DETROIT (Bloomberg) -- Six months after arriving at Ford Motor Co. from Boeing Co. in 2006, Alan Mulally had to decide the fate of the Explorer, once America's top-selling sport utility vehicle.
Ford had just posted a $12.6 billion annual loss, and investors were clamoring for the new CEO to replace such guzzlers as the Explorer with the gas-sipping models that buyers wanted.
Mulally had to think fast after Ford staked the company name as collateral on $23 billion in bank loans. At Boeing, he'd bet that lightweight parts would help the 787 Dreamliner burn 20 percent less fuel than rival airliners. He gave Ford engineers an ultimatum: Put the Explorer on a diet, or it's dead.
“Alan told us we need to truly reinvent the Explorer,” Derrick Kuzak, Ford's product development chief, said during an interview in the company's domed-shaped showroom in its Dearborn, Mich., design studio.
When Kuzak, 59, went back in early 2009 to request $400 million to start producing the Explorer that his team had spent two years overhauling, he didn't begin his pitch with profits or costs. Instead, he told Mulally he'd found ways to cut almost 100 pounds (45 kilograms) from the 4,450-pound behemoth, get 24 percent better gas mileage, add length and width and maintain off-road performance.
Mulally, sitting with 15 executives in the Thunderbird Room at Ford's Dearborn headquarters, was so impressed that he gave Kuzak the cash to start building in a renovated Chicago assembly plant.
“Weight is absolutely critical,” Mulally, 65, said in his 12th-floor office overlooking a factory where Henry Ford built the Model T.
In a league with BMW
As automakers claw back from the biggest financial crisis since the Great Depression, Mulally is betting that trimming pounds from Ford's lineup is the route to passing rivals. He's making lightweight vehicles the foundation of Ford's plan to meet rising fuel and safety mandates without scrapping the pickups and SUVs that generate most of the company's profits.
A middling player in lightweight design a decade ago, Ford is now a leader, says Eric Showalter, CEO of Meridian Lightweight Technologies Inc., which supplies magnesium parts to automakers worldwide.
“They're in a league with BMW,” says Showalter, referring to Munich-based BMW AG, which for 2013 plans a battery-powered car built from aluminum and carbon fiber to save weight. “The Japanese, with the exception of Honda, are not being nearly as aggressive,” he says.
Ford already has emerged from the recession as the world's most-profitable automaker. The company earned $6.37 billion in the first nine months of 2010, the most since the Explorer's 1998 heyday. Fourth-quarter profit fell 79 percent to $190 million as Ford's European unit had an unexpected loss and the introductions of the Explorer and other new models drove up costs.
Explorer sales jumped 73 percent in January as the SUV became the fastest-moving model on the showroom floor, says Ken Czubay, Ford's U.S. sales chief.
For the year, Ford posted net income of $6.56 billion, the highest since 1999.
“If they can make fuel-efficiency one of the top attributes of a Ford, they'll suck people into their showrooms,” says Gary Bradshaw, a fund manager at Hodges Capital Management, which owned 100,000 Ford common shares and 100,000 preferred shares as of mid-January. “Ford will continue to be a good investment.”
Lighter doesn't mean unsafe
Regulators worldwide are demanding mileage and safety improvements. President Obama is requiring automakers boost the fuel economy of their fleets 42 percent to an average of 35.5 miles (57 kilometers) per gallon (3.8 liters) by 2016. Officials are considering a 62-mpg target for 2025.
U.S. rules this year mandate that roofs on new models become twice as strong as those on previous ones to prevent deaths in rollover accidents. In China, the government wants to reduce fuel consumption to 6.6 liters for every 100 kilometers driven in three to five years from an average of 8.13 liters, says analyst Tianshu Xin at IHS Global Insight in Shanghai.
Light cars don't have to be less safe, Kuzak says. They can be designed so that the impact of a crash travels around passengers rather than through them.
Even gas-electric hybrids and fuel-cell models benefit from lighter bodies that put less strain on batteries and motors, Kuzak says. A decade ago, Ford executives didn't even discuss weight when they approved vehicles, he says. Ford predicts that hybrids and electrics will account for as much as 25 percent of sales by 2020.
“The very nature of how cars are built and used is being challenged worldwide,” says John Casesa, senior managing director of New York-based Guggenheim Securities. “Making lighter cars has become essential, and Ford is moving to the forefront. With products like the Explorer, customers are beginning to see the result.”
For Ford, lightweight designs may help preserve the company's lineup -- including big pickups and SUVs in all regions of the world. That's a significant turnaround from four years ago, when falling shares, fleeing consumers and $23 billion in loans meant pessimism about Ford's future hung heavy.