Running Head: FORD 1

Ford

Hiren Ashara

Joseph Diekevers

Aaron Draayer

Michael R Hess

Davenport University

Managerial Economics

Paul McNergney

May 15, 2011

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Ford: A Case Study

Ford Motor Company is well known throughout the world. Although Ford has gone through

some tough times, the Ford name is synonymous with being a great American company. The following

report delves into the many interesting factors that Fords upper management must consider on a daily

basis.

Market Structure

The auto business is considered to be oligopoly because there are only a few key players that

dominate the marketplace. Threats of new entrance are low because the business of making

automobiles is very capital intensive; however globalization is becoming a concerning factor for the Big

3 in the United States as it is getting easier for foreign automakers to enter the North American

marketplace.Price based competition is still relatively low as the marketplace is controlled by a small

group of sellers. Ford Motor Company was founded by Henry Ford and incorporated on June 16 th 1903.

Ford is the second largest car manufacturer in the United States and the 5 th largest worldwide.

Demand Trends

Volatile gas prices and political pressures to manufacture greener automobiles has moved Ford’s

focus away from its large SUV models to leaner fuel efficient vehicles. Ford’s trucks and SUV’s had been

traditionally its largest money makers, but the demand for smaller compact cars have forced Ford to

recently retool 3 of its facilities formerly used for Truck and SUV production in favor of building smaller

more economical cars. Just a month ago, “In April 2011, Ford reported its largest first-quarter profit

since 1998, even as sales shift to smaller more fuel efficient cars.” [ CITATION New11 \l 1033 ]

Answering the demand for smaller cars, Ford plans on releasing 6 models currently sold in Europe in the

North American market.

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Supply Trends

“Ford has become the latest car maker to announce a slowdown in production because of

problems getting supplies of components made in Japan.” [ CITATION BBC11 \l 1033 ] Ford closed

its plants in Nanjing, China and South Africa for a week and its plant in Taiwan for two weeks. The recent

tsunami in Japan has had dramatic effect on parts supplied to car manufacturers. “Managing the supply

of parts from Japan following last month's earthquake is a complex and still-evolving process, Ford

Motor Co (F.N) Chief Executive Alan Mulally said on Wednesday.” [ CITATION Gas11 \l 1033 ]

According to Mulally the production slowdown has had no material impact on the company. Ford will

continue to maintain its price “discipline” in regards to consumer’s purchase incentives. "The most

important thing about our plan is profitable growth and so that leads us to tremendous discipline on

everything about the business," Mulally said. "The No. 1 thing is to match the production capacity to the

real demand."[ CITATION Gas11 \l 1033 ]

Government Regulations

The U.S. Department of Transportation and the National Highway Traffic Safety Administration

have a standards and regulations handbook that serves to enforce auto makers to abide by federal

production requirements for safety assurance. Not only does Ford Motor abide by these federal

regulations; it is a leading force in corporate social responsibility.

Ford has been rated among the top 25 companies in the world in corporate social responsibility

reporting by “Tomorrow’s Value: The Global Reporters.” Ford is the only automaker among the

top 25 of the 50 companies demonstrating best practices in corporate social

responsibility.Corporate social responsibility surveys measure the performance of companies

that meet globally recognized corporate social responsibility standards. To be included,

companies must demonstrate a transparent commitment to sustainability. [ CITATION

For111 \l 1033 ]
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Future Market Conditions

Ford Motor will continue to embrace fuel efficient technologies and push forward with

corporate social responsibility initiatives for sustainable mobility. Ford’s portfolio will include new

generations of clean diesel engines, alternative fuel powered vehicles, hybrids, autos with other low

tech fuel consumption saving and eventually a hydrogen powered engine. On a macroeconomic level

Ford plans to move into emerging markets. Car sales continue to grow quickly in the BRIC countries and

it is crucial that Ford take advantage of the new marketplace.

How Ford manages to take advantage of this trend will be decisive to the company's long term

growth. As discussed above, Ford's current international plan is the "One Ford" campaign, which

seeks to save production and design costs by producing a single fleet of vehicles for all markets

worldwide. [ CITATION Wik11 \l 1033 ]

Macroeconomic Factors influencing supply and Demand

The recent tsunami in Japan is likely to begin to affect consumer prices as car manufacturers run

short on parts to make new automobiles and dealer stocks begin to run short on supply of new vehicles.

Not only are new car sales affected by the recent shortage of the overall new car supply; used vehicles

are enjoying extraordinary staying power.

Reduced production of new cars, federal incentive programs, exorbitant gasoline prices, natural

disasters and other factors have conspired to reduce the supply of used cars on the market to a

trickle and, as a result, drive prices through the roof. [ CITATION Ray11 \l 1033 ]

Ford Motor Company Corporate Strategy and Core Capabilities

Ford Motor Company is well recognized around the world for its dramatic comeback in the auto

industry. Ford has also recently received recognition for not accepting a government bailout, unlike its

competitors GM and Chrysler, in the wake of the financial crisis. As a result, Ford’s image has improved
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and so has its sales. In 2010, Ford netted more profit than it had in the previous 10 years. How has Ford

been able to pull this off? In order to find out we must look at their corporate strategy and core

capabilities.

