FORD MOTOR

FORD MOTOR AND

AUTO INDUSTRY
ANALYSIS
FORD MOTOR CURRENT STRATEGY

STUDENT NUMBER: 21089329

FORD MOTOR AND AUTO INDUSTRY ANALYSIS

Table of Contents

Table of Contents……………………………………………………………………...1

1.0. Executive summary…………………………………………………………..3

2.0. Company background……………………………………………………….4

3.0. Introduction…………………………………………………………………..5

4.0. Analysis of Trends and Issues in the Auto Industry…………………………..5

4.1. Porter’s Five Forces Analysis of the Auto Industry………………………………5

4.2. PESTEL Analysis of the Auto Industry…………………………………………..6

4.3. SWOT Analysis of the Auto Industry…………………………………………….7

4.4. Future issues and trends in the auto industry……………………………………..7

5.0. Critical Evaluation of Specific Strategies at Ford Motors…………………....8

5.1. Current Strategies....................................................................................................8

5.1.1. Paradox of Market vs. Resources ………………………………………………9

5.1.2. Paradox of Managed Control vs. Managed Chaos…………………………….12

5.1.3. Paradox of Globalization vs. Localization ……………………………………15

6.0. Critical evaluation of Ford recent performance……………………………..18

7.0. Conclusion………………………………………………………………………18

8.0. Strategic recommendations……………………………………………………19

9.0. References………………………………………………………………………21

10.0. List of appendices

Appendix 1: Overview of the car industry…………………………………………...27

Appendix 2: Analysis of issues and trends of the auto industry……………………..28

Appendix 2.1: Porter five forces analysis……………………………………………28

Appendix 2.2: PESTEL analysis……………………………………………………..29

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Appendix 2.3: SWOT analysis of Ford………………………………………………32

Appendix 3: How Ford should turn these threats as opportunities…………………..33

Appendix 4: Evaluation of Ford Performance……………………………………….35

Appendix 4.1: Financial overview of Ford Motors………………………………….35

Appendix 4.2: Ford recent performance……………………………………………..36

List of Figures

Figure 1: Summary of Porter five forces of the auto industry………………………..6

Figure 2.1: Short term recommendations……………………………………………19

Figure 2.2: Long term recommendations…………………………………………….20

Figure 3: A bouncing oval: Ford automobile……………….......................................35

Figure 4: ROA comparison FY2010…………………………………………………37

List of tables

Table 1: Number of automobiles sold worldwide in 2009 in Million………………..27

Table 2: Porter five forces analysis…………………………………………………..28

Table 3: The geographical demand for vehicles……………………………………..29

Table 4: SWOT analysis of Ford Motor……………………………………………..32

Table 5: Ford key figure and ratio FY 2010…………………………………………37

Table 6: Financial status……………………………………………………………..39

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1.0. Executive summary

Ford Motor Company (Ford) has been a leader in the auto industry, however, over the

past few decades has continued to lose market share to foreign competition. The

current weak U.S. economy combined with rising fuel prices and increased political

pressures regarding global warming, presents several challenges to Ford Co. and the

entire auto industry as we can see in appendix 2:26. These current challenges provide

exciting opportunities for the auto company who must reduce cost, get fresh capital,

and quickly develop and produce, new efficient, economic autos, and alternative

fuelled vehicles. The global auto industry will continue to grow with 80% of the

global auto industry’s growth from now until 2013 is expected to come from

emerging markets. However, for Ford to succeed will need to address several internal

issues regarding legacy costs, unions in USA, and the development of a wide range of

new vehicles that consumers consider the new “must have” vehicles instead of the

large trucks and SUVs.

Looking to the future Ford will have a global presence in these critical emerging

markets like China and India, and have the knowledge and expertise in efficient and

alternative vehicle technologies required to move the company forward. For Ford to

achieve the vision of being synonymous with alternative vehicles (low fuel

consumption, fuel celled hybrid, ethanol, and electric / battery). When consumers

think of the innovative technology in the auto industry they will think of Ford for this

to happen Ford can no longer be a quick follower, but must be an industry leader in

technological advances in the auto industry. Ford must offer a variety of alternative

vehicles that meet consumer demands and government regulations. Ford has

significant fixed costs and large capital investments are needed. Cash flow is the

lifeblood of any business and should be considered in every decision which could

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impact the company expenses. By 2009, Ford expects to reduce structural cost as a

percent of revenue by 40%, and by 2012 by 80%; these would be considered

benchmark levels of cost. The reduction will be invested in new plants in growing

markets; fund the research required, development, and production of alternative

vehicles. The global auto industry market is growing, and the opportunity for Ford to

recapture market share lost in the past few decades is there for the taking. Ford can

win, and to do so needs to expedite change to meet the challenges and seize

opportunities. Ford needs a sense of urgency regarding revising a strategic plan that

incorporates the next generation of vehicles, reduces cost, and expands in the world

growing markets. In today’s global economy and highly competitive auto industry

Ford has no time to procrastinate. Ford has just too much at risk in not planning a new

strategy and become an industry leader in alternative fuel technology. Its present

strategies can be summarized as; more resource driven than market driven, managed

control, more global than local. Centralized strategic leadership and decentralized

policy implementation (Ford, 2009).

