Birla Institute of Technology & Science, Pilani Second Semester (2012-2013)

A Report on Ford Motor Company

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Introduction

Ford Motor Company is an American multinational automaker headquartered at Deaborn, Michigan that manufactures or distributes automobiles across six continents. It was founded by Henry Ford on June 16, 1903.The first model introduced to the market was the T-model in 1908.It is listed in the New York Stock Exchange and is controlled by the Ford family, although they have minority ownership. Ford is the second largest US based automaker and the fifth largest in the world based on 2010 vehicle sales. [2] With about 171,000 employees and 65 plants worldwide, the company’s automotive brands include Ford and Lincoln

Product and Services

Ford Motor Company sells a broad range of automobiles under the Ford marque worldwide, and an additional range of luxury automobiles under the Lincoln marque in the US.

Ford has produced trucks since 1908.From the late 1940’s to 1970’s Ford’s F-series were used as the base of light trucks for the North American market.

Ford manufactured complete buses in the company's early history, but today the role of the company has changed to that of a second stage manufacturer

Ford also provides financial services through Ford Motor Credit Company.

Ford’s FoMoCo division sells aftermarket parts under the Motorcraft brand name.

Market and Market Share

Ford Motor market spreads across North America, Europe, Asia Pacific, South America, Africa and Middle East.

Ford’s sales in the U.S. were up 14.3 percent in 2011 compared to 2010. Ford’s market share for 2011 was 16.5 percent, up 0.1 percentage points over 2010 and 2.3 points over 2008.

Market share data for Ford Motors as of 2011 are as follows:

Country/Continent ShareUS 16.5 %Europe 8.3 %Asia Pacific and Africa 2.7 %South America 9.3 %

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Sales and Revenue

Ford Motor Company delivered strong results in 2012 – achieving 14 straight quarters of operating profit and our fourth year in a row of positive net income.

The company reported revenue of about 6.3 billion USD of pre-tax profit from the automotive sector. (Nearly 72%)

As of year-end 2012, Ford Credit was financing about 5,200 Ford and Lincoln dealers and more than 3.6 million retail customers around the world. It reported revenue of 2.4 billion USD of pre-tax profit. (Nearly 28%)

Revenue grew +12.7% YoY to 136.3 billion USD. (From 2010 to 2011).

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Competitors

Brands like General Motors, Chrysler, Toyota and Honda are giving stiff competition to Ford Motors all over the world.

With the evolution of hybrid engines, Ford is facing a threat in terms of decreasing market share. But recent strategies have been extremely helpful in regaining the lost share especially in the United States.

Organizational Culture

Values of an organization define its character and personality. Ford supports a participative culture and an open communication system. It is being characterized by a strong culture with the key values being intensely held and widely shared.Throughout the history of Ford Motor Company, inclusion has been as much a part of the company's success as the great products that the company’s diverse employee base has created.

People Orientation - Ford exhibits a culture that is adaptive in nature and managers in the company show care for their clients, stock holders and employees. Employees at Ford are treated as a very important asset to the company and their contribution is valued and always encouraged. Opinions of employees at Ford Motors are always listened to through their participative model and the organization offers them chance to air their opinions and have them weighed for chances of consideration. The company focuses on the development of future leaders and it runs a leadership development program that reaches an estimated 2000 managers round the globe.

Aggressiveness/competitiveness- The employee involvement plan put to work at Ford Motors makes a significant impact on the competitive nature of employees. This happens through the identification and promotion of factors that may be motivational to the employees, like sending top performers for better training to hone their skills. This itself make the culture completive enough to best fit according to the goals of the company.

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Team Orientation – through one ford approach the company emphasizes the importance of working together as one team to achieve automotive leadership. Even though there are many types of employees and work arrangements all are made to work with each other the common goal of making ford a leader in automobile industry, be it in any part of the world.

Outcome Orientation- Company has always tried to focus on quality, even if it is at the cost of profits sometimes.

Attention to detail- Being a leading manufacturer, precision and reliability are the hallmark of ford’s products from its employees.

Innovation and risk taking- Employee views are valued and frequent launch of new products exhibiting innovative features depicts a high degree of same.

