Introduction William Clay Ford, Jr., was staring out the window of his office in Dearborn, Michigan, lost in thought. The future of Ford Motor Company was hanging in the balance, and no one was certain how best to save this once-great company. Question after question without any easy answers kept going through his mind. . . . How much longer can Ford survive with the large losses? Will it have to sell off assets or financially restructure? Can it cut enough costs, and where should it cut? Will the union leaders realize the situation, and how much will they be willing to help? When will Chinese competitors enter the U.S. market? How can Ford develop its product offerings to adjust for higher fuel costs? How can Ford improve its product offering to reverse or at least stop the market share losses? How much more market share will it lose? The magnitude of the situation seemed overwhelming. In order to overcome these challenges, it seemed as if Ford would have to restructure every aspect of its business. It would require improved product offerings with cuttingedge design and high quality; improved operation with more flexibility and lower costs; and improved marketing with better brand image and customer interest. Ford was at a crossroads, and the way ahead remained shrouded in fog. History Ford has gone through many evolutions since its humble beginnings on June 16, 1903.1 Henry Ford began this corporation, now synonymous with the assembly line, the Industrial Revolution, and the American Dream, with 11 business associates and $28,000 in capital.2 Ford Motor Company continued along with minimal leadership problems until the death of its president, Edsel Ford, Case 10 in 1943. Intense dissension about who should succeed Edsel Ford continued until Henry Ford, at the age of 79, returned from retirement to lead the company. For the next two years under Henry Ford the company operated with massive losses of $10 million dollars per month.3 Finally, in 1945, Henry Ford was forced to step down and Henry Ford II assumed the role of president.4 Henry Ford II managed to successfully maneuver the company back to productivity and empowered Robert McNamara and his group (planning and financial analysis) to transform Fords leadership style from a tyrannical dictatorship to a powerful, professional oligarchy.5 Over the next 20 years, Ford Motor Companys presidents and CEOs turned over 13 times.6 The current CEO, Alan Mulally, was appointed in September 2006 to take over for William Clay Ford, Jr., who had served as both president and CEO since 2001. William Clay Ford, Jr., led Ford Motor Company to three straight years of profitability followed by a sharp decrease in profits marked by a $1.44 billion loss in the first half of 2006.7 These losses motivated Ford Motor Company to search for a new CEO from outside the industry, Alan Mulally, formerly of Boeing Corporation. Mulally stood out as a qualified successor because he demonstrated the leadership skills Ford.

1. Introduction
William Clay Ford, Jr., was staring out the window of
his office in Dearborn, Michigan, lost in thought. The
future of Ford Motor Company was hanging in the
balance, and no one was certain how best to save this
once-great company. Question after question without
any easy answers kept going through his mind. . . . How
much longer can Ford survive with the large losses? Will
it have to sell off assets or financially restructure? Can
it cut enough costs, and where should it cut? Will the
union leaders realize the situation, and how much will
they be willing to help? When will Chinese competitors
enter the U.S. market? How can Ford develop its product
offerings to adjust for higher fuel costs? How can
Ford improve its product offering to reverse or at least
stop the market share losses? How much more market
share will it lose?
The magnitude of the situation seemed overwhelming.
In order to overcome these challenges, it seemed as if
Ford would have to restructure every aspect of its business.
It would require improved product offerings with cuttingedge
design and high quality; improved operation with
more flexibility and lower costs; and improved marketing
with better brand image and customer interest. Ford was at
a crossroads, and the way ahead remained shrouded in fog.
History
Ford has gone through many evolutions since its humble
beginnings on June 16, 1903.1 Henry Ford began this
corporation, now synonymous with the assembly line,
the Industrial Revolution, and the American Dream,
with 11 business associates and $28,000 in capital.2 Ford
Motor Company continued along with minimal leadership
problems until the death of its president, Edsel Ford,
Case 10
in 1943. Intense dissension about who should succeed