2.0. Company Background

Ford Motor Company was founded by Henry Ford In 1903 and become a corporation

in 1919, is a global company (110 manufacturing plants in 23 countries, with 345000

employees) with two core businesses: Automotive and Financial Services. Ford

Corporation includes Ford North America, Ford South America, Ford Europe,

Premier Automotive Group, Ford Asia Pacific and Africa/Mazda segments. Volvo,

Mercury and Lincoln motors. Ford has been focusing on cutting costs to increase

margins more than its competitors. It has used reverse engineering in the development

of their products (Ford 2009).

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3.0. Introduction

The automotive industry is the industry elaborate in the development,

marketing, design, manufacture, and sale of motor vehicles (Autodata 2011). In 2009,

about 52 million motor vehicles (refer to appendix 1:27), including commercial and

cars vehicles were manufactured worldwide (worldometers.info, 2010).

The aims and objectives of this paper are to examine current and future key

issues and trend, competitive forces affecting the market of the auto industry as well

as, critically analyse of Ford Motor strategy making chosen such as the Paradox of

Market vs. Resources, the Paradox of Managed Control vs. Managed Chaos Ford and

the Paradox of Globalization vs. Localization. Furthermore, critically evaluate Ford

recent performance follow by a conclusion.

4.0. Analysis of the Trends and Issues in the auto Industry

4.1. Porter’s five forces analysis

Figure 1 summarise the finding of fives forces analysis (refer to appendix 2.1:28) of

the automobile industry.

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 Forces Threat to profit

Internal Rivalry Strong

Entry Weak

Substitute and Weak to moderate

Complement

Buyer power Weak

Figure 1: Porter five-forces of the auto industry (design by student)

Adopted from Porter in De Wit and Meyer (2010).

4.2. PESTEL analysis of the auto industry

Politics of a country influences the laws and legislations by which car manufacturers

operate in. Politics is influenced by consumer demand of environmental concerns or

safer cars (Lee et al 2009). Moreover, the car industry is a major contributor to the

economy with high usage of computer chips, vinyl, copper, steel, and aluminum with

the industry contributing to 4 per cent of the US GDP (Gale 2004). The socio-cultural

environment affects the type of car people purchase and the efficiency of vehicles in

terms of the environment and mileage (Guilford 2004). Lastly, the technology affects

business environment for cars. A study by Power and Associates (2002) shows that

more than 60 per cent of potential buyers conduct research online, with 80 per cent of

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those visiting the websites of the car manufacturers before a test drive at the

showroom. The environmental effects such the global warming has also changed the

ways of thinking in automakers today, with the shift towards alternative fuel vehicles

favoured (Greenber 2008). (Additional information on PESTEL is provided in

appendix 2.2:29 as well as how Ford should turn these threats as opportunities is

provided in appendix 3:33.

4.3. SWOT Analysis of Ford

SWOT which stand for Strengths, Weaknesses, Opportunities and Threats.

Strengths: One Ford’s most potent strength is that they are one of the world’s best

known brands. As they have been in the business for 100 years.

Weaknesses: Ford’s organisational structure has become inefficient as the company

became more complex.

Opportunities: Ford has the distinct opportunity to have cleaner engine emissions,

alignment with their corporate responsibilities.

Threats: As Ford competitor in the industry, Ford faces very tight competitive rivalry

in the auto market, which is escalating with the threat of new entrants continuously

flowing into the market from South Korea, China and new plants in Eastern Europe.

4.4. Future key issues and trends in the auto industry

More so then ever, the auto industry will be going through a major transformation in

the very near future. The change will be due in part to rising oil costs and the world

needing to become more environmentally concerned against global warning. There

will be other trends and forces, but alternative fuelled vehicles will be a driving force

in the industry. Ford must continue to look at these trends and threats, as new

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strengths and opportunities. Thus, the design of business strategies is based on the

conviction that a firm able to anticipate future business conditions will improve its

performance and profitability (De Wit and Meyer 2010). Despite the uncertainty and

dynamic nature of the business environment, an assessment process that narrows,

even if it does not precisely define, a future expectation is of substantial value to

strategic managers. (Pearce−Robinson, 2004: 107) In other words, Ford must develop

and implement strategic plans that best position Ford to address trends and forces

within the auto industry. The current issues are many, however, with those issues

comes tremendous opportunities (refer to appendix 3:33).

Eventually there just will not be enough fuel to meet the global demand especially

once these emerging markets like China and India are in full swing. The global

predictions regarding fuel consumption are gloom, however, Ford should look at this

as an opportunity to expand market share and once again be the automotive leader.

5.0. Critical Evaluation of Specific Strategies Employed by Ford

5.1. Current Strategies

Ford is a symbolic brand in the American automotive industry. However, the

troubles of the company, coupled with huge debts and losses caused it to be on the

brink of a bankruptcy in 2005 (BBCnews.co.uk 2011). Therefore, in order to

withstand the competitive and regulatory forces in the market, the company had to

devise vigorous strategies to overcome not only these factors but also the financial

crisis of 2007/8 and the recession afterward. The company in 2010 posted $2.7 billion

in profits, the first since 2005 (Plunkett 2010). Hence, this section will seek to

explicate how the company managed to record such high profits through the

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implementation of strategy planning; a colossal restructuring initiative that caused

such an effective turnaround to the automobile giant.

