Ford and the World Automobile Industry - Essay Example

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This research will begin with the statement that Ford Motor Company had implemented cost-reduction measures well ahead of GM and Chrysler and this restructuring process had enabled the company to escape bankruptcy during the financial crisis of 2009…
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Ford and the World Automobile Industry
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Download file to see previous pages This paper illustrates that in order to respond to the competitive threat, Ford’s Chief Financial Officer had emphasized upon the longer term financial outlook. To this end Ford’s management had implemented plant closures which had resulted in reductions in fixed cost. Additionally the company had made an early switch to smaller, more fuel-efficient cars and sold loss-making Jaguar, Aston Martin and Land Rover subsidiaries. As a result of these initiatives, Ford had improved its financial and operating performance. However if the company were to maintain its performance, then it would have to focus upon the combined forces of technology and environmental forces that were changing the industry structure and formulate strategies accordingly. Competition in the world auto industry The industry was facing rising competitive pressures due to a variety of factors. Experts had expected the industry to consolidate from the demand pressures that had resulted from the financial crisis of 2009. Instead the outcome had been one of worsening the problem of excess capacity as national governments provided financial assistance to support those companies which were suffering from the downward trend in demand. Therefore the weaker competitors had not been weeded out. Instead they increased their production, thus worsening the problem of excess capacity. This was the most important factor which contributed to the rising competitive pressures. The world auto industry was far from being static as demand shifted from mature industrial nations to the growing markets of Asia, Eastern Europe and Latin America. These dynamics had forced the automakers to implement strategies aimed at seeking new markets as additional sources of demand. Between 1990 and 2008, the five biggest automakers were GM, Toyota, Ford, Daimler-Chrysler and Volkswagen. The evolution of market demand had been affected by the combined forces of technology and environmental concerns. For this reason Ford planned to make the switch to all-electric commercial vans and automobiles. This change in strategy had also been necessary because of the shift of market opportunities to the growing markets of Asia, Eastern Europe and Latin America. As a result the automobile producers were changing strategic focus to emphasize upon the newly industrializing countries as new sources of market opportunities. Driven by the emerging markets in BRIC countries and in the newly industrializing countries such as Korea, Thailand, Malaysia, Turkey and Argentina, the supply of cars and trucks continued to grow. However new product development costs limited automakers abilities to differentiate products. For this reason there was little differentiation between manufacturers. The industry’s key issue was excess capacity. As noted in the case, consultants at PwC had estimated that supply exceeded demand by 31 million units per year. The problem had been exacerbated by government intervention which has kept inefficient companies afloat. Applying Porter’s five forces analysis, the conclusion to draw is that the threat of new entrants would be low since supply exceeds demand. The threat of substitute products came from electric cars which would offer opportunities for new entrants. The transition to electric cars would enable companies with expertise in electrical engineering to enter the industry, thus intensifying competition. Public transportation also offered a substitute. The threat of competitive rivalry in the present state of the industry was considerable since supply exceeded demand. ...Download file to see next pagesRead More
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