Scott Rountree, Todd Carter, Gregory Hilsgen, Aaron Niles, & Preston Birk
MGMT 5603 – Fall Online (2010)
October 01, 2010
Dr. Phil Lewis
Introduction
On May 21, 2001 Ford Motor Company and the Bridgestone /Firestone Tire company ended their 100 year relationship because the companies no longer had mutual respect for one another. The Ford Explorer hit the market in March of 1990. Since then, 203 deaths and over 700 injuries resulted from rollovers in the Ford Explorer after the tread of the Firestone tires separated. Auto safety data showed that both companies were to blame, but Ford blamed the deaths and injuries on the faulty Firestone tires and Firestone placed the blame on the design of the Ford vehicle. To recover from this scandal, the strategic plan for the next three years for Ford Motor Company is to take steps to regain the trust of its customers by applying more stringent safety testing on their vehicles and proving that the customer’s well being is more important to Ford than just the bottom line.
Ford Motor (Ford) is one of the largest automotive manufacturers in the world. It manufactures and distributes automobiles across six continents. With 80 manufacturing facilities worldwide, the company's automotive vehicle brands include Ford, Lincoln, Mercury and Volvo. The company primarily operates in the US and Europe. It is headquartered in Dearborn, Michigan, and employs about 176,000 people. Ford produces a wide range of vehicles
including cars for the small, medium, large and premium segments; trucks; buses/vans (including minivans); full-size pickups; sport utility vehicles (SUV) and vehicles for the medium/heavy segments. In addition to producing and selling cars and trucks, Ford also provides a range of after sales services and products through its dealer network. (Datamonitor Ford Motor Company Profile, n.d.)
The outline of this paper will consist of different sections. These sections include the company’s Mission/Vision statement, an Internal Assessment, which will discuss the company’s financial ratios, a current organizational chart based on executive titles, marketing strategies, and a list of the company’s strengths and weaknesses. The next section is the External Analysis, which will discuss major competitors, key industry trends, and a list of the company’s opportunities and threats, followed by the Strategy Formulation and Strategy Implementation sections. These sections will explain the SWOT matrix, present recommendations, and show how best to finance said recommendations. Lastly, the Conclusion section will summarize the recommendations and compare and contrast the company’s current strategies versus our strategies.
Mission/Vision
A mission statement is a very significant part of a company. A strong mission statement helps clarify the direction of the company by defining core operating principles that will serve as the foundation of the company’s strategic planning and goal setting. Employees should always attempt to incorporate the company’s principles into their everyday work environment and also use them to set measurable goals for themselves and their respective business unit. Ford's mission statement (One Ford) has three sections: One team, One plan, One goal.
The company’s current mission statement is:
“One Team: People working together as a lean, global enterprise for automotive leadership as measured by: customer, employee, dealer, investor, supplier, union/council and community satisfaction.
One Plan: Aggressively restructure to operate profitably at the current demand and changing model mix, accelerate development of new products our customers want and value, finance our plan and improve our balance sheet, and work together effectively as one team."
One Goal: An exciting viable Ford delivering profitable growth for all.” (http://www.ford.com/about-ford/company-information/one-ford, 2010)
We feel that the current mission statement lacks ethical value. The strategy for the company seems to imply that the company holds profitability above all. Most companies operate in this fashion. However, if a company would operate on the premise of providing good products to their customers at reasonable prices then everything else would fall in line, including profit. Ford’s mission statement will need to be changed so that it will tie into the company’s three year strategy. The mission statement should reflect how providing high quality, safe vehicles to their customers is their number one goal.
Financial Ratio Analysis
We pulled financial information from the CY 2007, 2008 and 2009 Annual Reports located on the Ford official company website (www.ford.com, 2010). The annual reports contained the company’s consolidated income statement and balance sheet. Using this information we calculated the following financial ratios and performed an analysis.
Financial Ratio CY 2007 CY 2008 CY 2009
Gross Profit Percentage -15% -10% -2%
Return on Sales -2% -10% 2%
Return on Equity -50% 102% -42%
Return on Assets -1% -7% 1%
Quick Ratio 95% 55% 88%
Debt to Equity Ratio 892% -308% -568%
The company’s gross profits from CY 2007, 2008 and 2009 are very bad, and are actually lower than another American car manufacturer – Dodge. Percentages in this range indicate the company has solvency issues.
