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'ord %otor (ompan)* earning !

rom the "utomotive #ndustry

$e!erence %umber &&&'()&*' +his case was written by +rsula "aas,-ot.egger ,#nstitute !or #nternational Mar-eting and Management, .U /ienna0 under the direction o! Bodo B. Schlegelmilch and Bjrn Ambos ,#nstitute !or #nternational Mar-eting and Management, .U /ienna0. #t is intended to be used as the basis !or slass discussion rather than to illustrate the e!!ective or ine!!ec1 tive handling o! administrative situations, +he case was made possible by the co1operation o! 2ord Motors and the te3t setting o! the case is )&&4.

Copyright Palgrave Macmillan, UK Copies may not be made without permission.


Acknowledgement: This case has been published in the following book: Bjrn Ambos and Bodo B. Schlegelmilch, The New Role of Regional Management, 2 ! , "ampshire: #algra$e %acmillan. &eproduced with permission of #algra$e %acmillan.
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/ntroduction
#t is +hursday, 4 p.m., and Peter 5urger is still in the o!!ice going through his presentation !or tomorrow6s meeting. #t was two wee-s ago, that he received an urgent telephone call !rom his boss to meet in his o!!ice immediately. Mr. 5urger started wor-ing with 2ord o! 7urope in )&&8, the year when 2ord reported one o! the worst losses in the companies6 history. 5eing part o! the corporate strategy team in 7urope and wor-ing as assistant to the head o! this team, Mr. 5urger !ound himsel! soon in the middle o! a restructuring process called the 9.ay 2orward #nitiative:. +he initiative was started by 5ill 2ord and will be continued by the new C7;, "lan Mulally, who succeed1 ed 5ill 2ord in <eptember )&&8. +he aim is to restructure the operations o! 2ord Motors and bring it bac- into ma-ing pro!it. 2ord was going through a troubled phase starting in )&&&. 7specially in the U< mar-et, 2ord was !acing a tremendous downward trend. 2or decades, 2ord concentrated its e!!ort on selling <U/6s and Pic-ups and built its reputation on manu!acturing big truc-s, selling big cars with big engines. #t le!t the growing seg1 ments o! manu!acturing small and medium1si=ed cars to its !oreign competitors. "s a re1 sult o! the increase in the oil prices, the demand !or small and medium1si=e cars was in1 creasing. 2ord somehow missed that trend. "lthough 2ord made changes to the product port!olio recently, it will ta-e time to shi!t the image in consumers6 minds. #n addition, bad news on the company6s !inancial per!ormance has not helped 2ord>s reputation. +ogether with his boss, Mr. 5urger was assigned to prepare a presentation !or the 5oard o! 2ord o! 7urope. ?iven the current economic situation and its impact on the automotive industry, the board meeting was planned to discuss the position o! 2ord o! 7urope within the organi=ation and its !uture strategy. +he board meeting is scheduled !or 2riday morn1 ing. $e!lecting on tomorrow6s meeting made Mr. 5urger shiver, he -nows that the presen1 tation and their recommendations will be o! ma@or importance to the 7uropean 5oard. <o, he starts going through the !acts and !igures once again to ma-e sure that he presents a realistic picture o! the current situation o! 2ord o! 7urope and provide steps regarding the strategic directions !or the !uture.

(ompan) Background
<ince its establishment in *A&', 2ord has success!ully developed its position in the global automotive industry, ran-ing among the top o! the world6s biggest car manu!acturer. #t manu!actures and distributes automobiles in over )&& mar-ets across !ive continents. 2ord primarily operates in the U< and 7urope with AB plants worldwide. #t is headCuar1 tered in Dearborn, Michigan, and employed )E8,&&& people as o! December )&&F. +he company recorded revenues o! G*F),EBB million in !iscal year up to December )&&F, an increase o! F.F per cent over )&&8. +he operating pro!it o! the company was GB,8'* million in !iscal year )&&F, as compared to an operating loss o! G4,*A& million in )&&8. +he net loss was G),F)' million in )&&F, compared to a net loss o! G*),8*' million in )&&8.i 2ord is divided into two businessesH the automotive division and the !inancial service divi1 sion.
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Automoti$e 0i$ision #n the automotive business 2ord produces a variety o! vehicles, among them cars !or the small, medium, large and premium segment as well as truc-s, buses, vans and <U/6s. +he companyIs automotive vehicle brands include 2ord, Jaguar, incoln, Ma=da, Mercury and /olvo. #t also owns a ''.E per cent controlling sta-e in Ma=da. 2ollowing the consumer trend towards smaller and more economical cars, 2ord has increased its business in this segment. +he automotive business is organi=ed into !ive segmentsH 2ord %orth "merica, 2ord <outh "merica, 2ord 7urope, Premier "utomotive ?roup ,P"?0, and 2ord "sia Paci!ic K"!rica and Ma=da. #n addition to manu!acturing and selling cars and truc-s, 2ord also provides a variety o! a!ter1sales services and products through its dealer networ-. 'inancial Ser$ice 0i$ision +he !inancial service division, 2ord Motor Credit Company, was established in *A)' as a wholly owned subsidiary o! 2ord. #t provides automotive !inancing !or 2ord, incoln, Mer1 cury and /olvo dealers and customers. 2ord Credit was established so 2ord Motor Compa1 ny dealers could provide competitive !inancing services to both individuals and businesses. +he -ey !inancial services includeH retail !inancing, wholesale !inancing and third1party claim management services. +he revenues o! the two divisions in 2L )&&F were split as !ollowsH automotive ,4A.B per cent0 and !inancial services ,*&.B per cent0ii.

