Ford Motor Company's competitive position and strategic vulnerabilities

¶ … External Environment

Ford Motor Company is - according to its financial statements for the last year - in relatively good financial shape, especially if one considers the current weak state of the economy, the past recessionary months and the still extremely shaky state of the recovery. This paper analyzes the current strengths and weaknesses of the company as it moves toward increasing globalization.

A useful tool in analyzing the external environment in which Ford is presently situated can incorporate Michael Porter's Five Forces model, which is graphically summarized below: (http://www.marketingteacher.com/Lessons/lesson_fivefoces.htm)

Ford is vulnerable to the threat of both new entrants (in terms generally of new car models as well as specifically of new environmentally friendly cars) as well as the threat of substitute products from other car companies eager to attract the same consumers that Ford wishes to attract. Honda, for example, is likely to become one of Ford's primary competitors for small, eco-friendly cars (and has indeed made a number of gains in this area in just the past year.

Honda also has a fairly wide range of products, with a growing emphasis on environmentally friendly vehicles.

Although our name is most often associated with automobiles, we are much more than that. We manufacture a wide range of products, including motorcycles, ATVs, generators, marine engines, lawn and garden equipment and automobiles. Historically, Honda has been a leader in fuel-efficiency and low-emission technology. With all of our products, we work to balance your desire for fun and performance with society's need for clean air and water (www.honda.com).

One strength in terms of its ability to overcome competition that Ford has (and this is of course true of other car manufacturers as well) is that while established car manufacturers can (and do on an annual basis) come out with new car models, it is extremely difficult (given the staggering capital amounts required) for new companies to enter the car manufacturing business. It is also expensive for even established car manufacturers to come out with radically new models. This tends to protect those companies, like Ford, that are already established.

The bargaining power of buyers vis-a-vis Ford's products is fairly high and is likely only to become greater as more and more companies move into the car submarkets that Ford has itself targeted. However, balanced against the fact that buyers are free to go to Ford's competitors is the fact that for most Americans and indeed for many people across the world a car is an economic necessity. People in many situations have to buy cars, which certainly limits their ability to bargain and may lead to a state of quasi-monopoly among large car manufacturers.

The bargaining power of suppliers varies greatly from one to another (given the range of suppliers to the auto industry) but the largest supplier - which is steel - has a far more advantageous position selling to Ford and other American firms than to foreign firms due to recent tariff changes by the Bush administration. This does not protect Ford from competition from other American car makers, but given that its chief competitors for environmentally friendly cars are Japanese firms, the advantages to steel companies to sell American are likely to help Ford.

Strengths

Among the most important reasons that the company is showing such a currently healthy financial picture is its commitment to environmentally responsible vehicles. Among the most important of these products for the company are the EV Ranger, which is the best selling electric vehicle in the United States today, according to the company (http://www.ford.com).The company has also just been the recipient of the largest single electric vehicle order in history, with the United States Postal Service having placed an order for 500 electric postal vehicles, with an option for an additional 5,000 additional postal vehicles to be based on the current Ford Ranger EV (http://www.ford.com).

Weaknesses

Much of the weakness that the Ford Motor Company faces comes not from its competitors but from its own internal structure, something that is intelligently - and fascinatingly - described by Mary Walton's in her 1999 book Car, which is a lengthy discussion of the development of the Taurus but is more generally a description of the ways in which Ford does business.

Despite the fact that it has modernized its business methods in many ways over the past generation (often borrowing ideas from its Japanese rivals). Ford's management style remains rooted in outmoded ideas about the important of hierarchy and chains of command, as Johnson & Scholes culture web model (2002, pp. 230-6) suggests.

Of course, the company is still making money: Profits in 1999 hit an all-time high. But those profits resulted mostly from truck sales, and were made mostly in the United States and Canada. Elsewhere, Ford is sagging" notes one analyst in explaining the company's current substantial industry over-capacity, the fact that its stock is now trading at a rate of less than 10 times its earnings, and the even more important weakness that worldwide demands for its products are essentially fl at: (http://www.fastcompany.com/online/33/ford.html).

Another basic sign of weaknesses in the company is that much of the demand for its vehicles consists of demand for its trucks, a less stable market than that for passenger vehicles and one more likely to be affected by any possibly dramatic upswing in oil prices that might well come about due to unrest in the Middle East as well as in Venezuela.

