Ford's extreme makeover

NEW YORK (Fortune) -- When automakers fall on hard times, a string of ugly events commences that leads the company into a downward spiral. Slowing sales lead to loss of morale and faith in the company, which cause dealers to defect and talented people to leave, which in turn produces delays in new product programs that, of course, drive sales further south.

No reasonable person would argue that Ford is not in a downward spiral. The symptoms are visible everywhere: unpopular products, billion-dollar losses, executive flight. Hidden beneath the surface are structural problems - harder to see and also harder to fix. Ford's costs are uncompetitively high, its product lineup is skewed to trucks and it lags competitors in productivity, quality and new-model creation.

Ford CEO Alan Mulally

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Under new CEO Alan Mulally, the company is starting to reverse the negative momentum. It has admitted the depth of its problems by borrowing enough money to get it through the next three years, barring a calamity. What remains unclear is how viable Ford (Charts) will be at the end of that period.

Several recent events offer a view into the future. The big move, announced late Thursday, is the decision to appoint engineer Derrick Kuzak to a new job as head of Ford's global product development effort. Kuzak currently runs product development for the Americas, one of the jobs at Ford that has experienced high turnover in recent years, contributing to its current problems.

In his new post, Kuzak will have to settle fights among three regions of the world - North America, Europe and Asia - about who gets what. Ford can no longer afford to develop unique versions of mainstream models like the Focus for different markets.

As a symbol of his new importance, Kuzak will occupy a position in the corporate pecking order that is level with the operating heads of Ford's global regions - and report directly to Mulally. Four other executives with global responsibilities in areas like purchasing and manufacturing will also report to Mulally, making the former Boeing executive the de facto head of automotive operations.

Kuzak's elevation means other executives will have to get along with less. America's boss Mark Fields will now lose a dedicated product development organization because he has to share Kuzak with the rest of the world. Kuzak also takes on responsibility for design, since lead designer J Mays will also report to Kuzak.

It is good that Ford is addressing global product development, but it's a little late to the party. Observers had a similar reaction after viewing Ford's new model offerings at a high-security event in Dearborn in early December. When automakers get into trouble, giving interested parties a peek at models two or three years out creates more optimism than current events justify.

More about the December event can't be reported without violating confidentiality agreements, but the feeling among several observers was that Ford needs the restyled versions not in 2008 or 2009 but now. And the unyielding arithmetic of the 36-month product development process suggests that bigger changes won't be coming until 2010 and afterward.

Less visible but as significant in its own way was a reshuffle in the North American sales and marketing organization earlier this week. According to one insider, sales and marketing at Ford has long been beset by an excessive layering of executives, accompanied by an abundance of nit-picking and second-guessing as decisions made their way up to the chain.

Now the chain is being shortened and the layers thinned. In the reorganization, one executive actually found himself demoted from corporate vice president to executive director. That rarely happens at big companies except in dire circumstances.

All of these events demonstrate that change is happening at Ford and seems to be moving in the right direction. As always, though, competition is a moving target. Whether Ford is moving quickly enough remains another question. A good test will be how much buzz it can generate at the Detroit auto show in January. The story of Ford's attempted revival is still in the early chapters.

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