Executive SummaryFord Motor Company (Ford) has been a leader in the auto industry, however, over the past few decades has continued to lose market share to foreign competition. The current weak U. S. economy combined with rising fuel prices and increased political pressures regarding global warming, presents several challenges to Ford Co. and the entire auto industry as we can see in appendix “A”. These current challenges provide exciting opportunities for the auto company who must reduce cost, get fresh capital, and quickly develop and produce, new efficient and economic autos, and alternative fueled vehicles.
The global auto industry will continue to grow with 80% of the global auto industry’s growth from now until 2013 is expected to come from emerging markets. However, for Ford to succeed will need to address several internal issues regarding legacy costs, unions in USA, and the development of a wide range of new vehicles that consumers consider the new “must have” vehicles instead of the large trucks and SUVs. Looking to the future Ford will have a global presence in these critical emerging markets like China and India, and have the knowledge and expertise in efficient and alternative vehicle technologies required to move the company forward.
For Ford to achieve the vision of being synonymous with alternative vehicles (low fuel consumption, fuel celled hybrid, ethanol, and electric / battery). When consumers think of the innovative technology in the auto industry they will think of Ford for this to happen Ford can no longer be a quick follower, but must be an industry leader in technological advances in the auto industry. Ford must offer a variety of alternative vehicles that meet consumer demands and government regulations.
Ford has significant fixed costs and large capital investments are needed. Cash flow is the lifeblood of any business and should be considered in every decision which could impact the company expenses. By 2009, Ford expects to reduce structural cost as a percent of revenue by 40%, and by 2012 by 80%; these would be considered benchmark levels of cost. The reduction will be invested in new plants in growing markets; fund the research required, development, and production of alternative vehicles. The
global auto industry market is growing, and the opportunity for Ford to recapture market share lost in the past few decades is there for the taking. Ford can win, and to do so needs to expedite change to meet the challenges and seize opportunities. Company BackgroundFord Motor Company (NYSE: F), was founded by Henry Ford I n 1903 and become a corporation in 1919, it is the second largest manufacturer of cars worldwide. Ford Corporation includes Ford North America, Ford South America, Ford Europe, Premier Automotive Group, Ford Asia Pacific and Africa/Mazda segments.
Volvo, Mercury and Lincoln motors. At the beginning of 2007 Ford sold Aston Martin division and in June of 2008 Ford sold to Tata motors its Jaguar, and Land Rover divisions. Ford needs a sense of urgency regarding revising a strategic plan that incorporates the next generation of vehicles, reduces cost, and expands in the world growing markets. In today’s global economy and highly competitive auto industry Ford has no time to procrastinate.
Ford has just too much at risk in not planning a new strategy and become an industry leader in alternative fuel technology. Ford New VisionFor Ford Motor Company is to become the automotive industry leader in, fuel efficient economic vehicles, alternative fueled vehicles and providing superior quality products that global consumers call to mind when they think of quality and innovation, In other words, the car of the future. New Mission Statement:The new proposed mission statement will be as follows: Ford Co will become an industry leader, not a follower.
To regain lost market share that was lost to foreign competition, and once again be the auto industry leader in sales and market share in today’s global marketValues StatementThe auto industry just like the global economy is going through tremendous change, due to rising fuel prices, and environmental worries, such as global warming. Ford must use these threats as opportunities, and take advantage of changing consumer buying habits. Ford needs to change consumer perception of the company, from manufacture big high fuel consumption vehicles to innovative, quality, and environmentally friendly vehicles.
To do this Ford must portray an image that states that Ford values what the consumer wants and what the environment needs. Listen to what consumers are saying directly and indirectly about Ford’s current products, and create innovative, green, vehicles that turn consumers into customers. At the same time provide Ford stakeholders pride and financial incentives to remain with Ford. Environmental AnalysisInternal EnvironmentManagement and employees make up the internal stakeholders. Mexico Ford’s employees do not belong to a union and do not want to because there are excellent relations between the management and the workers.
The relationship between internal stakeholders is outstanding in Ford Mexico. The mayor investment is also in Mexico. The management team must keep this relation and keep improving it as possible. Communication is essential to align internal stakeholders. Ford management must keep this type relation in all foreign markets. Employees must follow a strong company culture incorporating company values involving customer service, harmonizing service with cost control, and the safety and training.
