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The economic environment is difficult. The United States may finally be showing signs of emerging from recession, but the recent economic difficulty has taken its toll of Ford. Following the short-lived spike provided by the 'cash for clunkers' program, auto sales have slumped again. Many competitors saw sales fall dramatically in the wake of that program. Ford, however, did not suffer as much. While two of its most popular models, the Focus and the Escape, fell 64.1% and 58.5% respectively in October, sales in other products increased. Ford sales dropped just 5% for October, and were up 5% for the quarter, marking the first such increase in four years. Ford is still heavily dependent on economic recovery spurring higher auto sales.
The economic environment around the world is not much better. Ford's major markets outside of the U.S. -- Canada and Europe -- are still suffering from the same lingering effects of the economic slowdown. This has resulted in sales struggles that generally have mirrored those in the United States. The one major economy that has bounced back the fastest from the recession is that of China. While other automakers, notably GM, have benefited from a strong presence in China, Ford has just 2% market share there. Indeed, Ford's Asia Pacific operations were not a source of strength, losing money in the first half of 2009. To address this issue, Ford is investing in a new manufacturing facility in China in order to increase production capabilities in the long run (Reeves, 2009).
The social environment for Ford is shifting towards one focused on environmental responsibility. Ford's success with large trucks and SUVs became a liability for the company as consumer sentiment in large swaths of America has turned against big vehicles and towards more fuel efficient cars. The White House has supported this trend, which gives it legs.
The trend towards more environmentally-friendly cars intensifies when gas prices are high, such as in the first half of 2008. When gas prices begin to come down the social environment loses some interest in fuel efficiency. Thus, a segment of consumers can be said to be price sensitive with respect to gasoline. While this provides Ford with valuable information about cross-price elasticity of demand, it also represents a risk since social attitudes can change much more quickly than Ford's production schedule.
The technological environment of the automobile industry favors two key factors. The first is an emphasis on automated production and sophisticated procurement. Toyota built a competitive advantage around its supply chain management, employing sophisticated techniques and technologies. Today, Ford and the other automakers have done their best to answer that challenge. The cost savings that can accrue from efficiency improvements in the supply chain and manufacturing necessitate continuous investment in research and development in the area of process improvement.
The second major focus of the technological environment is the development of "green" vehicles -- electric cars, fuel cell technology and fuel efficiency improvements. These are often mandated by the government and driven with a modicum of consumer support. All major auto manufacturers are developing solutions in these areas, in order to meet strong expected future demand. For its part, Ford is attacking this problem on multiple fronts. The 2010 Fusion is the most fuel efficient in its class. In 2010, Ford will have a battery-powered vehicle for its fleet customers. By 2011, the company will delivery a battery-powered passenger vehicle. The third generation of hybrids will be available in 2012, including a plug-in. For its conventional products, Ford has introduced EcoBoost engines, which it claims delivers improved fuel efficiency over previous engines. The company expects 90% rollout of EcoBoost engines by 2013.
Ford faces intense competition. Most firms in the automobile industry employ a cost leadership strategy, according to Porter's typology. Cost leadership occurs within vehicle segments, each segment being differentiated in some way from the others. The number one player in the industry is Toyota. Ford is probably number two, pending the fallout from the General Motors bankruptcy and asset sales. Other key competitors, in order of market share, are Honda, Chrysler, Nissan and Hyundai (Wall Street Journal, 2009).
Each of these competitors has its own unique dynamic. GM is selling off assets and discontinuing lines. Where its sales shake out is unknown at present, but some in the industry believe it will fall to be the number three automaker behind Toyota and Ford. Honda has been hit hard by the downturn but is generally a strong performer with increasing market share. Chrysler has been pummeled during the course of the economic downturn, consumers equally turned off by its products and by the thought that the company will not last much longer. Nissan has had stable market share for a number of years. Hyundai is an up-and-coming company. Its sales jumped 27% in the last quarter -- the same last quarter when other automakers were shedding sales. Hyundai is expected to pick up business as GM is closing two lines -- Pontiac and Saturn -- that formerly competed directly with Hyundai.
Automakers typically compete on the basis of price, quality, service and distribution. Consumers have a high level of price sensitivity when evaluating competing products. The high degree of competition in the industry manifests itself in price competition, in particular from Asian manufacturers not burdened with legacy costs and inefficient supply chain models. Discounting, price negotiation and price promotions are all common in the industry.
Quality is another major dynamic in the industry. Firms compete on the basis on initial quality and on the basis of quality over the life of the car. The concept of quality in automobiles takes on many different dimensions, with a wide variety of metrics in use. The particular metrics and features of importance will vary from consumer to consumer. Even automakers employing the cost leadership strategy must place significant emphasis on quality, in part due to the exceptionally high level of competition in the industry.
Distribution is a key point of competition as well. Most automakers use a dealer network to bring their products to market. Dealers act as both sales people and service centers for vehicles. The strength of after-sales service is another key element of competition.
Ford has a strong competitive situation in the industry. The company has established a strong brand name over the past century. Although this name has been marred at times -- the Pinto incident for example -- it remains strong, particularly in the company's core North America market. Ford is the number two or number three automaker in the U.S. market. It has a vast dealer network, and has the industry's best-selling vehicle. The company has ample production capacity and has "green" products in development. Other than Hyundai, Ford is the only major automaker to have gained sales in the past quarter, an indicator of the strength of the company's competitive position.
Ford has many strengths upon which it can build sustainable competitive advantage. Among the most significant are brand recognition, product strength and its dealer network.
Ford has perhaps the most recognizable brand name in the automobile industry. The company is an American icon and a household name. Ford's brand name extends to multiple foreign markets as well. In addition to the corporate moniker, Ford also has several strong brand names in the automobile business, including the Taurus, the Mustang and the F-series in trucks. These franchises are valuable. They drive tremendous business for the company, in part due to their high visibility and resonance with the consumer.
Ford's corporate brand and its stable of valuable brand names help to do to things. One is that they help to foster a sense of family in the Ford lineup. The consistent use of the Ford moniker, in particular, conveys the strength and history of the company throughout the entire lineup. Each individual line represents continuity of product, function and image, increasing the value of the franchise. The Mustang, for example, continues to benefit from the image created forty-five years ago when the brand was first launched. The F-Series branding is further evidence of the strength of Ford's branding -- the different Ford trucks are viewed by consumers as a singular set of complementary products.
The connotations of the Ford name are especially powerful in the core U.S. market, where the name is synonymous with American freedom, industry and innovation. Ford's response to the bailout offer strengthened this brand image, spurring response from consumers who gifted Ford with higher sales for the third quarter, versus sharp sales declines from the other major automakers.
Ford's products are also a source of strength for the company. Ford trucks in particular are well-regarded by consumers. Other Ford products also share good reputations. Ford is performing well with some of its products in overseas markets, such as the Fiesta in Europe. The company has invested considerable sums into product development as well, to bring its products in line with current social…[continue]
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