How to lose a lot of money

It’s easy to believe that nothing good ever comes out of Detroit, which is more a symbol of urban decay and neglect than so-called Midwestern values. The Detroit Tigers baseball team, however, has bucked the city’s miserable run of luck, winning the American League pennant for the first time since 1984. Even General Motors is expected to post a modest profit this quarter after some brutal cost cutting.

No such turn of fortune for Ford Motor Company, however. Ford announced yesterday that it expects to lose $5.8 billion this quarter, with worse prospects for next quarter.

But Ford’s real problem is a not something measured in quarterly earnings results. It’s tired, it’s boring, and it’s not doing much to change that. Ford has already lost a good deal of creativity to other companies as valued employees jumped to healthier, perkier outfits, taking their skills with them. With the recent results, I’d be surprised if the brain drain doesn’t pick up pace. As talent and morale plummet, CEO Alan R. Mulally’s plan for ‘transformation’ won’t much matter.

The New York Times quoted one analyst as saying that Ford’s options at this point are to borrow cash and sell assets until the underlying business-model problems are fixed, which is akin to saying that Ford must downsize and cross its fingers that Detroit can pull another sport-utility vehicle out of its hat.

Speaking of the SUV, in many ways, it was the SUV that has made the current troubles worse. The brisk sales of SUVs throughout the 1990s allowed Detroit to neglect the dark clouds on the horizon, such as its lousy production methods, unexciting product lines, and legacy costs that are killing the bottom line.

When business historians sit down to pen the story of the late 20th century, they’ll look to companies like Ford Motor as being paradigmatic of how such a tight focus on short-term, quarterly results ultimately killed giant companies. The shift in the marketplace that is now crushing Ford didn’t occur overnight, but no one at Ford could get the focus back on long-term competitiveness during the good years. As harsh as it sounds, Ford is getting exactly what it deserves.

In the future, when Ford attempts to cut a deal regarding its sizeable legacy costs—which it surely must to remain liquid—the pensions and sweetheart retirement deals of former executives should be at the top of the list.