Ford motor company manufactures or distributes automobiles across six continents. The company’s automotive brands include Ford and Lincoln. The company provides financial services through Ford Motor Credit Company. Under the leadership of CEO Alan Mulally, Ford Motor Company transformed their manufacturing operations to enable a complete turnaround of fortunes between 2008 and 2010. In 2010 it announced a profit of $2.7 billion dollars,1 its first since 2005, and sales during that year made it the world’s top-earning automaker.2 In 2011, the company has seen steady growth and now, in 2012, has posted a 14 percent increase in February US sales versus 2011 levels.3 In 2012, the focus for Ford Motor Company will not be on recovery, but rather on innovation and growth.
The aim of this case study will be to analyse trends and issues in the automotive industry and particularly Ford Motor Company, to investigate the choices of strategies for Ford Motor Company and to discuss the effect of leadership in implementing these choices. It will be seen that that the three industry forces that are most critical to Ford currently are economic, ecological and competitive. In contrast, locally, the strategy of Ford Australia continues to be focused on recovery. With the slump in demand for larger cars, Ford Australia cut its Victorian workforce by 240 in 20114 and received $42 million in funding from the federal government and then again $103 million from both Detroit and Canberra in January 2012.5 Continued government subsidies are not sustainable in the long-term and so the choices for Ford Australia will be analysed and recommendations made.
2.0FORD COMPANY STRATEGY
The Ford corporate website7 promotes a “One Ford” plan with the mission stated as ”Ford Motor Company is focused on creating a strong business that builds great products that contribute to a better world.” Mulally’s “One Ford” approach is to provide an enthusiastic, yet sharp focus for everyone in the organisation and consists of: One TeamPeople working together as a lean, global enterprise for automotive leadership as measured by: Customer, Employee, Dealer, Investor, Supplier, Union/Council and Community Satisfaction One PlanAggressively restructure to operate profitability 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; work together effectively as one team One GoalAn exciting viable Ford delivering profitable growth for all Mulally then set about developing key behaviours for Ford which would be role modelled by his leadership team at all levels. They are described as:
Foster Functional and Technical Excellence
Own Working Together
Role Model Ford Values
Mid-2012, Ford will also launch its “Go further” campaign which will reflect the “company’s product strategy to save costs and improve efficiencies by building a single vehicle for each segment worldwide rather than its old approach where it would have different models in different markets.” 11 The Ford approach is encompassing, focused, fun and has been successful so far. This case analysis will recommend further strategy in keeping with the current Ford values and vision while being mindful of all stakeholders.
3.0ANALYSIS OF ISSUES AND OPPORTUNITIES
3.1PORTER’S FIVE FORCE ANALYSIS OF THE AUTOMOTIVE INDUSTRY
The economic downturn and increase of oil prices has affected all competitors in the automotive industry and how these companies react to these external forces, will determine their survival in the competitive environment. Michael Porter’s five-forces model 6 will be used to assess the competitive environment of the automotive industry in general, and in particular, Ford Motor Company: The Threat of New Entrants
Considering the increasing oil prices and high upfront capital costs to enter the automotive industry market, the threat of new entrants into this industry would be low. Capital is also required for research and development that is necessary for the innovation requirements. Additionally, a new entrant would not have an existing brand image and so to be competitive would require extensive marketing and time for the market to trust the new brand. Legislation and government policy with respect to safety requirements, environment protection and emissions may also hinder new entrants into this market. It would be safe to say that the strategic plan of Ford Motor Company will not be threatened by new entrants into the market, except for in the growth areas such as India and China, where the threat of new entrants would be medium.
The Bargaining Power of Buyers
Especially in the climate of an economic downturn, the bargaining power of customers purchasing cars is certainly relevant. In a situation where supply is high and demand is low, the buyer is in a position to help drive prices down by playing competitors against each other. Additionally, more information is now available to buyers from the internet and switching costs are low.
The Bargaining Power of Suppliers
In the automotive industry, suppliers include those of parts, tyres, electronics, labour (unions), oil and finance. There are many suppliers of parts and so the bargaining power of suppliers in this industry is low. However, the increased price of oil and the economic downturn (loss of available finance) has had an enormous effect on car sales and Ford Motor Company has attempted to mitigate these forces by producing cars that use less or no oil and also provides financial services through Ford Motor Credit Company.
