STRATEGIC FIT WITH THE INDUSTRY ENVIRONMENT ASSESSMENT 1STRA.docx

STRATEGIC FIT WITH THE INDUSTRY ENVIRONMENT
ASSESSMENT 1
ASSESSMENT5
Strategic Fit With the Industry Environment Assessment
Name:
Institution:
Submission Date:
ASSESSMENT
Executive Summary
Ford Motor Company uses a strategic structure that closely
monitors the needs of the business on different conditions of the
market. The company manufactures several products that are
intended to target a variety of consumers in the market.
However, the firm faces several competition from Toyota,
General Motors and others. Either way, the company has started
a One Ford slogan that pushes it through these economic crisis.
Competitive Analysis
The motor industry is characterized by a rapid increase in

innovation. These innovations are all fuelled by the rapid
increase in the changes of technology. First, the design of the
vehicles were based on “horseless carriages” that the people
were used to in those times (Polk & Co, n.d). However with the
rapid technological changes, new and fashionable designs are
being developed every day. Moreover, there is also the
advancement of technologies such as lean production, ERP and
others being utilized in the industry.
Every day, the needs of consumers change. Their tastes and
preferences are highly versatile which means that Ford
Company is always on its toes to try to come up with a new
model that will be liked by the consumers. Therefore, they need
to incorporate technology in the design of their automobiles
according to the consumers’ preferences and tastes.
Additionally, legal political factors are also evidenced in the
motor industry. Motor industries is viewed as an important
aspect in economy of a country. Thus the governments would
not want to lose this industry. As a result, the governments have
been known to pump cash in the industry to ensure that they
keep running.
The most intense competitive forces affecting Ford Company is
the high threat of substitutes. There are other substitute’s fuels
that consumers could easily switch to which will leave Ford at a
disadvantage. Secondly, consumers may also use alternative
means and modes of transport and finally, customer loyalty has
immense influence on consumers.
Strategic Position and Direction
Ford Company has garnered so much attention with its One Ford
campaign. Moreover, with the government interferences, the
company is doing so much better. However, their main issue is
the uncertainties in the economic direction of the globe. The
company uses differentiated strategy in order to target various
consumers. The companies produces economy cars, sports cars,
trucks and others (Ford Motor Company, 2015). The different
variety of products the company offers its consumers gives them
wider choices which attracts loyal customers.

The economic standards of countries keep changing as days go
by. Therefore, I would recommend that the company changes its
geographical scope. This will give them the opportunity to get
supplies from countries with cheaper raw materials and sell
their products to countries with disposable incomes.
Concerns and opportunities
If the company is able to advance and sell its One Ford policy
to the world, then there is a high chance that the company will
break even. Needless to say, the company has several
opportunities that if they closely monitor they are going to do
pretty well. First, the government provides subsidies to the
company which enables it to get itself out of financial crisis.
Second, the company has several loyal customers and there is
anticipating several other new clients. If they are able to tap
these opportunities, then they will be in a better position to
remain relevant and continue expanding globally.
Nonetheless, over the last few years, there has been a
continuous oil and fuel crisis in the world. This issue will result
in several consumers finding other means as the prices are
skyrocketing every awaking moment. In addition, the raw
materials prices continue increasing steadily which means they
will have a major crisis with the production of the cars. The
company has not come up with a specific way to address this
issue which could impact its strategic fit negatively.
Organizational Structure and Management Systems
Ford Motor Company seeks to structure its operations basing on
the market conditions of the regions they operate from. The
organizational structure and management system adopted by
Ford enables it to maintain a clear and stable international
direction. Therefore, if Ford utilized a diversified strategy they
will be in a position to increase revenue which means utilization
of resources which constitutes to growth. On the other hand if
the company used a vertical integration strategy, the company
will reduce its costs as they will manage their distribution

effectively.
To sum it all, there are several changes affecting the market
aspect of the company. The company is always coming up with
ways and ideas of ensuring that they remain on top of their
game. Some of these strategies incorporated include the One
Ford policy, the organizational structure that ensures that the
company learns what is trending and the effectiveness through
which the company exploits different geographic locations.
These strategic approaches ensure that the company maintains a
strategic fit when dealing with the consumers and suppliers.
References
Ford Motor Company. (2015). Governance and management
structures
R.L. Polk & Co. (n.d). Ford and the world automobile in 2012
Strategic Fit of the Firm Assessment

From: Stanley Thompson, Jr.
To: The Ford Strategy Vice President
Date: 12 June 2016
Ref: Analytical findings and strategic issues
Dear Sir/Madam
After going through the company's report for the past few years,
there are some analytical results and strategic issues that I want
to bring to your notice. The analysis that I have done focuses on
three major elements of the company and also opportunities
about how strategic elements fit the strategic frame. From the
analysis, I realized that had been some inconsistencies between
the firm's strategy and its goals a thing that has been the cause
of the company’s failure in the past. For example, the strategy
that the corporation was using before 2010 did not in any way
establish a direction as well does not set aspirations that are
supposed to motivate and inspire the employees so that they can
work towards achieving organizational goals. It is for this
reason that according to the number of years that the Ford
Company manufactured by countries and years, in almost all
countries apart from China, there was a reduction in production
comparing 2008 and 2010 production.
It is a great thing that over the years and especially since 2010,
the company has made a lot of internal improvement thanks to
the great strategy that you created, implemented and continues
to maintain to date. The reason is that the company has
employed different strategies that have helped in improving the
quality of vehicles being produced. Also, the policies have
assisted in cutting production cost hence enabling the company
to sell the quality motor vehicles at a much lower price than
before. The company has also improved the quality of staffs it
hires for the purpose of carrying out different activities. The
skilled and competent employees have helped the company to
remain innovative and competitive in the automotive industry.
I would also recommend that the company has significantly
improved on its organizational structure and culture. The reason
is that the current culture and structure allow the chain of

