A hard lesson in globalisation
Apr 28th 2005 | LONDON AND DETROIT
From The Economist print edition
Alex Trotman, who died this week at the age of 71, rescued Ford for a while, but at a price which has consequences today
FORD was always a more international company than its two Detroit rivals, General Motors (GM) or Chrysler (before its takeover by the Germans). As long ago as the late 1960s, Ford of Europe was set up to add regional strength to the carmaker's European operations. It was ahead of its time and became a model for other, mainly American companies, venturing abroad. While the suits in GM's headquarters could all have been stamped out of the same press, Ford's top management ranks have often featured executives from Britain, Argentina and Germany. But there is also an accidental reason for this: Henry Ford II's fierce temper wasted cohorts of senior managers in Detroit, leaving only generals in the provinces to survive and move up the ranks after he had gone.
No one exemplified Ford's international character more than Alex Trotman, a London-born Scot, who rose to become chairman and chief executive in 1993, a year after the company made a record loss of $7 billion. When he arrived in the top job, Ford's shares were worth $11.45; when he left five years later, they were $32.25, and Ford was making nearly $7 billion as the most profitable car company in the world. It was helped by a boom in sport-utilities and other light trucks based on Ford's F-150 model, which even today sells nearly a million a year. In the late 1990s, it looked only a matter of time before Ford would overtake GM to become the biggest car company in the world.
It was not to be. Today Ford's shares are below $10, its first-quarter profits have slumped 38% to $1.2 billion, its American market share is historically low at 18%, and the chairman and chief executive, Bill Ford, the original Henry's great-grandson, has just abandoned the goal of getting back to Trotman-era profits by the end of next year.
This roller-coaster record raises important questions. How was it that Lord Trotman (as he became in 1999) quickly turned Ford around, only to leave it so fragile that its core car business fell into loss ten years later? He was obsessed by the challenge of globalisation of the car industry. He was afraid, for instance, of going down in history as “the chairman who missed China”, and made umpteen trips there bearing gifts of leather-bound copies of the Shakespeare plays so beloved of China's then leader, Jiang Zemin. An autodidact, Lord Trotman shared this love, and no Trotman speech was complete without a byte from the bard. Unfortunately, China went on to choose GM and Volkswagen over Ford to partner its local producers.
Brought up in a poor district of Edinburgh, he cycled around as a butcher's delivery boy (while another local likely lad, one Sean Connery, delivered milk to the Trotman home) and dreamed of greater things. Lord Trotman joined Ford as a purchasing trainee straight from national service as a navigator in the Royal Air Force. When he realised in 1969 that there were no promotions or transfers from Ford's Dagenham base in Britain to America, he resigned. He then turned up to apply for a job at Ford's world headquarters at Dearborn, on the outskirts of Detroit. Within three years he was director of product planning for the whole company.
Lord Trotman soon set up a sweeping reorganisation to transform Ford from several regional groups (North America, Latin America, Europe, Asia Pacific) into one seamless global operation with factories and sales companies reporting instantly across oceans spanned by broadband links. The project was called Ford 2000 and constituted one of the most fundamental restructurings in the 1990s' rush to re-engineer firms to exploit computing. It failed, just as badly as a similar overhaul at GM a decade earlier.
Ford 2000 drained power from the regions back to Dearborn. This was no place for executives to keep their fingers on the pulse of consumer demand in California or Connecticut, far less Frankfurt or São Paulo. Nor did it make any sense for a factory manager in Cologne to report to a global head of manufacturing 3,000 miles away. Many line managers were deeply sceptical, but afraid to declare the emperor naked. Lord Trotman's successor as chief executive, Jacques Nasser, a hyperkinetic Australian, quickly reversed large parts of Ford 2000: South America and Europe regained regional power.
The world car that wasn't
The upheaval of Ford 2000 caused the firm to take its eye off the ball as Japanese and European competitors stepped up competition by opening factories in America, even challenging Ford in the markets for large sport-utility and other light trucks, where it made most of its profits in the 1990s. Lord Trotman would admit in private that much of his globalisation vision did not work out as well as it should have. The Ford Mondeo, which was supposed to be a world car, was a hit in Europe but flopped as the Ford Contour and Mercury Mystique in America. What did work was linking engineering throughout Ford's empire, enabling parts to be shared among different models. This brought to Ford some of the techniques that made Toyota great, and lopped $5 billion a year off costs.
Lord Trotman's vision ultimately faltered because of poor execution and Stalinesque over-centralisation. Today even Toyota, the industry's star producer, recognises the same dangers as it conquers the world's car markets: it is desperately training foreign managers and supervisors in Japan, and transferring engineering work to Detroit and design to California or the south of France, to avoid being too centralised and too Japanese.
Lord Trotman's other mis-step may have been his choice of successor as chief executive: Mr Nasser was a brilliant manager with ideas well ahead of his time; but he tried to do too much too quickly, and alienated managers, dealers, suppliers and ultimately the Ford family, which holds about 40% of the company's voting shares. Chairman Bill Ford fired him in October 2001. Lord Trotman had managed the family by paying them high dividends. Unfortunately this siphoned off to the Fords and other shareholders money that would have been better spent developing models to take on Toyota. But that did not stop the Fords easing Lord Trotman out of the chairmanship a year early in 1998 and putting in Bill Ford to work with Mr Nasser. Lord Trotman thought it was a grave mistake to have the family back in charge. Nothing that has happened since suggests he got that judgment wrong.