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1.1 Introduction The global marketplace is faced with different challenges that affect its overall management and operations. Various pressures on the internal and external conditions such as the unstable world and local economies, the workforce, the customers, and even the management itself risk the success or failure of the organization. In implementing effective management of a business, regardless of what kind of management strategy is used, the person who is foremost in all the transactions of the business must be able to deal with all the potential hazards. Ford Motor Company is well known as the number one manufacturing experts in the western world. During Ford's early years, the company was virtually indistinguishable from its founder. "Fordism," as it came to be known--a system of mass production which combined the principles of "scientific management" with new manufacturing techniques, such as the assembly line-created more than fantastic profits for his company: it literally revolutionized industry on a global scale within twenty years of its implementation. Now, it is the second-largest U.S. based automaker and the fifth-largest in the world and it is the eighth-ranked overall American based company in the 2010 Fortune 500 list. It‟s objective is to provide sustainable transportation that is affordable in every sense of the word: socially, environmentally and economically. 1.2 Problem Statement This is a strategic management case. This case requires a technical analysis of Ford motor‟s present operation and future performance of the company. It also includes a quantitative analysis of costs required to foster sales and projected income statement for the most coming fiscal year. I have analyzed from two viewpoints. First I provided a brief overview of the company then technical analysis of the company. 1.3 Methodology Strategic Management-Concepts and Cases by Fred R. David is used extensively for solving this case. Different websites and Strategic management books are also being used.

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2.1 Company Profile Ford Motor Company was founded in 1903 by Henry Ford and has continuously remained under family ownership since this time. A short overview is given below: Ford Motor Company Established Date Type Sector Head quarter Slogan Revenue Product Portfolio Brands Services 2.2 Mission and Vision The mission and vision of Ford is “One plan, one team, one plan, one goal” with the values of expected Behaviors by Ford Functional and Technical Excellence, Own Working Together, Role Model Ford Values and Deliver Results with goals. 3.1 Strategic Analysis I. Porter’s five forces Model: Analytical significance is given below: STRATEGIC SIGNIFICANCE Bargaining Power of Suppliers Bargaining Power of Buyers Threat of New Entrants Threat of Substitutes Medium Medium Medium High Ford Ikon, Ford Figo, Ford Fiesta. Automotive finance, Vehicle leasing. June 16,1903 Public company Automobiles Dearborn, Michigan,U.S. Built for the road ahead $ 134.3 billion (2012)

Forces Forces Title No 1. 2. 3. 4.

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5.

Rivalry among competitors

High

1. Bargaining Power of Suppliers: Supplier power is a significant threat to auto companies and manifests itself in several different ways. While the primary raw materials used in vehicles (metals and resins) have many suppliers around the globe, intermediate parts pose a greater problem. Currently, Ford wields significant buying power over its parts suppliers. Many parts suppliers rely on contracts with only one or two automotive firms, meaning changes in production at Ford can dramatically impact the stability of its supply chain. 2. Bargaining Power of Buyers: Retail bargaining power for automobiles is very limited throughout the world. While car dealerships negotiate with and may offer concessions to individual purchasers, the dealer— not the automotive company—bears the costs of these concessions. Because dealers operate within a limited geographic range, they are typically not large enough to exact cost concessions from the manufacturer. In addition, dealers typically finance their purchases through Ford Credit. Overall, diseconomies of scale effectively eliminate buyer power in retail circumstances. 3. Threat of New Entrants: Within the developed world, there are significant barriers to entry for the automobile manufacturing sector. Substantial fixed costs, the influence of brand names upon sales, and the dealership model all hinder new entrants. The ability of an entrant to gain market access—in the form of dealership space—is the most significant barrier within developed countries. In the United States and Western Europe, entry at this time effectively requires the purchase of a company with existing market access. In lesser developed countries, entry is limited by the ability to produce cars at a low enough price point to be appropriately geared for local tastes. Ford in particular has had difficulty penetrating the Indian and Chinese markets as a result of these factors in spite of joint ventures with local firms. Entry by Ford into developing markets can also be hindered by traditional protectionist measures such as tariffs and subsidies for indigenous companies. 4. Threat of Substitutes: While there are no close substitutes for automobiles as a good, recent years have demonstrated the threat public transportation may pose as an imperfect substitute. As oil supplies dwindle and fuel prices rise, public transportation becomes more feasible for communities. Furthermore, the potential for widespread investment in