command to reign, discipline, focus and commitment by all
stakeholders. Hence, all parties concerned are bided together by
similar goals and objectives a thing that has helped in creating
similar interests. Again, the way the organizational structure is
presently set makes it possible for suit all tasks to their
relevantly skilled personnel hence promoting effectiveness and
efficiency. With all these elements in place, it is possible for
the Ford Motor Company to establish and sustain a competitive
advantage in the motor vehicle industry. Moreover, the current
strategies being applied grants a coherent to a decision
concerning the allocation of resources.
Though there have been few unethical dilemma cases that have
been reported from different branches around the world; the
good thing is that the situation has been handled on time and
efficiently. Importantly, the complaints from the shareholders
and stakeholders concerning the distribution of excess profits
have gradually declined. The reason is that the current strategy
allows a consistent balance between shareholders and
stakeholders interests. It is evident that the approach has
established cohesion among the shareholders and all other
interested parties and clear lines have been established. Hence,
every stakeholder knows his/her role at the company hence
promoting understanding and team spirit. It is only advisable
that the strategy since it has helped in attaining good and
desired results should only be improved for the better.
Thank you
Yours
1
Running head: STRATEGIC

Strategic Frame Assessment
Stanley Thompson
MBA 6024
29 May 2016
Executive Memo: Business and Corporate Strategies
Internal Memorandum
Date: May 22, 2015
To: Terri Bell, Executive Vice President – Strategy Relations
From: Anthony McConnell – Human Resource Manager
Subject: Findings from Preliminary Analysis of the
Organizations Strategy
Identification of business’s and corporate strategies is of great
importance to the overall transformation of the current project
in our organization. The project is about establishing an online
portal for selling and delivery of the firm’s commodities.
Through the availability of viable generic business and
corporate strategies, the project has prospects of scaling its
heights in terms of productivity in comparison to its

competitors. Part of the strategies includes competitive
advantage, cost leadership strategy, differentiation strategy as
well as focus strategy. Through the above interventions, the
firm through the project stands at a position of achieving utmost
profitability. The firm is competing in the market through
offering of commodities of good value. Similarly, lowering of
prices enhances attraction of the customers (Mennen, 2010).
For the purposes of supplying customer needs efficiently, the
firm has established differentiation strategy. For instance,
customers are now at a position of buying our commodities from
the online portal, which is subsequent to the delivery. This
strategy attracts customers since our operations are kind of
distinctive as in comparison to our competitors in the market.
Similarly, our firm practices globalization as an example of a
corporate strategy. Even though there is no single branch in an
oversea country, we classify the online portal as an example of
globalization strategy. Regardless of client location, after
buying the goods, it can be delivered either by means of road,
railways or at times through air for the oversea clients.
The firm’s business strategy is very effective by a look at the
past benefits. The strategy involves articulation to an effective
HR policies as well as promotion of teamwork in the firm
through sharing of ideas. Similarly, the firm also undertakes
various remuneration activities including rewarding of
employees on the various performances. In doing so, it is a
strategy that increases the likeness of the firm’s prosperity
(Dettmer, 2013). On the other end, the firm’s competitive plan
generally involves delivery of quality goods, in cheaper prices
as in comparison to their competitors. For the various business
units of the firm, the effective business strategy involves
practice of advertisements through various promotional portals.
Through promotions, there is the likeliness of the firm
strengthening its market position. Advertisements conform to
attraction of many customers. This thereby assists the firm in
gaining a competitive advantage in the market.
Advertising model still takes center stage as the business model

of the firm. With the heightening of radio stations as well as
television programs, promotion of our products conforms to
numerous profits made in the industry. For instance, the core
products include micro-powered solar systems that when fully
charged, are capable of running operations in relatively big
industries (Deb, 2014). Our customer value proposition is
‘Excellence and effective service’. It denotes to the
effectiveness of our products hence customer’s takes more
credit on our products. On the other end, our profit proposition
is ‘Denote to the poor children’. This kind of statements attracts
more customers since our organization does not only operate for
the purposes of profitability but also to give back to the
community.
The firm’s corporate strategy involves a precise elaboration on
the current stability of the firm, prospects of the firm in the
future as well as the set mechanisms on how to arrive at the
prospects. In our products, it involves production and sell of
effective and quality goods. The firm’s geographical location is
reasonable due to the ease in accessibility. Through our initial
vision statements, the firm has expanded in field operation
through the opening up of several branches in the country
(Mennen, 2010). The business and corporate strategy are clearly
outlined for the purposes of scaling the firm’s operations to new
heights.

References
Deb, T. (2014). Strategic approach to human resource
management: Concept, tools and application. New Delhi:
Atlantic.
Dettmer, H. W. (2013). Strategic navigation: A systems
approach to business strategy. Milwaukee, Wis: ASQ Quality
Press.
Mennen, M. (2010). An Analysis of Ryanair's Corporate
Strategy. München: GRIN Verlag GmbH.

Ford and the world
automobile industry
in 2012
www.foundationsofstrategy.com
At the beginning of 2012, the Chief Financial Offi cer of Ford
Motor Company, Lewis Booth,
was reviewing his fi nancial forecasts for 2012-16. Ford’s