5.1.1. The Paradox of Market vs. Resources

The innovations of new products, aggressive campaigns on television, and

marketing to a global audience required the company to rethink its capital structure

(Miller et al. in De wit and Meyer, 2010:275) by implementing this approach of the

inside out strategy; Ford discover the asymmetries that underlie that edge by

recognising resource are more advantage. The paradox of the market vs. the resources

however saw the company mortgage its entire asset portfolio, including the brand

name to fund its operations (Simpson & Sillince 2010). Beginning 2000, the company

adopted a low cost strategy (dubbed FORD 2000 Total Cost Management) aimed at

reducing cost of production by cutting all excess costs in all segments of its operations

(Ford 2009). As a step to realize this strategy, Ford apply the concepts of Miller et al;

in De Wit and Meyer (2010:281)

‘imaginative re-framings of the value of different resources’ ,

by reducing 30% of personnel in the engineering department and massive

expenditure has been cut from raw material costs (Ford 2009). According to Miller et

al. in De Wit and Meyer (2010:276) within the inside search, the most basic capability

of a firm

‘……Is an ability to convert production processes quickly and cheaply enough

to take advantage of industry prices changes’.

Ford under this strategy adopted a one line manufacturing process where cars

are developed entirely in one process rather than having different engineering sections

concentrating on different segments of the production process. The management sees

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such efforts as helping reduce costs by helping the company become leaner yet

maintaining quality (Ford 2009). At the other hand Porter in De Wit and Meyer

(2010:268), suggests that this strategy aims at establishing cost advantage where the

company produces at relatively lower cost hence giving it some market advantage

over the competitors. Hence the plan adopted by Ford can be summarized as;

reduction of production costs, focus on products and right sizing the business. In

rightsizing the business, the plan hoped to reduce production to manageable units,

from 5.7 million to 4.8 million. It also included closure of five plants and elimination

of low margin cars (Ford 2006). This strategy is in the same line as Day in De Wit

and Meyer (2010:284) who claims that transition required both an inside-out

capability to produce the low cost. Thus Ford strategy was both from the inside out

and was driven by emergent market wants. Nonetheless, the selling of Land rover to

Tata Motors, jaguar and Volvo in 2009 (Ford 2008), ensured the operations were not

only lean and effective, but also global. Thus, in 2009 during the recession when the

automotive industry crashed, Ford had ample liquidity to continue with its strategies

(Pailwar 2009). The company is also in plans to restructure more of its debt to have a

more balanced balance sheet (Fowler 2010).

Ford restructured its operations in 2006 and embraced new technologies in the

design of new cars that are not only fuel efficient, but they are also environmentally

friendly. This innovativeness has seen the company recover from two shaky brushes

with bankruptcy and a recession, to amass a profit before tax of $8 billion and emerge

as one of the most profitable companies of 2010 (BBCNEWS, 2011).

‘..The cost leader earns above average returns’.

(Porter in De Wit &Meyer, 2010:269)

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 However, only innovative companies can sustain such huge margins in a

business that is so competitive, (Porter in De Wit &Meyer, 2010) as such, the

company has developed future strategies in order to maintain its clientele and profit

margins. Ford’s plans for the future are in line with its current developments of

innovations in many forms of alternative models. Ford Motor plans to build engines

locally for some models that it will introduce in the next few years, as the Company

seeks to keep vehicle costs low in a bid to capture a greater share of Indian auto

market. However, to meet demand, Ford plans to expand its engine portfolio to

consolidate its position in automobile markets (Reuters.com, 2011).

The future is green, and businesses have to embrace this notion not just for

survival in the current market conditions, but also for the future. Thus, Ford has in

place a long-term science based strategy in order to reduce greenhouse emissions

from and to corporate both the public and private sector to seek long-term solutions.

The programs in new technology to be embraced in the development of future more

efficient cars include a future in electrification. However, the company will not

embark on one mode of technology in the future (Puma 2009). This strategy will

comprise of three forms of electric automobiles: the all-electric vehicle, hybrid

electric and the plug in electric vehicle. The goal is to conserve the environment

whilst upholding the driving experience (Gates 2010) which is a form of

‘continual and intimate connection with the market environment’

vital to the inside approach (Miller et al; in De Wit and Meyer, 2010). From this

analysis we can conclude that Ford is more resource driven than market driven at

present time.

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 5.1.2. The Paradox of Managed Control vs. Managed Chaos

Ford Motor Company has faced many challenges since its incorporation that

required decisive management and capable leadership. Successful leadership should

have the capacity to impact over changes to the organizational itself (De Wit and

Meyer 2010:487). It is this power that managers need to be able to steer the growth of

their organisation. For effective leadership, the leader should control

‘The allocations of the attention focus of the participants in the organisation

so that their attention is allocated to the areas that the leader considers important’

(Cyert in De Wit and Meyer 2010).

At the other hand Stacey in De Wit and Meyer (2010:499) claims that

‘Top managers cannot, and should not even try, to control the organisation

and its strategy’.

The new leadership at Ford did not try or test strategies before landing on the

winner; instead, they employed effective strategic control through the strategic

leadership of Alan Mulally, at the peak of its crisis in 2006 (Murray 2010). The

strategy he brought to Ford was termed as ‘one Ford’, whereby his leadership style

apart from demonstrating managed control, created a vision, led change and

enthusiasm amongst the employees. Therefore the paradox of managed control aids in

provision of purposeful direction to a company as states by Cyert in De Wit and

Meyer (2010). This strategy was aimed at providing the team for one Ford with sharp

focus via joint decision-making and specialization of skills, in order to be competitive

in the automotive industry again (Right 2010). This strategy is still in use currently

owing to the success it achieved.

