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Ford Motor Company is the third largest automobile manufacturer in the world based on automobiles sold. Ford manufactures and distributes automobiles in 200 markets across six continents (Datamonitor 4). Ford’s brands include Ford, Jaguar, Lincoln, Mercury, Volvo, Land Rover, Aston Martin, and Mazda. Ford’s key products include passenger cars, trucks, busses and vans, sport utility vehicles, vehicle accessories, after-sales vehicle parts and products and extended repair service products. According to Fortune Magazine in 2007 Ford was the seventh ranked American-based company listed on the fortune 500 list, which was based on Ford’s global revenues in 2006 of 160.1 billion. The company’s success comes from its ability to focus on customer satisfaction and loyalty, anticipating and meeting changing customer needs, and delivering innovative products that exceed quality standards and are price friendly and also environmentally friendly.
The financial stability of Ford and the long-term stability of our world are met by Ford’s strategy to lead with its products. Several key strategies are used by Ford that help to develop products that are of high quality, affordable to consumers and that are in high demand. These strategies include; continuous improvement of quality standards and customer satisfaction, adjusting to consumer demands by developing state-of-the-art technology that is cleaner and more fuel efficient, and delivering customer-focused innovations faster. If these strategies are implemented correctly Ford can overcome many or the driving forces that control competition in the automobile industry.
Driving forces in an industry are the major causes that change the industry and the competitive condition of that industry. The main driving forces that significantly alter the automobile industry include; competition and globalization, new technology and innovations, changes in cost and efficiency, regulatory influences and government policy changes, and changes in societal concerns, attitudes, and lifestyles.
Globalization is when automobile manufacturers offer their products internationally. One reason manufacturers do this is to increase sales in faster growing markets. Also production costs can be cut due to lower labor costs in markets around the world. Ford Motor Company is a strong believer in globalization; it manufactures vehicles in six continents across the world. Ford focuses on three primary types of emerging markets. The first market is developing countries such as China, India, and Brazil.
The economies of these markets are growing and so is the need for products like automobiles. Ford realizes the amount of money consumers make in these developing countries and adjusts products to make them accessible to these consumers. In 2006, production capacity in China increased to 200,000 units (“For a More Sustainable Future” 7.) Also in 2006 Ford ranked second for customer satisfaction in India by J.D. Power Asia Pacific.
The second emerging market Ford is focusing on is revitalizing economies such as Russia that are experiencing periods of growth after long periods of economic stagnation.
The third emerging market Ford focuses on is high-growth niche market across the U.S. and Europe. Ford has developed and will continue to develop hybrid vehicles, advanced clean technology, and smaller more fuel-efficient vehicles that suit customers in a certain region or customers with different driving conditions.
New technology and innovations is also a major driving force in the automobile industry. The ongoing change in technology alters the pattern of competition by attracting more buyers. Innovations in production techniques allow manufacturers to produce products faster, more efficiently and cleaner. Ford focuses its innovation on design, technology, safety, and the environment. Ford’s innovations are based on customer demands. Today more customers want environmentally friendly automobiles and better fuel-efficient cars.
Ford has and is also developing more advanced technologies that are environmentally friendly. Examples include biofueled vehicles, hydrogen internal-combustion engines and hydrogen fuel cell vehicles. Ford also has an innovative manufacturing process, which is cleaner for the environment and also saves money for the company. Ford uses fluids blended from vegetable oil during engine production rather than using mineral oil. The associated waste in engine building is the most environmentally damaging part of the process. Ford also has improved its efficiency by enforcing strict energy intensive operations, such as the generation of compressed air for handheld tools on the production line.
Changes in cost and efficiency also drive change in the automobile industry. In the past few years’ material costs, labor costs, employee benefit costs and oil prices have all been increasing. One way that Ford is combating high oil prices is its use of a soy-derived foam. The average vehicle made today contains 30 pounds of foam made from petroleum products. Ford is making an effort to replace 40% of the petroleum-based foam with a soy-based foam. To fight against decreasing profit, rising labor costs and employee benefit costs Ford has been implementing elements of its’ “Way Forward Plan.” This plan was developed in 2006. The plan calls for reducing the number of Ford’s North American manufacturing employees by 25,000-30,000 and also plans to idle 16 North American manufacturing facilities (“For a More Sustainable Future” 34.)
Also in 2006 health care expenses for U.S. Ford employees, retirees and their dependents were $3.1 billion (“For a More Sustainable Future” 35.) Even though Ford values its’ past and present employees, the company cannot keep up with the rising prices of health care. In 2006 Ford had required retired employees to support a higher portion of their health care benefits, and active employees were asked to increase their health care contributions. Also in 2006 Ford employees were offered to leave the company. To make it appealing to employees Ford offered eight different incentive packages. A couple of these packages included early retirement and an educational opportunity package where employees with at least one year of service were eligible for up to $15,000 in tuition reimbursement per year up to four years (“For a More Sustainable Future” 34.)
