Ford Motor Company is one of the premier automotive manufacturing companies in the world.

University Degree Business and Administrative studies

Introduction

Ford Motor Company is one of the premier automotive manufacturing companies in the world. It is most famous for demonstrating the strengths of mass-production assembly lines when it was founded in the early 1900s. Today, it is the world's largest truck maker and the one of the biggest maker of cars, second only to General Motors. Some the brands it makes cars under include Jaguar, Lincoln and Volvo; the company is also well known for its own Taurus and F-Series pickup (Hoover's, 2000). Most notable has been its success with the sports-utility vehicle (SUV) market: its introduction of the Explorer led to rapid growth in the sales of this new breed of vehicles.

External environment

The global IT bust and stock market collapse

The bursting of the IT bubble has forced IT companies all over the world, particularly in the United States, to write-off billions of dollars. One estimate is that IT companies have lost US$ 1 trillion. The accompanying collapse of global stock markets has eliminated an additional US$ 11 trillion from share prices since their peak in 2000.

September 11 and its aftermath

Prior to the terrorist attacks on the United States on September 11, 2001, there were some signs of recovery. Inflation was low, giving banks the chance to adjust. Interest rates had been substantially cut and the response by economies was positive. The terrorist attacks have caused tremendous losses to the finance industry. The global airline industry has cut back hugely. Components suppliers have been hit. But it is continuing political uncertainty that is taking the highest toll. The car industry has not been too badly affected by the depressed global economic scenario, although there have been slight declines in sales in the United States and Europe.

The power of environmental regulations.

Due to the spread of environmental concerns, specifically, there are numerous regulations addressing the environmental impacts associated with automobiles. In the United States, the Federal Clean Air Act (CAA) imposes strict emission standards on all new vehicles. Within the next handful of years, emission standards for trucks shall severely tighten; this change will require manufacturers to upgrade technology to make their products meet these new standards. This is putting pressure on companies to do more research to allow them to attain compliance (Ford, 2000c).

Ford faces an uncertain and rapidly changing automobile market. The ever-important North American market, after one the most historic periods of economic growth, is finally starting to show signs of slowing down. Internationally, new markets are beginning to open up, most notably in China. The European Union is currently undergoing a conversion to the euro, a process that is shaking up the way global businesses operate in Europe, including Ford. Amid this turmoil, Ford finds itself coming out period of globalizing its operations: it finds the strategy has reduced costs, but has left it without a competitive understanding of regional markets.

Ford operates in an extremely competitive environment. First, although there are no more than a handful of firms comparable to Ford, rivalry is intense. The two strongest competitors are General Motors (GM) and DaimlerChrysler; all three companies are global in scale and have operations on all populated continents. Currently, there is a drive for consolidation, thereby allowing these goliaths to spread out costs as well as acquire a broader portfolio of products (Hoover's, 2000). Small firms should not be left out of consideration, for they are showing an ability to be at least a minor competitive force. For example, look at recent changes in U.S. market shares While Ford and GM show a small but steady decline in market share over the last five years, it is the Korean and European carmakers grouped under "All Other" that show the largest increase. Toyota and Honda, while relatively larger than those companies, also show slight increases in their market shares (Ford, 2000c).

Opportunities of Ford

Perhaps the most interesting changes are occurring in the Asian market. China, one of the largest undeveloped markets in the world, has become a member of the World Trade Organization (WTO). Previously, foreign companies have had limited opportunities to participate in this market due to trade barriers and a 30% cap on foreign ownership of any Chinese operation (Reuters, Nov. 1999). With admission to the WTO, China is welcoming increased foreign investment. The Chinese government is allowing direct negotiations between provincial carmakers and foreign partners; the bureaucratic process has been streamlined to approve business deals faster (Roberts and Webb, 2000). This change in business regulations is forcing carmakers to figure out how to establish a strong foothold in this market.

