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Ford motor company

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Ford motor company strategic management

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Ford motor company

  1. 1. FORD MOTOR COMPANY Strategic Management Project
  2. 2. PAGE 1 Submitted by: Group5  Cao Dang Khoa – 295886  Nguyen Trieu Phuc Hai- 295902  Tran Nguyen Khoa Hung- 295922 Submitted to THOMAS BRADLEY
  3. 3. PAGE 2 Executive Summary Ford Motor Company faces many strategic challenges during these volatile economic times. In the next month and a half, two of its major competitors may be forced to file for bankruptcy or liquidate assets. As of this writing, Ford is the most financially sound American car manufacturer and possesses enough cash on hand to continue operations through fiscal year 2009, provided there are no further dramatic deteriorations in the market. Analysts believe that the company will not need to seek government funding unless car sales for 2010 are below 12 million. While Ford, like all major car companies at this time, faces serious challenges, we assert that opportunities exist during any time of crisis. We believe that Ford can, with our help, break even in fiscal year 2010 barring further macroeconomic deterioration. This report makes the following recommendations to Ford Motor Company: 1) Ford should continue attempts to sell off the Volvo brand. The funds from this sale Should provide Ford with increased flexibility during the coming year as well as contribute to existing strategic goals. 2) Ford should extensively prepare for the bankruptcy of Chrysler and/or General Motors. Such bankruptcies pose a great deal of risk to Ford, including but not Limited to: the possibility that the government may chose a winner, the potential for GM to emerge from bankruptcy with a significant cost advantage, and supply chain Disruption resulting from bankruptcies of mutual suppliers. While we believe that
  4. 4. PAGE 3 Any liquidation of Chrysler should be viewed as a strategic opportunity, we remain Deeply concerned about how the future of GM may impact Ford. In the short term, We believe that Ford should continue to capitalize on its competitors’ instability and Steal market share. 3) We have faith in management’s ‘One Ford’ strategy and believe that the Ford Fiesta is poised for success in North America, if marketed correctly and executed properly. Continued differentiation through the creation of defining style and feature set exclusive to Ford vehicles is also a positive step in the long run. 4) We recommend that, wherever possible, Ford should shift production from the United States and the Euro Zone to Mexico and Eastern Europe. 5) We recommend that Ford exploit current opportunities in China and apply capital to ramp up its sales and market share. In the long run, Ford must also focus on expanding its share in India. We do not, however, recommend that Ford invest significant capital in the Indian market at this time. We believe that these recommendations are in line with the Ford philosophy and are in touch with its history as a family owned company. Industry circumstances are rapidly changing, and Ford’s optimal next steps cannot be fully expounded upon until specific information regarding GM and Chrysler’s future is announced. We look forward to the opportunity to provide continued support for Ford Motor Company as the situation with
  5. 5. Chrysler and General Motors develops, and believe that this report sets forward the optimal PAGE 4 strategy for the company at this juncture in time. Introduction The Company name: Ford Motor Company Ford Motor Company was founded in 1903 by Henry Ford and has continuously remained under family ownership since this time. For the first half of the 21st Century, Ford remained the dominant car manufacturer within the market it had effectively created. The Company mission is:  “Being a global family with a proud heritage passionately committed to providing personal mobility for people around the world.  Anticipating consumer need and deliver outstanding products and services that improve people's lives.”1 Mission Evaluation: Ford only focuses on customer, market and concern for public image Company vision is: “to become the world's leading Consumer Company for automotive products and services.”2 1,2. Ford Motor Company Sustainable Growth Strategies. The Basic Values that define Ford Motor Company as an industry leader. Vadim Kotelnikov. Retrieved from http://www.1000ventures.com/business_guide/cs_sg_ford.html 3,4 Blueprint Strategy. Ford Sustainability 2011/12. Retrieved from http://corporate.ford.com/microsites/sustainability-report-2011-12/blueprint-strategy
  6. 6. Vision Evaluation: The vision statement is quite well organized as it highlights the products and offerings made by the company. It also highlights that the company is growth oriented PAGE 5 and wants to be the leading company in the automotive industry. Company objectives are: 3“The goal of ONE Ford is to create an exciting and viable company with profitable growth for all. The output of ONE Ford is:  Great Products, defined as those that are high quality, green, safe and smart.  Strong Business, based on a balanced portfolio of products and global presence; and  Better World, accomplished through our sustainability strategy.”3 Company strategies are: 4“Our Ford’s business strategy is embodied in our ONE Ford plan. ONE Ford expands on our Company’s four-point business plan for achieving success globally. The four-point business plan consists of the following:  Aggressively restructure to operate profitably at the current demand and changing model mix  Accelerate development of new products our customers want and value 3,4 Blueprint Strategy. Ford Sustainability 2011/12. Retrieved from http://corporate.ford.com/microsites/sustainability-report-2011-12/blueprint-strategy
  7. 7. PAGE 6  Finance our plan and improve our balance sheet  Work together effectively as one team”4 Company Products and Services are: Ford Motor Company (Ford) is a worldwide producer and distributor of auto. It produces and deliveries cars and vehicle components. Ford, along with its subordinates and associates, manufactures cars, trucks, SUVs (Sport Utility Vehicles) and numerous other products and provides services to automotive consumers over 6 continents. Ford, Ford- Lincoln and Lincoln are the wholly-owned brand names of the company. Ford runs distribution centers and warehouses, engineering, research and growth facilities, sales offices and manufacturing facilities in North America, South America, Europe and Asia Pacific and African region. The company also conducts automobile rental and hiring activities, auto funding and other related financing activities. Ford intends to establish new products and services to satisfy with the modifying requirement of its clients. In line with this, some of the new supplying about the company are MKC, Mustang and F-150, with which, the company will introduce the new 2.3L I4 EcoBoost and 2.7L V6 EcoBoost engines. Products/Services Products:
  8. 8. PAGE 7 Passenger Cars Trucks Buses Vans Sport Utility Vehicles Vehicle Accessories Aftersales Vehicle Parts and Products Services: Maintenance and Vehicle Repair Services Retail Financing Wholesale Financing Third-party Claim Management Services The Competition is the following: Ford faces both domestic and international competitions, which greatly influences its motor operational planning. The Top Competitors of Ford Motor Company are: General Motors Company, Toyota Motor Corporation, Chrysler Group LLC, and Honda Motor Co., Ltd. Domestically, Ford faces competition mainly from General Motors and Toyota while
  9. 9. internationally its main competitors are from China and Japan. Competitors' lowering their cost and raising their quality forces Ford to do the same to stay competitive in the markets. PAGE 8 The current market condition Ford is known for building the everyday man’s car focusing on reliability and quality. Ford is now a leader in innovation in the automobile industry right next to the BMW. Energy efficient efforts, future safety features and technology advancements are all what makes Ford. However, the cars are not all that have made Ford into the global enterprise it is today. Its’ constant effort into driving community through the Ford Motor Company Fund and Community Services is only one way Ford displays its involvement and values for a safe and healthy environment for the community to live in. Because Ford holds these values high in its’ corporate strategy, its research and advancement in safety and energy saving features are genuine and dependable. Ford has been a leader in the auto industry, however, over the past few decades has continued to lose market share to foreign
  10. 10. 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. Ford has many successful markets all over the world such as U.S, Canada, and Mexico. The markets really help the company receive profit in many years, but it is time for FORD to have new markets. China will become a new market that FORD wants to invest in because China really is a biggest auto market all over the world and some analysts also PAGE 9 think that China will become the market’s fastest developing for years to come. Recommendations by our group of modified vision and mission statements for the Ford Motor Company: Ford may combine both mission and vision are one statement such as: “Our vision is to become the world's leading consumer manufacturing company for automotive products and services. To achieve this, we the company and all our employees are dedicated to provide all our customers and the community with safe innovat ive products and services of world class standards. Through our engineering excellence, high quality and the use of our constantly upgrading technology, we limit the harm that we cause to the environment while delivering superior value to our customers. Our close knit working environment allows our employees, community and business partner to share in our success, while achieving a substantial return on our shareholders’ investment.”
