Ford Motor Company have been around since 1903, and although in the past they lost market shares due to production and marketing scandals, they remain robust in 2005. This paper has been written to thoroughly analysed Ford through PESTEL analysis to comprehend the macro environment in, Porter’s Five Forces analysis to determine the competition and lastly SWOT analysis to depict the micro environmental factors of the company in question.
It has been concluded that due to the fierce competition in the industry, and due to the changes in the environmental factors, Ford Motor Company needs to concentrate on improving on its weaknesses in order to avoid and overcome the threats. COMPANY ANALYSIS: FORD MOTOR COMPANY Introduction Ford Motor Company was founded in 1903, in the United States of America, by Henry Ford and eleven other investors. By 1919, the business began to prosper.
Following disagreements with the other investors, Henry Ford and his son, Edsel Ford bought the shares of the investors and became the sole owners and decision makers of Ford Motor Company (Brinkley, 2004). Today, William Clay Ford Junior is the leader of a company with a well established product portfolio of cars, trucks, vans and Sport-Utility Vehicles under the following brands; Ford, Lincoln, Mercury, Mazda, Volvo, Jaguar, Land Rover and Aston Martin (Ford 2005; BBC, February 2002).
The world’s largest car manufacturer in the world by volume is General Motors Corporation, followed by Ford which is then followed by DaimlerChrysler (Reuters, 2005; Yahoo Finance, 2005). This paper will be thoroughly analysing Ford through the use of various analytical tools, such as PESTEL analysis to comprehend the macro environment in which Ford operates in (Campbell et al. , 2002), Porter’s Five Forces analysis to determine the competition (Clegg et al. , 2004) and lastly SWOT analysis to depict the micro environmental factors of the company in question (Stone, 2003).
PESTEL Analysis Political Factors •The September 11th terrorist attack which had occurred in the US reduced the sales of automobiles in the US, and specifically Ford’s sales by 10% (Ford Annual Report, 2001). •The economic recession in Argentina in 2002 adversely affected car sales in Argentina, production volume fell from 57,200 units to 31,000 units. (BBC, January 2002; Ford, 2005) •The Iraqi war affected Ford adversely as their US sales declined by 7% (Ford Annual Report, 2003).
The war has had a similar affect on other firms operating in the industry also. •The United Nations World Forum for Harmonisation of Vehicle regulations introduced a global technical regulation in 2004 regarding door locks for vehicle safety, which manufacturers must abide by (Key Note, 2005). Economic Factors •Rising petrol prices make it more expensive for consumers to drive petrol fuelled cars which consequently means that consumers are inclined to change their cars which operate using diesel.
(The Guardian 2005) •Ford’s SUV’s (Sport Utility Vehicle) sales declined due to rising gasoline prices, in turn their share prices also declined (Reuters, 2005) •The rise in the demand for Japanese cars which consume less petrol than most American cars has meant that automobile manufacturers have needed to reduce their prices in order to sell their vehicles and to maintain their market shares. Social Factors •Cars are viewed as a status symbol (Key Note, 2005). The brand choice of a car influences the way a person is perceived by the public.
•The demand for luxury cars are on the increase in the EU. Ford entered the luxury cars market in the EU with Cadillac in September, 2004. (Ford, 2005) •Smaller, city cars are also in demand in the EU to facilitate access in busy city centres, to allow for easier parking and also due to their lower consumption of petrol (Key Note, 2005) •Although the Japanese cars are a success in the US, the public in the US demonstrate a hostile approach towards them. Since the Japanese cars entered the US market, the American companies such as Ford and GM have been losing market share.
(BBC, November 2005) •Women drivers and cars for women attract many stereotypical viewpoints. Ford has stated that “a man cannot be expected to design a car for a woman, since a man will not fully understand their needs and wants. For this reason we have women designers to design cars for women” (Ford, 2005). This provides Ford with a competitive edge in attracting women drivers to purchase their cars. Technological Factors •Technological advancements are vital for those in the automotive industry for several reasons.
•Primarily, research and development is necessary to attract new buyers, and firms cannot afford to be laggards. (Key Note, 2005) •Secondly, firms need to be aware of new technologies for their production lines; this reduces man power and therefore reduces the costs of building vehicles. Japanese firms owe their success and profitability to technological pioneering. Ford are said to be pioneers in force-controlled robots for their transmission assemblies (Kochan, 2001), allowing them to have a competitive edge and to reduce costs incurred per vehicle.
