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STraTeGIc MaNaGeMeNT caSeS
Ford Motor Company, 2015
www.ford.com, F
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Headquartered in Dearborn, Michigan, Ford Motor Company is the second-largest U.S. automaker behind General Motors, but only the fifth-largest in the world based on vehicle sales.
The company produces many different cars and trucks ranging from entry level to luxury cars.
Ford’s F-150 pickup truck is the most popular truck in the world for 32 years running. Ford owns
stakes in several car manufacturers around the world, including Aston Martin, Jiangling, Troller,
and FPV. In the past, Ford has owned portions of Jaguar, Land Rover, and Volvo. In 2011, Ford
discontinued its Mercury brand that had existed since 1938. In 2015, Ford switched the body of
its famous F-150 to aluminum from steel. The extra cost was $395 per truck, but fuel economy
improved with the reduced weight.
Fords have been running fast lately. For Q2 of 2015, Ford reported excellent financial results,
including the following:












Global market share grew to 7.6 percent, up one-tenth percent from a year ago.
Twelve of 16 planned global new product launches are completed; the remainder is on
track.
Introduced SYNC® 3, the all-new communications and entertainment system.
Continued strong profit at Ford Credit; pre-tax profit of $506 million.
Ford Smart Mobility plan moved from research to the start of implementation.
Ford Credit launched car-sharing pilot in 6 U.S. cities and London.
Pre-tax profit of $2.9 billion, up $269 million or 10 percent from a year ago.
Net income of $1.9 billion, up $574 million or 44 percent from a year ago.
After-tax earnings per share of 47 cents, up 7 cents from a year ago.
Best company quarterly profit since 2000.
Wholesale volume up 2 percent, driven by North America and Europe.
Automotive revenue is about equal, with higher net pricing and volume offset by unfavorable translation effects of the strong U.S. dollar.
Copyright by Fred David Books LLC. www.strategyclub.com (Written by Forest R. David)
history
Ford traces its roots back to 1896 when Henry Ford built and marketed his first Quadricycle, a
4-wheel vehicle with a 4-horsepower engine. It was not until 1901, however, that Ford started his
own car company, named the Henry Ford Company. He started Ford Motor Company in 1902
with 12 investors and $28,000 in cash. Interestingly, two of Ford’s first investors in his new company were John and Horace Dodge, who later would start their own car company, called Dodge.
Ford had spent nearly the entire initial investment when his first car was sold in July 1903. It
did not take Ford Motor Company long, though, to start making large profits. By October 1903,
Ford had turned a profit of $37,000, indicating just how popular this new equipment was going
to become. The company was incorporated in 1903.
Henry Ford is world famous for his assembly line, but for the first 10 years of the company,
two to three men worked on each car, and the parts were supplied by outside firms. Ford produced the famous Model T in 1908 and sold over 15 million, until production ceased in 1927.
To help maintain employee morale, Ford paid workers $5 per day in 1914, double the national
average. In addition, Ford reduced the workday from 9 to 8 hours. Many of Ford’s workers could
even afford a car they produced with the salary they earned.
In 1922, Ford acquired Lincoln Company and even began experimenting with aircraft production. In 1925, 2 years before selling the Model A automobile in 1927, Ford closed all plants
for 6 months to retool and train employees on construction. By 1931, despite the great depression, Ford sold over 5 million Model A’s. Ford continued to grow over the next two decades, until
its IPO in 1956, which was at the time the largest IPO in history.
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Case13 • FordMotorCoMpany,2015
In 2005, Ford, along with GM, had their corporate bonds downgraded to junk status. High
health-care costs, rising gas, falling market share to foreign products, a demanding United Auto
Workers (UAW) union, and lack of strategic planning all contributed to the downfall. In 2007,
Ford reached an agreement with the UAW on retirement benefits and other costs. The company
was able to avoid a government takeover, unlike its counterpart, General Motors. Over the last
several years, Ford has rebounded and continues to produce quality automobiles worldwide, as
well as more and more electric and part-electric vehicles.
Internal Issues
Organizational Structure
As revealed in Exhibit 1, Ford operates using a divisional-by-geographic region organizational
structure. Alan Mulally retired as CEO of Ford Motor Company on July 1, 2014, and was replaced
by the then COO Mark Fields. In December 2014, the company hired a Chief Analytics Officer.
Vision/Mission
Ford does not have a published vision statement, but does have a stated mission statement, which
is based on four key components and paraphrased as follows:
One Ford: Align employee efforts toward a common definition of success and optimize
their collective strengths worldwide.
One team: Work together as one team to achieve automotive leadership, which is measured
by the satisfaction of our customers, employees, and essential business partners, such as
our dealers, investors, suppliers, unions/councils, and communities.