The one Ford strategy is comprised of three important components: one team,

one plan and one goal. Mulally’s leadership forged the importance of the employees

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at Ford working as a lean global enterprise in order to achieve automotive leadership

as measured by the dealers, the customers, the employees themselves, the investors,

community and the union council (Cable 2011).

The one plan element is centered on four elements: first, the company seeks to

restructure its operations as state above on (Paradox of market vs. resource driven) in

order to operate profitably at the existing stipulations; Ford has done a good job in

recent years in reducing structural costs, and working on the ever increasing health-

care costs. Ford will need to continue to find ways to target cost reductions that can be

used to fuel the research and development of alternative fuelled vehicles whilst

changing the model mix; the plan also seeks to accelerate the pace of development of

new products and innovations that the clients want and value (Valcourt 2007). The

new products on demand in the market include energy efficient automobiles owing to

the escalating gas prices, and environmentally friendly vehicles with low carbon

emissions. Third, the company has adequately financed the plan, because the project

would be invalid without finances (Dale 2010); and the last strategy envisaged proper

teamwork and commitment, meaning extra hours and devotion (Gardner 2011).

The last vision, it spelled out was the company’s goal of delivering profitable

growth not only for the company, but also for their customers. This strategy was

aimed at developing customer emotional attachment to the brand (Phaal et al 2011).

Additionally, the profits would increase with the strategies aim of distributing many

cars worldwide, than the previous strategy of selling cars to few core platforms.

In addition to the above factors, the current success of Ford was also

developed by the behaviour exemplified by the leadership through managed control.

According to Cyert in De Wit and Meyer (2010), this leadership style focus on

modifying the lower management and in turn the employee’s behaviours, while this

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conception of leadership might strike some as making the leader a manipulative

person however if leader have genuine belief and honest dedication to the people in

the organisation as Mulally’s in Ford, exerting this type of leadership is justified, as

they were critical to the company’s success. Mulally’s therefore set on developing key

behaviours of the company to be modelled by employees at various levels. The set of

behaviours comprised: fostering technical and functional excellence, individual

working schedules and time, and delivering of results. Moreover, communication was

stressed as it was the channel of effecting success through good relationships with the,

manufacturers, dealers, suppliers, and clients (Collins 2010). The company’s decision

making is done by the top management (Cyert in De Wit and Meyer 2010). This

strategy was basically adopted to give Ford the ability to consider broad range of

market opportunities locally and internationally and would also allow the top

management to engage more on product development in order to satisfy their

customer’s expectations in multiple markets (Porter, 1986). By adopting a

decentralized implementation approach, Ford’s aim is to take advantage of centralized

decisions being flexibly and rapidly implemented by their smaller companies

(Liebeskind, 1996). Ford adoption of this strategy was to eliminate layers of

management in order to improve communication (Ford, 2009).

At the other hand, the Paradox of Managed Chaos is suggestive that a

company is able to learn from its environment either accidentally or via spontaneously

emergent forces (Stacey in De Wit and Meyer 2010). In the yesteryears, Ford’s was

synonymous with development of SUVs because the market trends suggested it was

what the consumers wanted. However, this strategy proved inefficient due to

environmental concerns, cash constraints and escalating gas prices (Lee et al 2009).

Large trucks and SUVs were no longer fashionably tasty, and were substituted by

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small cars. Ford’s reluctance to catch and cash on the trend caused them to lag behind

car manufactures like Toyota and Honda both in repute and cash profitability (Parry

& Day 2010).

The company’s realization that focusing on customer needs, thereby

developing the specific trucks and cars that customers sought, as opposed to

developing one or two key products was crucial in its success is what has brought its

current success (Taylor 2008). As such, Ford invested in the innovation of many

products for customer satisfaction, instead of inventing limited products that would

test if the Ford would be a success story or not. Additionally, the CEO inspired the

creation of product brands of quality, class, efficiency in terms of fuel, performance,

value and safety (Mckinlay & Starkey 2008). From this analysis we can conclude that

inside Ford Motor, the aim for management is to empower rather than control those

under them.

5.1.3. The Paradox of Globalization vs. Localization

Ford has realized the importance of focusing on the creation of new markets,

and the necessity of developing these markets offshore from the very beginning to

sustain competitive advantage in the future (Canis 2011). Thus, the company has

situated its operations offshore where in the management team maintains corporate

jurisdiction. For example, European countries conduct businesses in their own liking

but the general supervision comes from the head office (Bartlett and Ghoshal in De

Wit and Meyer 2010). Maintenance of the international brands utilizes the laissez

faire economic policy because the free market is apparent (Clayford & Mulally 2010).

Although Ford Motors has been global since its inception, supplying vehicles to parts

of Africa, Asia, and Europe, its focus has been mainly on the American Market and

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Europe (Hoffman & Ford 2010). For example, its development of SUVs in the early

2000s was targeted mainly on the American market. Levitt in De Wit and Meyer

(2010:563) claims that global markets

‘….strategy is better is not a matter of opinion but of necessity’.

