Ford Motor Company

A. Case Abstract

Ford Motor Company (www.ford.com) is a comprehensive business policy and strategic management case that includes the company’s fiscal year-end December 2006 financial statements, competitor information and more. The case time setting is the year 2007. Sufficient internal and external data are provided to enable students to evaluate current strategies and recommend a three-year strategic plan for the company. Headquartered in Dearborn, MI Ford’s common stock is publicly traded on the New York Stock Exchange under the ticker symbol F.Ford operates in two segments: Automotive and Financing. Products offered include: Ford, Mercury, Lincoln, Volvo and Jaguar. Ford was founded in 1903 and operates worldwide. The company is led by CEO William Ford Jr. and employees over 280,000. The firm’s major competitor is General Motors.

B. Vision Statement (actual)

Our vision is to become the world’s leading consumer company for automotive products and services.

C. Mission Statement (proposed)

Ford Motor Company’s mission is to anticipate consumer needs and provide safe, quality, reliable, and innovative automotive products and services to consumers around the world (1, 2, 3). Meeting and exceeding customer’s expectations for exceptional quality, cutting-edge technology, and superior customer service will enable us to maximize returns to our shareholders. (4, 5). The customer is Job 1. We are passionately committed to ensure we do the right thing for our customers, our employees, our environment, and our society (6, 9). Ford is committed to leading all automotive firms in quality and safety in America and abroad. Along with our commitment to saving the environment, we can continue to add to our proud heritage (7, 8).

1. Customer2. Products or services3. Markets4. Technology5. Concern for survival, profitability, growth6. Philosophy7. Self-concept8. Concern for public image9. Concern for employees

D. External Audit

Opportunities

1. Slowing global economy could lower price of oil.2. Airline travel as declined with the top 10 US airlines losing a combined $27 billion in

2005.3. European market shear has been relatively stable around 10 percent for each of the

last five years.

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4. Ford is an American company, which results in customer loyalty.5. By 2010, electronics are expected to account for nearly 40 percent of an average

vehicle’s value.6. Advances in technology have allowed for less engineers to be needed by auto

companies.7. Growing technology in automobiles forces customers to return to dealer for service.8. Weak dollar makes products cheaper in international markets.

Threats

1. The US motor vehicle market has become the world’s most vigorously competitive auto market since the 1970s.

2. US market share is on a steady decline from 20.5 percent in 2003 to 18 percent in 2005.

3. New Toyota manufacturing plant in Texas that will be capable of producing 200,000 full-size pick-up trucks per year.

4. Franchised dealerships are free to set vehicle prices, and they may or may not offer customers the discounts that automakers provide.

5. The US dollar depreciated against most major currencies since 2002.6. GM, Toyota, and other manufacturers offer great rebates.7. Most Americans think foreign cars are of better quality.8. United Auto Workers (UAW) is one of the most powerful unions in the world.

CPM – Competitive Profile Matrix

Ford GM ToyotaCritical Success Factors Weight Rating Weighte

d ScoreRating Weighte

d ScoreRating Weighted

ScorePrice competitivenessGlobal ExpansionOrganizational StructureEmployee MoraleTechnologyProduct SafetyCustomer LoyaltyUS Market ShareAdvertisingProduct QualityProduct ImageFinancial Position

0.040.050.020.010.040.040.200.150.020.070.200.16

341133224322

0.120.200.020.010.120.120.400.300.080.210.400.32

322143344233

0.120.100.040.010.160.120.600.600.080.140.600.48

332233433342

0.120.150.040.020.120.120.800.450.060.210.800.32

Total 1.00 2.30 3.05 3.21

External Factor Evaluation (EFE) Matrix

Key External Factors Weight Rating Weighted Score

Opportunities1. Slowing global economy could lower price of

oil.0.05 3 0.15

2. Airline travel as declined with the top 10 US airlines losing a combined $27 billion in 2005.

0.03 3 0.09

3. European market shear has been relatively stable around 10 percent for each of the last

0.08 4 0.32

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five years.4. Ford is an American company, which results

in customer loyalty.0.06 2 0.12

5. By 2010, electronics are expected to account for nearly 40 percent of an average vehicle’s value.

0.06 3 0.18

6. Advances in technology have allowed for less engineers to be needed by auto companies.

0.06 3 0.18

7. Growing technology in automobiles forces customers to return to dealer for service.

0.08 4 0.32

8. Weak dollar makes products cheaper in international markets.

0.08 4 0.32

Threats1. The US motor vehicle market has become

the world’s most vigorously competitive auto market since the 1970s.