"istor)
2ord Motor Company was established in *A&' by Menry 2ord and ** business associates. "t that time, the U< was home o! 4F other car companies. 5e!ore 2ord, cars were lu3ury items, very e3pensive and only a!!ordable by the wealthy. 2ord6s genius was to recogni=e that with the right technology, cars can be made available to the public at an a!!ordable price. Me !ocused on ma-ing the process more e!!icient and as a result produced more cars and charged lower prices. .ithin short time 2ord became an innovative and one o! the most success!ul car1producers o! the U<. "!ter )& years o! e3perimentations, the company launched its !irst model 9+:, also -nown as 9+in i==ie: in *A&4. #t was a power!ul car with a possible speed o! EB mph. #t could run )B miles on a gallon o! gasoline. #t carried a )&1horsepower, side1valve !our1cylinder en1 gine and two1speed planetary transmission on a *&&1inch wheelbase. 5ut some o! 2ord6s greatest innovations were not in cars themselves but in the manu!ac1 turing process. #n *A*E, he introduced a moving conveyor belt at the Mighland Par- plant which led to a dramatic increase in production. "s a result, in *A*E, 2ord produced '&4,*8) cars, more than all other automa-ers combined, thus ma-ing 2ord the inventor o! mass production. #n *A*F, he set the !irst step toward an all1in1one manu!acturing comple3, where the pro1 cessing o! raw materials, parts and !inal automobiles could happen e!!iciently in a single place. "lso in *A*F the company began producing truc-s and tractors. #n *A*A, a!ter a con!lict between Menry 2ord and the stoc-holders, several investors le!t and the company became wholly owned by the 2ord !amily.

#n *A)), 2ord bought incoln Motor Company, named a!ter "braham incoln, !or G4 mil1 lion. incoln became the !irst NoutsiderN to @oin the 2ord !amily o! vehicle brands and initi1 ated the companyIs entrance into the lu3ury mar-et. #n the mid *AB&s, 2ord went public. #n the same decade, 2ord introduced the legendary 2ord +hunderbird at Detroit6s !irst auto show a!ter .orld .ar ##. +he two1seated sports car became a legend and grew with each generation during the ne3t !ive decades. +hun1 derbird went through several design changes with coupes, sedans, convertibles, hardtops, and mid1si=e and large1si=e con!igurations. #t went on hiatus a!ter the *AAF model year, but returned in )&&* as a retro1styled roadster. +he global e3pansion o! 2ord was intensi!ied in *A8&s when the company established 2ord 7urope in *A8F. +he 9%orth "merican "utomotive ;perations: was established in *AF*, consolidating the operations in the U<, Canada and Me3ico. +hroughout the *AF&s and *A4&s the e3pansion continued with !urther moves into 7urope and "sia. #n *A4F, 2ord helped to !orm the Par- $idge Corporation in order to acCuire the Mert= car rental business. <even years later, 2ord increased its sta-e in Mert= to *&& per cent. Dur1 ing the *AA&s, as a result o! the growing U< economy and the low !uel price, 2ord suc1 ceeded in selling a large number o! vehicles in the home mar-et. "lso in the *AA&s, the company acCuired Jaguar and and $over. +he presence in China and +hailand was !urther e3tended during )&&) und )&&'. #n )&&E, 2ord signed a deal with the Chinese government to secure rights to land in %an@ing, where the company plans to build a second 2ord plant in China. #n )&&B, 2ord too- !ull control o! its operations in #ndia with the purchase o! a nearly *8 per cent sta-e !rom its partner, Mahindra K Mahindra td. 2ord Motor had set up its #ndian subsidiary in Madras in *AAB as a B&1B& @oint venture with Mahindra. Mowever, in the )&&&s 2ord e3perienced a downwards trend in its per!ormance. +he slow1 ing economy, an increase in the !uel price as well as its product mi3 1 the !ocus on !uel1 intensive passenger cars 1 led to a decrease in sales. "lso in )&&&, 2ord was !acing a ma@or loss o! reputation. 2irestone tires that were !itted to all 2ord 73plorer vehicles were tipping and causing accidents. 5ridgestone(2irestone re1 called more than 8.B million tires a!ter more than )&& rollover deaths in 2ord 73plorers. +he tires e3ploded while the vehicle was movingO as a result the <U/s lost control. 2ord recalled another *' million tires in )&&*. "s a conseCuence, 2irestone(5ridgestone dumped 2ord as a customer and accused the company o! using 2irestone(5ridgestone as a scapegoat to de!lect attention !rom the 2ord 73plorer. 2ord6s cost !or the product recalls summed up to ) billion U<G. "!ter 2ederal investigators concluded that the tire de!ects were the main cause !or the rollovers, 2irestone(5ridgestone decided in )&&B to pay 2ord U<G )E& million to help cover the costs o! the recalls. Mowever, as a conseCuence the reputation and credibility o! 2ord san- and the public lost con!idence in the companyiii. #n addition, ma@or product recalls on Ma=da in )&&E and 2ord pic-up truc-s and <U/s in )&&B contributed to the negative trend the company was !acing.

