Ford Analysis Running Head: STRATEGIC MANAGEMENT ANALYSIS OF FORD MOTOR COMPANY Final Case Study: Ford Motor Company James C. Robertson LDR 660 - Strategic Management Siena Heights University Graduate College May 26, 2011 1 Ford Analysis 2 Final Case Study: Ford Motor Company This case study is in partial fulfillment of LDR 660 Strategic Management for the Graduate College at Siena Heights University. The purpose of this study is to evaluate the financial and social stability of the Ford Motor Company as it relates to potential investors and customers. To obtain the necessary data for this study, several on-line news articles, customer/consumer reviews, and financial statements were analyzed. Additionally, the home websites for General Motors (GM), Daimler-Chrysler, and Ford Motor Company were referenced. The Ford Motor Company Mission Statement of: One Team, One Plan, One Goal resonates with blue collar worker here in the United States. Part of this case study deals with this mission statement and as such needs a moment of clarification. One Team, people working together as a lean, global enterprise for automotive leadership, as measured by: Customer, Employee, Dealer, Investor, Supplier, Union/Council, and Community Satisfaction. One Plan: Aggressively restructure to operate profitably at the current demand and changing model mix, accelerate development of new products our customers want and value, finance our plan and improve our balance sheet, work together effectively as one team. One Goal: An exciting viable Ford delivering profitable growth for all (Ford Corporate, n.d.). After two unsuccessful attempts to establish a company to manufacture automobiles, the Ford Motor Company was incorporated in 1903 with Henry Ford as vice-president and chief engineer. The infant company produced only a few cars a day at the Ford factory on Mack Avenue in Detroit. In 1908 Ford’s dream of producing an automobile that was reasonably priced, reliable, and efficient was realized with the introduction of the Model T. This vehicle Ford Analysis 3 initiated a new era in personal transportation and immediately propelled Ford Motor Company to the first of many huge successes (Henry Ford, 2003). Through the years, as with any company there have been ups and downs. “During a time of crisis throughout the auto industry in recent years, Ford emerged as the sole American automaker in a position to survive the steepest sales downturn in decades without a government bailout. That helped the company improve its reputation and win new customers” (“Ford Motor Company,” 2011, para. 5). According to the article in the online New York Times business section (“Ford Motor Company,” 2011): Ford's current strength stems from what was a literal bet-the-company decision in 2006 to borrow $23.6 billion, putting even the company's fabled blue logo up as collateral. That money helped Ford move more quickly than General Motors or Chrysler to bring out new lines of more fuel-efficient vehicles, and, more crucially, provided a cash cushion when the car market tanked along with the economy in late 2008. Ford also shifted its strategy to focus on its core brands and has sold off luxury brands, including Jaguar and Land Rover to the Tata Group of India for $2.3 billion in 2009…in January 2011, the automaker’s fourth quarter earnings disappointed, declining 11.7 percent on and falling short of expectation. At the same time, Ford said it earned $6.6 billion in 2010, its largest profit in 11 years, a result of surging global sales and cost cuts made during a lengthy turnaround. These are but a few of the reasons that Ford Motor Company was chosen for this case study. Now that both a brief history and snap-shot look at the company now has been complete, the next several pages will deal with various model analysis of the company starting with the SWOT (strengths, weaknesses, opportunities, threats) model, continuing with Profit Pools method analysis to address the financial model and concluding with the Two Factor analysis to address the impact on people. Since 2008 and the government bailout of the auto industry, Ford’s reputation has increased as they made it through the recession without bailout monies while also making sweeping changes to maintain stable balance sheets and strong market share. There is no doubt Ford Analysis 4 about the strength in brand name recognition. Being the oldest company operating under the same DBA (doing business as) creates an “All American” feel. The sideways blue oval with the name Ford is one of the most recognized brand labels in the world. The New York Times talks about two of the models which are helping to remake Ford into a global leader, the Focus and the Fusion, as such they are listed in this section. New engine designs and safety technologies are coming to the newer models of Ford giving the company a better environmental awareness label that has been lacking in previous years and models (“Ford Motor Company,” 2011):. One of the major weaknesses is Ford actually taking a governmental loan towards the end of the bailout period. They used it for developing greener technologies and higher fuel efficiencies on existing vehicles, but it is still a government loan and could be construed as being like GM and Chrysler thus weakening their image. Another of the major weaknesses is the company is too diversified when it comes to makes and models. In the past few years this has changed as noted earlier with the selling off of the luxury brands and discontinuing