For the last several years the Ford Motor Co. has been on a roll, delivering increasing sales and earnings for investors that were the envy of the auto industry. In March 2001, Ford Motor nearly overtook General Motors as the world's largest automaker based on sales and market capitalization. But it has been all downhill ever since. Falling profits and, more importantly, a sharp erosion in Ford Motor's cash position, have caused several management changes at corporate headquarters in Dearborn, Mich. And even as the tire problems related to the Ford Explorer sport utility vehicle seemingly subsided, litigation brought by hundreds of current and former owners of Ford Motor's most popular and profitable product even now hang like a thunderhead over the company.
On Oct. 30, Ford Motor announced that Chief Executive Officer (CEO) Jacques "Jac" Nasser, the testy Lebanese-American manager who once compared himself to legendary former General Electric chairman Jack Welch, would retire effective immediately. Ford Motor's public-relations apparatus, one of the best among Fortune 500 companies, is selling the idea that Nasser's departure came about because of a number of other factors, but insiders tell INSIGHT that the cost and embarrassment related to the Explorer debacle was the final straw. Ford Motor's latest quarterly report with the Securities and Exchange Commission (SEC) confirms Nasser will keep lucrative cash and stock benefits -- in effect a golden parachute -- in return for agreeing not to go to work for another carmaker.
As INSIGHT reported in August (see "Explorer May Lead Ford to Ruin" Aug. 20), Chairman William Clay "Bill" Ford Jr. assumes the title of CEO after serving as nonexecutive chairman since 1999. An untested operator, the 44-year-old Ford will be supported by two veteran managers: Nick Scheele, 54, the new chief operating officer (COO) and president of Ford Motor automotive operations, and James Padilla, group vice president for manufacturing and quality, who will take Scheele's current job as head of Ford Motor's North American operations.
Upon taking over as the new CEO, Ford immediately undercut his position, explaining that he will focus on external ambassadorial and nonexecutive tasks. As one banker noted, having a controlling shareholder with little operating experience take the wheel is not the kind of arrangement needed at troubled Ford Motor, the second-largest automaker and one of the world's largest industrial operations.
Another remarkable aspect of the ascension of Ford to the CEO position was the olive branch he offered to the Bridgestone/Firestone unit of Japan's Bridgestone Corp. after tossing Nasser to the wolves. In several press statements, Ford said he wants to have "a constructive relationship with Bridgestone," but alluded to legal issues that remain. Both companies currently are entangled in hundreds of lawsuits regarding the Explorer, including a class-action litigation in federal court in Indianapolis that potentially could be fatal to the company.
During a Nov. 16 hearing in Indianapolis, Tab Turner, lead counsel for the plaintiffs, outlined the defects in the Explorer and the Firestone Wilderness AT tire that he alleges caused hundreds of fatalities. When asked by Judge Sara Evans Barker if the Explorer is defective, Turner replied that less than 5 percent of all Explorer rollover cases involved Firestone tires. "If you put a good tire on the Explorer, it will still roll over because of inherent stability problems," Turner told the court. Sources close to the case say that if the trial proceeds and Judge Barker finds that the Explorer is defective, regardless of what tires are on the vehicle, Ford could be held liable for billions in damages to current and previous owners of some 3.5 million Explorers.
Yet legal issues, threatening as they may be, are not Bill Ford's immediate concern. The basic issue raised by his elevation to CEO is the dubious but dominant role of the Ford family, which controls only 6 percent of the company's equity but 40 percent of the vote. …