History of Ford Motor - Case Study Example

? (Assignment) Ford Motor: Case Study Introduction Ford Motor Company is one of the members of the group “Big Three” including Chrysler and General Motors as the other members. The Ford Motor Company is a well established car manufacturer in the automobile industry which started its manufacturing operations in 1903. In the earlier periods of car manufacturing technology evolution, cars were built according to individual customers’ preferences and specifications. Even in initial stages, Henry Ford produced more than 1000 vehicles annually. The Ford Company introduced the first “dominant design” in automobiles and it became the fundamental framework for other manufacturers to design their models. It is observed that the most powerful feature of the Ford is its flexibility to assimilate with various market situations. This extreme feature has assisted the company to vie with many competitive aspects of the market. It also seems that the Ford possesses an efficient management team whothat effectively forecasts the market and changing consumer tastes and thereby designs innovative car models. This case study gives a detailed view of the automobile industry evolution and its progress over different eras. This paper evaluates the features of Ford Motor Company and also analyzes impact of 2008-09 economic crises on the company. Context of the case The first internal-combustion powered vehicles were notably produced by Gottlieb Daimler and Karl Benz in Germany. This was an epoch-making innovation in the history of automobile industry. By the end of nineteenth century, hundreds of manufacturers were producing automobiles both in Europe and in America. The twentieth century witnessed the rapid growth of automobile industry and thus the upward trends in sales volume were clearly visible after the Second World War. From the figure 4.1, it is precise that trucks and buses were less produced in US at the beginning of the 19th century as compared to other passenger vehicles (p.49). However, this trend gradually changed after 1990s and it can be clearly attributed to the effects of globalization and industrialization. Uncertainty over the design and technology of the motorcar was the major issue that impeded the early years of automobile industrial growth. The figure 4.3 indicates that US motor vehicle production as percentage of world’s production gradually declines from 1965 to 2008 (p.50). During the earlier periods of motor vehicles production, the internal-combustion engines faced tough competition from steam as well as electric motors. However, ranges of fascinating features of internal combustion engines could dominate the market. Over this period, companies brought different designs and technologies among which many one-promising designs were relegated to the scrapheap of history. As we discussed earlier, the Ford Model T was one of the designs that became the focus of attraction of automobile market in this period. Different countries adopted different sized market segments so as to capture the market opportunities. It is necessary to note that “Fordism” was the first major revolution in process technology although Toyota’s “clean production” got world wide acceptance during the 1980’s and 1990’s. The case reflects that the cost of creating a new mass-production passenger car from drawing board to production line was in excess of $1.5 billion. This huge cost associated with product development blocked faster economic growth of car manufacturers. This situation persuaded the companies to think about the concept of mergers and acquisitions. These integration processes and thereby combined operating costs have assisted the companies to take advantages of lower product development costs economies. The figure 4.4 shows that Ford had made alliances with numbers of other automakers like Tata and Toyota. The Ford’s trend of the past 30 years shows that the firm moves toward increasing outsourcing of materials, components, and services with intent to achieve lower costs and increased flexibility. This practice would certainly contribute to Ford’s mass production strategy. Increased cost of production and excess capacity were the other major problems faced by automobile manufacturers. In addition, the internationalization strategy has increased market competition among automobile manufacturers. Key issues of the case The collapse of Lehman Brothers in 2008 and subsequent financial crisis had engulfed the entire US automobile sector. In the light of case study, it is observed that Ford suffered “a $14.7 billion loss for 2008; a result of which was the elimination of stockholders’ equity” (p.46). The table 4.1 reveals that Ford’s estimated additional financial requirement would be $9 billion if GDP declines by 3% and recession persists throughout the year. If the economic condition becomes too worse persisting into 2010, the estimated funds requirements may rise to $13 billion (p.47). However, this economic crisis led many corporate giants like Chrysler and General Motors to bankruptcy. Even though government pumped huge amount of money into the market in order to preserve the financial interests of the affected firms, this strategy was not sufficient to prevent the dreadful implications of the crisis. Although, Ford’s Chief Financial Officer Lewis Booth formulates effective policies to overcome dreadful issues related with the economic crisis, the state of the automobile industry in a post-recessionary world would also have an impact on the company’s return to profitability. According to case writer, the outcomes from mergers, capital rationalization, and entrance of new market manufacturers would have a clear impact on the overall margins that the industry would earn after the recession period. Therefore, Ford’s sustainability would depend on happening or non-happening of some specific future events. Although, the short-term