Business analysis of ford motors company

April 27, 2018 Business

Ford Company (Ford) is one of the largest companies that produce vehicles globally. It manufactures different kinds of automobiles and distributes them to more than two hundred markets across all the continents. The company has many brands which have been developed in the years of its operations. Some of the brands of automobiles manufactured by Ford include Aston Martin, Ford, Jaguar, Land rover, Lincoln, Mazda and Volvo (Goss, 2008, p. 35). The company’s operations are majorly in the United States of America and Europe but it has branches all over the world.

It has its headquarters in Dearborn, Michigan and it has more than 300,000 employees in all its branches and subsidiaries. According to Goss (2008, p. 34) the company recorded a net profit of $6. 6 billion in 2010 which was an increase from the $2. 7 billion dollars that was recorded in 2009. It also reduced its debts from $33. 6 billion to $14. 5 billion. This report will major on business and financial analysis of Ford Company and give recommendations to improve the operations of the company. The report will utilize different models such as the Porter’s competitive forces, the PESTEL analysis and the SWOT analysis.

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The report will give full analysis and description of the company profile, its history, its business profile, the products and services it offers and its organizational structure. The comparative analysis of Ford and its competitors such as General Motors and Toyota will also be done in the report and the company’s SWOT and financial analysis. The report will also give recommendations to the company on how to improve its operations History of the company Ford was established in 1903 by Henry Ford and other associates and it made its first automobile model and also making its first shipment in the same year (Keasley, 2005, p.

40). The famous T model was launched five years later in 1908. In 1917 the company upgraded to trucks and tractors which were highly used in farming and construction activities. The company started producing luxury vehicles after acquiring the Lincoln Motor Company. Ford Motors went public in the year 1956 and before the end of ten years it produced one of its most famous and successful cars, the Thunderbird. The company expanded its horizons in 1967 when it established Ford Europe. The expansion continued for several years throughout Europe and Asia.

In 1987 Ford acquired the Hertz car rental business by helping in the formation of the Park Ridge Corporation. The acquisitions of Ford continued as it experienced continued growth and in 1990 it acquired Jaguar. In 1999 another acquisition was made of the repair of Kwik-Fit and Volvo’s passenger vehicle business was also acquired later in the year. In 2000, it acquired Land Rover from BMW and it also spun off its Vieston automotive components. In 2002 and 2003 Ford made its presence bigger in China. Keasley (2005, p.

39) states that Ford entered into a joint venture agreement with the Changan Automobile and ensured that the Changan Ford assembly plant was in full operation and it produced the Fiesta in 2003. Later in the year the Ford services in Thailand also became operational. Ford had also ventured into sports cars and in 2004 it sold Cosworth, its main sport technology engineering company and Jaguar Racing and also its formula one team. In 2005 it launched the F-series super duty and the Expedition King Ranch. The string of innovations has continued to date.

In 2006 Ford posted its biggest operating loss to date, $12. 6 billion (Keasley, 2005, p. 36). In the same year, Allan Mulally was hired as CEO and took over the company at the top of failure. He restructured the company under a campaign titles “The Way Forward”. This plan involved the closure of seven assembly plants and strategic orientation towards “one ford”. This strategy focused on creating a standard Ford personality which is seen and felt within every automobile produced company. Marcus (2009, p. 34) states that Ford mortgaged all of its assets in December 2006 for $23.

4 billion line of credit. Marcus also states that the company divested some of its non-Ford brands and it sold Jaguar and Land Rover to Tata Motors for $2. 3 billion in 2008. Business model and market overview Ford Company has many employees worldwide and markets its vehicles under four brands namely Ford, Lincoln, Mercury and Volvo. The Company is divided into two departments that are Automotive and Financial Services. It offers credit services in vehicle financing to both retail consumers and dealers. Morris (2010, p. 25) reports that vehicles sold within the United States by

dealerships associated with the company in 2008 were financed by Ford credit. Ford’s automotive segment designs, produces and services cars, trucks, SUVs and vehicle components and spare parts. This sector is broken down by region and the regions include North America, South America, Europe and Asia Pacific Africa (Morris, 2010, p. 54). The only regional exception model is Volvo. Ford retail sales operations operate under a dealership model. According to Morris (2010, p. 56) at the close of 2008, Ford operated nearly 3,800 dealerships within the United States. Products and services

The company’s key products and services include automobiles, trucks, busses, tractors, financial services, motorsport and automotive components. As of 2012, Ford Company has a broad range of automobiles that it sells under the Ford Marque worldwide and luxury cars that it sells under the marquee of Lincoln dominantly in the United States. It has also sold automobiles in different marquees in its several years in operation. Ford has produced trucks since 1908. There are several countries that Ford commercial vehicles are present and they include Argentina, Brazil, and Canada, among others.