the Mercury models “ending a 71-yearl old brand that once stood for innovation and speed...” (“Ford Motor Company,” 2011). The opportunities abound for Ford as they become more and more networked and entrenched in other countries. For example, Ford Focus is the companies “international” product with plants all over the world. Ford sold 67,041 Focus models in Russia in 2010 where they sold 47 total units in 1999 (“Ford Focus Sales,” 2011). In May of this year, the Ford plant in Russia produced its 500,000th Focus just ahead of the launch of the newer models of Focus which include higher safety standards and technology as well as 40 mpg highway rating. There are also joint ventures and investments in Vietnam, India and Europe which could catapult Ford back into the number 1 spot as GM and Chrysler struggle to reinvent themselves. Ford Analysis 5 However, the advantage of being financially number one and being able to withstand the recession is beginning to disappear. April 21, 2010, in a press release on its website, GM announced the full repayment of U.S. and Canadian governmental loans ahead of schedule. May 24, 2011, in a press release on their webpage, Chrysler announced that refinancing is complete and the U.S. and Canadian governmental loans have been repaid. These two statements for Ford mean an aggressive reemergence of two major competitors who have been relatively quiet since 2008. As always governmental regulations continue to be a threat as they cannot be controlled. Fluctuating fuel costs could potentially be a threat but with the new emphasis on Focus and its different model versions this may turn out to be the company’s biggest opportunity. Another area of concern, as far as threats go, would be the emergence of 30 or so new electric/hybrid vehicle companies (Morrison, 2008). While not a serious threat at this time, these companies could put a damper on the successes of Ford and could potentially upset the balance of power. In looking at just the SWOT it looks as if Ford is in a good position to take back some market share from GM and Chrysler and to solidify itself as a leader in green technologies most especially in the area of electric/hybrid cars. The issues will be in keeping ahead of the other manufacturers and staying on the innovative edge. The Profit Pools method of financial analysis is a strategy model that can be used to help managers or companies focus on profits, rather than revenue growth. Simply put, the Profit Pools method can be used to: identify new sources of profit, rethink a company’s value-chain role, refocus on traditional sources of profit, and make product, pricing, and operating decisions (VMG). With that basic framework in hand, evaluating Ford is fairly simple. One of the areas Ford identified as a source of new profit was and is the hybrid/electric vehicles. While GM and Ford Analysis 6 Chrysler were taking out loans to stay afloat, Ford took out a loan for research and development in the areas of hybrid/electric vehicles and safety features. During those few years of relative quiet, Ford was able to get an edge and position itself as the leader in this area. There is the Chevy Volt to contend with which will go into production in 2012 but Chrysler only has fuel efficient engines ready for production with hybrid/electric engines still in the development phase. Lower sales and declining margins played a part in 2006 when Ford reported a $12.6 billion loss. It was at this time Ford announced a restructuring plan; cutting back about one third of their workforce, 30,000 hourly jobs and 14,000 salaried workers, this applies to the rethinking portion of this model. As noted earlier, later that same year, Ford raised $23.6 billion in loans by putting most of its North American Assets up as collateral. Foresight and proactive thinking by Alan R. Mulally Ford’s CEO played a hand in keeping away from government bailout monies, but there was still debt to be rid of. In March of 2009, Ford reduced its debt by 40 percent by offering cash and stock to debt holders as part of a revamping of its balance sheet; nearly $10.4 billion in debt was eliminated. In making this daring move, Ford had a cushion around them where GM and Chrysler did not (“Ford Motor Company,” 2011). It was at this point a return; a refocusing on traditional sources of profit came in. The luxury lines Jaguar, Volvo and Land Rover were liquidated over the course of the next few years and older outdated models and lines, the Mercury division, were discontinued. Without this foresight and audacity to take some risks coupled with the tactical advantages caused by excesses in GM and Chrysler not to mention the huge Toyota recall, it is entirely possible that Ford would have become another label in history. The last model that is being used in this case study is the Two Factor Analysis which evaluates the people factor two ways; typical hygiene and typical motivation. Typical hygiene Ford Analysis 7 factors include: working conditions, quality of supervision, salary, status and the like. Typical motivation factors include: achievement and recognition, interest in job and advancement. Thus the basic equation comes out three different ways: 1) High Hygiene + High Motivation: The ideal situation where employees are highly motivated and have few complaints, 2) High Hygiene + Low Motivation: Employees have few complaints but are not highly motivated. The job is viewed as a paycheck, 3) Low Hygiene + High Motivation: Employees are motivated but have a lot