When organization culture is not transmitted efficiently, the organization performance is weak and employees feel disengaged, without feeling of belonging to the organization. Some communication tools to incorporate the organization culture are town hall meetings, company events, company weekly information letter, intranets, training events, informal gatherings, etc. These communication tools help to align employees of all levels to the corporate culture, vision and mission. Ford employees in USA most be reduced to the minimum possible without creating additional problems with the union.
In addition, a salary reduction must be negotiated if Fords want to survive the present crisis. This message has to be communicated to the union in a strong emphatic manner. External EnvironmentAt present time financial stakeholders are worried about the situation of the company. The share price is at all times low. However, the present mission and vision will bring profits soon to the company. Providing innovative products, economic fuel efficient vehicles, and alternative fueled vehicles will result in ford’s stakeholders receiving increased profits via increased sales and market share.
CustomerCustomers are a vital element of any business, and are especially important in ensuring the ultimate success of the organization’s strategy. Consequently, is very important to focus on achieving high levels of customer satisfaction. Economic uncertainty, high fuel prices, and shrinking of the USA economy have decreased the market and the competition is tougher. Therefore, the best product to compete in the US market are first, new economic fuel efficient vehicles, new fuel efficient motors to present cars, and in a four years, new alternate fuel vehicles.
“Going Green” Environmental friendlyProviding environmentally friendly vehicles will have a positive impact on consumer perception, the community, and the government, of Ford vehicles, and the stakeholders will feel good about doing the right thing regarding the environment. SuppliersFord Motor always has had an excellent relation with its suppliers. In Mexico Ford and its suppliers are concentrated in the same industrial park and construct their buildings simultaneously to maximize collaboration and communication.
An example of ford good relations with its suppliers can be found in the book Strategic Management: Formulation, Implementation, and Control chapter nine, reading material of week five “Ford Motor Company’s Dearborn, Michigan, plant is linked electronically with supplier Allied Signal’s Kansas City, Missouri, plant. A Ford computer recently sent the design for a car’s connecting rod to an Allied Signal factory computer, which transformed the design into instructions that it fed to a machine tool on the shop floor. The result: quality, efficiency, and responsiveness. ” (Pearce?
Robinson, chapter 9)Strategic Imperatives:In creating an effective strategy for Ford, the external environment was scanned to identify multiple opportunities for and threats against the company (strategic imperatives) for the next several years. In addition, Ford’s internal environment was analyzed to determine current strengths and weaknesses. Ford and the entire auto industry are currently challenged with the “perfect storm. ” The auto industry is being hit by a weak US and global economy, rising fuel prices, and social and political environmental concerns and issues.
In order to overcome these potential threat, Ford should consider mass producing a range of alternative fueled vehicles (diesel, fuel cell, electric, and hybrid). As emerging markets develop they will increase their use of oil products creating even greater demand and increased prices. Couple this issue with social and political concerns regarding global warming, and the ever increasing state regulations regarding emissions, will create a potential huge customer demand for these alternative vehicles.
Potential opportunities identified for Ford are related to the future demand of the alternative vehicles and increased global market share potential from emerging markets. But first Ford needs to turn current internal weaknesses into strengths to achieve the external opportunities. Ford’s internal weaknesses are the large legacy costs in equipment, facilities, and retirees, that all need to be addressed to compete with relatively speaking new companies like Toyota, and Honda. Due to these significant legacy costs, Ford has increased the cost per vehicle to incorporate the additional cost into the price of their vehicles.
Another weakness for Ford is that because they are so large it takes much longer to roll out new vehicles, and in addition Ford has too many similar vehicles that need to be reduced. For example, Ford has similar products in Mercury,, and Ford. Ford needs to reduce structural and operational costs by eliminating product redundancy, labor cost, removing vehicle platforms, and making each brand unique in its own way. Although weak in these areas, Ford is positioned to take advantage of the identified strategic imperatives. Ford already has a global presence and is diligently working to expand in the emerging markets.
The European, Latin-American, India, and Asian markets are more receptive to the smaller vehicles that Ford will need to begin to produce. By developing and producing alternative vehicles, Ford can begin to eliminate brands and platforms that are not selling. Ford can use the cost savings to further invest in the development and production of alternative vehicles. Remote Environment:”The remote environment comprises factors that originate beyond, and usually irrespective of, any single firm’s operating situation: (1) economic, (2) social, (3) political, (4) technological, and (5) ecological factors.