One plan: Aggressively restructure to operate profitably at the current demand and changing model mix.
One goal: Create an exciting and viable company delivering profitable growth for all.
Strategy
Since 2005, Ford’s warranty repairs have declined 66 percent for vehicles in the first 3 months of
service with average warranty costs falling 54 percent. Ford has reduced its energy use, emissions,
and waste in its factories and its vehicles. The new F-150 comes with a 2.7 liter V6 EcoBoost
engine, giving it the same power as a V8, with much better fuel economy. Higher engine outputs
with smaller displacements are a key initiative moving forward for Ford and greatly improve
fuel economy and emissions. To improve safety, many Ford products now include Blind Spot
Information Systems, lane alerts, and rear parking assistance.
In 2014, Ford launched more vehicles than ever before in a single calendar year, including
a new Mustang and F-150. Ford is especially proud of offering its Mustang for the first time
ever in select markets in Europe and Asia, and the F-150 moving to an aluminum body will save
over 700 pounds on weight with the same material strength. Currently, Ford is engaged in its
largest manufacturing expansion in over 50 years by increasing capacity in six U.S. plants and
by opening two new plants in Asia and one each in South America and Europe. The U.S. plants
alone are expected to enjoy $6 billion of improvements. In 2013, Ford sold over 85,000 hybrid or
all-electric, plug-in automobiles, up 150 percent from 2012 as the company attempts to produce,
as one executive said, a Tesla for the average person. As the average age of cars increases in the
United States and abroad, Ford is aggressively launching new or significantly redesigned products. In 2014, Ford introduced 23 new vehicles, up from 11 in 2013, and plans to introduce a 150
percent new product turnover by 2018.
Marketing
Ford is unveiling a slew of new high-performance models, more than 12 new go-fast models coming to market by 2020, including a super-hot new Focus model, the RS. A new highperformance “Raptor” version of its new F-150 pickup could debut, and a new Ford sports car
is coming. Fast, sexy sports cars (and trucks) make for great headlines and they help develop
loyal customers. Products such as the V8-powered GT version of Ford’s Mustang sell well, but
higher-performance models are typically niche products. That niche is growing—Ford recently
reported that sales of high-performance models have risen 70 percent in the United States since
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509
510
Stephen
Odell,
Executive Vice
President and
President,
Europe, Middle
East and Africa
Joseph
Hinrichs,
Executive Vice
President
and President,
The Americas
Bernard
Silverstone,
Group Vice
President,
Chairman and
Chief Executive
Officer, Ford Motor
Credit Company
John
Fleming
Executive
Vice President,
Global
Manufacturing
and Labor Affairs
David
Schoch,
Group Vice
President and
President,
Asia Pacific
R
Robert
Shanks,
Executive Vice
E
President and
P
Chief Financial
C
Officer
O
Source: Based on information in Ford’s 2014 Annual Report.
J
James
Farley,
JJr. Executive
Vice President,
V
Global Marketing,
G
SSales and
SService and
Lincoln
L
S. Ojakliziad,
Chief
Operating
Officer
Exhibit 1 Ford’s Organizational Structure
R
Raymond
Day, Group
D
Vice President,
V
Communications
C
Felicia Fields,
Group Vice
President,
Human
Resources and
Corporate
Services
Mark Fields, President and
Chief Executive Officer
Bennie
Fowler,
Group Vice
President
Quality and
New Model
Launch
William Clay Ford, Jr., Executive
Chairman and Chairman of the Board
David
Leitch,
Group
Vice
President
and
General
Counsel
Ra Nair,
Raj
Group
Gr
Vice
Vi
President,
Pr
Global
Gl
Pr
Product
Development
De
Ziad
Ojakli,
Group Vice
President,
Government
and
Community
Relations
S
Stuart
Rowley,
R
Vice
V
President
P
aand
C
Controller
Nicholas
Smither,
Group Vice
President
and Chief
Information
Officer
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Case13 • FordMotorCoMpany,2015
2009, and 16 percent in Europe over the same period—but it’s still small. High-performance versions of mainstream models generally make up less than 10 percent of the model’s total sales.
Ford reports that more than 65 percent of those who buy its “hot-hatch” Focus ST and Fiesta ST
models are new to the brand, and importantly, often become loyal customers “for life.”
Segments
Ford derives approximately 60 percent of its revenues from the United States, Canada, and
Mexico. Virtually all the company’s profits in 2014 came from these countries; the only other
profitable region was Asia. Ford is in the midst of a $400 million restructuring program in Europe
and anticipates Europe will become profitable sometime in 2015. South America pretax profits
were slightly negative and are expected to remain so the next several years. Brazil and Argentina
are the strongest markets, with Venezuela being the weakest major market.
