18 Ford Motor Company — 2009

Alen Badal
The Union Institute

F
www.ford.com
Ford recently received $5.9 billion in Energy Department loans to help retool its plants
in Illinois, Kentucky, Michigan, Missouri, and Ohio to produce 13 fuel-efficient mod-
els, including 5,000 to 10,000 electric cars per year starting in 2011. In mid-2009,
Nissan Motor was granted $1.6 billion in loans also from the U.S. Department of
Energy to build as many as 100,000 electric cars a year at its plant in Smyrna,
Tennessee, by 2013.
Ford’s newest competitor may be the U.S. government because GM and Chrysler
LLC are in line to get $62 billion in investments from the U.S. Treasury. GM and
Chrysler have cut their debt and closed hundreds of dealers with that money, while Ford
still has $33 billion in debt including its obligations to retirees. Since CEO Alan Mulally’s
arrival at Ford in 2006, the company has cut 40,000 jobs and closed 17 plants, reducing
costs by more than $5 billion. Ford has a $10 billion note that comes due in 2011.
Ford increased its production 16 percent in the third quarter of 2009 versus the third
quarter of 2008. This was good news for Ford shareholders and customers. In May 2009,
Toyota posted a $4.4 billion loss for its fiscal year, the first time Toyota posted an annual
loss since 1963. Virtually all automobile companies are suffering in the bad economy. Ford
is on track, however, to break even or perhaps make a profit in 2011.
Ford is also trying to sell its Volvo division but has decided to wait until GM com-
pletes the sale of its Opel division in efforts to get a higher price for Volvo. Three firms as
of August 2009 were bidding on Volvo: Geely Holding Group, Beijing Automotive
Industry Holding, and a Europe-based group of investors. Sales of Volvo in the United
States fell 36 percent in the first six months of 2009 as compared to 2008.
An American icon for over a century, Ford’s revenue decreased from $172.5 billion
in 2007 to $146.3 billion in 2008. Born in 1863, Henry Ford founded Ford Motor
Company in 1903 and launched the Model T in 1908. Henry died in 1947. The great-
grandson of Henry, William Ford, is today chairman of the board of Ford. Exhibit 1 fea-
tures the leadership of the Ford Motor Company. Ford’s icon vehicles, such as the Mustang
and the F-150 truck, can be spotted on the roadways worldwide.
Headquartered in Dearborn, Michigan, Ford has a 13.8 percent market share of the
auto industry as of February 2009, as compared to 17.5 percent in 2007. Ford Motor oper-
ates two service businesses: Ford Motor Credit Company and Genuine Parts and
Motorcraft.
Ford manufactures and distributes automobiles across six continents with a team of
about 246,000 employees. The company operates about 108 plants globally and produces
such models as Ford, Lincoln, Mazda, Mercury, and Volvo. The company has sold its
Jaguar, Land Rover, and Aston Martin businesses.
The subsidiary, Ford Motor Credit Company, offers auto financing to both dealers
and customers globally. The company also assists dealerships with funding for such
 CASE 18 • FORD MOTOR COMPANY — 2009 177

EXHIBIT 1 Ford Motor Company Corporate Officers

William Clay Ford, Jr.,

Executive Chairman

Alan Mulally, President & CEO

Michael E. Bannister, Exec. V.P.

Chairman/CEO, Ford Credit

John Fleming, Exec. V.P. & Lewis W. K. Booth, Exec. V.P. Mark Fields, Executive V.P. & John G. Parker, Executive V.P.
Chairman/CEO Ford of Europe & Chief Financial Officer President, The Americas Asia Pacific & Africa

Source: www.ford.com.

EXHIBIT 2 Ford versus Toyota and the Industry

Ford Toyota Industry

Market Capitalization $24.9B 135.3B 24.9B
# Employees 213,000 324,222 33,200
Revenue 113.8B 193.9B 14.5B
Gross Margin 7.69% 7.25% 17.83%
Earnings Before Interest and Taxes 2.95B 4.36B 176.2M
Net Income -5.22B -9.28B —
EPS -2.072 -5.92 -0.14

Note: M = million; B = billion

Source: Based on info at www.financeyahoo.com.