Threats

The primary threat to the company is that other companies may be able to move into this niche faster than Ford has been able to, given its sluggishness in this area over the past year and its primary weakness, which is the company's internal organization. Yet, due in large measure to the overall strength of the automotive industry both in the U.S. And globally, the company remains in a position to take advantage of the opportunities to create new products and move into new markets.

Ford is attempting to address fundamental management structural problems through a current extensive program of leadership and initiative training. Such training may prove successful or it may not - and even if it does prove to be successful in creating a fundamentally new and more innovative management style at the company then such changes may come too late to keep the company from falling behind both domestically and globally. However, as Johnson and Scholes (2002) model of company core competences suggests, Ford has been reluctant to institute the degree of change that is needed to be effective.

Other important weaknesses that the company must work to overcome are its weaknesses in the premium car line. It currently has no important premium car (since the failure of the Scorpio) and this lack has a ripple effect on consumers. Even those customers who are not themselves interested in buying a premium car tend to judge a company on its top models, and the lack of such a "headliner" may well discourage customers from buying other Ford models.

Opportunities

As noted above, the greatest opportunity that Ford has at the moment is to move into the alternative fuel cars, perhaps including not only hybrids (which actually might be seen as only "semi-alternative" cars) but such genuine alternatives as fuel-cell cars. However, this window of opportunity is rather quickly closing: General Motors (for example) this summer announced its intention to pursue the development of a fuel cell car.

PESTEL Analysis: Political and Legal Environment

The political environment has a substantial influence on the manufacturing world both in terms of governmental regulation of the type of business as well in terms of government policies that in many ways guide the spending habits of both individuals and other businesses.

In the first category, Ford is currently in a relatively strong position because the current administration in Washington is highly unlikely to increase the regulations on any industry, especially the car industry (because of its connections to the oil industry). If a more liberal administration takes office in 2004, Ford will still be in a relatively strong position because its push toward environmentally responsible cars should help it then. Even the Bush Administration is giving something of a nudge toward fuel-cell cars, which might benefit Ford, although GM is generally ahead of Ford in the development of a fuel-cell car and so might well benefit more (http://www.wired.com/wired/archive/10.08/fuelcellcars.html).

However, in terms of how political policy will affect the spending habits of consumers, the current administration in Washington is likely to damage Ford's prospects: With the economy still soft, consumer confidence falling nearly every month and unemployment at levels that have not been seen since the Great Depression, people are less likely to buy large-ticket items if they can possibly avoid doing so.

Economic Factors

As noted, the unemployment rate (which is in key ways related to political decisions such as changes in the tax structure) is an important part of the economic picture that Ford is currently facing.

On the plus side, Ford is (like other care companies and indeed other businesses) currently benefiting from interest rates that are lower than they have been in generations. Whether current low interest rates trump high unemployment and low consumer-confidence rates in terms of an indication of how the economy is likely to fare in the future is not clear; generally economists are fairly sanguine about the future while also being puzzled as to the lag in employment and consumer confidence.

Social-Cultural and Environmental Factors

The social-cultural factors that affect Ford vary (by definition) from one country to the next. Certainly one of its weaknesses as a company is its very low profile in Asia, with the exception of its ownership of Mazda. However, this ownership has done less for its overall penetration into Asian markets than expected. It has also had unexpected problems integrating Mazda production and marketing into the established company and these problems have not yet been entirely worked out. One of its long-term weaknesses may well be its inability to become more of a presence in the Asian market. Porter's value-chain argument (1985, 1998), which is summarized below, suggests that one of the reasons for these particular problems faced by Ford is the lack of sufficient attention to marketing and sales in certain regions of the world.

Primary Value Chain Activities

Inbound

Logistics > Operations > Outbound

Logistics > Marketing & Sales > Service (http://www.quickmba.com/strategy/value-chain/)

It is also weak in a number of niches in the European car market. Although as a whole it does better in Europe than it does in Asia, there are still important categories in which it remains unrepresented (or practically so) in Europe, such as the cheap sports car. Hamel and Prahalad (1994) warn against ceding entire segments of a market such as Ford has done in this case.

