Ford Motor Company 2008

Forest David: Francis Marion University

Alan Badal: The Union Institute

A.

Case Abstract
Ford Motor Company (www.ford.com) is a comprehensive business policy and
strategic management case that includes the companys fiscal year-end December
2006 financial statements, competitor information and more. The case time
setting is the year 2007. Sufficient internal and external data are provided to
enable students to evaluate current strategies and recommend a three-year
strategic plan for the company. Headquartered in Dearborn, MI Fords common
stock is publicly traded on the New York Stock Exchange under the ticker symbol
F.
Ford operates in two segments: Automotive and Financing. Products offered
include: Ford, Mercury, Lincoln, Volvo and Jaguar. Ford was founded in 1903
and operates worldwide. The company is led by CEO William Ford Jr. and
employees over 280,000. The firms major competitor is General Motors.

B.

Vision Statement (actual)

Our vision is to become the worlds leading consumer company for automotive
products and services.

C.

Mission Statement (proposed)

Ford Motor Companys mission is to anticipate consumer needs and provide safe,
quality, reliable, and innovative automotive products and services to consumers
around the world (1, 2, 3). Meeting and exceeding customers expectations for
exceptional quality, cutting-edge technology, and superior customer service will
enable us to maximize returns to our shareholders. (4, 5). The customer is Job 1.
We are passionately committed to ensure we do the right thing for our customers,
our employees, our environment, and our society (6, 9). Ford is committed to
leading all automotive firms in quality and safety in America and abroad. Along
with our commitment to saving the environment, we can continue to add to our
proud heritage (7, 8).
1.
2.
3.
4.

Customer
Products or services
Markets
Technology

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113

5.
6.
7.
8.
9.

D.

Concern for survival, profitability, growth

Philosophy
Self-concept
Concern for public image
Concern for employees

External Audit
Opportunities
1. Slowing global economy could lower price of oil.
2. Airline travel as declined with the top 10 US airlines losing a combined $27
billion in 2005.
3. European market shear has been relatively stable around 10 percent for each
of the last five years.
4. Ford is an American company, which results in customer loyalty.
5. By 2010, electronics are expected to account for nearly 40 percent of an
average vehicles value.
6. Advances in technology have allowed for less engineers to be needed by auto
companies.
7. Growing technology in automobiles forces customers to return to dealer for
service.
8. Weak dollar makes products cheaper in international markets.
Threats
1. The US motor vehicle market has become the worlds most vigorously
competitive auto market since the 1970s.
2. US market share is on a steady decline from 20.5 percent in 2003 to 18
percent in 2005.
3. New Toyota manufacturing plant in Texas that will be capable of producing
200,000 full-size pick-up trucks per year.
4. Franchised dealerships are free to set vehicle prices, and they may or may not
offer customers the discounts that automakers provide.
5. The US dollar depreciated against most major currencies since 2002.
6. GM, Toyota, and other manufacturers offer great rebates.
7. Most Americans think foreign cars are of better quality.
8. United Auto Workers (UAW) is one of the most powerful unions in the world.

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CPM Competitive Profile Matrix

Critical Success Factors

Weight

Price competitiveness
Global Expansion
Organizational Structure
Employee Morale
Technology
Product Safety
Customer Loyalty
US Market Share
Advertising
Product Quality
Product Image
Financial Position
Total

0.04
0.05
0.02
0.01
0.04
0.04
0.20
0.15
0.02
0.07
0.20
0.16
1.00

Ford
Rating Weighted
Score
3
0.12
4
0.20
1
0.02
1
0.01
3
0.12
3
0.12
2
0.40
2
0.30
4
0.08
3
0.21
2
0.40
2
0.32
2.30

GM
Rating

Weighted
Score
0.12
0.10
0.04
0.01
0.16
0.12
0.60
0.60
0.08
0.14
0.60
0.48
3.05

Toyota
Rating
Weighted
Score
3
0.12
3
0.15
2
0.04
2
0.02
3
0.12
3
0.12
4
0.80
3
0.45
3
0.06
3
0.21
4
0.80
2
0.32
3.21