EXHIBIT 3 The U.S. Market Share of Top 11 Auto Firms (February 2009)

Company % of Market Share

General Motors Corp. 18.8
Toyota Motor Sales USA Inc. 16.9
Ford Motor Company 13.8
Chrysler LLC 10.9
American Honda Motor Co. Inc. 10.6
Nissan North America Inc. 8.0
Hyundai Motor America 4.1
Kia Motors America Inc. 3.3
Mazda Motor of America Inc. 2.4
Subaru of America Inc. 1.9
Mitsubishi Motors N A, Inc. 0.7

Source: Based on http://online.wsj.com/mdc/public/page/2_3022-autosales.html#autosalesD.

purposes as improving sites and acquiring real estate. Ford’s Motorcraft division offers
parts for its vehicles through the company’s Web site (www.ford.com).
Ford’s major competitors are General Motors, Toyota, and Chrysler. Ford and rival
General Motors are losing market share to Toyota and other foreign automakers. Exhibit 2 and 3
provide comparative information on Ford versus its rival firms. Note that Ford is number three in
market share in the United States. The 2009 Motor Trend truck of the year was the Ford F-150.
178 ALEN BADAL

Company Brands
Ford consists of five brands and is generally perceived as being an affordable brand name
catering to a variety of consumer needs and wants. The vehicles span cars, trucks, and
super utility vehicles (SUVs). Ford also produces the Mondeo found in Europe and the
EcoSport in South America and some parts of Asia.

Lincoln/Mercury
Ford’s Lincoln (www.lincoln.com) vehicles are perceived as a luxury line and include five
models such as the popular Navigator and Town Car. Ford’s Mercury (www.mercuryvehicles.com)
line also offers five different models, such as the Mountaineer and the Milan.

Mazda
A Japanese line named after the ancient god of wisdom is Mazda (www.mazda.com).
Mazda evolved in 1931 representing a three-wheeled truck combining a motorcycle
and automobile. Mazda today offers 11 different models along with its Mazda Verisa. The
company posted sales in the first nine months of fiscal 2008 of 2.1 million yen (¥).
The company’s Web site contains information about Mazda in some 54 different countries.
Mazda’s revenues dropped from 2.5 million yen in the first nine months of 2007 to
2.0 million yen during that period in 2008.

Volvo
Volvo (www.volvocars.com), a brand name that created the first three-point seat belt, has
built strong brand recognition as a safe vehicle. Volvo in 1955 began exporting cars to the
United States. Ford acquired Volvo in 1999, but the division is now up for sale. Volvo mar-
kets in some 58 countries. This Sweden-headquartered division sells the line in more than
185 markets. This division sold 374,297 units worldwide in 2008, an 18 percent decrease
in sales from 2007. The stronger demand was in the United Kingdom while the U.S. and
Sweden markets weakened. Volvo achieved net sales of $14.7 billion in 2008, compared to
$17.9 billion in 2007, as described in Exhibit 4.

Ford Motor Credit

Founded in 1923, Ford Motor Credit Company (www.fordcredit.com) offers financing to
consumers and dealerships nationwide and is the world’s largest finance company. Ford
Credit offers innovative products and competitive financing rates with flexible terms
applied toward leasing and/or financing purchases.

Genuine Parts & Service

Genuine Parts & Service (www.genuineflmservice.com) offers the know-how about parts,
repairs, and maintenance to owners of Ford, Lincoln, and Mercury vehicles. First introduced
in 1991, the concept was to help provide better owner satisfaction, which has provided better
vehicle brand success for Ford.

EXHIBIT 4 Ford Motor Company Sector Revenues (2007 vs. 2008)

Sector 2007 2008

North America $71.5 billion $53.4 billion
South America $ 7.6 billion $ 8.6 billion
Europe $36.5 billion $39 billion
Volvo $17.9 billion $14.7 billion
Asia Pacific/Africa $ 7 billion $ 6.5 billion
Mazda $ 0 $ 0
JLR & Aston Martin $15 billion $ 0
Financial Services $18 billion $17 billion

Source: Adapted from www.ford.com.

 CASE 18 • FORD MOTOR COMPANY — 2009 179

Motorcraft
Ford purchased Electric Autolite Company in 1961 and later changed the name to
Motorcraft (www.motorcraft.com), which makes parts for Mercury, Lincoln, and Ford
vehicles. The division is a subsidiary business offering premium parts/services ranging
from motor oil to transmission assemblies. This business emerged for Ford as a result of
the lack of replacement vehicle parts available by the manufacturers.

