Gasoline Prices Within the United

¶ … gasoline prices within the United States, domestic sales of current Ford vehicles have declined. Competitors have introduced cars with far greater fuel efficiency, thus leading to higher sales and market share dominance. In order to stay competitive in the sedan class, Ford must also shift their current strategy. Three alternatives have been discussed to specifically challenge the current Ford line of Sedans. These three options are:

fuel efficient version of an existing vehicle (Exiquite) more efficient powertrain for use in some of our current models

Begin selling a vehicle we currently sell in Asia and South American, the Economizer

Following a careful analysis of the financial implications of these three options, I recommend that we pursue a more efficient powertrain for use in some of our current models. Having an efficient powertrain will increase the fuel efficiency of many of our current models as opposed to one. This will allow us to maintain our current brand equity in our current products while at the same time increasing their overall consumer appeal. This option has a projected IRR of 21.81%, which out competes the other two proposed solutions (as compared to 21.71%).

While introducing the Economizer may have positive implications for the diversity of Ford's overall product investment, it will hurt the brand equity and market share of our current Exquisite class. The Average Additional Annual Volume for such a strategy is 353.

Although I believe that this is the best solution, there are implicit risks involved in choosing this option. A more efficient powertrain requires significant research and quality testing, which may cost much more than current projected. In addition, creating a powertrain that would work effectively for all vehicles is much more difficult than for one specific model, which increases the risk involved. The time table for this option is much longer than the other options which increases the risks involved for Ford.

Overall however, I believe that this is the best long-term investment of capital for Ford, because it allows many different vehicles to increase their current value and at the same.

From a financial perspective it is evident that the best option to pursue is modifying the powertrain for current vehicles to perform at a more efficient model. The IRR of this option (21.81%) is slightly higher than the introduction of the new Economizer (21.71%), with the NPV of such a move outperforming the Economizer by almost 40 million dollars. From this purely comparative analysis, it would seem evident that a new powertrain would leverage profits much more in the long-term as compared with the other two options presented.

There are also some very key strategic advantages to choosing this option. Aside from the financial benefits, Ford has devoted significant amounts of revenue to their current line of cars in capturing brand equity. Creating a more efficient powertrain will seamlessly increase this brand equity without having to spend millions of marketing dollars to re-brand or recapture equity. Such an option also shows that Ford is continually making improvements to their current vehicles, and engenders greater trust from customers. Moreover, an efficient powertrain will impact several different product lines at once, which means that the risk of implosion is diversified significantly more than if Ford were to put "all of their marbles" into one product line. With the introduction of a new product line, Ford will have to convince consumers of the viability of this option through carefully structured marketing. Since Ford does not currently have the reputation of being a fuel efficient provider, it will be extremely hard to make this product extremely successful on the domestic market. There are significant room for both error and risk involved in such a step. Ford can also instead chose to improve an existing vehicle to compete with the likes of Honda and Toyota, however, they would have to recast this vehicle in a completely new niche. There are significant risks associated with such a strategy because all of Ford's efforts would be devoted to one vehicle, and the ability so the Exiqusite to out compete other cars within its class is dubious at best.

By re-engineering the current Ford powertrain, Ford creates a long-term success strategy, focusing on increasing their core technology for the entire fleet of vehicles. This move not only makes financial sense, through my calculations but also is a strategically sound decision for long-term success within the industry.

This does not mean however, that there are not significant risks attached with choosing this strategy. The core risk is that creating a new and more efficient powertrain is a pure research and development play. There are no definite garantees that such research and engineering can be completed on time and on budget. Furthermore, the fact that the powertrain must work for numerous cars increases the complexity of the development effort. Choosing this option will place significant amount of pressure on Ford's current research engineers and requires careful project management and no certain amount of luck. Current projections on time and cost are no doubt based upon past research initiatives which could have little application to the current position.

Another key risk is that the time table for such a project is four years, whereas the other two options both have a time table of two years. Transitioning the efficiency of the powertrain requires a "shaky" time table that may or may not reflect the actual time table. While the other two options have solid deliverables that are much easier to both project and manage. Having a long development time poses many risks on a strategic and financial level. From a strategic perspective, it would mean that Ford will appear to be doing much less than its competitors in terms of increasing their fuel efficiency. Since this market is very time sensitive, Ford will lose significant brand equity in the two years that it does not present a clear and tangible product offering. In four years moreover, there is a possibility that gasoline prices may decline, which would make fuel efficiency a much less sought after feature. Technology could also change significantly during this period, which could imply that a more efficient powertrain would be a redundant technology. Even more worrisome is the fact that R&D resources will be directed towards this research, which could possibly neglect other important priorities, and at the same time making Ford much less flexible in terms of technology and implementation during this time table.