0.10 2 0.20

2. US market share is on a steady decline from 20.5 percent in 2003 to 18 percent in 2005.

0.10 2 0.20

3. New Toyota manufacturing plant in Texas that will be capable of producing 200,000 full-size pick-up trucks per year.

0.03 2 0.06

4. Franchised dealerships are free to set vehicle prices, and they may or may not offer customers the discounts that automakers provide.

0.05 2 0.10

5. The US dollar depreciated against most major currencies since 2002.

0.08 4 0.32

6. GM, Toyota, and other manufacturers offer great rebates.

0.06 3 0.18

7. Most Americans think foreign cars are of better quality.

0.04 2 0.08

8. United Auto Workers (UAW) is one of the most powerful unions in the world.

0.04 2 0.08

Total 1.00 2.90

E. Internal Audit

Strengths

1. Releasing the Volvo C70.2. Introducing Mercury Mariner Hybrid in 2007.3. Introduced Ford Iosis in 2006.4. Total sales have remained strong over the past 4 years at over $150 billion.5. European market share has remained consistent over last five years, averaging over

10 percent.6. Ford F-series was the best-selling truck in the USA for the 29 th year in a row, selling

more than 900,000 units for the 2nd straight year.7. Operates in 200 markets on 6 continents.8. Wide range of products targeting all income classes.9. Great customer loyalty.

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Weaknesses

1. Operating with $172 billion in debt compared to GM of $42 billion in year end 2006.2. Marketing inefficiencies in US markets. Market share declined over past 4 years.3. Cut 30,000 jobs and more cuts expected.4. Closing 14 manufacturing facilities in N. America.5. Poor mission statement.6. Weak organizational structure and only white males in upper level management.7. Limited warranty of only 36,000 miles or 36 month. Competition offers 100,000 mile

warranty.8. Reported year-end 2006 loss of $12 billion.

Financial Ratio Analysis (January 2008)

Growth Rates % Ford Industry SP-500Sales (Qtr vs year ago qtr) 9.40 9.40 9.00Net Income (YTD vs YTD) NA 111.80 15.40Net Income (Qtr vs year ago qtr) 51.00 616.60 0.90Sales (5-Year Annual Avg.) 1.23 6.84 13.05Net Income (5-Year Annual Avg.) NA 8.54 19.88Dividends (5-Year Annual Avg.) NA 18.86 10.03Price RatiosCurrent P/E Ratio NA 10.8 22.9P/E Ratio 5-Year High NA 8.4 22.7P/E Ratio 5-Year Low NA 2.8 6.7Price/Sales Ratio 0.08 0.60 2.49Price/Book Value NA 1.50 3.53Price/Cash Flow Ratio NA 5.90 10.40Profit MarginsGross Margin NA 19.2 33.7Pre-Tax Margin -2.2 7.2 17.5Net Profit Margin -1.4 3.9 12.45Yr Gross Margin (5-Year Avg.) 48.5 20.7 33.45Yr PreTax Margin (5-Year Avg.) -1.5 5.6 16.65Yr Net Profit Margin (5-Year Avg.) -1.0 3.6 11.5Financial ConditionDebt/Equity Ratio NA NA NACurrent Ratio NA NA NAQuick Ratio NA NA NAInterest Coverage NA NA NALeverage Ratio NA NA NABook Value/Share NA NA NAInvestment Returns %Return On Equity NA NA NAReturn On Assets NA NA NAReturn On Capital NA NA NAReturn On Equity (5-Year Avg.) NA NA NAReturn On Assets (5-Year Avg.) NA NA NAReturn On Capital (5-Year Avg.) NA NA NAManagement EfficiencyIncome/Employee NA NA NARevenue/Employee NA NA NAReceivable Turnover NA NA NAInventory Turnover NA NA NA