Stability- Low degree of stability as status quo has been put to stake many a times in the past in favour of innovations and boosting employee morale.

Corporate Social Responsibility

Ford Motors is a top leader in the corporate social responsibility component and is recognized as one of the world's most ethical companies by Ethisphere.

Ford has been rated among the top 25 companies in the world in corporate social responsibility reporting by “Tomorrow’s Value: The Global Reporters”.

Ford has earned best-in-class status for its environmental and social performance in Storebrand Investments’ 2006 Socially Responsible Investment survey. [3]

Ford participates in the fight for ‘labor’ rights of workers across the world. Much of Ford’s focus is on eradicating labor issues within supply chains all around the world, whether in pig iron from Brazil, cotton from Uzbekistan or cocoa from West Africa.

The Ford factories themselves put out a carbon footprint that has to be controlled by regulation and corroboration with government and world leaders.

Ford has been making electric automobiles and producing better MPG on their gasoline and diesel powered automobiles, and steadily improving on lessening the carbon impact on the world.

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Corporate Strategies

Ford through its ONE Ford Plan has tried to implement its growth and renewal strategies.

Growth strategy-Accelerate development of new products to suit customers want and value; Finance plans and improve balance sheet; and work together effectively as one team, leveraging the company’s global assets are some of the major steps taken by the company in recent years. [4]

Concentration- Ford has delivered consumer friendly, highly fuel efficient and innovative vehicles most of the time and concentrated on quality over quantity.

Vertical integration – The ford motor credit company provides automobile loans in support of its parent company. The company offers consumer loans and leases to car buyers, as well as business loans and lines of credit to dealerships selling Ford Motor Company products. The firm also issues commercial paper and other debt instruments on Ford's behalf. In this way the company has achieved dual objectives, it has become its own supplier as well as distributor, thus achieving forward and backward vertical integration at the same time.

Horizontal integration- Ford’s competitors are themselves some of the oldest automobile companies, like Chrysler and general motors. Hence any kind of collaboration was simply not possible as these companies know it better to resolve the crisis by other means possible.

Diversification- Ford has combined with Aston Martin, a sports car manufacturer, a company which is different but related. Hence a related diversification can be seen here.

Stability strategy- Since its inception, one of the most remarkable achievements of ford is its constant focus on production of highly fuel efficient vehicles. Ford’s global vehicles showcase their commitment to fuel efficiency. Technologies like EcoBoost®, direct injection of gasoline or diesel fuel, six-speed transmissions, and hybrid and plug-in hybrid powertrains are some of the innovations in this regard. [5]

Renewal strategy- To maintain status quo ford has come up with some solutions.

Retrenchment- Owing to its financial deficits, the company discontinued its production of luxury vehicle under mercury brand in 2008.

Business Strategies

Business strategies are meant for how a company will compete in its businesses. Based on Porter’s 5 forces model following are the activities of the company

Current rivalry- Ford faces five major competitors: GM, Toyota, Chrysler, Honda, and Nissan. Toyota, Honda, and Nissan have grown in market share largely as a result

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of their ability to deliver better products at lower prices, particularly for more fuel efficient smaller vehicles. Ford has been losing money on its smaller vehicles. Ford has managed to remain competitive in Europe by designing cars which appeal to European tastes and by increasing the quality ratings of its vehicles. This has led to stable market share and profits over the past three years.

Bargaining power of Suppliers - Currently, Ford wields significant buying power over its parts suppliers. Many parts suppliers rely on contracts with only one or two automotive firms, meaning changes in production at Ford can dramatically impact the stability of its supply chain. In the past few years Ford has made a concerted effort to reduce the number of suppliers it contracts with.

Bargaining power of buyers - Retail bargaining power for automobiles is very limited throughout the world. The dealer not the automotive company bears the costs of these concessions. Dealers typically finance their purchases through Ford Credit. Overall, diseconomies of scale effectively eliminate buyer power in retail circumstances.

Threat of new entrants - Within the developed world, there are significant barriers to entry for the automobile manufacturing sector. Substantial fixed costs, the influence of brand names upon sales, and the dealership model all hinder new entrants. The entry threat to Ford in the medium run will continue to be from manufacturers with existing access to these developed markets

Threat of substitutes - public transportation may pose as an imperfect substitute. As oil supplies dwindle and fuel prices rise .This has provided an additional impetus for Ford provide highly fuel efficient vehicles for the consumer.

