I just got though reading "American Icon, Alan Mulally and the Fight to save Ford Motor Company" by Bryce Hoffman and according to Bryce, yes early on Alan wanted to cut all the brands except for Ford. Apparently, the execs at Ford persuaded Alan that he needed to keep at least one luxury brand.. and that Mercury would stay until Lincoln could stand on its own (page 145).
BTW. Good book, I highly recommend it. I goes into some detail about just how dire the situation was at Ford.
-Shannon