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%arkets
1lobal 2perations 2ord Motor Company has organi=ed its automotive business activities into !ive segmentsH 2ord %orth "merica, 2ord <outh "merica, 2ord 7urope, Premier "utomotive ?roup ,P"?0 and 2ord "sia Paci!ic and "!rica(Ma=da. 2ord is there!ore divided into geographical regions on the one hand and separates its 2ord brands !rom lu3ury brands on the other hand. .hereas 2ord 7urope sells 2ord brand vehicles and related service parts in 7urope, +ur-ey and $ussia, P"? 1 also located in 7urope 1 sells its lu3ury brands ,/olvo, Jaguar and and $over0 throughout the whole world. +able * illustrates the global mar-et share o! automobilesO 2ord Motor Company is cur1 rently ran-ed on !ourth position.

Table 1: ?lobal mar-et share, )&&4 Company P <hare, by /alue, )&&4 +oyota Motor Corporation ?eneral Motors Corporation Daimler "? 'ord %otor (ompan) ;ther +otal *).4&P 4.A&P 4.*&P 3.4 5 8).E&P *&&.&P

Source: Datamonitor, ?lobal "utomobiles, )&&A, p *'

During the 2L )&&F, the automotive division o! 2ord recorded revenues o! U<G *BE,'FA million, an increase o! F.4 per cent vs. )&&8. %orth "merica, the largest geographic mar1 -et, reached U<G A',&8' million ,Q&.B per cent vs. )&&80 and accounted !or BE per cent o! total revenues in )&&F. #n comparison, 7urope accounted !or 'E.4 per cent o! total rev1 enues in )&&F. $evenues in 7urope increased by *A.A per cent and reached U<G 8&,&EE in )&&F. ;ther regions accounted !or **.) per cent o! total revenues in )&&F. $evenues reached U<G *A,'E4 million, an increase o! **.B per cent over )&&8.iv

Figure 1 illustrates the revenues by ?eography in )&&FH


Revenues by Geography, 2007

11.2% 54.0% 34.8%

%orth "merica 7urope others


Source: Datamonitor, 2ord Motor Company, %ovember )&&4, p *4.

+able ) provides an overview o! 2ord6s core and a!!iliates brands, the retail vehicle sales per brand and the presence in the various regions. .hereas the 2ord brand is sold in eve1 ry region, incoln and Mercury are purely %orth "merican brands and almost un-nown outside %orth "merica. /olvo and and $over have a strong presence in 7urope, whereas the !ocus o! Ma=da lies in the region o! "sia Paci!ic.

Table 2: "utomotive Core and "!!iliate 5rands

Source: 2ord Motor Company ( )&&F "nnual $eport, p *)A

6orth America 2ord %orth "merica represents the most important geographical region within the compa1 ny, accounting !or more than B& per cent o! total revenues. +he %orth "merica business includes the United <tates, Canada and Me3ico. "lthough 2ord belongs to the -ey players in the U.<. automobile industry, it has been los1 ing mar-et share in the past !ive years. 2ord6s overall mar-et share in the U.<. has de1 clined !rom )&.B per cent in )&&' to *E.F per cent in )&&4. +his downwards trend was primarily a result o! increased competition, an industry shi!t away !rom 2ord6s traditionally strong segments ,!or e3ample <U/6s and pic-ups0 and the discontinuation o! a number o! company6s vehicle lines over the last couple o! years.v 2igure ) illustrates the mar-et share within the U.<. mar-et in )&&4. +he U.<. mar-et is dominated by the 95ig +hree: national manu!acturers ?eneral Motors, 2ord and Chrysler, which account !or appro3imately E4 per cent o! the mar-et. +he 95ig +hree: are heavily challenged by Japanese producers, which already account !or more than '& per cent o! the U.< mar-et. Compared to )&&B, when 2ord was ran-ed %umber two with *4.) per cent mar-et share, 2ord lost one ran- in )&&4. +oyota increased its mar-et share over the last years !rom *'.& per cent in )&&B to *8.E per cent in )&&4 and overtoo- 2ord, who is now ran-ed number three ,*E.F per cent in )&&40. ?M is mar-et leader with )).* per cent in )&&4.vi

Figure 2: Competitive situation in the U< automobiles mar-et, )&&4

U.S. market share - 2008 !.!

*4.' *&.4

1.3 )).*

GM Toyota Ford Nissan

!.7

*8.E *&.8
!.2 .7 0.5

Honda Chrysler all others

*E.F F.*
0.5

Source: Manu!acturer6s report Cuoted inH R2ord %orth "merica, January &A, p '.

