Ford Motor Company Ford Case

Ford Motor Company

Ford case study report

Q.1 to what extent did a) the light trucks segment b) the operations of Ford Credit create opportunities and problems for Ford in the late 1990's and 2000's?

To what extent do these developments suggest more continuity than change of strategy between the Jacques Nasser and Bill Ford periods?

Ford Motor Company entered the business world on June 16, 1903, when Henry Ford and 11 business associates signed the company's articles of incorporation. With $28,000 in cash, the pioneering industrialists gave birth to what was to become one of the world's largest corporations. Few companies are as closely identified with the history and development of industry and society throughout the 20th century as Ford Motor Company. Perhaps Ford Motor Company's single greatest contribution to automotive manufacturing was the moving assembly line. First implemented at the Highland Park plant (in Michigan, U.S.) in 1913, the new technique allowed individual workers to stay in one place and perform the same task repeatedly on multiple vehicles that passed by them. The line proved tremendously efficient, helping the company far surpass the production levels of their competitors -- and making the vehicles more affordable. Henry Ford insisted that the company's future lay in the production of affordable cars for a mass market. (Ford Motor Company).

But a lot has changed since Henry Ford first founded the company and Ford Motor Co. has lost a lot of its competitive advantage on the U.S. auto market, especially to the benefit of General Motors their most powerful and enduring competitor.

It seems that Ford has been facing serious problems for quite some time.

In the 90s Ford automotive" is the tale of two businesses where North America automotive made all the money while Ford's substantial European cars business stumbled between losses and breakeven. As U.S. demand for "light trucks" (i.e. sport utilities and pickups) boomed in the 90s, Ford held a market leading 33% market share and the F150 pick up (full size, V8 and auto) was America's best selling automobile. Even with this boost, Ford doesn't make enough money for the stock market."(Ford Case Study)

In January 1999 an important change occurred at Ford, Jacques Nasser took over as CEO, after having joined the company in 1968 and having worked for the last 30 years in Asia, Latin America and South Africa. Nasser wasted no time in announcing the major changes he wanted to implement there. He was determined to turn Ford from a car company into a consumer company and not only that, but he also ventured to promise that shareholders were going to receive better returns from services. He was ambitious and determined and hoped to surpass General Motors their number one rival.

Ford wants to become the "and" company that delivers the highest quality products and the best customer satisfaction and the best shareholder returns."(Ford Press release, 14th July 1999)

By the end of the year 1999 the new strategic moves that would improve Ford's profits and market share according to Nasser implied most of all a change of perspective.

It was his belief that Ford should "think about the demand for motoring not the supply of cars:

capture more of the expenditure on motoring, which includes financing and insuring new cars, recognise that most cars on the roads are second hands, which require servicing, parts and so on.

A concentrate on meeting only those demands, which offer good cost recovery and decent ROCE." (Ford Case Study)

In 1999, Nasser was voted Automobile Industries Man of the Year. (National Press Club, 27th July 2000) Nobody could have then foreseen the damage that Ford was going to endure throughout Nasser's appointment as CEO.

Many of his improvement plans ended in failure, but perhaps his most questioned action has been his acquisition of car brands, such as Land Rover who did not enhance the company's profits, doing nothing else than adding more costs on the overall balance sheet of the company.

Another of his least popular decisions has been to lay down a large number of employees. Thus "Mr. Nasser was known as "Jacques the Knife" for the way he cut jobs, especially in the UK." (BBC News Ford chief Jacques Nasser ousted).

He also implemented some changes with regard to Ford Motor Credit Company.

Ford Motor Credit Company, the world's largest automotive finance company, is a wholly owned subsidiary of Ford Motor Company. Ford Credit provides vehicle financing to more than 10 million customers and more than 11,500 Ford, Lincoln, and Mercury automotive dealers.

Ford Motor Credit Company traces its roots to 1923, when Henry Ford, unwilling to encourage consumer borrowing, experimented with a layaway plan to spur sales of the $265 Model T. More than just a car-loan provider, Ford Credit was established so Ford Motor Company dealers could provide competitive financing services to both individuals and businesses. The brand has been integral in making ownership possible for the many customers who cannot or do not want to pay for the entire cost of a vehicle up front."(Ford Motor Company)

Nasser considered that Unfortunately Ford bought service businesses, which were not large enough or consistently profitable so as to deliver significantly improved results.