  11. 11. PAGE 10 Strengths, Weaknesses, Opportunities, Threats (SWOT) Matrix: STRENGTH 1. Powerful in US market 2. ECOnetic initiative 3. Sound financial performance 4. ‘ONE Ford’ approach 5. Considerably growth in China 6. Strong brand recognition 7. Running in globally WEAKNESS 1. High cost structure 2. Unprofitable Europe operations 3. Low contact business to Asia- Pacific 4. Ford does not provide financial OPPORTUNITIES 1. Positive attitude towards “green” vehicles 2. Increasing fuel prices 3. New emission standards 4. Strategic partnerships 5. Ford has the distinct opportunity THREATS 1. Decreasing fuel prices 2. Rising material prices 3. Intense competition 4. Fluctuating exchange rates 5. Strict standard of CO² emission
  12. 12. PAGE 11 6. China, a vibrant market for automobile industry. 7. Cooperation with the British Petroleum Strengths 1. Powerful in US market. Ford is the second largest automotive in US market, having a great reputation in the home market and great commercial vehicle sales. 2. ECOnetic initiative. It is an effort to improve existing engines instead of new hybrid engines to producing highly fuel-efficient engines. The Ford Fiesta is the result of this initiative, currently the lowest emitting mass-produced car in Europe and Ford Focus ECOnetic that has better fuel consumption than the Toyota Prius. 3. Sound financial performance. Ford was the first US car company to get investme nt status back and also was the only company that didn’t need the government bailout. Compare to other competitors, the firm’s profit margin is high with the highest liquidity ratio.
  13. 13. 4. ‘ONE Ford’ approach. Ford has decided to produce single, streamlined global lineup of its models. The carmaker is now focusing on designing and engineer ing the car that match different regional and. This considerably decreases costs for Ford PAGE 12 and drives record profitability. 5. Considerably growth in China. Although not the strongest competitor in the China , but Ford has experienced the significant growth in the largest automobile market in the world for the 2012. Opening of research and engineering Centre in China 6. One Ford’s most potent advantage is that they are one of the world’s best known brands which have been in the business for 100 years. Strong brand recognition as an affordable and safe vehicle World’s largest living roof in Michigan 7. Operate throughout the 6 continents with 108 plants globally. Weaknesses 1. High cost structure. Ford still has a high cost structure, compared to other automobile makers although ‘One Ford’ initiative led to substantial cost reduction. Ford’s costs are boosted by its generous employee compensation and pension plans.
  14. 14. 2. Unprofitable Europe operations. In 2012, Ford lost $1.75 billion in Europe and PAGE 13 plans to experience losses in the region until 2015. 3. Low contact business to Asia-Pacific: Only 15.82% of Ford’s volume was derived from Asia-Pacific sales in 2011, the fastest growing segment of their business (7.52% growth from 2010 to 2011) 4. Ford does not provide financial incentive to dealers Organization’s morale, decreased due to payroll reduction Opportunities 1. Positive attitude towards “green” vehicles. Customer are aware of that cars release large quantities of CO2 and negatively affect the environment. Ford has developed an electrification strategy to reduce the carbon dioxide (CO2) released from its vehicle and make them more efficient. 2. Increasing fuel prices. Ford’s strong emphasis on engineering fuel-effic ie nt vehicles (Ford Fiesta and Ford Focus ECOnetic) with flexible fuel and hybrid engines will resolve the increasing fuel prices problem. 3. New emission standards. Ford position in the automobile industry would be affected by a new wave of stricter regulations on vehicle emission standards. Ford
  15. 15. invests a lot of money to produce fuel-efficient engines and earned success with PAGE 14 Ford Fiesta and Ford Focus ECOnetic models. 4. Strategic partnerships. Ford has great experience in creating strategic partnerships with other automobile companies. All companies are more likely to enter into such partnerships to drive R&D costs down, approach new markets and gain some new skills because of current competitive pressure. 5. Ford has the distinct opportunity to have cleaner engine emissions, alignment with their corporate responsibilities 6. China, a vibrant market for automobile industry. Demand of fuel-efficient cars 7. Cooperation with the British Petroleum to develop hydrogen power. High expectations of customer. Threats 1. Decreasing fuel prices. This would negatively affect Ford as its focus on compact fuel-efficient hybrid and flexible fuel cars that are less attractive when some analysts forecast that future fuel prices will drop because of the extraction of shale gas
  16. 16. 2. Rising material prices. Rising prices for raw metals will raise the costs of PAGE 15 automobile companies and result in squeezed profits for the companies. 3. Intense competition. Ford faces more intense competition from other competitors , especially in small car type with hybrid engines. 4. Fluctuating exchange rates. Most of largest automobile companies, may be adversely affected by fluctuating exchange rates when it earns more than half of its profits outside the US and the profits may also be lower because of appreciating dollar against other currencies. 5. Strict standard of CO² emission result in increasing the manufacturing cost to produce the engines. New entrants i.e.: Honda, Toyota and Nissan result in tough competition. Lack of desired vehicles available in the dealer’s lot and car financing sector facing financial problem because of increasing mortgage rates. Toyota is selling vehicles through E-commerce (Gazoo.com).
  17. 17. PAGE 16 EFE MATRIX: Key External Factors Weight Rating W. Score OPPORTUNITIES Producing Fuel Efficient Cars 0.15 3 .45 More product driven, customer focused and effic ie nt 0.15 4 0.60 Aggressively enter in the Asian Market 0.10 3 0.30 Initiate Manufacturing in Low Cost Countries 0.10 2 .20 European Market expected to be more profitable 0.10 3 .30 THREATS
  18. 18. Rising Fuel Prices Worldwide 0.10 1 .10 Rising Interest Rate 0.05 2 .10 Raw Material Cost increasing Continuously 0.05 2 .10 Labor Cost Increase in USA 0.05 3 .15 Competition Rises all Over the World 0.07 2 .14 Toyota Market Share Increase in USA 0.08 2 .16 Total 1.00 2.6 Ford can take advantage of the sector of the market who wants to “go Green” by producing green marketing addressing solutions such as hybrid cars. Also, availability of low cost and personalized advertising allows Ford the opportunity to get its message out to the right potential consumers quickly and effectively. But the threats are, employees have trouble making the sale happen. Employees don’t have the ability to get consumers to commit. It’s PAGE 17
  19. 19. all well and good to bring people into each dealership, but Ford needs people capable of getting employees to sign on the dotted line. Also, Lay Offs – the necessity of this occurrence in a tough economy presents the possibility of lawsuits from former employees. Besides, Ford did not have public trust while other companies like GM and Toyota are PAGE 18 gaining. IFE MATRIX: Key Internal Factors Weight Rating W. Score STRENGTH Affordability due to Brand Name 0.10 3 0.30 Good Market Share in Europe 0.10 3 0.30 Producing Hybrid Car since 2007 0.10 4 0.40 Several Name of Brands 0.15 4 0.60 Targeting all classes Customers 0.15 3 0.45
  20. 20. Support Racing Teams including Formula 1 and etc. 0.05 3 0.15 PAGE 19 WEAKNESS Continue Decline in Market Share 0.10 2 0.20 Downsizing 0.10 1 0.10 Weak Financial Position 0.10 2 0.20 Closing more than 10 manufacturing units in NUSA 0.05 2 0.10 Total 1.00 2.8 As seen in the Matrix, Ford is a well-known American Brand – the legacy of Henry Ford lives on through his cars and production line. Ford is an iconic brand known around the world – may be used to its advantage. It has developed and maintained a reputation for safe vehicles as well as offering a desirable mix of benefits and pay will help Ford attract quality employees that help grow the company.
