Ford Motor Company Was an Early Pioneer

Ford Motor Company was an early pioneer of industrial production, with Ford having developed the assembly line production of automobiles and used this to capture a dominant position in the U.S. automobile market. The company has remained dominant but fell upon difficult times in recent years due to a combination of poor product/marketing and high pension obligations. The company has begun to revive its fortunes in the past couple of years, however, and is once again pursuing leadership in the automobile industry.

Ford remains focused on the consumer automobile industry. The company sells a variety of cars, trucks and vans in dozens of markets around the world. The products are often tailored to local markets (i.e. smaller cars in Europe). Ford also generates a significant portion of its income from its financial arm, Ford Credit (Ford.com, 2011).

The GDP is the gross domestic product and is the aggregate figure describing the value of all domestic economic activity. According to the Bureau of Economic Analysis, the GDP is current dollars (nominal) is $14.65 trillion. The GDP in chained 2005 dollars (real) is $13.245 trillion. GDP growth has improved slightly over the past several months.

According to the Conference Board, the Help Wanted Online Index dropped -27,400 in February after adding 438,000 jobs in January. The figure essentially means that new job postings online were stable for the month. Demand remains well below supply in the labor market, although demand remains below pre-recession levels. The index currently sits at 4.245 million.

The inventory to sales ratio is tracked by the Federal Reserve Bank of St. Louis. This level is currently at 1.23. This is at a very low level historically. There is a long-term downward trend in this ratio, and while this was interrupted by the recession the trend has resumed since 2009. Firms have reduced their inventories to pre-recession levels at this point.

The discount rate is set by the Board of Governors of the Federal Reserve System. This is the rate at which the Fed banks lend to depository institutions. As such, the discount rate is the basic interest rate, with most other rates in the banking system being based upon the current level of the discount rate. The current discount rate is 0.75%, which is unchanged from the previous level. There are two governors seeking to increase the discount rate but at present most of the board wants to maintain the current spread between the Federal Open Market Committees target range for the federal funds rate and the discount rate (Federal Reserve.gov, 2011).

I believe that Ford will see the GDP as rising. The GDP's rate of growth slipped in the last month but is on a medium-term rising trend. The action taken by the Fed's Board of Governors to maintain the existing discount rate will continue to deliver an expansionary monetary policy that should contribute to economic improvements. This should continue to spur economic recovery. There are mixed signals from the job market, but overall there is a slight decline in unemployment and the gains in the help wanted index in January should be taken into consideration as well. In addition, higher fuel prices are not only expected to have a negative impact on GDP, but they are also set to affect Ford in other critical ways. Higher fuel prices equate to increased demand for smaller cars, which are less profitable for Ford. In addition, higher oil prices typically increase the value of the Canadian dollar vs. The U.S., and Ford has substantial plants and suppliers in Canada that sell their product in the U.S. market -- such a currency shift would eat into Ford's profit margins for any vehicle made in Canada.

Ford can use the forecast of GDP and of the discount rate in a couple of keys ways. Ford's production schedules are dependent on sales forecasts. Those forecasts are largely dependent on the state of the economy. If the GDP continues to improve, this should translate into more Ford cars being sold. The discount rate can contribute to the GDP expectations -- a rise in the discount rate should only follow a strengthening of the GDP, but would signal a leveling off of GDP growth. Ford should treat the current mixed GDP indicators with caution -- if it overproduces it could have an inventory glut, and there is significant risk that fuel price increases will shift demand within the different vehicle types, even if people are still buying.