Case Analysis Ford Motor Company Essay
Case Analysis Ford Motor Company
Ford Motor Company is one of the largest multinational automaker in the world and part of the Detroit Big Three, along with GM and Chrysler. Since its inception in June 16, 1903, Ford has gone through many ups and downs. Competition from domestic and international manufacturers, globalization, advancements of technology and the great economic downturn in 2007-2008 meant that Ford had to rethink several of its strategic decisions if it had to survive in the marketplace. When Henry Ford started the company, automobiles were a luxury good that could only be afforded by the rich. He wanted to provide these vehicles to the general public at an affordable price, because Ford believed that this product had the potential to transform society. As such, he focused on production and supply chain efficiency related to the implementation of the assembly line manufacturing process and Ford’s vertically integrated supply chain to produce automobiles at a mass scale. The US auto market was primarily dominated by the US Big Three, but this changed during the early 70s and 80s.
The increase in gas prices and need for fuel efficient vehicles saw consumers seeking out for Japanese imports, which met the new fuel efficiency standards. The market already was beginning to get competitive. In order to act, Ford tried to cut it costs by downsizing its workers and plants, whereas the need was fuel efficient cars. Ford later regained some of its market in 1988 by diversifying its product offerings by purchasing luxury European brands. It tapped the Chinese market as well beating GM in 1997. Ford had to cut many of its workforces and sell many of its plants during these periods in order to keep costs at a minimum level. The economic downturn of 2007-2008 saw the automobile manufacturers taking a big hit. They were reduced to a position where they needed to ask the US government for a $34 billion bailout. Many uncertainties remained as to what had to be done to sustain in the future.
The biggest strategic change came with the decision to hire Alan Mulally in 2006. Mulally made many effective and important changes to Ford’s corporate structure, such as, the ONE Ford plan to create a leaner, more efficient global enterprise and return the company to profitability. Under his guidance, Ford had to restructure its entire business as it was the only way to survive in the highly competitive market. Every step taken by Ford has been risky, but they have yielded result. Ford has overcome challenges of heavy competition, economic depression and threat of bankruptcy. It is a prime example of how exceptional leadership and strategic skills can help overcome hardships despite turbulent times.
Ford Motor Company is operating as one of the leading competitors in the US Automobile Market with 18.4 % of the total market share. The two major competitors of Ford are Chrysler Group LLC and General Motors (GM) with market shares of 11.4% and 20.4% respectively. These leading players of the US Automobile market, together, are known as “The Detroit Three” and are operating as the key local competitors of the US market. Among the other major global competitors of Ford, Toyota and Honda are competing with market shares of 10.5% and 8% respectively.
Comparatively smaller players of the US Automobile market may pose a threat to Ford Motor Company in near future. Competitors such as Kia (4.3%), Hyundai (5.6%), and Nissan (6.8%) are also trying to firmly hold their position in the automobile market. Mazda, BMW, Mercedes, Mitsubishi, Subaru, Volvo, and Suzuki are also operating as impending competitors of Ford within the automobile market, contributing to 26.3% of the remaining market shares. These competitors can potentially extend their business operations in future and change their strategies that may directly or indirectly affect the operations of Ford Motor Company.
In spite of potential risk factors, the automobile industry of US is a lucrative industry to compete in. Hence, China and India are expected to expand their automobile business to US very soon. China has already displayed automobiles of Brilliance, Geely, Great Wall, and BYD at the US Auto Shows. BYD specializing on fuel efficient cars may pose a major threat to Ford Motor Company in future. The European market can also become a potential threat by launching new and sustainable automobiles in the US market and may succeed due to advanced innovation and sustainable manufacturing processes.
Gas prices quadrupled during the 70s and 80s when the Middle Eastern OPEC nations halted exports to the US and other European nations. The global economic downturn of 2008 saw the US auto sales declining by 37% compared to the last year. Ford, GM and Chrysler had to go to Washington DC to ask the government for $34 billion bailout. In 2011, the earthquake in Japan disrupted production and rising gas prices affected consumer demand.
New vehicle sales in 2009 received support from the federal government when US president Barack Obama signed the “Cash for Clunkers” bill into law in June. Rules and regulations on vehicle mileage and emission standards are established by the federal government. After talks with the automakers, the Obama Administration eased the requirements to 54.5 mpg, with a 3.5 percent per year increase in fuel efficiency for light trucks through 2021, but kept the requirement for passenger cars at 5%.
When a massive earthquake and tsunami hit Japan in March 2011, Japanese automakers and parts suppliers experienced major disruptions in their operations and declared that productions would probably not reach normal levels before fall. The increasing global focus on sustainability and need to develop alternate power sources for vehicles, increasing population has led to increase in fuel demand, thus leading to higher gas prices and an increased impact on the environment. Recently the Obama Administration and the auto manufacturers were in negotiations over new standards that could reduce global warming emissions by millions of tons per year and decrease oil imports by billions of barrels during the life of the program.
Today’s consumers are technology-savvy than ever before and with the vast amount of information available on the internet they have access to an almost unlimited amount of information to compare products to determine the vehicles that meet their needs. An alternative to fuel known as biofuel or “farm fuel” E85 might reduce US dependency on foreign oil and develop a domestic industry that supports farmers. Hydrogen fuel cell vehicles are still in the early stages of development but have the potential to reduce US dependency on foreign oil significantly and lower emissions that cause climate change.
Many of the newer models of cars target the Generation Y buyers, as they are important to automakers because they help set trends, from popularizing social media sites to technologies.
Threat of product substitutes: High.
