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As a company, Ford has improved its sales in the past two years, after struggling during the recession. Ford's revenues in the last fiscal year (2011) were $136 billion, compared with $116 billion in FY2009 and $168 billion in FY2007. The company's profits have also fluctuated over that time period. FY2011 saw a profit of $20.2 billion, compared with $2.7 billion in FY2009 and a loss of $2.8 billion in FY2007. Thus, even though the company as a whole has seen its sales decline, cost controls and better pricing have allowed Ford to earn more profit from its sales.
The Mustang sold just over 70,000 units in 2011, giving the company a 29% market share. This was second to the Camaro, which sold over 88,000 units for a 37% share. The only other serious competitor was the Dodge Challenger with a 16% share (TopSpeed.com, 2012). Overall, Ford has around a 16.2% share of the U.S. auto market (Ohnsman, 2011). Sales of the Mustang were specifically hurt in 2011 by the lack of availability of the V6 engine, as Ford diverted most of those engines that were made available to the highly-successful F-150 pickup (No author, 2011). That this decision was made by Ford, knowing it would reduce Mustang market share, is something alarming and points to the status of the Mustang within the Ford Company. That said, Ford has big plans for the Mustang's 50th anniversary in a couple of years (Connor, 2010).
The Mustang's starting ticket price is $22,200, but most customers buy higher-end models. If it is assumed that the highest-end models like the Shelby GT500, which retails at $59,200 (Ford.com, 2012) are not sold in significant quantities, then the average sale price for Mustangs can be interpreted as being in the range of the V6 Convertible, which retails for $27,200. Ford offers a $500 rebate, and also offers discounted financing. The typical gross margin for a Ford vehicle, based on the income statement, is 14.1% (MSN Moneycentral, 2012), which means that Mustangs generate total income of around $1.869 billion at retail, with a contribution of $261.6 million towards Ford's $11.45 billion in fixed costs. Overall for the Ford Company, the return on investment is around 7 times.
Ford has a number of strengths from which it derives competitive advantage, as does the Mustang brand specifically. Ford has successfully engineered a turnaround, without the necessity of a government bailout. This makes Ford an independent automaker, something that the company has taken full advantage of in the past few years. Innovation has improved at Ford significantly, with the company set to introduce 15 new engines over the next couple of years, and 20 new models (Forbes, 2011).
Both the Ford brand and the Mustang brand are widely known and carry with them significant positive associations among their target market. In a survey that this author conducted of young men in the Mustang target market, four responded favorably to the Mustang brand, but they did indicate that the brand is "very closely associated with that type of car" and "that if the Mustang brand was attached to a different product, it would not make sense." The strength of brand association is most likely one of the reasons why the Mustang and the Camaro dominate the pony car market and why foreign competitors have been unable to capture significant market share in that segment.
Another strength that Ford has in general is the company's extensive dealer network. In the key North American market, Ford has near saturation-level distribution, and over the years the company has worked to improve the relationship that it has with its dealers. These dealers sell the cars to the customers and as such play a vital role in the marketing of the Mustang. This strength, however, is matched by General Motors, which makes the Camaro.
Pricing should also be a strength for Ford. The company has now positioned the Mustang below comparable Camaros and Challengers. The 2013 V6 Coupe is priced at a level significantly below that of the Chevy Camaro ($25,280), the Dodge Challenger ($24,995) or the Hyundai Genesis ($28,750) (Ford.com, 2012). While many consumers prefer not to buy the base model, all of these companies scale up their models in a similar manner. There are a total of 11 Mustangs currently on offer, allowing for consumers to find their optimal mix of features and price. In addition, Ford is the only one of the three major brands to offer discounted financing on the base model (Motor Trend, 2012). This is a definite competitive advantage in terms of pricing, something Ford can do because of the financial strength of Ford Credit.
Ford still has some key weaknesses. The company suffers from a reputation issue with respect to quality, something that Ford has yet to address, though its problems are not specific to the Mustang and are share by its major competitors (LeBeau, 2011). Another weakness is the internal supply chain -- the V6 problem caused the Mustang's market share collapse last year, and there is no sign of improvement until the remodeled Mustang is released for its 50th anniversary.
Another weakness that is specific to the Mustang is that the car is almost exclusively sold on the North American market. Ford is moving to a global platform, something that makes it more difficult for the company to produce cars that are designed for just one region. There are indications that Ford is going to have to take the Mustang international in order to alleviate this problem, but there are significant questions about whether international consumers will have any interest in the Mustang (Connor, 2010).
There are only limited opportunities for the marketing of the Mustang brand. The brand has a fairly narrow appeal, but there is an opportunity to extend that appeal somewhat, especially to consumers who enjoyed the original Mustangs and want to recreate some of that pleasure from their youth. This strategy has worked well for Harley-Davidson, and is one that Ford is following to some extent with its high-end Mustang offerings.
The company also has an opportunity in moving the Mustang to overseas markets. Ford has not expended much energy in its history selling the Mustang outside of North America. It is iconic of the region, and perhaps fits less with the cultures of other places. However, there are doubtless buyers for this product in other parts of the world, and Ford has the ability (and according to some reports the intention) of pursuing foreign markets with the Mustang. If the company can sort out the issues with the V6 engines, it could also produce enough Mustangs to meet demand, and strip away market share from the Camaro.
There are also a number of threats in the external environment. The most significant external threats are to be found in the macroeconomic environment and from competition. The Camaro has proven to be serious competition for the Mustang, and has a similarly strong brand name, history and distribution. Although the Camaro is priced at a higher level than the Mustang, it has been able to capture market share, highlighting that consumers may prefer the brand, or that the car is of higher quality (note that GM scores just as poorly as Ford on new auto quality reviews). Dodge has the Challenger. Both the Challenger and the Camaro have had more recent updates than has the Mustang, something that no doubt weakens the appeal of Mustangs. There are foreign automakers competing in the segment, but there are concerns among consumers that the foreign automakers are unable to make a serious pony car, and the reputation of their brands in this segment is nowhere near that of the American brands.
The macroeconomic environment is also a source of challenge for Ford and the Mustang. Ford began its turnaround at the depths of the recession, when sales had fallen substantially, as noted earlier. The economy is still depressed enough that Ford has not recovered its revenues to pre-recession levels. In addition, the pony car market in particular is susceptible to changes in the price of gas. There is significant anecdotal evidence that consumers even within the Mustang's target market are eschewing either automobiles altogether or if they are purchasing, focusing on cars with better fuel economy than could be found in the Mustang. Oil prices are likely to stay high for the foreseeable future, given demand conditions, and that has to alarm Ford. Additionally, if the U.S. economy goes into recovery, Ford will face a rising interest rate environment. The value of the interest payments on its discounted financing will decrease, and consumers will be less likely to make an auto purchase or will trade down if their financing costs increase too much in response to increasing interest rates.
The Mustang is one of the more narrowly-segmented of Ford vehicles. The company markets the Mustang in much the same way as its other products, with advertisements in print, on television and through other…[continue]
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