Jesse Fenton

BUSA 4126

Business Policy

Term: Spring 2013

Company Report: Ford Motor Company

Company Background and General Information

The Ford Motor Company was founded in 1903 and over the past 105 years has become one of the most recognizable automotive makers in the world. In 2007 Ford was the third largest automaker based on worldwide vehicle sales as well as being third in sales in the United States. Ford was also the overall seventh-ranked American-based company in the 2007 Fortune 500 list, based on global revenues in 2006 of $160.1 billion. In 2007 Ford and its subsidiary, Jaguar Cars Limited, completed the sale of its interest in the high end Aston Martin automobiles. The company is divided into two separate segments, Automotive and Financial Services. Between these two segments, Ford currently employs over 246,000 employees throughout the world.

The automotive segment is responsible for the manufacturing and distribution of vehicles under Ford, Lincoln, Mercury, Volvo, Jaguar, and Land Rover brand names. All of Ford's cars, trucks and parts are marketed through retail dealers in North America, and through distributors and dealers outside of North America. This segment is also responsible for selling cars and trucks to dealers for sale to fleet customers such as rental companies. In addition to producing and selling cars and trucks, Ford also provides retail customers with a variety of services and products through its dealer network, mainly in the areas of maintenance, repair and vehicle service warranties. In 2007, Ford sold 6,553,000 vehicles worldwide. In addition to North American sales, Ford has divided the company into global sectors. These include, Ford South America, Ford Europe, and Ford Asia Pacific/Africa. Ford also currently owns 33.4% of Japanese automaker Mazda.

In addition to the automotive segment, Ford has created Ford Motor Credit Company. This segment offers various automotive financing products through automotive dealers. The biggest part of the Ford Credit business consists of helping to finance the company’s vehicles while also supporting its individual dealers. The financial segment is divided into three categories, retail financing, wholesale financing, and other financing. Retail financing involves purchasing retail installment sales contracts and retail lease contracts from dealers, and offering financing to commercial customers, primarily vehicle leasing companies and fleet purchasers, to purchase or lease vehicle fleets. Wholesale financing involves making loans to dealers to finance the purchase of vehicle inventory. Finally, other financing includes making loans to dealers for working capital, improvements to dealership facilities, and thee acquisition and refinancing of dealership real estate.

General Environment Analysis PESTEL Analysis Political Factor 1.) The September 11th terrorist attack which had occurred in the US reduced the sales of automobiles in the US, and specifically Ford’s sales by 10%. 2.) The economic recession in Argentina in 2002 adversely affected car sales in Argentina, production volume fell from 57,200 units to 31,000 units. 3.) The Iraqi war affected Ford adversely as their US sales declined by 7% . The war has had a similar affect on other firms operating in the industry also

Economic Factors 1.) Rising petrol prices make it more expensive for consumers to drive petrol fuelled cars which consequently means that consumers are inclined to change their cars which operate using diesel. (The Guardian 2005) 2.) Ford’s SUV’s (Sport Utility Vehicle) sales declined due to rising gasoline prices, in turn their share prices also declined (Reuters, 2005) 3.) The rise in the demand for Japanese cars which consume less petrol than most American cars has meant that automobile manufacturers have needed to reduce their prices in order to sell their vehicles and to maintain their market shares Social Factors 1.) Cars are viewed as a status symbol (Key Note, 2005). The brand choice of a car influences the way that a person is perceived by the public. 2.) The demand for luxury cars are on the increase in the EU. Ford entered the luxury cars market in the EU with Cadillac in September 2004. ( 3.) Smaller, city cars are also in demand in the EU to facilitate access in busy city centres, to allow for easier parking and also due to their lower consumption of petrol. 4.) Although the Japanese cars are a success in the US, the public in the US demonstrate a hostile approach towards them. Since the Japanese cars entered the US market, the American companies such as Ford and GM have been losing market share. Women drivers and cars for women attract many stereotypical viewpoints. Technological Factors 1.) Technological advancements are vital for those in the automotive industry for several reasons. 2.) Primarily, research and development is necessary to attract new buyers, and firms cannot afford to be laggards. 3.) Secondly, firms need to be aware of new technologies for their production lines; this reduces manpower and therefore reduces the costs of building vehicles. Japanese firms owe their success and profitability to technological pioneering. Ford is said to be pioneers in force-controlled robots for their transmission assemblies, allowing them to have a competitive edge and to reduce costs incurred per vehicle Environmental Factors 1.) Hurricanes in the US have caused the oil prices to fluctuate. 2.) Due to global warming and the carbon dioxide gasses emitted from vehicles the public may seek public transport in an attempt to protect the environment. 3.) Petrol is anticipated to finish within the next 50 years. Legal Factors 1.) Car manufacturers are increasingly reducing their numbers of employee’s due to technology replacing manpower. However, pressure from Trade Unions in the US and the European Union make it difficult for car firms to dismiss employees. 2.) The European Commission has changed the rules regarding car distribution, to allow the dealers to have more freedom to compete across the EU.

