Ford's Mulally: U.S. Recession is Spreading
September 08, 2008
By Michelle Krebs
DEARBORN, Mich. - Everything you read in the media about the poor state of the economy and the struggles of the auto business is true, Ford President and CEO Alan Mulally said Monday.
"The U.S. economy is in recession and the rest of the world is slowing down," Mulally told members of InForum, a Michigan women's professional group. "The Middle East is slowing down, and Europe is slowing down. It really is tough out there."
Mulally called some of the economic slowdown cyclical, but he added that the industry is undergoing structural change at the same time. "I've never seen anything like it," said the 63-year-old Mulally, who took the reins of Ford exactly two years ago after 35 years at Boeing.
The world that emerges after this economic slowdown will be smaller, he said, echoing predictions of other auto company executives. Despite recent dips, gas prices will remain relatively high, prompting small and medium-size vehicles to represent the bulk of vehicles sold globally. He predicts that in the next 20 years, small vehicles globally will represent 60 percent of the volume, 25 percent will be medium size and only 15 percent will be large vehicles.
Mulally insists Ford, which lost $8.7 billion in the second quarter and rescinded its prediction that it would be profitable next year, is better positioned than most automakers because it is a global company with an array of small vehicles that can be sold anywhere. Beginning in 2010, Ford will begin selling a European designed and engineered small car, the Fiesta, in North America along side a European designed and engineered Ford Focus.
Mulally is optimistic U.S. automakers will receive low-cost loans from the federal government to assist with the industry's transformation from large vehicles to small, fuel-efficient ones. Ford along with General Motors and Chrysler is lobbying the government for $50 billion in such loans.
Posted by Michelle Krebs at 12:40 PM under Business , Ford | Comments (3) | digg this | Seed Newsvine
With the government bailout of Fannie & Freddie, credit could become more available to all by winter.
Before, I would have scoffed at Detroit requesting a $50B loan for retooling costs. But now I think it's awfully necessary. The government has already set the precedent of offering low-cost loans to investment firms. Why not other ailing industries?
Posted by: estreka | September 08, 2008 at 4:52 PM
I heard a comment today about the Fannie/Freddie bailout and that is, if the bailout fails then what becomes of the "Full faith and credit of the US Government"? Dissolve them both. The mortgage industry can just as well self insure.
For over a generation, Motown, INC has carried excess manufacturing capacity, settled unrealistically high in collective bargaining agreements, and has been derelect in planning for this day, which they should have known would come. Their stock prices and bond ratings make the case- they're too risky. Besides, we could end up with a state owned/controlled industry much like the Italian business model.
Of the twenty-two vehicles I've owned, ten have been brand new Detroit Three products (plus one Saab 99 back in my earth shoe days). I made a free will choice to buy these vehicles. Without government backed loans. And I likely will continue to buy Motown.
But if Messrs. Wagner, Mulally, & Nardelli Can't or won't turn it around within their own means, I've got no problem buying a car from the Ford division of Honda or the Chevrolet division of Toyota.
I do have a problem with government backed loans of this scale without a national referendum vote.
Posted by: fulcrumb | September 08, 2008 at 11:30 PM
In principle, the government should not bail the automakers out or give them a subsidized loan. But there are a lot of things that the government shouldn't do, in principle.
The practical question is this: Should Americans stand by and watch two of three American-based automakers go out of business?
As you formulate your own opinion on this, keep in mind that the expertise involved in engineering, researching, and manufacturing cars has an inherent value that isn't found in some other industries that have permanently left the U.S. such as textile/garment manufacture, phone-based customer service, and toy manufacturing.
Also consider that we are at a stage in automotive development that is unique. For the first time since internal combustion engines new MAINSTREAM alternative automotive engines/drivetrains will become prevalent. Should we cede the development of such technologies to Asian and European-based companies only?
In the ideal scenario, management at Ford, Chrysler, and GM should have been prepared for this by investing seriously in such technology when they were flush in the late 1990's, but we live in a world with few ideal scenarios.
I would argue that while a $50 billion loan to the U.S.-based automakers is not ideal, it may be better than the alternative, which is to watch Americans cede the future of automotive developent, one of the key fields of environmental and manufacturing technology of the future.
Posted by: thriftytechie | September 09, 2008 at 8:08 PM