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ABSTRACT The following paper offers a comparison and contrast of two of the worlds largest automobile manufacturers, Ford

and Honda. Both companies have experienced similar successes in the hybrid vehicle market; additionally they are similar in size, and in revenues. Honda Motor Company, a Japanese company, has its largest customer base is in the U.S., alternatively Ford Motor Company, an American company, has its largest customer base is in Asia. A SWOT analysis has been performed for each company and the paper closes with strategy suggestions for Ford and for Honda.

INTRODUCTION Although both companies market themselves differently, Ford and Honda are relatively similar in size and earnings. Together these two companies are at the forefront of the introduction of hybrid vehicles to the American public though each company has its own individual strengths that have allowed it to succeed in the current economic climate and also specific weaknesses that have affected their abilities to grow as vigorously as it should. COMPARING AND CONTRASTING FORD AND HONDA A comparison of Ford Motor Companys most recent Form 10-K, filed February 25th 2010 for the fiscal period ending December 31st 2009, and Honda Motor

Companys most recent Form 20-F, filed June 24th 2010 for the fiscal period ending March 31st 2010, indicates that Ford sells about 20% of their vehicles in its local market while Honda sells about 30% of its vehicles in Asia. Fords largest market is now in the Asia/Pacific region, representing an increase over time from equal sales in this market and the U.S. market in 2005, to sales of almost 2.5 to 1 in 2009. Meanwhile, Hondas sale of automobiles in the U.S. in 2009 of less than 1 to 1 represents a decrease from when sales in the U.S. were greater than 1 to 1 over Asia. Additionally, while Ford has consistently produced more autos for sale in Europe than they do in the U.S., and that number has been increasing over the past five years, Hondas sales in this market have decreased in recent years from 30% to less than 15%. This indicates that while Ford has extended its global reach into the Asia/Pacific region and Europe, Hondas reach into the U.S. and Europe has substantially diminished. It should be noted as well that while Ford sales in South America are presented in their filings, Honda does not separate this data in their filings and includes it with other markets. While both companies manufacture both cars and trucks, Fords total market share in the U.S. in 2009 was 15.3% while Hondas was 10.8%, reflecting that while Honda may sell more cars to U.S. consumers with a 6.5% market share compared to Fords 5.5%, Ford sells considerably more trucks with a 9.8% market share compared to Hondas

4.3%. According to these same annual reports both companies generally own their manufacturing facilities. Honda, based in Tokyo, currently maintains automobile manufacturing facilities locally and in the U.S. as well as in 11 other countries, while Ford, based in Dearborn, Michigan, maintains manufacturing facilities locally and in over 25 other countries but does not manufacture in Japan. Both supply an extensive network of dealerships numbering in the thousands worldwide. Immediately prior to submitting these annual reports, Ford had 3,297,413,605 outstanding shares of common stock trading at about $6.00/share on the New York Stock exchange, while Honda had only about one half the shares 1,814,602,736, although their stock was trading on the same exchange at about $30.00/share. Honda notifies shareholders in their annual report that under Japanese law shareholders do not have the same rights that they do under U.S. law and that Japanese courts are generally unwilling to enforce the same liabilities against Japanese companies that U.S. courts enforce are able to do under U.S. securities laws. Additionally, Ford and Honda have a similar numbers of employees at 198,000 and 176,815 respectively, although Ford lists 57 corporate officers with the parent company with a total of 466 including subsidiaries, while Honda lists only 38 with the parent and a total of 178 including subsidiaries, indicating that Honda has a much more streamlined management structure, (Hoovers, n.d.).

Most notably as Honda is a Japanese company they do not have the same SEC reporting requirements that Ford an American company has. Additionally while American companies generally work for the benefit of their shareholders, Japanese companies work primarily for the benefit of the company and its employees and are generally not concerned with paying benefits to shareholders. Both companies reported similar annual sales for the previous year with Honda reporting $92,552.1M and Ford reporting slightly higher sales of $118, 308.0M, however Hondas gross profit margin at 27.34.% is substantially higher than Fords at 19.29%, (Hoovers, n.d.). This is probably attributable to the greater diversity of products that Honda offers, most notably their motorcycle division. The continued success of both companies hinges upon their ability stay at the forefront of offering hybrid vehicles to consumers and to continue their research and development into additional alternative fuel sources.