Industry Environment Analysis Porter’s Five Forces Rivalry Amongst Competitors 1.) Competition is extremely fierce in this industry. The biggest players in the industry by volume are General Motors, followed by Ford, Daimler-Chrysler and Toyota in terms. This order is changeable depending on the actions taken by companies in attracting consumers. 2.) Different companies are providing different incentives to attract customers to purchasing their band of vehicles. Ford Motor Company in the past has been very successful due to their advantages relating to volume and economies of scale and it was anticipated that they would become the biggest player in the industry taking the place of General Motors. However, due to the actions taken by their competition, General Motor, Ford continues to remain in second place Ford experienced adverse publicity due to the type scandal and also the poor marketing of baby Jag while General Motors introduced incentives such as “General Motors military offer”. 3.) The demand for automobiles even though it remains high, has been declining since the1990s. A large number of companies are fighting to cater for the existing demand. 4.) Due to the sleek design and price incentives provided by Japanese manufacturers, US car sales declined by 14% in October; causing Ford and General Motors to lose market shares while Toyota and Honda gained. Threat of Substitute Products or Services 1.) Although the public are becoming increasingly aware of global warming and therefore choosing other forms of transport such as trains, busses and bicycles, it can still be said that cars and other private vehicles are viewed as a necessity especially for those who do not live in city. 2.) It is therefore believed that no real threats of substitutes exist today. 3.) In the future, if cars that use other forms of energy apart from diesel and petrol are introduced to the market, they may pose problems for the current manufacturers in the industry Bargaining Power of Customers 1.) The buyer power is greatly affected by inflation and interest rates which are further affected by the fluctuations in fuel prices. However, buyer power remains high for the industry, which also confirms the competitive rivalry within the industry. 2.) The competition is high in the industry, with similar products that have minority differences. Car manufacturers are providing other incentives to attract the buyers to their brands. For instance, Ford are providing free upgrades worth up to₤2000 for their customers in the United Kingdom 3.) Consumer preferences determine the type of car sold. With rising interest and inflation rates, consumers are interested in vehicles that are cheaper to run in the long term.