‘Global Corporation operates with resolute constancy…’

Ford follows a global strategy in order to expand and has since become the world’s

largest producer of trucks and the second largest producer of cars. However, by

developing alternative brands for the global market demonstrate that Ford has showed

lack evidence of homogenization (Douglas and Wind in De Wit and Meyer 2010) due

to competition from other automakers which has forced in this direction. Ford has

employed scientists and engineers from countries such as China, Middle East, India,

South America and Korea. Additionally, advancement in communication technology

has enabled Ford easy access through advertising and marketing strategies to reach a

global audience, enabling the company to accrue economic of scale which is in line

with Levitt in De Wit and Meyer (2010:565) states that:

‘…. economies of scale in production and marketing are an irreversible force driving

globalisation’.

At the other hand Douglas and Wind in De Wit and Meyer (2010) believe that Levitt

is mistaken in arguing the statement above.

Major features of the global market encompass free flow of goods, the development

of trade blocs such as the EU, regulations that favour direct investments and e-

commerce (Canis 2011).

Nevertheless, Ford Motor Company has focused on localization of products at a

global platter whereby they keep their parts supply chain centralized and assemble

cars as per the local requirements of a region after studying the needs. This has

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resulted in them able to deliver different variants of cars as per the requirements of

different countries using the same spares supplied by their centralized supply chain

vendor (Ford 2009). Hence, the internal learning and growth of Ford Motors has been

very comprehensive with localized knowledge captured from various countries and

the benefits of global knowledge and experience effectively mixed with the localized

knowledge.

Future technologies in vehicles are expected to reach North American markets

by 2012, and Europe by 2013. The hybrid electric vehicle works by using electric

power to only start or slow the vehicle, with internal combustion powering the drive

(Craig 2009). The all-electric vehicle as the name suggest does utilize fuel. It uses

high voltage electric motors that derive their energy from rechargeable batteries. The

charging of the all vehicle hybrid lasts up to 100 miles (Fuhs 2009). Lastly, the plug

in hybrid has blended the charging system of the all electric vehicle, with hybrid

electric technology, it is economical for the customer as the charge deplete diminishes

after approximately 30 miles, with very few trips to the gas station in

between(Silberglitt et al 2009).

Moreover, the hybrids will comply with the set environmental standards by

emitting partial to zero emissions (DeBettencourt 2000), with the battery developed

from Lithium-ion. The all-electric hybrid will be ideal for short trips of about a

hundred miles a day, with the rest more flexible (Schwaller 2005).

Apart from the electric transmission, Ford also intends to release vehicles that

run on multiple fuels such as ethanol and gasoline, known as Flex-Fuel vehicles

(Cocks 2009). The other hybrid in the future will be cars that run on more than one

fuel tank, for example a combination of gasoline and propane (Perry & Day 2010).

According to Callery (2009), the automobile giants have also announced plans to

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move into biodiesel by mid-2011, with the F-series trucks running on bio-diesel

(Tertzakian 2007). Technology for producing clean diesel vehicles is quite expensive

(Anderson 2008); hence, Ford intends to offer this for the larger automobiles like the

Expedition and F-150 by 2020 (Ford 2009).

The production of alternative vehicles is strategically aimed at diversifying

consumer usage away from gasoline and to the new technologies, which would be

readily at their disposal (Clayford & Mulally 2010). From this analysis we can

conclude that Ford Motor is more global than local.

6.0. Evaluation of Ford recent performance (refer to appendix 4:35)

7.0. Conclusion

The PESTEL, Porter five forces and SWOT analysis seek to explicate the

effect of competitive forces and the macro-environment in the automotive industry

(Wit & Meyer 2010). It is critical for the strategies used not only effect change for

customers and environmentalists, but also effect positive changes in the profitability

of the business (Ahlstrom & Bruton 2009). Ford has fail to balance the three

paradoxes: market vs. resources in financing its operations, Ford is more resource

driven than market driven; leadership style with managed control, exemplified by its

CEO; and the paradox of globalization and localization, Ford is more global than

local by developing brands fit for America and the world to address competition.

These analytical methods have been used to evaluate the position of Ford

automakers in the US and International markets. In spite of Ford being on a brink to

bankruptcy, it embraced new management in the leadership of its CEO Alan Mulally

who devised new strategies that inspired the ONE Ford campaign, resonating the

message of team spirit among the employees, suppliers, dealers, and customers; which

in turn forging their loyalty. In addition, he inspired a leadership style that inspired

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success of the automobile giant, innovation, synergy, and product differentiation for

the overseas market. The company has been under financial distress for quite some

time as it has faced huge bottom line losses in the past. Moreover, the automobile

sector doesn’t seem to be promising as has been detailed in the current and future

issues. Hence, in such circumstances, the investors in equity have lost their interest in

the company equities. Moreover, the company has not paid cash dividends in 2007,

2008 and 2009 as reported by CNN Money.

Hence, the company had to bend towards debt financing to run their operating

expenses. In fact, the sale of Jaguar and Land Rover again has been used to generate

cash to run operations. The company has not invested in new ventures for a long time

and has been busy closing manufacturing units and firing people. Hence, the company

will not be stuck with large amount of mortgaged assets as such. Hence, overall by

choice or by circumstances, the company has been bent towards debt financing.