turnaround since the crisis of
2007-8 had been remarkable. After a loss of $14.7 billion in
2008, Ford earned net profi ts
of $6.6 billion in 2010, and it looked as though Ford’s profi t
for 2011 would exceed this.
The recovery had been much more rapid than Booth had
expected. Ford’s business plan of
December 2008 projected that it would not break even until
2011.1 Booth attributed the
speed of the turnaround to three factors: fi rst government
measures in North America and
Europe to stimulate demand through incentives for scrapping
old cars and subsidies for
purchasing new, fuel-effi cient models; second, the recovery of
demand in several major
markets including China, India, Brazil and the US; third, Ford’s
own restructuring. The “One
Ford” transformation plan introduced in 2006 had closed plants,
cut Ford’s workforce from
295 000 at the beginning of 2006 to 148 000 at the end of 2011,
sold Jaguar, Land Rover
and Volvo and a large chunk of Mazda; integrated Ford’s global
activities; and accelerated
product development including an increasing emphasis on
smaller cars.
Despite these successes, Booth looked to the future with much
trepidation. Ford’s
performance over the next fi ve years would depend on three
main factors: Ford’s ability
to continuing success with its One Ford strategy, the state of the
world economy, and
developments in the global automobile industry. On the fi rst of
these, Booth had few
doubts. On the second, he realized that, for all the uncertainty,
there was little that Ford

could do other than closely monitor the unfolding economic
situation and be prepared
to adapt to unforeseeable events. On developments in the global
automobile industry,
Booth was perplexed.
The collapse in industry profi tability in 2007-9 and descent
into bankruptcy of General
Motors and Chrysler was not simply a consequence of the fi
nancial crisis. It also refl ected
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[I]nstead of natural selection, something else happened:
governments around
the world, from Canada and Brazil to Russia and South Korea,
stepped in with
prodigious amounts of cash to keep car plants open and
assembly lines running.
All told, automakers have benefi ted from well in excess of
$100 billion of direct
bail-out funds or indirect state aid . . . the biggest ever short-
term intervention in
manufacturing . . . (T)he money has prevented a necessary
shake-out in an industry
that has long had too many producers. Consultants at PwC
estimate the industry
has the capacity to build 86 million units this year, almost a
record—and 31 million
more than the 55 million vehicles that it will sell.2
the massive structural problems of the industry—most notably,
too many fi rms with too
much capacity chasing too little demand. The catastrophic
declines in industry revenues

and profi ts in 2008 promised a major industry restructuring.
Daimler’s CEO had predicted
that 2009 would be a “Darwinian year” for the auto industry.
Yet, the industry’s pre-crisis
structure survived almost intact. The Financial Times
commented:
Even before fi nancial crisis hit, the fi nancial performance of
the industry was dire:
between 1990 and 2008 the world’s fi ve biggest auto makers
(GM, Toyota, Ford, Daimler-
Chrysler and Volkswagen) had earned on average a net margin
of 1.1%; their return on
invested capital and together they had destroyed billions in
shareholder value. However,
despite the lack of exit or consolidation by the leading auto
makers, it was clear that
the structure of the industry was far from remaining static. The
shifting of demand from
the mature industrial nations to the growing markets of Asia,
Eastern Europe and Latin
America was accompanied by the emergence of new competitors
from these same
regions. Meanwhile, new technologies and environmental
concerns—including the
growing use of all-electric vehicles—wereredirecting the
industry’s development path.
Understanding how these diff erent forces would impact the
overall profi t potential of the
world automobile industry would be a key determinant of Ford’s
fi nancial performance
in the coming years.
Development of the world automobile industry3,4
The growth of demand and production

Vehicles powered by internal-combustion appeared in Europe
during the 1880s—Gottlieb
Daimler and Karl Benz were among the fi rst. By the end of the
19th century, hundreds of
small companies were producing automobiles both in Europe
and in America.
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During the 20th century the industry followed diff erent
development paths in

diff erent parts of the world. The U.S. auto industry grew
rapidly during 1910–28 and
1946–65 before reaching market saturation (see Figure 1).The
automobile industries of
Western Europe and Japan also experienced maturing of their
markets with production
peaking in 1989–90. In all the advanced industrial countries the
increased longevity of
cars dampened market demand (see Figure 2).
Despite declining output in the advanced industrialized
countries, the world
automobile industry has continued to grow (see Figure 3). This
growth has been the
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
1900 1905 1910 1915 1920 1925 1930 1935 1940 1945 1950
1955 1960 1965 1967 1970 1975 1980 1985 1990 1995 2000
2005 2008
Trucks and Buses 0 750 6,000 74,00 321,7 530,6 575,3 697,3
754,9 655,6 1,337 1,249 1,194 1,751 1,539 1,692 2,272 1,667

3,464 3,718 5,634 7,228 7,656 6,733
Passenger Vehicles 4,192 24,25 181,0 895,9 1,905 3,735 2,787
3,273 3,717 69,53 6,665 7,920 6,674 9,305 7,436 6,546 6,712
6,400 8,002 6,049 6,350 5,542 4,321 3,777
Passenger Vehicles Trucks and Buses
Figure 1 U.S. motor vehicle production, 1900–2008
Figure 2 Median age of passenger cars in the U.S.
Source: R. L. Polk & Co.
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Table 1 World motor vehicle production by countries and
regions
(% of world total)1
1960 1989 1994 2000 2005 2008 2010
U.S. 52.0 23.8 24.5 22.2 20.0 18.6 12.9
Western Europe 38.0 31.7 31.2 29.9 28.4 20.7 14.6
Central and E. Europe 2.0 4.8 4.3 4.6 5.4 9.5 7.7
Japan 1.0 18.2 21.2 17.7 17.0 16.7 12.6
Korea n.a. 1.8 4.6 5.0 5.3 5.5 5.6
China n.a. n.a. 2.7 3.5 5.7 13.3 24.0
World total (millions) 12.8 49.5 50.0 57.4 66.8 69.4 76.1