8urope 7urope has always been o! ma@or importance to the automotive industry. +he region is the worldIs largest vehicle producerH one third o! the B& million cars produced globally are manu!actured in the 7uropean Union.vii 2ord bro-e into the new mar-et Cuite soon a!ter the company was established. #n *A&', the !irst car model was imported to 5ritain. #n the !ollowing year, the Central Motor Car Company o! ondon was set up as 2ord6s overseas sales organi=ation. #n *A)B, 2ord Motor Company "? in 5erlin was established. 2ord 7urope as a separate regional business was established in *A48. #t was Menry 2ord ## who was very interested in 7urope, and he ensured the lead1 ership at the top o! the company to develop a 7uropean organi=ation. ,#an <later, /ice President P$, 2ord 7urope0 <ince then, 2ord 7urope has built a solid position in 7urope. #t is the second largest geo1 graphical region !or 2ord and accounts !or 'E.4 per cent o! total revenues in )&&F. #n addition to 2ord 7urope, the Premier "utomotive ?roup ,P"?0, which comprises the lu3ury brands ,Jaguar, /olvo and and $over0, is located in 7urope, selling its vehicles throughout the world. +he 7uropean car mar-et is e3tremely competitive. 2or the past ten years, the si3 top car manu!acturers 2ord, ?eneral Motors, /ol-swagen "?, P<" ?roup, $enault ?roup and 2iat <p" have accounted !or more than F& per cent o! the total mar-et. +he competition is e31 pected to become more intensive since Japanese and Korean manu!acturers increase their production capacity in 7urope and o!!er vehicles at lower prices. +able ' illustrates the top *& brands in the 7uropean automotive industry in March )&&4. /. is 7urope6s top selling brand, !ollowed by 2ord and ;pel. "s a result o! the di!!icult economic climate in most 7uropean countries, every brand had to !ace decreasing sales in )&&4 compared to )&&F.

Table 3: +op 7uropean car brands, March )&&4 vs. March )&&F

Top Ten Brands


Brand VW FORD OPEL /VAUXHALL RENAULT PEUGEOT FIAT CITROEN TOYOTA BMW MERCEDES Mar 08 152,92 151,709 144,547 121,848 109,639 98,411 87,122 86,638 74,869 74,086 Mar 07 175,562 169,59 165,588 129,55 126,794 104,687 101,404 105,74 76,074 81,783 % Change Mar -12.9% -10.5% -12.7% -5.9% -13.5% -6.0% -14.1% -18.1% -1.6% -9.4% Mar YtD 08 399,953 350,914 334,152 306,657 293,014 275,799 241,041 224,471 175,908 186,246 Mar YtD 07 399,041 365,931 364,911 311,981 300,249 267,242 257,779 253,316 163,847 184,043 % Chnge YtD +0.2% -4.1% -8.4% -1.7% -2.4% +3.2% -6.5% -11.4% +7.4% +1.2%

Source: Jato Dynamics Cuoted in 2in!acts 5usiness %ews Centre, www.!in!acts.ie(irish!inancenews(articleS*&*''*A.shtml, ,March 'rd, )&&A0

+able E illustrates the top ten models in March )&&4 compared to prior year. 2ord 2iesta is ran-ed number two, @ust slightly behind Peugeot )&F. +he top ten models in 7urope com1 prise small and medium si=ed cars, which is in line with the global trend to smaller and less !uel1intensive vehicles. Table 4: +op ten 7uropean models, March )&&4 vs. March )&&F

Top Ten Models


Marke & Model PEUGEOT 207 FORD FIESTA VW GOLF OPEL /VAUXHALL CORSA FORD FOCUS OPEL /VAUXHALL ASTRA RENAULT CLIO FIAT PUNTO BMW SERIES 3 VW POLO Mar 08 46,5 45,666 45,484 45,459 45,274 43,794 39,123 32,89 29,397 29,356 Mar 07 % Chge Mar YtD Mar YtD % Chge Mar 08 07 YtD 49,802 -6.6% 123,15 115,444 +6.7% 49,821 -8.3% 98,229 105,511 -6.9% 47,209 -3.7% 123,555 102,633 +20.4% 50,345 -9.7% 106,624 118,607 -10.1% 54,104 51,492 46,264 47,125 37,219 32,133 -16.3% -14.9% -15.4% -30.2% -21.0% -8.6% 106,502 99,94 97,643 89,605 66,942 74,168 118,832 108,229 110,087 116,247 75,718 73,424 -10.4% -7.7% -11.3% -22.9% -11.6% +1.0%

Source: Jato Dynamics Cuoted in 2in!acts 5usiness %ews Centre, www.!in!acts.ie(irish!inancenews(articleS*&*''*A.shtml, ,March 'rd, )&&A0