That environment presents firms with opportunities, threats, and constraints, but rarely does a single firm exert any meaningful reciprocal influence. ” (Pearce? Robinson, p. 79). Forces and trends will continue to occur and impact companies. However, Ford can take advantage of opportunities that occur from the result of trends and forces that will reshape Ford. Three industry trends and forces that are most critical to Ford currently are economic, ecological, and competitive. The first trend that will be examined are economic factors.
Although economic factors impact most industries and products, the larger expensive products like houses and automobiles take the brunt of an economic downturn, similar to the one the one that the economy is experiencing today. “On both the national and international level, managers must consider the general availability of credit, the level of disposable income, and the propensity of people to spend. ” (Pearce? Robinson, p. 79) Consumers lose confidence in the economy due to fears of losing jobs and inflation, and therefore, begin to put off large purchases.
The economical downturn then begins to feed on fear from the consumers, and self fulfilling prophecies. Companies continue to downsize due to lack of production, and as people lose their jobs they lose their ability to purchase goods. The change to alternative vehicles will take a skilled workforce that should provide jobs, along with job creation necessary to build the required infrastructure for the alternative vehicles. Ford has an opportunity to gain new customers by providing the new Ford foreign workers with incentives to buy Ford, as Henry Ford already did with the Ford T model.
It appears today that more consumers and politicians are concerned with “going green,” which means a renewed focus on the environment. “The most prominent factor in the remote environment is often the reciprocal relationship between business and the ecology. Specific concerns include global warming, loss of habitat and biodiversity, as well as air, water, and land pollution. ” (Pearce? Robinson, p. 85). A company can significantly damage its public image that greatly impact sales by doing something harmful to the environment.
For the auto industry this means developing alternative fuel vehicles, like fuel cell, electric, and hybrid vehicles. Ford needs to capture the consumer momentum for alternative vehicles, and the political pressures regarding emissions to produce and market alternative vehicles. Industry Environment:The automotive industries growth only comes with the addition of new markets such as China, India, and Brazil. Some of the top short-term environmental issues for Ford and the rest of vehicles manufacturers include high gasoline prices, increased volatility of material prices, and the record number of new vehicle offerings.
Due to the uncertainty in Iraq, and the increased demand from the emerging economies of India and China, high gasoline prices will continue to be an issue for Ford and the industry as a whole. Inflation adjusted crude oil prices have raised steadily since 2002, from $20 per barrel to almost $140 per barrel in June 15, 2008. High gasoline prices can affect such metrics as consumer confidence, material prices, and vehicle segments with low fuel economy. Competitive analysis:What determines competition, and what is considered too much competition?
Ford should understand its competition, but should not be focused on how to be like Toyota, Honda, or some other auto company. Ford should not be a follower, and most likely have a reduced market share from those companies that are considered industry leaders. Competition is defined by Pearce – Robinson as follows: “Moreover, in the fight for market share, competition is not manifested only in the other players. Rather, competition in an industry is rooted in its underlying economics, and competitive forces exist that will go well beyond the established combatants in a particular industry.
Customers, suppliers, potential entrants, and substitute products are all competitors that may be more or less prominent or active depending on the industry. ” (Pearce? Robinson, p. 90). The automotive industry is a highly competitive industry that will only become more competitive with as emerging markets, such as China and India enter the automotive market. The China government subsidizes much of their automotive industry, and therefore, makes it much easier for these companies to do business and compete. Couple that with much lower production costs and this allows China auto makers to produce products at a much lower expense.
As the charts on appendix A indicates, Ford and the other domestic auto makers have consistently lost market share to foreign competition to the point that domestic and foreign automakers are now a 50 / 50 split. Ford is in a constant battle with existing foreign companies like Toyota, Honda, and Nissan along with the domestic auto companies, GM and Chrysler. Fortunately, the current substitute products to the automobile are not viable choices to most of the consumers. However, this may not be the case in the future. For example, mass transit could once again become the primary transportation option.
In the future Ford will need to change threats and weaknesses into strengths and opportunities. As World consumption for oil increases, which in turn increases demand and price, consumers will continue to look for alternative fueled vehicles. “Federal Reserve Bank has been the surge in oil prices. Oil prices have experienced significant real growth as increases in demand led by China and India put pressure on the market while supplies have struggled to keep pace. The ability of major oil companies to continue to find conventional oil reserves has become significantly more difficult.
