Ford Motor Company

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Value Based Strategy                Ford Motor Company

CONTENTS

Title                                        Page

EXECUTIVE SUMMARY                        i

Contents                        ii

1        BACKGROUND                        1

1.1        Ford Motor Company                        1

1.2        Motor Industry                        1

2        CURRENT POSITION                        2

2.1        Competitive Position                        2

2.2        Current Strategy                        3

2.3        Metrics                        5

3        STRATEGIC OPTIONS                        6

3.1        Options & Evaluation of Options                        6

3.2        Preferred Options                         10

4        LIMITATIONS                        11

5        REFERENCES                        12

        APPENDIX


1        BACKGROUND

1.1        Ford Motor Company

Ford was the pioneer of the motor vehicle. The Ford Model T earned inventor Henry Ford a place in history and with it the foundation on which he, along with 11 others, based the Ford Motor Company. 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 (such as BMW) and Japan (such as Toyota), huge pension and health care costs, and a damaging increase in incentives to get customers into the showrooms and the prospects of slumping sales”.

A real sign that the car industry was 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 (such as the fast-growing Asian market) paid off with their market capitalisation, at $120bn, coming to more than the combined totals of the “big three”.

The main value driver for the motor industry is platforms, or production lines. The Japanese and European firms now challenging the “big three” have invested heavily in multi-platform production 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).

  1. CURRENT POSITION

2.1        Competitive Position

Recently Ford celebrated its centenary in style, with extravagant events worldwide to mark the occasion. The intense publicity diverted attention from the fact the company was suffering from slowing sales and dire financial results, such as losing $5.5bn in 2001 (Strategic Direction, 19(1), 9). COO Jacques Nasser led Ford away from their core business and despite replacing him in 2001, the combined effects of his reign and the economic downturn took their toll and the share price tumbled from a high of $32.15 in 1999 down to $9.94 in 2003.

Appendix A contains a SWOT (strengths, weaknesses, opportunities, threats) framework carried out on the Ford Motor Company, identifying some key points for discussion. The majority of their strengths seem to focus on their heritage or their reputation, rather than material or financial strengths, such as efficient manufacturing or high profit margins. Aside from the success of Ford Credit, this hints at an alarming lack of quality manufacturing within the group. The weaknesses point towards the inefficient manufacturing techniques as compared to their Japanese and European rivals, such as the lack of multi-platform vehicle lines, as discussed in, ‘Detroit Tries It the Japanese Way’ (Business Week, 3867, 76).

Whereas previously the battle between the “big three” hit the headlines regularly, it is now the emergence of Toyota as a serious threat that has left Ford, GM and Chrysler reeling. Their failure to adapt quickly has let in the competition from abroad and Ford’s financial results have suffered. This is particularly so in the traditionally strong markets for Ford, such as the SUV (Sports Utility Vehicle) and truck markets in the United States. Other manufacturers have started to target these markets which has caught Ford off-guard, and is making serious inroads into their sales figures.

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Also the failure of recent premium acquisitions in Europe (Jaguar, Land Rover and Aston Martin) to merge operations effectively has drained resources into an area in which Ford hoped would bring them considerable financial gain.

Referring back to the SWOT Analysis (appendix A) conducted on Ford, these more product-focused threats are coupled with financial issues, such as high, unfunded pension and health liabilities and high fixed costs. One such example of high fixed costs is the Jaguar manufacturing operation in the UK, where three manufacturing plants operate producing just four different car-lines.

2.2        Current Strategy

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