Organizational Structure

Ford being a global organisation exhibits a very complex structure fairly mechanistic in nature.

According to classification based on functions; there is a CEO, a chairman and a number of vice presidents. [6]

Under CEO work-

Chief operating officer Chief technical officer Chief financial officer Executive vice presidents Group vice presidents

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Under the following listings a rigid departmentalization can be seen

The group vice presidents deal with-

Procurement Legal Manufacturing and labour affairs HR and corporate service Quality and new model launch

The executive vice presidents handle operations related to -

Europe, middle east and Africa The Americas Ford motor credit company Global sales and services and Lincoln

The Chief Operating Officer handles-

Global trading and automotive risk management Communications

The Chief Technical Officer handles-

Ford of Europe Sustainability, environmental and safety engineering Engineering and global product development Powertrain engineering

The Chief Finance officer deals controller and treasurer.

Under these chief officers works a number of respective directors hence showing a low span of control overall.

There is a clear chain of command flowing from CEO to Vice presidents to Department directors and employees.

The degree of centralization is fairly high. Although employees are free to give opinions the ultimate decision power resides in the hands of top management only.

SWOT Analysis

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Ford Motor Company SWOT analysis

Strengths Weaknesses

1. Strong position in US market2. ECOnetic initiative3. Sound financial performance4. ‘ONE Ford’ approach5. Significant growth in China

1. High cost structure2. Unprofitable Europe operations3. Low exposure to Asia-Pacific

Opportunities Threats

1. Positive attitude towards “green” vehicles

2. Increasing fuel prices3. New emission standards4. Growth through acquisitions

1. Decreasing fuel prices2. Rising raw material prices3. Intense competition4. Fluctuating exchange rates

Strengths

1. Strong position in US market. Ford is the second largest automaker in US; Ford has great reputation in its home market and strong commercial vehicle sales that generate maximum revenue.

2. ECOnetic initiative. Ford’s ECOnetic initiative is an effort to produce highly fuel-efficient engines by improving existing engines rather than new hybrid engines. The result of this initiative is the Ford Fiesta, currently the lowest emitting mass-produced car in Europe and Ford Focus ECOnetic that has better fuel consumption than Toyota Prius.

3. Sound financial performance. Ford was the only big US car company that didn’t need the government bailout and was the first to get investment status back. The firm’s profit margin is high compared to competitors with the highest liquidity ratio.

4. ‘ONE Ford’ approach. Ford has decided to produce single, streamlined global lineup of its models. The carmaker no longer produces customized vehicles for different regions but focus on designing and engineering the car that fits different regional tastes and regulations. It significantly decreases costs for Ford and drives record profitability.

5. Significant growth in China. Ford, although not the strongest player in the China has experienced the significant growth in the largest automotive market in the world for the 2012. It grew its sales by 46%, according to Ford press release. [7]

Weaknesses

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1. High cost structure. Although ‘One Ford’ initiative led to substantial cost reduction, Ford still has a high cost structure, compared to other automobiles manufacturers. Ford’s costs are driven by its generous employee compensation and pension plans.

2. Unprofitable Europe operations. In 2012, Ford lost $1.75 billion in Europe and plans to experience losses in the region until 2015. [8]

3. Low Exposure to Asia-Pacific: Only 15.82% of Ford’s volume was derived from Asia-Pacific sales in 2011, the fastest growing segment of their business (7.52% growth from 2010 to 2011)

Opportunities

1. Positive attitude towards “green” vehicles. Cars that are Consumers are aware of the negative impact of fuel inefficient cars that emit large quantities of CO2 and negatively affect the environment. Ford has developed electrification strategy to reduce the carbon dioxide (CO2) emissions from its vehicle and make them more efficient.

2. Increasing fuel prices. Ford’s strong emphasis on engineering fuel-efficient vehicles (Ford Fiesta and Ford Focus ECOnetic) with flexible fuel and hybrid engines will pay off due to increasing fuel prices in the world.