Ford’s core capabilities are engineering, producing, and marketing its automobiles. Ford’s

headquarters in Dearborn, Michigan, but it has truly become a global company. As a result of Ford

being a global company with global automobile sales in the billions of dollars year after year, Ford is able

to take great advantage of economies of scale. Due to the benefit of economies of scale, they have

been able to provide quality vehicles while keeping their costs low. This in turn helps them sell more

cars. Proof of this comes from the fact that Ford has increased its market share in the U.S. for the past

two years. In Canada, Ford regained its position as the number one selling automaker, something that it

hasn’t done in that country for 50 years. Ford also saw huge gains last year from its Asian markets. Ford

increased sales by 32% in China and 168% in India. (Ford 2010 Annual Report)

These numbers should come as no surprise to its managers, as part of their corporate strategy

has been to advertise, produce, and sell cars in these new markets. Ford managers realized a long time

ago that people in Asia and other parts of the world will eventually want to drive cars just as Americans

do. Ford has skillfully taken on this challenge. They have designed and manufactured cars that fit the

styles and needs of people in a different region. For example, in 2010 Ford launched the all new Grand

C-Max in Europe, and the Ford Figo in India. While selling in foreign markets can be risky, recently Ford

has shown the ability to reap its rewards. (Investopedia)

Ford’s success has not only come from its focus on foreign markets but also their focus on its

key brands. One of the strategies employed by its CEO Alan Mulally has been to simplify Ford’s products

and stream line its productions. In order to accomplish this goal Ford has chosen to sell Volvo and

discontinued making its Mercury brands. These moves help Ford focus on their core and top selling
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brands, Ford and Lincoln. For Ford, the opportunity costs of holding onto those brands were just too

high.

Another segment of Fords Corporate strategy has been to strengthen its balance sheet and pay

off debt. In 2010 and 2011 Ford will pay off over 17.5 billion dollars of debt. (Much of this debt was

incurred in 2006 as part of a restructuring effort.) This action will lower Ford’s annualized interest

expense by about $ 1.2 billion. (Ford 2010 Annual Report)

Finally, Ford is making an effort to create a cleaner and better world and at the same time

enhance its image. Ford has invested billions of dollars in research and technology to make their cars

more fuel efficient. Ford now has cars in every segment of the market that get best of class or close to

best of class fuel economy. Ford will also come out with their first electric car later this year, the Ford

Focus Electric. In addition to creating more fuel efficient vehicles to lower CO2 and create better values

for their customers, Ford has made an effort to enhance its image by donating money to nonprofit

organizations and encouraging its workforce to take two workdays a year to volunteer their time in the

community. (Ford 2010 Annual Report)

The auto industry is a very cyclical industry. Ford has seen its share of rough times, and has

learned from them. Ford is positioning itself for large growth in the coming years. It is also creating

manufacturing plants that can easily retool and change the number and types of products they produce.

As a result of Ford’s corporate strategy, we can expect Ford to be even stronger in the future through

good times and bad.

Product Differentiation:

Ford offers many different styles and models of cars. It also gives good mileages. “Ford Focus SE”

2012 and Fiesta SE 2011 give 40 mpg on highway, while 2011 Fusion Hybrid gives 41 mpg in the city.

Ford cars give a good return when you are going to sell it. Ford now has 11 vehicles on the road in the

U.S. with an IIHS (Insurance Institute for Highway Safety) Top Safety Pick rating. Ford Motor Company is
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the police vehicle market leader for 15 years, in which it has Ballistic Door Panels, Personal safety

system, and 75 mph Crash test rated.

Ford has created WiFi with a bit of a twist for their vehicles. SYNC, Ford’s voice-activated

communications and entertainment system created in collaboration with Microsoft, will be expanding to

create in-car connectivity

Focus on a market niche

Electric vehicles are the hottest and smallest niche market at the moment, and the 2013 Ford

Focus Electric intends to join the fray. Its features begin with an electric motor and extend all the way to

your smartphone.

Alliances, Joint Ventures, Mergers, acquisitions

Ford Motor Company has made 124 acquisitions while taking stakes in 45 companies. They have

121 divestitures during 1979 to March of 2011. In March of 2011, Central Glass Co Ltd acquired

Zeledyne LLC-Glass Plant from Ford Motors. Ford has grown so large that it has bought out

many competitors in the car industry including Volvo, Aston Martin, Jaguar, Lincoln, Land Rover,

Mercury, and 33% of Mazda. Ford's former UK subsidiaries, Jaguar and Land Rover, were sold to Tata

Motors of India in March 2008. In 2010, Ford sold Volvo to Geely Automobile. Ford discontinued

the Mercury brand at the end of 2010.