  21. 21. But Ford has more liability than assets, if not managed correctly, Ford could end up with a huge amount of profit lost if, for example, the people at headquarters completely misjudge the potential popularity of the new Mustang. This could result in the necessity of huge discounts to allow dealers to bring in the newer models. These discounts may result in a PAGE 20 loss for the dealers and or Ford. Besides, rise in price of consumer products such as gas. If cost of fuel rises substantially, a portion of Ford’s market share—trucks—is lowered as consumers no longer desire to drive big vehicles that use a large amount of gas CPM MATRIX: Ford G.M Toyota Critical Success Factors Weights Ratings Weighted Score Ratings Weighted Score Ratings Weighted Score Hybrid/Fuel Effic ie nt Vehicles 0.15 3 0.45 3 0.45 2 0.30 Product Quality 0.15 4 0.6 3 0.45 2 0.30 Price Competitiveness 0.2 2 0.4 2 0.2 4 0.80 Management 0.05 2 0.1 3 0.15 3 0.15 Financial Position 0.1 2 0.2 3 0.3 3 0.30
  22. 22. Customer Loyalty 0.1 3 0.3 3 0.3 4 0.40 Global Expansion 0.1 2 0.2 3 0.3 3 0.30 Market Share 0.15 2 0.3 4 0.6 2 0.30 Total 1 2.55 2.75 0.30 As seen in the Matrix, Ford owns its position through Hybrid/Fuel Efficient Vehicles and Price Competitiveness. But since the quality is not stable, customers’ loyalty did not seem to take place. And that leads to the lower market share as well as the financial positions, not to mention its liability more than assets while Toyota remains its good quality products PAGE 21 and GM focus on its price competition. Competitor’s Analysis The major competitors of Ford Motor are domestic companies like Damiler Chrysler & General Motors and foreign companies like Toyota Motor & Honda Motor. DaimlerChrysler DaimlerChrysler (DCX) was formed in 1998 in a merger of two of the automotive industry’s oldest and most prestigious manufacturers: Daimler-Benz AG and the Chrysler Corporation. This so-called “merger of equals” was the culmination of a long complicated family history that in some sense follows the history of the automobile itself. Because of this prestigioushistory, DaimlerChrysler enjoys a strong reputation on both sides of the Atlantic.
  23. 23. Today, DaimlerChrysler employs a total of 384,723 people in 17 countries. Their products are sold in over 200 countries. DaimlerChrysler is the fourth largest vehicle producer in the world in terms of units sold behind GM, Ford, and Toyota. In 2004, DaimlerChrysler sold 4,000,700 passenger vehicles and 712,200 commercial vehicles. The company is structured into three main automotive groups: the Mercedes Car Group, the Chrysler PAGE 22 Group, and the Commercial Vehicles Division. These groups are parents to a total of 12 different brands, including Mercedes-Benz, Dodge, Chrysler, Jeep, the luxury car Maybach, and the compact environmentally friendly smart car. In all, DaimlerChrysler produces approximately 126 vehicle models. DaimlerChrysler has been marginally successful inthe United States where the Chrysler Group has recently been the strongest of Detroit’s Big 3. In fact, during the third-quarter of 2005, Chrysler was the only Big 3 company to earn a profit ($379 million for the quarter). This came in spite of a 21% drop in third-quarter earnings by DaimlerChrysler worldwide due to increasing taxes. However, during this same period, DaimlerChrysler increased operating profit by 38%. Analysts have attributed this odd result to increasing demand for Chrysler and Mercedes products. This increased demand is evidenced in the U.S. market where the Chrysler Group produces four ofthe 20 top selling passenger vehicle models: the Dodge Ram, the Dodge Caravan, the Jeep Grand Cherokee, and the Jeep Liberty. As a result of this improved third-quarter performance, Chrysler’s U.S. market share has risen to 13.3%. More broadly, the popularity of DaimlerChrysler models can be seen in the steady rise in revenue over the past three years. From 2002 to 2004,revenue has increased 22.6% from $157 billion to $192 billion.
  24. 24. Because demand for DaimlerChrysler products has remained relatively stable in the face of increasing oil prices, their future looks relatively bright. Growth in demand for passenger vehicles is expected to further slow in North America, Western Europe, and Japan. Therefore, DaimlerChrysler’s future depends upon successful marketing in emerging PAGE 23 markets across the globe. DaimlerChrysler SWOT analysis 2013 Strengths Weaknesses 1. High Fleet Sales way above industry average. In US, over 1 million sales per annum. 2. Strong brand recall in North American marketsMotorcycle market share in Asia. 3. Reputation for V-8 Hemi engines. 4. Domination in minivan market. 5. Strong customer focus and a strong employee base of over 50,000. 1. Due to high fleet sales there is also seen a non-preference by customers for few of the models of Chrysler. 2. Management problems have been a concern. 3. Limited market share owing to increasing competition.
  25. 25. PAGE 24 Opportunities Threats 1. Change in the management for better. 2. It may also assist it for selling its cars in new geographical markets. 3. Increasing demand for green vehicles where Chrysler has presence. 1. Decreasing confidence of dealers & other associates in the Company. 2. Strong reliance on the North American market. Source: http://www.mbaskool.com/brandguide/automobiles/4684-chrysler.html General Motors After its organization in 1908, General Motors (GM) proceeded to acquire seven companies by the end of 1909. Today, the company’s brand names include manyof the beginning acquisitions including Buick, Cadillac, Chevrolet, GMC, Oldsmobile, and Pontiac, as well as newer acquisitions and creations including Holden, Hummer, Opel, Saab, Saturn, and Vauxhall. GM is the largest automobile manufacturer in the world, selling nearly nine million cars in 2004, which equated to a 14.5% global market share. As of the end of 2004, GM reduced its projected earnings for 2005 by over 50% from previous projections, which reflects its low expectations for the company in the near future.
  26. 26. Investors have also lost faith in the future of GM; the current stock price is selling at a fraction of the book value. GM’s debt has been steadily downgraded and stood at BBB- as PAGE 25 of the end of 2004 according to Standard & Poor’s ratings. According to their Letter to Stockholders, GM’s mainproblems consist of “global overcapacity … falling prices … rapidly escalating healthcare costs … unstable fuel prices … [and] increasing competition.” GM’s debt ratio illustrates that their overall debt nearly equals their assets; their current ratio shows that they have more liabilities than assets in the upcoming year; and the return on sales and equity are very low in comparison to industry standards. Each of the five ratios places GM among the worst three out of the ten sampled companies. While these ratios in no way provide a complete measure of a company, they do illustrate that GM is currently struggling to keep up with its competitors. GM’s main problem is their failure to remain cost-competitive in the global market. To address this, GM has reworked deals with both American and European unions which will reduce its cost of labor. To increase revenues, GM is focusing on increasing marketshare in growing countries such as India and China. They are also offering more hybrids to increase their fuel efficient offerings, which is a fast growing market in America and has been one of the main ways that foreign manufacturers have increased their market share in GM’s primary markets. It will take some time for GM to become profitable again. In the first three quarters of 2005, GM has seen losses continue to grow well past $1 Billion and their credit rating has been reduced to junk status. However, GM still has the largest market share inthe world and the capabilityto become successful again. If GM can reign in escalating costs and offer
  27. 27. cost-competitive products, the automobile giant will be in position to once again assert its PAGE 26 dominance of the market. General Motors SWOT analysis 2013 Strengths Weaknesses 1. Global presence 2. New vision and strategy 3. Strong brand portfolio 4. Strong presence in China 5. Knowledge of home market 6. 4 well performing brands 1. High cost structure 2. Brand dilution 3. Bureaucratic culture 4. Car recalls Opportunities Threats 1. Positive attitude towards “green” vehicles 2. Increasing fuel prices 1. Fluctuating fuel prices 2. New emission standards 3. Rising raw material prices
  28. 28. PAGE 27 3. Changing customer needs 4. Growth through acquisitions 4. Intense competition 5. Exchange rates Source: www.strategicmanagementinsight.com/swot-analyses/general-motors-swot-analysis. html Toyota Toyota was established as a public company in Japan in1937. It entered the U.S. market in 1957, but only became successful with the introductions of the Corona in 1965 and the Corolla in 1968. By 1970, Toyota was the world’s fourth-largest carmaker and by 1975 had displaced Volkswagen as the U.S.’s #1 auto importer. Toyota began auto production in the U.S. in 1984 through a joint venture with GM, and launched the successful Lexus line in the U.S. in 1989. Since then, Toyota has continued to grow steadily, becoming the third largest global automotive manufacturer as of 2003, with sales last year of 7.4 million vehicles. Unlike many other large auto manufacturers, Toyota carries only 4 brands: Toyota, Hino, Scion, and Lexus; it also has a majority interest in Daihatsu. Known for their quality and reliability, Toyota cars and light trucks such as the Camry (Best-selling passenger car in America, 2004), Corolla, Lexus LS330, Prius (Motor Trend’s Car of the Year, 2004), Tundra (Motor Trend’s Truck of the Year, 2000), Tacoma (Motor Trend’s Truck of the Year, 2005), 4Runner, and Lexus RX300 (Motor Trend’s SUV of the Year, 1999) have been extremely successful both in the U.S. and abroad.