Threats of Ford

Most worrisome is the potential threat of a slowing in the American car market due to higher gas prices and a general slowing of the economy. Given its current status in the international arena, Ford is very protective of its performance in the United States. Unfortunately for Ford, some recent high-profile crises have threatened its reputation in this market. A state judge in California ordered a statewide recall of a wide range of Ford models built between 1983 and 1995. Superior Court Judge Michael Ballachey said Ford had inappropriately installed ignition modules that were prone to stalling; the judge accused Ford of knowingly concealing a dangerous condition. Analysts predict that the California recall would cost Ford $125 million (Kravets, 2000). One issue that has received even stronger attention is the Firestone tire recall. A nationwide recall is underway for 6.5 million faulty Firestone tires that have been linked with 101 deaths in tread separation accidents. Due to a long-standing relationship between Ford and Firestone, most of these tires were installed on Ford Explorers, the most popular SUV in America. This has become a public relation nightmare: in a August 2000 survey of those interested in purchasing an SUV, only 17% thought Ford was properly handling its role in the recall (Fix, 2000). These crises are showing an impact on profit: quarterly profit has dropped for the first time in four years. It is predicted that Ford would have set a record for third-quarter profit if the tire recall had not occurred (Bradsher, Oct. 2000b).

Another trend that could severely impact the industry is the growing body of regulations requiring the sale of zero-emission vehicles (ZEV). In an attempt to reduce air pollution from mobile sources, states like California and New York hope to force the sale of electric vehicles. Fortunately for the industry, regulators have had a difficult time making ZEV requirements stick: automakers have not identified technologies that allow them to produce an electric vehicle that is commercially viable. However, while regulators wait for an opportunity to make such regulations permanent, this push for electric cars has manifested in other ways. Currently, ...

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Extensive environmental regulations have also developed in Europe. Like the United States, the European Union has imposed strict standards on auto emissions. Currently, increasing stringent standards for cars and trucks are being phased in over the next few years. Diesel engines are also being heavily pushed, though the industry does not consider this engine to be technically feasible for broad use in all car models. Perhaps the most important environmental development in Europe is the recently published draft proposal to introduce an obligation for vehicle manufacturers to take back "end-of-life" vehicles on a cost-free basis(Ford, 2000c).

There are other forces outside of the environmental arena that should be considered in understanding the industry. In the United States, there is an increasing concern about high gasoline prices (CNN, Sept. 2000). Although the prices may be relatively low compared to other nations, the consumers in the country find the prices to be unusually high. This may start driving consumers to stress fuel efficiency when examining the various product offerings on the market. Also, a feeble yen is making Japanese exports cheaper in the U.S. and European markets: this may explain the increased market shares of Toyota and Honda (Hoover's, 2000). In Europe, similar concerns have arisen over gas prices: prices in Italy and France have now topped $4 per gallon (Eisenstein, 2000). Furthermore, operations have to contend with a euro that is relatively weak compared to the U.S. dollar and the British pound. This is making it difficult to make profit on vehicles imported into the euro-zone countries (CNN, Oct. 2000).

Internal analysis

Recently Ford has seen a decline in growth and sales. In 1999 Ford reported a net income of $7.2 billion. By the end of 2001 Ford reported a loss of $5.5 billion. The lack of a rebound in stock prices appears to be occurring independent of the market trends. It is clear that while the rest of the market it recovering from a decline in stock prices that began in September 2001, Ford has not recovered. As a result, they are reviewing their business strategy in order to bring the company out of this recent slump. “Nick Scheele, Ford Motor's president and COO, rattled off the ills afflicting his company: anemic capital spending, high marketing costs, damaging employee lawsuits, the Firestone tire debacle. He found it hard to believe that Ford, which just two years ago was considered one of the world's best-run automakers, had fallen so far so fast. ‘It is absolutely nuts,’ he says.”. Scheele goes on to mention that a deteriorating balance sheet, declining market share, poor assembly quality and a tattered new-product program have also contributed to Ford’s downturn.

In response to this situation, Ford has overhauled its strategy, calling for consumer-oriented operations. The hope is that a de-centralization of decision-making power will lead to better understanding regional markets, thereby allowing for better product development and brand marketing. On the other hand, in order to remain sustainable and competitive, Ford finds that it must still keep its costs low. Its strategy and performance in Europe has been especially dismal; evaluations show operation costs must be cut drastically. Furthermore, recent crises in the U.S., including the Firestone controversy and the ignition recall, have been linked to lower-than-expected earnings this year.

Strengths of Ford

Production and Sale of vehicles around the world

By broadening its global footprint, Ford will be better protected from market fluctuations in the United States. There are already signs that Ford is moving to catch up with other automakers in the expanding Asian market: a proposal has just been submitted to the central government for a joint venture between Ford and Chongqing Changan Motor Corporation(AFX, 2000).