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Asset Turnover NA NA NAAdapted from www.moneycentral.msn.com

Date Avg. P/E Price/Sales Price/Book Net Profit Margin (%)12/07 -6.00 0.08 NA -1.612/06 -1.10 0.09 -4.09 -7.912/05 11.90 0.09 1.07 0.912/04 9.10 0.18 1.54 1.812/03 30.50 0.18 2.51 0.4

Date Book Value/ Share

Debt/Equity ROE (%) ROA (%) Interest Coverage

12/07 NA 0.00 NA NA NA12/06 -$1.84 -49.65 364.5 -4.5 NA12/05 $7.21 11.40 12.2 0.6 -0.212/04 $9.52 9.31 18.3 1.1 0.312/03 $6.36 15.44 5.5 0.2 NA

Adapted from www.moneycentral.msn.com

Net Worth Analysis (January 2007 in millions)

1. Stockholders’ Equity + Goodwill = -3,469 + 5,839 $2,3702. Net income x 5 = $-12,613 x 5= $ NA3. Share price = $6.85/EPS -2.88 =$NA x Net Income $-12,613= $ NA4. Number of Shares Outstanding x Share Price = 2,110x $6.85 = $ 14,453Method Average $8,412

Internal Factor Evaluation (IFE) Matrix

Key Internal Factors Weight Rating WeightedScore

Strengths1. Releasing the Volvo C70. 0.05 4 0.202. Introducing Mercury Mariner Hybrid in 2007. 0.05 4 0.203. Introduced Ford Iosis in 2006. 0.05 4 0.204. Total sales have remained strong over the past 4

years at over $150 billion.0.07 3 0.21

5. European market share has remained consistent over last five years, averaging over 10 percent.

0.07 4 0.28

6. Ford F-series was the best-selling truck in the US for the 29th year in a row, selling more than 900,000 units for the 2nd straight year.

0.06 4 0.24

7. Operates in 200 markets on 6 continents. 0.06 4 0.248. Wide range of products targeting all income

classes.0.06 4 0.24

9. Great customer loyalty. 0.05 3 0.15Weaknesses1. Operating with $172 billion in debt compared to GM

of $42 billion in year end 2006.0.10 1 0.10

2. Marketing inefficiencies in US markets. Market share declined over past 4 years.

0.09 1 0.09

3. Cut 30,000 jobs and more cuts expected. 0.05 1 0.054. Closing 14 manufacturing facilities in N. America. 0.06 1 0.06

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5. Poor mission statement. 0.02 1 0.026. Weak organizational structure and only white males

in upper level management.0.02 1 0.02

7. Limited warranty of only 36,000 miles or 36 month. Competition offers 100,000 mile warranty.

0.04 1 0.04

8. Reported year-end 2006 loss of $12 billion. 0.10 1 0.10TOTAL 1.00 2.44

F. SWOT Strategies

SO Strategies

1. Continue R&D for hybrid automobiles (S2, O5, O6, O7).2. Open new facility in Eastern Europe (S5, O3, O8).

WO Strategies

1. Improve mission statement (W5, O3, O4).

ST Strategies

1. Focus development on cutting edge fuel efficient automobiles (S1, S2, S3, T1, T2).

WT Strategies

1. Build smaller more efficient plants in the United States (W4, T1, T3).2. Offer new 100,000 mile warranty on all vehicles (W7, T6, T7).

