Is it the end of the line for Ford?

From the Model T to the Thunderbird, Henry Ford's cars inspired the American dream. Recent reports say that the company that bears his name may be in trouble. Stephen Bayley charts the rise and fall of an industrial icon

This year is the centenary of the Ford Motor Company – yet this great American institution has never been in worse shape. Its rise and fall is a perfect American parable, a reflection of the changing reputation of the United States itself. The Ford Motor Company made personal mobility, hitherto a privilege, a democratic reality. In doing this it changed the face of, first, America, then, as Ford became the first multinational car company, the world. Because they symbolised this precious new freedom, Ford's greatest products in every era – the Model T, the '49, the Thunderbird, Mustang, even the British Cortina – were much more than mere cars. They were votive objects in the consumer's belief system.

Until two years ago Ford could claim to be the planet's outstanding manufacturing business. But Midwestern myopia, a run of bad luck, complacency, lacklustre design in the face of ferocious competition and some catastrophically inept public relations have brought this enormous global enterprise within sight of the abyss. Even unexcitable commentators are asking whether Ford can survive.

The Ford story began in 1879, when a 16-year-old Henry Ford left the family farm in Michigan, walked eight miles to a Detroit machine-shop and began to change the world. German scientists had pioneered automobile technology, but it was Henry Ford who realised the universal appeal of the motor car. Poetically, he said he had to create the "gasoline buggy" to escape the stultifying tedium of the Midwest, but people all over the planet felt exactly the same. So Ford created the industry of all industries: his mighty River Rouge plant in Detroit, immortalised in Charles Sheeler's intensely romantic paintings, was a symbol and a source of the American dream.

Ford's backers said he should build a car for the rich. But Ford's vision was significantly different. "I will build a car for the great multitude," he said in 1907, a year before the Model T appeared, "so low in price that no man will be unable to own one." Soon every man did.

Fifty years before Ray Kroc's hamburgers, Ford understood consumerism (although McDonald's' own stumbling fortunes may suggest that this totalitarian vision of the consumer may be losing its vitality). But, at the time, what Ford proposed was a revolution in life's possibilities for anybody who could afford the $850 he charged for his epochal Model T. This car looks now like a flimsy contraption, but it employed ingenious engineering. Vanadium steel and special heat treatments made it light and strong. And, typically American, it was ingenious commerce. In raising the levels of Model T production to unprecedented heights, Ford was doing more than building cars; he created a whole business system. Annual orders included 12 million billets of hickory for wheel spokes and 400,000 hides. Ford was a money machine.

"Henry Ford's mark in history is almost unbelievable," said Lee Iacocca, a former president of Ford. Campaigns for gas stations and better roads led to the interstate network, which changed America from a rural to an urban nation. In 1914, when the average daily wage in Detroit was $2.34, Ford raised the pay of his men to $5. The Wall Street Journal called this "an economic crime", but Ford knew better-paid workers would buy his cars. In case their new wealth was disturbing, he established a "Sociological Department" to provide counselling. He banned smoking. But, Iacocca added: "He was no prince in his social attitudes and his politics." In his 1938 epic U.S.A., John Dos Passos wrote of Ford: "The precepts he'd learnt out of McGuffey's Reader, his prejudices and preconceptions he has preserved clean... as fresh-printed bills in the safe in a bank." Indeed, the man who was an organisational genius and a social visionary was also a cantankerous bigot.

Henry Ford was, for instance, a committed anti-Semite who supported publication of the scabrous Protocols of the Elders of Zion. His stubbornness led to the first major crisis in the Ford story. By the mid-Twenties he had created an astonishing vertically integrated business system: Ford not only made cars, but owned rubber plantations in Brazil, forests, railroads, ships and 16 coal mines. But the company was a victim of its own success: every American who needed a car had bought a Model T. The market was saturated, but Ford would not diversify. An opportunity to delight the public with what became known as "design" was seized in 1927 when his rival Alfred Sloan invited a brash Californian called Harley Earl to establish an Art and Color Division for General Motors. While Henry was making cars only in black (the paint dried quicker), Harley Earl exploited Du Pont's new colour palette. For a lot of the time since, Ford has been playing catch-up.

Although Henry Ford greatly admired Hitler (who returned the compliment by basing sections of Mein Kampf on Ford's more sinister ramblings), and resisted entry into the Second World War because it was a project of "Jew bankers", the Ford Motor Company survived the Forties with government contracts to mass-produce B-24 Liberator bombers and jeeps. But when Lee Iacocca joined the company after the war he found a chaotic legacy of financial incompetence: balance sheets were kept on the backs of envelopes, and the purchasing department weighed its invoices. It was losing $1m a month.

The company was revolutionised, possibly even saved, by the reforms of Henry's grandson, Henry Ford II (1917-1987) who employed a generation of ex-military technocrats – including Robert McNamara, later John F Kennedy's Secretary of Defense – who became known as the "whiz kids". Young Mr Ford made his reparations with the Jewish community, and the company went on to create some of the cars by which the world remembers America in what Tom Wolfe called its "Bourbon Louis romp". The '49, with its radically smooth integrated shape and bullet grille, brought affordable style to the postwar generation and became a campus classic: its 100hp V-8 engine made it effortlessly faster than rival Chevys or Plymouths, and its bench seat made it as suitable for the drive-in as for driving.