of complaints. A situation where the job is exciting and challenging but salaries and work conditions are not up to par, 4) Low Hygiene + Low Motivation: The worst situation. Unmotivated employees with lots of complaints (VMG). In the review of Ford over the past several years, an argument could be made that during the troubling times in the economy and the uncertainty of the auto industry in general, most of the general workers were probably at level three or four using 44,000 employees laid off as factors which impact both hygiene and motivation. However, as the company stabilized and it became apparent Ford was the most stable of the auto manufacturers, it stands to reason the numbers moved up to level two and three. As Ford retooled and expanded the models making the difference in the bottom line (Focus, Fusion), Ford started posting positive gains again. In 2010 Ford announced the company had earned $6.6 billion, its largest profit in 11 years and because of this the company was able to pay their 40,000 hourly workers a profit sharing bonus of $5,000 per person. With that development it stands to reason, most of the employees are probably at level one or two (“Ford Motor Company,” 2011). Based on these three models and the analysis of the data as defined by these models, it is logical to assume Ford is a fairly stable company to invest in if one had money to invest. With that being said it is also logical to take a closer look at the numbers prior to investing or making Ford Analysis changes to the current way of doing business. Therefore in the next section this evaluation will continue with a comparison look at the 2008, 2009 and 2010 year end numbers as posted on the Ford web-site. (“Annual Report,” 2010) 8 Ford Analysis 9 Looking at the 2010 annual report as shown on the previous page, one can see which year was most troublesome for Ford. Looking at the bigger picture and knowing what was going on in the economy is also reflected here. When one compares the sales on line 11 starting in 2006 it is easy to see the story unfold in numbers based on the financial review and history in the New York Times. 2006 and 2007 look o.k. with stock prices between $6.06 on the low side and $9.70 on the high side. There is the feel of the 1990’s were America and its companies are doing the same thing in moderately the same way. The cost of maintaining buildings and equipment is creating a steady downward drag but at this point in time none of the auto companies are moving to correct the potential situation. Couple that with rising health care costs and it is a recipe for disaster (“Annual Report,” 2010). Continuing to look at line 11 it is noted that sales dropped off significantly, down $25 billion in sales from 2007 to 2008 and down another $23.7 billion moving into 2009. Ford had already started making the changes as noted above; laying off workers, restructuring, and retooling existing operations. As consumers started demanding fuel efficiency over the gas guzzling machines of past, sales picked up for Ford as shown in the increase of $15.4 billion in sales at the end of 2010 (“Annual Report,” 2010). A good investor does not look only to sales but also to how the company is performing in other areas like total debt; how much money the company owes to others. Along with that, total assets; how much equipment, property and inventory the company owns. These two very special insights and numbers are found toward the bottom of the sheet on line 28 for assets and line 32 for debt. From 2006 to 2010 the plan put into place by the new CEO and Director of the board to retool and recreate Ford is easy to see here. As the company pared back operations to its core Ford Analysis 10 beliefs and realigned itself to its core competencies, the debt starts decreasing. Not rapidly to be sure but decreasing none the less. Compare that with the steady decrease in assets, things like buildings and an investor can see that Ford was and is making progress in becoming leaner in size yet more productive. There is a slight spike in both assets and debt in 2009 and that is probably as a result of the year-end sales for 2010; consumer demand went back up. Total equity/(deficit) spiked and went positive in 2007 but remember that was when Ford “bet the farm” and took out loans to keep them independent of governmental intervention, leaving them free to restructure on their terms. In this area Ford could be afforded the label of first mover. As the numbers indicate the recession hit and sales went away, but because of the cash on hand from the loans and smart paying down of debt, Ford is slowly coming into the black on all fronts (“Ford Motor Company,” 2011). From an outsider looking in, Ford has done an admirable job turning public perception around from the low days of the Firestone tire incidents to going through the recession and coming out as the innovative leader taking the lead on hybrid/electric vehicles. Combine that with the financial wizardry of the top executives at Ford and the recipe for success is written down. Moving forward is always an interesting prospect as it is easier for someone to sit and armchair quarterback as it were when real decisions are needed to move a multi-billion dollar/multi-national company into higher returns and profit margins. However there are some slight modifications that could improve the profit margin creating a better return for potential investors. The first thing a new CEO should do upon taking over Ford is not to try and fix something