FORD SWOT: Strengths: 1. Growth in Brand Value Fords brand value gained 19% last year globally, despite the fact that brand value dropped overall in the car category by 15%; this was in part due to the

fact that they were the only American car company not to accept federal bailout money. (Schept, 2010). Although with a brand value estimated at $7,039M they did not make the BrandZ top 100 Global Brand list, they fell just short as the 100th company on the list had a brand value of $7,280M. Continuing their successes over the last year in international markets should result in further increases their global brand value. Ford is the only American car company to be recognized by BrandZ for their global brand strength, and their rise over the past year generated a lot of discussion about the company in their 2010 publication. Additionally, as one of the three major automobile manufacturers in the United States with their pronounced history of manufacturing, their brand value as an American company is a recognizable strength. 2. Globalization The Focus, the first American car produced globally, as part of Fords strategy to build these automobiles near the markets where they are sold. Ford has restructured itself to become a global corporation through manufacturing hubs in Detroit, London, and Shanghai. (Schept, 2010) 3. Marketing Ford promoted the Fiesta in Europe through social media by giving 100 cars away to bloggers in exchange for them commenting about the car, the

promotion generated 50,000 requests for information, (Schept, 2010). 4. Collaboration Ford has recently begun collaborating with Microsoft to deliver a voice activated music and information system called AppLink that communicates from the drivers Smartphone to their vehicle. Through this collaboration Microsoft will be adapting applications directly from the drivers mobile phone for their vehicles, allowing them to keep up with the rapidly changing technology, rather than Ford owners relying on computers embedded in the automobiles console. Additionally Ford has engaged in many international joint ventures that produce vehicles on common platforms, (Hoovers, n.d.). 5. Financing Ford Motor Credit Company is a wholly owned subsidiary of the Ford Motor Company that operates both nationally and internationally. In the current recession when many consumers who are credit-worthy are having difficulty securing credit for automobile loans, Ford as one of the leading U.S. auto finance companies can finance the purchase of their own vehicles, (Hoovers, n.d.). Weaknesses: 1. Security Greater controls are needed internally to prevent their own employees from

stealing and selling trade secrets. A Chinese national recently pled guilty to stealing between $50M and $100M worth of engineering documents and selling them to a competitor. The documents stolen did not relate to the employees own design work, it is therefore indicated that Ford needs to maintain greater security control over sensitive documents to prevent this from happening again in the future. 2. Air Pollution Ford was ranked the 8th of the top 100 most toxic air polluter in March of 2010, by the Political Economy Research Institute, PERI, in the United States with 5.09 million pounds of toxic air releases, (PERI, 2010). As consumers are looking to themselves to contribute to the reduction of greenhouse gasses through their selections of product, their expectations for corporate accountability are increasing. Ford must work to dramatically reduce not only the emissions from their automobiles but also the emissions from their manufacturing facilities both in the U.S. and abroad. 3. Nationalism Ford is still seen internationally as an intensely American brand rather than an international brand. As Ford introduces different models in different environments designed to compete with local manufacturers, rebranding the company so that other cultures will have the perception that they are not

buying a local rather than an American automobile will be a difficult but necessary task. 4. Shareholder losses Although they have witnessed a gradual increase per year for the previous five years, at 5.5% in 2009, Ford still has a dismally small share of the U.S. market for automobiles which is a great loss for its shareholders. Additionally the trading value of their stock at $6.00/share upon the filing of their annual report represents additional shareholder losses that the company needs to recover from. 5. Product Diversification While other automobile manufacturers gain brand recognition from producing other motorized vehicles in addition to automobiles, Ford currently produces only cars and trucks. There are a myriad of motorized products that Ford could use their technological know-how to produce including, but not limited to, recreation vehicles, all terrain vehicles, golf carts, motorcycles, scooters, water vehicles, and snow vehicles. Opportunities: 1. Government Regulations Continued government intervention internationally regarding safety issues is likely to increase growth in the automobile manufacturing industry. Although