Global Operations
Ford markets vehicles in over 200 markets across 6 continents. Ford’s recent One Ford
strategy focuses on standardizing the production of vehicles, technologically tracing pro-
duction throughout the life cycle, cross-shipping of components to ensure speedier time to
markets, and finding the Ford-ingredients to meet the automotive needs of the global mar-
ket. One such example is Ford’s Fiesta, which is available in Europe and expected in 2010
in the United States. Ford’s truck lines are still strong with the award-winning F-150.
The Euro (€), British pound (£), and the Japanese yen (¥) currencies have been
valued more than the U.S. dollar ($). Ford’s North America sales have dropped substan-
tially; however, South America and Europe achieved sales increases in 2008 for Ford, as
shown in Exhibit 4.
Ford’s income statements are provided in Exhibit 5. Note Ford’s massive losses
in both 2006 and 2008. Ford’s balance sheets are provided in Exhibit 6. Note that Ford is

EXHIBIT 5 Ford Motor Company Income Statement

(all numbers in thousands)

Period Ending 31-Dec-08 31-Dec-07 31-Dec-06

Total Revenue 146,277,000 172,455,000 160,123,000
Cost of Revenue 127,103,000 142,587,000 148,869,000
Gross Profit 19,174,000 29,868,000 11,254,000
Operating Expense — — —
Research Development — — —
Selling Gen & Admin 21,430,000 21,169,000 19,180,000
Non Recurring — 2,400,000 —
Others 1,874,000 668,000 241,000
Total Operating Expenses
Operating Income or Loss (4,130,000) (5,631,000) (8,167,000)
Income from Continuing Oper — — —
Total Other Income/Exp. Net (755,000) (1,550,000) (1,899,000)
EBIT (4,722,000) (7,181,000) (6,268,000)
Interest Expense 9,682,000 10,927,000 8,783,000
Income Before Tax (14,404,000) (3,746,000) (15,051,000)
Income Tax Expense 63,000 (1,294,000) (2,646,000)
Minority Interest (214,000) (312,000) (210,000)
Net Income from Cont. Ops (14,681,000) (2,764,000) (12,615,000)
Non-recurring Events — — —
Discontinued Operations 9,000 41,000 2,000
Extraordinary Items — — —
Effect of Acct. Changes — — —
Other Items — — —
Net Income (14,672,000) (2,723,000) (12,613,000)

Source: www.ford.com.
180 ALEN BADAL

EXHIBIT 6 Ford’s Balance Sheets

(all numbers in thousands)

PERIOD ENDING 31-Dec-08 31-Dec-07 31-Dec-06

Assets
Current Assets
Cash and Cash Equivalents $22,049,000 $35,283,000 $28,894,000
Short Term Investments — — —
Not Receivables 6,165,000 8,863,000 8,772,000
Inventory 8,618,000 10,121,000 11,578,000
Other Current Assets — — —
Total Current Assets 36,832,000 54,267,000 49,244,000
Long Term Investments 112,487,000 160,676,000 136,378,000
Property Plant and Equipment 54,303,000 36,239,000 38,505,000
Goodwill 1,190,000 1,504,000 5,839,000
Intangible Assets 403,000 565,000 30,932,000
Accumulated Amortization — — —
Other Assets 10,005,000 22,513,000 12,706,000
Deferred Long Term Charges 3,108,000 3,500,000 4,950,000
Total Assets 218,328,000 279,264,000 278,554,000
Liabilities
Current Liabilities
Accounts Payable 78,158,000 44,411,000 24,416,000
Short/Current Long Term Debt — — —
Other Current Liabilities — 4,093,000 28,128,000
Total Current Liabilities 78,158,000 48,504,000 52,544,000
Long Term Debt 154,196,000 168,530,000 172,049,000
Other Liabilities 55,000 50,158,000 51,477,000
Deferred Long Term Liability Charges 2,035,000 5,023,000 4,790,000
Minority Interest 1,195,000 1,421,000 1,159,000
Negative Goodwill — — —
Total Liabilities 235,639,000 273,636,000 282,019,000
Stockholders’ Equity
Misc Stocks Options Warrants — — —
Redeemable Preferred Stock — — —
Preferred Stock — — —
Common Stock 24,000 22,000 19,000
Retained Earnings (16,145,000) (1,485,000) (17,000)
Treasury Stock (181,000) (185,000) (183,000)
Capital Surplus 9,076,000 7,834,000 4,562,000
Other Stockholders’ Equity (10,085,000) (558,000) (7,846,000)
Total Stockholders’ Equity (17,311,000) 5,628,000 (3,465,000)
Total Liabilities and SE 218,328,000 279,264,000 278,554,000

Source: www.ford.com.
 CASE 18 • FORD MOTOR COMPANY — 2009 181

carrying over $1 billion in goodwill, which is not good. Nor is its $154 billion in long-term
debt a good thing. The company may be doing better than some of its rival firms, but make
no mistake, Ford is in financial trouble.
Ford produces energy hybrid vehicles and has joined forces with British Petroleum
(BP) to develop hydrogen power. Ford’s Rouge Center in Dearborn, Michigan, represents the
world’s largest living roof and covers the Dearborn Truck Plant’s final assembly building.

