Ford's 18 Months Under Mulally: Is This a Turnaround?

I first wrote about Alan Mulally's involvement with Ford, the company of which he became CEO in September, 2006, in posts here and here, in December of 2006 and July of last year.

Now, this morning's Wall Street Journal heralds Ford as its "..Recovery Advances; Earnings Improve."

But, turnaround?

According to the nearby Yahoo-sourced two-year price chart of Ford and the S&P500 Index, they were at about the same place when Mulally took over, on a percentage basis, from May of 2006. Now, the index is positive, with maybe a +5% return, while Ford is still negative, with what looks to be a return between -5% and -10%.

Granted, Ford has rebounded smartly from a -30% return only weeks ago, ending a precipitous slide begun last fall.

But, as I have asked in prior posts about 'turnarounds' at other firms, what will constitute a successful turnaround?

To me, net income performance, impressive as it has improved under Mulally, is not alone sufficient.

The pattern and magnitude of a firm's fundamental operating results create investor perceptions that underpin a firm's attainment of consistently superior returns for its shareholders.

Unless Ford is planning on really strong, consistent double-digit revenue growth in the years ahead, it's going to have to achieve any consistent total return performance mostly by productivity improvements.

It's clear that the Journal likes Mr. Mulally very much. All three articles about him provide unfailingly upbeat, flattering profiles. And my guess is they are not wrong.

Even this piece's details about Mulally's pushing to sell Jaguar and Land Rover, redesign the Ford Focus, and attack inventory problems all ring with the sense of a really good manager at work.

Still, call me sceptical. It's not just that Mulally must haul Ford back from the brink of bankruptcy or sale. He must, in my opinion, then lead the company to several years of unexpectedly good performance, either with new revenue and volume growth, or incredible productivity gains, in order to provide the basis for consistently superior total returns for shareholders.

Can Mulally accomplish this? Who knows? I'm a 'show me' kind of investor, and Ford has years to go before it can possibly, in my view, be accorded the title of a 'successful turnaround,' or 'recovery.'