Extremely strong brand recognition

Ford’s products and services have the advantage of being marketed through a family of strong, diverse global brands: Ford, Mercury, Mazda, Lincoln, Jaguar, Aston Martin, Volvo, Land Rover, Ford Credit, Hertz and others.

Known for its innovativeness

Ford is pushing for technological improvements in its products, thereby giving consumers cleaner, more fuel efficient, recyclable products. Ford is hoping that this integrated consumer approach will allow it to profitably survive in the dynamic global market. Furthermore, the company has established itself as an environmental leader in the auto manufacturing industry: it is the first company to successfully deploy ISO 14001 at all its facilities.

Very successful new products

In the United States, Ford has the best-selling truck, compact truck, SUV, small SUV and full-size van. In Europe, we’ve launched a string of successful new products, including the Ford Focus, Mondeo, Galaxy, Transit and Fiesta. All around the world, we are adding new vehicles such as the Jaguar X-Type, Aston Martin Vanquish, Mercury Marauder, Ford GT40, Lincoln Aviator, Land Rover Range Rover, Mazda 6, Volvo XC90 and more.

Very strong financial and marketing network

Ford willingly uses its immense financial muscle to increase brand offerings and services to its customers, as well as expanded services

Strong link with Mazda which enables it to sell cars in Japan and the rest of Asia through Mazda's network

Ford most notable holding is a 33.4% interest in the Japanese company Mazda Motor Company (Ford, 2000c).

protecting the environment through product alteration.

Ford sees the push for environmentally friendly products coming from multiple directions: both consumers and the government have long desired features that reduce environmental harm due to automobile use (Ford, 2000a). The development of LEV trucks and SUVs, as well as the development of multiple technologies in the PNGV, is gradually bringing reduced emissions and greater fuel efficiency to the products offered by Ford.

High customer loyalty

The other competitive strength Ford possesses is high customer loyalty. During the latest announcement of the Polk Automotive Loyalty Awards, Ford took home the award for Overall Manufacturer Loyalty. The company was recognized for investing significant resources and time in the quest to serve its customers better (PR Newswire, Jan. 2000). It is doubtful that the recent negative publicity in the United States will severely impact customer relations. Ford is moving quickly to mitigate the damage caused by the recalls.

Weaknesses of Ford

Not great presence in all segments of European Market such as cheap sports cars

Failure of its premium Ford cars such as the Scorpio

Inability to produce a vehicle in the booming mini and medium sized MPV market around the world, although its full sized MPV is very successful

The Premier Automotive Group is taking time to integrate. In the long run the savings from common platforms will be substantial but some have accused Ford for overpaying foot some of the brands such as Volvo

Not much presence in Asia aside from its ownership of Mazda

First, Ford failed in the Indian market. Secondly, Ford retracted the bid and ended negotiations with the bankrupt Daewoo Motor Company in South Korea in September 2000. Now Ford is falling behind in establishing operations in Asian

Evaluation Ford’s strategy since January 1999

Amid this turmoil, Ford is attempting to implement a new strategy to correct for the problems of the Ford’s strategy since January 1999. While it does not have a formal name, this strategy requires Ford to focus on the needs and desires of the consumer. The principles behind this transformational strategy are outlined in Ford's Business Strategy Pyramid In order to become the world's leading consumer company for automotive products and services, Ford hopes to emphasize five strategic approaches:

Strong global brands
Superior customer satisfaction and loyalty
Best total value to the customer
Nimble organization with leaders at all levels
Corporate citizenship

The company hopes these operating principles will guide the company to serving the customers at all levels, from product development and finance to servicing and recycling and disposal. CEO Jac Nasser expects to strengthen and expand the relationship that Ford has with its customers (Ford, 2000a).

To compliment this new strategy, Ford is purchasing service businesses at a frenzied pace. Services being acquired have a focus on maintenance and light and collision repairs (Ford, 2000c). Perhaps the most important recent purchase has been that of Kwik-Fit, Europe's largest car repair business. In limited circumstances, Ford is extending the operations of Hertz into distribution and service (Burt, Jun. 1999a). The company has also acquired several automobile recycling services in the United States and Europe to begin addressing end-of-life issues associated with automobiles (Ford, 2000a).