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public transportation within the U.S. as part of a stimulus package remains a possibility. This provides an additional impetus for car manufacturers to provide highly fuel efficient vehicles for the consumer. For long distances, air travel remains the most popular and cost effective method of transport. This is unlikely to change in the near future. 5. Rivalry among competitors: The automotive industry is noted for its intense rivalry, and within the United States market Ford faces five major competitors: GM, Toyota, Chrysler, Honda, and Nissan. Toyota, Honda, and Nissan have grown in market share largely as a result of their ability to deliver better products at lower prices, particularly for more fuel efficient smaller vehicles. Because of lower labor costs and greater efficiency (typically measured by the number of hours needed to produce each vehicle), these companies have been able to turn a profit with smaller vehicles. In the past, Ford has differentiated itself by focusing on more profitable SUV and truck lines while often losing money on its smaller vehicles. Given changing demand, this strategy is no longer feasible. II. SWOT Analysis: Weaknesses

Strength

1. Timely acquisition of capital 2. „One Ford‟ approach 3. Significant growth in China

1. Poor Profitability 2. High cost structure 3. Unprofitable Europe operations

Opportunities

Threats

1. Positive vehicles

attitude

towards

“green” 1. Decreasing fuel prices 2. Rising raw material prices 3. Intense competition

2. New emission standards 3. Growth through acquisitions

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 Strengths  Timely acquisition of capital makes Ford more financially sound than the other Big Three carmakers.  Product line is respected by industry experts and is qualitatively seen to be a step above many of its competitors. Recent surveys place Ford in a tie with Toyota for greatest customer satisfaction, a significant improvement from five years ago.  Has a global market presence, with worldwide brand recognition and a particularly strong presence in Europe.  Is perceived to be a thoroughly “American” brand, which helps Ford among certain groups of consumers.  U.S. market share, after years of decline, has stabilized in recent years.  The Ford F-series pickup remains the most respected commercial truck available; despite demand shifts, profitability on this line should remain high.  Ford has had great success, particularly when compared to its competitors, at renegotiating labor contracts with the UAW.  Weaknesses  Poor Profitability: Ford still loses money on many automobile lines, particularly within the United States.  Importance of single components source (Visteon).  The automotive market is highly competitive with large fixed costs. In addition, the market demands continual long term planning and research and development.  Very little market penetration within China and India.  Global excess capacity for the automobile industry is estimated to average 30.5 million vehicles per year from 2009-2011.  Ford is selling a durable good during the most severe economic downturn in recent history.

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 Opportunities  Ford has recognized the importance of small, fuel efficient vehicles and is actively transitioning into this market. Of particular interest is Ford‟s „EcoBoost‟ technology, which the company claims will result in 20% greater fuel efficiency and 15% fewer CO2 emissions.  The „One Ford‟ vision has the chance to generate significant margin increases for Ford‟s smaller line of vehicles. Of particular importance is the Ford Fiesta, which was recently released in Europe and China and is slated for an early 2010 release in North America. The „One Ford‟ vision appears to be a coherent strategy for Ford to adopt given its changed role within the industry.  Ford is perceived to be the most stable „American‟ car manufacturer because it has not been forced to take bailout money, leading to slight increases in market share.  GM and Chrysler flexibility is limited by government involvement in their debt situation, putting Ford as a competitive advantage.  In the event of a GM or Chrysler bankruptcy, Ford has placed itself in a position to steal market share—at least in the short term.  Threats  While not in need of a government bailout, poor financial results are straining Ford‟s capital. Cash burn continues unabated, and estimates indicate Ford may be forced to seek government financing by early 2010 unless sales stabilize.  While Ford is readjusting production, truck sales are falling rapidly and Ford may not be able to shift production quickly enough to meet changing demand.  Bankruptcy of Visteon or other parts supplier could cause severe disruption of supply chain.