Note:
1 Motor vehicles include automobiles, trucks and buses.
Source: A. K. Binder (ed.), Ward’s Automotive Yearbook, 2011,
Wards Communications, Southfi eld MI, 2011.
result of growing output from the newly industrializing
countries—notably Korea, China,
Brazil, and India. (see Table 1). As a result, the proportion of
world output contributed by
the traditional production centers—the US, Western Europe, and
Japan—fell from 77% in
1994 to 40% in 2010 (see Table 2).
Figure 3 World motor vehicle production, 1965–2008
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World Total US & Canada as % of Total
AU: We have
deleted
repetition of
Table 1.
Plz check.
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Table 2 Leading automobile-producing countries (thousands of
cars;
excludes trucks)
1987 1990 1995 2000 2005 2008 2010
China n.a. n.a. 356 620 3118 6341 9494
Japan 7891 9948 7664 8363 9017 9916 8307
Germany 4604 4805 4360 5132 5350 5532 5552
Brazil 789 663 1312 1348 2009 2561 2828
Korea 793 987 1893 1881 2195 2436 2793
U.S. 7099 6077 6338 5542 4321 3777 27311
India n.a. n.a. 394 541 999 1507 2317
Spain 1403 1679 1959 2445 2098 2014 1951
France 3052 3295 3051 2883 3113 2144 1914
Mexico 266 346 710 1130 846 1217 1386
Russia2 1329 1260 834 967 1288 1469 1208
U.K. 1143 1296 1532 1641 1596 1448 1274

Czech Rep. n.a. n.a. 193 428 599 933 1070
Canada 810 1072 1339 1551 1356 1195 967
Poland 301 256 260 533 527 840 799
Italy 1701 1874 1422 1442 726 659 573
Notes:
1 The production data for the US do not include the large
volumes of pick-up trucks and SUVs produced by the
automobile companies but classed as trucks.
2 U.S.S.R. in 1987 and 1990.
Sources: Japan Automobile Manufacturers Association; Korean
Automobile Manufacturers Association; A. K. Binder (Ed.),
Ward’s Automotive Yearbook, 2011, Wards Communications,
Southfi eld MI, 2011.
e
f
The evolution of the automobile
The early years of the industry were characterized by
considerable uncertainty
over the design and technology of the motorcar. The fi rst
“horseless carriages” were
precisely that—they followed design features of existing horse-
drawn carriages and
buggies. Soon a bewildering variety of technologies were
competing. The internal-
combustion engine vied with the steam propulsion and electric
motors. Transmission

systems, steering systems and brakes all displayed a remarkable
range of technologies
and designs.
Over the years, technologies and designs converged. The Ford
Model T with its front-
mounted, water-cooled, four-cylinder engine represented the fi
rst “dominant design”
in automobiles. Convergence continued throughout the
twentieth century with the
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elimination of most distinctively diff erent technologies and
designs. Air-cooled engines,
such as those of the VW Beetle disappeared along with
Citroen’s distinctive suspension
systems. Power trains standardized around four cylinders, in-
line engines, with V-6
and V-8 confi gurations for larger cars. Front-wheel drive
became standard on smaller
cars; suspension, steering, braking systems and body shapes
became more similar.
Technological progress was incremental: new materials, new
safety features, multi-valve
cylinders, and applications of electronics such as traction
control systems, electronic fuel
injection, variable suspension, satellite navigation systems, and
intelligent monitoring
systems.
Convergence also occurred across countries. The distinctive diff
erences that once
distinguished American, French and Japanese cars largely
disappeared—partly due

to the manufacturers’ promotion of global models. The same
market segments are
present in diff erent countries, though the sizes of these
segments vary greatly across
countries.In the U.S., “mid-size” family sedans, SUVs, and
pickup trucks are the largest
segments; in Europe and Asia, small family cars
(“subcompacts”) formed the largest
market segment.
This trend toward design convergence and piecemeal innovation
was interrupted
by the introduction of electric powered cars. This was hardly a
disruptive technology:
the fi rst electrically-powered cars and buses were in use at the
beginning of the 20th
century—in 1900, 28% of all automobiles produced in the U.S.
were all electric. Their
reintroduction was incremental: in 1997 both Toyota and Audi
introduced mass-
produced hybrid cars—100 years after Ferdinand Porsche had
developed the fi rst
hybrid car in which an internal combustion engine powered an
electric motor. The
launch of highway-capable, mass-produced, all-electric cars was
much anticipated
but long delayed—despite the well established markets for
neighborhood electric
vehicles (NEVs)—golf carts, maintenance vehicles, and site-
transport vehicles. At the
beginning of 2012, all the leading vehicle manufacturers had
all-electric models in
development, but the only mass-marketed all-electric, plug-in
cars were the Nissan
Leaf and the Mitsubishi iMiEVs.

Changes in manufacturing technology
At the beginning of the twentieth century, car manufacture, like
carriage-making, was
a craft industry. Few companies produced more than a 1000
automobiles annually.
When Henry Ford began production in 1903, he used a similar
approach. His vision of
an aff ordable, mass-produced automobile required the
development of more precise
machine tools that would permit interchangeable parts. In 1913,
he instituted his new
system of production. Components were produced either in
batches or continuously and
were then assembled on moving assembly lines by semi-skilled
workers. The productivity
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gains were enormous. In 1912 it took 23 man-hours to assemble
a Model T; just 14 months
later it took just 4 hours.
Toyota’s “lean production” was the second major revolution in
process technology.
Toyota developed its system in postwar Japan where shortages
of key materials
encouraged extreme parsimony and avoidance of inventories and
waste. Lean production
combined statistical process control, just-in-time scheduling,
quality circles, teamwork
and fl exible production (multiple models were manufactured on
a single production
line). During the 1980s and 1990s all the world’s car
manufacturers redesigned their
manufacturing processes to incorporate aspects of Toyota’s lean
production.
Flexible, lean plants reduced the importance of scale economies
in assembly. Minimum
effi cient scale once required plants producing over 400 000
units a year. After 1990, most
new assembly plants had capacities of between 150 000 and 300
000 units per annum.
However, scale economies remained important in components
and subassemblies: the
minimum effi cient scale for an engine plant was around 1
million units annually.