  29. 29. In the last few years, Toyota has been able to ride out the automotive storm, continuing to post impressive results despite the troubles that other companies haveseen. In 2003, net income jumped almost 55%, reaching US$10.8B. And in 2004, both revenue and net profit increased slightly. Currently, Toyota holds a 6% profit margin, dramatically higher than PAGE 28 any of the Big 3. Toyota’s success is based largely on its forward-thinking, innovative management style and its rigorous standards of quality. The Toyota Production System is a much-studied strategy of design and manufacturing which emphasizes streamlining and elimination of waste – giving rise to the “just-in-time” and “lean” manufacturing movements – and continuouserror-checking and improvement. In addition, Toyota has repeatedly been ahead of the trend in investing in new technologies. Instead of focusing on reducing labor costs, Toyota has increasingly automated their production facilities. And with the release of the Prius in 1997, Toyota introduced the first mainstream hybrid vehicle, cashing in on the demand for fuel economy and reduced environmental impact. Like the Prius, the Scion line successfully identified and addressed a new consumer sector, a plan thatToyota will continue to follow. These strategies combine to give Toyota a significant sustainable competitive advantage. The results of all this are clear: in 2005, Toyota won a record-breaking 10 segment awards in J.D. Power and Associates Initial Quality Study, with Lexus carrying top honors for five years straight. And while 75% of Toyota’s current market is in Japan and North Americ a, it aims to reach markets in 140 countries and regions in the future. With new assembly facilities in Thailand, Indonesia, South Africa and Argentina, Toyota has more than 60
  30. 30. manufacturing facilities in 26 countries. This allows production in geographic proximit y to Toyota’s future target markets like Asia and South America. With expansion underway, operations going well, innovative infrastructure and mindset, and well-targeted high PAGE 29 quality products, Toyota is excellently positioned for future growth and success. Toyota SWOT analysis 2013 Strengths Weaknesses 1. Innovative culture 2. Brand reputation valued at $30 billion 3. Industry leader in production and sales 4. Strong brand portfolio 5. The leader in “green” cars development 1. Large recalls 2. Weak presence in the emerging markets Opportunities Threats
  31. 31. PAGE 30 1. Positive attitude towards “green” vehicles 2. Increasing fuel prices 3. Changing customer needs 4. Growth through acquisitions 1. Fluctuating fuel prices 2. New emission standards 3. Rising raw material prices 4. Intense competition 5. Natural disasters 6. Appreciating yen exchange rate Source: http://www.strategicmanagementinsight.com/swot-analyses/toyota-swot-analysis. html Honda Honda Motor Co. (HMC) was established by SoichiroHonda in 1946. It originally began producing motorcycles in the mid 20th century and began manufacturing automobiles (the Honda Civic) in 1972. After the original Civic’s inception, Honda produced many variants of this highly successful vehicle, such as the four-door sedan, wagons, hatchback, coupe, and more recently the hybrid. Honda currently has two automotive brands (Honda and Acura) and it produces over 20 other vehicle models, such as the Accord, Element, Insight, Odyssey Minivan, Pilot SUV, and Ridgeline Truck, in addition to producing motorcycles and power products. Since Honda began producing automobiles it has beena leader in producing fuel effic ie nt and low emissions vehicles. In 1977 and 1983, Civic models ranked first in U.S. fuel-
  32. 32. economy tests. Honda has also introduced hybrid vehicles such as the Insight, Civic, and Accord, in 1999, 2002, and 2004, respectively, with the 2006 Insight being the most fuel PAGE 31 efficient car of 2006. Currently, Honda ranks sixth in sales within the automotive industry. They have overseas plants in over 12 countries including the U.K., Italy, Brazil, Taiwan, Indonesia, Malaysia, Thailand, Nigeria, U.S., and Canada. Honda has been increasing their production capacity worldwide in response to their steady growth in total sales over the last few years. From 2002 to 2003, Honda increased sales by 95,000 units, and from 2003 to 2004, sales increased by 259,000 units. With this growth in sales Honda has seen a commensurate increase in its revenues. In China, they saw approximately a 50% increase in sales from the fiscal years of 2003 to2004, and they expect sales to keep increasing. In the future, Honda has stated thatthey will keep improving the fuel efficiency of all their vehicles. They will continue to expand their production capacity in Asia, due tothe expected increases in demand in those regions. In the U.S., they plan on launching new models targeted to younger people to create a new base of loyal customers. Given Honda’s past record on delivering high quality and fuel efficient vehicles, their strong position in the current market, their strategic direction for the next few years, and the rising costs of fuel worldwide, it is evident that Honda will have a strong presence in the automotive market in the future. Honda SWOT analysis 2013
  33. 33. PAGE 32 Strengths Weaknesses 1.Diversified product portfolio 2.Huge investments in R&D 3.Strong brand image 4.Motorcycle market share in Asia 1.Product recalls 2.Weak position in Europe automotive market 3.Decreasing sales Opportunities Threats 1.Increasing fuel prices 2.Positive outlook for global motorcycle industry 3.Growing global demand for environmentally friendly vehicles 4. Growth through acquisitions 1.Intense competition 2.Decreasing fuel prices 3. Rising raw material prices 4. Natural disasters 5. Strong yen
  34. 34. PAGE 33 Source: http://www.strategicmanagementinsight.com/swot-analyses/honda-swot-analysis. html Where is our product in the life cycle? Ford products were in the decline stage in the life cycle because “the company had experienced serious financial problems. Ford’s turnaround plan aimed to cut $5 billion in costs by the end of 2008 by slashing 10,000 white-collar workers and offering buyouts to all of its 75,000 unionized employees. The loss, including restructuring costs, was Ford’s largest quarterly loss since the first quarter of 1992, when the company lost $6.7 billion due mainly to an accounting change.”5 5 Strategic management text and cases. Is one Ford really working? Page 721. Retrieved from https://www.b1digital.com/fileserver/ebook/dev/sm/Marketing%20Mistakes%20and%20 Successes.pdf
  35. 35. PAGE 34 What kind of strategy Ford Motor company have? Ford through its ONE Ford Plan has tried to implement its growth and renewal strategies. Growth strategy-Accelerate development of new products to suit customers want and value; Finance plans and improve balance sheet; and work together effectively as one team, leveraging the company’s global assets are some of the major steps taken by the company in recent years.  Concentration- Ford has delivered consumer friendly, highly fuel efficient and innovative vehicles, most of the time and concentrated on quality over quantity.  Vertical integration – The ford motor credit company provides automobile loans in support of its parent company. The company offers consumer loans and leases to car buyers, as well as business loans and lines of credit to dealerships selling Ford Motor Company products. The firm also issues, commercial paper and other debt instruments on Ford's behalf. In this way the company has achieved dual objectives, it has become its own suppliers as well as distributors, thus achieving forward and backward vertical integration at the same time.  Horizontal integration- Ford’s competitors are themselves some of the oldest automobile companies, like Chrysler and general motors. Hence any kind of collaboration was simply not possible as these companies know it better to resolve the crisis by other means possible.  Diversification- Ford has combined with Aston Martin, a sports car manufacturer, a company which is different but related. Hence a related diversification can be seen here.