2. Edsel Ford continued until Henry Ford, at the age of 79,
returned from retirement to lead the company. For the
next two years under Henry Ford the company operated
with massive losses of $10 million dollars per month.3
Finally, in 1945, Henry Ford was forced to step down and
Henry Ford II assumed the role of president.4 Henry Ford
II managed to successfully maneuver the company back
to productivity and empowered Robert McNamara and
his group (planning and financial analysis) to transform
Fords leadership style from a tyrannical dictatorship to a
powerful, professional oligarchy.5 Over the next 20 years,
Ford Motor Companys presidents and CEOs turned over
13 times.6 The current CEO, Alan Mulally, was appointed
in September 2006 to take over for William Clay Ford, Jr.,
who had served as both president and CEO since 2001.
William Clay Ford, Jr., led Ford Motor Company to three
straight years of profitability followed by a sharp decrease
in profits marked by a $1.44 billion loss in the first half
of 2006.7 These losses motivated Ford Motor Company
to search for a new CEO from outside the industry, Alan
Mulally, formerly of Boeing Corporation. Mulally stood
out as a qualified successor because he demonstrated the
leadership skills Ford had established many years ago as
critical to success.
Strategic Leadership
Ford Motor Company, recognizing the importance of
human capital development in strengthening the company
as a whole, developed a leadership training program
in the late 1990s comprised of four separate courses,
Capstone, Experienced Leader Challenge, Ford Business
Associates, and New Business Leader. These programs
were designed to instill the mind-set and vocabulary of a revolutionary leader as well as to teach
the tools necessary
to steer a leadership and manufacturing revolution.8
Ford also planned to use its Business Leaders Initiative
to get all 100,000 salaried employees worldwide involved

3. in business-leadership cascades, intense exercises that
combine trickle-down communications with substantive
team projects.9 In 2000, Ford planned to guide 2,500
managers through one of its four leadership courses.10 Yet
in 2006, Ford Motor Companys leadership structure remained
complex, highly bureaucratic, and comprised of a
six-layered management scheme on which pay is based.
The former COO for the Americas affirmed, The company
has too many layers, the company is too bureaucratic,
and it takes too long to get things done.11 (See Exhibit 1
for Ford senior leadership structure.) Ford geared up
for many changes under the leadership of Alan Mulally,
including the replacement of many members of the top
leadership team.of the board of directors. Prior to joining Ford, Mulally
was an executive vice president at Boeing as well as the
president and CEO of Boeing Commercial Airlines.
Mulally has received many accolades throughout his career
and has been recognized for his contributions and
industry leadership by being named one of the Best
Leaders of 2005 by BusinessWeek magazine. Mulally
is perhaps best known for his efforts to streamline
Boeings production system and the associated transformation
of the companys commercial airplanes product
line.13 Despite his many successes in the airline industry,
chiefly his turnaround of Boeings commercial airline
division, it remains to be seen whether these turnaround
experiences will be applicable to the turnaround Ford is
seeking.
William Clay Ford, Jr.
The current executive chairperson of Ford Motor
Company is William Clay Ford, Jr. William Ford has
been a member of the board since 1988, and was
elected to the office of chairperson on January 1, 1999.
He is also the chair of the boards Finance Committee
and a member of the Environmental and Public Policy
Committee. William Ford also served as chief executive

4. officer from October 2001 to September 2006. As CEO,
William Ford led the company to three straight years
of profitability, after experiencing a $5.5 billion loss in
2001, by focusing on improving quality, lowering costs,
and delivering new products that satisfy customers.14
On his step back from CEO to executive chairperson,
William Ford said in an interview with journalist Keith
Naughton of Newsweek, Ive always said that titles are
not important to me. This company has been part of
my life since the day I was born and will be until the
day I die. Whats important is getting this company
headed in the right direction.15 According to Fords
Web site, William Ford continues to focus on the future
of Ford Motor Company and the strategies that
will move it successfully into the future. He is quoted
as saying, Innovation is the compass by which Ford
Motor Company sets its direction. We want to have an
even bigger impact in our next 100 years than we did
in our first 100.16
Board of Directors
Ford Motor Companys board of directors is comprised
of 13 extremely diverse members who have many different
corporate and personnel backgrounds, ranging
from professor of physics to publishing, banking, and
auditing. Three of the directors are members of the Ford
family, and six have served on the board of directors for
more than 10 years (see Exhibit 2). Despite the myriad
of backgrounds presented in Fords board of directors,
past decisions have shown that the Ford family retains most of the decision-making power and
influence. It
was only after Ford Motor Company began to lose billions
of dollars that William Clay Ford, Jr., stepped down
as CEO. Even with his resignation as CEO, it is clear that
William Ford still wields most of the power at Ford, as
evidenced by his renaming the board chair position,
Executive Chairman. William Ford was honored as the