According to Conneley (2000, p. 78) from 1940 to 1970 the F-series formed the base of production of light trucks for the North American Market. It continues to produce medium duty trucks. Ford also manufactures buses in the earlier years. Mostly manufactured busses were the small school buses and the commercial busses. Tractors were the first production of Henry Ford and Son Company in Henry’s hometown. The company expanded the business of manufacturing tractors by purchasing the Sperry-New Holland skid teer loader and hay baler and it formed the For-New Holland.

Its financial services are mainly provided through the Ford Motor credit company. It also provides spare parts under the brand name Motor craft. Ford also manufactures sports cars and participates in rally events for example it was involved in Formula one series Executive management The executive comprises of the board of directors and the corporate officers. Members of the board are responsible of making major strategic decisions in the company. The corporate officers are responsible of the implementation and execution of the strategic plan to ensure that the

strategic objectives and goals are achieved. Industry analysis The business environment and industry analysis is done by Porter’s five forces and PETSEL framework. The automobile industry is comprised of companies that design, manufacture, engineer, assemble and market automobiles and motorcycles. The performance of the industry is closely related to the performance of the economy. This industry is one of the largest segments and income generating industries in the economy. The United States automobile industry is dominated mainly by GM, Ford Motors and Chrysler.

The increasing oil prices have shifted focus to oil efficient models. Every firm has a competitor or several competitors. Competition is one of the major challenges that every company faces and Ford Company is not an exception. The company has several competitors such as General Motors, Toyota, and BMW, among others. To analyze the competitive nature of Ford Motors against its competitors, Michael Porter’s competitive forces will be used. This model is a way of examining the attractiveness of an industry. Michael Porter explains that there are forces or factors that shape competition in an industry.

He said that the nature and degree of competition is an industry hinges on five forces and they are, threats of new entrants, the bargaining power of customers, the bargaining power of suppliers, threats of substitute products and the rivalry or jockeying among current players in the industry. 1. Threat of new entrants In developed worlds, there are barriers of entry for automobile manufacturing sector. Factors such as established brand names, high costs and developed dealership models will hinder companies from entering the industries. Goss (2008, p.

45) explains that in Europe and United States, entry in the industry will require purchase of a company that is already in the industry. He also explains that Ford has had difficulties in penetrating the Indian and Chinese markets and hence it has had to get into joint venture agreements with local firms. Tariffs and subsidies also hinder entry. Exit from the market has also occurred mainly through mergers and acquisitions. According to Goss (2008, p. 25) the bankruptcy of GM might lead to its exit through acquisition by the Government.

Chrysler also faces the same fate and is likely to be purchased by European company Fiat. Ford relies on United States and European markets more and therefore its potential threats of entry will be from manufacturers who have access to these markets and can afford to merge or acquire companies in the same industry. 2. Bargaining Power of customers There is a limited bargaining power for automobiles in the world. Dealerships can negotiate and provide concessions but they bear the costs of the concessions. Automobile companies do not negotiate.

Diseconomies of scale also eliminate buyer power in retail circumstances because the number of vehicles produced will be few and the customers are many. The power of buyers is therefore limited in Ford or any other automobile company such as GM because the buyers are not concentrated and the products are differentiated. 3. Bargaining power of suppliers The power of suppliers is a threat to automobile companies. Even though the raw materials used to produce cars is provided by many suppliers, the intermediate parts are limited. Ford wields significant buying power over its parts suppliers.

Many suppliers of parts have few contracts with few automobile companies and therefore if Ford changes its production it will destabilize the supply chain. Morris (2010, p. 87) states that the United Auto Workers Union is the single greatest source of supplier power alongside Ford, GM and Chrysler. Ford has been successful in reaching cost concessions as compared to GM and Chrysler. 4. Substitutes There are no close substitutes for automobiles. However public transportation has recently posed as an imperfect substitute. Due to the reduction in oil prices, public transportation has become more feasible for commuters.

There has also been increased investment in public transportation which fuels its development. However personal cars are still more convenient and since there is no equivalent substitute then automobile companies will continue to enjoy their profits. 5. Rivalry The automotive industry has intense rivalry within United States and European markets. Ford faces the following major competitors: GM, Toyota, Chrysler, Honda and Nissan. Toyota, Honda and Nissan have grown in market share largely as a result of their ability to deliver high quality products at very low prices especially for fuel efficient vehicles.

