Mulally Names Ford's Biggest Challenge


It's an endless race of challenging hurdles, once you jump past one, the next one is already right in front of you. Recently, at the Automotive News World Congress, Alan Mulally recalled the moment in 2006 when he took over the helm at Ford as CEO, and the company expected a $17 billion loss, which did indeed transpire. Since then, however, Ford has done an amazing job of turning the company around. It now produces better vehicles, and at nice profit margins. After its impressive turnaround, Mulally says the next challenge will be in delivering product launches more smoothly. Let's take a look at how Ford failed on the Fusion and Escape, and how it's trying to avoid the same bad start with the new Lincoln MKZ.

While Ford has successfully produced popular vehicles in the Fusion and Escape, the launches of these models last year had their difficulties. With six recalls total -- two of the Fusion and four of the Escape -- due to a software glitch leading to the engines overheating, it wasn't a pretty start. One thing Ford has going for it is Mulally's vision and corporate culture. He's created an environment where fingers aren't pointed; rather, cooperation toward quick quality improvement is the norm. Ford's renewed focus on quality improvement has created goodwill with its customers. The proof is in January sales for the Fusion and Escape, coming in at 65% and 16% higher than last year, respectively. It seems the bumpy start for Ford's two popular models is smoothing out, and it didn't cost the automaker any sales, to investors' relief. That leaves us with the next hurdle: the launch of the Lincoln MKZ.

For a while people wondered if Ford would drop its failing luxury brand Lincoln. Its sales are in the dumps, with the Ford Explorer alone selling twice as much as all of Lincoln's sales in 2012. That's embarrassing to say the least. That said, there is hope that the brand could be reborn.

The new Lincoln campaign was kicked off by a couple of ads during the Super Bowl this past Sunday. I'm not sure which is worse: having no consumer demand for Lincoln vehicles, like in previous years, or having renewed demand and no vehicles to sell! The problem is that after several delays, most dealerships expecting the MKZ sedan in December are still waiting for shipments. Here's how Ford is dealing with the situation, and what it expects going forward.

One reason for the delay is the time required for quality inspections. Ford's Mexico assembly plant is processing the sedans as fast as possible, but Ford has added personnel in Michigan to help speed the process along. Some inventory will be shipped from Mexico to Michigan in an effort to make sure the launch is completed on time. With the Super Bowl showing the sedan off, it's now a race to secure enough inventory. Here's what Kevin Cour, Lincoln sales and service manager, had to say:

We are 100 percent committed to the highest level of quality ... The final quality-inspection process was put in place to ensure we delivered on that mission ... We have not had any substantial quality issues. We are absolutely laser-focused on getting the fit and finish right ...

Bottom line
Suffice it to say, Ford has learned from its mistakes. It was lucky, in my opinion, that six recalls between the two vehicles didn't hurt recent record sales. Ford isn't taking its success for granted; it's pushing all out on the Lincoln launch to the last second, making sure it's done right the first time. This MKZ launch is vital to starting Lincoln's turnaround. Everything, other than sales in Europe, has been going amazingly well for Ford. Reviving the all but dead luxury line is the obvious next step, and if past turnaround success is any indication, 2013 will be shaping up much better for Lincoln and Ford both.

Ford has been performing incredibly well as a company over the past few years -- it's making good vehicles, is consistently profitable, recently reinstated its dividend, and has done a remarkable job paying down its debt. The stock has recently taken off, and it appears investors have started to notice what Ford is doing right. Does this create an incredible buying opportunity, or are there hidden risks with the stock that investors need to know about? To answer that, one of our top equity analysts has compiled a premium research report with in-depth analysis on whether Ford is a buy right now, and why. Simply click here to get instant access to this premium report.

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