The Threat of Substitute Products and Services
Substitute products in the automotive industry might include walking, bicycles and the public transport system. Substitute services might include community car sharing. However, in most cities, these modes of transport will not threaten the car industry, especially if it focuses on alternative fuel sources.
The Intensity of Rivalry Among Competitors in an Industry
Rivalry is high in the automotive industry. The automotive industry in the U.S. is no longer limited to General Motors (GM), Ford, and Daimler Chrysler; global companies compete in the U.S. market, while U.S. companies have globalised themselves. In the 1980s, the Japanese car makers Honda and Toyota entered a fairly disciplined U.S. market and have been very focused in growing their shares of the market. Within an industry, no two firms are exactly the same and rivalry is greater between forms that are alike. “Strategic groups are clusters of firms that share similar strategies” (Dess, p68). In the automotive industry, the companies that are in the same strategic group as Ford, and therefore pose the most competition, include GM, Toyota, Chrysler, Honda and Nissan.
3.2PESTEL ANALYSIS OF THE AUTOMOTIVE INDUSTRY
To help analyse the macro-environment in the automotive industry, a PESTEL analysis will be used. Political factors will vary from country to country but essentially determine to what degree a government might intervene in the economy. In the US and Australia, it has been seen that governments will readily subsidise the automotive industry. Reasons for this may include the large number of jobs that would be lost and the multiplier effect in other related industries such as raw materials and technology. However, it is not viable that repeated government handouts will be sustainable in the long-term. In the automotive industry, it will also have influence in areas such as tax policy, environmental law, safety policy and tariffs. Economic factors include economic growth, interest rates, exchange rates and inflation rate. Expensive products like cars, usually take the brunt of an economic downturn which has been evidenced over the last few years with the global financial crisis.
The European debt crisis represents a key risk to economic growth. Economic growth is expected to remain at 3% in 2012 and the industry will continue to recover in the western markets, and will continue to grow in the Chinese and Indian markets. Sociocultural factors that may influence the automotive industry may include the decreasing size of families and increasing numbers of singles, especially with the ageing and increasing population. In a time where the cost of oil is high, the demand for fuel-efficient smaller cars will increase. This is currently being seen, not only in developing countries like India and China, but also in Western countries, for example where Focus has outsold Falcon in Australia8. Other social factors may include cars that are ‘trendy’ and the social networking technology in them that may become popular, for example, Ford’s SYNC9 technology which is a voice controlled, device integration and connectivity interface.
Technological factors have become extremely important in the automotive industry as companies try to compete in alternative fuel markets such as plug-in hybrids and battery electric vehicles. Technology can also reduce costs of production, improve quality and lead to innovation. These developments can benefit consumers as well as the organisations providing the products. It would be extremely important for automotive companies to have a research and development technological strategy to compete in the current environment. Environmental factors that effects the automotive industry includes climate change. Global warming has brought greater environmental awareness over the last decade and this external factor has become a significant issue for car manufacturers to consider.
The growing desire to protect the environment has led to the success of hybrid cars and the general trend towards more environmentally friendly products is affecting demand patterns and creating business opportunities. Legal factors in the automotive industry include safety, consumer law, competition law, employment laws and more recently environmental protection laws. As previously mentioned, this has created opportunities in areas such as fuel efficient and alternative fuel technology. A current topic in the US that is under investigation is the use of gadgets while driving10. Where it is recommended that mobile phones be banned, some onboard cellular devices built into vehicles such as Ford’s voice activated Sync, would be permitted.
3.3 SWOT ANALYSIS OF THE AUTOMOTIVE INDUSTRY
Ford Motor Company is a global company with two core businesses: Automotive and Financial Services. The Automotive business consists of the design, development, manufacture, sale and service of cars, trucks and service parts. Ford is in a good position to continue to compete for market share in the US and globally. The following strengths, weaknesses, opportunities and threats (SWOT) analysis will help identify the company’s resources and assets and opportunities that the company may take to ensure growth within this industry.
Image recently improved
Economies of Scale
Ford Credit Company
Technology – SYNC and MyTouch, EcoBoost engine, hybrid and electric vehicles
Asia Pacific operations weak with less than 2% of market
Lincoln sales figures fallen 63% since 1980
Debt . Although improved, still $13.1 billion and credit rating of BB+ which is not investment grade
Large car market falling
Innovation of alternative fuel sources
Innovation of alternative modes of transport
Expansion into India and China and increase portfolio diversity into smaller cars.