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 While Ford has too many dealers at this time, it should remain wary of too many closures. In addition, because Ford Credit provides financing for most dealers it must be careful to avoid holding the bag when dealerships close. III. BCG Matrix

3.2 Key Decisions for Ford Ford has emerged as market leader in automotive industry globally, they has been able to sustain their position for a longer period of time, in 1994 they changed their strategic focus, from standardization to adaptation, and up till now this strategy has been paying them, to stay competitive in coming years and not to get trapped in strategic paradox, they are required to make some critical business decisions, below are the areas where Ford would be required to focus and make decision in order to improve its business locally and globally. 1. Investment Efficiency: Investment Efficiency is based on three main strategies, listed in the order in which they were implemented at Ford:

Market Growth Rate

Low

High

High

Low
Relative Market Share

Figure: BCG matrix of Ford motor.

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I.

Micro-engineering: Improving cost characteristics of completed component designs (early to mid-1980s.)

II.

Simultaneous engineering: Manufacturing, assembly, and design engineers working together during the design of components (late 1980s.)

III.

Product and Process Compatibility: Making sure product designs are compatible with existing manufacturing processes, tooling, designs, and facilities early in the design process.

Ford‟s previous initiatives lacked the following:  They did not include the creation of an upper management strategy, the incorporation of Investment Efficiency Metrics, nor the discipline to enforce the use of the new metrics at the “gateways” (i.e., milestone reviews).  They were not based on special Design Rules and Investment Efficiency Metrics in a form easily understood by the product design personnel who are not familiar with the details.  They lacked special groups, familiar with the richness of the details, to help the product designers apply these required new metrics.

2. Product Development: Total quality management (TQM) and Just in Time (JIT) could be used more efficiently. Partnership with the leading universities for continuous innovation could achieve better advantage. 3. Quality: Quality to be maintained through prioritizing green and safe movement. For example, MyKey - which debuted on the 2010 Focus and Taurus, and is now standard on most Ford and Lincoln models - allows owners to program a key that can limit the vehicle's top speed and audio volume as well as mute the audio if front seat occupants are not buckled up. The result of this strategy is a full line of vehicles that Have bold, emotive exterior design  Are great to drive  Are great to sit in (with the comfort and convenience of a second home on wheels and exceptional quietness)  Provide fuel economy as a reason to buy  Are unmistakably a Ford or Lincoln in look, sound and feel

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 Provide exceptional value and quality Developing products customers want and value for Ford and Lincoln demands consistent focus on our commitment to lead in four key areas - Quality, Green, Safe and Smart. 4. Invest in Brand: Since automotive industry is related to the products in which buying behavior of consumer involves sensitivity with product performance and safety, this decision making is also complex because it involves a heavy amount of money from one‟s pocket. That is why is industry is dependent upon good word of mount and favorable brand image can positively affect companies revenues, such complex decisions are always associated with opinion leaders and positive brand image helps getting positive word of mouth, in this regard Ford need to invest heavily in their brand especially there they are newly entered, and planning to enter.

5. Efficient Distribution Channel: While operating globally and having standardization strategy in mind Ford need to have an efficient distribution channel in place, auto market is also dependent on a good channel of distribution, as customers rely heavily on the opinions of dealers, their product information and persuasion abilities play a vital role in decision making of consumers. The more efficient the dealer is and has reliable know about product the more likely is consumer to trust them and depend upon their opinion. Efficient channel of distribution also helps save costs and Ford should improve their geographical management of channel in way that costs are reduced.

6. Cash Flow Management: Automotive industry is characterized with heavy cost and capital investments, for this reason organizations need to have a good cash flow management to supports their operational expenses, to improve their cash flow Ford can get help from their finance SBU as the provide financing to consumers for their automobile purchase. But the key area to look into is an overall cash flow management system to help them operate successfully, and in scenario of global standardization strategy this is even more critical.

