Does Ford Have a Better Idea?

Does Ford Have a Better Idea?

Alan Mulally is getting excited.

The president and CEO of the Ford Motor Co. is talking up the Ford Fusion, a retooled, restyled, fuel-efficient midsize car that's being introduced this spring.

"41 miles per the gallon!" exclaims Mulally. "I might add—eight miles per gallon better than the Toyota Camry! What do you think of that?"

Mulally's not the effusive type. He's an engineer, who after nearly 40 years at Boeing, became CEO of Ford in 2006. He's interested in the details of composite materials, aerodynamics, energy efficiency, power trains and all that, but not in a way that would stir anyone's passion.

But the Fusion has him all charged up, and that's because it represents the future of Ford, Mulally said during an appearance at the Wall Street Journal's Eco:Nomics conference. He was introduced as "the one American auto industry CEO who is not taking bailout money," a remark that drew cheers from the crowd. Politely, no one brought up the fact that Ford posted a $5.9 billion loss in the fourth quarter of 2008, that it is revamping its balance sheet and that you can buy a share of its stock for less than the cost of a Big Mac. In today's economy, he's still an industry leader.

Understandably, Mulally—who, in fairness, didn't create the mess he is now trying to clean up—preferred to focus on the future. He  said Ford now believes that, even with low gas prices, we are moving towards a world of rising oil prices, more fuel efficient cars (including dramatically more efficient internal combustion engines), smaller cars in the U.S. and elsewhere, and a shift to electric vehicles in the next decade or two.

"This is a tremendous transformation for Ford," Mulally said.

Without giving a timeline, Mulally said he expects that Ford's vehicle mix will do a U-turn in coming years. Small and medium-sized cars will generate two-thirds of the company's revenues. Today, they contribute about one-third, with big cars, SUVS and trucks dominating the lineup. Economics will drive the shift.

"Over time, we're going to be seeing ever increasing prices for energy," says Mulally.

Among other things, Mulally said that Ford will introduce an all-electric van in 2010 and an all-electric sedan in 2011. "You're going to see a major portion of our portfolio become electric vehicles," he said.

He acknowledged that Ford has "lost a generation" of car buyers but said the company can win them back with higher quality, fuel-efficient, safer cars. The Fusion is a step in that direction—the hybrid version gets 41 mpg city and 36 highway and sells for about $28,000, the gasoline version gets 34 mpg highway (best in class) and 23 mpg in the city and sells for about $20.000 and the car is winning excellent reviews. USA Today's James Healey wrote: "The 2010 Ford Fusion hybrid is the best gasoline-electric hybrid yet." My bet: There's an appetite among American car buyers for a well-made, U.S.-branded hybrid car. (The Fusion is assembled across the border in Mexico).

Still, Mulally acknowledged: "The hybrids are very tough economically." Its takes years of driving lots of miles, even with high gas prices, to recoup the cost created by adding an electric motor to the existing gas engineer. An all-electric car makes  more sense, especially as battery technology improves and battery prices come down—no easy feat. Some people, including Mulally, worry that China, Korea and Japan are so far ahead of the U.S. when it comes to batteries that our dependence on Mideast oil could give way to a dependence on Asian battery manufacturers.

A final thought from Mulally: He put a positive spin on the congressional hearings that brought the auto industry CEOs to Washington, even those who flew private jets to get there.

"Who would have thought that going and testifying for 13 hours would be a positive?" he said. "We went there for the good of the industry. We did not need taxpayer money. We went through it because our competitors needed the money." If GM and Chrysler go bankrupt, he said, auto industry suppliers could follow and that would endanger Ford.

So what was the upside? "Out that came, Ford was different. The whole world now knows that Ford is different. They've got great cars. They're best in class. Maybe they're worth another look. I'm going to give you a lot of reasons to consider Ford."