that is not broken. The current direction for Ford is good; therefore it only makes Ford Analysis 11 sense to continue on this path. To maintain the momentum built over the past few years, a new CEO should consider research and development a top priority. When one stops to consider where the human race is and where they have come from and are at, automotive-ly speaking, the clarity of future markets snaps into focus. Technology is the way to go and any new CEO needs to put thinking along those lines first. New products for Ford to retain leadership would include hybrid vehicles of course but moving toward fully electric vehicles. The problem there lies in infrastructure. In an interview with the Huffington Post, Bill Ford, Executive Chairman of Ford said, “I don’t think we’ll ever get the infrastructure built that we need if market forces alone are working.” (Johnson, Krishner, 2008). This would fall into the threat category in a SWOT analysis but it could also be an opportunity to partner with local, state and federal governments to get the components of the infrastructure placed. The CEO would also have to push hard for the continued leadership in financial responsibility. Staying solvent is what kept Ford from needing bailout monies in the past; again there is no need to change when something is working. On the other side of that thinking, a company cannot stay viable or in the leader position and be tentative in its policies and spending. The CEO will need to form a team whom he/she will bestow authority to control certain aspects of the business but to be accountable to each other and to him/her. Finally, the new CEO needs to acquire those patents and ideas that will fuel the next generation cars. Vehicles that can drive to destinations without continued guidance by humans, safety features that prevent serious injuries when involved in accidents or avoiding the accident all together, and interactive displays for fuel consumption and vehicle status and maintenance schedules will all be factors in the next generation of vehicles. Ford cannot simply recover from Ford Analysis 12 this downturn and expect to ride the wave till the end. Bill Ford said it plainly when he said, “We plan our vehicles three, four, five years in advance.” (Johnson, Krishner, 2008). Using the theory currently in play would be a great way to finance continued operations, keep debt and fixed assets low buying only what is needed when it is needed but also having the ability to be flexible with the current economy while keeping an eye on the future. Holding management to the highest standards and rewarding good work (at least according to the Two Factor Theory) should get Ford to that next level of being the number one auto maker again. The CEO could lead the company to greater profit sharing as a way to boost potential investors, but the best way to get long term, committed investors is to create a high value, quality product, that leaves the competitors in the dust scrambling to catch up while Ford works on the next high value, quality product. To keep overhead costs low Ford might consider outsourcing some of the research and development. The only problem with that is security and the possibility of industrial espionage. In closing and after reviewing the data collected and reported in this evaluation, barring any unforeseen circumstances, natural disasters, or depressive economies, Ford’s future looks bright and it would be a good if not great and safe place to bet some investment monies. Ford Analysis 13 References Annual Report (2010). On Ford Corporate website. Retrieved from http://corporate.ford.com/doc/ir_2010_annual_report.pdf Carney, D. (2011). 10 new car companies aiming for the big leagues: Rookie automakers offering electric roadsters, boxy commuting vehicles. MSNBC. Retrieved from http://www.msnbc.msn.com/id/40887273/ns/business-autos/ Chrysler (n.d.) Innovation Overview. Retrieved from http://www.chryslergroupllc.com/enus/innovation/Pages/default.aspx Davis, M. (2003, May). A history of Ford motor company. Wards AutoWorld . Retrieved from http://wardsautoworld.com/ar/auto_history_ford_motor/ Ford Focus Sales in Russia Suprpass 5000,000 Just Ahead of Launch of All-New Model (2011, May 23). Media.Ford.Com. Retrieved from http://media.ford.com/article_display.cfm?article_id=34662 Ford Motor Company. (2011, April 26). The New York Times: Business Day. Retrieved from http://topics.nytimes.com/top/news/business/companies/ford_motor_company/index.html Henry Ford. (2003). In American Association of Museums. Retrieved from http://www.hfmgv.org/exhibits/hf/ Johnson, K., Krishner, T. (2008, December 10). Ford Bailout Money Unnecessary, Company Says. Huffington Post. Retrieved from http://huffingtonpost.com/2008/12/10/fordbailout-money-unnece_n_149824.html Morrison, C (2008, January). 30 electric cars companies ready to take over the road. GreenBeat. Retrieved from http://venturebeat.com/2008/01/10/27-electric-carscompanies-ready-to-take-over-the-road/ Profit Pools (n.d.) Value Based Management.net. Retrieved from http://www.valuebasedmanagement.net/methods_profit_pools.html Pro Publica (2009). History of U.S. Gov’t Bailouts. Retrieved from http://www.propublica.org/special/government-bailouts SWOT analysis (n.d.). Value Based Management.net. Retrieved from http://www.valuebasedmanagement.net/methods_swot_analysis.html Two Factor Theory (n.d.). Value Based Management.net. Retrieved from http://www.valuebasedmanagement.net/methods_herzberg_two_factor_theory.html