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
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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
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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
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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.
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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
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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
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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
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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)
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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
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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
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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
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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.
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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