In the 70s and 80s, the three large US automobile manufacturers which produced larger, heavier and less fuel efficient vehicles saw decline in sales while sales of Japanese imports, which met the new efficiency standards, increased. Electric/gasoline powered hybrid vehicles are the most widely used alternative powered vehicles today and many companies offer fully electric vehicles as well. As the population increases, roads and highways become more congested. Many urban areas are developing or enhancing public transportation systems such as light rail systems and subways, as well as increasing bus routes and schedules.
Intensity of rivalry: High
The US automotive industry faces heavy competition not only through domestic companies (Ford, GM and Chrysler), but from foreign competitors as well. In 2006, Ford, GM and Chrysler faced intense competition from foreign manufacturers such as Toyota, Nissan and Honda.
Supplier power: Medium
The auto industry obtains resources from a wide array of firms globally. Although the number of suppliers has decreased since the recession, some of the survivors are growing and beginning to diversify. Many suppliers rely heavily on the auto industry for a large part of their revenue. Some suppliers even went out of business during the economic downturn and decline of the US auto industry, and more were hurt by the earthquake in Japan in 2011. It is extremely important for auto manufacturers to develop and maintain strong relationships with their suppliers to gain access to their best technologies and receive priority order fulfillment in case of material or product shortages.
Buyer power: High
Today’s technology-savvy consumers have access to a vast amount of information to compare products to determine the vehicles to meet their needs. Many well-informed consumers choose to shop and negotiate pricing between dealerships, while others prefer not to negotiate pricing at all. As US manufacturers lost market share to their Asian competitors, they realized the need to revise their business plans to place a much higher priority on customer satisfaction, thus creating customers for life.
Threat of new entrants: High
Factors such as capital requirements, economies of scale, need for distribution channel and threat of retaliation make it unlikely for a new entrant to emerge within the US. However, new entrants can succeed in the US market, as evident by the Asian automakers. Automakers established in foreign markets have been able to gain a foothold by exporting to the US and targeting a niche market. New entrants to the US auto market will eventually come from China and India among others.
Marketing and Sales:
Ford is now focused on building only the two remaining brands Ford and Lincoln. They now offers product mix to meet the demand of people of all classes They reach the customer through traditional media like radio, newspaper, TV commercials and by also using the social sites. They are also sponsoring famous shows and events like
American Idol Service:
According to the J.D. Power 2011 Automotive performance, Execution and Layout study all Ford’s newer vehicles have earned the fuel efficiency rating that were above the segment average The F-50 truck is the only large pickup that received the award for both performance and appeal in 2011
Ford is best in cutting off company’s employees to improve production or to face any awkward situation like loss for example In 80’s to cover up the loss resulting of not having fuel efficiency facility it cut off its workforce and close plants In August 2001 Ford eliminate 4500 to 5000 of its salaried employees using early retirement incentives In early 2002 ford closed 3 North American assembly plants for which 35000 worldwide jobs were cutoff In 2006 Ford cut 25000 to 30000 hourly jobs and 12% of management positions. It further cut 10000 white-collar job. In 2012 it closed 14 facilities as part of massive restructuring plant
Ford has invested a lot in the development of fuel efficiency and currently they have 12 vehicles with best in class fuel economy. Not only in fuel efficiency they are also improving in initial quality and appeal (performance, execution and layout) Though they are laggards but atlast they managed to develop self-parking and blind spot detection facility. In 2011 they invested in hybrid and plug-in-hybrid and they also introduced turbocharged EcoBoost V6 engine They are in the way to introduce intelligence vehicle technology Procurement: Ford signed an agreement with Azure Dynamic Corp. to install plug in hybrid power trains in the F series super duty trucks.
Market Share (in volume):
From the above two pie charts, the market winners and losers in 2011 can be interpreted financially with the number of cars and light trucks they sold compared to the market sales as a whole (in volume):
Profit over time:
The following data represents Ford Motor’s net income from year 2001 to 2010:
During 2001, Ford has been in bad shape financially making a loss of $162412 million. From before that time Ford was having a hard time to come back and had undertaken downsizing strategy from quite a time to lower its cost as per their profit structure. This trend continued in 2001 as well but the entrant of a CEO in July 2001 made a slight change in the strategy though it kept on with the legacy of downsizing, it also discontinued models that were unprofitable. Hence, with this strategy profits were expected but this didn’t work out, mainly because of the unstable environment of the terrorist attack in September 11, 2001. From year 2002 onward till 2005, Ford was making a bit of profit but still heavily relied on downsizing its employees from time to time. But Ford started making some major losses from 2006 onwards and in order to make this work Alan Mulally was appointed as the CEO. Hence, it came in light that Ford needed a complete restructure in order to cut down costs, lower its debts, increase its revenues, and earn higher profits.
Hence, downsizing strategy continued as well but this time with the introduction of new products, discontinuing the outdated ones keeping up with changing consumer trends. With some great decisions the company was recovering and hence, lowered its net loss by 78% in 2007 compared to 2006: however, once again unfavorable economic conditions in 2008 with global downturn pulled the net loss deep down which was more than the net loss made in year 2006 which resulted in the use of downsizing once again. With this Ford applied for bailed out funds, which was rejected and was the cause for their popularity gaining more customers. And hence, with proper planning, and complete restructure of Ford, it earned profits during 2009 and 2010 with effective strategies. As seen in the graph below, Ford has definitely experienced lower sales from 2001 to 2010: but it managed to come back in 2009 and 2010 with providing cars that customer wants: which they didn’t follow earlier.