We compared Ford’s return on sales to another leading car manufacturer and determined that Ford’s ratios are better, but still not good. This ratio indicates that the company is not able to control the level of their expense relative to their level of sales very effectively.
The company’s return on equity has been very unstable throughout the years. Many analysts argue that this ratio is the ultimate measure of a company’s overall accomplishment. The average return on equity from the best public companies in America range from 10% to 15%, so in comparison Ford’s ratio in 2008 was very good, but in 2007 and 2009 they were very bad. (About.com, 2010)
The company’s return on asset ratio has varied for the last couple of years. This ratio provides a good insight into how well the company’s assets are generating profits. This ratio indicates that Ford’s assets are being managed improperly and are not generating profits adequately.
The quick ratio shows a company’s ability to meet its short term debts. The rule of thumb is that anything over 1 is good for a quick ratio; therefore the company’s quick ratios are not good.
The debt to equity ratio provides an indication of the long term solvency of a firm. Ford’s debt to equity ratios have been violently declining over the past three years and indicate the company is in serious trouble.
Organizational Chart
Below is an organizational chart that we obtained from the Ford official website (http://www.ford.com/about-ford/company-information/corporate-governance/corporate-officers/ford-officers-802p, 2010):
Name Principal Position
William Clay Ford, Jr. Executive Chairman
Alan Mulally President & Chief Executive Officer
Michael E. Bannister Chairman & CEO (Ford Motor Credit Company)
Lewis W. K. Booth Exec. Vice President & Chief Financial Officer
Mark Fields Exec. Vice President & President, The Americas
John Fleming Exec. Vice Pres., Manufacturing & Labor Affairs
• William Clay Ford, Jr. has been the Executive Chairman and Chairman of the Board of Directors at Ford Motor Company since 2006. He has held a number of management positions within Ford. From 1995 to 2001, he was the Chair of the Finance Committee and from 1999, he was elected the Chairman of the Board of Directors.
• Alan R. Mulally has been the President and Chief Executive Officer at Ford Motor Company since 2006. From 2001, Mr. Mulally had been the Executive Vice President at the Boeing Company and President and Chief Executive Officer at Boeing Commercial Airplanes.
• Michael E. Bannister has been the Chief Executive Officer and Chairman of Ford Motor Credit Co., since April 2004 and its President, Chief Operating Officer, and Director, since August 25, 2003. Mr. Bannister has been Group Vice President of Ford Motor Co., since April 2004.
• Lewis W. K. Booth has been Chief Financial Officer and Executive Vice President of Ford Motor Co. since November 1, 2008. Mr. Booth has been President and Chief Operating Officer of Ford of Europe GMBH since September 2003. Mr. Booth serves as Group Vice President of Ford Motor Credit Co. LLC.
• Mark Fields has been Executive Vice President and President of The Americas of Ford Motor Co., since October 1, 2005. Mr. Fields served as a Head of North American Automobile Operations of Ford Motor Co. since September 2005. Mr. Fields served as an Executive Vice President of Ford Europe and Premier Automotive Group of Ford Motor Co. since April 2004.
• John Fleming serves as the Chairman and Executive Vice President of Ford of Europe GMBH and also has been its Chief Executive Officer since October 1, 2005. Mr. Fleming serves as Executive Vice President of Manufacturing and Labor Affairs at Ford Motor Co. and has been its Executive Vice President since November 2008. (http://www.businessweek.com, 2010)
A good aspect of the organizational chart is that there appears to be plenty of well educated and qualified managers that could step in for another manager at any given time if needed. This would help keep the company moving on the same path if one of the top executives left their position. A bad aspect is that because there are so many different sets of managers, employees at the bottom of the corporate ladder may find it difficult to get their opinions or company ideas heard. Ignoring these fresh new ideas from some of the lower employees that actually deal with the customers on a daily basis could impede on the company’s growth and could make them fall behind their competitors.
Marketing Strategies
The Ford Motor Company has been around for many years and has built its reputation on the products it builds throughout the world. Over the years, Ford has relied heavily on marketing its products through radio and television ads focused on its sale regions. The heavy lifting was done through the local dealerships, which also created radio and television ads.
As the popularity in the Internet has grown over the last few years, Ford has focused on many of the newest technologies to advertise their products to the world. Many of Fords’ marketing strategies focus on creating a better relationship with the consumers, which they serve and to gather information about these consumers in a way that will allow the company to better serve their consumer base. Since the Ford/Firestone incident, the company has tried to find a way to mend the wound that was created.