7. Compliance with Standards: As companies go global standards of production varies from country to country and region to region, and having a standardization strategy may be a

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challenge to continue as there may be difference in local and international rules and regulations, however this challenge can be faced by making small modifications in production standards but this be again a challenge to keep these modification under controlled and bearable costs, this may also require to have a strategic shift and if not this factor stand-alone but mixed with others can be significant to require a strategic move. 8. Changing Needs: In today‟s business scenario, consumers needs are changing more rapidly than ever, automotive industry where consumer‟s need where pretty much stagnant as compared to other industries this sector is also starting facing this challenge of rapidly changing needs, now every market has their own set of need that will eventually lead the industry to customization according to geographical region, and this can affect their strategic decisions of remaining on standardization, there may be a strategic shift required to cater to this changing paradigm of market dynamics. 9. Organizational Size Management: Ford‟s organizational size may be key factor for them, they have already shut their plants and laid off their thousands of employees, this was an obvious result of strategy they were about to follow, as they were about to create synergies and sharing of resources of among different strategic business units, to keep up with the same strategy they may have to create more synergies and change their organizational size, since they need to reduce their cost further, there may be decisions required to reduce their organizational size, may be from Europe, and USA.

10. Mergers: Ford has been doing some successful mergers and these mergers has been improving their profitability and enhancing their corporate image as market leader in the industry, Ford may be required to have more merger in order to go in untapped markets, they may be required to have merges with local players in order to penetrate in market more rapidly and get more swift acceptance, while moving in emerging economies like India Ford can have some alliances with local industry that can win them more market share then their competitors, this can serve as good idea as this will also save some cost to the market leader.

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11. Strategic Implementation Challenges: Whenever a company decides upon its global business strategy, there comes another challenge of successfully implementing this strategy, same will be the case with Ford, below are challenges that are, in my point of view, can be challenging for Ford in the process implementation. I. Formulation of Strategy: First challenge will be making of viable, clear and successful business strategy, this first has the utmost importance and this is going to be the most important decision. II. Creating Synergies: Since ford is adopting the standardization strategy, there will be a requirement of creating synergies among departments to share resources and knowledge, however most of the time creating synergies become a challenge for the management, people with different knowledge and cultural back ground, different implementation of systems and processes and ability to mold systems and streamline operation create hindrances in creation of synergies, and same will be a challenge for Ford in the short run, and making synergies work in longer run. To have this concept implemented top management will have to present on ground and pay special attention on this because this is the first step in strategy implementation and will provide ground for other steps. III. Commitment of Managers: The middle and lower level manger play a vital role in success and failure of any strategy, because they are the one are going to actually execute the process of implementation, their commitment level and understanding of strategy is very important, as mentioned above if we take synergy creation as example, the role of middle management is very vital in this regard, if they do not understand the concept and rationale of synergies, does not possess the knowledge and skills to actually create synergies they total strategic plan is going to result in a failure, same is the case with other aspect of strategic plan, for better implementation of strategy it is vital to have the required human resources that have the capabilities of having this done. IV. Communication of Plans: This is a important and usually ignored aspect in organizations that strategy and plans are not properly communicated throughout the organization and that is why the whole organization cannot come on one frequency and strategy fails, Ford has to make sure that all are aboard and on the same frequency before making the execution part happen, they will have to make sure that line managers and even support staff understand what is organizational direction and how they are going to

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achieve that direction, failure to do so will result in failure of strategy as happened with many organizations. V. Top Management Commitment & Consistency: Having and strategy formulated and executed is one thing and being committed to one strategy is another thing and at the same time vital thing, while implementing a strategy top management‟s commitment is not only necessary to be there but also it needs to be visible in order to make middle management believe in what they are doing and having faith in their strategic direction. Such strategies, about which management‟s commitment is not visible are not properly executed and does not result in success. VI. Organizational Structure: Having a strategy implemented requires a structure that support the strategy, if Ford is going to have standardization in place then they requires such organizational structure that supports this kind of plans, in order to remain in modern business Ford will be required to have more flatter organizational structure that empowers people with their own decision making. 12. Competitive Advantage: Due to recession market share of Ford motors is in ups and downs situation. Recession caused a sharp decrease of automobile sales. Market share (Worldwide) of Ford Motor is given below:

Market Share
Others 1% Ford 16% Honda 12% General Motor 3% Toyota 69%

Figure: Market Share of Ford motors

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Segment wise market share of Ford motors are given below: In USA, market share of ford motor is increasing.

Figure: Ford Motor Company Market Share – United States In Europe, market share of Ford motor is decreasing.