  36. 36. Stability strategy- Since its inception, one of the most remarkable achievements of ford has been its constant focus on the production of highly fuel efficient vehicles. Ford’s global vehicles showcase their commitment to fuel efficiency. Technologies like EcoBoost®, direct injection of gasoline or diesel fuel, six-speed transmissions, and hybrid and plug- in PAGE 35 hybrid powertrains are some of the innovations in this regard. [5] Renewal strategy- To maintain status quo ford has come up with some solutions. Retrenchment- Owing to its financial deficits, the company discontinued its production of luxury vehicle under mercury brand in 2008. What kind do Ford Motor Company need now?  The company should try to expand sales in the Middle East.  There is a lot of scope for ford to take advantage of the growing needs of public transports, utility vehicles as well as other vehicles that may find their use in some other industries. For example, manufacturing buses and trucks in India and African nations, oil tankers for oil producing countries, etc.  The company in order to gain public favor in Asia and China and to gain profits in recession hit Europe may try to reduce its cost structure for these countries as a short term plan
  37. 37.  The company may risk its sales in the US to cover the subsidy given in third world countries, but given the large size of potential customers in the target countries, PAGE 36 possibility of profits in long term can’t be ruled out.  the production of cheaper motor vehicles in masses for mass sales rather than the making of luxury cars is a good option because this will offer a large market and there is safety in the numbers because of the large market share presented SPACE MATRIX
  38. 38. PAGE 37 FINANCIAL STRENGTHS (FS) ENVIRONMENTAL  X- Axis: CA+ IS = (-2.0) + 4.2 → 2.2 STABILITY (ES) Return on Asset (ROA) 1 Rate of Inflation -4 Leverage 1 Technological Changes -3 Net Income 2 Price Elasticity of Demand -3 Net Asset 2 Competitive Pressure -6 Return on Equity 1 Barrier to entry into the Market -2 Financial Strengths (FS) 1.4 Environmental Stability (ES) -3.6 COMPETITIVE ADVANTAGE (CA) INDUSTRY STRENGTH (IS) Market Share -3 Growth Potential 5 Product Quality -2 Financial Stability 3 Customer Loyalty -2 Ease of entry into the market 6 Technological know-how -1 Resources Utilization 3 Control over suppliers & distributors -2 Profit Potential 4 Competitive Advantage (CA) -2 Industry Strength (IS) 4 . 2
  39. 39. PAGE 38 C A IS ES +6 +5 +4 +3 +2 +1 -6 -5 -4 -3 -2 -1 -1 -2 0 -3 -4 -5 +1 +2 +3 +4 -6 +5 +6  Y- Axis: ES + FS = (-3.6) + 1.4 → (-2.2) Conservative Aggressive Defensive Competitive From SPACE Matrix above, it is known that Ford Company are in Quadrant 4, the Competitive position. In this position, the right strategy for Ford Company is: diversification of products and that reproduce the type and model of product development is also a good market by developing products concentrate on Eco friendly car. Ford company implement strategies needed to enhance the purchasing power of consumers and seeking strategies to attract consumers from a rival company.
  40. 40. PAGE 39 BCG Matrix Relative market share High Low Low Star Question marks Cash Cows Dogs As shown in the Matrix, Cars cause high relative market share and high market growth. Electric cars play the most desirable market segment as well as low market growth, which made Ford somehow did not perform well. Trucks and SUVs, are growing big because of the fact that they’re new that attract customers’ attention, but since they’re improving, they are the parts that have low market shares. Industry Grow rates Cars Trucks SUVs Electric car
  41. 41. PAGE 40 Grand strategy Matrix Quadrant II Evaluation: Rapid Market Growth Quadrant I Weak Competitive Position Strong Competitive Quadrant III Slow Market Growth Quadrant IV
  42. 42. Ford falls in the second quadrant of the grand strategy matrix as its facing huge losses and its competitive position has also been affected by new entrants in the automotive industry so it has weak competitive position and the market growth is rapid. Increasing consumer’s expectations had made the environment more competitive as on one hand it had provided a room for innovations, but due to continuous rising prices of raw material and gas prices and also the currency rate fluctuation, it has been difficult for the firms to manufacture new models PAGE 41 frequently. As far as this current scenario is concerned appropriate strategies would be:  Market Penetration: Apply market penetration strategies globally. A) sponsor events related to sports, entertainment etc. B) Partnership with a television channel that will display ads of the Ford Motors in differe nt intervals. C) Developing of Ford's Blog.  Product Development: A) Production of fuel efficient cars. B) Production of Hybrid energy vehicles.  Horizontal Integration: Alliance with the competitors can be helpful to achieve competitive advantage by combining the distinctive competencies of both the firms.
  43. 43. PAGE 42 QSPM 1.Apply marke t penetration strategies globally 2. Production of fuel efficient cars. 3. Alliance with the competitor. Key Factors Weight AS TAS AS TAS AS TAS External Opportunities 1. Producing Fuel Efficient Cars 0.15 2 0.30 3 0.45 1 0.15 2. More product driven, customer focused and efficient 0.15 3 0.45 4 0.60 2 0.30 3. Aggressively enter in the Asian Market 0.10 3 0.30 4 0.40 2 0.20 4.Initiate Manufacturing in Low Cost Countries 0.10 3 0.30 4 0.40 2 0.20 5. European Market expected to be more profitable 0.10 3 0.30 4 0.40 2 0.20 Threats
  44. 44. 1.Rising Fuel Prices Worldwide 0.05 3 0.15 4 0.20 2 0.10 2 Rising Interest Rate. 0.05 1 0.05 2 0.10 3 0.15 3. Raw Material Cost increasing Continuously 0.05 4 0.20 3 0.15 2 0.10 4. Labor Cost Increase in USA 0.05 2 0.10 3 0.15 4 0.20 5. Competition Rises all Over the World 0.07 4 0.28 2 0.14 1 0.07 6. Toyota Market Share Increase in USA 0.08 4 0.32 3 0.24 2 0.16 PAGE 43 Internal Strengths 1. Affordability due to Brand Name 0.10 2 0.20 3 0.30 4 0.40 2.Good Market Share in Europe 0.10 4 0.40 3 0.30 1 0.10 3. Producing Hybrid Car since 2007 0.10 4 0.40 3 0.30 1 0.10 4. Several Name of Brands 0.15 4 0.60 3 0.45 2 0.30 5. Targeting all classes Customers 0.15 2 0.30 4 0.60 3 0.45 6. Support Racing Teams including Formula 1 and etc 0.05 4 0.20 3 0.15 2 0.10 Weaknesses 1. Continue Decline in Market Share 0.10 2 0.20 4 0.40 3 0.30 2. Downsizing 0.10 1 0.10 2 0.20 3 0.30
  45. 45. 3.Closing more than 10 manufacturing units in NUSA 0.05 1 0.05 2 0.10 3 0.15 4. Weak Financial Position 0.10 2 0.20 2 0.20 3 0.30 Total 1 5.40 6.23 4.33 PAGE 44 Strategic recommendations Ford motor is the only one in the US auto motor industry who tried to sustain its leadership and its market position with effective strategies to match the market requirements and needs. It updated its products with latest technology gadgets and equipped its products with the latest ones. After conducting the in depth analysis of the company’s success factors, revamped processes and other operational strategies as well as the study of case study, our group came to the following recommendations for the Ford Motors that can help the company to leverage its market position and sustain profitability:  Short term: - Minimize excess capital, try to reduce debts, cut inventories and reduce days of sales receivables. - Sell off undeforming assets to increase cash while weathering storm  Long term:
  46. 46. - 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. PAGE 45 - Adopt more aggressive version to current restructuring and cost improvement. - Continue high level of product development into alternative fuel technology. Emerging markets purchasing synergies. IMPLEMENTATION: 1. RESEARCH: Before designing a new model, the Ford motors should conduct a market research and survey to understand the customer preferences. Since the company is still under huge debts and has to come up again, it has to keep an eye on the market trends and needs because one wrong step can lead it to the deepest pit which the company is scared of. Instead of changing the models each year, they should bring out the quality and performance at the existing projects by improving the production operations of the company. The company should focus more on the designs of its products and come up with more diverse and efficient models. 2. INNOVATION: Japanese car makers are already providing small car and catering to the needs of the people in the segment. Fords main competitors in this market are Toyota, Honda and others. Who are offering products that are priced lower, carrying nice features and their performance is not under rated in any way. The C-car platforms at Ford require engineering the products that are innovative to gain the attraction of a large number of potential buyers.