Good Points
In recent years, Ford Motor Company has decided to take a new approach to their marketing strategy and focus on those who hate them the most. Ford has decided to “go green” and turn the company, which once had the worst fuel efficiency records of any car company, into a company that can be more environmentally friendly.
The company has created a website, which allowed consumers to see both good and bad news concerning Ford. The company wanted the consumers to know they have made mistakes over the years, but they really weren’t that bad of a company. Ford also wanted people to know they are here for the long haul. (http://www.allbusiness.com/marketing-advertising/advertising/3877648-1.html)
In more recent months, Ford has created a marketing strategy that includes social media. The social media strategy includes using some of the most popular social websites such as Facebook, Twitter, YouTube, and Flickr to gather and compile information about their customers, so they can gain trust and valuable incite on what their customers want and need.
One of the approaches Ford has taken was to create a social media strategy. In this strategy they were to select 100 socially vibrant individuals and these individuals were provided with the European version of the Ford Fiesta 18 months prior to being manufactured in the United States. Ford encouraged these individuals to share their experiences with the social media world and champion Ford’s identity. This was a successful campaign, which allowed them to spread the word of the Ford Fiesta through word-of-mouth. Word-of-mouth is a valuable tool that can create a very high interest in the product a company produces. (http://www.allbusiness.com/marketing-advertising/advertising/3877648-1.html)
Bad Points
In the global market Ford Motor Company has often failed to sell products that maybe popular in one country, but in other countries may not sell at all or very little. For instance, Europe’s Ford Mondeo failed to sell well in the United States as the Ford Contour. The United States Ford Torus was a great seller in the United States, but failed to sell very well in Japan and Australia. This can be due to poor sales advertisement or the lack of interest by the consumers they are interested in. In some cases, companies have a hard time reaching the target markets due to the lack of technologies or communication. In some instances countries social and political create a road block that can keep global companies, such as Ford Motor Company from being able to sell at all.
Competitors Points
Competing auto makers such as Toyota launched their young and hip Scion, which used partnership marketing to team up with the likes of Red Bull, Boost Mobile, Nike, Etnies, O’Neill, Billabong, and a countless list of strong identifiable brands. Toyota also used the Scion brand to sponsor events such as the West-Coast hip-hop jams. Lastly, Toyota has created advertising in some of the social media channels such as Second Life and There (http://www.mobileyouth.org/post/ford-takes-on-toyota-at-its-youth-marketing-strategy/).
Other competitors are going viral as well as the use of the Internet is becoming more popular. The use of such social websites as Facebook and Twitter allow these companies to become better aware of what their customers want and need. It also allows satisfied customers to spread the word of their products to increase brand awareness by word-of-mouth.
Many of the competitors have partnered with Hollywood in order to increase awareness of their products. Volkswagen, for instance, has signed a deal with Universal Studio, while GM has signed a deal with Warner Brothers. These deals allow the automakers cars to be used in movies, which in some cases turned the awareness into upwards of $60 million dollars worth of publicity for the automakers from the films. (http://www.just-auto.com/analysis/the-rise-of-product-placement-in-marketing-strategies_id87408.aspx)
Future Points
In order for the Ford Motor Company to create an advantage over the existing competitors such as GM, Toyota, Nissan, and others we believe that Ford should focus on creating a marketing strategy that instills confidence in the products they produce. One of the simplest ways is to build on the social media strategies they already have created. By refining these strategies, Ford Motor Company will be able to use the data they collect to help them understand their consumers and allow them to design safer products that consumers want and need. Encouraging the more social customers to use their products and then champion their brand to others by word-of-mouth is a very powerful tool that will allow Ford to flourish and create a closer branding relationship with their consumers.
The Ford Motor Company must also team up with many of the popular brand names that they are currently associated with and sponsor events and use talented spokes people to keep their brand on the consumers mind. Especially sponsoring events for safety will create a consumer interaction that is valuable to the company to move forward after issues with safety.
Lastly, the Ford Motor Company must keep using innovation to create new “green” vehicles, which will reach the many people that are concerned with the pollution of today’s vehicles. They must also improve current models of vehicles to increase the miles per gallon that their vehicles currently get.