That is why, only after 2 years of being the head of the company Nasser was replaced. His substitute was none other than Bill Ford. A member of the Ford family had not led the company ever since 1979,when Henry Ford II had resigned. After Nasser's resignation the following were announced by BBC News:" Mr. Nasser's ousting follows reports of serious rifts with the Ford family, which still controls 40% of the board of directors' voting power through stock holdings. Ford has recently lost significant market share and this month reported its first consecutive quarterly loss in nearly a decade.

Ford's results showed it was hard hit by the attacks on New York and Washington with net losses totalling $692m, compared with net earnings of $888m a year earlier.

But even before 11 September, Ford's results were suffering from the impact of the Firestone tyre crisis, a number of other embarrassing product recalls and a highly competitive market." (BBC News Ford chief Jacques Nasser ousted)

Three months elapsed until Bill Ford announced his "revitalization plan "which was in the interim jointly developed by Bill Ford and his new COO, Nick Scheele, who had previously managed the European restructuring under which Dagenham assembly was closed. In the intervening period, a continuing trickle of bad news raised fundamental questions about management control, judgement and capability in operating matters at Ford Motor." (Ford Case Study)

But Ford Motor was not the only one that faced financial difficulties. Nasser had left Ford Credit in a similar situation due to his bad investments. Ford Credit had been used to push product in the late 90s, so that by 2001 Ford Credit had an unusually high proportion of bad loans and losses arising from returned lease cars where Ford had made unrealistically optimistic assumptions about residual values in order to lower monthly payments and increase sales. Residuals were generally a problem for finance companies who had collectively lost an estimated $13 billion on returned vehicles by 2001 (Mannheim Auctions, 2001 Used Car report). But the cost for Ford was that, just when it needed the profits of finance, Ford Motor had to put $700 million in to strengthen Ford Credit's balance sheet and accept that Ford Credit would contribute no profit in the fourth quarter"(Ford Case Study)

Though a change for the better was expected, as Bill Ford became the Chief Executive of the company no improvement could be felt. He was in the end unable to manage things and to deal with problems much differently than Nasser had been. Here are only some of the major events that Ford Motor Company went trough during the year when at first Nasser and afterwards Bill Ford were in command. On the 22nd of May Ford had to replace 13 million Firestone tyres and take a $3bn charge. On the 18th of July the company reported a $551m quarterly loss. Then MrFord takes over on the 26th of July. Four days later Ford's U.S. market share falls to 22%. Then on the 17th of August MrFord uses the same restructuring methods as Nasser and lays off 10% of its white-collar workers. In October they are forced to half dividend. On the 17th October Ford posts its first consecutive quarterly loss in a decade. (BBC News Ford chief Jacques Nasser ousted).

Though overwhelmed by the situation Bill Ford does his best to improve their financial situation and succeeds for a short while. But Ford's true "revitalization" would only be brought about by the CEO who came after Bill Ford, Alan Mulally (who is the present CEO).

Ford Motor Company started the last century with a single man envisioning products that would meet the needs of people in a world on the verge of high-gear industrialization. Today, Ford Motor Company is a family of automotive brands consisting of: Ford, Lincoln, Mercury, Mazda, Jaguar, Land Rover, and Volvo. The company is beginning its second century of existence with a worldwide organization that retains and expands Henry Ford's heritage by developing products that serve the varying and ever-changing needs of people in the global community."(Ford Motor Company)

Q.2 to what extent are Ford's current (future) cash problems the result of a weakness of competences or poor product positioning, and can Mulally's new initiatives solve Ford's problems?

Ford's current cash problems are indeed strongly connected to the poor decisions the former CEO's at the company have taken. They have focused for a long period of time all their resources, both financial and the ones involved in the actual production process, in trying to increase the level of sales for their trucks, light trucks and SUV's, all of them having been successful in the past. However, when it became obvious that these models were not among their customers' favourite ones anymore and that the market had changed, they should have moved their focus towards producing new-models and fuel efficient cars, that were in high demand.

The first person in a long time to understand the changes that needed to be done at the company with respect to the products in turned out was Alan Mulally (who is currently CEO at Ford Motor Company).

Ford's preliminary financial results for the first quarter of 2007 are indicative of an improvement in executing the four priorities they have: "restructuring the company, accelerating product development, funding our plan and working effectively as one team," said President and Chief Executive Officer Alan Mulally. "I am pleased that the basics of our business are improving, but we still have a lot of work to do. Our first quarter results came in somewhat stronger than expected, but there are many uncertainties going forward. We remain focused on improving our quality, productivity and business performance," Mulally added. Ford had a first-quarter revenue of $43 billion, which represented an increase from last year's $40.8billion." The increase primarily reflected mix improvement and favourable currency exchange, partially offset by lower volume."(Ford Motor Company Press Release, April 2007)

But how did Mulally manage to improve the situation at Ford? His predecessor had been Bill Ford, who had become head of the company in 2001.