Weight

Rating

Weighted Score

0.05

0.15

0.03

0.09

0.08

0.32

0.06

0.12

0.06

0.18

0.06

0.18

0.08

0.32

0.08

0.32

0.10

0.20

0.10

0.20

0.03

0.06

0.05

0.10

0.08

0.32

3
2
2
1
4
3
3
4
4
2
3
3

External Factor Evaluation (EFE) Matrix

Key External Factors
Opportunities
1. Slowing global economy could lower price of
oil.
2. Airline travel as declined with the top 10 US
airlines losing a combined $27 billion in 2005.
3. European market shear has been relatively stable
around 10 percent for each of the last five years.
4. Ford is an American company, which results in
customer loyalty.
5. By 2010, electronics are expected to account for
nearly 40 percent of an average vehicles value.
6. Advances in technology have allowed for less
engineers to be needed by auto companies.
7. Growing technology in automobiles forces
customers to return to dealer for service.
8. Weak dollar makes products cheaper in
international markets.
Threats
1. The US motor vehicle market has become the
worlds most vigorously competitive auto market
since the 1970s.
2. US market share is on a steady decline from 20.5
percent in 2003 to 18 percent in 2005.
3. New Toyota manufacturing plant in Texas that
will be capable of producing 200,000 full-size
pick-up trucks per year.
4. Franchised dealerships are free to set vehicle
prices, and they may or may not offer customers
the discounts that automakers provide.
5. The US dollar depreciated against most major
currencies since 2002.

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115

6.

GM, Toyota, and other manufacturers offer great

rebates.
7. Most Americans think foreign cars are of better
quality.
8. United Auto Workers (UAW) is one of the most
powerful unions in the world.
Total

E.

0.06

0.18

0.04

0.08

0.04

0.08

1.00

2.90

Internal Audit
Strengths
1.
2.
3.
4.
5.
6.
7.
8.
9.

Releasing the Volvo C70.

Introducing Mercury Mariner Hybrid in 2007.
Introduced Ford Iosis in 2006.
Total sales have remained strong over the past 4 years at over $150 billion.
European market share has remained consistent over last five years, averaging
over 10 percent.
Ford F-series was the best-selling truck in the USA for the 29th year in a row,
selling more than 900,000 units for the 2nd straight year.
Operates in 200 markets on 6 continents.
Wide range of products targeting all income classes.
Great customer loyalty.

Weaknesses
1. Operating with $172 billion in debt compared to GM of $42 billion in year
end 2006.
2. Marketing inefficiencies in US markets. Market share declined over past 4
years.
3. Cut 30,000 jobs and more cuts expected.
4. Closing 14 manufacturing facilities in N. America.
5. Poor mission statement.
6. Weak organizational structure and only white males in upper level
management.
7. Limited warranty of only 36,000 miles or 36 month. Competition offers
100,000 mile warranty.
8. Reported year-end 2006 loss of $12 billion.
Financial Ratio Analysis (January 2008)
Growth Rates %
Sales (Qtr vs year ago qtr)
Net Income (YTD vs YTD)
Net Income (Qtr vs year ago qtr)
Sales (5-Year Annual Avg.)
Net Income (5-Year Annual Avg.)

Ford
9.40
NA
51.00
1.23
NA

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Industry
9.40
111.80
616.60
6.84
8.54

SP-500
9.00
15.40
0.90
13.05
19.88
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Dividends (5-Year Annual Avg.)

Price Ratios
Current P/E Ratio
P/E Ratio 5-Year High
P/E Ratio 5-Year Low
Price/Sales Ratio
Price/Book Value
Price/Cash Flow Ratio
Profit Margins
Gross Margin
Pre-Tax Margin
Net Profit Margin
5Yr Gross Margin (5-Year Avg.)
5Yr PreTax Margin (5-Year Avg.)
5Yr Net Profit Margin (5-Year Avg.)
Financial Condition
Debt/Equity Ratio
Current Ratio
Quick Ratio
Interest Coverage
Leverage Ratio
Book Value/Share
Investment Returns %
Return On Equity
Return On Assets
Return On Capital
Return On Equity (5-Year Avg.)
Return On Assets (5-Year Avg.)
Return On Capital (5-Year Avg.)
Management Efficiency
Income/Employee
Revenue/Employee
Receivable Turnover
Inventory Turnover
Asset Turnover
Adapted from www.moneycentral.msn.com
Date
12/07
12/06
12/05
12/04
12/03

