History provides ample basis for such skepticism. Ford is a place that's notorious for destroying auto industry outsiders -- and Mulally is admittedly no car guy. Despite Bill Ford's strong backing, Mulally has run into plenty of internal resistance. Nearly all of his managers have been inherited, and some of them snickered when he received a $28 million paycheck for his first four months' work. On Mulally's first meeting with his inherited team, one manager asked: "How are you going to tackle something as complex and unfamiliar as the auto business when we are in such tough financial shape?"

The questioner discovered that the wiry former Boy Scout from Lawrence, Kan., a veteran of many bruising political battles at Boeing, is hard to intimidate. Unfazed by the challenge, he looked the questioner directly in the eye and said: "An automobile has about 10,000 moving parts, right? An airplane has two million, and it has to stay up in the air."

Although Mulally lacks in-depth auto industry knowledge, he is also free of many of the intellectual biases and habits that have gotten Detroit into so much trouble. "He doesn't know what he doesn't know," says Ford Americas President Mark Fields. When Mulally was reviewing the company's 2008 product line last September, for example, he was told that Ford loses close to $3,000 every time a customer buys a Focus compact, according to one executive. "Why haven't you figured out a way to make a profit?" he asked.

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Executives explained that Ford needed the high sales volume to maintain the company's CAFE, or corporate average fuel economy, rating and that the plant that makes the car is a high-cost UAW factory in Michigan. "That's not what I asked," he shot back. "I want to know why no one figured out a way to build this car at a profit, whether it has to be built in Michigan or China or India, if that's what it takes." Nobody had a good answer.

How did Ford evolve from one of the most admired companies in the world into one where losing money has seemingly lost nearly all of its stigma? Until the mid-'60s, it was considered a management shrine. Under U.S. Defense Secretary Robert S. McNamara, one of a celebrated group of military veterans at the company dubbed the Whiz Kids, Ford developed scientific consumer research techniques that are now commonplace throughout the business world. It was one of the first auto companies to create products that were based on hard data rather than the personal tastes of executives.

But after McNamara exited in 1961, Henry Ford II (Bill's uncle) gradually assumed a bigger role in management. He built a high-testosterone culture where rising stars like successive Ford Presidents Lee Iacocca and Semon "Bunkie" Knudson were often pitted against one another like gladiators to prove themselves. As the auto industry's postwar growth slowed, limiting opportunities for a swelling cadre of managers, executives turned on one another. They also became more cautious. "The bureaucracy at Ford grew, and managers took refuge in the structure when things got tough rather than innovate or try new ideas that seemed risky," says Allan Gilmour, a retired chief financial officer at Ford who has met twice with Mulally, at Bill Ford's behest, to offer historical perspective on the company's woes.

Personal ties with the Ford family, always important at the company, sometimes trumped genuine performance in promotion decisions. So ambitious managers focused increasingly on kissing the right rings instead of racking up results. It became "something of a palace atmosphere," says Gerald C. Meyers, a professor at the University of Michigan School of Business. Some critics also blame the family, which has many members who depend on dividends as their main source of income, for encouraging a focus on current profits rather than long-term planning over the decades.

In the royal hierarchy at Ford, an elaborate system of employment grades clearly established an employee's rank in the pecking order. The grades also had the unintentional effect of quashing ideas and keeping information tightly controlled. When Fields, now president of Ford Americas, first arrived at the company from IBM in 1989, he couldn't make a lunch date with an executive who held a higher grade. People asked him what his grade was "as a condition of including me or socializing with me," Fields recalls. And he was discouraged from airing problems at meetings unless his boss approved first.

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Too many fiefdoms
The company's unusual approach to grooming leaders also discouraged collaboration. Ford has a long tradition of rapidly cycling executives through new posts every two years or so. In fact, managers refer to their posts as "assignments" rather than jobs. But one consequence of employees' need to make their mark in such a short time was to discourage cooperation with other divisions and regions, whose products were often on a different timetable. And no engineer ever got noticed by carrying over his predecessor's design or idea -- even if it saved big money. Mulally, who is moving to lengthen job tenures, finds this system appalling. "I had the same job at Boeing for seven years," he says. "You can't hold somebody accountable for a job they've held for nine months."

Thus did Ford become what it is today -- a balkanized mess. It has four parallel operating units worldwide, each with its own costly bureaucracy, factories, and product development staff. According to a Mulally audit designed to uncover cost-cutting opportunities, no two vehicles in Ford's lineup share the same mirrors, headlamps, or even such mundane pieces as the springs and hinges for the hood. And that's just taking into account the Ford brand. Add Volvo, Jaguar, and Land Rover to the mix, and the company has more than 30 engineering platforms worldwide. That leaves Ford at a big cost disadvantage in engineering and parts compared with General Motors, Chrysler, Toyota, and Honda. Mulally wants to get that number down to five or six platforms, similar to Honda. "There's no global company I know of that can succeed with the level of complexity we have at Ford," he says.

Examples of Ford losing opportunities because of its byzantine corporate structure abound. A recent example involves Sync, a system that allows voice-command control of a cell phone and MP3 player. It was a big success at last January's North American International Auto Show. Ford developed it with Microsoft Corp. last year and will start rolling it out this fall. Although Volvo and Land Rover are also dying to offer Sync, neither will get the system because the electrical architectures of the Swedish and British cars are incompatible with Ford's. Mulally finds that incomprehensible, considering that Ford has owned the European brands for nearly a decade.

CONTINUED : Health-care minefield

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