New product development
The increasing complexity of new cars in terms of electronics,
and new safety and
environmental standards caused the cost of developing new
models to rise steeply.
Taking an entirely new, mass-production model from drawing
board to production
line typically cost more than $2 billion. Ford’s
Mondeo/Contour—its fi rst global
model—launched in 1994 cost a total of $6 billion (including
tooling). The need to
amortize huge development costs over large numbers of vehicles
was the primary
driver of consolidation in the industry. Small automakers had
the choice of merging
with bigger rivals or seeking niche positions. Geographically-
focused manufacturers
such as Tofas of Turkey and Proton of Malaysia licensed
designs from the global auto
makers. The tiny Morgan company survived by making the same
hand-crafted sports
car that it had designed in the late 1930s. The quest to
economize on new product
development costs also encouraged a variety of strategic
alliances and joint ventures
among the auto makers.
To economize on new product development costs, a major trend
in the industry
was to use a single platform for multiple models. A “platform”
comprised a vehicle’s
architecture including its fl oorpan, suspension system and
layout of powertrain and major
components. While the major car makers widened their model
ranges, they increasingly

based these around a few platforms—typically between four and
six. Similarly with
major components: in engines, Ford moved to three engine
families: V-8/V-10, V-6 and
I-4 (four in-line cylinders). The I-4 engine had over 100
variations, an annual volume of
1.5 million,and was built at three diff erent plants—one in
North America, one in Europe
and one in Japan.
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The world auto industry in 2012
The manufacturers
The ranks of the leading producers were dominated by U.S.,
Japanese, and Western European
companies—plus Hyundai of Korea (see Table 3). All were
multinational: Toyota, GM and
Ford each produced more vehicles outside their home countries
than within. Compared
with comparable industries—aircraft, motorcycles, or
construction equipment—the
auto industry remained fragmented—in 2010 there were 18
manufacturers with annual
output exceeding 1 million vehicles and the 3-fi rm
concentration ratio (measured by units
of production) was 31.5%. Despite the many mergers and
acquisitions (see Table 4), the
industry’s consolidation was limited to the emergence of new
competitors (from China
and India especially). The crisis of 2008–9 resulted in several
divestments, but only one
major merger: between Fiat and Chrysler.

Table 3 The world’s leading auto manufacturers
1992 1996 2002 2005 2007 2010
GM U.S. 6764 8176 8326 9200* 9350 8476
Toyota Japan 4249 4794 6626 7974* 8534 8557
Volkswagen Germany 3286 3977 5017 5243* 6268 7341
Ford U.S. 5742 6611 6729 6818* 6248 4988
Daimler Germany 605 993
4456 4829* 4635
1940
Chrysler U.S. 2476 2958 1578
Hyundaia S. Korea 874 1402 2642 2534* 3987 5765
Honda Japan 1762 2021 2988 3391* 3912 3643
Peugeot France 2437 1975 3262 3375 3457 2605
Nissan Japan 2963 2712 2719 3569* 3431 3982
Fiat Italy 1800 2545 2191 1708* 2679 2410
Renaultb France 1929 1755 2329 2533* 2669 2716
Suzuki Japan 888 1387 1704 2630 2596 2893
BMW Germany 598 641 1091 1328* 1542 1481
Mitsubishi Japan 1599 1452 1821 1381 1412 1174

Mazda Japan 1248 984 1044 1149* 1287 1308
Daihatsu Japan 610 691 n.a. 909 856 — c
Chang’an Automobile China n.a. n.a. n.a. n.a. n.a. 1103
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Tata India n.a. n.a. n.a. n.a. 588 1011

FAW China n.a. n.a. n.a. n.a. 691 896
Geely China n.a n.a n.a n.a n.a 802
Fuji Japan 648 525 542 571 585 650
Dongfen Motor China n.a n.a n.a n.a n.a 650
Notes:
n.a. = not available.
*Sales data.
a Including Kia.
b Including Dacia and Samsung.
c Included in Toyota
Source: Ward’s Automotive Yearbook; Wikipedia
Table 4 Mergers and acquisitions among automobile
manufacturers,
1986–2011
Year Acquirer Target Notes
2010 Geely (China) Volvo (Sweden) Sold by Ford for $1.3 bn.
Spyker Cars (Neth.) Saab Auto (Sweden) Sold by GM for $1bn.
2009 Volkswagen (Germany) Suzuki (Japan) Acquires 20%
stake
Fiat (Italy) Chrysler (U.S.) Acquires 35% stake, later

increased to 58%
Volkswagen Porsche (Germany) Acquires 49%
Beijing Auto (China) Fujian Motor; Changfeng
Motor (China)
2008 Tata (India) Jaguar Cars, Land Rover (U.K.) Sold by Ford
SAIC Motor Group (China) Nanjing Automobile (China) SAIC
combines MG and Rover
brands
2005 Nanjing Automobile Rover (U.K.)
Toyota (Japan) Fuji Heavy Industries (Japan) Acquired 8.7%
stake from GM
2002 GM (U.S.) Daewoo (S. Korea) 42% of equity acquired
2000 Renault (France) Samsung Motors (S. Korea) 70% of
equity acquired
GM Fiat 20% of equity acquired
DaimlerChrysler (Germany) Hyundai (S. Korea) 10% of equity
acquired
DaimlerChrysler Mitsubishi Motors (Japan) 34% of equity
acquired
1999 Renault (France) Nissan (Japan) 38.6% of equity acquired
Ford (U.S.) Volvo Acquires car business only
Ford Land Rover Acquired from BMW

Toyota Daihatsu 51% stake acquired
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1998 Daimler Benz (Germany) Chrysler Biggest auto merger
ever
VW (Germany) Rolls Royce Motors (U.K.) Acquired from
Vickers plc
Hyundai (South Korea) Kia (S. Korea)
Daewoo (South Korea) Ssangyong Motor (South
Korea)
Daewoo (South Korea) Samsung Motor (South
Korea)
1997 Proton (Malaysia) Lotus (U.K.)
BMW (Germany) Rover (U.K.)
1996 Daewoo (South Korea) FSO (Poland)
Daewoo (South Korea) FS Lublin (Poland)
Ford (U.S.) Mazda (Japan) Increases stake from 25% to 33%
1995 Fiat (Italy) FSM (Poland)
1994 Daewoo (S. Korea) Oltcit/Rodae (Romania)
1991 Volkswagen Skoda (Czech Rep.) 31% stake later increased
to