  47. 47. PAGE 46 3. GREEN VEHICLES: Due to the increased emphasis by the government of the US and other countries in the production of eco-friendly cars and other vehicles, it has become extremely very important for every car maker to introduce the cars which are more fuel efficient and emit less smoke without causing harm to the environment. The Japanese Car maker, Honda, has introduced a new car called Honda Civic GX as a green car. The car has won the title of the greenest car of 2011 from the American Council for an Energy- Efficient Economy. Though Ford has also taken initiative of producing environmenta l friendly cars with the production of Ford Fiesta SFE (ranked at # 7 in the ACEE list), it is desirable that the company should introduce more eco-friendly cars in order to gain competitive advantage on this front as well. 4. MARKETING: Today it is an era of marketing. Only those who market them-self well is likely to succeed in this competitive market. Ford has won the marketer of the year award by highlight ing the features of the product instead of the tech gadgets installed in it. The Ford’s products are better than before with the newly devised strategies and promoted and marketed well by Mr. Farley, VP global marketing and sales. The sales are up 17% double the industry wide gain of 8.4%. We suggest that the company should continue with the current marketing strategies and the other promotional channels it is already into. They should also engage in aggressive marketing and promotional activities to attract the customers about the newly introduced products. Savvy marketing and re-defined focus can be a good sign for this iconic company. The company should link up with the TV sponsorships and engage
  48. 48. in the public relations activities to attract the general public about how concerned the PAGE 47 company is towards the social issues. 5. PRICE: The Ford’s small world cars are intended to sell in the developing markets and the other markets around the globe. These markets are highly price sensitive. The customers want excellent features, quality performance in the affordable prices, which is why there are various regional competitors in these markets to compete with the Ford with their products priced low. We suggest Ford motors to produce the cars which are better not only in the domains of features, performance, and fuel efficiency but also in the pricing of the car. The small cars concept can achieve its goals only if the cars are priced low with all the existing features of their products. Recommendations on goals and policies The following strategic recommendations are designed to address short run and long run problems facing the company. We believe that Ford faces three distinct challenges: 1) The need to minimize cash burn and bring costs down as quickly as possible in order to stay afloat in this difficult economy. Losses must be brought under control by 3Q 2009 or the company will face extremely difficult choices regarding its future. 2) The bailout of General Motors and Chrysler has placed Ford in a strategically Difficult position. While Ford is currently in a much better financial position than
  49. 49. GM or Chrysler, government funding of these competitors generates significant risk. A highly managed bankruptcy—such as the one being proposed for GM—may lead PAGE 48 To a significant GM cost advantage, thereby mitigating all of the progress Ford has Made in recent years. In addition, any bankruptcy or liquidation could seriously Disrupt Ford’s supply chain. 3) Ford must execute the ‘One Ford’ vision and continue to differentiate itself from its competitors even as the economic crisis unfolds. The failure of ‘One Ford’ or the Ford Fiesta model would be disastrous for the company. In recent years, Ford has Redeveloped a coherent corporate strategy. Ford has avoided the need for governme nt funding because of its timely financing and strategic pro-activeness. It is critical, however, to continue these positive trends with the end goal being global profitability and recapturing market share. Ford should not lose sight of the bigger picture while attempting to capitalize on GM and Chrysler’s current weakness. Recommendations on procedures for strategy review and evaluation What follows is a list of specific steps we believe the company should evaluate. We believe that Ford’s singular focus should be to take the necessary steps to allow short term surviva l while ensuring profitability is reached by 2010-2011. We believe that Ford’s manage me nt is on the right track, but recent progress is tentative and could easily degenerate given current market and industry conditions.
  50. 50. PAGE 49 Divest Volvo In order to be truly effective, the Volvo brand should have been more fully incorporated into Ford’s organizational structure and strategically differentiated from Ford’s other lines. Volvo has an excellent reputation, and targets upper middle class consumers looking for an ultra-safe luxury vehicle at a price point below Mercedes and BMW. Thus, Volvo had the potential to serve within Ford’s premium line of vehicles, existing at a price point comparable to Lincoln. As it stands right now, however, Volvo does not fit into the ‘One Ford’ strategy being pursued by the company and its losses continue unabated. Given current economic conditions, we believe that the sale of Volvo should be a high priority of Ford. If completed, this sale should bring in at least an additional five billion dollars’ worth of capital, which could either be kept as cash on hand or be used to buy back debt in a manner similar to the April 2009 restructuring. In addition to pursuing all available offers, we encourage Ford to specifically target Volvo Group, the Swedish parent company which sold Volvo Cars to Ford in 1999. Volvo Group continues to manufacture trucks, busses, construction equipment, and boats within Sweden. Ford, through the Volvo Cars subsidiary, accounts for 15,000 jobs in Sweden, and in December 2008 the Swedish government issued a $3.5 billion bailout of Volvo Cars and Saab. Thus, a precedent already exists for government intervention. We believe that Ford should leverage this and pressure the Swedish government to support the repurchase of Volvo Cars by Volvo Group. It is possible that the government would be willing to provide significant support for the deal, especially if the alternative is an extensive downsizing of Volvo Cars. While Volvo Group is not the most likely buyer at this time, it represents the
  51. 51. least long term strategic risk to Ford because it poses much less of a threat to Ford’s major markets than a sale to a low cost Chinese car manufacturer would. Volvo’s worldwide presence and brand reputation make it an attractive target for a car company seeking entry into the U.S. and the Euro Zone. There are a number of car companies desperate to gain such access, and two commonly rumored buyers of Volvo Cars are Chinese carmakers Greely Automotive and Chery Automotive. We believe that the market value of these companies—$435 million and $3.5 billion respectively—makes such an acquisit ion unlikely, however. Chang’an Motors—which operates Ford’s Chinese joint venture Chang’an Ford—has also been discussed as a potential buyer. Should any of these firms be able to procure the necessary funds, Ford should not hesitate to execute the sale of Volvo. While the use of Volvo as a beachhead for another low-cost competitor would be unfortunate, the fiduciary benefits in these uncertain economic times are undeniable and PAGE 50 outweigh these concerns. Factory and Supply Chain Management Ford should continue its aggressive push to close and idle factories, with an emphasis on those factories within the United States and the Euro Zone. In addition to executing these previously announced closures, we strongly believe that Ford must restructure its supply chain more quickly than previously anticipated. Ford currently has approximately 1,600 suppliers, and intends to reduce this number by 750. Current instability within the market, particularly the potential bankruptcy of a competitor, heightens the importance of this reduction and leads us to recommend deeper cuts in the number of suppliers Ford contracts with. Ford must examine all of its suppliers and identify those which are critical to the