Competitors
Chrysler LLC
Founded in 1883, Chrysler LLC (www.chryslerllc.com) currently holds 10.9 percent of the
U.S. market share as of February 2009. At the conclusion of fiscal 2008, Chrysler
employed approximately 54,007 employees. A privately owned company, Cerberus
Capital Management, currently owns 80.1 percent of Chrysler, with the remainder owned
by Daimler, the former parent company of Chrysler. The company manufactures seven
different models, including Jeep and Dodge. Chrysler LLC also owns Global Electric
Motorcars (GEM), low-speed vehicles often used in parks and industrial campuses. The
company sells parts and vehicle accessories under a MOPAR brand name and has a
Chrysler Financial division, which offers financing opportunities for buyers in North
America, Puerto Rico, and Venezuela.
Chrysler received $9 billion in bailout monies from the United States, with a
possibility of needing an extra $3 billion. It reportedly used up $3 billion in cash in the
last quarter of 2008. Headed by previous CEO of Home Depot, Robert Nardelli,
Chrysler had requested $7 billion in “bridge funding” to save the company.
Chrysler has contracted with Nissan and Volkswagen to manufacture cars. This cost-
saving strategy, coupled with speculations of Envi, an electric car, and smaller cars built by
Nissan, are expected to improve the firm’s financial position. Chrysler’s sales in February
2009 as compared to February 2008 were down 44 percent.

General Motors Corporation (GM)

Headquartered in Detroit, Michigan, GM (www.gm.com) employs approximately 244,500
and reported annual revenues of $149 billion in 2008 as compared to $181 billion in 2007.
GM manufactures cars and trucks in 34 countries. GM also operates a Financing and
Insurance Operation. Saab, Pontiac, and Cadillac are among the many GM models. GM holds
an industry leading 18.8 percent of the U.S. market share as of February 2009. GM’s sales in
February 2009 when compared to the prior year were down by 53 percent.
GM experienced a steady decline in sales and received an $18 billion (with more
requested) government bailout from the United States. GM’s Saab division in Sweden
is attempting to isolate itself from GM to avoid the country losing a carmaker. Saab’s
units-sold in 2008 were down 34.7 percent compared to 2007. GM has plans to phase
out its Saturn and Hummer brands. The plans also call for reducing Pontiac production.
GM has been criticized for not adapting its cars and production system to address the
needs of consumers. The future of GM is reliant on hybrid electric Chevy Volt along with
models such as the Malibu. GM’s cars have produced negative sales figures, such as a
50.9 percent reduction in Hummer units sold in 2008 as compared to 2007. Chevrolet,
Cadillac, GMC, and Buick have ranged from 20.4 percent to 26.2 percent reduction in
units sold in 2008 compared to the previous year. GM’s goal is to have a production-ready
fuel-cell vehicle by 2010.

Toyota Motor Corporation

Headquartered in Toyota City, Japan, Toyota Motor Corporation (www.toyota.co.jp)
reported annual revenues of $249.5 billion in 2008. Toyota currently holds 16.9 percent of
the U.S. market share as of February 2009. The company has 316,212 employees and was
founded in 1933. It was ranked by J.D. Power and Associates as number one in customer
loyalty, with 68.9 percent of new purchases whose previous new vehicle was from Toyota.
Not all of Toyota’s makes and models are manufactured in America; the company has
production plants across the globe.
182 ALEN BADAL

Toyota operates in two segments: Automotive and Non-Automotive Operations.

Toyota models include the Corolla and RAV4. Its financial service helps consumers subsi-
dize vehicles and mortgage loans. Toyota provides financing to dealers. Other operations
include designing and manufacturing of prefabricated housing and information technology
related businesses. The company operates an e-commerce marketplace known as
Gazoo.com and sells vehicles in Japan, North America, Europe, and Asia. However,
Toyota experienced a 40 percent decrease in revenues in February 2009 compared to
2008. Honda and Nissan experienced similar figures with a decrease of 38 percent and
37 percent, respectively.
Toyota is focusing on its all-new Prius, which promises fuel economy to exceed the
current model’s 48 mpg. Also, Toyota will become the first automaker of a hybrid-only
luxury car: the Lexus HS250h, with fuel economy of 40 mpg.