the U.S. has 100% penetration of air bags and other safety devices many other countries do not and the governments in mature markets are beginning to demand similar safety devises; the air bag module business alone is valued at $9B in the U.S. while the electronic safety module is valued at $5B in the U.S (Haelterman, 2010). 2. Environmental Issues Ford is generally seen as an environmentally friendly company due to the success of their hybrid vehicles, however there is much more that they be doing to decrease their environmental impact. Following GMs lead and introducing zero-landfill manufacturing facilities would be a noteworthy start. Ford has recently secured the approval for low interest loans from the U.S. Department of Energy to begin reengineering their U.S. plants to make them capable of producing cleaner and more efficient engines, transmissions, and vehicles, (Hoovers, n.d.). 3. Luxury Hybrids Ford has a substantial investment in and considerable knowledge of hybrid automobiles. Having won many awards for their Fusion, the newly introduced and critically acclaimed luxury hybrid the Lincoln MKZ is garnering similar accolades, (Luxury Hybrid, 2010). Higher fuel prices are likely to drive demand for hybrid vehicles. Tapping into the luxury hybrid automobile market where

there is little competition, and when the nations economy is showing signs of recovery should be an opportunity for Ford to increase its market share, especially as the hybrid MKZ sells for the same amount as the solely gas powered MKZ. 4. Electric Vehicles As Ford has successfully introduced electric delivery vehicles into Asia, the development and introduction of electric delivery vehicles suitable for other markets, including the U.S., would seem to be a significant opportunity for Ford especially as many companies in major American cities could take advantage of off-market utility prices to charge their fleets. 5. International Growth CSM Worldwide indicates that there has been a recovery in 2010 of light medium and heavy vehicle production over 2009 figures, this recovery is expected to continue through 2016 with the production of an additional 35 million plus light vehicle units and 2 million plus medium and heavy vehicles, (CSM Forecast by Region, 2010). Increasingly tapping into an emerging global middle classes, especially in the BRIC alliance, (Brazil, Russia, India, China), and identifying other countries where consumers have increased spending power, represents an opportunity for continued growth for international automobile sales for Ford.

Threats: 1. Divergent Emission Standards Government issued emission standards are beginning to change across different states in the U.S. and across different countries. Foreign and State Government actions and legislation could threaten Ford sales of trucks and large SUVs as they have no medium to large hybrid vehicles available for sale in the U.S. 2. Fuel Pricing Oil prices have resumed upward movement since early 2009, from a low of less than $40.00 per barrel to the current price of over $80.00 per barrel, (USEIA, 2010). Oil prices should continue trending upwards as the global economy continues its recovery. Increased fuel prices could potentially mean continued decreases in sales of new trucks, Fords largest market share. This would be expected despite that fact that it has introduced a more economical Super Duty Truck that gets 30 mpg and has also developed an all electric delivery truck for sale in Asia. Additionally, as consumers are apt to drive less as fuel prices increase, there will be an expected diminished need for replacement vehicles. 3. Unions Ford has taken steps to drastically reduce its inventory in 2010 to match lower

demand as consumers are keeping their cars longer to save money. Further reductions in excess capacity would probably require the cooperation of organized labor and may take several years to accomplish, and even then might still only partially address the problem of decreased sales. Additionally as Ford ships their automobiles to dealerships approximately 20 days after an order is considered firm and maintains no backlog, putting off necessary further reductions in capacity may require them to accumulate a backlog they cannot support. 4. Bailouts The government bailout of Chrysler and General Motors could upset the competitive playing field for Ford in the coming years as each of these companies had a significant amount of debt forgiven. While Ford negotiated with creditors to reduce their debt, their positioning as a competitor with these two American companies as well as with foreign automobile manufacturers is still at a disadvantage as these obligations still exist. 5. International Competition American automobile manufactures face increased competition from international companies in other countries in addition to the competition that they have faced in the past from Japanese automobile manufacturers. By 2006 Ford only had a 16% market share in the U.S. and had lost share to Japanese

competitors each year for the previous decade, (Kundnani, 2006). 2009, in fact, was Fords first profitable year in over five years. Now Korean brands are keeping pressure on American mid-level automobiles as well, (Schept, 2010)