5. 2006 Automotive Industry Executive of the Year, a great
honor considering the trends taking place within the automotive
industry.17
Trends in the U.S. Auto Market
Although the U.S. auto market is large, it is not a highgrowth
market. The average growth rate has been less
than 1 percent over the past seven years. However,
competitors have experienced market share shifts.
Despite the fact that GM still has the dominant
market share, both GM and Ford have been losing
market share to foreign competition. (See Exhibit 3
and 4 for trends related to U.S. light vehicle market
share from domestic, Japanese, Korean, and European
producers.) In 1995, the Big Three American auto
producers held 73 percent of the U.S. market share, but
by third quarter 2007, that number had dropped below
50 percent.18 Similarly, foreign firms have steadily
increased production in the United States. In 1986,
U.S. firms produced about 95 percent of the cars made
in the United States, but by 2005, that number had
fallen to 47.7 percent.19 The trend of increased foreign
production in the United States should continue
as Ford and GM continue to trim production in the
United States.
Consolidation
A consolidation of auto manufacturing firms has affected
both the global and domestic markets. Chrysler merged
with German manufacturer Daimler-Benz in 1998 to
form DaimlerChrysler, but Daimler sold Chrysler shares
in 2007. Over the past several years, Ford purchased or
formed agreements with Mazda, Volvo, Jaguar, and Land
Rover. In 2006 GM began discussions about possible
alliances with Renault and Nissan, but skeptics were relieved
when these talks broke off. However, the competitive
structure of the global automotive industry makes
further mergers and alliances that involve firms competing

6. in the U.S. market likely.
Market Segmentation
Another trend has been further market segmentation.
With the increased number of foreign competitors and
little differentiation between manufacturers, firms competing
in the U.S. market have continued to target smaller
customer segments, increasing the number of models
each maker produces in an effort to attract each smaller
customer group. Analysts predict that the number of
available car models in the U.S. market will increase from
250 in 1999 to 330 by 2008. Similarly, the average annual
sales of each model decreased from 106,819 to 48,626 in
the years between 1985 and 2005.Alternative Fuels
Another change is the significant trend in building cars
that use alternative fuels and have higher fuel efficiency.
Although hybrid cars that combine small engines with
electric power currently are gaining the most attention,
other alternatives such as bio diesel, electric, or hydrogen
fuel cells have also been developed. Given the increasing
global demand for fuel, and the recent increase in gas
prices in the United States, the drive toward alternative
fuels and greater efficiency should continue.
One cost-effective alternative currently being used
by automakers is E85, a corn based fuel,which is a blend
of 85 percent ethanol (a form of alcohol) and 15 percent
gasoline. E85 provides about 25 percent less energy than
traditional gasoline, but advocates argue that it will reduce
U.S. dependence on foreign producers and develop
a domestic industry that supports farmers.21
As noted previously, electric hybrid vehicles have already
been commercialized and represent a significant
technological change, but if hydrogen fuel cell technology
can be commercialized, it would represent an even
more radical technological shift. These technological innovations
represent an opportunity for the auto manufacturers
to differentiate themselves from the competition.

7. Just as important as considering the current trends
in the market place, automotive firms must examine the
competitive environment.
U.S. Auto Industry Competitive
Environment
The United States comprises the largest auto market in
the world with more than 16 million vehicles sold in
each of the last seven years.22 Given its size, automakers
from around the world have targeted the U.S. market
for exports. Although at least 22 firms compete in the
U.S. market, the four largest firms (GM, Ford, Toyota,
and DaimlerChrysler) control more than 68 percent of
the market and the top six firms (including Honda and
Nissan) control 83.5 percent of the market.23 See Exhibit 5
for a breakdown of light vehicle U.S. market share.
General Motors (GM) and Ford are the only two domestic
firms that still have a significant presence. Chrysler
had been the third largest U.S. auto manufacturing firm
before it merged with Daimler-Benz AG in 1998 to
form DaimlerChrysler. Many of the foreign firms who
compete in the U.S. market also produce vehicles in the
United States. In 2006, 11 firms produced cars and light
trucks in the United States (BMW, DaimlerChrysler,
Ford, GM, Honda, Hyundai, Mazda, Mitsubishi, Nissan,
Subaru, and Toyota).24
DaimlerChrysler
As mentioned, DaimlerChrysler was formed in 1998
as the result of a merger between Daimler-Benz and
Chrysler. At year-end 2006 it employed approximately
360,000 people and sold almost 4.7 million vehicles (both
passenger and commercial) to consumers in 200 different
countries.25 Similar to the financial struggles experienced
in recent years by Ford and GM, DaimlerChrysler announced
a $1.2 billion loss in 2006, a 9 percent decrease
in sales, and a 0.5 percent decrease in market share to
13.5 percent.26 The merger did not prove to be beneficial

8. for Daimler and the majority interest of Chrysler was
recently divested to a private equity group, Cerberus
Capital Management (August 2007). DaimlerChrysler
(to be renamed Daimler AG) continues to hold 19 percent
ownership and will strive to help Chrysler succeed
as a stand-alone car company.