(Chicago Tribune (KRT) Via Thomson Dialog NewsEdge) CHICAGO _ With all of the problems facing General Motors Corp., including the threat of bankruptcy, it's easy to forget that in many ways America's other crisis-ridden car company is in even worse shape.



Ford Motor Co. has higher non-labor operating costs than GM, its plants are less flexible, and it has lost twice as much U.S. sales volume over the last five years.

It has lagged in modernizing its factories, failed to follow up on the enormous success of hit vehicles like the Taurus and suffered a brain drain of key executives walking out the door.

Now, facing unrelenting pressure from foreign rivals like Toyota and Honda, Ford is at a crucial juncture.

In the words of Mark Fields, new head of the company's all-important Americas division, Ford must "change or die."

Given Ford's advantages over the years, this turn of events is astounding. Ford has a powerful brand, ample financial resources and an army of MBAs. It wasn't so long ago its Taurus sedan was the No. 1 car in America. Now it is getting beat by Camrys and Accords built in American plants by American workers.

The easy explanation is that U.S. carmakers start at a clear disadvantage: They are plagued by "legacy costs," the sky-high pension and health-care expenses brought on by union contracts and generations of retired employees. GM's legacy costs, in fact, are much worse than Ford's, which explains why it is the one in more short-term financial trouble.

But interviews with current and former Ford executives indicate that there are other, less obvious legacy costs as well.

Ford, they say, suffers from years of short-term thinking and billions in questionable investments. While it tried to adopt the highly-efficient management strategies pioneered by Toyota, those efforts have been hobbled by a lack of firm, consistent leadership at the top and a divisive, feudalistic corporate culture that has grown up over the years.

The result is a high-cost, inflexible operation that leaves Ford trailing even GM when it comes to efficiency.

David Cole, chairman of the Center for Automotive Research, a non-profit think tank based in Ann Arbor, Mich., estimates that excluding labor expenses, Ford's operating costs are as much as $1,000 per vehicle higher than GM's _ a major competitive disadvantage. Former Ford executives say the gap between Ford and Toyota on the cost of materials has trended as high as $1,600 a vehicle.

"If GM had Ford's (operating) costs it would be gone," Cole said.

The good news is that Ford seems to have finally reached the kind of crisis that tends to inspire change. The job of turning the battleship falls to Fields, a 44-year-old executive who cut his teeth at Ford leading a much smaller turnaround at Ford's Mazda subsidiary. In Japan, Fields killed off old models, refocused the company's marketing and introduced a new line of higher-performance vehicles. Family scion William Clay "Bill" Ford Jr. is hoping he'll do the same at home. But he had to pay Fields a $1 million "retention bonus" to keep him.

Fields hasn't been timid so far. He devised Ford's January plan to slash 30,000 workers and close 14 plants by 2012 _ a move to bring Ford's manufacturing capacity more in line with its skidding market share. More quietly, he has been attacking a corporate culture he calls too conservative, too hierarchical and too resistant to change.

Already he has collapsed some of the bureaucracy and rewritten the rules of meetings to make them smaller and more productive. Perhaps most important, the native of Brooklyn, N.Y., has signaled that the era of diffuse, ambiguous leadership is over.

"I hold myself accountable," Fields said. "I'm trying to drive a culture of accountability and that starts at the top. If I deliver, I should enjoy the benefits; if I don't deliver, I should suffer the ramifications."

Delivering, however, has not been Ford's strong point lately.

Analysts say the company has been in trouble ever since Bill Ford elevated Jacques Nasser to the CEO seat in 1999. Booming sales of highly profitable trucks and SUVs made for big profits in the late 1990s. But they also covered up many of the problems that are surfacing now.

Nasser spent his time _ and billions of dollars _ acquiring Land Rover, Volvo and Aston Martin. But a lack of investment caused Ford's core business to atrophy. Ford's Taurus _ once the industry's top-selling car _ lingered without a remake, leaving it vulnerable to Toyota's Camry and Honda's Accord. GM, meanwhile, was investing heavily in upgrading its factories, making them more flexible and much cheaper to operate.

The result was demoralizing.

"Nasser discouraged or drove out a lot of talented people by focusing on short-term profits at the expense of long-term investment in cars and trucks," said Jim Hossack, vice president of AutoPacific, an automotive research and consulting firm. "He made a lot of people think that the best contribution they could make to Ford was to stay home."

Bill Ford sacked Nasser in 2001 and cut 4,000 people in a restructuring. But Ford's global automotive operations still lost almost $4 billion last year. Automotive News reported in January that between 2000 and 2005, Ford had lost more than 1 million units of sales volume in the United States, or 25 percent of its total. Over the same period, GM lost 461,373 units, or 9.4 percent of its volume. The Chevrolet brand gained volume.

Since Nasser, management has been in an almost permanent state of flux. Ford has had a parade of operating executives and sales chiefs _ some lasting only months. And over the last year, the company has lost a number of key executives, including the heads of product development, manufacturing and hybrid technology.

Bill Ford, meanwhile, signaled that he was never really interested in the CEO job. Before he picked Fields as savior, he tried unsuccessfully to hire turnaround whiz Carlos Ghosn, the chairman of Nissan and Renault. He also tried and failed twice to woo former Chrysler chief Dieter Zetsche before the German-born executive was recalled to headquarters to be DaimlerChrysler's CEO.

What's most striking _ and telling _ about this period of management turmoil is how different it is from the way Toyota operates. Consistent leadership, teamwork and investment in the future are the hallmarks of the Toyota system.

"It requires leadership behavior that is long term and contemplative," said University of Michigan professor Jeffrey Liker, author of the "The Toyota Way." "It requires a way of working together and reaching a degree of consensus. This is a set of things that don't come naturally to a traditional U.S. manufacturer like Ford."

In Japan, product development and manufacturing collapse into a single streamlined system. One chief engineer is responsible for each car model and has authority to marshal any of the company's global resources to get it produced. Designers and engineers work directly with manufacturing executives to develop cars that can be manufactured efficiently. This system is renowned for driving problems to the surface early and producing cars with consistently high quality.

"You have to be willing to fail in the short term to succeed in the long term," said David Meier, a former Toyota Group Leader in its Georgetown, Ky., factory. "It takes nerve and guts. Someone has to take a firm stand."

According to current and former Ford executives, the company hasn't exactly excelled at firm stands and teamwork. Rather, a fractious bureaucracy has operated in what Fields calls "chimneys." Functional areas like marketing and manufacturing have tended to worry only about their own success _ not the success of the entire organization. Product development has been split into numerous groups all around the world _ each with their own engineers, budgets and priorities. Until recently, for instance, the Americas division alone had five different product development groups devoted to Lincoln-Mercury, SUVs, family cars, youth-oriented vehicles and trucks. As part of his turnaround plan, Fields created a single development group.