FORD STRATEGY: Scent recognition is the most powerful memory aid. In order to more fully gain acceptance into international commercial markets Ford should consider infusing their automobiles with scents that appeal to local nationals. Ford can take a lesson that perfume companies have already learned that modification of fragrances to suit a regional market is necessary. Although this might be a radically different approach, rather than equipping new cars solely with a new car smell, Ford should consider equipping their automobiles lightly fragranced with a barely detectable base scent that will appeal to potential customers regionally. Ford could ultimately make their cars seem less American and more local by adopting this strategy. Implementation: A market analysis can be done to determine what base fragrance appeals to consumers in specific regions. Perfumers know that different cultures find different fragrances appealing as our ability to smell is our earliest developed

sense. Attraction to scent is a learned response and the sense of smell is developed at three months while we are still in the womb, and dictated by exposure to indigenous fragrances, (Organic Chemistry, n.d.). Additionally, the article notes that vanilla is the most popular scent in Latin America, citrus scents in the Mediterranean countries, spices in the Middle East, sweeter fragrances in North America, and cleaner fragrances in Asia. Marketing analysis can be done by region to determine which fragrances both genders find mutually acceptable, to find a gender neutral scent. Additionally scents that are overtly associated with food should be avoided. Introduction can be limited to one region at a time and as success in this market is gained another market can be developed. This strategy can be tied in with a green marketing campaign for their hybrid vehicles in various regions. Fords Fusion and their Lincoln MKZ currently use visuals on their consoles to demonstrate the vehicles efficiencies, as gas economy increases the Fusion grows more leaves, similarly the MKX sprouts more buds that turn into apple blossoms; this feature could potentially be tied into the strategy as well. Ramification: Pros: Potential consumers will experience an immediate satisfaction and identification with the product.

As the scent will not be overt, customers may not initially recognize that the vehicle is scented due to their familiarity with the scent. The scent can be blended with the new car aldehyde fragrance so that it isnt the initial scent noticed. Cons: There will be certain consumers in these markets that this strategy will not be effective with as they may not identify with the cultural norms. There is a certain feminization involved with perfuming a car that some customers might object to. Pregnant women may all of a sudden not like their cars as a womans preferences for scents can change during pregnancy. The scent could clash with a customers chosen scent. Evaluation: In test markets, some models can be equipped with the fragrance while other models are not to see if this influences the sale of the scented model over the unscented model, success can be determined by actual sales statistics. Additionally Ford can conduct focus groups in the test markets to see which model consumers prefer.


Strengths: 1. Brand Value Despite a decrease of 2% in the last year in brand value, Honda still has the third highest brand value of all automakers and is 46th overall in BrandZs list of Top 100 Global Brands, with their brand value estimated to be worth $14,303M. (Schept, 2010) 2. Engines Honda is noted for their ability to produce highly efficient gasoline powered engines that are economical to run. The innate ability of this company to produce highly fuel economical engines, combined with the introduction of hybridization of the automobile engine has made them a market leader for hybrid automobiles. 3. Product Diversification Not only manufacturing automobiles, Honda also is the worlds largest manufacturer of motorcycles, in addition to manufacturing all terrain vehicles, personal watercraft, and a myriad of power products. This type of product diversity under the Honda brand name increases consumer awareness of the company and can buttress diminished automobile sales in a downturned economy. 4. Employee Loyalty

As Japan has a relatively weak social support network, as such employees are reliant upon and dedicated to the companies they work for. Japanese companies are reluctant to terminate employees and in turn reinvest much of their earnings into employee social programs increasing employee loyalty. 5. Customer Satisfaction Citing that they are fun to drive, they retain their resale value, and their safety as reasons, Honda retains 62% of its owners, one of highest brand loyalty values in the automobile industry, (J.D. Power & Associates, 2010). Weaknesses: 1. Back Log Not properly anticipating the effect the recession would have on the sales of their automobiles, Honda currently has a six month supply of Civic and Insight hybrids already delivered to dealerships, (Luxury Hybrid, 2010). 2. Higher End Pricing Although their vehicles are noted to retain their value better than other brands, Hondas pricing is still at the high end of the mid-level market despite the fact that their styling is rather middle of the road, making the purchase of similarly sized and equipped, but less expensive automobiles, an obvious choice for recession-minded consumers. 3. Recent Quality Issues

