Ford and the European Automotive Market
The University of Illinois at Urbana-Champaign
Executive MBA Program
1
Executive MBA Case Group
 Jeff Attwood
 Jean Baird
 Maryann Carrero
 Lucas Chan
 Susan Krieger
 Ravi Menon
 Kent Miller
 Terry Nichols
 Randy Short
Faculty Advisor:
Dr. Jeffrey A. Krug
University of Illinois at Urbana-Champaign
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Analysis
Porter’s Five Forces Model
The Value Chain
Standardization vs. Differentiation
Platform Strategy
Summary
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Michael Porter’s Five Forces Model
Threat of
Substitutes
Threat of
Entry
Threat of Rivalry
Power of
Suppliers
Power of
Buyers
4
European Automotive Sector
Threat of Substitutes
Substitutes
Threat of
Entry
Low Switching Costs
Low Priced SubstitutesThreat of
Few High Quality Substitutes
Rivalry
Suppliers
MODERATE
Power of
Buyers
5
European Automotive Sector
Threat of Rivalry
Threat of
Substitutes
Power of
Suppliers
Many Competitors
Competitors of Equal Size
Low Switching Costs
Intense Rivalry
High “First Mover” Advantages
Competitors
High Exit Barriers
Low Entry of New Firms
Threat of
Entry
Power of
Buyers
STRONG
6
European Automotive Sector
Threat of Entry
Threat of
Substitutes
Power of
Suppliers
New Entrants
Economies of Scale
Technology Advantages
Experience Curve Effects
Threat of High Brand Loyalty
Rivalry High Customer Loyalty
High Capital Requirements
Buyers
WEAK
7
European Automotive Sector
Threat of
Substitutes
Power of
Suppliers
Power of New
Buyers
Entrants
(Dealers)
Profits are Low
Threat of Rivalry
Purchase in Small Quantities
High Switching Costs
? Dealer Size
Buyers
? Purchase from Several
Suppliers
WEAK TO MODERATE
8
European Automotive Sector
Substitutes
Power of Suppliers
Threat of
Entry
(Material and Labor)
High Switching Costs Threat of
Few Substitute Products Rivalry
Suppliers have Good Reputations
? Number of Suppliers
Suppliers to Integrate Forward
? Opportunity
Power of
Buyers
MODERATE
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European Automotive Sector Forces
Threat of
Substitutes
Threat of
Entry
Moderate
Weak
Threat of
Rivalry
Strong
Power of
Suppliers
Moderate
Power of Buyers
Weak to
Moderate
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Block Exemption Proposal
Spring announcement - Fall implementation
Less exclusive selling
Less regional control
Bypass OEMs
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Car Rental
Service and Parts
Leasing/Financing
New Car Retailing
European Automotive Value Chain
Concurrent Infrastructure
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Car Rental
Service and Parts
Leasing/Financing
New Car Retailing
European Automotive Value Chain
Insurance
16%
5%
8%
2%
7%
5%
15% 12%
9%
17%
Credit Suisse/First Boston: European Automotive Sector January 29, 2002
4%
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•Composite materials
Car Rental
Opportunities
Service and Parts
•Commodity type products
Leasing/Financing
Threats
New Car Retailing
European Automotive Value Chain
Insurance
16%
5%
8%
2%
7%
5%
15% 12%
9%
17%
4%
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•Created from
outsourcing
•Margin squeeze
Car Rental
Threats
Service and Parts
Leasing/Financing
New Car Retailing
European Automotive Value Chain
Opportunities
•Software systems
•Parts sales to others
•Consolidation
•Increasing power
•Sole source
•Information sharing
•Additional outsourcing
Insurance
16%
5%
8%
2%
7%
5%
15% 12%
9%
17%
4%
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•Block Exemption proposal
•Euro transparency
•Labor
•Imports
•Economies of scale
•Shorter development cycles
16%
•Stronger suppliers
5%
8%
2%
7%
5%
Car Rental
Service and Parts
Leasing/Financing
Threats
New Car Retailing
European Automotive Value Chain
Opportunities
•Block Exemption proposal
•Flexible manufacturing
•Information sharing
Insurance
•Design/provide solutions
•Enhance brand/loyalty
Insurance
•Direct selling
17%
15%
•Cost reductions
12%
9%
•Differentiation
4%
•Standardization
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16%
5%
8%
2%
7%
5%
15% 12%
9%
Car Rental
Service and Parts
Leasing/Financing
New Car Retailing
European Automotive Value Chain
17%
4%
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Standardization vs. Differentiation
Cost-Focused
Customer-Focused
Customization
Standardization
Differentiation
Individualization
Advantages/Opportunities
 Low production and
variation dependent costs
 Reduction in complexity
 Reduction in resources
Advantages/Opportunities
 Meet customer
needs/wants
 Define/enhance brand
 More flexible to multibrand strategy
Goal: Low cost with high product differentiation while
maintaining or extending the identity of the relevant brand
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Standardization vs. Differentiation
How does an automobile manufacturer produce at low cost
and keep a high degree of product differentiation while
maintaining or extending the identity of its brand?
Multi-branding Strategy – breadth of the product line
through internal product development or acquisitions
Platform Strategy – depth of the product line
Badging Strategy – cooperation of two different
manufacturers or between brands of one manufacturer
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Standardization vs. Differentiation
Platform Strategy
Advantages
Reduced complexity
Sharing of innovation
Economies of scale
Increase multi-branding
strategy
Manufacturing flexibility
Disadvantages
Product dilution
Cannibalization
Incompatibilities
Risk concentration
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Standardization vs. Differentiation
Badging Strategy
Advantages
Disadvantages
Time advantage
Limited autonomous
Sharing of development and
control
investment costs.
Competitive advantage
Manufacturing and supplier
more heavily influence by
economies of scale
marketing, advertising,
Risk minimization
dealer networks, and
Can fill gaps in multi-branding
pricing strategies
strategy
Mutual transfer of technology
and knowhow
Supplier time, production and
development cost reduced
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Ford EAO Platform Strategy Pre-1999
Europe
Aston
Martin
Jaguar
Lincoln
Sub-B Class
Ford
Mercury
Mazda
Ka
Fiesta
B Class
Puma
Escort
C Class
Cougar
C/D Class
Mondeo
D Class
Scorpio
Galaxy
VW
Sharan
SEAT
Alhambra
M Class (MPV)
Windstar
People Mover/Cargo
SUV/Truck
Transit
Ranger
Explorer
Maverick
Nissan
Terrano
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Ford EAO Car Platform Strategy
Premium Automotive Group
Land
Rover
Volvo
Aston
Martin
Jaguar
Europe
Lincoln
Sub-B Class
Ford
Mercury
Mazda
Ka
B Class
Fiesta
XRV
Fiesta
C Class
Focus
Options
C/D Class
D Class
Mondeo
V70
S-Type
E Class
S80
F Class
LS
?
X-Type
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Ford EAO SUV/MPV Platform Strategy
Europe
Ford
SEAT
Alhambra
VW
Sharan
Mazda
Land
Rover
Galaxy
MPV
Windstar
SUV
Ford
Escape
Maverick
Mazda
Tribute
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Summary
 Five Forces Model


Threat of Rivalry
Power of Buyers and Suppliers
 Value Chain


Collaboration and Information Sharing
Design, Development, Brand & Loyalty Exploitation
 Standardization vs. Differentiation

Low Cost with High Product Differentiation
 Platform Strategy

Brand, Platform and Badging Opportunities
25
Ford and the European Automotive Market
The University of Illinois at Urbana-Champaign
Executive MBA Program
26