Consequently, the company accrued profits, which has enabled them to gain

competitive advantage in the industry.

8.0. Strategic recommendations

Minimise excess capital, try to reduce debts,

Short term cut inventories and reduce days of sales
receivables.

Sell off unperforming assets to increase cash

while weathering storm

Figure 2.1: Short term strategic recommendations

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 Long term

Continue to improve factory flexibility.

Continued investment in hybrid technology
R & D will position Ford better to compete
with close competitor such as Honda and Toyota.

Adopt more aggressive version to current restructuring

and cost improvement.

Continue high level of product development into

alternative fuel technology.
Emerging markets purchasing synergies.

Figure 2.2: Long term strategic recommendations

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10.0. List of Appendices

Appendices 1: Overview of the car manufacturer industry

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In 2009, a total of 71.9 million new automobiles were sold worldwide.

Table 1: Number of automobiles sold worldwide in 2009 in Million

Continent Number of automobiles sold in Million
Europe 22.9
Asia Pacific 21.4
USA and Canada 19.4
Latin America 4.4
Middle East 2.4
Africa 1.4

Source: The New York Times.com (2011).

The markets in Japan and North America were immobile, whereas those in Asia and

South America grew strongly. The main markets, Brazil, Russia and China saw the

greatest fast growth. In 2008, with the fast rising oil prices, manufacturing such as the

automotive industry, are facing a combination of pricing pressures from changes in

consumer buying habits and raw material costs. The industry is also challenging the

increase of external competition from the public transport sector, due to the fact that

consumers re-evaluate the usage of their private vehicle (Bradford, 2004a).

Appendix 2: Analysis of issues and trends of the auto industry

Appendix 2.1. Table 2: Porter’s Five Forces analysis of the auto industry

The threat from new entrants to the profitability of the car industry is minimal.

According to Miller (2007), this threat is low because of the many impediments to

27
market entry such as high capital requirements, government policies and legislation

(Porter's Five Forces Analysis of the Automobile Industry, 2010).

Buyers bargaining power also affects the car industry’s attractiveness and

profitability. A favourable situation for the industry would be if buyers had low

bargaining power, (Rothaermel 2009).

The threat from alternative products is valid in the car industry. The threat is high

when the buyers have low switching costs. Hence, players in the industry have to

differentiate their cars from their competitors to retain clients (Hill & Rothaermel

2003).
The supplier bargaining force is tricky to evaluate because in the US for example,

they may yield tremendous power on one hand and sometimes the power may be

weak especially when they have one automaker as their only client Schlie and Yip

(2000). However, this notion is discounted by Hohn (2002) who argues that the

supplier bargaining power in the auto industry is low because of the many suppliers in

the market.
Rivalry between companies is strong. All the major car dealers face such

competition in the world, with the exception of state owned manufactures such as

Malaysia’s Proton (McNamara et al 2003).

Appendix 2.2. PESTEL analysis of the of the auto industry

Political factor

Laws and government regulations have affected this industry since the 1960s. Almost

all of the regulations come from consumers increasing concerns for the environment

and the concern for safer automobiles.

Economic factor

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The automotive industries growth only comes with the addition of new markets such

as China, India, and Brazil (refer to table 3 below). Some of the top short-term

environmental issues for Ford and the rest of vehicles manufacturers include high

gasoline prices, increased volatility of material prices, and the record number of new

vehicle offerings. Due to the uncertainty in Iraq, and the increased demand from the

emerging economies of India and China, high gasoline prices will continue to be an

issue for Ford and the industry as a whole. Inflation adjusted crude oil prices have

raised steadily since 2002, from $20 per barrel to almost $140 per barrel in June 15,

2008. High gasoline prices can affect such metrics as consumer confidence, material

prices, and vehicle segments with low fuel economy.

Table 3: The geography of demand for vehicles

Region 2001 2005 2010 2020

North America 19.6 21.5 23.0 25.0
Western 16.6 15.0 13.0 13.0
Europe
Asia Pacific 12.4 18.5 21.7 27.0
Central and 2.5 3.0 4.5 6.0
Eastern
Europe
South America 2.4 3.0 4.0 7.0
Middle East 1.3 2.0 3.0 3.0
Africa 0.8 1.0 5.0 10.0
Total 55.6 64.0 74.2 91.0
Adopted from Nieuwenhuis and Well’s (2003).

Social factor

Nowadays society judges people on the category of car you drive. Society might not

admit to this but this is very true. Manufacturers recognize this occurs and targets

their markets by these thoughts. However, anyone who drives a nice vehicle is

29
thought to be wealthy (scribd.com, n.d). Customers also just feel better while they are

driving a new or nice car, which makes them feel better about themselves.

Technological factor

Technical improvements has made the modern car lighter, safer, faster and more fuel

efficiency than even its close predecessor. Gears, engines, suspension, fuel, gears,

brakes, bodies, tyres, motors components, exhaust, etc.., have all been renovated by

innovation, new technology that is frequently includes in new design soon after it is

verified to work (scribd.com, n.d). For instance, car manufacturer need this new

innovation technology as a selling fact to endorse the benefits of their schemes over

those of their competitors which soon imitate any successful innovation (Fitzgerald,

2004). Electronic systems, electronic controls, and new materials have been at the

core of technical improvement in motor vehicle designs. Cleaner engine conservative

and eccentric fuels, such as liquid propane gas (LPG), are now being promoted to give

better engine performance and to reduce emissions.