Avg. P/E
-6.00
-1.10
11.90
9.10
30.50

NA

18.86

10.03

NA
NA
NA
0.08
NA
NA

10.8
8.4
2.8
0.60
1.50
5.90

22.9
22.7
6.7
2.49
3.53
10.40

NA
-2.2
-1.4
48.5
-1.5
-1.0

19.2
7.2
3.9
20.7
5.6
3.6

33.7
17.5
12.4
33.4
16.6
11.5

NA
NA
NA
NA
NA
NA

NA
NA
NA
NA
NA
NA

NA
NA
NA
NA
NA
NA

NA
NA
NA
NA
NA
NA

NA
NA
NA
NA
NA
NA

NA
NA
NA
NA
NA
NA

NA
NA
NA
NA
NA

NA
NA
NA
NA
NA

NA
NA
NA
NA
NA

Price/Sales
0.08
0.09
0.09
0.18
0.18

Date
Book Value/ Share
Debt/Equity
12/07
NA
0.00
12/06
-$1.84
-49.65
12/05
$7.21
11.40
12/04
$9.52
9.31
12/03
$6.36
15.44
Adapted from www.moneycentral.msn.com

Price/Book
NA
-4.09
1.07
1.54
2.51
ROE (%)
NA
364.5
12.2
18.3
5.5

Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall

Net Profit Margin (%)

-1.6
-7.9
0.9
1.8
0.4
ROA (%)
NA
-4.5
0.6
1.1
0.2

Interest Coverage
NA
NA
-0.2
0.3
NA

117

Net Worth Analysis (January 2007 in millions)

1. Stockholders Equity + Goodwill = -3,469 + 5,839
2. Net income x 5 = $-12,613 x 5=
3. Share price = $6.85/EPS -2.88 =$NA x Net Income $-12,613=
4. Number of Shares Outstanding x Share Price = 2,110x $6.85 =
Method Average

$2,370
$ NA
$ NA
$ 14,453
$8,412

Internal Factor Evaluation (IFE) Matrix

Key Internal Factors
Strengths
1. Releasing the Volvo C70.
2. Introducing Mercury Mariner Hybrid in 2007.
3. Introduced Ford Iosis in 2006.
4. Total sales have remained strong over the past 4 years at
over $150 billion.
5. European market share has remained consistent over last
five years, averaging over 10 percent.
6. Ford F-series was the best-selling truck in the US for the
29th year in a row, selling more than 900,000 units for
the 2nd straight year.
7. Operates in 200 markets on 6 continents.
8. Wide range of products targeting all income classes.
9. Great customer loyalty.
Weaknesses
1. Operating with $172 billion in debt compared to GM of
$42 billion in year end 2006.
2. Marketing inefficiencies in US markets. Market share
declined over past 4 years.
3. Cut 30,000 jobs and more cuts expected.
4. Closing 14 manufacturing facilities in N. America.
5. Poor mission statement.
6. Weak organizational structure and only white males in
upper level management.
7. Limited warranty of only 36,000 miles or 36 month.
Competition offers 100,000 mile warranty.
8. Reported year-end 2006 loss of $12 billion.
TOTAL

F.

Weight

Rating

Weighted
Score

0.05
0.05
0.05
0.07

4
4
4
3

0.20
0.20
0.20
0.21

0.07

0.28

0.06

0.24

0.06
0.06
0.05

4
4
3

0.24
0.24
0.15

0.10

0.10

0.09

0.09

0.05
0.06
0.02
0.02

1
1
1
1

0.05
0.06
0.02
0.02

0.04

0.04

0.10
1.00

0.10
2.44

SWOT Strategies
SO Strategies
1. Continue R&D for hybrid automobiles (S2, O5, O6, O7).
2. Open new facility in Eastern Europe (S5, O3, O8).

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118

WO Strategies
1. Improve mission statement (W5, O3, O4).
ST Strategies
1. Focus development on cutting edge fuel efficient automobiles (S1, S2, S3, T1,
T2).
WT Strategies
1. Build smaller more efficient plants in the United States (W4, T1, T3).
2. Offer new 100,000 mile warranty on all vehicles (W7, T6, T7).

G.

SPACE Matrix

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119

x-axis: -1.8 + 5.0 = 3.2

y-axis: 4.8 + -4.0 = 0.8

H.

Grand Strategy Matrix

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120

I.

The Internal-External (IE) Matrix

The IFE Total Weighted Score

High
3.0 to 3.99

Medium
The EFE Total 2.0 to 2.99
Weighted Score

Strong
3.0 to 4.0

Average
2.0 to 2.99

Weak
1.0 to 1.99

II

III

IV

VI

Ford

Low
1.0 to 1.99

VII

VIII

IX

Hold and Maintain

Business Segment
North America
Europe
PAG
Asia/Pacific
South America

% Revenue
53
20
20
5
3

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J.