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G. SPACE Matrix

6

5

4

3

2

1

-6 -5 -4 -3 -2 -1 1 2 3 4 5 6-1

-2

-3

-4

-5

-6Competitive

IS

ES

CA

FSConservative Aggressive

Defensive

Return on Assets (ROA) 1 Rate of Inflation -3Leverage 1 Technological Changes -4Net Income 2 Price Elasticity of Demand -3Income/Employee 1 Competitive Pressure -6Return on Equity (ROE) 1 Barriers to Entry into Market -2

1.2 -3.6Environmental Stability (ES) Average Financial Strength (FS) Average

Environmental Stability (ES)Financial Strength (FS)

Market Share -2 Growth Potential 5Product Quality -2 Financial Stability 3Customer Loyalty -2 Ease of Entry into Market 6Technological know-how -1 Resource Utilization 4Control over Suppliers and Distributors -2 Profit Potential 5

-1.8 4.6Competitive Advantage (CA) Average Industry Strength (IS) Average

Competitive Advantage (CA) Industry Strength (IS)

x-axis: -1.8 + 5.0 = 3.2y-axis: 4.8 + -4.0 = 0.8

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H. Grand Strategy Matrix

Rapid Market Growth

Quadrant II Quadrant I

Strong Competitive

Position

Slow Market Growth

Weak Competitive

Position

Quadrant III Quadrant IV

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I. The Internal-External (IE) Matrix

The IFE Total Weighted Score

Strong Average Weak3.0 to 4.0 2.0 to 2.99 1.0 to 1.99

High I II III3.0 to 3.99

Medium IV V VIThe EFE Total Weighted Score

2.0 to 2.99

Ford

Low VII VIII IX1.0 to 1.99

Hold and Maintain

Business Segment % Revenue

North America 53Europe 20PAG 20Asia/Pacific 5South America 3

J. QSPM

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Strategic Alternatives

Key Internal Factors Weight

Builder Smaller Plants in the US

Focus on Smaller and Hybrid Vehicles

Strengths AS TAS AS TAS1. Releasing the Volvo C70. 0.05 2 0.10 4 0.202. Introducing Mercury Mariner Hybrid in 2007. 0.05 2 0.10 4 0.203. Introduced Ford Iosis in 2006. 0.05 2 0.10 4 0.204. Total sales have remained strong over the

past 4 years at over $150 billion.0.07 3 0.21 2 0.14

5. European market share has remained consistent over last five years, averaging over 10 percent.

0.07 2 0.14 4 0.28

6. Ford F-series was the best-selling truck in the US for the 29th year in a row, selling more than 900,000 units for the 2nd straight year.

0.06 --- --- --- ---

7. Operates in 200 markets on 6 continents. 0.06 --- --- --- ---8. Wide range of products targeting all income

classes.0.06 --- --- --- ---

9. Great customer loyalty. 0.05 --- --- --- ---Weaknesses1. Operating with $172 billion in debt compared

to GM of $42 billion in year end 2006.0.10 4 0.40 2 0.20

2. Marketing inefficiencies in US markets. Market share declined over past 4 years.

0.09 4 0.36 2 0.18

3. Cut 30,000 jobs and more cuts expected. 0.05 4 0.20 2 0.104. Closing 14 manufacturing facilities in N.

America.0.06 4 0.24 2 0.12

5. Poor mission statement. 0.02 --- --- --- ---6. Weak organizational structure and only white

males in upper level management.0.02 --- --- --- ---

7. Limited warranty of only 36,000 miles or 36 month. Competition offers 100,000 mile warranty.

0.04 --- --- --- ---

8. Reported year-end 2006 loss of $12 billion. 0.10 --- --- --- ---SUBTOTAL 1.00 1.85 1.62

Key External Factors Weight

Builder Smaller Plants in the US

Focus on Smaller and Hybrid Vehicles

Opportunities AS TAS AS TAS1. Slowing global economy could lower price of oil. 0.05 2 0.10 4 0.202. Airline travel as declined with the top 10 US

airlines losing a combined $27 billion in 2005.0.03 --- --- --- ---

3. European market shear has been relatively stable around 10 percent for each of the last five years.

0.08 1 0.08 3 0.24

4. Ford is an American company, which results in customer loyalty.

0.06 4 0.24 2 0.12

5. By 2010, electronics are expected to account for nearly 40 percent of an average vehicle’s value.

0.06 --- --- --- ---

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6. Advances in technology has allowed for less engineers to be needed by auto companies.