This situation has occurred as the hunt for oil moves to more hostile geological and geopolitical climates. The ascendancy of national oil companies in countries, such as Venezuela, where tensions with the U. S. are high, has been shifting the nature of the global energy market in ways that have yet to become evident. “(Country Watch. World Economic Summary)Ford will need to focus on emerging markets that will continue to drive revenues and market share. Emerging markets like China, India, and Russia provide significant market opportunities.
The auto company that is able to move the quickest, and understands these markets stands to achieve significant growth in global market share. “China is the most rapidly growing economy in the world and by 2011, CountryWatch forecasts Chinese GDP at nearly $4. 8 trillion. Although this will be only about one third the size of the U. S. economy at that time, the growth rate in China is expected to continue at 8%-10% during this period, and the acquisition of raw materials and commodities by China will have a major impact on world commodity markets. This is already occurring in the energy and steel markets. ” Country Watch.
World Economic Summary)Operating Environment:Ford is currently challenged with a perfect storm that includes a weak US economy and rising fuel prices. These two issues can be turned into opportunities with the correct strategic plan. The current forces and trends in the auto industry are poor US economy, ecological pressures, government regulations, rising fuel costs, and increased competition due to shrinking markets. All the current forces and trends can be addressed with a change in Ford’s strategic plan. Ford needs to focus its attention on the development of fuel efficient, and alternative fueled vehicles.
Currently Ford has a number of proto type and production vehicles that include fuel cell, hybrid, and electric vehicles that need to be further developed and or produced and marketed. As an example the 2005 prototype “The Ford Airstream Concept is a plug-in electric hybrid hydrogen fuel cell vehicle that turns silver into green. With a combined city / highway gas mileage of 41 mpg” (2005 HydrogenCarsNow. com) By becoming an auto industry leader in alternative fueled vehicles could address several of the current trends and forces within the auto industry.
“The two most prominent sources of competitive advantage can be found in the business’s cost structure and its ability to differentiate the business from competitors. ” (Pearce? Robinson, p. )Ford’s strategic long-term objectivesChanging Ford’s current vision to become a mass producer of fuel efficient economic vehicles and alternative fueled vehicles will provide some additional opportunities. To accomplish this new corporate vision, some long-term objectives will have to be created and communicated. “What distinguishes a good objective from a bad one?
What qualities of an objective improve its chances of being attained? These questions are best answered in relation to seven criteria that should be used in preparing long-term objectives: acceptable, flexible, measurable over time, motivating, suitable, understandable, and achievable. ” (Pearce? Robinson, p. 193) The previous objective questions and criteria should be used as a guideline in creating objectives. 1)Increase production of alternative vehicles by 5% each of the next five years. The goal to have 25% of total production of vehicles be alternative fueled vehicles by 2013.
2)Increase production of fuel efficient economic vehicles by 12% each of the next five years. The goal to have 60% of total production of vehicles be fuel efficient economic vehicles by 2013. 3)Increase market share within the auto industry from around 12% (current) to 22% by 2012. The market share loss must stop today, last year Ford market share was 15. 7%. 4)Redirect development, production, and marketing costs from large vehicles to fuel efficient economic vehicles, and alternative fuel vehicles at a minimum of 70% of overall cost by 2011.
5)Change public opinion and overall image of company to be perceived as an environmentally friendly, and an auto industry leader in alternative vehicles by 2012. In the short term, Ford will invest in Mexico 3 billion dollars to acquire low cost labor, and set up the required plants with required technology to achieve the new mission and vision statements. Ford will invest in transforming and expanding the plants in Mexico City, Chihuahua, and Hermosillo to begin producing 15% of the expected capacity of the new economic cars by next year.
Strategic Analysis and ChoiceInternal and external Strengths:Global presence (even in the new fastest growing markets)OrganizationCapitalCurrent development of alternative vehiclesCost reduction focus & efficienciesBrand recognitionSale Volvo divisionSale or kill MercuryReduce Lincoln productionInternal Weaknesses:legacy costsPoor consumer perceptionUnions / higher labor ratesExternal Opportunities:Expanding global market (emerging markets)Growing market for alternative fueled vehiclesLow labor cost.
Promote going green & Ford promise for a cleaner worldOffshore all jobs that the unions currently do, if unions will not reduce wagesExternal Threats:Foreign Competition (emerging markets)Rising fuel pricesUS economic downturnCreate alliances and partnerships to build in foreign countries as well as USUse rising fuel prices as selling point for consumers purchasing alternative vehicles. Continue to pass cost efficiencies onto the price of vehicles, in hopes to stimulate sales.