Case Study: How Ford Motor Co. Got Back on Track

After decades snug in the role of the perennial No. 2 in the U.S. auto industry, Ford Motor Co. suddenly seemed intent on overtaking its longtime rival, General Motors Corp., when Australian Jacques Nasser was named Ford CEO in 1999. An unabashed admirer of General Electric's "Neutron Jack" Welch, the cocky and confident Nasser billed himself as an agent of change. It was clear he not only wanted to pass the struggling GM in terms of global car sales volume, but also ease Ford's vulnerability to the recurrent downturns that regularly cripple the auto industry.

Nasser spent billions to acquire brands such as Volvo and Land Rover, and even more on an array of businesses ranging from repairs to recycling. But Nasser, like many top corporate executives in the heady days of the late 1990s, seemed even more enamored with the then-emerging world of "e-"—and put into place a $1 billion Internet strategy that seemed, at times, to lay more emphasis on the Internet than it did on automobiles.

"We've entered a world where you measure speed in gigahertz and pipeline bursts, not horsepower," Nasser declared at the January 2000 North American International Auto Show. Framed by a giant video image of himself, Nasser stood at center stage in Detroit's cavernous Cobo convention center, surrounded by a quartet of boxy concept vehicles. Dubbed "24.7," they looked like they'd just rolled out of a Nintendo game. Their plain-vanilla exteriors enveloped high-tech instrument panels featuring an array of telematic technology, including voice-activated navigation, organic LCD video displays and mobile Internet access.

"Go back 100 years, Henry Ford put the world on wheels. Today," said Nasser, "Ford Motor Company will put the Internet on wheels."

But the bravado didn't stop there. A couple of days later, Nasser announced the launch of Ford's Wingcast telematics unit—which would allow consumers to use their cars as Net portals, ready to tap into the information superhighway from the road. Nasser also formed joint ventures with an array of high-tech partners ranging from Qualcomm Inc. to Yahoo!, and even announced plans—with Yahoo! founder Jerry Yang at his side—to give every Ford employee a computer and Internet access.

In addition, Ford, its stock price at an all-time high of nearly $64 a share, and its already fat profits looking to grow even larger with the spoils of the New Economy, took to the Web with a passion. It helped found the B2B auction site, Covisint, with crosstown rivals General Motors and DaimlerChrysler. It also moved aggressively to begin retailing its cars online, and boldly moved to sell factory-direct to consumers, bypassing dealers and their hefty markups.

Accelerate to the present. What once seemed so inevitable has taken on the ring of futility. Ford dissolved the Wingcast venture last June and has curtailed the computer giveaway. The Yahoo! partnership has quietly expired, while its standalone ConsumerConnect unit—the figurehead of its old aggressive, five-prong Internet sales strategy—has been downsized and absorbed into Ford's traditional marketing groups.

And after running afoul of state franchising laws and angry retailers, the automaker has handed its online retailing operation over to dealers—though Ford insists the Web is paying off handsomely with sales leads it wouldn't be getting otherwise.

Meanwhile, Ford's stock price is stuck in low gear, averaging around $9 in recent months. Its market share is sliding, from 23.2 percent to 21.5 in 2002. Earnings are also depressed, with worldwide automotive operations reporting a third-quarter loss of $243 million, compared with a loss of $877 million for the same period in 2001. True, the red ink is diminishing, but at press time, Ford's 2002 earnings were expected to fall way short of Wall Street expectations. Embarrassing vehicle recalls, meanwhile, have tarnished an image honed by years of advertising that "Quality is Job One," and the company is eliminating thousands of jobs and shuttering five factories to get costs back in line.

Indeed, things are not going quite as planned for the automaker as it approaches the celebration of its 100-year anniversary on June 16. With CEO Bill Ford, the first Ford family heir at the helm in more than two decades, the automaker has launched a "back to basics" campaign designed to help it regain its footing.