Strengths and Weaknesses
Ford Motor Company, like many companies, has both strengths and weaknesses. Their strengths allow the company to be very competitive and, in some instance, obtain a competitive advantage over other companies in the industry in which they compete. The weakness of a company is specific items, which if not fixed, could cause them not to be a competitive leader in their industry.
Strengths
The Ford Motor Company has shown strength since the company began in the early 1900’s and has been a top company in the automotive industry without little wavers over the years. The main reason for this is success for over 100 years is due to their top management. Their top management have been experienced and have had the know how to keep the success alive within the Ford Motor Company.
Another strength Ford Motor Company has shown is in the innovation of improving their products by creating a more “green” product line. Their research and development of such things as new fuel technology, cleaner and more efficient engines, the invention of new fuel cell technology based on an electric engine that does not run on batteries, and development of hydrogen fuel that only emits water as a byproduct has allowed the Ford Motor Company to become a strong leader in the automotive innovation.
The Ford Motor Company in more recent years has increased its commitment to safety to their consumers. With their improvements in airbags and safety belts as well as the development of minimize rollovers of their vehicles in accidents. These types of safety innovations allow the Ford Motor Company to keep a strong hold in the automotive industry.
Lastly, the diverse set of employees within the company has allowed the company to firmly plant themselves as one of the top places for all types of people crossing both the racial and the gender boundaries. Ford Motor Company has led the development of education for women in the workplace. They have launched a program called Leadership in DRIVE helping their ability to recruit and advance women in the work place.
Weaknesses
The Ford Motor Company has weaknesses, which without fixing, could cause the future of the company to be in flux. One of these weaknesses is the financial loss they incurred with the issues between them and Firestone. The losses incurred were $5.45 billion in 2001 and $980 million in losses in 2002. With the Firestone recalls, a fall in the stock prices to $14.70, this was the lowest in years. By no means is the company is serious danger to go bankrupt, but with these types of losses, they are budgeting tightly.
Today is a tough place for all vehicle manufactures with the recession that has hit the United States. The poor performance of the cars market has been caused by the decrease in the number of people who want to buy new cars compared to the number who want to buy used cars. This has caused a drop in production levels, which has led to cutbacks that have affected the company.
Last of all, the Ford Motor Company has made billions of dollars in acquisitions. These acquisitions have led to a financial burden on the company and have cut into their long-term profits. As stated previously, the financial burden causes the company to have to tighten up on internal spending.
External Analysis
The Ford Motor Company is one of the world’s largest automotive manufacturers because of their innovative and affordable lines of automobiles. Fords are sold all over the world and their top global market is, not surprisingly, America. Throughout the years innovation and technology has changed, and for this reason the industry has seen a rise in competition. These competitors include, but are not limited to, GM, Toyota, Chrysler, Volkswagen, and many more. All of these companies have one thing in common, they offer similar automobiles.
Below is a chart we obtained from Yahoo! Finance, which details the top three competitors and the industry vs. Ford Motor Company (http://finance.yahoo.com/q/co?s=F+Competitors)
Direct Competitor Comparison (as of 2009)
F
PVT1 PVT2 TM
Industry
Market Cap: 40.82B N/A N/A 111.67B 13.47B
Employees: 198,000 N/A 217,0001 320,590 2.42K
Qtrly Rev Growth (yoy): 30.80% N/A N/A 27.00% 11.90%
Revenue (ttm): 133.74B 17.71B1 104.59B1 238.68B 22.26B
Gross Margin (ttm): 15.84% N/A N/A 13.58% 21.30%
EBITDA (ttm): 14.27B N/A N/A 23.01B 2.46B
Operating Margin (ttm): 6.41% N/A N/A 2.77% 9.07%
Net Income (ttm): 6.57B -3.78B1 105.22B1 5.71B N/A
EPS (ttm): 1.68 N/A N/A 3.64 0.93
P/E (ttm): 7.07 N/A N/A 19.58 12.65
PEG (5 yr expected): 0.40 N/A N/A N/A 0.58
P/S (ttm): 0.31 N/A N/A 0.46 0.61
Pvt1 = Chrysler Group LLC (privately held)
Pvt2 = General Motors Company (privately held)
TM = Toyota Motor Corp.
Industry = Auto Manufacturers - Major
In this chart one can observe that, in this particular direct competitor comparison, Ford Motor Company is leading the way in only some of the categories. As you can see, Toyota Motor Corporation is their biggest competitor in the Major Auto Manufacturers industry. Some categories, such as quarterly revenue, gross margin, operating margin and so on, Ford is leading the industry.