3. New emission standards. A new wave for stricter regulations on vehicle emission standards would positively affect Ford position in automotive industry. Ford invests large amounts of money to produce fuel-efficient engines and reaped some success with its ford Fiesta and Ford Focus ECOnetic models.

4. Strategic partnerships. Ford has great experience in creating strategic alliances and partnerships with other automotive companies. Due to current competitive pressure, all companies are more likely to enter into such partnerships to drive R&D costs down, access new markets and gain some new skills.

Threats

1. Decreasing fuel prices. Some analysts forecast that future fuel prices will drop due to extraction of shale gas. This would negatively affect Ford as it focus on compact fuel-efficient hybrid and flexible fuel cars that are less attractive when the fuel price is low.

2. Rising raw material prices. Rising prices for raw metals will lift the costs for auto manufacturers and result in squeezed profits for the companies.

3. Intense competition. Ford faces more intense competition from other auto manufacturers more than ever, especially in small cars segment with hybrid engines.

4. Fluctuating exchange rates. Ford, including other largest automotive companies, may negatively be affected by fluctuating exchange rates as it earns more than half of its profits outside the US. The profits may be lower due appreciating dollar against other currencies.

Suggestions based on SWOT analysis-

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1. The company should try to expand sales in the Middle East. 2. It should try to gain share in some major oil companies to tackle uncertain oil prices

in future.3. There is a lot of scope for ford to take advantage of the growing needs of public

transports, utility vehicles as well as other vehicles that may find their use in some other industries. For example, manufacturing buses and trucks for India and African nations, oil tankers for oil producing countries, etc.

4. The company in order to gain public favor in Asia and China and to gain profits in recession hit Europe may try to reduce its cost structure for these countries as a short term plan.

5. The company may risk its sales in the US to cover the subsidy given in third world countries, but given the large size of potential customers in the target countries, possibility of profits in long term can’t be ruled out.

6. The company may resort to multiple raw material suppliers and may even try to set up its own unit for production of raw materials. This will reduce dependence and make company more competent with rapidly shifting raw material prices.

7. the production of cheaper motor vehicles in masses for mass sales rather than the making of luxury cars is a good option because this will offer a large market and there is safety in the numbers because of the large market share presented

8. Ther should be some more less degree of centralization than present standards with some more autonomy to regional heads to match different demands.

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REFERENCES

1. Robbins, Stephen P., Mary K. Coulter and Neharika Vohra, Management. 10th Editon,

New Delhi: Prentice Hall. 2010. Print.

2. “Ford Motor Company”, Wikipedia, the free encyclopaedia. Web. 14-04-2013

<https://en.wikipedia.org/wiki/Ford_Motor_Company>

3. “A LEADER IN CORPORATE SOCIAL RESPONSIBILITY”, Ford Motor

Company© 1998-2013.Web. 16-04-2013 <http://media.ford.com/article_display.cfm?

article_id=24900>

4. “Supporting ONE Ford”, Ford Motor Company© 1998-2013. Web. 16-04-2013

<http://corporate.ford.com/microsites/sustainability-report-2011-12/people-

workplace-employees-oneford>

5. “Ford’s Electrification Strategy”, Ford Motor Company. Web. 15-04-2013

<http://corporate.ford.com/microsites/sustainability-report-2011-12/environment-

products-electrification-strategy>

6. "Ford Motor Company, United States", 2012 iProfile, 14-04-2013

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http://www.iprofile.net/system/resources/BAhbBlsHOgZmSSIzMjAxMi8xMC8zMC

8yMy8xMS80NS8yMjAvRm9yZF9Nb3Rvcl9Db21wYW55LnBkZgY6BkVU/>

7. “Ford China Sales Up 46% for the Year, February Sales up 7%”, Ford Investor

Relations (2013). Web. 16-04-2013

<http://corporate.ford.com/our-company/investors/investor-news-detail/pr-ford-china-

sales-up-4625-for-the-37786>

8. “Despite Strong Earnings, Europe Weighs on Ford Motor Company”, The Motley

Fool (2013). Web. 16-04-2013.

<http://www.insidermonkey.com/blog/despite-strong-earnings-europe-weighs-on-

ford-motor-company-f-48589/>

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