990s there were impressive signs of progress. The company ended the decade as the most profitable automaker in the world. Its stock price increased 130 percent between 1996 and 1999, outpacing the increases recorded by its rivals. Analysts predicted great things for Ford, thanks in large part to the company’s increased ownership stake in Mazda Motor Corporation (from 25 percent to 33.4 percent in 1996) and its $6.45 billion acquisition of Swedish auto maker Volvo in 1999.

The New Millennium

However, Ford faced major challenges in the early years of the new millennium. While it continued to lay the groundwork for future growth by spinning off its Visteon unit, acquiring BMW’s Land Rover SUV business, and purchasing the remaining shares of Hertz that it did not already own, it was dealt a significant blow when Bridgestone recalled over 6.5 million Firestone brand tires–tires used as original equipment on Ford’s popular Explorer model, the Mercury Mountaineer, the Ranger, and some of its F-150 pickups. In the largest recall in automotive history, Ford was forced to call back over 300,000 vehicles and replace over 13 million Firestone tires at a cost of $3 billion in 2001 alone. To make matters worse, several deaths had been linked to faulty tires on the Ford Explorer, and some alleged that Ford had known about the problem all along and had failed to act.

As a result of the tire debacle and several other product recalls, Ford was ranked last in the industry in terms of quality according to J.D. Power & Associates. In 2001, the company posted a loss of $5.45 billion. Nasser was ousted in late that year, leaving William Clay Ford, Jr., at the helm. The task set before him was monumental; he faced faltering employee morale, major quality issues, sluggish sales, and intense price wars.

In early 2002, Ford launched a major restructuring effort that included the closure of five plants, the elimination of 35,000 jobs, over $9 billion in cost cutting measures, and the shuttering of several car lines including the Mercury Cougar and the Lincoln Continental. Included in the plan were efforts to boost the morale of employees. In a speech quoted in a November 2002Fortune article, CEO Ford reminded his work force “We’ve come back from adversity many times in our history. We’re going to do it again. On the eve of our 100th anniversary, the stage is set for a dramatic return to greatness. We started the job; now let’s finish it.”

The company forged ahead in 2002 cutting its losses to $559 million. Market share continued to fall, however, hovering at 21 percent versus the 25 percent it held in 1998. In response, Ford sold some non-core assets and ramped up new product development, launching the Ford Focus C-MAX in Europe, the Jaguar XJ, the Volvo S40, a new Ford F-150, the Ford Freestar, and the Mercury Monterey in 2003. Ford anticipated launching 40 new products in 2004 including the new Mustang and the Escape Hybrid, the first gasoline/electric SUV. Overall, the company planned to have 150 new products in the marketplace by mid-decade.

While a turnaround at the Ford Credit subsidiary bolstered the company’s income, automotive operations, especially the international arm, continued to struggle. James J. Padilla, elected chief operating officer in 2004, and William Clay Ford, Jr., indeed faced a long road ahead. Restoring Ford’s image and getting the company back on a successful financial path would no doubt be their focus in the years to come.

Principal Subsidiaries:Ford Brasil Ltda.; Ford Capital B.V. (Netherlands); Ford Motor Company (Belgium) N.V.; Ford Espana S.A.; Ford European Holdings, Inc.; Ford Holdings LLC; Volvo Car Holding Germany GmbH; Ford Motor Land Development Corporation; The Hertz Corporation; Ford Global Technologies, LLC; Ford International Capital Corporation; Jaguar Ltd.; Ford Italia S.p.A.; Ford Mexico Holdings, Inc.; Ford Motor Company of Canada, Ltd.; Land Rover Holdings; Ford Motor Company of Southern Africa (Pty) Ltd.; Ford Motor Company of Australia Ltd.; Ford Deutschland Holding, GmbH; Ford Motor Credit Company; Ford Credit Canada Ltd.; Ford Motor Service Company; Ford Motor Vehicle Assurance Company; Ford Trading Company, LLC; Groupe FMC France SAS; Volvo Cars of North America, LLC.

Principal Competitors: DaimlerChrysler AG; General Motors Corporation; Toyota Motor Corporation.

Chronology

  • Key Dates:
  • 1903:Henry Ford sets up shop in a converted wagon factory.
  • 1908:Ford’s Model T is introduced.
  • 1922:Lincoln Motor Company is acquired.
  • 1945:Henry Ford II is appointed company president.
  • 1963:Ford Mustang is released.
  • 1985:Ford Taurus is introduced.
  • 1989:Jaguar Cars Ltd. is acquired.
  • 1999:Swedish automaker Volvo is acquired in a $6.45 billion deal.
  • 2001:The company takes a $2.1 billion charge to cover the cost of replacing Firestone tires on its vehicles; William Clay Ford, Jr., is named CEO.

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