Ford reports revenues by five regions and by process: (1) vehicle sales and (2) financial
services. In 2014, Ford reported $136 billion from vehicle sales and $8.2 billion from financial services. Pretax results were just over $2.5 billion, with vehicle sales and financial services
accounting for $1.8 billion. It is important to note that Ford’s Pretax results were less than half
the previous year for total automotive operations. See Exhibit 2.
Finance
Ford’s recent income statement and balance sheet are provided in Exhibits 3 and 4, respectively.
Note the decline in revenues and the dramatic decline in net income.
Exhibit 2 Segment Data for Ford (in millions of USD)
2014
North America
South America
Europe
Middle East & Africa
Asia Pacific
Other Automotive
Total Automotive minus Special Items
Financial Services
2013
revenue
pretaxresults
revenue
pretaxresults
$82,400
10,800
29,500
4,400
10,700
NA
135,782
$6,898
(1,162)
(1,062)
(20)
589
(755)
2,548
$86,500
8,800
27,300
4,500
10,300
NA
139,369
$8,809
(33)
(1,442)
(69)
327
(656)
5,368
8,295
1,854
7,548
1,756
Source: Based on 2014 Quarterly and Full Year Review, various pages.
Exhibit 3 Ford’s Income Statement (in millions of USD)
reportdate
december31,2014
december31,2013
$144,077
140,637
3,440
797
1,699
4,342
1,156
(1)
3,187
$146,917
141,439
5,478
829
2,391
7,040
(135)
(7)
7,182
Revenues
Operating expenses
EBIT
Interest expense
Interest & other income
EBT
Tax
Noncontrolling interest
Net income
Source: Based on company documents.
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Strategic ManageMent caSeS
Exhibit 4 Ford’s Balance Sheet (in millions of USD)
reportdate
december31,2014
december31,2013
Assets
Cash and equivalents
Marketable securities
Accounts receivable
Inventories
Total current assets
Property, plant & equipment
Long-term investments
Goodwill & intangibles
Other assets
Total assets
$10,757
20,393
92,819
7,866
131,835
53,343
3,357

19,992
208,527
$14,468
22,100
87,309
7,708
131,585
47,600
3,679

19,315
202,179
Liabilities
Accounts payable
Total current liabilities
Long-term debt
Other liabilities
Total liabilities
20,035
20,035
119,171
44,174
183,380
19,531
19,531
114,688
41,517
175,736
Redeemable noncontrolling interest
Common stock
Retained earnings
Treasury stock
Pension & retirement losses and other
Paid in capital and other
Total equity
342
40
24,556
(848)
(20,032)
21,089
24,805
331
40
23,386
(505)
(18,231)
21,422
26,112
Total liabilities & equity
208,527
202,179
Source: Based on company documents.
Competitors
Competition in the automobile manufacturing business is intense among Ford, GM, Toyota,
BMW, Honda, Volkswagen, Hyundai-Kia, Nissan, Mercedes, and several other firms. About
75 percent of all revenue goes to purchase raw materials, so the industry is affected substantially
by prices of steel, rubber, aluminum, and other raw materials. Wages, the second-largest expense,
historically have been about $70,000 per employee in the United States and account for 5 percent
of total revenue expenses. Higher commodity prices and wage expenses forced GM and Chrysler
into Chapter 11 bankruptcies toward the end of the economic recession. However, labor expenses
were reduced after labor unions agreed to concessions.
Competition among competing models of vehicles and competing firms primarily boils
down to price, fuel economy, reliability, and utility. Business customers tend to focus on utility,
whether it is a construction company that needs heavy trucks or a pharmaceutical business that
provides cars to its salespeople. Most consumers, however, are more focused with styling and
price, but there are many exceptions and subsets of each population.
The industry is experiencing increased globalization. Firms like Ford are offering new products in existing markets and expanding into new markets. Many Japanese manufacturers are
gaining market share in the United States. There are high barriers to entry, which discourages
new companies from trying to enter the industry.
Exhibit 5 shows the largest automakers in the world. Other notable firms were Fiat Chrysler,
BMW, Daimler, and Mazda. Although no Chinese automaker is ranked in the top 10, from 13th to
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Case13 • FordMotorCoMpany,2015
Exhibit 5 Top Five Automobile Manufactures based
on 2014 Units Sold (10 months data, in thousands)
1,200
1,080
1,000
920
800
750
700
680
680
600
Unit Sales
400
200
an
Ni
ss
Fo
rd
H
on
da
ro
le t
Ch
ev
GM
To
yo
ta
0
Source: Consolidated and adapted from SP Net Advantage Table.
Exhibit 6 Ford versus Rival Firms
# Employees
$ Net Income
$ Revenue
$ Revenue/Employee
$ EPS Ratio
Market Cap.