  52. 52. supply chain. These companies should be prioritized above all others in the distribution of PAGE 51 contracts. Of particular importance is Visteon, with whom Ford conducted approximately four billion dollars’ worth of business in 2008. Initially vertically integrated within Ford, this subsidiary has faced difficult times since being spun off in 2000. Visteon was nearly forced to declare bankruptcy in 2005, because Ford purchased several nonperforming production centers from the company (these-called ACH plants which Ford has now nearly wound down). A disruption in production at Visteon, or other suppliers, is the Greatest short term threat posed at this time. Visteon’s UK subsidiary has already filed for bankruptcy, and the company does not currently have enough cash on hand to last through the year. Visteon has secured waivers from the SEC to continue operations through May 30th, but we believe bankruptcy is imminent after this date unless the government extends an additional line of credit to parts manufacturers. We strongly urge Ford management to make extensive preparations for Visteon’s failure. Viable alternative suppliers should be identified in case bankruptcy seriously undermines Visteon’s ability to fulfil contractual obligations. We are prepared to step in and undergo a complete evaluation of all 1,600 Suppliers and present recommendations for specific reallocations of contracts. With access to Ford’s proprietary data and through an evaluation of the sources of these companies’ contracts, we can ensure supply chain stability for Ford even in the direst of circumstances. Prepare for Liquidation of Chrysler and/or Bankruptcy of GM
  53. 53. Ford should prepare extensive plans for how to deal with bankruptcy of a major competitor. As of this writing, Chrysler has until April 30th to reach terms to be purchased by Fiat or the government has stated it will withhold further capital infusions, effectively forcing liquidation. The Fiat deal is predicated on Chrysler’s ability to gain major concessions from debt holders and the Union of Auto Workers. As the smallest of the Big Three, the company with the least government investment, and the least flexible debt situation, a liquidation of Chrysler seems likely to us at Oasis Consulting. We believe that the government may view this as the least harmful solution to the long term problems facing American car manufacturers. It would also ratchet up pressure on GM, which employs many more PAGE 52 American workers and has much greater government investment at this time. GM has until June 1st to prove financial solvency or it will be forced into bankruptcy Proceedings. As with Chrysler, the company must reach agreements with the UAW to cut labor and legacy costs and work with their creditors to restructure long term debt obligations. Of the two, the latter is more difficult. In order to achieve the necessar y restructuring, it is estimated that 90% of GM creditors would have to accept debt conversion of approximately ten cents on the dollar, with the balance given in GM stock. Government debt has less priority in bankruptcy proceedings than traditional debt, therefore it is in the government’s interest to avoid bankruptcy proceedings. Because the fate of Chrysler will have such a great impact on the future of General Motors, we do not believe it is appropriate to predict the fate of GM at this juncture. Regardless of whether GM does file for bankruptcy or not, Ford must ensure that GM in not explicitly or implic it ly made into a national champion. Part of Ford’s strategy moving forward must be to
  54. 54. extensively lobby both Congress and the American people. We believe Ford can demonstrate how providing too favorable conditions to GM will undermine the only healthy American manufacturer—Ford—and cause long term damage to the American auto industry. In the event of a GM bankruptcy, the most likely scenario being suggested is a quick process whereby GM is divided into healthy and unhealthy assets. The “good” GM would then emerge while the “bad” GM would be wound down. This plan represents an extraordinary amount of risk for Ford, because it would allow GM to significantly lower its cost structure and undercut Ford in the medium run. If this specific scenario does take place, we believe Ford may be forced to restructure under similar conditions or risk losing PAGE 53 market share in the long run. Until a decision regarding GM’s future is reached, Ford should continue extensively Marketing its vehicles to exploit the competitive advantage which has been created in GM’s dubious future. We specifically recommend taking advantage of the unease among consumers regarding the legitimacy of competitors’ warrantees. Small increases in U.S. market share have already been seen, and increased market share during this weak economy is a critical step towards lowering average total costs per vehicle. The bankruptcy or liquidation of either of these competitors would reverberate throughout Ford’s supply chain. While we do not doubt that the government will attempt to mitigate the impact of any Big Three failure of the industry suppliers, we fear that the sudden exit of many suppliers is inevitable. The risk of a complete industry failure resulting from such extensive supply line disruption is non-zero, and thus must be treated with the utmost seriousness. Product Differentiation
  55. 55. In addition to the short term recommendations highlighted above, we believe it is critical that Ford continue to prepare and execute long term growth strategies. Ford’s viabilit y hinges on its ability to successfully differentiate itself from its competitors, both through price and quality. We believe that the ‘One Ford’ vision currently being pursued is a sound and cogent strategy, but it does have its risks. First and foremost, we are concerned that the ‘One Ford’ strategy may be over-pursued. Regional product differentiation is necessary to ensure that products are sufficiently geared towards disparate global preferences. Secondly, while we recognize management was under significant pressure to effect change, Ford PAGE 54 should never again stake, so much of its future on one line of vehicles. The Ford Fiesta “World Car” will determine the future of Ford, and while early reactions and sales are positive Ford should create a high end equivalent to the Fiesta to capitalize on similar cost saving measures. We applaud Ford for its investment in fuel efficient technologies and its recent development of the Ford Fusion hybrid. Although Ford is a late arrival to the growing hybrid market, the company has succeeded in delivering a vehicle which is instantly competitive because of its quality and price. While Ford is still at a disadvantage compared to Toyota in this subsector, it has launched a lineup of vehicles that has a chance to redefine the competitive landscape. Based on recent reviews, we believe that Ford has significant ly improved vehicle design processes and factory quality control. This bodes extremely well for Ford’s long term success. Shift Production to Mexico and Eastern Europe
  56. 56. We believe there is no reason for Ford to continue producing the majority of its vehicles within two regions with extremely high labor costs: the United States and the Euro Zone. As can be seen in Chart Eight, the United States and the EU Zone account for the overwhelming majority of production. We believe that Ford should attempt in the long run to shift much of this production to Mexico and Eastern Europe, which offer the necessary PAGE 55 geographic proximity while having far lower labor and production costs. This strategy should take place slowly over several years in order to minimize the negative public relations and branding effects which may result. In particular, Ford must be wary of losing its perception as a thoroughly ‘American’ vehicle. The closure of nonperfor ming plants within North America from 2006-2008 has set the stage for any future growth to take place in Mexico. In Europe, we believe that this reallocation can occur more quickly and in a much more extensive manner because there is less risk of a consumer backlash. In 2007, Ford invested $88 million to acquire a car manufacturing plant owned by the Romanian government and has also announced plans to invest some $3 billion in manufacturing facilities in Mexico. We hope that these are the first steps in a broader shift in production towards lower cost locales. Expand Market Share in China and India The Chinese automobile market has experienced consistent growth in the past ten years, and 2008 industry sales surpassed the United States for the first time with nearly ten million vehicles sold. Ford currently holds agreements with Chang’an Automotive of China; through their joint venture Chang’an Ford the companies manufacture the Ford Focus,