Competitors in same strategic group
New entrants in India and China
Table 1: SWOT Analysis of Ford Motor Company
3.4FUTURE KEY ISSUES AND TRENDS IN THE AUTOMOTIVE INDUSTRY
In summary, aside from investigating Ford’s specific company strengths and weaknesses, from this analysis, it has also been possible to identify some general issues and trends in the automotive industry. Being mindful of these trends helps predict where the industry is heading and how Ford can innovate and evolve to meet new challenges. Some of the trends include globalisation, conglomeration of vehicles in mature markets, distributed competition in new markets, increased environmental regulation, increased energy constraints, and increased operational efficiency. It can be seen from the analysis that some of the issues actually create tremendous opportunities that Ford can investigate to innovate, create competitive strength and expand market share.
5.0STRATEGIC CONTROL AND LEADERSHIP
As discussed in Section 2.0, Mulally engineered a ”One Ford” strategy to successfully turn the company around between 2008 and 2011 which saw its recovery. He had a purpose, a vision, that people endorsed, that people believed in and got excited about. He then decided on a plan to deliver the strategy to make that vision a reality. He implemented this plan by identifying the problems, solving the problems, and encouraged collaboration amongst all employees so that everyone was working together. Mulally focused on the One Ford strategy and decided to sell Jaguar, Land Rover, Volvo and Aston Martin to concentrate on the Ford brand. Some of the implementation also included the downsizing and sharing parts across vehicle segments. Ford transformed its manufacturing operations into lean, manufacturing plants with assembly plants that provided flexible body shops enabling it to respond to changes in customer’s requirement and tastes. At the height of its problems, Mulally decided to mortgage Ford’s entire assets portfolio to fund its transformation.
This showed courage in the face of adversity. However, when the car industry crashed during the recent recession, Ford had the liquidity to meet the challenges and it did not rely on a government funded bail out. Throughout these tough times, Ford stayed inventive. In an industry often slow to embrace new developments or cutting edge technology, the company introduced MyFord Touch and SYNC communications. Central to the strategy implementation was communication and transparency. Mulhally expected everyone in the organisation to know the plan and expected behaviours. He had plastic cards printed with the goals and expected behaviours as seen on the Ford website.
He ensured that relationships between manufacturer, dealer, supplier and customers were improved dramatically. Mulally’s leadership was paramount during this transformation and has been publicly recognised as Chief Executive magazine’s CEO of the Year in 2011. 2012 is the start of a new era for Ford, with the car industry experiencing the largest growth since 2007. The strategy will focus less on recovery and more on innovation and continued growth and will be headlined by a new motto to be released mid-year “Go further”.
The challenges ahead would include:
Growth in Asia. As previously mentioned in the SWOT analysis, the company is barely competitive in the world’s largest and fastest growing auto market. It has invested $1.5 billion in assembly and engine plants in China and is expected to produce SUVs and other vehicles that are popular to Chinese consumers. It will use the internet and social networks to create brand awareness in the region. Lincoln. The question would be whether to rejuvenate this brand or send it to the same death as Mercury. Mulally has plans to have Lincoln launch a small car that is based on the Focus platform and may include variations such as a luxury SUV. Debt. Ford reported automotive debt of $13.1 billion as of December 31, 20117, which was a reduction of $6 billion from 2010 and $33.6 billion previously. The trend is to slowly clean up the balance sheet which growth in the Asian markets might facilitate. As of September 2011, S&Ps credit rating of ford has improved to BB+, but this is still not investment grade. Innovation.
Innovation is essential to being competitive in the current global car market. Mulally has described Ford as a “technology company – not just a car company”. Ford plans to continue to improve the internal combustion engine, use more lightweight materials, increase use of alternate fuels like biofuels and expand from hybrids to all-electric vehicles, such as the recently unveiled Focus Electric14. These short term strategies in innovation, however, are not exactly new within the industry. Ford needs to differentiate themselves with cutting edge technology in the market place long term. With an ever increasing population, will the car as we know it be practical in the future? Will the ”flying” cars that we see in Sci-Fi movies become reality? Will high-speed people movers be the way forward? Will scooters become an inner city trend?