Current Global Market Strength

Ford’s global strength is in SUV and light trucks, which consists of some of the best selling

models in the world, such as the Ford Explorer which has been the best selling SUV in the world since

1990. Other strengths are its safety, mileage, quality, and style.

Business Risks

One major business risk is the continuous risk of recalls. Ford has experienced many issues with

recalls just recently. The automaker recalled more than 900,000 vehicles in the first weeks of 2011,
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more than the roughly 600,000 vehicles recalled in all of 2010. One instance is due to a seat issue, where

they had to recall 1,600 just-built Explorers for a safety problem with the second row of seats. In

February, Ford recalled more than 34,000 vehicles worldwide spanning eight vehicle models due to the

risk of a fuel leak or electrical issues (Ford Recalls, 2011). Also in February, they recalled nearly 363,000

F-150 pick-up trucks because of a potential problem with the interior door handles. After the pressures

from the government to fix all 1.2 million sold F-150 trucks, Ford will notify all owners in May that they

should take their trucks to a dealer who will replace an air bag wire in the steering wheel. In the first

three months of this year, the F-150 made up 18 percent of Ford's sales (Associated Press, 2011). If Ford

does not do something better about preventing recalls, they will be at risk with the liability of

customer’s safety and at risk with higher expenses.

A second business risk is the complexity of balances and transactions, which are more

vulnerable to error in the auto industry that goes along with Ford’s complex manufacturing and supply

chain. Car manufacturing is a long drawn out process where there are many complex contractual

relationships with customers and suppliers, meaning there is a higher risk that the balances calculated

are more open to error. There are certain transactions where the cost or benefit may be difficult to

calculate such as job costing and the assessment of the work in process. Management may have to

utilize a costing method, but this is merely an accounting estimate prone to great risk as they involve

major judgments and qualms.

Since 60% of Ford’s manufacturing cost is explained by purchased parts and materials, they are

under tremendous pressure to achieve lower cost solutions (Ford Motor Company, 2010). Ford’s

account payables department headcount at one point was 400% than that of other auto-makers. A lot

of their time can be spent with generating payment delays and inaccuracies (over and underpayments)

to suppliers (Ford Motor Company, 2010). Ford has recently made an effort for their account payables
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personnel to concentrate on special cases only and also has made an effort to cut costs with suppliers,

but one has to still consider the complexity of their cost transactions a major business risk.

References

Associated Press. (2011, April 14). Ford expands pickup recall. In CBC News. Retrieved May
14, 2011, from http://www.cbc.ca/news/business/story/2011/04/14/business-ford-recall.html

BBC News Business. (2011, April 25). Retrieved May 16, 2011, from
http://www.bbc.co.uk/news/13190926

Davis, G. S. (2010). , AL: Investopedia. Retrieved May 15, 2011, from

http://stocks.investopedia.com/stock-analysis/2010/Ford-Flexes-Its-International-Muscle-F-
MSFT-AAPL-XOM0309.aspx

Ford. (n.d.). Retrieved May 16, 2011, from http://media.ford.com/article_display.cfm?

article_id=24900

Ford Motor Company. (2010). Ford 2010 Annual Report (pp. 2-6). Retrieved May 14, 2011,
from http://corporate.ford.com/investors

Ford Motor Company Mergers and Acquisitions. (2011). Retrieved from

http://www.alacrastore.com/mergers-
acquisitions/Ford_Motor_Company-1006539

Ford Motor Company: Procurement. (2010, March 26). In DocStoc. Retrieved May 13, 2011,
from http://www.docstoc.com/docs/31461636/Ford-Motor-Company-Procurement

Ford recalls 2011 Explorers over seat issue. (2011, February 7). Chicago Breaking Business.
Retrieved May 13, 2011, from
http://archive.chicagobreakingbusiness.com/2011/02/ford-recalls-2011-explorers-over-
seat-issue.html

Ford reveals its all-new, purpose-built Police Interceptor Utility Vehicle.

(2010). Ford website.
http://www.ford.com/newsevents/news/newsdetail/?id=309

Gasgoo Automotive News. (2011, April 14). Retrieved May 16, 2011, from
http://autonews.gasgoo.com/global-news/ford-supply-situation-in-japan-unfolding-
110414.shtml
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New York Times. (2011, May 16). Retrieved May 16, 2011, from Business Day:
http://topics.nytimes.com/top/news/business/companies/ford_motor_company/index.htm

Ray, T. (2011, May 16). Newsnet5.com. Retrieved May 16, 2011, from Newsnet5.com:
http://www.newsnet5.com/dpp/money/business_news/Used-car-demand-jumps-but-the-
supply-is-down

What is different about Ford's New WiFi. (2010). Retrieved from

http://www.timefortitan.com/resources/article5e6d.html?id=what-is-
different-about-fords-new-wifi&category=broadband-internet

Wikiinvest. (n.d.). Retrieved May 16, 2011, from

http://www.wikinvest.com/stock/Ford_Motor_Company_(F)