  57. 57. Fiesta, and Mondeo lines. In 2008, this joint venture sold approximately 204,000 vehicles. As a result of a recent stimulus package passed by the government, Chinese demand for vehicles is expected to rise by nearly 20% in the year 2009. China is the only major market in which sales growth, let alone growth of this magnitude, is expected. Yet Ford currently holds only a meager two percentage points of market share in China. The Ford Fiesta is already experiencing strong sales in China, and we believe that this vehicle is the key to enhancing Ford’s market share. We believe that sales of the sedan and hatchback Fiesta models combined should surpass the100, 000 unit mark and significantly boost Ford’s overall 2009 China sales. Given the economic incentives provided by the Chinese government and GMs ongoing difficulties, we believe now is the opportune time for Ford to do a full push to steal market share in China and establish itself as the dominant American brand. While there is inherent risk to this strategy, we believe that a narrow window of opportunity exists for the company to overcome its poor start in the Chinese market. India is a much smaller market, with industry sales holding steady at two million over the past two years. After twelve years within the Indian market, Ford has little progress to show. Unlike China, Ford would need to make a significant capital investment in the Indian market if it wished to ramp up production. Monthly sales only recently exceeded 2000 units, and Ford only has dealerships in 78 Indian cities. Given the current economic uncertainties, we do not believe that Ford should invest significant capital in the Indian market at this time. Once the global economy has stabilized, however, we believe Ford PAGE 56 should revisit this question and seek to expand its operations in India. Financial Analysis
  58. 58. PAGE 57 Overview Ford is one of the largest automobile manufacturers in the world, with a current market cap of approximately $10.16 billion. The past five years have been particularly unkind to shareholders of American automakers, however, and the equity valuation of both General Motors and Ford Motor has fallen precipitously. Whereas Ford stock traded above $14.00 per share in February of 2005, it closed at $4.00 on April 17th, 2009. Ford experienced record losses in 2008, burning through cash on hand at an unprecedented rate. Ford will likely post continued losses through the 2009 fiscal year, and even optimistic estimates predict that the company will not return to the black until 2011. Profitability and Growth For financial year 2008, Ford reported a net income loss of 14.57 billion dollars ($6.41 per share). The Volvo brand, which Ford is rumored to be shopping, lost $736 million in the fourth quarter for a total yearly loss of $1.5 billion. South America and Europe were two bright spots on the balance sheet, but the fact remains that unless Ford can stop the hemorrhaging in North America it will not survive. The fundamental issue which Ford must address is its inability to manufacture small vehicles in the United States that can be sold for a profit. Ford has engaged in a strategic downsizing since 2004 within the United States, ceding Market share to rivals GM and Toyota. Ford management recognizes that the company still does not properly align with current demand, and has divested from many factories in the past five years. Currently, Ford (under the brands Ford, Lincoln, Mercury, and Volvo)
  59. 59. maintains about 15% of the U.S. domestic market share. In 2008, 13.2 million vehicles were sold overall in the United States; estimates for 2009 are far bleaker, with predictions typically ranging from 9 million to 12 million. From January-March 2009, sales were down PAGE 58 38.3% from the same time frame in the previous year. In 2008, the company sold approximately 5.4 million vehicles through over 13,000 dealerships worldwide. Ford’s market share in Europe is currently 10%, with an estimated 1.67 million sales. Strategically important countries within the region include Turkey and Russia, where Ford has achieved above average market penetration. Ford market share in Canada and Mexico hovers near 12%, while the market penetration in China and India remains extremely low (1.9% and 1.4% respectively, compared to 12% and 10% for General Motors). Liquidity and Solvency Barring a further deterioration in financial conditions, current estimates predict that Ford will remain solvent through 2009. The company entered 2009 with approximately fifteen billion dollars in cash on hand, and drew an additional ten billion dollars from its revolver in February. Credit Suisse estimates predict Ford will burn through 7 to 8 billion in cash in 2009; unless automobile sales deteriorate further, solvency should not be an issue for Ford in 2009. In late 2008, GM and Chrysler began negotiations with the government to act as a lender of last resort to prevent the sudden bankruptcy of the two companies. On December 19th, 2008, the automotive bailout was approved by President Bush and extended $17.4 billion worth of loans to the two automakers. Further loans were requested and approved in the
  60. 60. first quarter of 2009, however this money has come with stricter restrictions designed to force the companies to demonstrate “long term viability”. On March 30th, GM CEO Rick Wagoner was forced to resign as a stipulation attached to this additional short term financing provided by the U.S. government. Should Ford be forced to seek additional credit in 2009, an occurrence that we consider unlikely, it would likely be able to petition for and PAGE 59 receive government loans. We believe that Ford’s recent repurchase of debt (announced April 6th, 2009) was a very productive step towards ensuring long term financial security. This $9.9 billion debt reduction was achieved in $2.4 billion in cash and the issuance of an estimated 468 million shares of common stock. This restructuring at less than half of par significantly improves Ford’s balance sheet, and represents an estimated interest saving of 500 million in 2009 alone. 7.0. Financial Ratio Analysis (January 2008) Growth Rates % Ford Industry SP-500 Sales (Qtr vs year ago qtr) 9.40 9.40 9.00 Net Income (YTD vs YTD) NA 111.80 15.40 Net Income (Qtr vs year ago qtr) 51.00 616.60 0.90
  61. 61. PAGE 60 Sales (5-Year Annual Avg.) 1.23 6.84 13.05 Net Income (5-Year Annual Avg.) NA 8.54 19.88 Dividends (5-Year Annual Avg.) NA 18.86 10.03 Price Ratios Current P/E Ratio NA 10.8 22.9 P/E Ratio 5-Year High NA 8.4 22.7 P/E Ratio 5-Year Low NA 2.8 6.7 Price/Sales Ratio 0.08 0.60 2.49 Price/Book Value NA 1.50 3.53 Price/Cash Flow Ratio NA 5.90 10.40 Profit Margins Gross Margin NA 19.2 33.7 Pre-Tax Margin -2.2 7.2 17.5
  62. 62. PAGE 61 Net Profit Margin -1.4 3.9 12.4 5Yr Gross Margin (5-Year Avg.) 48.5 20.7 33.4 5Yr PreTax Margin (5-Year Avg.) -1.5 5.6 16.6 5Yr Net Profit Margin (5-Year Avg.) -1.0 3.6 11.5 Financial Condition Debt/Equity Ratio NA NA NA Current Ratio NA NA NA Quick Ratio NA NA NA Interest Coverage NA NA NA Leverage Ratio NA NA NA Book Value/Share NA NA NA Investment Returns % Return On Equity NA NA NA
  63. 63. PAGE 62 Return On Assets NA NA NA Return On Capital NA NA NA Return On Equity (5-Year Avg.) NA NA NA Return On Assets (5-Year Avg.) NA NA NA Return On Capital (5-Year Avg.) NA NA NA Management Efficiency Income/Employee NA NA NA Revenue/Employee NA NA NA Receivable Turnover NA NA NA Inventory Turnover NA NA NA Asset Turnover NA NA NA Adapted from www.moneycentral.msn.com
  64. 64. Date Avg. P/E Price/Sales Price/Book Net Profit Margin PAGE 63 (%) 12/07 -6.00 0.08 NA -1.6 12/06 -1.10 0.09 -4.09 -7.9 12/05 11.90 0.09 1.07 0.9 12/04 9.10 0.18 1.54 1.8 12/03 30.50 0.18 2.51 0.4 Date Book Value / Share Debt/Equity ROE (%) ROA (%) Interest Coverage 12/07 NA 0.00 NA NA NA 12/06 -$1.84 -49.65 364.5 -4.5 NA 12/05 $7.21 11.40 12.2 0.6 -0.2 12/04 $9.52 9.31 18.3 1.1 0.3 12/03 $6.36 15.44 5.5 0.2 NA
  65. 65. PAGE 64 www.moneycentral.msn.com Net Worth Analysis (January 2007 in millions) 1. Stockholders’ Equity + Goodwill = -3,469 + 5,839 $2,370 2. Net income x 5 = $-12,613 x 5= $ NA 3. Share price = $6.85/EPS -2.88 =$NA x Net Income $-12,613= $ NA 4. Number of Shares Outstanding x Share Price = 2,110x $6.85 = $ 14,453 Method Average $8,412 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.
  66. 66. 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 PAGE 65 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 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
  67. 67. company accrued profits, which has enabled them to gain competitive advantage in the PAGE 66 industry.

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