QSPM

Strategic Alternatives
Key Internal Factors
Strengths
1. Releasing the Volvo C70.
2. Introducing Mercury Mariner Hybrid in 2007.
3. Introduced Ford Iosis in 2006.
4. Total sales have remained strong over the past 4
years at over $150 billion.
5. European market share has remained consistent
over last five years, averaging over 10 percent.
6. Ford F-series was the best-selling truck in the US
for the 29th year in a row, selling more than
900,000 units for the 2nd straight year.
7. Operates in 200 markets on 6 continents.
8. Wide range of products targeting all income
classes.
9. Great customer loyalty.
Weaknesses
1. Operating with $172 billion in debt compared to
GM of $42 billion in year end 2006.
2. Marketing inefficiencies in US markets. Market
share declined over past 4 years.
3. Cut 30,000 jobs and more cuts expected.
4. Closing 14 manufacturing facilities in N. America.
5. Poor mission statement.
6. Weak organizational structure and only white
males in upper level management.
7. Limited warranty of only 36,000 miles or 36
month. Competition offers 100,000 mile warranty.
8. Reported year-end 2006 loss of $12 billion.
SUBTOTAL

Weight

Builder Smaller
Plants in the US
TAS
0.10
0.10
0.10
0.21

0.05
0.05
0.05
0.07

AS
2
2
2
3

0.07

0.14

0.28

0.06

---

---

---

---

0.06
0.06

-----

-----

-----

-----

0.05

---

---

---

---

0.10

0.40

0.20

0.09

0.36

0.18

0.05
0.06
0.02
0.02

4
4
-----

0.20
0.24
-----

2
2
-----

0.10
0.12
-----

0.04

---

---

---

---

0.10
1.00

---

--1.85

---

--1.62

Builder Smaller
Plants in the US
Key External Factors
Opportunities
1. Slowing global economy could lower price of oil.
2. Airline travel as declined with the top 10 US airlines
losing a combined $27 billion in 2005.
3. European market shear has been relatively stable
around 10 percent for each of the last five years.
4. Ford is an American company, which results in
customer loyalty.
5. By 2010, electronics are expected to account for
nearly 40 percent of an average vehicles value.
6. Advances in technology has allowed for less
engineers to be needed by auto companies.
7. Growing technology in automobiles forces customers
to return to dealer for service.

Focus on Smaller
and Hybrid
Vehicles
AS
TAS
4
0.20
4
0.20
4
0.20
2
0.14

Weight

Focus on Smaller
and Hybrid
Vehicles
AS
TAS
4
0.20
-----

0.05
0.03

AS
2
---

TAS
0.10
---

0.08

0.08

0.24

0.06

0.24

0.12

0.06

---

---

---

---

0.06

---

---

---

---

0.08

---

---

---

---

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122

8.

Weak dollar makes products cheaper in international

markets.
Threats
1. The US motor vehicle market has become the
worlds most vigorously competitive auto market
since the 1970s.
2. US market share is on a steady decline from 20.5
percent in 2003 to 18 percent in 2005.
3. New Toyota manufacturing plant in Texas that will
be capable of producing 200,000 full-size pick-up
trucks per year.
4. Franchised dealerships are free to set vehicle prices,
and they may or may not offer customers the
discounts that automakers provide.
5. The US dollar has depreciated against most major
currencies since 2002.
6. GM, Toyota, and other manufacturers offer great
rebates.
7. Most Americans think foreign cars are of better
quality.
8. United Auto Workers (UAW) is one of the most
powerful unions in the world.
SUBTOTAL
SUM TOTAL ATTRACTIVENESS SCORE

K.

0.08

---

---

---

---

0.10

0.20

0.30

0.10

0.20

0.30

0.03

0.12

0.06

0.05

---

---

---

---

0.08

---

---

---

---

0.06

---

---

---

---

0.04

---

---

---

---

0.04

---

---

---

---

0.94
2.79

1.22
2.84

Recommendations
1. The QSPM strategies assessed whether building smaller more efficient plants in
the US or producing cheaper more fuel efficient automobiles. Given the financial
position of Ford, they cannot afford any strategic mistakes. Therefore the
EPS/EBIT analysis recommends funding $300 million for R&D and market
research to determine the best strategic alternatives in producing hybrid
automobiles.

L.

EPS/EBIT Analysis
$ Amount Needed: 300M
Stock Price: $6.85
Tax Rate: 35%
Interest Rate: 7%
# Shares Outstanding: 2,110M

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123

M.