•According to environmental studies, petrol in the world is anticipated to finish within the next 50 years (BBC, June 2004). Firms in the automotive industry must develop cars that use other means of energy in order to survive in the future. •Verespej (2001), states that it is necessary for manufacturers to develop their supply chains further to ensure a quicker delivery of custom made cars. He further states that this can be achieved with more efficient production lines with technological advancements. •Technological factors further affect the automotive industry in terms of the reputation of individual firms.
Chrysler, Toyota and Ford have had to recall cars for expensive repairs in the past, which has had negative affects on their reputations. Ford has recently been involved in a tyre scandal costing $2bn, Chrysler recalled cars due to faulty locks and Toyota in November had to recall cars due to corrosion of car parts (BBC, November 2005). Technology is necessary to ensure the quality of finished vehicles. Environmental Factors •Hurricanes in the US have caused the oil prices to fluctuate (BBC, October 2005).
•Due to global warming and the carbon dioxide gasses emitted from vehicles the public may seek public transport in an attempt to protect the environment. •Petrol is anticipated to finish within the next 50 years (BBC, June 2004). Legal Factors •Car manufacturers are increasingly reducing their numbers of employees due to technology replacing man power. However, pressure from Trade Unions in the US and the EU make it difficult for car firms to dismiss employees. For this reason individual firms such as Ford and GM are attempting to make deals with trade unions in order to protect themselves.
(BBC, September 2003) •The European Commission have changed the rules regarding car distribution, to allow the dealers to have more freedom to compete across the EU. (Europa, 2005) Porter’s Five Forces Analysis Competitive Rivalry •Competition is extremely fierce in this industry. The biggest players in the industry by volume are; General Motors, followed by Ford, DaimlerChrysler and Toyota in terms (Reuters, 2005). This order is changeable depending on the actions taken by companies in attracting consumers. •Different companies are providing different incentives to attract customers to purchasing their own vehicles.
Ford in the past was very successful due to their advantages relating to volume and scale and it was anticipated that they would become the biggest player in the industry taking the place of GM. However, due to the actions taken by their arch rival, GM, Ford continues to remain in second place (Taylor III, 2003) Ford experienced adverse publicity due to the tyre scandal and also the poor marketing of baby Jag while GM introduced incentives such as “GM military offer” (GM, 2005). •The demand for cars although remains high, has been declining since the 1990s.
A large number of companies are fighting to cater for the existing demand (Muller et al. 2001). •Due to the sleek design and price incentives provided by Japanese manufacturers, US car sales declined by 14% in October; causing Ford and GM to lose market shares while Toyota and Honda gained. (BBC, November 2005) Barriers to Entry •There are distinctive barriers to entry in the automotive industry. The main 10 firms operating in the automotive industry have great power in terms of reputation, finances, experience, technology and existing large product portfolios.
It would be highly difficult for a new company to compete with the above. •The existing companies within the industry are joining forces, which at times do have detrimental effects for new comers to the market and for some existing companies. For instance, the situation of Rover in the UK. In the past, the profitable components of Rover were purchased by BMW and Ford, and Rover was left producing poor quality and old vehicles, which consequently led to its bankruptcy in April, 2005 (BBC, April 2005).
•Due to the environmental and technological factors mentioned previously, car firms must heavily invest in research and development. New comers to the industry may find it difficult to compete with the investments made by existing large firms. •It is anticipated that the ways of being able to over come the barriers to entry in this industry would be to enter the market with vehicles that consume other forms of energy and vehicles that are environmentally friendly. •As mentioned previously, Chinese cars are entering the industry.
It is believed that they were able to overcome the barriers to entry due to the prices of their vehicles. Through cheap labour and components, Chinese firms are able to produce cars at a lower cost than the American manufacturers. (China daily, 2005) Threat of Substitutes •Although the public are becoming increasingly aware of global warming and therefore choosing other forms of transport such as trains, busses and bicycles, it can still be said that cars and other private vehicles are viewed as a necessity especially for those who do not live in city centres.
•It is therefore believed that no real threat of substitutes exist today. •In the future, if cars that use other forms of energy apart from diesel and petrol are introduced to the market, they may pose problems for the current manufacturers in the industry. Buyer Power •The buyer power is greatly affected by inflation and interest rates which are further affected by the fluctuations in fuel prices. However, buyer power remains high for the industry, which also confirms the competitive rivalry within the industry. •The competition is high in the industry, with similar products that have minority differences.
Car manufacturers are providing other incentives to attract the buyers to their brands. For instance, Ford are providing free upgrades worth up to ? 2000 for their customers in the UK (Ford UK). •Consumer preferences determine the type of car sold. With rising interest and inflation rates, consumers are interested in vehicles that are cheaper to run in the long term. •Firms are using fierce marketing techniques in order to attract consumers to their products. Extra benefits, price incentives and add-ons are some examples of these marketing activities.