4.)Firms are using fierce marketing techniques in order to attract consumers to their products. Extra benefits, price incentives and add-ons are some examples of these marketing activities Bargaining Power of Suppliers 1.) Supplier power has a certain affect on the firms in this industry but remains relatively low. Suppliers provide certain components necessary for the production of vehicles and also spare parts for future repairs. 2.) However, in order to benefit from economies of scale, firms are reducing the number of their suppliers and increasing their orders on their existing suppliers. 3.) Due to such actions taken by car manufacturing firms, the competition among the suppliers is also increasing. Suppliers are reducing the prices of the components and provide other financial incentives. 4.) Such competition benefits both the car firms and the suppliers. Car firm’s benefit due to being able to obtain cheaper parts and also trough economies of scale through the large orders, which they place. Supplier’s benefit through attracting large and long term contracts with car manufacturers. Threat of New Competition 1.) There are distinctive barriers to entry in the automotive industry. The main 10firms operating in the automotive industry have great power in terms of reputation, finances, experience, technology and existing large product portfolios. It would be highly difficult for a new company to compete with the current market. 2.) Due to the environmental and technological factors mentioned previously, car firms must heavily invest in research and development. New comers to the industry may find it difficult to compete with the investments made by existing large firms. 3.) It is anticipated that the ways of being able to over come the barriers to entry in this industry would be to enter the market with vehicles that consume other forms of energy and vehicles that are environmentally friendly. 4.) As mentioned previously, Chinese cars are entering into this industry. It is believed that they will be able to compete due to the low pries of their vehicles. The Chinese firms are able to produce cars at a lower cost than the American manufacturers. Internal Competence SWOT Analysis Strengths 1.) Ford Motor Company and all its individual brands have been enjoying the benefits of the good reputation that they hold. They have brands and models of cars to appeal to every kind of demographic group, and simply cater for the needs and wants of consumers. 2.) Ford is particularly successful in their sponsorships, advertising and other forms of marketing. Ford is currently sponsoring the football Champions League, with “Destination Football” slogan. 3.) The current research and development activities of Ford allow them to be pioneers in certain production technologies.

Weaknesses 1.) In an attempt to attract younger generations to purchase Jaguar cars, Ford introduced “baby Jag”. The effects of such an action proved to be negative in damaging Jaguar’s reputation, and are a weakness for Ford Motor Company. 2.) Quality assurance needs to be more of a focal point for Ford to avoid recalling cars and expensive repair operations. 3) In 2002, Ford and Bridgestone experienced a faulty tyre scandal which caused a two billion-dollar loss. Opportunities 1.) To develop vehicles that uses other forms of energy than petrol and diesel and to become pioneers in this area. 2.) The numbers of car owners who replace their old models with new ones are on the increase. 3.) Demand for cars by women drivers is on the increase and so is the overall demand for cars (Key Note, 2005). Threats 1.) Further increases in gasoline prices, and eventually the world supply of gasoline finishing. 2.) To become laggards in any technological advancements. 3.) The demand for Japanese cars is on the increase. Unless Ford is able to improve on their weaknesses, there is a risk of them losing further market share to other car-manufacturing firms. Internal Factor Evaluation

Three (3) Strategies for the Company The Internal-External (IE) Matrix

• Based on the Internal-External (IE) Matrix Ford Motor Company should grow

and hold backward, forward, or horizontal integration; Market Penetration; Market Development; Product Development.

Boston Consulting Group Matrix

• Based on the Boston Consulting Groups Matrix the Ford Motor Company should

focus on product development; diversification, retrenchment, divestiture

The Strategic Position and Action Evaluation (SPACE) Matrix

• Based on the Strategic Position and Action Evaluation (SPACE) Matrix the Ford Motor Company should engage in a competitive strategy: Backward, forward, horizontal integration; Market penetration; Market development; Product development.

Conclusion and Interesting Facts From my findings and research, Ford is an American car manufacturer that started business in 1903 and has grown to become the fifth largest car company in the world where numbers of sold cars are concerned. When you consider that in 1903 only 14 percent of houses in the US had a bathtub then it shows what an achievement this is.

Ford Motor Company is the largest family owned business in the world. All of the company’s CEOs have been directly related to the company founder Henry Ford since he retired from the position. That includes Henry Ford II who was the grandson of the founder.

Ford’s famous race car the GT40 won Le Mans 24 hour race 4 times on the trot during the 1960s and it is rumored that it was designed and built to beat Ferrari after a buyout by Ford didn’t come to fruition. The car did just that and came 1st, 2nd and 3rd at Le Mans

in 1966. It is now one of the world’s most recognizable long distance race cars and was named by the fact that it is only 40 inches high.

Ford invented the assembly line method for making cars. It is said that Henry Ford got the assembly line idea from the way that pigs are slaughtered and butchered. Regardless of how the idea came about, it revolutionized car construction and is still the most popular way cars are built even today.