Industry Analysis
The auto manufacturing industry has been crushed of late by the global economic recession
as consumer demand for new autos has plummeted. Consumer confidence is the lowest in
40 years, and unemployment rates exceed 10 percent in many areas. Unavailability of credit
and high unemployment have pushed automakers to rethink methods of producing and sell-
ing cars. Automakers have faced rising costs of health care and pensions. The Big Three hope
to gain further concessions from the United Auto Workers regarding labor costs, among oth-
ers, in times of hardship. The Big three also suffer from an oversupply for dealers.
The few consumers purchasing vehicles are doing so for practical reasons, with a
focus on fuel efficiency, durability, and carmaker’s sustainability. Consumers are
concerned over the Big Three’s possibility of going out of business in terms of voided
warranties. According to CSM Worldwide, an automotive research firm, light vehicle
production exceeded the production of cars and trucks in North America and Europe by
an estimated 16 percent and 14 percent, respectively.
Many banks are just not making car loans. This situation has been detrimental to
auto firms. In 2008, the Big Three began offering lowered interest rates or zero percent
financing to lure buyers. Ford, Chrysler, and even Toyota are offering employee prices to
consumers.
The auto industry has experienced a shift from trucks and SUVs to hybrid and small
fuel-efficient vehicles. The government bailout money is diminishing, and Ford has
exhausted its credit lines.

Emerging Automotive Markets

While the economy in the United States slowed and new car sales drastically declined,
Russia’s grew 15.1 percent, Brazil’s 15.5 percent, China’s 12 percent, and India’s 5 percent,
respectively, in the third quarter of 2008. GM and Ford have had some success in markets
outside the United States. GM achieved 61 percent of total revenues in the third quarter of
2008 outside of North America. Ford is counting on China for sales as is Volkswagen, AG.

The Future
Ford’s midsize 2010 Fusion in August 2009 set a monthly sales record for the model for
the fifth consecutive month. A sedan redesigned for the 2010 model year, the Fusion
competes with the high-volume Toyota Camry and Honda Accord in one of the biggest
segments of the U.S. auto market. “It’s a very tough segment to be in. It’s been dominated
by the imports over the last several years,” Chantel Lenard, Ford’s global small and
medium car group marketing manager, said in an interview. “We are starting to break
through and break that grip the imports have had on that segment.”
The Fusion has a long way to go to meet the U.S. sales volumes generated by the
Toyota Camry and Honda Accord. Through July, sales of Ford’s Fusion totaled 102,756 in
2009, while Camry sales totaled 184,216 and Accord totaled 160,817. Both the Camry and
Accord cracked the top 10 in cars bought under the U.S. government Cash for Clunkers
incentive program that ended in August 2009. Ford reported strong Fusion sales in the
program, but it did not crack the top 10 list.
 CASE 18 • FORD MOTOR COMPANY — 2009 183

In late 2009, Ford added shifts at its truck plants in Michigan and Missouri due to
increased demand for its F-150 pickup trucks and Escape SUVs. The company’s
Dearborn, Michigan, truck plant and the Kansas City, Missouri, plant returned to a
three-shift operation. The action increased production of F-150 pickup trucks by about
10,000 units and boosted production of Ford’s Escape and Mercury Mariner SUVs
together by 2,400 units.
Ford’s increased production for the third and fourth quarters of 2009 were some-
what driven by strong sales in the Cash for Clunkers program. The program, launched by
the U.S. government in July 2009, enabled qualifying consumers to trade in their old
gas-guzzling cars and trucks with a mileage of 18 miles per gallon (mpg) or less for a
value of up to $3,500–$4,500. Ford had two models in the top-10 buy list of the Cash for
Clunkers program. The company’s Ford Focus (30 mpg) ranked fourth and Ford Escape
SUV (24 mpg) ranked tenth. Ford boosted third quarter 2009 production in North
America to 495,000 vehicles and then produced 570,000 vehicles for the fourth quarter,
a 33 percent rise from the year-ago period.
For July 2009, Ford reported an astounding 2 percent year-over-year sales gain when
other major automakers reported declines. The sales gain was the company’s first since
November 2007. Ford still, however, is in financial trouble.
Develop a strategic plan of action for Ford. Provide a detailed strategic analysis for
CEO Alan Mulally. Include the methodology and costs associated with implementation of
your recommended strategies for the next three years.