With cost minimization, they have been able to earn good profits from smaller vehicles. Ford has differentiated itself in the past by focusing on SUV and truck lines. Keasley (2009, p. 45) reports that Ford lost $1,467 per vehicle in 2008 and General Motors lost $729 while Toyota made profits of $922 profit per vehicle and therefore Toyota is the leader in vehicle production in the world. In Europe, Ford’s main competitors are Volkswagen. PSA (Peugeot), Renault, GM, and Fiat. Volkswagen is the dominant producer in the region.

Ford made profits on small vehicles. It has however remained competitive in the region by producing vehicles that are custom made to European tastes. Ford is more flexible in the market as compared to GM and Chrysler because it has never been bailed out. The PESTEL framework includes political, economic, sociocultural, technological, environmental and legal factors. 1. Political factors In the midst of financial crisis, every government of every country had to develop strategies to give solutions for important countries including the automotive industry.

The rules and regulations of trade have had an impact on automotive industry for example the U. S Federal Reserve Board took the quantitative easing policy which leads to the inflation of prices. These political policies help the automotive industry to achieve its objectives. 2. Economic factors The automotive industry shows that the economy has recovered for example General Motors was bailed out by the Government and it paid back $8. 1 billion and Chrysler also demonstrated that it started making profits. Economic factors such as inflation and interest rates.

These factors affect the prices of automobiles. 3. Social factors The automobile industry has not been affected adversely by social factors but there are some mild effects. Companies have to produce vehicles that are socially accepted in their markets. The automotive countries also have to ensure that they take into consideration the different social classes in the society. Social classes have an impact in the sales of automobiles for example the rising middle class society in China became the main purchasing power of automotives in China which boosted the automotive industry in China.

4. Technology factors With the increased technological developments, there has been an increased innovation and development in the automotive industry. The automotive industry has therefore developed many modern models for example hybrid electricity vehicles. Different companies have developed modern models to stay competitive in the industry and this is caused by the improvement in technology. 5. Environmental factors Every company has to take into consideration the impact of its operations on environment.

There have been issues concerning the gasses emitted by vehicles and how they affect the environment negatively. Companies therefore have to produce vehicles that are environmentally friendly. Countries have emission standards and policies that control the effects of automobiles on environment for example the According to European Automotive manufacturers association (2009, p. 87) European Union adopted emission standards in 2009 to ensure that the emissions effect on environment is as minimum as possible. 6. Legal factors Countries also have legal policies that will govern and protect their automobile industries.

The legal factors that affect the industries include trade regulations such as import duties and taxes for example in China, the preferential taxes on small vehicles were stopped. India also reduced its import duty on hybrid cars. SWOT analysis The business analysis of Ford includes its situational analysis which is done using the SWOT model. The SWOT model identifies the strengths, weaknesses, opportunities. 1. Strengths Ford has timely acquisition of capital and therefore it is financially stable than the other companies.

Product line of Ford has a good reputation which is respected by many industry experts and many consumers. Ford also has a global market presence with a brand that is recognized worldwide. Ford is also perceived as an American brand and therefore it has a liking of a certain group of consumers especially in the United States. Its product, the F-series is also the most respected commercial truck in the world. Ford has also had success financially and in negotiating a contract with the United Auto Workers (UAW). 2. Weaknesses

Ford has had a weakness in its profits which have been poor in the recent years. It still experiences a losing streak in the United States. The automotive market is very competitive and has large costs. It also has very little market penetration in China and India. The goods of Ford are durable in nature and depression does not support durable goods. 3. Opportunities Ford has recognized the importance of small vehicles because of their efficiency and they have started to venture into its production because the consumers are purchasing a lot of small vehicles.

The “One-Ford” strategy has a chance of increasing the profit margin of the company because it is already showing increases in sale. Ford is also perceived to be the most stable American automobile company because it has not taken a bail out and this improves its identity and brand leading to increases in the market share. GM and Chrysler have limited flexibility because of the government involvement in the companies and hence Ford has a competitive advantage.

Ford has also been able to increase its market share in the period when GM and Chrysler companies went bankrupt. 4. Threats It is possible that “One Ford” strategy might fail because the success of such a strategy is dependent on consumer tastes which usually fluctuate. The increase in fuel prices is also a threat because consumers might revert to larger vehicles which are fuel efficient. The weaknesses of the supply base are also a threat because they have contracts with other companies such as GM and not with Ford.

The current bankruptcy solution of GM is also a threat to Ford because GM might gain its market share. Financial analysis Ford is one of the largest automobile manufacturers in the world with a current sales volume of $136 billion. The past years have been unkind to shareholders of American automakers and the valuation of equity has fallen both for Ford Motors and GM. These indications has been shown in the consolidated income statement and balance sheets of Ford Company for years between 2009 and 2012 provided by Ford annual statements


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