Ford
gM
toyota
187,000
3,187 M
144,007 M
770,000
0.80
63.4 B
216,000
3,949 M
155,929 M
721,893
1.65
60.8 B
339,000
17,703 M
249,472 M
735,906
10.71
213 B
Source: A variety of sources.
30th, there are 10 Chinese firms represented. Exhibit 6 provides a synopsis comparison between
Ford, GM, and Toyota.
General Motors (GM) Company
Headquartered in Detroit, Michigan, GM is the largest American car manufacturing company,
ranking second behind Toyota in revenues and units of vehicles sold annually. GM brands
include GMC, Chevrolet, Buick, Cadillac, Opel, Wuling, Jie Fang, and Alpheon, among many
others. General Motors also holds stakes in and has joint ventures with firms in Korea and
China. GM is investing heavily in its electric vehicle line, which totaled 7 vehicles in 2013, and
has partnered with Honda to work on hydrogen cell technologies, with a 2020 timeframe for
selling vehicles.
General Motors owns OnStar, which serves 6.5 million customers across North America
with an assortment of services, including alerting First Responders to your location in an accident, as well as offering driving directions. With a new application for smartphones, OnStar can
reveal your tire pressure, fuel levels, and even start your car remotely.
Exhibit 7 reveals GM unit sales across world markets. Europe remains a laggard in the world
vehicle market, experiencing reduced sales for both Ford and GM. South America, while enjoying an increase in industrywide sales, reported fewer unit sales of GM vehicles in 2013.
Toyota Motor Corporation
Headquartered in Aichi, Japan, with U.S. headquarters based in Torrance, California, Toyota is
the largest automaker in the world in terms of revenues, and one of the largest in the U.S. market.
Toyota sells vehicles in over 170 different nations and generated $214 billion in revenues over
all operating segments in 2013. Popular vehicles sold in the United States include Lexus, Camry,
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Strategic ManageMent caSeS
Exhibit 7 GM Segment Data (in units sold in thousands)
2013
2012
GMCUnits
IndustryWideUnits
GMCUnits
IndustryWideUnits
3,324
1,557
3,886
1,037
9,715
19,092
18,772
40,795
5,936
84,595
3,019
1,611
3,616
1,051
80,908
17,847
18,983
38,229
5,849
9,297
North America
Europe
Asia/Pacific, Middle East, Africa
South America
World Wide
Source: Based on information in the 2013 GMC Annual Report, p. 3.
Exhibit 8 Toyota Segment Data (in millions of USD)
2013
2012
Geographicregion
revenue
operatingIncome
revenue
operatingIncome
Japan
North America
Europe
Asia
Other
Intersegment elimination
Totals
$106,414
52,161
17,290
36,399
17,382
(46,514)
183,133
$4,784
1,842
220
3,121
1,110
(113)
10,963
$92,689
39,441
16,550
27,674
14,609
(36,719)
154,244
($1,718)
1,547
148
2,131
903
(59)
2,952
Source: Based on Toyota’s 2013 Annual Report, p. 35. (Exchange rate conversion, December 2014)
Corolla, Avalon, Rav4, 4Runner, Land Cruiser, Tacoma, Tundra, Prius, and many others, including several mini-vans.
Exhibit 8 presents the segment data for Toyota based on geographic region. It is interesting
to note that revenues were up 18 percent in 2013 but operating income was up 275 percent over
the same time period. In particular, operating revenues in Japan increased substantially. Toyota
reported increased sales in Europe over the same time frame when both Ford and GM had losses
in Europe.
Hyundai-Kia
Headquartered in Seoul, South Korea, Hyundai-Kia is the second-largest automaker in Asia and
the fourth largest in the world. The firm operates the single-largest automobile manufacturing
plant in the world, in Uslan, South Korea, producing over 1.5 million vehicles annually. Hyundai
has become the fastest-growing automaker in the world. With extended warranties common,
Hyundai has gained loyalty and significantly increased its U.S. market share. The company
reported revenues in 2014 of $8.4 billion. Popular cars include the Sonata, Santa Fe, Accent,
Tucson, and the Rio and Optima by Kia.
External Issues
Vehicle Variety in the USA
Exhibit 9 reveals the percent of revenue of various classes of vehicle. Cross-over utility vehicles
have taken much of the demand away from SUVs, which account for only 10 percent of total
U.S. market share. These vehicles look much like an SUV, but are built on car chasses and lack
the towing power of an SUV. They also tend to get much better gas mileage, as automakers
started applying hybrid technology to cross-overs before SUVs. Notable SUVs include the Ford
Flex, Toyota Venza, and Dodge Journey. The Ford Explorer has recently been shifted to become
more of …
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