Ford Motor Company Investment Prospectus and Strategic Analysis

Company History and Corporate Overview

When preparing an investment prospectus for a major corporation, it is often helpful to provide a historical background of the company, as well as information designed to uncover the company culture, prospects for future growth, and marketing and communication issues. Ford Motor Company sold its first car on July 23, 1903. In 1906, the first Model T became available, and the one-millionth car was produced on December 10, 1915. Production of trucks and tractors began in 1917. Ford became one of the first international automotive companies when it began exporting cars to Europe; within ten years, Ford had plants in five countries.

In 1956, Ford went public with what was then the largest stock issue of all time — 10.2 million shares. The Ford family still retains 34% of the firm's voting stock. Ford's finance subsidiary, Ford Motor Credit, was formed in 1959 and is the number one auto finance company worldwide. Ford launched an automotive revolution in 1964 with the unveiling of the Ford Mustang — the first time the world had seen a sporty car with a youthful character. The 1970s were a time for quality reflection, assessment, and improvement. In 1980, Ford introduced the Escort, its first attempt at a car that could be globally marketed. The 1980s were also the decade in which the Taurus made its first appearance.

Ford then developed a highly sophisticated global car platform referred to as CDW27, a vehicle sent around the world with only slight modifications for various regional markets. In 1987, Ford earned record profits of $4.63 billion; three years later, the company suffered its largest one-year loss of $2.3 billion.

Ford makes vehicles under the following brand names: Volvo (purchased in 1999), Aston Martin (fully acquired by 1994), Jaguar (purchased in 1990), Mercury (production began in 1938), and Lincoln (purchased in 1922). In addition, Ford holds a controlling 33% stake in Mazda, an 81% stake in Hertz, and owns Ford Motor Company of Canada, Ltd. At the time of this writing, Ford is the second-largest maker of cars and trucks worldwide and the largest truck manufacturer. Fortune 500 ranks Ford as the second-largest industrial corporation, including its major subsidiaries — Hertz, Ford Motor Credit, and Visteon (Glancey, 2008).

Financial Performance and Pricing Strategy

Fiscally, Ford has experienced two major recent periods — one of prosperity and one of decline. The first period, the late 1980s through 1999, showed a steady pattern of growth of approximately 5–7% per annum. Sales in 1998 were down 6% but rebounded with a 14% gain in 1999, giving the decade an average of 5.4% growth and a profit margin slightly above the industry average of 7–9%. Costs of goods remained consistent at around 72%, and debt and leverage ratios held steady. Since 2000, however, and most especially since 2007, Ford has seen its sales and profits diminish, its international market share decline, and its ability to compete effectively erode. As of the quarter ending March 31, 2009, the following figures illustrate the trend (amounts in thousands; source: Yahoo Finance):

Total Revenue: $24,778,000 (Q1 2009); $29,192,000 (Q4 2008); $32,045,000 (Q3 2008); $41,527,000 (Q2 2008).
Gross Profit: $3,116,000; $2,653,000; $7,046,000; $1,531,000.
Operating Expenses: $4,129,000; $5,009,000; $4,973,000; $7,918,000.
Operating Income/Loss: ($1,013,000); ($2,450,000); $2,073,000; ($6,387,000).

For the primary market segment of Ford — the automotive side — financial and marketing decisions are based on numerous trends: competitive pricing, cost of goods and projections, the ability to recapture revenue through subsidiaries (maintenance, Ford Credit, etc.), global versus U.S. sales, and demographic trends. Unfortunately, over the past decade, Ford has not consistently read the market correctly in its ability to provide the vehicles that the public wishes to purchase, with the notable exception of its top-selling truck worldwide, the Ford F-150 (Wood, 2006, pp. 166–80).

Ford faces a dual difficulty when using accounting data in its pricing decisions. Since the automotive market is highly competitive and comparative — consumers can instantly use the Internet to compare prices — Ford must ensure that its vehicle lineup withstands consumer pricing pressure. The elasticity of the market creates an almost circular argument. Ford's domestic costs have increased due to union contractual obligations, healthcare and benefit costs, and general production costs (Laljee, 2009).

For example, in 1995 Ford decided to lower the prices of its high-end vehicles enough to stimulate demand without cutting into profits, resulting in a 1999 profit of $7.2 billion. Previously, Ford, like most automakers, used entry-level vehicles priced as low as possible to build and maintain market share while pricing mid- and upper-range vehicles at higher profit margins (Raju and Zhang, 2003).

In response to General Motors, Ford examined psychographic research as well as demographic trends in the purchase of specific models. In 2005 and 2006, it extended employee discount pricing programs on several models, continuing with a $2,000–$3,000 price rebate structure introduced after the September 11, 2001, attacks. Ford stated that it hoped to attract Internet shoppers who were reluctant to visit showrooms based on sticker prices. This strategy was considered so crucial that Vice-President for North American Sales and Marketing Steve Lyons noted that about 70% of customers use the Internet to develop their shopping lists, but only 15% continue searching for details on rebates, sales, and packages. "If your sticker price is way out of line with your market, you're going to lose that customer," Lyons observed (as cited in Carty, 2005).