Bringing Smarts to a Diseased Brand: Can Mulally Save Ford?

Well, now we know what was happening in Ford's executive suite during July and August. While the company's market share has been tumbling, William Clay Ford was getting all the rotten news out there so that the new CEO, Alan Mulally, wouldn't have to be the bearer of bad news when he takes over. Over the summer Ford announced further declines in sales, plant closings, layoffs, the need to close dealerships, an overture to Carlos Ghosn of Nissan, and finally the admission that someone else's hand was needed to steer the company away from the precipice.

During Ford's tenure as CEO from 1999 until now, sales declined from about 4 million units per year to about 3 million, so the edge of the cliff is coming more closely into view. The value of the Ford family's stock holdings have declined by about half.

This is a powerful example of how the economy is driven forward by what economist Joseph Schumpeter called "creative destruction," the emergence of new companies and the decline of old ones.

There are some compelling issues of corporate strategy on view here. For example, over the last few decades while Ford has been gobbling up old auto brands - Jaguar, Land Rover, Volvo, Mazda, and Aston Martin - its own Lincoln and Mercury brands have been slowly fading away, suffering from product innovation neglect. In contrast, Toyota hasn't been acquiring existing brands, it's been building new ones from scratch to meet the new needs of today's markets. Lexus has captured the top of the market, the Prius hybrid has pioneered a new hybrid market market niche, and Scion is a winning entry brand. So far it looks like Toyota made better choices.

What will Mulally have to do to save the company? Innovation will certainly be high on his list. And how many brands will Ford have to dump to get the cash it needs to reinvest in the innovations that the company will need to survive? As of today, I'd bet that both Lincoln and Mercury will be gone within 5 years, and if Mulally can't turn it all around the entire company could be part of Nissan-Renault by 2015 or 2020.