2rgani.ational Structure of 'ord %otor (ompan) 2ord Motor Company is headCuartered in Dearborn, Michigan, and employed )E8,&&& people as o! December )&&F. <ince <eptember )&&8, "lan Mulally holds the position o! 2ord6s President and C7;. Me succeeded .illiam C. 2ord, who now serves as 73ecutive Chairman and Chairman o! the 5oard. +he 5oard o! directors is elected by and responsible to the shareholders. +heir duty is to monitor the per!ormance o! the C7; and senior man1 agement to guarantee shareholder interests are being served. +he 5oard o! directors has established the !ollowing committees to assist their wor-H "udit, Compensation, 7nviron1 mental and Public Policy, 2inance, and %ominating and ?overnance. <trategic operations ,!or e3ample global manu!acturing, global product development, hu1 man resources and labour a!!airs0 and regional strategic operations ,!or e3ample +he "mericas, 7urope, "sia Paci!ic K "!rica and Ma=da0 are managed by senior managers ,731 ecutive /ice Presidents and ?roup /ice Presidents0. 'ord of 8urope 2ord o! 7urope was set up in *A48. #t is the largest overseas operation o! 2ord with about F&,&&& employees and eight vehicle plants. ;riginally, the 7uropean MeadCuarter was lo1 cated in 5ritain, since 2ord had already been there !or several decades. #n the *AA&s, the
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headCuarter was relocated to ?ermany. <everal reasons led to this decisionH !irstly, in 5ritain 2ord had a very strong position !or several decades and even though 2ord is an "merican company, many 5ritish people tend to thin- o! 2ord as a 5ritish company. +his was not true in ?ermany and due to the importance o! this mar-et, 2ord wanted to in1 crease its presence in ?ermany. <econdly, ?ermany is well1-nown !or its Cuality, which is also true !or the automotive industry. 9.e came to regard ?ermany increasingly as the real bellwether !or Cuality in the automotive industry.: ,#an <later, /ice President P$, 2ord 7urope0. +he move was planned in order to !urther increase 2ord6s position as leader in Cuality. +hirdly, ?ermany is -nown !or its high environmental standards. .ith the reloca1 tion, 2ord has ta-en advantage o! the sensitivity within the ?erman organi=ation towards environmental issues. +his was in line with the global trend in the automotive industry to show more environmental commitment. +he Premier "utomotive ?roup ,P"?0, which includes lu3ury brands such as Jaguar, /olvo and and $over is also located in 7urope but does not belong to 2ord o! 7urope. #t is a separate consumer business group ,C5?0. P"? oversees the sales, mar-eting, communi1 cations, !ranchise development, parts, distribution, and customer service e!!orts o! these premier brands on a global basis. P"? is headCuartered in the UK. 5oth 2ord o! 7urope and P"? report into the same o!!ice in ondon. .hich is interesting !rom an academic point o! view, because you have a regional, what we call consumer business group, which is 2ord o! 7urope reporting into this management structure, but also global business li-e /olvo, Jaguar, etc. reporting into the same unit, which in turn reports to the U<. ,#an <later, /ice President P$ 7urope0 2ord o! 7urope sells cars under the brand 92ord: to B* 7uropean countries. +he ma@or !o1 cus is on *A main 7uropean countries, called the 97U *A:. #n addition to that, 2ord o! 7u1 rope also comprises $ussia and +ur-ey, mar-ets with high growth potential. +able B and table 8 show the top B mar-ets by volume and by mar-et share !or 2ord o! 7urope ,January 1 <eptember )&&40. UK is leading in both categories accounting !or more than ''&,&&& vehicle sales and a mar-et share o! *8.* per cent January to <eptember )&&4. #n terms o! volume, ?ermany is ran-ed on second position, whereas in terms o! mar-et share it is not among the top !ive. ?ermany6s mar-et share in the period o! Janu1 ary to <eptember )&&4 was F.F per cent. "cross the main *A 7uropean countries, 2ord had a mar-et share o! A.' per cent ,<eptember )&&40. #n total 7urope, 2ord6s mar-et share was 4.8 per cent in <eptember )&&4 ,1&.F per cent compared to )&&F0.viii

Table 5: +op B mar-ets ,volume0

Table 6: +op B mar-ets ,mar-et share0

Top 5 markets by volume Jan-Sept 2008


UK Germany taly "uss#a $ran%e 335,804 181,134 14!,345 141,420 10&,080

Top 5 markets by market s'are Jan-Sept 08


UK Turkey rlan) *un+ary Spa#n 1&(1 14(& 13(& 11(& ,(5

Source: R2ord 7urope, %ovember )&&4, p F.


