Thesis: Ford Motor Group

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Ford Motor Company

Company Background and History

Environmental Analysis

Competitor Analysis

Company Performance

Strategic Issues

The Ford Motor Company was founded in 1908 and quickly became an American icon, built around powerhouse franchises such as the Model T, the Thunderbird and the Mustang. Ford has recently been in a downward trend, both in terms of market share and profitability.

Ford competes in an intense market, and has also suffered from the effects of the economic downturn. However, the company spurred bailout funds and has carved its own path to recovery. Despite the feel good story of its past two quarters, Ford still faces a challenging future. It has a poor market position in the world's largest and most rapidly growing auto market -- China. Although Ford has green products in the development pipeline, it lags it competitors in this respect.

Still, Ford has an iconic brand, and a few other advantages that can help to take advantage of the opportunities in the marketplace. In order to do so, Ford must repair its income statement and strengthen its balance sheet. Relations with the dealer network have improved in recent years, but must continue to do so. And the company needs to find a way to leverage the power of its brand.

The Ford Motor Company faces a difficult future, but has the capability to overcome the challenges it faces, save perhaps the economy. If nothing else, Ford needs to survive through the remainder of the economic slowdown because of its precarious financial position. If it can do this, steal market share from GM and Chrysler, and increase capacity in China, Ford will rise once again.

Introduction

Ford Motor Company is the only one of the big three U.S. automakers not to have taken federal bailout money this past year. While Chrysler and General Motors were using Chapter 11 protections to restructure their businesses, Ford's management resisted the government's terms and kept the business afloat on their own. Long saddled with high legacy costs, Ford adopted a unique strategy. Its competitors are no longer saddled with those costs, but those competitors are also owned by the government. This lends Ford a unique status going forward, one that appears to have paid short-term dividends in terms of a faster recovery than its Detroit competitors (Seymour, 2009) but the company's road is far from certain. Ford is still struggling with declining sales and a high liability burden. The company's management has not been able to keep up with competitors, either in terms of production or in terms of product development. Ford still has opportunities for growth, however. The question facing the company is to choose the opportunities that will allow for the company to regain its tarnished image as an American icon, and avoid those that will tip the company over the edge into a Chapter 11 restructuring of its own.

Company Background and History

Henry Ford introduced America to the Model T. In 1908, after 20 years of development work. A superior vehicle in its day, the Model T. changed the course of automobile engineering. By 1913, Ford had built a factory outside of Detroit to mass produce the Model T. The next year, Ford built more cars than all other automakers combined. When the Model T. was retired in 1927, Ford Motor Company entered its next era. Armed with the newly-minted Rouge Assembly Plant in Dearborn, Ford launched the Model A (Ford.com, 2009).

After World War II, Ford captured the hearts and minds of the American people with the '49 Ford, a vehicle of revolutionary design, and introduced in a variety of categories, most of which (coupe, convertible, sedan) still form automobile categories today. By the time the Thunderbird was introduced in 1954 and the Mustang ten years later, Ford had become an American icon, with a sense of fun and the open road indelibly etched into the American psyche (Ford.com, 2009).

In the following decades, Ford remained strong. The company's truck business grew rapidly, and Ford became involved in most of the major automotive trends. Today, Ford has the best-selling auto in the U.S. with the F-Series trucks as well as the #7 (Fusion) and #10 (Escape). With General Motors moving many of its assets, it is expected the Ford will settle out as the number two car company in America, behind Toyota.

Central to Ford's early success -- and current trouble -- is its labor relations. Henry Ford, realizing that assembly line work was unstimulating and therefore subject to higher-than-average turnover, began offering his workers abnormally high wages - $5 a day in 1914. Ford also felt that this allowed workers to afford cars -- in part he was right. Sales soared, turnover was reduced and the plan was a rousing success.

Ninety-five years later and Ford finds itself burdened by what are termed "legacy costs." These legacy costs combine to give Ford -- and formerly Chrysler and General Motors as well -- the highest per hour labor costs in the automotive industry. Ford's legacy costs include the following: All dollars paid to employees; the cost of contractual benefits for employees; the cost of statutory payments, such as social security and worker's compensation. These average to approximately $70 per hour. Retirement and benefits make up the bulk of this cost. The benefits include medical care and drug benefits; dental and vision; group life insurance; disability benefits; supplemental unemployment benefits; pensions; unemployment compensation and payroll taxes. These burdens stem from the days when Ford's production was based on manual labor. A staff in the tens of thousands was granted strong pension benefits, including health care. Ford is now left with tens of thousands of pensioners enjoying not only retirement benefits but rapidly increasingly health care and drug benefits, all paid for out of current earnings.

Ford came into the current economic recession with profits in the middle part of this decade. The company had been successful with SUVs, but demand for these high end vehicles had masked the effects of declining sales in other lines. The company was hit with three years of losses. As the big three automakers all teetered on the edge of bankruptcy, the incoming Obama regime mulled bailout funds for these companies. Ford alone decided against accepting a bailout, feeling that they could recover their business without government intervention -- that the long-term costs of such intervention would outweigh the benefits.

Environmental Analysis

An environmental analysis can help to understand the situation that the company faces, and the external forces that act upon it. A common tool for this type of analysis is the PEST analysis -- political/legal, economic, social and technological.

The political environment in the United States right now is unique. The other two major automakers in the United States have both gone through government-led Chapter 11 bankruptcies. General Motors in particular has emerged a new company, without its legacy costs (Isidore, 2009). Ford resisted the temptation to take taxpayer money to help it restructure, as the firm's managers did not feel it was prudent to surrender control of the company to the federal government (NPR, 2009).

That Ford has to this point opted out of the bailout concept does not preclude the company from pursuing this option in the future. In the present, however, the most significant impact is on the company's competitive environment. Chrysler and GM were shepherded through the Chapter 11 process and allowed to engage is substantial Section 363 restructuring. This was forced upon GM by the government and the restructuring under section 363 essentially allowed the company to keep its good assets while shedding its bad. Its biggest liability -- the pension obligations, was turned over the UAW for a share of ownership. The U.S. government is now the major owner of GM, the Canadian government a minority owner. The federal government, with access to taxpayer dollars and the lowest cost of capital possible, is now competing directly with Ford (de la Merced & Glater, 2009).

The political environment is also impacting Ford in other ways. Over the summer, the "cash-for-clunkers" program spurred a short-term boost in auto sales. Over the longer-term, the Obama government is seeking to encourage the development of fuel-efficient and alternative energy vehicles. Such developments could represent both a threat to and an opportunity for Ford.

Ford is also subject to other governments as well. Some, like California, take the lead on the mandated sale of alternate-energy vehicles. Emissions legislation is a vital component to Ford's business -- it must prepare for ever stricter standards in light of governmental efforts to reduce greenhouse gas emissions. State governments and governments in Canada impact Ford with their policies that impact individual production facilities. A few tax breaks here or there can determine where a vehicle is produced. This situation is mirrored in international markets. Ford operates around the world, and places emphasis on local production. The company is subject to a wide range of laws in foreign countries, and is also subject to the impacts of international treaties,… [END OF PREVIEW]

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