Naughton: What Ford Motor Co. Must Do to Survive

When Scott Kleinhans bought his big Ford Expedition SUV back in 2001, it was the ideal vehicle for him. Its roomy interior, with three rows of seats, offered plenty of space for his family of five. Its beefy V8 engine could easily tow his boat. And the SUV's ample cargo room was just what the traveling salesman needed to haul around samples of industrial cleaning products. Sure, the Expedition's 15 miles per gallon (city and highway combined) wasn't very impressive. But who cared with gas selling for $1.50 a gallon? Back then, it was practically cheaper to guzzle gas than bottled water. "Weren't those the days?" he says now with a sigh.

This week, Kleinhans, 37, will park his Expedition on a street corner and stick a "for sale" sign in the window. And he'll take delivery of a new Toyota RAV4, a compact SUV that gets 28 mpg on the highway. Kleinhans decided to ditch the Ford when a fill-up hit triple digits. "Once it hit that $100 plateau," he says, "I had to start looking around." He shopped the hybrid Ford Escape SUV, but found it too pricey at $26,000. Plus, it didn't have a third row for his three kids and it couldn't tow his boat. The RAV4 offered those features and cost just $23,000. "The things I was looking for in a vehicle," he explains, "Ford just didn't offer."

There's something else Ford isn't offering much of these days: Hope. Ford has been running in reverse all year, as sales of its once reliable profit haulers—SUVs and pickups—have collapsed with breath-taking speed. In July, Toyota surpassed Ford in sales for the first time in the American auto market. And Ford is cutting factory output by 21 percent in the fourth quarter—its biggest production cutbacks in a quarter century. Wall Street now expects Ford to lose $1 billion this year and its stock is down 19 percent since this time last year. But here's the most amazing measure of how bad things have become for Ford: Its troubles actually make General Motors look good by comparison.

Now CEO Bill Ford Jr. is trying to engineer a reversal of fortune by reinventing the wheel at the automaker founded by his great-grandfather 103 years ago. For starters, he's hung a "Let's Make a Deal" sign on the family firm. He brought in veteran investment banker Ken Leet to shop around Ford's stable of luxury lines: Jaguar, Land Rover, Aston Martin and maybe even Volvo. (One Jag bidder: Former Ford CEO Jacques Nasser, who Bill Ford fired in 2001).

And while Leet is at it, he might also look at hooking up Ford with Renault and Nissan. Oh sure, GM CEO Rick Wagoner is already in talks about just such an alliance with Renault-Nissan's superstar CEO Carlos Ghosn. But that didn't stop Bill Ford from reaching out to Ghosn in July to say, Hey, if things don't work out with GM, come talk to us. And then there's the possibility that Ford might sell a controlling stake in Ford Motor Credit, a cash cow that usually sustains the company in hard times, or even take the company private in a leveraged buyout. Some Ford officials say Ford Motor Credit isn't for sale, yet Bill Ford says everything is on the table.

The frenzy at Ford gives the impression that it's driving off in all directions. "It's like they've put the company on eBay and said, 'Make me an offer. We welcome all comers'," says veteran auto analyst Maryann Keller. "It reflects a company that doesn't know what it should do."

Adding to the turmoil is the steady flow of top executives and board members who have headed for the exits. The most recent painful loss: Bob Rubin. The former Treasury secretary resigned from Ford's board Friday citing a potential conflict in his role as chairman of Citibank's executive committee. Citibank hopes to get in on some of Ford's upcoming deals, like the Jag sale or an auto alliance, and Rubin said he couldn't sit on both sides of the table in that situation. Rubin, a key adviser to Bill Ford for the last six years, was the third director to leave the automaker's board this year. Over the past year, Ford also has lost its product development chief and top executives in Ford Credit and its successful South American operations. Says Keller: "This is a company that's just thrashing about."

Company officials contend they have a plan. It will become clear, they say, after Ford's Sept. 14 board meeting, where directors will consider an overhaul of the "Way Forward" restructuring plan first announced last January. Since that six-year plan didn't gain traction, most analysts expect the New Way Forward to include deeper job cuts and more plant closings sooner.

Bill Ford also is hinting at big news about hot new models. But those coming attractions are likely to arrive a ways down the road. For now, Ford has precious few promising products on the horizon. Take Ford's latest new models: Restyled versions of its jumbo Expedition and Lincoln Navigator SUVs. With gas hovering around $3 a gallon, Ford's timing couldn't have been worse. Even Ford seems to realize it has a tough sell on its hands. The automaker is already cutting production of the Expedition and Navigator before the first one rolls off the line.

Ford's biggest hopes are riding on its Edge crossover SUV, which shares the styling and chasse of its Fusion family car, one of its few solid sellers. But the Edge will be playing second fiddle to the likes of Toyota's hot-selling RAV4 and Honda's popular Pilot crossover SUV. "Ford is struggling to catch up with decreasing demand for its SUVs and pickup trucks," says veteran analyst John Casesa. "This company just doesn't have a competitive product line right now."

With bad news at every turn, it will take more than a hot new model or another factory closing to jump-start Ford. Many analysts say Ford can't go it alone. It needs an alliance with another automaker to survive. And, in fact, combining forces with Renault and Nissan actually makes more sense for Ford than GM. At least on paper, the three companies complement each other. In Europe, Ford is strongest in northern countries like England and Germany, while Renault sells well in the south. In the United States, Ford could benefit from access to the blueprints of Nissan's stylish cars and crossovers, like the Altima and Murano, while Nissan could get into the old rich-boy luxury club through Ford's Jaguar line. And there's all sorts of factory and back-office cost sharing that could save big money for all three.

But none of this works if Ford sells itself off piecemeal. Stripping away attractive assets like the august Jaguar brand or the cash machine that is Ford Credit could backfire on Ford's efforts to find a partner. It all comes down to how much cash Ford needs to keep the lights on in these dark days. It has about $23 billion in cash on hand, which sounds like a lot until you figure that Ford is burning through billions as its sales continue to stall. Still, Ford has enough of a cash cushion that it doesn't need to panic. There are already bottom feeders fishing for fire-sale prices. And Ford lately looks desperate enough to take the bait. But quick cash won't fix the company in the long run. That will take a plan and a partner, or two, who can look beyond the current chaos to find a true way forward together.