The leading competitor, in relation to market capacity, is the Toyota Motor Company. Toyota offers similarly sized cars, which are filled with comparable features and gadgets. A direct comparison is the Toyota Camry vs. the Ford Taurus. Both cars offer relatively the same amenities, gas mileage, warranties, etc., and one way to keep or lose a customer is to offer features and services that the other companies don’t offer. Other competitors, like GM and Chrysler, offer similar four door sedans, which customers enjoy driving. Although the features of these cars may be similar, customers usually see a major difference between the companies, and customer loyalty is an important factor in competition.
There are many trends affecting the Major Auto Manufacturers industry, both positively and negatively. From technological, environmental, and geographic, these trends are not only affecting Ford, but also many of their competitors. The following paragraphs will discuss many of these trends and how they relate specifically to Ford.
The recent technological trend is to come out with the next smart automobile. The company leading the way in innovation is at the front of the pack. Ford offers their own technologic innovation called the “Sync” system. This system allows a car to link the drivers’ portable entertainment and communication devices into the car. “Ford’s Sync system continues to raise the bar by adding features like (smartphone) apps for bringing content into cars.” These features that are now being integrated into automobiles are not only making the devices simpler to use, but also the focus is driven to make using them as safe as possible. (Edmunds.com/, The Top 10 Car Technology Trends from CES 2010, Doug Newcomb, 2010)
An environmental trend that Ford is faced with is the need for alternative energy. In recent history, the need for cars to become cleaner and more fuel efficient, has been astounding. Much like the technological trend, the company who has the most innovation tends to reap the benefits. “Ford has an aggressive plan to bring five new electrified vehicles to market over the next two years.” The benefits of offering electric vehicles will offer a large boost in sales, reaching both the market of people wanting to be “green” and the people who want to stay on top of the technological world. (blogs.houstonpress.com, Ford Jumping on Houston’s Electric Car Trend, Richard Connelly, 2010)
One geographic trend that is affecting the major auto manufacturers industry is expanding the geography of where their automobiles are being sold. Expanding your market is vital for any company, in any industry, and Ford is no different. The recent drop in new cars being sold in America 2006-2009, from 15 million vehicles to 8 million, has put a scare into most auto manufacturers. One way of making up for the loss of sales is to expand into new markets, such as China or India, which have both had growth in their market. One way of doing this is to offer those emerging countries what they desire such as mini-cars. (infosysblogs.com, Manufacturing Talk-Top 5 trends in Auto Industry of 2010, 2010)
Opportunities
Ford is focusing on growth. The company plans on increasing their customer base by venturing out into new markets. One of the markets that Ford is interested in is the Asia-Pacific market. From 2005-2009, the Asia-Pacific new car buying market has a compound annual growth rate of 3.8%. This extremely lucrative market would include regions like China and India. (Datamonitor Ford Motor Company, n.d.)
The market for new forms of energy efficient cars will be the future for the auto manufacturers. Many companies are investing mass amounts of money in producing cars that are hybrid, electric, or ethanol based, to feed the market’s demand for them. As discussed before, Ford has plans to bring out new electrified cars in the next two years, and this should increase their market share in this industry.
One opportunity Ford plans to act on is bringing more production into the United States. Ford currently outsources some of their production to foreign countries, such as Mexico and Japan. These outsources create a price increase found through transportation of the working materials back and forth. In an attempt to reduce the cost to the end user, Ford is investing monies into plants located in America, to stem the need for outsourcing.
Threats
Like any company, Ford faces tough competition. This rivalry usually leads to price wars in which people start looking at the bottom line. Due to the decrease in the demand for new cars in the United States, most car companies have a surplus of new cars not being purchased. While this problem isn’t affecting all car companies, it is a serious concern. The lack of new car sales will seriously hinder Ford’s ability to spend money on innovation and expansion.
Car Manufacturers are under strict and ever-changing regulations. The necessity of adhering to these regulations is not only time consuming, but also hurts the company’s pockets. These regulations can include safety, environmental protection, etc. The climate change is a big concern Ford is faced with. Ford strives to follow all regulations, but progress is not something that can happen overnight. (http://www.ford.com/microsites/sustainability-report-2009-10/issues-climate-progress, 2010)
The relationship between manufacturer, supplier, and the dealer, is a potential threat to the auto manufacturing industry. The car industry has been described as “highly interdependent”, a complex system in which all parties rely on one another to survive. If one part of the system faces any pressure, financially, the end product will ultimately suffer an increase in cost. Since market purchasing has decreased, this is a vital threat to Ford. (Datamonitor Ford Motor Company, n.d.)
