Ford Motor Company's avoidance of the automotive industry bailout

Ford Motor Company

Over the last several years, the issue of government bailouts has become very controversial. This is because of conflicting views about how, when and if they should be utilized to stimulate the economy. In the case of Ford, the firm was able to avoid receiving any added assistance. Instead, the leadership implemented a new strategy which is helping the company to redefine itself.

At Ford Motor Company, one of the biggest challenges has been adapting with changes inside the sector. This is because there is a history of infighting and disputes, about who will run the company after shifts in the leadership. These issues go back to 1945, when Henry Ford II had to fire Harry Bennett in order to take over for his ailing father. Then, in 1979, these issues resurfaced with Henry Ford II firing Lee Iacocca. This was a significant move, as he was the innovator behind the Mustang and Lincoln's turnaround. Ten years later, the situation became even more bizarre, when Don Peterson was forced out. This is after Peterson, claimed publically, how he planned to "repot" himself. The final chapter in these challenges; occurred in 2001 when Bill Ford was forced to fire Jac Nasser as the CEO. This is following months of public disputes between the two. (Belcourt, 2013) (Taylor, 2013)

During the last 9 years, the firm has been very stable with Allan Mulally coming over from Boeing. He rebranded the organization and helped Ford to make a turnaround in one of the worst economic environments since the end of World War II. The effects are that the company did not need any assistance from the federal government to avoid bankruptcy. Instead, he created a plan that allowed the firm to reduce its debt levels and liabilities. This enabled it to restructure and offer vehicles which are most in demand (i.e. The fuel economy class). These changes meant that the entire organization had to transform its thought process and incorporate innovative thinking into the way its vehicles are manufactured. (Belcourt, 2013) (Taylor, 2013)

The result is that the firm's business model and balances sheets have evolved to reflect these changes. This helped Ford to avoid needing any kind of government bailouts during the Financial Crisis. To fully understand what happened requires focusing on the issue, the financial strategy, the impact of corporate governance, evaluating the situation and if Ford was successful. Together, these different elements will illustrate the way the firm was able to adjust with these issues and remain solvent during the crisis.

Background and Significance

Over the decades, the automotive industry has continued to evolve. This is occurring with stakeholders demanding improvements to product safety and technology. These areas are designed to enhance efficiency and ensure the vehicle has the most in demand products / services. However, those firms which are unable to keep up will face tremendous challenges associated with the loss of market share and cliental. The result is that manufacturers must be able to continually innovate in order to keep up with the competition.

According to Xia (2011), he determined that there are several factors that are directly impacting the competitive position of producers (i.e. cease, control and combine). These areas are concentrating on the way a firm can stop manufacturing models which are out of date, the best avenues for controlling the marketplace and combining operations. Those who are able to do this will be more flexible in adjusting to the needs of stakeholders. (Xia, 2011)

Ford is at a unique crossroads, as the company must learn to adapt and evolve with this environment. The result is that their ability to avoid bailouts is a testament to the strategies they are utilizing and the long-term effects. However, a major challenge is continuing to adapt and evolve. This requires strong leadership and having a sense of vision about the future.

In this case, the auto industry is facing tremendous challenges to include: plunging demands due to economic downturn, the gloomy trend in technology development, and fierce global competition. This was determined by looking at the management theories, collecting information from managers at different levels of the auto industry's supply chain management and developed a novel theoretical model of sustainability in supply chain management for the auto industry. What was determined is that outsourcing to low cost countries -- the current supply chain strategy -- is not only unsustainable but also irresponsible for the auto industry and society. A triple-C (cease-control-combine) remedy is proposed for the auto industry to reduce inventory and enhance supply chain management. The proposed triple-C strategy will save the auto industry money in R&D investment, reduce quality cost and inventory waste, help the industry go through the volatile economy, and achieve sustainable development. With close relationships and strong supports from suppliers, the industry can speed up technology development, introduce new gas efficiency models quickly, and become less dependent on gas price. Finally, it will help the industry keep jobs and generate new jobs in the U.S.A. These activities lead to public support and restored corporate image.