100%
1990 GM Saab-Scandia (Sweden) 50% of equity acquired
Ford Jaguar
1987 Ford Aston Martin (U.K.)
Chrysler Lamborghini (Italy)
1986 Volkswagen Seat (Spain)
Source: Newspaper reports (various).
Outsourcing and the role of suppliers
Henry Ford’s system of mass production was supported by
intensive backward
integration. At Ford’s giant River Rouge plant, iron ore entered
at one end, Model
Ts emerged at the other. Ford even owned rubber plantations in
the Amazon basin.
Since 1980, the quest for lower costs and increased fl exibility
has resulted in massive
outsourcing of materials, components, and services. At the end
of the 1990s GM and Ford
both spun off their component businesses as separate
companies: Delphi and Visteon,
respectively. Relationships with suppliers also changed. The
Japanese model of close,
collaborative long-term relationships with their “fi rst-tier”
suppliers has displaced the U.S.
model of contract-based, arm’s-length relationships. The new
system has resulted in the
component companies gaining increased responsibility for
technological development—
especially for sophisticated subassemblies such as

transmissions, braking systems, and
electrical and electronic equipment. The component producers
have also grown in size
and global reach. Bosch, Denso, Johnson Controls and Delphi
are as big as some of the
larger automobile companies (see Table 5).
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The quest for cost reduction
Strong competition pressured companies to seek cost reduction

through several sources:
� Economies of scale were critically important in research,
component production,
and product development. According to Sergio Marchionne, the
CEO of Fiat and
Chrysler, effi ciency for a global auto producer required
producing at least fi ve
million cars a year: companies producing less would struggle to
survive.4
� Economies of scope. Many cost economies could be
exploited across diff erent
models. Investments in technology, dealerships, and marketing
could be applied
across all models—indeed, the use of common components and
platforms
meant that economies of scope were often converted into
economies of scale.
By 2012, all the leading auto makers had models ranges that
covered almost
every product segment from luxury cars to mini-cars—including
SUVs. However,
Ford had narrowed its product range by selling its Jaguar, Land
Rover, and Volvo
subsidiaries.
� Worldwide outsourcing. Outsourcing has grown from
individual components to
major subassemblies (such as engines and steering systems)—
even to complete
Table 5 Revenues and profi tability of the biggest automotive
component
suppliers

Revenues ($ billion) ROA (%) ROE (%)
1994 2000 2008 2010 2010 2010
Robert Bosch (Germany) 19.6 29.1 58.5 62.6 5.0 8.6
Denso Corp. (Japan) 11 18.2 40.3 36.6 4.6 5.2
Johnson Controls (U.S.) 7.1 17.2 35.9 34.3 4.3 14.8
Aisin Seiki (Japan) 7.3 8.9 27.1 26.4 3.1 7.1
Magna International
(Canada)
n.a. 10.5 23.7 24.1 4.0 12.9
TRW Automotive
Holdings (U.S.)
n.a. n.a. n.a. 14.1 9.0 40.4
Delphi Automotive (U.S.) n.a. 29.1 18.1 13.8 5.7 n.a.
Eaton (U.S.) 4.4 8.3 15.4 13.7 6.6 12.6
Valeo SA (France) 3.8 8.9 11.4 13.2 4.9 25.5
Lear Corp (U.S.) 3.1 14.1 13.6 12.0 6.6 17.8
Note:
Sources: Financial Times, Fortune.
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cars (including design and engineering). An important source of
cost savings from
outsourcing derives from component suppliers’ lower wages and
benefi ts compared
to the auto assemblers.
� Just-in-time scheduling, a key element of lean production,
permitting radical
reductions in inventories and work-in-progress.
� Off -shoring. Geographical shifts in production were partly
the result of automakers
seeking lower cost manufacturing locations; Toyota moved
production from Japan
to lower cost locations in Southeast Asia; Volkswagen from
Germany to central and
eastern Europe.
� Collaboration. Collaborative arrangements included joint-
venture plants,
technology alliances, component supply agreements and joint
marketing
agreements. In emerging market countries, most new auto plants
were joint
ventures between local and overseas companies. These
arrangements economized
on the costs of developing new technologies and new products,
and accessing
overseas markets. Ford’s network of alliances (see Figure 4) are
typical of linkages
among the automobile companies.
Figure 4 Ford’s alliances with other automakers
FORD

BMW
Supplies of parts to one
another. Ford Malaysia
assembles BMW cars.
Collaboration on
Hydrogen research
CHONGQING
CHANGAN
Joint venture to
assemble Ford v
Vehicles in China
CHRYSLER
Joint research into
Emissions and electric
vehicle technology
DAIMLER
Joint research
into fuel cells
FIAT
Iveco Ford Truck Ltd
is a UK truck making
Joint venture
FIRST AUTO WORKS
A joint venture with Volvo to
produce engines in China
GENERAL MOTORS

