This paper presents an investment prospectus for Ford Motor Company, tracing the automaker's history from its 1903 founding through its early-21st-century challenges. It examines Ford's financial performance across two distinct periods — a growth era through the late 1990s and a period of sharp decline after 2000 — alongside its information management systems, pricing strategies, and strategic restructuring under CEO Alan Mulally. The paper evaluates key investment indicators including cost of capital, bond characteristics, stock trends, and competitive positioning, and concludes with a SWOT analysis and recommendations for prospective investors assessing Ford's long-term viability in a rapidly changing global automotive market.
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).
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).
Understanding how Ford processes and uses information is critical to any investment decision, particularly because this data forms a significant basis for judging financial performance.
For almost a century, Ford Motor Company was the global leader in automotive manufacturing technology and continuous profitability, yet it maintained a culture rooted in early 20th-century management practices. Management was hierarchical and fraternal, content with the status quo, outmoded managerial paradigms, and a near-complete lack of information sharing — even within the organization (Lewchuk, 1993). The shift in communication style and the relaxation of information sharing began when Ford's management recognized that it was not only losing market share but that employees in different functional areas were being stifled by the lack of appropriate information. Advances in computing technology, processing speed, cost reductions, and document digitization enabled a transformation in how information was managed across all functional areas (Magee, 2004).
Information is now housed in a secure, encrypted corporate database that encompasses all functional areas. Accounting information specifically dealing with cost structures, productivity, sales projections, and research and development is available to individuals on a need-to-know basis. Human Resources, for instance, now has a management information system that allows workforce needs to be projected using accounting data. While some areas are restricted to upper management, any fiscal data available to external stakeholders is also available in detail within the company. This has resulted in two major paradigm shifts for Ford: first, the ability for cross-functional teams to access needed information and run "what if" scenarios appropriate for their own departments; and second, a cultural change that makes information more transparent, helping employees feel trusted and part of a larger team (Lambreth, 2007).
Originally, Ford built a web-based system for internal communications, data sharing, cross-functional meetings, and knowledge management. The challenge for Ford, as with most large corporations, was the sheer size of the company — managing the IT needs of each business unit was enormous, and finding a single service provider capable of supporting Ford's internal solution proved problematic (Byrd, 2001).
Rather than relying on existing web-based systems, Ford opted for MBG to develop a "chargeback solution to handle multiple feeds, encompassing a wide range of data… resulting in a call accounting solution that supports data down to the individual level" ("Ford Motor Company Drives Down," 2009). This new system gives Ford's managers and employees spreadsheet and data reporting capabilities, database management tools, statistical analysis, "what if" scenario building, and an unlimited number of user accounts, each assigned privileges to view only specific portions of the dataset. The system, known as Chargeback, proved so successful and user-friendly that it was adapted and offered to other Fortune 500 companies as part of an integrated IT consumption management approach. In general, Ford's IT strategy is now embedded within the overall strategic plan for each functional area. Corporate strategy has dictated the need for employees to have access to more sophisticated data on a daily basis; without this access, the goal of improving quality and efficiency would remain unrealized (Maxton, 2004).
Product development at Ford involves three major stages leading up to manufacture: Plan, Design, and Verify — followed by production. To execute these stages, functional areas must manage costs, plan marketing programs, ensure part availability, schedule manufacturing, manage hiring and shift changes, and handle numerous financial functions including accounts payable, accounts receivable, and payroll (Murthy and Desai, n.d.).
On an ongoing basis, employees across numerous functional areas are able to retrieve historical data on models and features; track stages of development for new models or programs; chart advertising effectiveness using detailed database parameters; preplan tooling, resource, and supplier needs; access accounting and invoice functions; and use the available information for appropriate levels of knowledge management (Maynard, 2004). The following table summarizes departmental access needs and outcomes under the Chargeback system (sources: Ingrassia and White, 1995; McDermott and O'Dell, 2001; Murthy; Byrd):
Executive Management: Cross-functional, higher-level reports and data conglomerations — enabling better decisions, real-time data access, and appropriate crisis management responses.
Human Resources: Daily access to production planning, staffing, and training issues — improving staff management and strategic workforce planning.
Finance and Accounting: Daily access to production, purchasing, needs analysis, and resource allocation — supporting forecasting and cross-functional data analysis.
Sales: Daily access to production stages, inventory management, and marketing issues — enabling higher-level sales analysis and feedback to marketing.
Marketing: Daily access to strategic planning, what-if scenarios, customer profiles, warranty information, and demographic and psychographic data — enabling tracking of advertising effectiveness and dealer relationship management.
Procurement and Purchasing: Daily access to production pre-planning, tooling needs, and engineering issues — supporting real-time needs assessment, inventory management, and cost control.
AP/AR Functions: Daily access to invoices, auditing materials, and cost data — allowing immediate issue resolution and faster auditing.
Vendor Relations: Daily access to order tracking, inventory management, and production scheduling — supporting impact studies and future planning.
IT: Daily access to usage statistics, system issues, upgrades, and interface matters — enabling load planning and appropriate data support.
Governmental Regulations: Access to sales, marketing, EPA requirements, and cross-functional regulatory issues — enabling rapid dissemination of and response to regulatory information.
"External forces reshaping Ford's marketing strategy"
"Stock metrics, ratios, and investor recommendations"
"Ford's strengths, weaknesses, and future prospects"
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