Epilogue
Fords only plant in Russia is in St. Petersburg. On February 4, 2008 Russian
employees at this plant approved a pay deal offered by management and agreed
not to repeat strike action in the immediate future. Workers at Fords plant near
the northern Russian city of St Petersburg went on strike for four weeks in
November and December, demanding their monthly wages be increased to 28,000
roubles ($1,147) from 19,000 roubles. Ford, which produced 75,000 Focus
models at its Russian plant in 2007, plans to invest $100 million to increase
capacity to as much as 125,000 units in 2009 and start making the Mondeo model.
Auto sales in the USA were slow in January 2008, even by January standards (it's
typically the slowest sales month of the year), as consumers continued to worry
about the economy, credit markets, and high gas prices. The seasonally adjusted
annual sales rate for January was only about 15.3 million light vehicles, down
sharply from a seasonally adjusted annual rate of about 16.7 million units in the
year-ago month, according to Woodcliff Lake (N.J.)-based AutoData. Overall,
U.S. light vehicle sales were 1,043,947 in January, 4.3% below the year-ago
month, AutoData said. Light vehicles are passenger cars and light trucks,
including minivans, pickups, SUVs, and car-based crossovers, and excluding
medium and heavy trucks. However, Ford Motor stuck to its 2008 sales forecast
of around 15.7 million light vehicles, down from about 16.1 million in 2007.
On February 8, 2008, Chrysler LLC announced it will cut its product lineup by
around a half and dramatically shrink its dealership network so it can sell its three
brands under one roof. The announcement is to cut the Chrysler product line of
around 30 different trucks, cars and sports utility vehicles across the Chrysler,
Dodge and Jeep brands to 15 or more within a few years. This strategy is part of
the companys a drive to cut costs and create a leaner, more profitable company.

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124

Analysts welcomed such a move, saying a smaller, more focused Chrysler would
have a better chance to thrive. "This is just what the doctor ordered," said John
Casesa, a former Wall Street analyst who now heads an advisory firm in New
York specializing in the auto industry. "This strategy is decades overdue. "It's an
absolute imperative to have a viable business in North America," he added. "This
company needs to eliminate waste that goes with having duplicate products in
each (brand) channel and smaller stores with low profitability." Shrinking the
number of dealers will be difficult, however, because of laws in all the states
protecting those businesses, analysts said. If Chrysler, with about 3,600 dealers,
wants to move quickly, it likely will have to offer financial incentives. Over the
years, Chrysler, General Motors and Ford, have tried to shrink their dealer
numbers, often facing great resistance. However, analysts said some dealers may
be more receptive now, given the weak U.S. economy, if the offers are generous.
A smaller dealer base will translate into more attention for Chrysler's cars and
stronger advertising, Casesa said. "A weak dealer network is a silent killer; like
blood pressure," he said. Chrysler is owned by private equity company Cerberus
Capital Management, which bought an 80 percent stake in the company from
Daimler in August 2007. Since appointing former Home Depot CEO Robert
Nardelli to run the company, Cerberus has been expected to shake up established
practices in Detroit.
On February 6, 2008, auto executives expressed confidence that U.S. sales will
pick up in the last half of this year as a federal stimulus package and lower
interest rates improve consumer confidence. "We're beginning to see, after six
quarters of declines, the beginnings of some pent-up demand," General Motors
Corp.'s North America President Troy Clarke told reporters at the Chicago Auto
Show. "You could make a case that the second half of the year could be
significantly better." Many analysts have been predicting the worst U.S. sales
year in a decade, with total sales in the range of slightly more than 15 million.
That's down from 17 million as recently as 2005. Clarke said he's now expecting
full-year sales to approach 16 million vehicles. That's slightly more than Ford
Motor Co. is predicting, but Ford Americas President Mark Fields was also
bullish Wednesday. "We do see opportunity in the second half," Fields said,
noting that interest rate cuts could also help stimulate sales. Mark LaNeve, GM's
vice president for North American sales and marketing, said big cuts GM and
Ford made to their rental-car sales in 2007 could help stimulate demand in 2008,
since rental cars often replace new-car sales when they return to the general
market. LaNeve said GM and Ford alone have cut 350,000 cars from daily rental
fleet sales in the last few years. LaNeve said automakers were also much more
disciplined in 2007 about the use of incentives, which tend to artificially pull sales
ahead. So more buyers could be looking for a car this year after not getting a deal
in 2007. Incentives averaged $2,366 per vehicle in 2007, down $42 from the year
before, according to the automotive Web site Edmunds.com.

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125

"We really believe the industry's going to be OK this year," LaNeve said. "We've
had a fairly weak car market for the better part of two years. Economic weakness
is being experienced in other places right now. We've already been in it."

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