A

+he year )&&4 was !ull o! contrasts !or 2ord 7urope. 2or the last years, 2ord was accused o! not launching enough new models in 7urope and o!!ering an ageing product line. #n the !irst hal! o! the year )&&4, the company launched three models the 2iesta small car, Ku1 ga crossover and Ka minicar as well as a re!reshed version o! the 2ocus. "s a result, new1car sales o! * million units were the division6s highest ever. Mowever, as a result o! the economic crisis, sales dropped during the second hal! o! the year )&&4. #n addition, over capacity has been an issue !or the company !or several years. 2ord 7u1 rope was !acing e3cess capacity o! *B per cent in )&&4. +he new vehicle sales !or the 7U *A ,the main mar-ets in 7urope0 were !orecasted !or *4 million units in )&&4. Due to the di!!icult economic situation the mar-et was down to *B million units. Con!ronted with the !alling demand, the company needed to ad@ust its capacity on a wee-ly basis.i3 Structure within Ford of Europe The role of the regional headquarters .ith 7urope as leading manu!acturer o! cars, one third o! the global production is done in 7uropeO 2ord has recogni=ed the importance o! a strong presence in the mar-et. 2urther to that, the automotive industry is a highly regulated industryO with a trend to1 wards even more regulations and governmental inter!erences. +he 7U is !urther increasing the environmental standards within the car industry, !or instance setting directives on Co) emissions. 2urther to 7U directives, car manu!acturers are also con!ronted with di!!erent regulations on local level. Due to the comple3ity within 7urope many countries and var1 ious regulations it would be very di!!icult to manage it !rom !ar away. +his is an addi1 tional reason !or the presence o! a strong regional head Cuarter in 7urope. 2ord 7urope, in its !unction as regional headCuarter, is a highly autonomous business entity. .e do everything in 7urope. # mean this e!!ectively # mean it is not autar-y, but is e!!ectively an autonomous business entity. #t is still very much a regional busi1 ness producing 7uropean cars !or 7uropeans. ,#an <later, /ice President P$, 2ord 7urope0 +he company imports engines and components on a global basis and also e3ports to some degree. 2ord Motor Company operates with regional product lines, selling di!!erent cars to di!!erent geographical regions. "s a result, the product port!olio o! 7urope is di!!erent to that o! %orth "merica. !.e have a regionally consistent product line, but we don6t have a globally consistent product line.: ,Mar- <chirmer, Mead o! Public $elations "siaK"!rica0 #n addition to production !acilities in 7urope, the company also established two $KD cen1 tresO one is located in ?ermany and one in the UK. +hese centres were separately built and e3isted parallel !or many years. #nstead o! shutting down one and growing the other, 2ord 7urope6s strategy was to maintain both $KD centres and speciali=e the role and re1 sponsibility o! each. +hese helped to build the two strongest pillars o! 2ord o! 7urope, UK and ?ermany. 9.e try to -eep a balance between the two centres and it wor-s remar-a1 ble well.: ,#an <later, /ice President P$, 2ord 7urope0 #n their $KD process, the company also ta-es advantage o! so1called shared technology. #t is a set o! technologies which come together in di!!erent !orms to ma-e di!!erent vehi1 cles. 2ord considers shared technology o! being a more sophisticated model and a !urther development compared to plat!orms.

*&

2or e3ample the new generation 2ocus had a lot o! technologies in common with /olvo <E&. 5ut i! you loo- at the two vehicles they have nothing in common. .hereas, a generation ago, in terms o! the automotive industry, the Mondeo in 7urope and the Contour in "merica were very similar1loo-ing vehicles. ,#an <later, /ice President P$, 2ord 7urope0 2urther to $KD, mar-eting activities are carried out by 2ord o! 7urope independently to the 2ord Motor Company. +he organi=ational set1up also guarantees that the business units are more or less sel!1!inancing and there!ore responsible !or their own budgeting. The role of the local "ar#ets .ithin 2ord o! 7urope the local mar-ets, called national sales centres, are concerned with local sales, customer service and local P$. Most o! the 7uropean countries are handled through these national sales centresO they are *&& per cent subsidiaries o! 2ord Motor Company. #n countries, where 2ord has no local presence 'rd party importers are applied. +hese operations are coordinated by an o!!ice in 5udapest, responsible !or e3port coun1 tries. Manu!acturing, purchasing and product development is done on a 7uropean level and be1 longs to the responsibility o! the 7uropean business group. +he 7uropean headCuarter also provides the countries with the long term product strategy, gives directions in product pricing and guidelines !or communication. "ll mar-eting communication on above1the1line level is managed by the 7uropean headCuarter, such as +/ commercials, billboards and internet. !#t is more or less a toolbo3 !or the national sales companies to ma-e use o! you -now everything is there.: ,Mans <chep, Mar-eting Manager 2ord %etherlands0. +he tactical wor- and the adaption o! the 7uropean communication material are carried out by the local teams. #n terms o! reporting, local mar-eting managers report to the local managing directors. +he local managing directors in return report to the vice president o! mar-eting and sales o! 2ord o! 7urope, who is located in UK. "lthough the regional headCuarter is based in Co1 logne, some headCuarter !unctions, such as mar-eting K sales are located in the UK. +his goes bac- to the time when the regional headCuarter was located in ?reat 5ritain. +he ma@or !ocus o! the local mar-ets is on managing the dealer networ-. ;ver the years, support !unctions such as sales planning and !inance have been locally reduced and cen1 trali=ed. +he company bundled these !unctions in order to ma-e use o! synergies and achieve economies o! scale.

Trends and challenges for the Automobile industr)


%ot only had the global !inancial crisis le!t mar-s on the automobile industry. 2urther to that, trends and changes such as increasing competition and stronger environmental regulations already have and !urther will challenge the automobile mar-et. 7specially the saturated mar-ets such as 7urope, in particular .estern 7urope, will !ace ma@or impacts. #t will be o! great importance to 2ord 7urope on how it manages and responds to these challenges and how it adapts to the changing environment.

