Ford Mustang Financials as a Company, Ford

Ford Mustang

Financials

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.

Summary

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.

Strategies

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 media. Distribution, as with other Ford products, goes through the company's dealer network. The price is now the lowest among comparable vehicles, in the most recent survey of prices on the Ford website. Thus, the Mustang is clearly being marketed as the vehicle with the strongest value proposition within the category. Branding is also a key component of the Mustang's marketing platform, since the car has such a strong, well-defined brand. This brand is supported by the eleven different Mustangs that Ford has on offer. The higher end models appeal to an older and wealthier segment of the market, but they also create aspiration in the core market, who ultimately is more likely to buy one of the bottom three models.

The target market for the Mustang has been defined as typically male, relatively young and Ford appears to be targeting ever-younger segments of the market in order to build a customer base for the future and maintain its market share (Greenberg, 2009). A profile of this market would be someone who drives for pleasures, spends a relatively high portion of his income on his vehicle, enjoys contact sports and is either single or at least without a family. The focal point of the marketing position with this market is outgoing personalities, freedom, independent, power and aggressiveness. American values and youth values are firmly tied into the way that Ford tries to reach this market with the Mustang.

The Mustang is not a mass-market vehicle. It appeals to this fairly narrow segment, with the higher-end models appealing to former members of the Mustang segment -- the Shelby models are a good example of this, as they connote the days when Shelby special editions were the pinnacle of Mustangs. The relative lack of mass market appeal is a strength within the Mustang's target market, but it also makes it more difficult for Ford to transcend that target market. The product, therefore, has one of the narrowest demographics of all Ford vehicles. The Mustang does, however, exhibit signs of mass customization. There are eleven Mustangs available, at a variety of features and price points. These are designed to appeal to sub-segments of the market, and as such represent a form of mass customization. There is only limited customization available within each model, and usually the standard options in any vehicle such as color.

These eleven Mustangs allow the brand to occupy a variety of spots within the market. However, the perceptual map shows that the Mustang is situated somewhere below the Camaro and above the Challenger, both in terms of the perception of the vehicle and in terms of price (given that nobody really wants to buy the basic Mustang). A major product issue is the lack of V6 engines, because that is the most common upgrade and a key component of the second and third-cheapest models.

Promotion of the Mustang is based around the pairing of the concepts of power and value (YouTube, 2010). These two components appeal to the company's target market but are undermined somewhat by the perception that Ford has to cut corners on the vehicle in order to deliver that much power in a vehicle at that price (Top Gear, 2009). Distribution through the dealer network is a strength of the Mustang, but is limited geographically. Expanding distribution beyond the North American market is going to be one of the most interesting challenges for Ford in the coming years, because the company is headed towards global production platforms, where region-specific vehicles become less common.

Ford is likely to retain its price points. Even with the Challenger's base price increasing recently, the Mustang retained its pricing on the base model. The company realizes that this pricing is very competitive, but also that most customers will upgrade at least to one of the V6 models, which are priced around $4,000 higher. Thus, the Mustang's pricing is somewhat deceptive because the base model sticker price looks great, but the company does not want anybody to actually buy that car.

Marketing Environments

The competitive environment is challenging. Ford is receiving stiff competition from the Camaro, a car that has become the market leader. The Camaro has been subject to more recent upgrades, something that improves its value proposition, even though it has a higher price. There has been some talk that Dodge, struggling to gain traction with the Challenger, is going to cut that car and replace it with a new Barracuda (Lassa, 2012). There is also some question, however, about this segment of the auto industry. Already a niche, the pony car segment has narrow appeal and the products are not particularly fuel efficient. In the long run, more consumers in the target market may seek out smaller vehicles or even not own a car at all, two future substitution threats that challenge the segment as a whole, or could at least change the dynamics of competition within the segment.

Buyer decision-making behavior takes into account a number of different factors. These include things like the state of the economy. Buyers need to feel confident about their future job prospects, the ability to pay for the car and the ability to pay for its gas. As Ford targets younger consumers, they are reaching consumers whose ability to pay decreases. The state of the economy becomes an even bigger factor in the buying decision. The Mustang brand's strength is actually one way to overcome some of the challenges associated with information overload. Buyers may turn to familiar brands when unsure of what sort of vehicle they want to purchase, something that benefits long-established brands like the Mustang and Ford.

Ford has seen some shakeup among its senior management personnel in recent years (Muller, 2012) and this is something that could impact on the Mustang, given its relatively low sales numbers and the questionable future of the pony car segment. Were Ford to shift its attention elsewhere, the Mustang could be dropped entirely. With more senior managers who aren't Ford lifers, such an occurrence becomes increasingly possible.