Honda has recalled more than 1.2 million automobiles in the U.S. since January of 2010 due to problems with air bags, electric switches, power steering, and brake pedals, (Hoovers, 2010). At this time Hondas recalls have not attracted as much attention as Toyotas recent recalls, but continued manufacturing problems will surely arouse public safety concerns and cause consumers to question manufacturing quality. 4. American Dependency Honda is overly dependent upon sales in the United States, as witnessed by the recent economic downturn and the decrease in sales since 2007, over dependence in one specific region can result in a loss of growth. 5. International Luxury Automobile Although Honda has introduced their Acura in North America they have yet to introduce a higher end luxury vehicle into any other market. Their brand appeal could easily be translated into sales in other markets where there is an emerging middle class. Opportunities: 1. Latin America Honda currently has automobile manufacturing facilities in both Latin America and South America but reported sales in these areas under other regions; in both 2008 and 2009 this was their lowest geographical market indicating that

there is a lot of room to market and increase sales of their automobiles to these consumers where they are already manufacturing their product. 2. Toyota Customers With the bad publicity surrounding Toyotas recent recalls and the companys unwillingness to acknowledge fault or assume responsibility, Honda as one of the big three Japanese automobile manufacturers could attempt to market directly to Toyota customers who are looking for replacement automobiles and gain market share. 3. Shareholder Rights As a Japanese company Honda has no obligation to increase shareholder rights, however, they could voluntarily do so and in making such a commitment, purchasing shares in the company would be more attractive to Americans. 4. Joint ventures Honda currently controls almost all of their manufacturing facilities with limited joint venturing predominantly occurring within Asia. As Honda expands into other international markets it could consider joint ventures with a local automobile manufactures that would benefit both companies, allowing Honda to get their newer products into these market more quickly and allowing local manufacturers to capitalize off of their association with Honda.

Threats: 1. Bankruptcies As Honda provides financing primarily to its North American customers and dealerships, the increased financial instability of the American population could lead to bankruptcy and debt forgiveness that the company might not be able to easily absorb or have made provisions for. Net charge-offs from sales alone increased from .93% in 2008 to 1.15% in 2009 despite an increase in provisions of 10%. 2. FOREX International sales, especially to the United States, are the crux of Hondas business. As such, fluctuation in the value of the yen against other currencies exposes them to a high level of risk. Specifically, if the U.S. dollar, as this is their largest market, were to gain substantial value over the yen, Honda would experience a rapid devaluation of products already delivered to their dealerships. 3. California Under the U.S. Clean Air Act individual states are allowed to determine their own emission standards that can be more stringent that federal standards. California is currently attempting to enforce the strictest emission standards in the world and recent legislation in 2009 and 2010 are making their standards

even more stringent beginning as early as 2011. As the state represents 10% of the American population this could potentially be a threat to Honda sales, specifically those cars that are already in the pipeline. 4. Price Wars Hondas competitors in the United States are currently jockeying for position with a limited number of potential customers as the nation undergoes a prolonged economic recovery, American competitors are more flexible in their ability to offer discounted pricing that Honda is. 5. Shipping Although Honda manufactures automobiles locally, many of their parts are manufactured at their Japanese facilities and assembled abroad. As oil prices are expected to continue to rise, Honda will continue to incur increased shipping charges cutting into their profits. HONDA STRATEGY: Honda should reduce its dependency upon customers in the United States and focus on increasing sales in other regions. Specifically Honda already has established manufacturing facilities in Mexico yet has limited automobile sales in Latin America. Implementation: Honda must develop a strong marketing presence that will connect with