In the case of Ford, Mulally's strategy was successful in implementing these changes by making fundamental shifts to the firm's business model. The result is that the firm did not receive any kind of bailout. Instead, its competitors GM and Chrysler both received financial assistance from the federal government. GM was provided with $49.5 billion and Chrysler was loaned $11.9 billion. In exchange the government received an 80% stake in common stocks of both companies. The financial terms were that the two would enter an organized restructuring and reduce the underlying amounts of debt. Over the course of 10 years, they are supposed to pay back the funds that were borrowed. In exchange, the federal government would slowly reduce its stake. Ford did not receive any assistance and the government never owned a percentage of the company. This is illustrating how Mulally's strategy was successful in helping the firm to retool. (Barofsky, 2013)

Recently, Mulally has announced that he will step down as CEO in the near future. His replacement is raising concerns that the company could go through similar issues when there is a change in power. In this case, there are worries that the new CEO could have an adversarial relationship with employees, the Ford family or the Board of Directors. If this were to happen, the firm would lose any kind of strategic advantages it gained under Mulally.

This has happened inside many of the strongest companies, who have faced similar challenges with these kinds of changes. A good example of this can be seen with Jack Welch stepping down as the CEO of GE in 2001. At the time, he was regarded as one of the best CEO's the firm ever had. He played an integral part in selecting his follower (i.e. Jeffrey Immelt). This did not help GE to expand at the same pace under Welch. Instead, the firm experienced a series of canceled mergers, unprofitable divisions hurting revenues and slower amounts of growth. These factors meant that the price of the stock would linger during his tenure. (Belcourt, 2013) (Taylor, 2013)

This is a classic example of leadership succession challenges, in spite of having an effective strategy to select the next CEO. In the case of Ford, its succession plans in the past have often failed. To avoid similar issues requires understanding its strengths, weaknesses and suggestions for improving its effectiveness. These elements will offer specific insights that will help to adjust the plan and increase the chances of it being successful.

In the case of Ford, they can address these challenges by developing a social media strategy that is combined with collaborative selling. Collaborative selling involves working with the customer to understand how a specific product or service is useful to them. According to Barrera (2006), in these situations, the individual will look at the way it can achieve the client's objectives, the benefits it provides and if it is worth the investment. As a result, this approach is not about persuading the customer to buy. Instead, it is concentrating on matching the product to them and allowing the person to make the best choices for their situation. This is illustrating how these techniques are useful in identifying and addressing the needs of the cliental subtly. (Barrera, 2006)

Social media evolved over the last ten years. It is using sites such as Facebook, LinkedIn, blogging, article writing and forums to connect with cliental. The basic idea is create topics of interest which are geared towards those individuals the seller has forged a relationship with. This is used to give them some useful advice and then direct them to a location where they can learn more. The primary strategy is to increase the odds of closing more people by reaching out to them using a modified form of mass marketing. Over the course of time, the firm's sales will rise by reaching out to enough people, who share similar views and are interested in what they have to say. (Belew, 2014) These insights are important, as they are showing how Ford must utilize these factors to understand customers. When this happens, they can quickly adjust to changes in the industry and be the first to offer those vehicles which are most in demand.

Discussion, Implications and Recommendations

The basic strengths of the plan are to promote Mark Fields as the CEO after Alan steps down. This is because Mark has worked with Alan from the beginning and he played an integral part in Ford's turnaround. At the same time, the management team will continue to remain in place. These factors are important, as they will ensure that key members will be positioned once this happens. (Belcourt, 2013) (Taylor, 2013)

Moreover, Ford has lower amounts of debt and a better brand name. These variables help the firm to be seen as the strongest of the U.S. automakers. This gives customers a sense of confidence that the management is focused on providing them with what they demand. While ensuring; that the organization can remain economically viable. This helps Ford to maintain its competitive position through using a business model. That is more flexible and capable of evolving with new challenges in the future. (Belcourt, 2013) (Taylor, 2013)

