Excuse Me, Mr. Ford

As Ford Motor Co.'s sales continued to drop this summer, the company's new CEO, Alan Mulally, made a visit to the wood-paneled corner office of his boss, chairman Bill Ford Jr. Mulally, the former Boeing exec who is trying to turn Ford around, had a bold proposal: consider selling Ford's Volvo division. "No," Bill Ford responded. Volvo, Ford said, was one of the few profitable pieces of the car wreck that Ford Motor has become. "It's still a great brand with great values." Mulally countered that if Ford can't jump-start sales of the cars with your name on them, "none of the rest of this is going to matter." "I looked at him," Ford tells NEWSWEEK, "and I thought, 'You know, that's right'."

The relationship between the Ford family scion and his new chief is one of the oddest marriages in corporate America today. Normally, when an executive like Bill Ford presides over historic losses, he is shown the door. But, of course, Bill Ford is the great-grandson of Henry Ford. And the Fords have remained incredibly cohesive in their control of the 104-year-old automaker: a family member has served as chairman or CEO of Ford for all but 20 years of that history. Yet tradition goes only so far when you're losing money. During Ford's five years as CEO, drivers snubbed the company's guzzlers as gas prices soared. Last year Ford racked up $12.7 billion in losses.

So one year ago Bill Ford fired himself as CEO and brought in Mulally, who made his name reviving Boeing's commercial-airline business after 9/11. Staying on as executive chairman, Ford still goes to work every day in an office 15 steps away from his successor. But the man who was once the star of the company's TV commercials has kept such a low profile that one wag asked a company exec, "Is Bill Ford in witness protection?" Ford says he didn't want any confusion about who is in charge now. "There's no time for any kind of political garbage," he says.

The arrangement leaves Mulally in the awkward position of fixing the mistakes of his predecessor—while still working for him. "It's very unusual that the ex-CEO hangs around," Ford acknowledged in a joint interview with Mulally, the first they've given since the change. Mulally, 62, says he insisted Ford, 50, remain chairman because he values the enduring family commitment. "It's my private equity," Mulally jokes.

But Mulally was nervous about criticizing the man whose name is on the building (and his paycheck). To give Mulally permission to speak freely, Bill Ford admitted to failures on his watch. "I had to keep saying, 'Alan, please don't worry about me ... We don't have time for politeness'," says Ford. "Obviously everything was not done brilliantly in the past."

To say the least. Mulally inherited a company in crisis. He had to mortgage all the automaker's assets—including the Ford name—to raise a lifesaving $23 billion line of credit. He pulled Ford to a surprise $750 million profit in the second quarter, but it still loses money in the United States, where it's fallen behind Toyota.

Mulally is pressuring Ford's execs, but hasn't recruited new blood. "The guys who created this mess are still running the company," says veteran auto analyst Maryann Keller. Mulally quickly learned how Ford's insular culture rejects outsiders. Soon after he arrived, execs began going to Bill Ford, saying the new guy didn't know what he was doing. Ford brushed them off, saying: "Talk to Alan. He's going to make the decisions." Mulally decided that some of those executives, whom he won't name, should find employment elsewhere. "People went around me," he says. "Once."

Despite their awkward alliance, Bill Ford and Mulally have developed a close bond. "In the past, people wouldn't come in and tell me when things were screwed up," says Ford. "Now it's terrific to have somebody that I can actually talk to with total honesty about fears, concerns, people."

Their candid conversations eventually came around to what Mulally saw as Ford Motor's greatest failing: its parochial view of an industry that is global. Ford sells similar family cars throughout the world that are all based on different designs, each costing billions to develop. Toyota, on the other hand, sells the same Corolla everywhere, which helps explain why it earned $13.7 billion last year. When Mulally, who drove a Lexus before joining Ford, bluntly asked why the company operated this way, Bill Ford responded, "Well, Alan, it was just too hard" to change the culture.

Mulally proceeded to overhaul Ford's structure, putting a single executive in charge of every car and truck Ford designs worldwide. Ford still lags behind GM in its efforts to emulate Toyota, but analysts say at least it finally has the right idea. "It really took somebody from the outside," says Ford, "to come in and see the blindingly obvious." Now this management odd couple must prove they've seen the light soon enough.