outlook of the industry improved at the end of 2009, the long-term outlook became more alarming. As a result of this bad long-term outlook, Ford cannot design better long-term business policies which are the ultimate growth factors of a firm. Although, mergers and acquisitions may assist the business to minimize the operational costs and thereby cost of production, this concept may adversely affect the efficacy of business operations. Table 4.2 tells that the Ford’s production of autos and commercial vehicles between the period 2005 and 2007 has declined by 570,000 (p.54). Even though the major automakers vehemently tried to lower the costs, they could not achieve the unit costs of upstart producers in low labor cost countries like China and India. Internationalization gave the opportunity for the automakers to enter the foreign markets easily. This concept hurt the business notions of indigenous, small producers as they could not effectively compete with well established automakers. The Detroit’s “Big three” misbelieved that big cars were more profitable than small cars and there was no viable alternative to the internal combustion engine. However, it is observed that electric vehicles would offer wide ranges of opportunities for the new entrants in the market especially, for those who have well-developed capabilities in electrical engineering. Likewise, it seems that government regulation and customer preferences have notably shifted from large to small cars as this change would facilitate the obsolescence of the internal combustion engine and thereby mitigate the impacts associated with accelerated global warming. These perceptional changes in the car manufacturing industry have adversely affected the business models of conventionalists. Suggestive business concepts While we think about a potential business concept, it is necessary to consider the maintenance of an efficient management team. We have seen that Ford’ efficiency in management strategies have assisted them to keep the production of five million units annually even in the midst of severe economic crisis. Similarly, the Ford could effectively forecast additional future economic requirements at various levels of GDP growth. This efficiency aids the company to formulate flexible financial policies in order to deal with varying economic situations. Similarly, as discussed earlier, long term outlook of the economy became more alarming as a result of the economic crisis. In such a situation, it is advisable for Ford Motor Company to frame short term business policies since it would be very difficult to predict future. This practice would also help Ford to periodically modify its policies and concepts in accordance with profitability variations. In my opinion, increased mergers and acquisitions would adversely affect the firms in times of financial crises. To illustrate, each business house is a separate legal entity and they possess distinct business objectives. Hence, amalgamation of two firms with distinct objectives would often produce strategic conflicts in future especially, in times of contingencies. During the times of financial crises, firms need to deviate from its conventional modes of business practices in order to vie with the prevailing issues. Such deviations from fundamental strategic alliances may hurt the interests of the merged firm; it would lead to conflicts between integrated firms. In short, thoughtless and ineffective mergers may seriously impinge on the long term sustainability of automakers. Therefore, every firm must be careful while forming merger alliances. It is also advisable for Ford to concentrate its business plants to low labor costs countries like India and China. This strategy will certainly assist the firm to considerably reduce its cost of production so that the company can effectively exercise price competition techniques. Similarly, this method would be also beneficial for the Ford to provide better features on its products without any increase in price. I strongly believe that fundamental changes in business practices would largely benefit Ford Motor Company in this situation. The case study indicates that Ford mainly engaged in the production of vehicles with internal combustion engine. However, global warming and other environmental issues related to urbanization have notably changed customer preferences and specifications. Hence, the continuation of conventional modes of production practices would not contribute to the economic crisis recovery notions of the Ford. In this condition, the Ford has to develop electrical vehicles that would fit the modern automobile market trends. Similarly, the company must switch its focus from large to small cars since majority modern customers are less likely to purchase large cars. So as to implement the suggested plan, it has to recruit experts in electrical engineering who can innovate new market fitting designs. Since the Ford Company has no adequate experience in electrical vehicle manufacturing, it is recommendable to conduct a detailed study on this project and it would reveal different opportunities and threats. Conclusion The case study clearly tells that the collapse of Lehman Brothers in 2008 and subsequent financial crisis caused current financial losses of Ford Motor Company. However, the effective managerial operations under the leadership of Lewis Booth have greatly assisted the company to escape from bankruptcy. Although, increased mergers and acquisitions have aided the Ford to obtain raw material at lower costs. This practice negatively affect the company in formulating unconventional business decision. Global warming and other environmental issues have largely influenced the perceptions of automobile customers. Therefore, it is better for the company to shift its focus to the production of small cars with electrical engine. References Ford and the world automobile industry in 2009. Read More