Paradoxically, the cars now being made are much better, long lasting and stronger

than previous models that they are replacing. However, at the same time, as the

functioning life of these cars is being extended, their producers would have a

preference to see cars changed more often within shot time Span. To benefit from

economies of scale, car production needs a high volume of sales to gain the maximum

logically the values should drop to safeguard a high turnover. Cars that have

developed a poor standing for longevity are, therefore, ignored by potential buyers, as

this information ruins their resale worth all the way down the buying chain.

Another aspect of the technological factors is the internet which has affected just

approximately every industry in the world and has as well had an enormous impact on

30
the automobile industry (Businessweek.com, 2011). Moreover, from BMW to Honda,

from Chrysler to Volkswagen, the industry is rushing to make vehicles that use less

gasoline or don’t rely on it at all (New York Times, 2011).

Environmental Factor

Global warming is quite a critical issue facing the auto industry which have to

produce more environmentally friendly car.

Legal Factor

Legal system too plays a very significant role in the international business. In order to

launch a well-functioned market economy, worldwide government has emphasized on

sketch up laws (scribd.com, n.d). In European countries including Spain and Greece

Government inducements intervened and budget cuts discouraged prospective

customers from buying a new car last year (Europe.autonews.com, 2011).

Appendix 2.3. SWOT Analysis and Impact on Ford’s Strategy Making

The SWOT analysis (refer to table 3 below) of Ford Motor Company have focused on

prioritization of developing competencies and taken aggressive steps for the same in

anticipation of developing opportunities.

Table 4: SWOT analysis of Ford Motors

Strengths Weaknesses

 Liquidity advantage. In terms of  Poor financial results. Registered

liquidity, Ford is the best a loss of $14.6bn in 2006, the
positioned among the Detroit Big worst annual result in 105 years;
Three;
 High volatility of raw materials –
 No federal aid. The only Big increased costs of innovations.
Three company that doesn’t seek
 Data loss. Low protection against

31
 government aid; data loss;

 Hybrid technology. Ford holds  Increase level of layoffs or

his own hybrid patent technology. decreasing trend of employees’
wages may cause a sharper
decline of consumer spending.

Opportunities Threats to Ford Motor

 High interest in innovation.  Stringent Emission norms in

Focus on development of new Europe, UK and the US
innovative features;
 Data loss. Low protection against
 Fuel efficient technology. data loss;
Concentrate R&D activity on
fuel-efficient and electric cars;  Increase level of layoffs or
decreasing trend of employees’
 Increase portfolio diversity. wages may cause a sharper
Extend small and medium lineup decline of consumer spending.
to better fulfill consumer demands
 Japanese competitors are very
aggressive in the western markets
resulting in reduced grip of Ford
Motor on the US car markets

Source: Visionwise.com (2009).

Appendix 3: How Ford Motor should turn these threats state in appendix 2 as

opportunities

Ford and the entire auto industry are currently challenged with the “perfect storm.”

The auto industry is being hit by a weak US and global economy, rising fuel prices,

and social and political environmental concerns and issues. In order to overcome

these potential threat, Ford should consider mass producing a range of alternative

fuelled vehicles (diesel, fuel cell, electric, and hybrid). As emerging markets develop

they will increase their use of oil products creating even greater demand and increased

prices. Couple this issue with social and political concerns regarding global warming,

and the ever increasing state regulations regarding emissions, will create a potential

huge customer demand for these alternative vehicles.

32
Potential opportunities identified for Ford are related to the future demand of the

alternative vehicles and increased global market share potential from emerging

markets. But first Ford needs to turn current internal weaknesses into strengths to

achieve the external opportunities. Ford’s internal weaknesses are the large legacy

costs in equipment, facilities, and retirees, that all need to be addressed to compete

with relatively speaking new companies like Toyota, and Honda. Due to these

significant legacy costs, Ford has increased the cost per vehicle to incorporate the

additional cost into the price of their vehicles. Another weakness for Ford is that

because they are so large it takes much longer to roll out new vehicles, and in addition

Ford has too many similar vehicles that need to be reduced. For example, Ford has

similar products in Mercury, and Ford. Ford needs to reduce more structural and

operational costs as they have started three years ago by eliminating product

redundancy, labour cost, removing vehicle platforms, and making each brand unique

in its own way.

Although weak in these areas, Ford is positioned to take advantage of the identified

strategic imperatives. Ford already has a global presence and is diligently working to

expand in the emerging markets. The European, Latin-American, India, and Asian

markets are more receptive to the smaller vehicles that Ford will need to begin to

produce. By developing and producing alternative vehicles, Ford can begin to

eliminate brands and platforms that are not selling. Ford can use the cost savings to

further invest in the development and production of alternative vehicles. However,

Ford can take advantage of opportunities that occur from the result of trends and

forces that will reshape Ford. Three industry trends and forces that are most critical to

Ford currently are economic, ecological, and competitive. The economic downturn

then begins to feed on fear from the consumers, and self-fulfilling prophecies.