This purchasing power has also been directed towards the acquisition of strong brand names as well as the development of new technology for their customers. Most notable has been the purchase of Volvo's automaking operations, as well as the purchase of the Land Rover from BMW. Together these purchases were worth more than $9 billion. A key technological partnership was recently formed between Ford and France's PSA Peugeot Citroen. Because Ford has been slow in developing diesel-powered products, this alliance should do much to alleviate this problem (Burt, Jul. 2000).

In another venture to address customer service, Ford is looking to expand the use of the internet in its operations: it has recently formed partnerships with Yahoo! and Microsoft (Burt, Jul. 2000). Since consumers are willing to spend time on the Internet when shopping for automobiles, it is the hope that a strong relationship with them through this medium will allow the company to respond more directly to demand. By having "built to order" operations, manufacturers could slash billions from their inventories, thereby significantly reducing operational costs (Economist, Jan. 2000).

Ford's customer-oriented strategy seems to make business sense, for it plays upon two key competitive strengths of Ford. The first is Ford's willingness to use its immense financial muscle. When one looks at how auto companies expand operations and acquire brands, Ford takes a starkly different approach than its competitors. On the other hand, Ford has generally expanded through outright purchase of operations (Burt, Jul. 2000). In 2000, the company had closed to $25 billion available to make acquisitions (Economist, Sept. 2000). While such a strategy may be more expensive up-front than the use of partnerships, complete control allows Ford to position its brands and products as it likes. Furthermore, Ford can cut costs without fear of retribution from former owners, thereby making profits easier to realize. Ford only turns to alliances when it needs to acquire expertise and technologies in areas they have little experience, like the diesel engine. Historically, alliances have had a great tendency to fail in the industry; outright acquisitions have a much better track record (Burt, Jul. 2000). Given the different history and advantages of these two strategies, Ford is wise in utilizing its financial muscle to increase brand offerings and services to its customers, as well as expanded services.

Ford’s key strategic issues at the present time

In order for Ford to become sustainable, its consumer-oriented approach must meld both business and environmental goals. Ford’s Business Strategy Pyramid illustrates the complexity to which these synergies must occur. In addition to being a nimble organization, maintaining customer satisfaction, and producing strong global brands, Ford must also increase its transparency. Through corporate citizenship, which encompasses the totality of a company’s behavior in society, at home, and abroad, Ford can achieve this attribute. By becoming transparent through its corporate citizenship strategy, Ford has made itself reveal its achievements and deficiencies to its stakeholders. One the one hand, corporate citizenship has allowed Ford to develop an honest and truthful relationship with its consumers, thereby increasing consumers willingness to use the company’s products and services. On the other hand, this corporate honesty forces Ford to recognize its environmental shortcomings and actively address them.

Clearly, Ford’s new consumer-oriented approach is apparent in its both its business and environmental strategy. The Chairman of the Board of Ford, Bill Ford Jr., has acknowledged that the difference between a good company and a great company is that a good company makes excellent products whereas a great company makes excellent products and strives to make the world a better place (Ford, 2000b).

In November of 2000 Ford put a product-focused leadership team with a proven record of strong results in place. By January 2001, Ford had launched a major revitalization plan with three key elements(Ford 2001):

The plan has improved Ford’s quality and rationalize our capacity in North America from 5.7 million units to 4.8 million. It included the closing of five plants and the elimination of four low-margin vehicles by mid-decade.

In Europe, Ford will continue to build on the successful transformation strategy launched in 2000. That strategy, which includes 45 new or significantly improved products over a five-year period, has already improved market share and returned Ford of Europe to profitability.

Conclusion

Ford Motor Company is embarking upon a remarkable strategy oriented around the consumer. This promises to marry the company’s product designs with the preferences of a given market, thereby allowing the company to make the most competitive offering. It also calls upon Ford to service customers throughout their product ownership, thereby strengthening the relationships and understanding between the company and its consumers. At the same the same time, Ford is melding this strategy with an aggressive approach towards environmental issues.

One factor external to its control is the threat of contracting markets. Currently, most of Ford's profit resides in the North American market. Should the economy ever take a turn for the worse, Ford's survival would be in jeopardy. Already the American market is showing signs of slowing down; it will also take time for Ford to regain a solid foothold in a weaker European economy. Therefore, it is absolutely critical that Ford applies some of its purchasing power towards new opportunities in China.

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Reference

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