Joint venture to produce
transmissions
MARUTI
Joint venture to
produce components
in India
MAZDA
Equity stake cut to 13%.
Shared technology,
designs & components.
Several JVs.
PEUGEOT
Partnering in
diesel engines
TATA
Purchase of Jaguar
& Land Rover linked to
cooperation on
technology
and components
TOYOTA
Patent cross-licensing
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Despite constant cost-cutting, the major automakers were unable
to rival low cost
producers in China, India, and elsewhere. Tata Motors’ 2009
launch of its Nano model—
four-seater, 623cc city car, with fuel cosumption of 70 miles per
gallon and priced at
a mere $2200—was a major shock to the multinational
automakers. However, the
subsequent diffi culties that the Nano encountered in terms of
production, safety and
market acceptance point to the sheer complexity of the bringing
an innovative new
model to market and the challenges facing emerging market
automakers in rivaling the

experience and expertise of the established giants.5
Excess capacity
The greatest structural problem of the industry was excess
capacity. Ever since the early
1980s, the growth of production capacity had outstripped the
growth in the demand
for cars. Import restrictions had exacerbated the problem.
During the 1980s and early
1990s, North American production capacity grew substantially
as a result of Japanese
companies building greenfi eld “transplants.” Further big
additions to world production
capacity resulted from the expansion of the Korean car industry
during 1992–7. Since
2000, the main additions to capacity were in Eastern Europe,
Asia and Latin America
where all the world’s leading automakers rushed to build new
plants to serve growing
demand. The biggest overhangs of excess capacity were in
North America and Europe
(see Table 6), but even in China, where demand grew by almost
50% annually between
2002 and 2011, growth of capacity outstripped growth in
demand. Looking ahead,
the prospects of reducing excess capacity were limited by, fi rst,
the resistance by
national governments to plant closures; second, continuing
investment in new plants
in emerging market countries—in China capacity utilization was
forecast to fall to 66%
by 2016.
Table 6 Automobile production capacity utilization
2008 2009 2010

North America 79% 44% 65%
South America 82% 62% 75%
Europe 84% 65% 68%
Japan and Korea 86% 72% 78%
South Asia 89% 83% 81%
Source: Various press and consulting fi rm reports.
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Internationalization
International expansion was driven primarily by the auto
makers’ desire to access
growing markets; to exploit scale economies in purchasing,
technology, and new product
development; and to seek low-cost manufacturing locations (see
Table 6). Although
Ford and General Motors began their international expansion
back in the 1920s, until
the 1970s the world auto industry was made up of separate
national markets where
each national market was dominated by indigenous producers.
The global strategies of
the Japanese automakers changed all that. After 1980, the main
strategic priority of all
the world’s major auto companies was to build aglobal presence
through acquisition,
alliance and joint venture. As a result of internationalization,
the dominance of national
champions was undermined (see Table 7).

Table 7 Hourly compensation for motor vehicle workers (U.S.$
per hour,
including benefi ts)
1975 1984 1994 2004 2006 2009*
Germany 7.9 11.9 34.7 44.0 45.9 46.5
U.S. 9.6 19.0 27.0 33.9 35.1 33.5
U.K. 4.1 7.4 16.0 29.4 30.0 30.8
France 5.1 8.2 18.8 26.3 29.4 40.1
Japan 3.6 7.9 25.9 27.4 27.8 30.4
Spain 3.7 5.3 15.4 21.5 24.2 27.7
Korea 0.5 1.7 7.8 15.8 19.0 14.2
Italy 5.2 8.0 16.3 21.7 18.6 35.0
Mexico 2.9 2.6 3.0 3.5 3.7 5.4
Note: The 2009 data relates to all manufacturing industry; the
data for earlier years refers to motor vehicle manufacture only.
Source: U.S. Department of Labor, Bureau of Labor Statistics.
Table 8 Automobile market shares in individual countries (%)
1988 2006 2010 1988 2006 2010
U.S.* U.K.
GM 36.3 23.5 19.1 Ford 26.3 18.5 15.8

Ford 21.7 16.7 16.5 GM (Vauxhall) 13.7 12.7 12.8
Chrysler 11.3 8.8 9.3 Peugeot 8.7 10.0 8.8
Toyota 6.9 13.9 15.3 VW/Audi 5.9 12.9 16.0
Honda 6.2 8.8 10.7 BMW (& Rover) 15.0 4.6 6.9
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FRANCE JAPAN
Renault 29.1 24.8 22.1 Toyota 43.9 40.4 34.4
Peugeot 34.2 28.2 32.4 Nissan 23.2 14.0 12.8
VW 9.2 11.6 11.0 Honda 10.8 12.2 14.2
Ford 7.1 6.0 5.1 Suzuki n.a. 12.1 11.4
ITALY KOREA
Fiat 59.9 28.5 30.1 Hyundai 55.9 50.0 37.6
VW/Audi 11.7 10.8 11.6 Kia 25.0 23.3 28.2
Ford 3.7 7.8 9.1 Daewoo 19.1 10.0 22.7
Peugeot n.a. 9.6 10.3 CHINA
Renault 7.1 6.4 Shanghai GM 10.4
GERMANY Shanghai VW 9.7
VW/Audi 28.3 27.8 35.1 FAW Volkswagen 8.9
GM (Opel) 16.1 9.7 8.9 Beijing Hyundai 6.1
Ford 10.1 8.0 6.8 Dongfeng PSA 6.0
Daimler 9.2 11.3 10.6 BYD 5.5
Chery 5.1
Notes:
* The market share data is for passenger cars only with the

exception of the U.S. which is for cars and light trucks.
Sources: Japan Automobile Manufacturers Association; Korean
Automobile Manufacturers Association; A. K. Binder (Ed.),
Ward’s Automotive Yearbook, 2009, Wards Communications,
Southfi eld MI, 2009.
Outlook for the future
As he reviewed the forces likely to impact the world automobile
industry during the next
fi ve years, he found it diffi cult to assess their combined
impact of these forces on the
overall intensity of competition in the industry.
While Ford had forecasts for demand growth in all the major
markets of the world,
even if the more optimistic boundaries of these forecasts were
achieved, market growth
would not translate into adequate profi t margins if the chronic
overhang of excess
capacity remained. In the mature industrialized countries there
seemed little prospect
that either market growth or that plant closures would eliminate
the overhang of excess
capacity. Indeed, the growth in alternative transport modes—
included shared car
ownership—pointed to the possibility of decline in private
automobile use. In the newly
industrializing countries—especially Asia and Latin America
where Ford had pinned most
of its hopes—the indications were that capacity expansion
would outstrip sales growth.