**

Bankruptc) of a major automobile manufacturer +he automotive crisis as a result o! the !inancial crisis has come to a head that even ban-1 ruptcy has become a ma@or topic in the business press. "ccording to C<M worldwide, an automotive research !irm, a ban-ruptcy !iling by one o! the 95ig +hree:, ?eneral Motors, Chrysler or 2ord would have an immediate impact on the !inancial health and stability o! suppliers and every automa-er operating in %orth "merica, including the "sian and 7uro1 pean manu!acturers, because they are mutually dependent on the same supply base. "s the !ollowing graphic shows, E8 per cent o! 2ord suppliers also supply 7uropean au1 toma-ers, and BA per cent o! 2ord6s suppliers also supply "sian manu!acturers.

Table $: <uppliers "lso supply toH ;7M <upply 5ase Chrysler 2ord !or %" /ehicles 1% 'ord (hr)sler B8P 8EP *&&P B*P ?M "sian ;7Ms 7uropean ;7Ms

*&&P B4P 8BP BAP

'FP E8P EEP

*&&P F&P BEP 88P

Source: C<M .orldwide ,www.csmauto.com0

89cess (apacit) #n )&&F, the estimated automotive industry global production capacity !or light vehicles o! around 4B.E million units e3ceeded global production by about *8.4 million units. #n %orth "merica and 7urope, e3cess capacity was estimated *F per cent and ** per cent respec1 tively. +his trend is pro@ected to continue over the ne3t couple o! years.3 #ricing pressure and Asian competition. +he pressure on prices will stay at a high level due to e3cess capacity, new product devel1 opments and increase in competition !rom Japanese and Korean manu!acturers. 7uropean and U.<. manu!acturing capacity o! "sian manu!acturers in recent years have contributed, and will !urther contribute, to the pricing pressure in the mar-ets. 2or instance, the Kore1 an car ma-er Myundai announced plans to double its 7uropean engine production capacity by )&*). Myundai and the sister brand Kia need more locally produced engines to power cars made in their new Central 7uropean !actories.3i

*)

(onsumer spending trends in :estern 8urope <ales o! passenger cars and light commercial vehicle are predicted to !urther decrease in )&*& as credit remains tight and consumers avoid replacing their vehicles until absolutely necessary. C<M .orldwide pro@ects that passenger car sales in .estern 7urope will !all by *).E percent to *).& million units in )&&A compared to )&&4.3ii 1rowth potential in emerging markets "s the mar-et !or light vehicles in .estern 7urope and U< is saturated, the growth poten1 tial lies within the emerging mar-ets such as #ndia, China as well as Central and 7astern 7urope. +he importance o! 7astern and Central 7urope in the automotive sector has in1 creased tremendously over the last years. +his is true !or production as well as sales. %ew member states ,7U*)0 accounted !or *B per cent o! 7U motor vehicles production by the end o! )&&F. +his represents an increase o! )B.) per cent in )&&F. "lthough still small, the new member states are highly speciali=ed road vehicle producers. 5ased on s-illed wor-1 ers, low labour costs and a high potential demand the importance o! 7U*) is increasing continuously. .hereas the new car registration in .estern 7urope is !lat or even declining, the !igure is increasing in 7ast and Central 7urope. #n the new 7U member states, where car density is still much lower and many households have been able to a!!ord buying a new car only re1 cently, a steady growth was recorded in )&&F ,Q*'.A per cent0. Mainly the 5altic <tates, 5ulgaria, Poland and $omania are contributing to the high growth rate in 7U*).3iii 8+ $ehicles regulations +he automobile industry is one o! the most regulated sectors within the 7U. 5e!ore a car can be sold in the 7U mar-et, it must comply with what is -nown as the 2ramewor- Di1 rective !or .hole /ehicle +ype "pproval. +his !ramewor- directive consists o! a long list o! technical reCuirements !or motor vehicles as well as !or components and separate tech1 nical units !rom which vehicles are assembled. +hese reCuirements are set up !or the !ol1 lowing categoriesH environment, lighting and signalling, active sa!ety, passive sa!ety and others.3iv 2urther directives o! the 7U include increasingly stringent emission standards !or passen1 ger and light commercial vehicles !or the models years )&&B and therea!ter ,7U$; E0. Manu!acturers are responsible !or the emissions per!ormance o! these vehicles !or !ive years or *&&,&&& -ilometres, depending which occurs !irst. 7ven more stringent emission standards ,7U$; B and 7U$; 80 are planned !or )&*E(*B.3v +he 7uropean Union is a party to the Kyoto Protocol o! the United %ations 2rameworConvention on Climate Change, and there!ore has agreed to reduce greenhouse gas emis1 sions. "s a result !or the automobile industry, the Co) legislation o! the 7U says, au1 toma-ers will have to reduce Co) emissions !rom new cars to *'& grams per -ilometre by )&*)(*B, with an additional *& gram reduction coming !rom Tcomplementary measures6 including a greater use o! bio!uels. 2urthermore, 8B percent o! new cars will have to com1 ply with the emission reCuirements in )&*), FB percent in )&*', 4& percent in )&*E and *&& percent in )&*B. +his regulation also includes car labelling and Co) in!ormation in ad1 vertising.3vi +o !ollow these directions will be challenging and costly !or 2ord o! 7urope and the automobile industry.
*'