The combination of these factors; has enabled Ford to reach out to customers in markets where they have lost tremendous amounts of sales to overseas competitors (i.e. The Southeastern U.S. And East Cost). These strengths allowed the firm to be more flexible during times of serve economic distress (i.e. 2008 and 2009). Since this time, they have helped the firm to make a complete turnaround and post the fourth consecutive year of profit growth. These improvements were the direct results of everyone's effort and focus on meeting the larger objectives of the organization. (Belcourt, 2013) (Taylor, 2013)

The weaknesses of the current model is Mulally is playing a direct role in the process of selecting who will be his successor. In many cases, when the CEO when has input. There is often a certain amount of bias and emotionalism in the process. This is because the organization is running very well and the firm wants to continue with its current strategy. The problem is that these individuals have no vision about how to lead the company. Instead, they are a good manager with the inability to understand and adapt to changes inside the industry. This is the key for the firm to survive in the future. Otherwise, there is the possibility that Ford could have a repeat of its troubled past. This involved infighting and animosity, which nearly drove the firm into bankruptcy. (Belcourt, 2013) (Taylor, 2013)

Chrysler has seen these kinds of situations since the early 1980s. This is when Lee Iacocca was the CEO and helped the firm turnaround from being on the verge bankruptcy. In the 1990s, he helped to select, who from the management team, would succeed him when he retired. The result is that Chrysler made a series of missteps that ultimately led to the firm's bankruptcy in 2009. (Belcourt, 2013) (Taylor, 2013) (Iacocca, 2007)

Ford is at a similar crossroads, from avoiding bankruptcy in 2008 and not requiring a government bailout. In this case, the firm is facing challenges such as: the continuing losses of market share to foreign competitors, there are glitches in some of the new models, losses in the European division and product launches are not as successful. These variables require someone who has the flexibility and vision to the lead the company going forward. (Belcourt, 2013) (Taylor, 2013) (Iacocca, 2007)

The result is that the firm lost its way. In 2008, both GM and Chrysler received financial assistance from the federal government. GM was provided with $49.5 billion and Chrysler was loaned $11.9 billion. In exchange the government received an 80% stake in common stocks of both companies. The financial terms were that the two would enter an organized restructuring and reduce the underlying amounts of debt. Over the course of 10 years, they were supposed to pay back the funds that were borrowed. In exchange, the federal government would slowly reduce its stake. Ford did not receive any assistance and the government never owned a percentage of the company. This is illustrating how the company must learn from the lessons of Chrysler and GM after Mulally retires. (Barofsky, 2013)

The best way to improve its business model is to have more transparency and openness. This can be achieved by creating a committee who will select the next CEO. The members will consist of employees, shareholders, managers, auto industry executives and community officials. They will have the responsibility of interviewing and picking someone that can lead the company forward. If this kind of focus was taken, more objectivity will be utilized to identify the ideal person. This will reduce the chances of having someone, who does not understand the challenges impacting the firm and is incapable evolving with them. (Belcourt, 2013) (Taylor, 2013) (Iacocca, 2007)

This is based off of Maslow's Hierarchy of Needs (i.e. psychological, security, social, esteem and self-actualization). Maslow's Theory of needs is focusing deprivation and growth. Deprivation occurs at the lower ends of the spectrum under this model. The most notable include: psychological, social, esteem and self-actualization. Growth takes place when the basic needs are met and the individual wants to have something that will help them to be more fulfilled as a person. Addressing the most basic requirements (i.e. psychological) will lead to the individual wanting to have a sense of accomplishment in their lives. ("Want to Motivate People," 2010)

Hertzberg's Theory of Motivation is concentrating on two areas to include: hygiene and motivation factors. Hygiene is the most basic level of motivating someone by addressing their basic requirements. While motivation, is seeking to have a greater sense of empowerment. This is similar to Maslow's theory by showing, how their basic needs must be met to have greater levels of empowerment. While at the same time, it is different from Maslow's concepts through having more levels to experience in order to have greater levels of fulfillment. ("Hertzberg's Theory of Motivation," 2010)