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The international aspirations of leading emerging markets
producers suggested that
the established auto makers would be facing more intense
competition. Tata Motor’s
acquisitions of Jaguar and Land Rover, Geely’s of Volvo and
SAIC’s of the MG and Rover
brands provides these fi rms with international platforms from
which to compete.
The introduction of all-electric cars, while off ering the
prospects for new demand,
might also be an opportunity for newcomers to muscle-in on the
market domains of
the major auto makers. Despite the tiny market share of hybrid
and all-electric vehicles,
environmental concerns, environmental regulation, and
depleting oil reserves pointed
to their potential to increasingly displace conventional
automobiles. Despite heavy
investments by most of the leading car makers in both hybrid
and all-electric autos,
leaders in electrical vehicles included Magna International, the
Canadian auto parts
producer, Tesla, a Californian start-up producers of luxury
electrical cars, Smiths Electrical
vehicles in electrically-powered trucks, BYD Auto the leading
Chinese producer of hybrid
and electric cars, and Think Global the Norwegian producer of
electric cars owned by the
Russian fi rm, Electric Mobility

Solution
s.
Despite the gloom that pervaded many experts’ outlook on the
auto sector, Booth
saw several rays of light. He had noted the success—in terms of
both sales and profi t
margins—of several small cars, notably the BMW Mini and Fiat
Cinquecento. It appeared
that customer preferences—even in the US—were shifting with
a greater interest in
fuel economy, safety, and aesthetics. After a long period when
diff erent manufacturers’
mass market models had been becoming increasingly similar,
the future might off er
greater potential for diff erentiation, including mass-
customization that the car makers
had hardly begun to exploit;cars ºhad been e auto form’s belief
in the superiority of the
internal combustion engine.
Underlying these opportunities were new approaches to product

development—
including virtual prototyping, modular design and collaborative
design and
development—which had the potential to overturn conventional
relationships between
scale and cost competitiveness within the industry.
Appendix
Table 9 Company sales ($ billion)
1980–4a 1985–9a 1990–4a 1995–9a 2000-4a 2005-9 a 2010
Toyota 18 42 82 107 125 205 222
VW 16 28 48 64 96 143 168
GM 68 110 128 169 186 167 135
Ford 42 77 96 149 166 155 129
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Table 10 Company profi tability (return on equity, %)
1980–4a 1985–9a 1990–4a 1995–9a 2000–4 2005–9 2010
Toyota 12.6 10.6 6.1 6.8 10.1 7.0 2.1
VW 1.6 6.3 (0.4) 11.1 6.8 5.5 25.0
GMb 11.4 11.8 3.2 27.5 11.7 (10.5) 17.1
Ford 0.4 21.8 5.9 35.4 (7.7) (10.4)
Daimler 24.3 18.3 6.9 22.1 7.7 4.8 14.9
Honda 18.1 11.8 5.3 15.1 13.2 8.0 6.6

Nissan 10.3 4.7 3.6 (0.1) 29.3 7.4 10.3
Hyundai
Motor
n.a. n.a. n.a. 4.4 10.6 12.0 20.0
BMW 14.8 10.4 9.7 (4.0) 15.4 10.8 22.1
Peugeot (15.2) 36.7 12.5 3.0 13.4 (1.4) 9.1
Mitsubishi 10.0 7.9 4.8 (5.3) (113.3) (12.7) 6.5
Renault (152.4) 51.1 9.1 11.0 14.7 14.4 18.3
Fiat 10.9 18.7 6.8 7.6 (24.2) 9.9 15.2
Mazda n.a. 4.8 5.0 6.3 (34.2) 9.6 (18.4)
a Annual average.
b GM made a net loss of $2billion in 2006, $39 billion in 2007
and $31 bn. in 2008.

n.c. = not calculable (shareholders’ equity negative).
Source: Company fi nancial statements; Hoovers.
Daimlerb 12 34 59 71 166 153 129
Honda 8 18 35 50 62 94 104
Nissan 16 26 51 57 58 90 102
Hyundai Motor n.a. n.a. n.a. 18 38 70 97
BMW 5 10 21 34 45 70 80
Peugeot 13 19 28 35 58 73 74
Mitsubishi 12 14 25 32 27 43 61
Renault 15 31 31 37 44 52 52
Fiat 18 27 42 50 59 72 47
Mazda n.a. 12 21 18 19 27 27

a Annual average.
b Daimler Chrysler 2000–6.
Source: Company Financial Statements; Hoovers.
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Notes
1 Ford Motor Company, Business Plan Submitted to the Senate

Banking Committee,
December 2, 2008.
2 “U.S. Car Industry: Back on the Road, “ Financial Times,
June 17, 2009.
3 Automobiles (passenger motor cars) used to transport people
are normally
distinguished from commercial vehicles (trucks) used to
transport goods. However,
in the US, sport-utility vehicles and pick-up trucks (classed as
light trucks) are used
primarily for personal transportation. Ideally we would like to
defi ne the automobile
industry as comprising automobiles and light trucks (small vans,
pick-up trucks, SUVs,
passenger vans), but excluding heavy trucks and large buses.
However, most of the
statistics we use, “automobiles” exclude light trucks, while
“motor vehicles comprise
automobiles and and all trucks and buses.
4 “Fiat’s Marchionne sees auto-industry consolidation”
MarketWatch, Sept. 9, 2011.
http://w w w.market watch.com/stor y/fiats-marchionne -sees-

auto -industr y-
consolidation-2011-09-09
5 “Tata’s Nano: Stuck in low gear,” The Economist, August 20,
2011.
PM29/02/12 4:27 PM

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