When Bill Ford became CEO of Ford Motor Company in 2001 he had to face an almost tragic situation. The company had registered huge losses, especially on the international markets. His goal was to somehow obtain profit again. In order to achieve that they "had to restock the product pipeline" which they successfully did thus managing to obtain a profit in 2005. But it soon become obvious to Bill Ford that he was not the right person to turn around this company. "It was clear to me we need someone with a skill-set to take us further. Each person's skill-set doesn't fit every company at every time." But with regard to what the "skill set" of the person he wanted, as CEO should be, he had no doubt: "I wanted someone with major turnaround experience. And who was ready willing and able. it's all to the good of Ford Motor Co. I feel good I could attract Alan here." Thus in September 2006 Alan Mulally became Ford's new CEO.

The characteristics that Bill Ford expects from his successor include his being a "tough-minded, tightly-focused operations chief." Some received Mulally's appointment as CEO rather skeptically. Their uneasiness may be justified if Mulally's background (working experience) were to be taken into consideration. He has formerly worked at Boeing where he was twice overlooked as a possible future CEO. Furthermore, not only is he completely inexperienced with regard to the auto industry, but he has also decided to work for a company that is currently dealing with major restructuring. When faced with such questions from the media he answered in a most witty and interesting way, stating that for him both Ford and Boeing are of iconic significance for the United States and that he is fully confident that the U.S. can indeed compete "in the design and manufacture of sophisticated products" with the world leaders in these domains.

Undoubtedly there are also people optimistic with regard to the beneficial changes the Mulally's becoming CEO at Ford may bring about. Among his supporters is Earl Hesterberg (former marketing chief at both Ford Europe and Ford North America and now CEO of auto retailer Group 1 Automotive) who believes:" Turning it over to an outsider and getting a fresh perspective are both good things. An outsider may have more success in aggressive cost cutting, but at the end of the day, Ford needs to revitalize its product offering and brand image." And Mulally can be just the person that the company is in need of right now. In 2006 just after being chosen as CEO he is known to have declared: "I think it will be fun. Automobiles are fun and exciting. We need them. They are a part of our lives." His commitment to his new job and his enthusiasm for being a part of Ford's transformation are obvious and may enable the auto giant to win back some of the competitive advantage they have been unsuccessfully striving for, so far.

But how will he be able to do that after all?

In an interview published in Business Week magazine, new CEO Alan Mulally and (now) Executive chairman Bill Ford; have revealed the ideas they want to implement in order to improve Ford's position on the capital market.

They are looking for ways to improve and boost the company's balance sheet. "Ford has solid liquidity, but its falling market share and costs of incentives, plus the pending buyout of some 30,000 employees will bring about a significant decrease in the company's cash." (Business Week an Interview with Bill Ford and Alan Mulally (7th September 2007)).

Another important thing they shall have to deal with is the large number of brands the company has bought throughout the years. These brands have been as successful as forecasted and have not brought about the major increase in profits that many had expected. They have proven to be quite an uninspired and not thoroughly thought trough investment. Perhaps the marketing research department at Ford were not as efficient and professional in their data gathering and analysis as they could have been. That may be why Mulally and Ford have decided to "focus the company on a smaller number of brands. Ford and Volvo brands are givens. But Ford must soon decide what brands out of Lincoln, Mercury, Land Rover and Jaguar it will go forward with. There's mounting consensus on Wall Street and within the company that management attention and capital are spread too thin. " (Business Week an Interview with Bill Ford and Alan Mulally (7th September 2007)) in addition to the above-mentioned changes, lower variable costs are also taken into consideration. "By some estimates, Ford spends some $800 a vehicle more for parts and components than for example, Renault." (Business Week an Interview with Bill Ford and Alan Mulally (7th September 2007)) However, though cutting costs is an understandable and much-desired goal for many companies, they must manage to do it without affecting in any way the quality of their products. After all, customers have certain expectations with regard to what a specific brand must offer and what it stands for and are not all content when these expectations are not met. Thus Ford shall also "focus and enliven the company's brand strategies and marketing to create more trust and desire for the brands the company retains." (Business Week an Interview with Bill Ford and Alan Mulally (7th September 2007))