Strategy Formulation
SWOT Analysis
Strengths :
1. Strong Ford Asia, Africa and Ford Mazda operations
2. Growing Ford Europe
3. Profitable financial services division Opportunities:
1. Strongest of the big three
2. Hybrid vehicles
3. Opportunities in India and China
Weaknesses :
1. Weakening North American automotive operations
2. Tarnished brand image
3. Large unfunded pension and other union obligations. Threats:
1. Rising raw material prices
2. Increasing competition
3. Low capital spending
STRATEGY AHEAD
The goal for Ford is not unlike any other automaker in the United States, to return to profitability. The sharp global economic recession that started in 2008 has hurt every capital intensive business, especially automakers, very hard. High fuel costs and the credit crisis reduced consumer demand for cars and trucks by up to 40% from previous years. This sharp reduction in sales forced General Motors and Chrysler into bankruptcy, and required government bailouts to stay in business. Ford was strong enough to survive without accepting these bailouts, but has been left in dire financial shape.
Ford was able to show a profit this past quarter, but needs to improve operations to stay in the black and remain competitive. In the past, Ford would normally make money in its financial services division while losing money in its core manufacturing business. Ford needs to make money in its core business to sustain the company in the long run. We believe this can be accomplished through several steps: 1.) Ford must get its costs under control. This can be done by reducing labor costs and matching capacity to demand. 2.) Ford needs to produce cars and trucks that are affordable, desirable, reliable, and that can compete against strong foreign competitors across a large range of markets. In essence, Ford needs to update their lineup of cars and trucks.
Controlling Costs
Controlling costs in any manufacturing business is very important due to the large fixed capital expenditures associated with manufacturing plants and equipment. Ironically, Ford will need to spend billions of dollars to shutter facilities and possibly reduce its workforce, all in an effort to reduce costs in the long term.
Many analysts have stated that hourly UAW workers are some of the most highly paid workers in America, costing over $70 an hour in wages and current and future benefits. A majority of these costs are for medical and retirement benefits associated with retired employees.
The near collapse of the American auto industry has given the big three automakers considerable leverage in bargaining with the unions. Ford has about 42,000 hourly workers covered by union contracts. Hourly wages account for 14% of operating expenses. This amount can be reduced with a smaller workforce and increased productivity per worker. A smaller workforce can be attained through plant closings and possible outsourcing. An increase in productivity can be achieved because of more flexibility in job descriptions allowed by the union.
Employment cost savings should not come just from hourly employees. Management can and should bear a significant portion of the cuts. It is possible to reduce the number of management by up to 10%. As the overall company streamlines, so to should the number of management.
Ford has significant unfunded pension, health care and life insurance obligations. The current retirement and health care plan is underfunded by up to $40 billion according to some analysts. This obligation can be reduced by transferring some of the burden and all of the administration over to the unions. Transferring a portion of the company’s equity can shore up a portion of the shortfall without draining capital from the balance sheet.
Further savings can be achieved by revamping the current retirement system and benefits. More of today’s corporations are choosing to offer matching 401K plans over a traditional pension plan. A matching 401K plan would shift some of the burden of retirement costs to the employees while limiting longer term obligations for the company.
Plant closings are vital to Ford’s survival. Excess capacity must be consolidated and eliminated. Production of older models and slower selling models should be combined or stopped all together. These facilities could be used to produce a much needed lineup of hybrid cars and trucks.
Update Product Lineup
Although Ford is not in a strong financial position, billions of dollars will be needed to modernize facilities, close nonessential plants and develop new models. North American capacity will be realigned to match demand.
For decades the American auto industry has relied on trucks for a majority of operating profits. Higher fuel prices have hurt the industry in this category. Ford has always struggled in the small car market against Japanese rivals. This trend must be reversed. Smaller cars are purchased more frequently by entry level customers. This is vital for a company in the long run to build brand loyalty from a younger generation of car buyers, who will return as repeat buyers of upscale vehicles as their buying power increases.
