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  • Level: GCSE
  • Subject: Maths
  • Word count: 3555

Ford Motor Company

Extracts from this document...

Introduction

Value Based Strategy                Ford Motor Company

1        BACKGROUND

1.1                Ford Motor Company

Ford was the pioneer of the motor vehicle, just over 100 years ago. Today, Ford Motor Company is a family of automotive brands consisting of: Ford, Lincoln, Mercury, Mazda, Jaguar, Land Rover, Aston Martin, and Volvo, employing 350,321 (Yahoo Finance) workers in more than 200 countries.

1.2                Motor Industry

The American oligopoly in the motor industry, consisting of Ford, General Motors and Chrysler, has suffered from poor financial results recently. As reported by www.guardian.co.uk (16/06/03), “the big three US car-makers are wrestling with the combined effects of over-capacity, growing competition from Europe and Japan, huge pension and health care costs, and a damaging increase in incentives to get customers into the showrooms”.

A real sign that the car industry is in the midst of major change came when www.reuters.com (25/01/04) reported that Toyota had overtaken Ford as the world’s second-biggest automobile manufacturer. The Japanese firm’s strategy of focusing on quality, efficient manufacturing and targeting new markets paid off with their market capitalisation, at $120bn, totalling more than the “big three” combined.

The main value driver for the motor industry is platforms, or production lines. The Japanese and European firms invested heavily in multi-car platforms and can now base a number of cars on one platform, rather than the traditional method of one car per platform. This has reduced their fixed costs dramatically and allowed these firms to sell their cars at much cheaper rates and gain market share. Developing new platforms requires serious investment not just in financial terms, but also in time. The “big three” are several years behind the new competition and because of this, American automotive research firm Iceology estimate the market share of the “big three” could fall from 60.2% in 2003 to 56.5% by 2006 (Business Week, 3867, 76).

2        CURRENT POSITION

2.

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Middle

(Business Week, 3867, 76).

2.2.5        Introduce new models

Ford, in an attempt to regain lost market share to its far eastern competitors, have started to introduce a series of new models mainly aimed at the family market. These include the family sedanand a series of midsize cars, the Five Hundred, Mercury Montego sedans and the Ford Freestyle tall wagon (Business Week, 3865, 30), in the hope of restoring their competitive dominance of a decade ago.

  1. Metrics

Internal and external metrics are an important tool in assisting the analysis of a business, particularly in the context of their industry. Various statistical tools were used to illustrate Ford’s recent problems described previously. These are detailed in full in the appendix. The metrics chosen were used because these are the most appropriate to illustrate Ford’s recent problems and that of the motor industry as a whole.

Figure 1 details the drastic drop in total shareholder return over the five year period from 1998 to 2002. The primary cause for this was the drop in share price, caused by Jacques Nasser’s diversification push. Under normal circumstances shareholders would expect higher dividends to compensate for a falling share price, however, Ford’s dividends were also cut during this period. The chart in figure 2 shows this graphically, while also indicating that despite the falling share price, sales remained fairly constant, showing the impact of increased competition in the industry.

Figures 3 and 4 show how Ford’s share price performance compares to that of their main global competitors over this period. As discussed in section 1.2, the US motor industry has suffered due to outdated working practices, inability to address the changing value driver and increased competition from abroad.

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Conclusion

  • Sales forecasts for Ford and other competitors were unobtainable so assumptions were made on future sales performance.
  • There was a lack of consistency between sources of the data, i.e. some share price information on DataStream varied from that published on FT.com, so it was decided that DataStream’s figures were more accurate so they were used as the basis for the external metric investigation.

The practical problems of the investigation were:

  • News articles regarding the Ford Motor Company may contain reporting bias.
  • Current strategy is derived from newspaper reports and company statements. These are bound to be misleading and will not cover every aspect of the company’s strategy, parts of which will probably be secret.
  • Certain business laws and legislations would make it hard to implement some of the strategic options that are available to Ford.

All these factors have had an effect in the way that this investigation was carried out, and are responsible for the way in which the report has been documented and reported.


References

Books

Faulkner, Bowman. (1995) ‘The Essence of Competitive Strategy’, Prentice-Hall

Barker (2001) ‘Determining Value’, Prentice-Hall

Banham (2002) ‘The Ford Century’, Tehabi

Journals

Can Ford Fix This Flat?’, ‘Business Week’, 2003, 3860, 50

‘Detroit Tries It the Japanese Way’, Business Week, 2004,3867, 76

‘Ford Feels the Pressure’, ‘Strategic Direction’, 2003, 19(1), 9-12

‘Big Three Car Bosses Fight for Pole Position’, ‘Strategic Direction’, 2003, 19(11), 10-13

‘Restructuring Ford Europe’, ‘European Business Review’, 2003, 15(2), 77 - 86

‘Pedal to the Medal - Enough is enough’, ‘Business Week’,  20043865, 30

Financial Resources

DataStream (Aston University Library)

Internet Resources

www.guardian.co.uk, ‘Ford goes in for refit after 100 years’

www.reuters.com, ‘Toyota overtakes Ford as No.2 car maker’

http://finance.yahoo.com/, Yahoo Finance

http://www.autointell-news.com/News-2002/January-2002/January-2002-3/January-16-02-p4.htm - Ford Motor Company Announces Revitalisation Plans

http://www.forbes.com/reuters/newswire/2004/03/02/rtr1282302.html - Ford's Scheele sees deflationary price environment

Truby (2002) - http://www.detnews.com/2002/autosinsider/0209/25/a01-596413.htm

Susanto (2003) - http://www.susanto.id.au/papers/JITFORD.asp

Lienhert (2004) - http://www.forbes.com/2003/12/15/cx_dl_1215feat.html

Group D6                09/05/2007

...read more.

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