The reasons for such poor showings in other countries reflect both economic and cultural factors: Ford may fail to do well in Europe because it is such a quintessential (and even aggressively) American name. This may also have slowed its entrance into Asian (especially non-Japanese) Asian markets, although clearly in this latter case all American companies have had problems because of the high tariffs levied against non-Asian car companies. Ford's small moves into Thailand are likely to help it in the future in Asia, although the fact that GM and BMW have made similar moves will limit to some extent the competitive of Ford's attempt to use Thailand as a way to springboard itself into the general Asian market (http://www.businessweek.com/2000/00_19/b3680166.htm).

While Ford may be suffering from being "too American" to succeed in Europe, it is connecting at home with the demands of many Americans who are perfectly happy to buy home-made goods if those products are also good for the environment.

Technological Elements

One of the key questions in concerning the technological environmental that Ford finds itself in is the extent to which the technology it is using allows for its products to be made both more cheaply and/or to a better standard of quality than cars by other companies.

It has made important gains in this respect, including its recent implementation of a new intranet-based production system:

Dubbed C3P, the system is a Product Information Management (PIM) knowledge database that unites three computer-aided tool sets -- design, manufacturing and engineering -- for improved productivity, quality and communication (http://www.internetwk.com/case/study102698-2.htm).

Chrysler and GM, however, have similar systems, so Ford's adaptation of such a system has served merely to keep it competitive rather than giving it a competitive advantage.

Ford's Strategic Options

At the moment, using Porter's 1985 analysis, we can see that Ford's key strength and weakness is its very-much-middle-groundedness of the company. This quality allows it to appeal to a number of different kinds of consumer. But it also vitiates consumer loyalty. People will buy Fords (in general) because they are good enough and priced well enough for a person's current requirements - but this is not the kind of ringing endorsement a company can thrive on. Ford would eliminate one of its major weaknesses if it could engender among its customers the same kind of loyalty that is felt by the buyers (on the luxury end) of Jaguars or (on the more modest end) of Volkswagen Bugs.

Given this fact, it seems (following the analysis of Johnson and Scholes in chapter 6) that the best strategy for the company to pursue would be one of differentiation. Being generally good enough is certainly not a bad thing - but it is hardly an enviable market position either. The company has to move to differentiate its products; this would be the most advantageous choice at this point to sustain the competitive advantages that it has as well as to increase that competitive advantage.

This differentiation may require some degree of diversification in terms (as noted above) of being able to offer additional lines of environmentally friendly vehicles, including trucks and SUVs. It may also include adding cars that are fully electric or based on fuel-cell technology. At the same time, Ford may wish to trim some of its existing lines so that it does not become over-extended.

Ford should continue, as it is now to develop entirely new types of cars, such as its proposed hybrid electric transmission/hydrogen internal combustion engine:

In this system, the torque converter from a conventional transmission is replaced with a high-voltage electric motor and two hydraulic clutches that permit the motor to operate independently of, or in concert with, the engine. The electric motor simultaneously fills the role of flywheel, starter, alternator, and hybrid traction motor (http://www.ford.com/en/innovation/engineFuelTechnology/modularHybridTransmission.htm)_.

Business cycles rotate between moments when the most appropriate strategy is to be conservative and moments when innovation is the lifeline to success. The position that Ford finds itself in at the moment is in the latter phase.

Recommendation

Seeing the future is always a risky business, of course, and it is impossible to know what path Ford Motor Company will take, it seems likely given the company's moves in the past few months to push itself back into the fray of pushing the envelope in developing new technologies to create environmentally friendly cars.

While car companies are not currently being pressured by the federal government to move in the direction of creating alternative fuel cars (this is, of course, hardly surprising under the current administration), this may not be the case for long. A new, more progressive administration might well bring its weight to bear on all car companies to produce new, more environmentally friendly cars quickly. Those who had already made progress in this direction would be at a distinct advantage.

But even if car companies do not face regulatory pressure in the near future over greenhouse-gas emissions, they may well face pressure from consumers who - driven either by environmental concerns or rising fuel prices due to continuing Middle Eastern and Venezuelan unrest or both - decide that they do not want to rely on a traditional gas car.

If either of these scenarios comes to pass - pressure from either the government or from consumers - then it will be the car company that most quickly can produce low-emission or alternative-fuels cars that will prove to face the fewest threats from competitors.