The glorious Thunderbird followed in 1954. This was a daring finned, louvred and chromed sports car – a catch-up response to Chevrolet's Corvette – that gave rise to a Beach Boys' classic and fed a million suburban fantasies, mostly involving sex and sunshine. The moral successor to the Thunderbird was the 1964 Mustang, perhaps Ford's most significant product after the original Tin Lizzie. Conceived after hours over steak and beer at Dearborn's Fairlane Inn, the Mustang was a classical Ford product of this period in that it was conservatively engineered, but imaginatively packaged. With its giddy variety of engines, trim levels and roof profiles, the Mustang orchestrated consumer desire. Based on a humble Ford Falcon, but dressed in a muscular, handsome body, the Mustang's chrome wheels, pleated opalescent vinyl bucket seats and candy-apple paint jobs brought the Californian customiser's sensibility to Main Street, USA. And it was a sales sensation.

But another crisis hit Ford in the late Seventies. A combination of the Iranian revolution and the American consumer's growing preference for more sophisticated Japanese and European cars led to huge losses. In the early Eighties, there was alarmist talk of the end of Detroit, but $14bn invested in retooling put Ford in a position that led to its overtaking an increasingly lacklustre General Motors in the Eighties and Nineties. At this time GM could do nothing right and Ford did very little wrong: by the early 21st century Ford was making $5bn profit a year. And then, as they do, things very suddenly changed. Earlier this month, newspapers reported that Ford may go bankrupt. A number of factors have led to Ford's latest crisis, but one is the most symbolic, both for the company and for the United States itself.

Americans have a love affair with trucks and sports utility vehicles (SUVs), butch machines which have replaced ragtop roadsters as the consumer's favourite domestic product, and Detroit rivals to Saabs and Audis for the baby-boomers who want to buy American. Ford has traditionally dominated this market with its F-150 pick-up (its best-selling vehicle of all time) and Explorer sports utility vehicles. Consumers enjoy these cars because they make a sort of reptilian connection to myths about the frontier spirit. And with their imposing size, they offer college boys in Timberland boots a clear advantage in the harrowing psy-ops of urban traffic. For its part, Ford enjoys making them because their low-technology commercial-vehicle underpinnings mean that they are cheap to manufacture, but very profitable too as the same college boy pays a hefty premium for his stand-out credentials.

But this core domestic market has been under attack, first from increasingly competitive Japanese rivals, but most significantly by a catastrophic loss of faith in Ford itself. The Ford Explorer is an amiable, tough, comfortable, but crude vehicle. Like all big four-wheel drives, its high centre of gravity makes it unstable in certain manoeuvres. To put it less diplomatically, a carelessly driven or accident-prone Explorer will roll over and crush you.

Americans are certainly prone to auto-suggestion, and the Explorer roll-over phenomenon became a Salem witch-hunt – even Monica Lewinsky had a well-publicised tumble in her Explorer – but in January 2001 it went official. The National Highway Traffic Safety Administration reported that the Explorer had a 30 to 40 per cent chance of capsizing in an accident. And while exactly the same figure would in theory apply to a Chevy or a Jeep SUV, all the mud stuck to the Ford. In this it is, perhaps, tempting to see some underlying consumer disenchantment at Ford's entrenched conservatism. But the Explorer's fall from grace was accelerated by an infamous problem with disintegrating Firestone tyres – exacerbating the roll-over problem – which Ford handled with calamitous ineptitude. A sequence of slippery denials was followed by reluctant admissions of a problem, which led to Ford offering to re-tyre hundreds of thousands of Explorers, a recall programme that cost the company billions in cash and even more in esteem. And on the way to this industrial calamity, Ford's pugnacious chief executive officer, Jac Nasser, had managed to insult Firestone's Japanese owners, to embarrass the Firestone family (which has long historical family connections with the Fords) and, perhaps most damaging of all, to alienate Americans by going on television to explain the "issues". Nasser is Australian and had not reckoned that most Americans had not realised he was a foreigner.

The Explorer muddle was only the most expensive of a handful of recent business disasters that have shown that, if nothing else, Ford retains an absolute genius for bad PR. In recent years, Nasser has been on a spending binge. He bought Volvo and Land Rover for Ford, but despite excellent products, like Jaguar (an earlier acquisition), they are not making enough money and they distract management from the primary product: restoring the credibility and desirability of cars with a blue oval badge. Most ridiculously, Ford bought the UK exhaust retailer Kwik-Fit for $1.5bn and soon sold it for half that without realising the assumed benefits of claiming the customer after he had left the showroom. Meanwhile, on the racing circuits of the world, every other weekend in the season, the Jaguar Formula One programme (which exists to generate favourable images of sporting achievement and technological superiority) consistently presents a picture of managerial chaos and unreliable product... at an estimated annual cost of $120m (£76m).

Nasser's expansionist strategy might have worked in a rising market, but it was catastrophic in a recession. Nasser has now gone and Ford is certainly in crisis, but is not going bankrupt. At least not yet. Recent reports that the company has $150bn of debt doesn't show the full picture. Ford may have corporate debt of $14bn, but it also has $25bn in cash, so is comfortably liquid. The headline figure is based on the loan book of Ford Credit, the financial business that lends money to dealers to finance their stock and lends money to customers to buy its cars. Ford Credit borrows in the capital markets and lends on at a mark-up, using the cars themselves as collateral. Thus, the bigger the "debt", the more money Ford makes and the more cars it has sold. In this sense, $150bn of debt is good news, but what disturbs Ford insiders is the willingness of sources and the media to take mischievous delight in any negative interpretation of one of America's mightiest businesses.

Ford's strength and weakness is its inheritance of a culture from one very powerful individual. Essentially, its problems come from betraying this precious endowment. Embarrassed by the blue-collar associations of Ford, management has indulged in ruinously expensive and irrelevant diversifications. But what Ford needs for survival in this centenary year is not more trophy brands, but a return to Henry's first principles of "building a car for the great multitude". What Ford needs is not Range Rover, a grand prix team and Pierce Brosnan's latest ride; what Ford needs is a new Model T. But that may be like asking America to re-invent itself.