Ford must have a renewed commitment to bold design, improved safety and technological innovation to differentiate Ford and its products in the marketplace. This must include more crossovers, hybrid vehicles and new small cars that are desirable to consumers.
There are some bright spots at Ford. The company's hot-selling new Fiesta small cars are selling better than expected, and customers are optioning them up. Only 7% of Fiesta buyers are going for the base model. This is important because options provide higher profit margins and customers seem more satisfied when a vehicle is well equipped. This type of success needs to be repeated across the product line.
Although the future may be in smaller cars, trucks still play a vital role at Ford. Trucks account for over 65% of sales today. Toyota, Nissan and Honda all have made inroads into the truck market in the United States. Ford must invest in truck technology and design to remain competitive against the Japanese. Ford still gets a majority of operating profits from trucks.
Updating product lines will be an important part of Fords future, but their image has been tarnished by multiple high visible recalls. In 2001 Ford spent $2.1 billion replacing 13 million tires made by Bridgestone/Firestone. There have been several other recalls that have hurt Fords reputation around the globe. These types of mistakes can not be allowed to happen with new models.
All of these solutions are vital to North American operations. Ford must also target overseas opportunities. The developing world, including China and India are important future markets that no automaker can ignore. Ford already has production facilities and joint ventures in both countries, but the need to expand is growing.
These expansions overseas will again require billions of dollars but the size of the potential market is too big to ignore.
One technique that Ford has tried in the past was to build a world car. This is a car that will be built in multiple countries and sold all over the world using the same platform with minor styling changes for local markets. Design and R&D costs would be spread over a large number of cars. Previous results have been mixed, but the potential to get it right is enough to try again.
No one knows the future, but the past is crystal clear. Ford must develop technology to build hybrid and electric cars for a world that may be running low on fossil fuel, and a world that is concerned about the environment.
Strategy Implementation
Ford Motor Company is one of the largest automotive manufacturers in the world. The company’s strong engineering capabilities allow it to broaden its product portfolio and remain in the forefront of the automotive industry. However, due to intense competition, Ford must focus on key strategies, not only to maintain its current market share, but to ensure a solid position well into the future.
In 2007, Ford created a single global product development organization to maximize economies of scale and share best practices and ideas. The current implementation of this plan allows Ford to fully leverage our resources so that we can offer a full range of vehicles with the best quality, fuel-efficiency, safety, smart design and value. This strategy is paying off, and within the next four years, all Ford vehicles competing in global product segments will be common in North America, South America, Europe and Asia Pacific Africa.
The Asia-Pacific new car market experienced the greatest growth in recent years and is likely to continue into the future. The Asia-Pacific new cars market generated total revenues of $285.5 billion in 2009, representing a compound annual growth rate of 3.8% for the period spanning 2005-2009. (Datamonitor) In comparison, the Chinese and Indian markets grew 17.3% and 8.9% respectively, over the same period, to reach respective values of $98.7 billion and $25.9 billion in 2009. The performance of the market is forecast to accelerate, with an anticipated CAGR of 5.3% for the five-year period 2009-2014. Comparatively, the Chinese and Indian Markets would grow with CAGR’s of 12% and 10% respectively, over the same time period, to reach respective values of $177.6 billion and $41.6 billion in 2014.
China and India are the key emerging markets that would continue to drive economic growth in the Asia-Pacific region. In FY2009, Ford’s combined car and truck share in Chinese and Indian market (including sales of Ford brand vehicles, and market share for certain unconsolidated affiliates particularly in China) was 1.9% and 1.3%, respectively. In line with these trends, Ford is strategically investing to improve its manufacturing capacity in Asia Pacific. Ford recently invested $500 million in an expansion of small passenger cars in its joint-venture assembly facility in Rayong, Thailand. Likewise, in India, Ford invested $500 million to significantly increase its presence through the expansion of its current manufacturing facility in Chennai to begin production of its new Ford Figo, and construction of a fully-integrated and flexible engine manufacturing plant. Furthermore, Ford is breaking ground on a new plant in Chongqing, China, to meet anticipated demand and grow Ford-brand market share.
