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Ford Hiren Ashara Joseph Diekevers Aaron Draayer Michael R Hess
Managerial Economics Paul McNergney May 15, 2011
FORD Ford: A Case Study Ford Motor Company is well known throughout the world.Price based competition is still relatively low as the marketplace is controlled by a small group of sellers. however globalization is becoming a concerning factor for the Big 3 in the United States as it is getting easier for foreign automakers to enter the North American marketplace. even as sales shift to smaller more fuel efficient cars. 2011) Answering the demand for smaller cars. (New York Times. Demand Trends Volatile gas prices and political pressures to manufacture greener automobiles has moved Ford s focus away from its large SUV models to leaner fuel efficient vehicles. Threats of new entrance are low because the business of making automobiles is very capital intensive. The following report delves into the many interesting factors that Fords upper management must consider on a daily basis. Just a month ago. but the demand for smaller compact cars have forced Ford to recently retool 3 of its facilities formerly used for Truck and SUV production in favor of building smaller more economical cars. Although Ford has gone through some tough times. Ford s trucks and SUV s had been traditionally its largest money makers. In April 2011. the Ford name is synonymous with being a great American company. Ford plans on releasing 6 models currently sold in Europe in the North American market. Ford reported its largest first-quarter profit since 1998. 2 . Market Structure The auto business is considered to be oligopoly because there are only a few key players that dominate the marketplace. Ford is the second largest car manufacturer in the United States and the 5th largest worldwide. Ford Motor Company was founded by Henry Ford and incorporated on June 16th 1903.
Not only does Ford Motor abide by these federal regulations.N) Chief Executive Alan Mulally said on Wednesday. "The most important thing about our plan is profitable growth and so that leads us to tremendous discipline on everything about the business.FORD Supply Trends Ford has become the latest car maker to announce a slowdown in production because of problems getting supplies of components made in Japan. 1 thing is to match the production capacity to the real demand. it is a leading force in corporate social responsibility. Ford will continue to maintain its price discipline in regards to consumer s purchase incentives.(Ford) 3 . companies must demonstrate a transparent commitment to sustainability."(Gasgoo Automotive News.Corporate social responsibility surveys measure the performance of companies that meet globally recognized corporate social responsibility standards. China and South Africa for a week and its plant in Taiwan for two weeks. Department of Transportation and the National Highway Traffic Safety Administration have a standards and regulations handbook that serves to enforce auto makers to abide by federal production requirements for safety assurance. (Gasgoo Automotive News. (BBC News Business. Managing the supply of parts from Japan following last month's earthquake is a complex and still-evolving process. Ford Motor Co (F. The recent tsunami in Japan has had dramatic effect on parts supplied to car manufacturers. To be included. "The No. Ford has been rated among the top 25 companies in the world in corporate social responsibility reporting by Tomorrow s Value: The Global Reporters. 2011) Government Regulations The U.S. 2011) Ford closed its plants in Nanjing. 2011)According to Mulally the production slowdown has had no material impact on the company. Ford is the only automaker among the top 25 of the 50 companies demonstrating best practices in corporate social responsibility." Mulally said.
which seeks to save production and design costs by producing a single fleet of vehicles for all markets worldwide. drive prices through the roof. (Ray. alternative fuel powered vehicles. in the wake of the financial crisis. as a result. (Wikiinvest) Macroeconomic Factors influencing supply and Demand The recent tsunami in Japan is likely to begin to affect consumer prices as car manufacturers run short on parts to make new automobiles and dealer stocks begin to run short on supply of new vehicles. Ford s portfolio will include new generations of clean diesel engines. 2011) Ford Motor Company Corporate Strategy and Core Capabilities Ford Motor Company is well recognized around the world for its dramatic comeback in the auto industry. How has Ford 4 . used vehicles are enjoying extraordinary staying power. As a result. Reduced production of new cars. federal incentive programs. unlike its competitors GM and Chrysler. On a macroeconomic level Ford plans to move into emerging markets. Ford netted more profit than it had in the previous 10 years. Ford's current international plan is the "One Ford" campaign. How Ford manages to take advantage of this trend will be decisive to the company's long term growth. Ford s image has improved and so has its sales. hybrids. Car sales continue to grow quickly in the BRIC countries and it is crucial that Ford take advantage of the new marketplace. exorbitant gasoline prices. As discussed above.FORD Future Market Conditions Ford Motor will continue to embrace fuel efficient technologies and push forward with corporate social responsibility initiatives for sustainable mobility. Ford has also recently received recognition for not accepting a government bailout. autos with other low tech fuel consumption saving and eventually a hydrogen powered engine. In 2010. Not only are new car sales affected by the recent shortage of the overall new car supply. natural disasters and other factors have conspired to reduce the supply of used cars on the market to a trickle and.