Another driving force that alters the competitiveness in the automobile industry is regulatory influences and government policy changes. One example of a regulatory influence would be the governments Corporate Average Fuel Economy (CAFÉ) requirement, which measures carbon dioxide emissions. Ford has met the requirement every year since the program was first introduced.
Altering societal concerns, attitude, and lifestyles are major instigators of industry change. Growing consumer concerns towards environmental safety is a major driver of change in the automobile industry. Ford recognizes that manufacturing and operating automobiles have a significant impact on the environment. Ford has several initiatives to protect the environment.
The first initiative includes developing advanced environmentally friendly vehicles. Ford was the first U.S. automaker to offer a full hybrid vehicle, which was also the first hybrid from any automaker in the SUV segment. The second initiative for Ford is to meet and exceed new clean air standards established by the Environmental Protection Agency. Reducing the environmental impact of our environment is Ford’s third initiative to protect the environment.
Ford also aims to recycle and reuse materials by contracting with suppliers to attain environmental friendly parts and components. An example is Ford’s “Fumes-to-Fuel technology.” A plant’s painting operations are its largest source of air emissions. Ford has developed a process that uses paint fumes to generate electricity for its plant.
The last initiative for Ford is conserving natural resources by taking part in global environmental programs to conserver energy and water. Ford’s developed a software program called “WET” that creates a facility-wide water balance to quantify individual uses of water and identify areas of opportunity. Safety is another concern that drives changes in automobile designs. Not only does Ford develop innovative safety technology the company also educates drivers. In 2003 Ford teamed up with the Highway Safety Association and a panel of safety experts to create a program called “Driving Skills for Life.” This program teaches teenagers develop the skills necessary for safe driving, beyond what they learn in standard driver education programs (“For a More Sustainable Future” 30.)
Five Force Analysis
Intensity of Rivalry Among Competitors
The automobile industry is one of the most competitive industries in the world. The top competitors globally and domestically account for most of the industry’s market share. In the United States there are three top competitors known as the “Detroit Three”, formerly known as the “Big Three.” General Motors Corp., Ford Motor Co., and the Chrysler Group are the three companies that makeup the “Detroit Three”. According to Ward’s Automotive Reports in 2006 the “Detroit Three” brands accounted for 41.5% of passenger car sales in the United States; of this 41.5% market share, General Motors controlled 20.8%, Ford 14.1% and the Chrysler Group 6.6%. The “Detroit Three” market share is slowly dwindling due to globalization, which is another reason that leads to stronger rivalry among competitors (“Autos & Auto Parts Industry Survey” 9.)
In the United States, according to Ward’s Automotive Reports, the top three foreign competitors that are trying to take over the U.S. market include; Toyota Motor Corp., Honda Motor Co. Ltd., and the Nissan Motor Co. Ltd. In 2006 Toyota, Honda, and Nissan accounted for 36.6% market share in the U.S. Individually Toyota controlled 18.7%, Honda 10.8% and Nissan 7.1% of the U.S. market share; in the truck category the “Detroit Three” brands account for 67% of Truck Sales in the U.S. Toyota, Honda, and Nissan are the foreign companies trying to compete with the “Detroit Three” (“Autos & Auto Parts Industry Survey” 9.) Lack of product differentiation is another factor that adds to the intense rivalry between competitors. Automobile manufactures products include cars, trucks and SUV’s.
Even though there is a lack of product differentiation within the automobile industry there are many things that a manufacturer can do to alter design and production that make a product standout from its’ competitors. The innovation of technology and production causes intense rivalry between competitors because if automakers want to sell make the most profit they need to develop innovative technology that is a step ahead of its competitors and meets the needs of consumers or they need to develop innovative production techniques that are more efficient and cheaper compared to its competitors. Ford is known for its innovation throughout the years; one example would be the moving assembly line. This manufacturing technique allowed individual workers to stay stationary and perform the same task repeatedly on multiple vehicles that passed them, this technique allowed Ford to be more efficient by producing many more vehicles than its competitors.
Threat of New Entrants
Although the automobile industry has very strong rivalries among competitors the industry will not see many new entrants in the future. There are several reasons why there is a low threat of new entrants in the automobile industry. The automobile industry has reached economies of scale and to be successful in the industry new entrants must reach economies of scale. Manufacturers must mass-produce automobiles so that they are affordable to consumers. Another reason why there are very few new entrants in the automobile industry is the very high capital requirement. Manufacturing costs, research and development costs, start-up costs, and advertising and promotion costs are a few costs that require huge amounts of costs in order to be successful in the automobile industry.