To maximize its share of the increase in demand for hybrid-electric vehicles, Ford will first, focus its development on the two largest markets expected to experience growth, namely the United States and China. By the year 2015, there will be an estimated total of 1.7 million PHEV’s on the world’s roadways. In order to meet the demand Ford is continuously focused on developing new high technology products for hybrid electric vehicles. The company will introduce EcoBoost engines, six-speed transmissions and other fuel saving technologies across a wide range of vehicles. Ford currently plans to double its hybrid models and volumes in the US. Ford’s Lincoln brand will introduce its first hybrid, the new 2011 Lincoln MKZ in the US. In 2011, Ford is expected to begin the production of a zero-emission Ford Focus Electric vehicle at its Michigan assembly plant. At the same plant, Ford will produce the next-generation hybrid vehicle and plug-in hybrid, in 2012, with Electric vehicle projects underway in Germany and the UK.
Strategically, Ford will invest aggressively to enhance its production facilities. $135 million will be invested in its Dearborn, Michigan plant to design, engineer and produce key components for the company’s next-generation hybrid-electric vehicles. Similarly, Ford will invest $155 million in its Cleveland Engine plant to build a new fuel-efficient V-6 engine for the 2011 Mustang. These two investments combined will bring the company’s investment in powertrain engineering and facility upgrades in North America to $1.8 billion to support its 2011 vehicle launches.
Ford will continue major cost reduction actions to substantially restructure its business, including personnel levels, facilities and related costs, and the settlement of the United Auto Workers retiree health care Voluntary Employee Beneficiary Association agreement. Obtaining capital and liquidity ahead of the financial market crisis, which helped Ford maintain investments in new products during a difficult economic period.
There will be a continued focus on improving the cost structure and strengthening the balance sheet. Among other actions, Ford anticipates completing the sale of Volvo Cars to Zhejiang Geely Holding Group Co. Ltd.
By focusing on trimming lower profit arms of Ford, investing heavily in innovative technologies, and strategically placing manufacturing facilities in the areas that are projected to experience the greatest market growth, Ford’s strategy will position it to continue to be a major contender in the highly competitive automotive market for years to come.
Conclusion
From the beginning both Ford Motor Company and Firestone Tire had worked side-by-side as partners to create two empires within their respective industries, Ford in the automotive and Firestone Tire in the tire. For over 100 years the confidence these companies had in each other allowed them to work in full trust that the other would develop products that would complement each of the businesses. This trust went beyond the normal business partnerships, but both companies had complete faith the other was creating a product that would keep their customers safe and reliable.
On May 21, 2001 the partnership that had lasted 100 years was severely severed by a safety issue with Ford Motor Company’s SUV Explorer and the tires which Firestone Tires used on the SUV Explorer. There had been 203 deaths and over 700 injuries directly related to the rollover of the Explorer and the cause of the safety issues were related to designs in both the Explorer and the tires.
In our evaluation of the Ford Motor Company, we concluded that the mission statement lacks the personal response they needed to insure consumers of a firm belief in personal safety of the products they sell. Ford Motor Company’s mission statement should convey trust in their customers on safety and not show that profit is more important to them than their consumers. We strongly feel that this mission statement should be changed to reflect the ideas we have mentioned.
Overall, we feel that the financial information for Ford Motor Company is, in some instances, below the other automakers. This could be due to the amount of debt they have acquired through acquisitions. For the most part, the financials have been consistent throughout the last few years.
In more recent years, the Ford Motor Company has been trying to gain back the trust that was lost in the incident between Firestone Tire and their company. They have been pushing the envelope to create a more “green” line of automobiles that will target the more environmental consumers. Their research and development has already created some great fuel efficient automobiles that improve the mile per gallons, release less emissions, and created improved safety systems. With the ingenuity they have increased the confidence from the consumers that buy their products.
The Ford Motor Company is increasingly becoming more competitive through the globe. Their focus is set on growing their customer base in many of the untapped markets throughout the globe. Their focus is also to create fuel alternative automobiles that can help alleviate the growing concern of pollution created by gas automobiles. Ford Motor Company has a wealth of opportunities going forward to create new technologies used in automobiles and they are definitely taking advantage of these opportunities for the future of their company.
In Ecclesiastes 4:9-10 of the New King James Bible it states that “Two are better than one, because they have a good return for their work. If one falls down, his friend can help him up. But pity the man who falls and has no one to help him up!" This is a powerful statement that could be used in this case, because while both Ford Motor Company and Firestone Tires were working as a team for more than 100 years, by ending their partnership they may never be able to find someone else that will help them up as they have found through this partnership. Both companies built their companies through the hard work of helping each other out.
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