33
Companies continue to downsize due to lack of production, and as people lose their

jobs they lose their ability to purchase goods. The change to alternative vehicles will

take a skilled workforce that should provide jobs, along with job creation necessary to

build the required infrastructure for the alternative vehicles. Ford has an opportunity

to gain new customers by providing the new Ford foreign workers with incentives to

buy Ford, as Henry Ford already did with the Ford T model. A company can

significantly damage its public image that greatly impact sales by doing something

harmful to the environment. For the auto industry this means developing alternative

fuel vehicles, like fuel cell, electric, and hybrid vehicles. Ford needs to capture the

consumer momentum for alternative vehicles, and the political pressures regarding

emissions to produce and market alternative vehicles.

Appendix 4. Evaluation of Ford recent performance

By looking at Ford performance metrics, since the late 1970s, Ford has continued to

lose market share. This cannot be allowed to continue, and Ford must do whatever it

takes to hold market share then work towards gaining market share.

Appendix 4.1 Financial overview of Ford Motors

The company registered profits of $4.7 billion in the first half of 2010, the highest

since 1998 (Anderson 2010). Refer to figure 3 below.

Figure 3: A bouncing oval: Ford automotive

34
Source: Economist.com (2011).

These dollars represented an increase of 68 cents per share, beating estimates that

predicted the shares to increase to 41 cents per share (Asia Pulse 2010). The sales of

the second quarter rose by 15% from $27.2 to $ 31.3 billion. According to Pepitone

(2010), prediction of $29.4 billion by analysts fell short of the predictions. The share

value increased as well by 63 cents a share, representing a 5.2% rise to trade at $

12.72. The sales in small vehicles rose by 20 percent, surpassing the auto industry

gain of 185.

However, the automotive net cash position of the company dropped to $21.9 billion as

of June 20, from $25.3 billion in March. The company paid down a $7 billion

automotive debt in the second quarter. The company however anticipates a positive

outlook in automotive net cash in 2011(Croll 2010). Furthermore, the company does

not anticipate high profits in the second quarter of 2011 because the money will be re-

committed to support new productions, the high cost of commodities and the minimal

credit reductions at Ford Credit (Krebs 2010). Moreover, the company owes more

35
debt than its rivals, which the CEO terms as competitive disadvantage (Naughton

2010). The debt is a result of the $23 billion loan taken by the company in 2006.

Appendix 4.2 Ford’s Recent Performance

Until 2010, Ford had experienced losses in 12 consecutive quarters (Naughton 2010).

However, this changed in the second quarter of 2010 where the company reported a

net income of $2.6 billion, recording its most profitable quarter in more than a decade.

This is due to its management of the three paradoxes combined: market vs. resources,

management of control vs. chaos, and lastly globalization vs. localization. The

effective management of these paradoxes has seen the company accrue high profit

margins comparable to the industry margins. Fords CEO has accounted the profits to

brilliant teamwork, innovations of new cars such as the Ford Fusion and Taurus,

additions of extra services such as leather interiors, and electronic gadgets, and the

company’s hold on quality (Ross 2008).

Ford Motor Company analysis indicate terribly bad return on equities which means

that investors have a big hole to crawl out of before even reaching the current $1.80

per share but the return on assets and invested capital have been somehow in positive

(except 2006). This means that while Ford Motor Company has exhibited terribly bad

performance for investors in 2007 and 2008, they have been able to cut their costs

substantially to save the company from bankruptcy. The current ratio went bad in

2006 otherwise is maintained effectively. The management has been successful in

maintaining more assets than liabilities thus indicating that somewhere the

foundations are still very strong and the management (refer to figure 4:35) has been

proactive enough to reduce their liabilities amidst the financial turmoil that they have

been facing. Assets turnover 0.7% of Ford Motor Company has been disappointing

36
because the net revenues 20.75% have been lesser than the total assets. The

management has overall not been able to capitalize returns against the assets available

to them.

The return on assets (refer to table 5:37) have been very disappointing as such and

hence it seems that Ford Motor Company has somehow survived by reducing their

liabilities very aggressively – elimination of excess manufacturing capacity, closing

plants, reducing workforce, etc. The sale of Jaguar and Land Rover to Tata Motors

may again be viewed as aggressive attempts to reduce liabilities to keep assets more

than liabilities.

Table 5: Ford key figure and ratio FY 2010

Indicator Net Sales Net ROA Debt Asset Profit

($bn) income turnover margin

($bn)
FY 10 131.34 7.26 2.87% 23 0.7% 5.52%

Source: Businessweek.com (2011)

Figure 4: ROA comparison FY 2010.

37
Table 6: Financial status

Revenues
• Results from all operations declined over previous year because of the economic
recession. However, cost reductions managed to partly offset these declines;
• In terms of both profit margin and growth sales, Ford is above the industry average;
Income

Even if it registered a loss of $14.6bn, the worst annual result in 105 years, it
considers itself the healthiest company of all
Detroit automakers it is the only company that will finance its operations without
federal aid;
• Ford managers said it will need the aid only if one of its two main competitors will
go bankrupt;
• It currently has more cash on hand than its competitors, but this is the result of the

38
late 2006 financing actions
- mortgage total assets, including the blue logo;
• It has about $15bn cash in hand.
ROA
• GM’s ROA fell dramatically below the industry average of 1.01% ;
• Ford has the highest ROA of all peers, not close to the industry average.
Debt: The company has a debt of $ 23bn insufficient funds to finance business plan
and product investments.

39