Figure: Ford Motor Company Market Share – Europe

Analysis on competitors of Ford motor can be done in comparison with main competitors i.e. Toyota motors and the market. No. 1. 2. 3. 4. 5. 6. 7. Particulars Market Cap. Revenue Employees Gross Margin Operating Margin EPS P/E Toyota Corp. 177.06Billion 278.66Billion 325,905 14% 5% 6.17 18.12 Ford Motor 50.75Billion 134.25Billion 171,000 14% 5% 1.42 9.09 Industry(Average) 43.46Billion 76.85Billion 105,000 20% 5% 2.59 8.52

In case of market capitalization, it is clear that Ford motor is far more behind than its main competitor but roughly near to the industry average. Ford motor‟s Gross Profit Margin is lower

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than market. It means direct cost is higher than market but as operating margin is same so Ford has lower indirect expenses than market. Ford has low Price to Earnings ratio than a Toyota motor as Ford‟s earning is lower than the Toyota has. So, we can conclude investors do not have boost confidence over Ford motor.

Figure: Stock Valuation over time.

Barring a further deterioration in financial conditions, current estimates predict that Ford will remain solvent through 2009. The company entered 2009 with approximately fifteen billion dollars in cash on hand, and drew an additional ten billion dollars from its revolver in February. Credit Suisse estimates predict Ford will burn through 7 to 8 billion in cash in 2009; unless automobile sales deteriorate further, solvency should not be an issue for Ford in 2009. In late 2008, GM and Chrysler began negotiations with the government to act as a lender of last resort to prevent the sudden bankruptcy of the two companies. On December 19th, 2008, the automotive bailout was approved by President Bush and extended $17.4 billion worth of loans to the two automakers. Further loans were requested and approved in the first quarter of 2009, however this money has come with stricter restrictions designed to force the companies to demonstrate “long term viability”.

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The following strategic recommendations are designed to address short run and long run problems facing the company. We believe that Ford faces three distinct challenges: 1) The need to minimize cash burn and bring costs down as quickly as possible in order to stay afloat in this difficult economy. Losses must be brought under control by 2013 or the company will face extremely difficult choices regarding its future. 2) The bailout of General Motors and Chrysler has placed Ford in a strategically difficult position. While Ford is currently in a much better financial position than GM or Chrysler, government funding of these competitors generates significant risk. A highly managed bankruptcy—such as the one being proposed for GM—may lead to a significant GM cost advantage, thereby mitigating all of the progress Ford has made in recent years. In addition, any bankruptcy or liquidation could seriously disrupt Ford‟s supply chain. 3) Ford must execute the „One Ford‟ vision and continue to differentiate itself from its competitors even as the economic crisis unfolds. The failure of „One Ford‟ or the Ford Fiesta model would be disastrous for the company. In recent years, Ford has redeveloped a coherent corporate strategy. Ford has avoided the need for government funding because of its timely financing and strategic proactiveness. It is critical, however, to continue these positive trends with the end goal being global profitability and recapturing market share. Ford should not lose sight of the bigger picture while attempting to capitalize on GM and Chrysler‟s current weakness.

13. Divest Volvo: In order to be truly effective, the Volvo brand should have been more fully incorporated into Ford‟s organizational structure and strategically differentiated from Ford‟s other lines. Volvo has an excellent reputation, and targets upper middle class consumers looking for an ultra-safe luxury vehicle at a price point below Mercedes and BMW. Thus, Volvo had the potential to serve within Ford‟s premium line of vehicles, existing at a price point comparable to Lincoln. As it stands right now, however, Volvo does not fit in to the „One Ford‟ strategy being pursued by the company and its losses continue unabated.

14. Factory and Supply Chain Management: Ford should continue its aggressive push to close and idle factories, with an emphasis on those factories within the United States and the Euro

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Zone. In addition to executing these previously announced closures, we strongly believe that Ford must restructure its supply chain more quickly than previously anticipated. Ford currently has approximately 1,600 suppliers, and intends to reduce this number by 750. Current instability within the market, particularly the potential bankruptcy of a competitor, heightens the importance of this reduction and leads us to recommend deeper cuts in the number of suppliers Ford contracts with. Ford must examine all of its suppliers and identify those which are critical to the supply chain. These companies should be prioritized above all others in the distribution of contracts.