'ord;s restructuring efforts


2ord was going through a troubled phase starting in )&&& onwards. 7specially in the home mar-et U<, 2ord was !acing a tremendous downwards trend. +he rising healthcare costs !or its aging wor-!orce and the increase in !uel prices led to a downturn in pro!it. 2or dec1 ades, 2ord concentrated its e!!ort on selling <U/6s and Pic-ups and le!t the growing seg1 ments o! small and medium1si=ed car to its !oreign competitors. "s a result o! the increase in oil price, the demand !or small and medium1si=e cars was increasing. %owadays, small cars have reached nearly EB per cent o! total industry sales globally.3vii 2ord somehow missed the trend and started to !ace a decrease in sales, resulting in decreasing plant uti1 li=ation and huge discount activities. +he troubles reached a pea- in )&&8, when 2ord Mo1 tors posted a loss o! U<G*).F billion !or the !iscal year )&&8, one o! the worst losses in the companyIs history.3viii #n order to improve its operations, the company started the 9.ay 2orward Plan: in )&&8. +he aim is to restructure the operations o! 2ord Motors and bring it bac- into pro!it. +he initiative was started by 5ill 2ord and will be continued by the new C7;, "lan Mulally, who succeeded 5ill 2ord in <eptember )&&8. Prior to his position at 2ord, Mulally served as 731 ecutive /ice President at +he 5oeing Company and as a President and C7; o! 5oeing Commercial "irplane. Me is -nown as a turnaround e3pert, which he success!ully demon1 strated at the airplanes division at 5oeing. +he restructuring plan o! 2ord comprises !our -ey prioritiesH aggressively restructuring to operate pro!itably at the current demand and changing mi3 accelerating development o! new products customers want and value !inancing the plan and improving the balance sheet wor-ing together e!!ectively as a global team.

"lan Mulally put it in words in the company6s annual report !or )&&FH +o achieve pro!itable growth we need to ta-e advantage o! every potential econo1 my o! scale and best practice we can !ind. +hat means operating as a team around the world, with one plan and one goal. ;ne team, one plan, one goal one 2ord. "s a !irst result o! the restructuring process, the company recorded revenues o! G*F),EBB million during the !iscal year ending in December )&&F, an increase o! F.F per cent over )&&8. <o !ar the restructuring process mainly a!!ected the %orth "merican operations, where thousands o! @obs had been shed since )&&8. Mowever, !aced with ongoing sales decreases, 2ord 7urope announced that it needs to re1 turn to pro!it as soon as possible.

#reparations for the 8uropean Board %eeting


"!ter he had gone through the presentation again and again !or the last several hours, Mr. 5urger is convinced that 2ord o! 7urope will play a ma@or role in the restructuring process and in bringing 2ord bac- on !ast lane. Me is certain he and his boss have developed rea1 sonable answer to the !ollowing CuestionsH .hat will be the e!!ects o! the company6s re1
*E

structuring plans on 2ord o! 7uropeU Mow can 2ord meet the challenges resulting !rom the di!!icult state o! the economyU Mow will 2ord o! 7urope deal with !uture trends and chal1 lenges on their 7uropean operationsU .hat role will 2ord o! 7urope play in bringing the company bac- into pro!itU #t is already midnight when Mr. 5urger leaves the o!!ice to get some sleep be!ore tomor1 row6s meeting. Me !eels that he is well prepared to meet tomorrow6s challengesO @ust li-e 2ord o! 7urope will meet its !uture challenges.

.U ,/ienna University o! 7conomics and 5usiness0 "ugasse )8, *&A& /ienna, "ustria .U Case <eries 7ditor caseseriesRwu.ac.at www.wu.ac.at

*B

Datamonitor, Ford Motor Company, November 2008, p 4 Datamonitor, Ford Motor Company, November 2008, p 18 iii NPR (National Public Radio), 3 March 2009: http://www.npr.org/templates/story/story.php?storyId=5168769 iv Datamonitor, Ford Motor Company, November 2008, p 18 v Datamonitor, Ford Motor Company, Nov 2008, p 21 and @Ford North America, January 2009, p 3 vi Just-auto, competitor analysis 2009, p 11 vii ACEA, European Automobile Manufacturers Association, www.acea.be viii @Ford Europe, November 2008, p 7 ix Automotive News, 15 December 2008, p 18 x Ford Motor Company / 2007 Annual Report, p 10 xi Automotive News Europe, 29 September 2008, p 22 xii CSM Worldwide (www.csmauto.com) xiii ACEA European Automobile Manufacturers Association (2008): EU Economic Report February 2008 xiv ACEA European Automobile Manufacturers Association, www.acea.be, regulation and standards xv Datamonitor, Ford Motor Company, Nov 2008, p 24 xvi ACEA European Automobile Manufacturers Association, www.acea.be, CO2 emissions xvii Ford Motor Company / 2007 Annual Report, p 2 xviii Datamonitor, Ford Motor Company, Nov. 2008, p 4
ii

*8

Appendi9 !

Source: Ford Motor Company, 2007/Annual report, p 54.

*F

Source: Ford Motor Company, 2007/Annual report, p 55.

*4

Source: Ford Motor Company, 2007/Annual report, p 56

*A

Appendix 2

)&