as part of their corporate strategy has been to advertise. Ford regained its position as the number one selling automaker. Ford also saw huge gains last year from its Asian markets. (Investopedia) Ford s success has not only come from its focus on foreign markets but also their focus on its key brands. Ford increased sales by 32% in China and 168% in India. For Ford. and the Ford Figo in India. in 2010 Ford launched the all new Grand C-Max in Europe. (Ford 2010 Annual Report) These numbers should come as no surprise to its managers. Ford managers realized a long time ago that people in Asia and other parts of the world will eventually want to drive cars just as Americans do. and marketing its automobiles. but it has truly become a global company. they have been able to provide quality vehicles while keeping their costs low. This in turn helps them sell more cars. recently Ford has shown the ability to reap its rewards. Ford s core capabilities are engineering. One of the strategies employed by its CEO Alan Mulally has been to simplify Ford s products and stream line its productions. something that it hasn t done in that country for 50 years. Ford has skillfully taken on this challenge. and sell cars in these new markets. In order to accomplish this goal Ford has chosen to sell Volvo and discontinued making its Mercury brands. For example. While selling in foreign markets can be risky. Michigan. producing. In Canada. These moves help Ford focus on their core and top selling brands. Ford s headquarters in Dearborn.S. Ford and Lincoln. As a result of Ford being a global company with global automobile sales in the billions of dollars year after year. produce. They have designed and manufactured cars that fit the styles and needs of people in a different region.FORD been able to pull this off? In order to find out we must look at their corporate strategy and core capabilities. Proof of this comes from the fact that Ford has increased its market share in the U. 5 . the opportunity costs of holding onto those brands were just too high. Due to the benefit of economies of scale. Ford is able to take great advantage of economies of scale. for the past two years.
and 75 mph Crash test rated. we can expect Ford to be even stronger in the future through good times and bad. the Ford Focus Electric. Ford now has 11 vehicles on the road in the U. Ford cars give a good return when you are going to sell it. Ford will also come out with their first electric car later this year. As a result of Ford s corporate strategy. (Ford 2010 Annual Report) The auto industry is a very cyclical industry. 6 . while 2011 Fusion Hybrid gives 41 mpg in the city.2 billion. with an IIHS (Insurance Institute for Highway Safety) Top Safety Pick rating. Personal safety system. Ford is positioning itself for large growth in the coming years. Ford has invested billions of dollars in research and technology to make their cars more fuel efficient. Ford now has cars in every segment of the market that get best of class or close to best of class fuel economy. and has learned from them. Ford is making an effort to create a cleaner and better world and at the same time enhance its image. Ford Focus SE 2012 and Fiesta SE 2011 give 40 mpg on highway. It is also creating manufacturing plants that can easily retool and change the number and types of products they produce. (Much of this debt was incurred in 2006 as part of a restructuring effort.5 billion dollars of debt.) This action will lower Ford s annualized interest expense by about $ 1. Ford has seen its share of rough times. In 2010 and 2011 Ford will pay off over 17. Product Differentiation: Ford offers many different styles and models of cars. (Ford 2010 Annual Report) Finally.FORD Another segment of Fords Corporate strategy has been to strengthen its balance sheet and pay off debt. It also gives good mileages.S. Ford Motor Company is the police vehicle market leader for 15 years. in which it has Ballistic Door Panels. In addition to creating more fuel efficient vehicles to lower CO2 and create better values for their customers. Ford has made an effort to enhance its image by donating money to nonprofit organizations and encouraging its workforce to take two workdays a year to volunteer their time in the community.
Aston Martin. Ford s voice-activated communications and entertainment system created in collaboration with Microsoft. where they had to recall 1. Central Glass Co Ltd acquired Zeledyne LLC-Glass Plant from Ford Motors. Business Risks One major business risk is the continuous risk of recalls. Current Global Market Strength Ford s global strength is in SUV and light trucks. and the 2013 Ford Focus Electric intends to join the fray. Ford's former UK subsidiaries. In 7 . Its features begin with an electric motor and extend all the way to your smartphone. and style. SYNC. Jaguar and Land Rover. Joint Ventures. will be expanding to create in-car connectivity Focus on a market niche Electric vehicles are the hottest and smallest niche market at the moment.FORD Ford has created WiFi with a bit of a twist for their vehicles. One instance is due to a seat issue. In 2010. quality. Ford has experienced many issues with recalls just recently. In March of 2011. such as the Ford Explorer which has been the best selling SUV in the world since 1990. Ford sold Volvo to Geely Automobile. The automaker recalled more than 900. Alliances. and 33% of Mazda. were sold to Tata Motors of India in March 2008. Lincoln. Land Rover. more than the roughly 600. Mercury.000 vehicles in the first weeks of 2011. mileage. Jaguar. Mergers.000 vehicles recalled in all of 2010.600 just-built Explorers for a safety problem with the second row of seats. which consists of some of the best selling models in the world. Ford discontinued the Mercury brand at the end of 2010. Other strengths are its safety. They have 121 divestitures during 1979 to March of 2011. acquisitions Ford Motor Company has made 124 acquisitions while taking stakes in 45 companies. Ford has grown so large that it has bought out many competitors in the car industry including Volvo.