0.06 --- --- --- ---

7. Growing technology in automobiles forces customers to return to dealer for service.

0.08 --- --- --- ---

8. Weak dollar makes products cheaper in international markets.

0.08 --- --- --- ---

Threats1. The US motor vehicle market has become the

world’s most vigorously competitive auto market since the 1970s.

0.10 2 0.20 3 0.30

2. US market share is on a steady decline from 20.5 percent in 2003 to 18 percent in 2005.

0.10 2 0.20 3 0.30

3. New Toyota manufacturing plant in Texas that will be capable of producing 200,000 full-size pick-up trucks per year.

0.03 4 0.12 2 0.06

4. Franchised dealerships are free to set vehicle prices, and they may or may not offer customers the discounts that automakers provide.

0.05 --- --- --- ---

5. The US dollar has depreciated against most major currencies since 2002.

0.08 --- --- --- ---

6. GM, Toyota, and other manufacturers offer great rebates.

0.06 --- --- --- ---

7. Most Americans think foreign cars are of better quality.

0.04 --- --- --- ---

8. United Auto Workers (UAW) is one of the most powerful unions in the world.

0.04 --- --- --- ---

SUBTOTAL 0.94 1.22SUM TOTAL ATTRACTIVENESS SCORE 2.79 2.84

K. Recommendations

1. The QSPM strategies assessed whether building smaller more efficient plants in the US or producing cheaper more fuel efficient automobiles. Given the financial position of Ford, they cannot afford any strategic mistakes. Therefore the EPS/EBIT analysis recommends funding $300 million for R&D and market research to determine the best strategic alternatives in producing hybrid automobiles.

L. EPS/EBIT Analysis

$ Amount Needed: 300MStock Price: $6.85Tax Rate: 35%Interest Rate: 7%# Shares Outstanding: 2,110M

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Recession Normal Boom Recession Normal BoomEBIT (10,000,000,000) 10,000,000,000 15,000,000,000 (10,000,000,000) 10,000,000,000 15,000,000,000Interest 0 0 0 21,000,000 21,000,000 21,000,000EBT (10,000,000,000) 10,000,000,000 15,000,000,000 (10,021,000,000) 9,979,000,000 14,979,000,000Taxes (3,500,000,000) 3,500,000,000 5,250,000,000 (3,507,350,000) 3,492,650,000 5,242,650,000EAT (6,500,000,000) 6,500,000,000 9,750,000,000 (6,513,650,000) 6,486,350,000 9,736,350,000# Shares 2,153,795,620 2,153,795,620 2,153,795,620 2,110,000,000 2,110,000,000 2,110,000,000EPS (3.02) 3.02 4.53 (3.09) 3.07 4.61

Common Stock Financing Debt Financing

70 Percent Stock - 30 Percent Debt 70 Percent Debt - 30 Percent StockRecession Normal Boom Recession Normal Boom

EBIT (10,000,000,000) 10,000,000,000 15,000,000,000 (10,000,000,000) 10,000,000,000 15,000,000,000Interest 6,300,000 6,300,000 6,300,000 14,700,000 14,700,000 14,700,000EBT (10,006,300,000) 9,993,700,000 14,993,700,000 (10,014,700,000) 9,985,300,000 14,985,300,000Taxes (3,502,205,000) 3,497,795,000 5,247,795,000 (3,505,145,000) 3,494,855,000 5,244,855,000EAT (6,504,095,000) 6,495,905,000 9,745,905,000 (6,509,555,000) 6,490,445,000 9,740,445,000# Shares 2,140,656,934 2,140,656,934 2,140,656,934 2,123,138,686 2,123,138,686 2,123,138,686EPS (3.04) 3.03 4.55 (3.07) 3.06 4.59

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