With rising oil prices, increase in employee benefit costs, higher healthcare costs and also rising steel prices the threat of new entrants will remain to stay very low in the automobile industry. The current situation of the Automobile industry and the U.S economy is another factor that will keep the threat of new entrants low. Rising gas prices, low consumer confidence and shrinking home values are all factors that are causing decreases in automobile sales. Strong brand preferences and high degrees of customer loyalty is another reason there are few new entrants in the automobile industry. It is hard for a new manufacturer to attract customers that have brand preferences and are loyal customers, unless the manufacturer has a huge advertising and sales promotion budget or offer price discounts, these two things decrease profit margin.
Threat of Substitute Products
The threat of substitute products is very weak in the automobile industry. Automobile transportation for people makes it easy and fast to get from place to place depending on the length of their trip. Walking, biking, and riding trains, planes or subways are all substitutes to automobiles. These substitutes depend on the location of the person. People that live and work in the city will probably either walk, bike, or take a subway to work in order to avoid traffic or to protect the environment. The threat of these substitutes will always be low because it is convenient to have a car and new innovations toward environmentally friendly automobiles.
Bargaining Power of Suppliers and Buyers
In the automobile industry the bargaining power of the supplier is weak. There are so many part manufactures in the industry to choose from it is easy for a company to switch from one to another giving supplier no leverage. The automobile part sector is so big that it is divided into four business units: original equipment manufacturers, replacement parts manufacturing, replacement parts distribution, and rubber fabricating. According to a press release by Ford, the company spends around $90 billion on parts from more than 2,500 suppliers. Compare to the bargaining power of suppliers the bargaining power of buyers is a lot higher.
Automobile manufacturers make profit from the sales of its’ automobiles. This means that manufactures have to produce automobiles that meet consumer needs and standout from its’ competitors. This is why consumers have such a high bargaining power because if they do not like a certain automobile they can choose another automobile from a different manufacturer at a relatively low switching cost. Analyzing the bargaining power of supplier and buyers, identifying the threat of new entrants and substitute products, and also analyzing the intensity of rivalry among competitors will allow a company to assess the competitiveness of a certain industry.
Ford is the world’s third largest automobile manufacturer, and their brands are sold domestically and internationally, which include Ford, Land Rover, Lincoln, Mazda, Mercury, and Volvo. In 2006 Ford received 30th place in the BusinessWeek-Interbrand ranking of the top 100 global brands in 2006. Another one of Fords’ biggest strengths is its’ industry leading innovative technology which is shown through product design, safety and production. Ford’s large network base is a strength to the company. Ford manufactures and distributes automobiles in 200 markets across six continents. Ford is also a very ethical company. For years, Ford has supported families in need. Ford encourages its employees to take two workdays per year to volunteer at an approved nonprofit organization.
Although Ford is very successful it does have weaknesses. One weakness would be the decline in its’ market share. According to DataMonitor, Ford’s overall market share in the US has declined from 21.1 % in 2002 to 17.1% in 2006. Competition, globalization, low consumer confidence, and high gas prices are all factors that contribute to Ford’s declining market share. Another weakness of Ford’s is it’s declining profitability. At the end of 2006 Ford recorded revenues of $160,123,000 million which was a 9.5 % decrease from 2005. The operating loss of the company during 2006 was $16,950,000 million compared to a operating loss of $1,550,000 million in 2005. This means Ford had a net loss of $12,613,000 million in 2006, compared to a net profit of $1,440,000 million in 2005 (Datamonitor 4.)
The automobile industry is full of opportunities. High gas prices and environmental issues have caused manufacturers to develop innovative technology. Ford is developing several technologies that are environmentally friendly and fuel-efficient. These vehicles include; biofueled vehicles, hydrogen internal-combustion engines and hydrogen fuel cell vehicles. Global demand is also an opportunity for Ford. Ford has developed strategies to bring its’ product to emerging markets like India, China and Brazil. The economies of these markets are continuing to grow along with its demand for automobiles.
A major threat to Ford is its competition, which includes General Motors, the Chrysler group, Toyota, and Honda. Rising costs are also a major threat to Ford. Rising labor and employee benefit costs have forced Ford to reduce its workforce and to close some of its vehicle assembly plants. The U.S. economy is also a threat to Ford. Consumer confidence is down due to rising oil prices and declining home values. The future of Ford and the automobile industry will continue to be worse in the near future if these threats continue.
With rising costs and increased competition the U.S automobile industry does not look good. Industry sales are expected to decline in the future due to low consumer confidence, rising interest rates, and high gas prices. SUV and truck sales will decline the most due to the rising gas prices. There will be a higher demand for smaller cars that are fuel-efficient. The “Detroit Three” along with other U.S. manufacturers will increasingly focus its operations internationally to markets in Eastern-Europe, Latin America and the Asia-Pacific where production costs are cheaper. Environmental friendly technology and manufacturing will also continue to rise because of the growing consumer interest in protecting our world.
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