Morningstar Inc., a leading provider of independent investment research, on January 5 named Alan Mulally, president and CEO of Ford, as its 2010 CEO of the Year. Morningstar's annual award recognizes a chief executive who exhibits exemplary corporate stewardship, demonstrates independent thinking, creates lasting value for shareholders, and has put his or her stamp on an industry.
"All three of our nominees this year are skilled leaders," said Paul Larson, equities strategist and editor of Morningstar StockInvestor. "Alan Mulally has implemented various measures since he took the reigns of Ford in 2006 to position the automaker to compete better. We believe that consumer psychology, vehicle pricing dynamics, the growth in the pool of licensed drivers, and the physics of vehicle wear and tear have contributed to millions of units of pent-up demand in the U.S. auto industry since 2007. Ford has prospered under Mulally's leadership, and we expect the company's earnings growth to rise over the next few years as the industry absorbs this latent demand."
Although he was an outsider to the automotive industry before taking over at Ford, Mulally has proved himself through his execution of several significant changes at the firm:
- Recognizing that rising fuel prices will continue to drive consumers to buy cars rather than trucks, which Ford and other Detroit automakers have long depended on for profit, Ford has shifted more of its focus to the production of high-quality cars. The Ford brand was fifth overall in the 2010 J.D. Power and Associates Initial Quality Study, ahead of Toyota and Honda.
- Ford is now building and manufacturing its automobiles on common, global platforms, which will improve economies of scale and allow the company to switch production faster to meet changing demand.
- Beginning in 2010, the Voluntary Employee Beneficiary Association (VEBA) took over United Auto Worker (UAW) health-care costs from Ford, an agreement that puts Ford's U.S. labor costs nearly on par with its non-U.S. rivals'.
"Morningstar holds Ford in high regard although the company lacks an economic moat—a set of sustainable competitive advantages—and scores poorly on Morningstar's stewardship scale. However, the reasons behind these ratings are not tied to Mulally's performance," Larson added. "Ford has dual share classes and a high degree of family ownership. While we'd prefer to see a single share class so outside shareholders can exercise greater influence over the direction of the company, we put more weight on factors like Mulally's efforts to procure as much cash as possible when he became CEO by opening new lines of credit and selling off non-core assets. When the recession and the credit crisis hit in late 2008, the company's abundance of cash prevented Ford from having to rely on government aid like some of its competitors. Also, we expect Ford will use its free cash flow over the next few years to pay off its debts."
The two other nominees for Morningstar's 2010 CEO of the Year award were Jim Sinegal of Costco and Richard Adams of United Bankshares.
For Morningstar's article about the winner, go to: http://www.morningstar.com/goto/ceo2010.
For the complete list of past winners, go to: http://corporate.morningstar.com/CEOhalloffame.