consumers in Latin America. Obviously a major restructuring of their production in this region is called for. Honda must reduce or cease the production of vehicles that arent selling and increase the production for lines that are experiencing even moderate sales growth. Automobiles currently in production and intended for customers in the U.S. and excess automobiles already at dealerships can easily be redistributed to Mexico via NAFTA on demand from dealerships there; as the U.S. has much more stringent emission requirements there should be no retrofitting required, additionally a minimum amount of other modifications, other than those pertinent to language issues, should be required. Those automobiles currently in production and intended for Mexico can be redistributed to neighboring countries throughout Latin America, (this may require Honda to partner with auto dealerships in countries that they have not already entered). Additionally Honda should extend their financing opportunities to qualified customers throughout Latin America, thereby mitigating the effect of the financing obligations of their dealerships and additionally forgive a certain amount of dealership indebtedness prorated according to the redistribution of automobiles. In exchange for the debt forgiveness, U.S. dealerships should be required to pay the shipping costs to Mexico so that only those dealers truly in need of the alleviation program will participate.

Ramification: Pros Honda reduces the back log of automobiles currently at dealerships in the United States. Honda will increase the future demand for their products in Latin America as they have strong customer satisfaction and brand loyalty. Honda and their dealerships will incur less overall costs than they would if the back log isnt sold at all. U.S. dealerships will become more solvent with debt forgiveness. Honda dealers will suffer initial losses incurred with additional shipping, however this will be mitigated by debt forgiveness and they should experience less overall loss. Cons Honda will have to reduce the purchase price of these automobiles so that they are affordable in less affluent countries. Americans wishing to purchase Honda automobiles at discounted rates will travel to Mexico to do so. Evaluation: This strategy can be evaluated by monitoring dealership demands from Mexico to dealerships in the United States and the U.S. dealership compliance. Surveys

of Mexican and other Latin American customers who have recently purchased Hondas should begin immediately to determine their customer satisfaction levels.

HONDA ALTERNATIVE FUEL VEHICLE STRATEGY: Honda should develop a fully electric automobile with luxury appointments suitable for introduction to the European market. Honda has had considerable success with the introduction of their luxury brand Acura in the United States and intends to introduce a fully electric car next year in the U.S. under the Honda brand called the Fit. By introducing a luxury automobile to its European customer Honda fulfills two needs, to improve their geographic range and to further penetrate Europe. Europeans generally are less inclined to drive the long distances that consumers in the United States and other countries do, the market is ideal for the introduction of a vehicle that can travel about 100 miles on a charge. Additionally the price of gasoline in Europe is about four times the price of gasoline in the U.S. making market entry even easier. Implementation: Honda should survey current and potential European customers to discover what appointments they would be looking for in a fully electric automobile. Currently the United Kingdom has the top selling electric car in the world, the

Reva G-Wiz which is a relatively low end automobile. The U.K. and many other European governments have been making serious efforts to accommodate fully electric vehicles and while there is a lot of competition for smaller automobiles, there is in fact little competition for a luxury automobile. Honda should perform a market analysis that includes determining which consumers in European countries are likely to drive the fewest miles per trip and which governments are the most conducive to the introduction of electric vehicles. Ramification: Pros Honda introduces its automobiles to more affluent European consumers. European consumers who previously purchased Hondas and now desire higher-end vehicles can continue to their relationship with Honda. Honda increases its already pronounced brand value. Cons The current European economy is probably not the best time to introduce a luxury automobile. Consumers who are looking for luxury may not be looking for the value an electronic car can provide. Evaluation: Honda will need to compare the sales of this vehicle against low-end electric

vehicles, but more importantly against luxury hybrids and gasoline powered engines. Introduction in a single market will need to be analyzed for a considerable period before attempted introduction in additional European markets.

CONCLUSION Although both companies are relatively similar and offer similarly featured mid-range automobiles, Honda and Ford essentially appeal to two different customers in the U.S. and abroad. In addition to automobiles each company has developed its own unique strength to further penetrate markets, Ford with trucks and Honda with a variety of other products, most noticeably motorcycles. Together these two companies will continue to be at the forefront of the introduction on new vehicles into their respective markets by capitalizing on the innovation that is inherent in their organizations.