6.0FORD IN AUSTRALIA
There are three Australian car makers in Australia: Ford, Holden and Toyota. They have all struggled against imports that have become cheaper as tariffs have come down and the Australian dollar has gone up15. They compete with car factories around the world, even from their own brand, to attract capital from their parent companies. The automotive industry in Australia has had a history of government assistance since 2001 and it does not appear to be ending. This year, both Ford ($34m)and GM ($363m)20 have again received government support which secures thousands of jobs direct in the industry and hundreds of thousands of jobs indirectly.
However, the questions are: how much taxpayer support is too much? Is the industry, let alone Ford Australia, ever going to be independent and sustainable in the long term? Are government handouts only delaying the inevitable? It is difficult to believe that Ford Australia can survive without government subsidies. However, it is recommended that Ford utilise the most recent income injection to regain some independence. There has been an increase in small car sales compared to large car sales in 2012 with small car sales at 39 090 and large car sales at 9 97616. As of February 2012, the Australian New Car Industry Sales Figures17 shows Ford sitting at fifth place as follows:
Ford Australia’s Falcon has been outsold by Focus in a global trend towards smaller cars. To survive, Ford Australia’s short term strategy should be to: •stop manufacturing large cars and shift manufacturing to smaller vehicles like the Focus and for the long-term use government handouts to move manufacturing towards the future of hybrid and electric-operated large and medium sized vehicles. An electric Commodore has been built Melbourne, and if Ford follows, this technology could save the Falcon. • utilise ties with Mazda. Mazda 3 was the top selling vehicle in Australia in February 2012 with 7778 sales18. Focus was tenth at 3100 (Falcon was not in the top 10). The Focus and Mazda 3 share the same platform19 and could both be manufactured in Australia.
A similar joint venture has been set up in America in Flat Rock, Michigan called Auto Alliance with Mazda. •import the platform of the new Ford Fusion as suggested by Mulally, ”and ‘top hat’ it with a sedan, hatch and SUV body made in Geelong”21. From a global perspective, it would not seem viable for Ford Motor Company to continue to manufacture cars in Australia. If the Australian government is intent on improving Australian made car sales to keep the industry alive, it could provide a tax incentive to buyers rather than handouts to the manufacturer. This would give the Australian made cars a competitive advantage, while still keeping them fully exposed to other competitive forces within the industry.
The automotive industry is currently going through a major transformation, due in part to both rising oil prices and environmental concerns. Alternative fuelled cars has become a driving force in the industry. Although Toyota has been the innovator in this area, as mentioned in the above analysis, Ford must look at these trends and threats as new opportunities and turn them into strengths for the company. 2012 is a time for growth and innovation for Ford, and the following recommendations are made: •Focus on the small car market and become a competitive force in the Chinese and Indian markets •Keep up with the ecological market trends in the areas of alternative fuels and energy
•Differentiate the brand competitively by ”leap frogging” close competitors into unchartered waters in the industry of people movement •Use recent government subsidies in Australia to make a good attempt to improve market strength by directing attention to small car market and possibly forming alliance with Mazda. Ford must develop and implement short term strategic plans that best position Ford to address current trends and forces within the auto industry. In the long term, it must differentiate itself from its competitors through true leadership in innovation for the new transportation trends of the future.
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8.Glover, P (2012), Compact cars in Cruze Control. The Courier-Mail, February 12. http://www.couriermail.com.au/ipad/compact-cars-in-cruze-control/ 9.Corporate Ford (2012), Stylish New Ford B-MAX Opens Doors to Practical Solutions for City Driving at 2012 Geneva Motor Show, March 12. http://media.ford.com/news/stylishnewfordbmaxopensdoorstopracticalsolutionsforcitydrivingat2012genevamotorshow.htm 10.upi.com (2012), Auto Outlook: Car safety regulators look at distracting gadgets, March 12 http://dalje.com/en-economy/auto-outlook–car-safety-regulators-look-at-distracting-gadgets/425207 11.Spinks, J (2012), Holden goes better, but Ford will go further, March 12 http://www.caradvice.com.au/162960/holden-goes-better-but-ford-will-go-further/ 12.Donlon, J (2011), CEO of the Year Alan Mulally: The Road Ahead, June 11 http://chiefexecutive.net/ceo-of-the-year-alan-mulally-the-road-ahead 13.Trudell, C (2011), GM Profit Tops Toyota, Trails Ford as World Sales