Ford Motor Company: history and business operations

Ford

Future Market Conditions: The Ford Motor Company a.

Market structure

The automobile industry still exists in a state of monopolistic competition. Only a few firms dominate the industry, because of the high barriers of entry to producing automobiles. This is particularly true of the car market for the average consumer, as opposed to the luxury car market, which is more fickle in regards to style. Once upon a time, Ford and GM held the bulk of the American market share because of their inexpensive, high-quality cars. Then, these American behemoths were toppled by Japanese manufacturers like Toyota in the 1980s. Japanese manufactures produced smaller cars that were cheaper for consumers to purchase and drive, and also of higher quality. Ford rebounded with the popularity of its new SUVs and trucks in the 1990s, but the company's 21st century financial difficulties have resulted in the ascendancy of Toyota once again, especially with the popularity of Toyota's mid-size vehicles like the Camry and Toyota's hybrid line.

A b.

Impact of new companies entering the market

The entry of totally new car companies into the market for autos is fairly unlikely, because of the high barriers to entry. However the rebounding of certain key competitors, like Daimler Chrysler, could alter the market structure and make things even more difficult for Ford to recover its former market share.

A c.

Prices

Ford has been criticized for producing overly expensive (and gas-guzzling) trucks and SUVs over the past five years, in defiance of the tighter wallets of average consumers, which make up the core of its consumer base. Its only notable success has been the relatively low-priced Focus (Lassa, 2007).

d. Productivity

According to its new CEO, Ford plans to close 14 plants and reduce its workforce by 30,000 over the next six years. Ford's North American plant utilization will be raised 100% by cutting capacity by 1.2 million units, or 26%, by 2008 (Lassa, 2007). Ford has been criticized by ineffective use of its resources, in recent years, and allowing unproductive or unprofitable plants to stay open for too long because of resistance from the union that represents the majority of its workforce.

e. Cost structure

Cars are 'big ticket' items, even the cheapest of cars. However, because of the diversity of cars on the market, the cost structure of the automobile market is fairly diverse. Ford has been criticized by focusing on too narrow a segment of the market structure, namely the SUV market, and it has acknowledged that the company must shift its focus to cheaper, more fuel-efficient hybrids (Webster, 2007) f. Price elasticity of demand

Traditionally, large ticket items do not have a great deal of elasticity in terms of price, because they are viewed as necessary goods, although they are not as elastic as a supermarket item one can 'stock up' on in bulk when it goes on sale. Car demand can be somewhat elastic in the sense that people can elect not to buy a new car, purchase a used car, or lease a model until prices decline -- there are market substitutes that can be cheaper, if the car market prices goods too high, as Ford was pricing its vehicles too high, and producing too many high-cost vehicles. Also, the price of compatible goods like gas can impact the choice of vehicle consumers chose to purchase. The Toyota Prius' popularity grew with the price of gas.

A g.

Competitors

Ford's North American operations lost $1.6 billion in 2006, and its share of the U.S. market sank to 17.4%, versus its 24.1% share in 2000 (Lassa, 2007). It has failed even with the Focus to challenge Toyota's dominant of the increasingly important mid-sized vehicle market, and Toyota's non-unionized labor force and less crippling pension and retirement plans for its employees may still prove difficult for Ford to overcome.

A h.