15. Prepare for Liquidation of Chrysler and/or Bankruptcy of GM: Ford should prepare extensive plans for how to deal with bankruptcy of a major competitor. As of this writing, Chrysler has until April 30th to reach terms to be purchased by Fiat or the government has stated it will withhold further capital infusions, effectively forcing liquidation.

16. Product Differentiation: In addition to the short term recommendations highlighted above, Oasis Consulting believes it is critical that Ford continue to prepare and execute longer term growth strategies. Ford‟s viability hinges on its ability to successfully differentiate itself from its competitors, both through price and quality. I believe that the „One Ford‟ vision currently being pursued is a sound and cogent strategy, but it does have its risks.

17. Shift Production to Mexico and Eastern Europe I believe there is no reason for Ford to continue producing the majority of its vehicles within two regions with extremely high labor costs: the United States and the Euro Zone. As can be seen in Chart Eight, the United States and the EU Zone account for the overwhelming majority of production. I believe that Ford should attempt in the long run to shift much of this production to Mexico and Eastern Europe, which offer the necessary geographic proximity while having far lower labor and production costs.

18. Expand Market Share in China and India: The Chinese automobile market has experienced consistent growth in the past ten years, and 2008 industry sales surpassed the United States for the first time with nearly ten million vehicles sold. Ford currently holds

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agreements with Chang‟an Automotive of China; through their joint venture Chang‟an Ford the companies manufacture the Ford Focus, Fiesta, and Mondeo lines. In 2008, this joint venture sold approximately 204,000 vehicles. As a result of a recent stimulus package passed by the government, Chinese demand for vehicles is expected to rise by nearly 20% in the year 2009. China is the only major market in which sales growth, let alone growth of this magnitude, is expected. Yet Ford currently holds only a meager two percentage points of market share in China.

3.3 Strategic Success in 2013

I believe if ford motor takes the above strategies, it will be able to foster sales in 2013. Further costs to incur- Marketing cost, Variable cost, Research and Development costs, Alignment cost to boost up sales and penetrate market share. If these strategies been taken, pro forma income statement (Estimated) and with income statement of 2012 for comparison purpose in below:

Particulars

2012(Real) In Million($)

2013(Estimated) In Million($) 198,000

Growth

Revenues

126,567

56%

Cost of sales Selling, administrative, and other expenses

(112,578) (7,979)

(165,000) (10,000)

(47%) (15%)

Income before income taxes

6,010

23,000

360%

If strategies been taken ford motor will be able to increase its Reported revenue around 360%.

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4. Conclusion Ford Motor Company is one of the first American automotive companies that even today successfully manufactures and sells automobiles, trucks, buses and automotive parts. It promotes sustainable business practices in its own global operations and throughout its entire supply chain. Although the automobile industry continues to face a number of challenges, including ongoing economic uncertainty, rising fuel and commodity costs, and the need to reduce carbon emissions, Ford motors plan to meet these challenges with best-in-class vehicles that lead in quality, fuel efficiency, safety, smart design and value. If these strategies been taken by Ford, then Ford will be able to increase market share, boosting up sales and to capture emerging Asian market very soon.

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5. References Annual Report-2012 of Ford Motor. Cases. McGraw-Hill/Irwin. Data from: Yahoo! Finance Doubrava, K. (n.d.). Ohio University. Retrieved 04 12, 2010, from Oak and the world of the web: Ed Davis, B. A. (200, 05 10). University of Virginia. Retrieved 04 14, 2010, from Ford‟s EBusiness. Ford Case analysis: oak.cats.ohiou.edu/~kd636398/esp/Ford_CaseAnalysis.doc Fred R. David(2010-2011), Strategic Management-concept and cases, PHI Learning Private Limited, New Delhi-110001, Twelfth edition. Lynda M Applegate, R. D. (2008). Corporate Information Strategy and Management: Text and Roberta Russell, B. W. (2007). Operations management: creating value along the supply chain. Wiley. Strategy: http://faculty.darden.virginia.edu/gbus885-00/documents/ford_ppts.pdf

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