Ford will notify all owners in May that they should take their trucks to a dealer who will replace an air bag wire in the steering wheel. they are under tremendous pressure to achieve lower cost solutions (Ford Motor Company. they recalled nearly 363. After the pressures from the government to fix all 1.FORD February. If Ford does not do something better about preventing recalls. the F-150 made up 18 percent of Ford's sales (Associated Press. A second business risk is the complexity of balances and transactions. but this is merely an accounting estimate prone to great risk as they involve major judgments and qualms. 2011). 2010). which are more vulnerable to error in the auto industry that goes along with Ford s complex manufacturing and supply chain. Car manufacturing is a long drawn out process where there are many complex contractual relationships with customers and suppliers. 8 .2 million sold F-150 trucks.000 vehicles worldwide spanning eight vehicle models due to the risk of a fuel leak or electrical issues (Ford Recalls.000 F-150 pick-up trucks because of a potential problem with the interior door handles. Ford has recently made an effort for their account payables personnel to concentrate on special cases only and also has made an effort to cut costs with suppliers. Management may have to utilize a costing method. A lot of their time can be spent with generating payment delays and inaccuracies (over and underpayments) to suppliers (Ford Motor Company. but one has to still consider the complexity of their cost transactions a major business risk. There are certain transactions where the cost or benefit may be difficult to calculate such as job costing and the assessment of the work in process. Also in February. Ford s account payables department headcount at one point was 400% than that of other auto-makers. 2010). Since 60% of Ford s manufacturing cost is explained by purchased parts and materials. 2011). meaning there is a higher risk that the balances calculated are more open to error. Ford recalled more than 34. In the first three months of this year. they will be at risk with the liability of customer s safety and at risk with higher expenses.
In CBC News. for d. from http://www.html For d r evea ls its a ll-new. April 14). from Business Day: http://topics.d. (2010). .shtml New York Times.com/stock-analysis/2010/Ford-Flexes-Its-International-Muscle-FMSFT-AAPL-XOM0309. 2011. pur pose-built Polic e Inter ceptor Utility Vehicle. 2011. 2011. Retrieved May 14.FORD 9 References Associated Press.html BBC News Business.com/article_display.cfm?article_id=24900 Ford Motor Company. (2011.co. a la cras t or e. In DocStoc. ht t p:// www. Chicago Breaking Business.).ford. AL: Investopedia.com/2011/02/ford-recalls-2011-explorers-overseat-issue.chicagobreakingbusiness. 2011. (n. G.docstoc. (2010. (2011). from http://stocks.ca/news/business/story/2011/04/14/business-ford-recall. from http://archive. com/ news event s / news / news det a il/ ?id=309 Gasgoo Automotive News. Retrieved May 13.gasgoo. from http://www. Retrieved May 16. from http://corporate. February 7).com/top/news/business/companies/ford_motor_company/index. 2-6). com/ mer g er s a cquis it ions / F or d_M ot or _C ompa ny-1006539 Ford Motor Company: Procurement. (2011.investopedia. Retrieved May 14. 2011. Retrieved May 16.uk/news/13190926 Davis. (2011. from http://www. from http://autonews. 2011.cbc.nytimes. (2011. 2011. R et r ieved fr om ht t p :// www.ford. (2010). Retrieved May 16. S. Ford expands pickup recall.com/docs/31461636/Ford-Motor-Company-Procurement Ford recalls 2011 Explorers over seat issue.com/global-news/ford-supply-situation-in-japan-unfolding110414. March 26).bbc.aspx Ford. from http://media. Ford 2010 Annual Report (pp. Retrieved May 15. (2010). 2011. Retrieved May 13. (2011.htm . Retrieved May 16. April 14). Ford websi t e.com/investors F or d M ot or C ompa ny M er ger s a nd Acquis it ions . 2011. April 25). May 16).
Retrieved May 16.wikinvest.d. Newsnet5. from Newsnet5. from http://www. t imef or t ita n. May 16).com: http://www. ht ml? id= wha t -is diff er ent -a b out -for ds -new-wifi& ca t ego r y= br oa db a nd-int er n et 10 Wikiinvest.). Retr ieved fr om ht t p:// www. (n. com/ r es our ces /art icle5 e6d. (2011.com.com/dpp/money/business_news/Used-car-demand-jumps-but-thesupply-is-down Wha t is differ ent about For d's New WiFi. Retrieved May 16. 2011.FORD Ray. 2011. (2010). T.com/stock/Ford_Motor_Company_(F) .newsnet5.
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