How did Ford Motor Company Successfully Turn Around its Business During the Recent Recession - Case Study Example

How did Ford Motor Company successfully turn around its business during the recent recession Table of Contents How did Ford Motor Company successfully turn around its business during the recent recession 1 Table of Contents 2 Introduction 3 Issues 3 Management Strategies 4 Strategic Leadership 7 Conclusion 8 References 9 Introduction The global economic recession has led to considerable pressures on the business prospects of various organizations around the globe. The economic recession led to downturns in growth that further led to huge inflation, decreased credit availability and high interest rate. This along with job cuts and reduced salaries has also led to decrease in the disposable income of individuals; this has further reduced the sales volumes of various companies. In these circumstances companies have also resorted to price wars that have further eroded the profit margins of various organizations. The present study would analyze the case of Ford Motors and the business strategies that were adopted and implemented by the organization during the period of economic recession. According to a report, the recession in the year 2009 led to a decline in new registrations by about 24.8 percent in a month as compared to the same in the previous year. In addition to cars vehicles across all categories like trucks and vans also reported a dip by about 31.4 percent and 49.2 percent respectively. This has led to severe implications for car manufacturers as they started reported lower income. This led to job cuts and other cost control measures besides putting all expansion plans on a hold (IMI Research Department, “Summary”). Issues Ford Motors is US based automobile manufacturing organization, established in 1903 by Henry Ford the company is engaged in the manufacture of cars, trucks, SUV’s and other vehicles. The company is preset across all the major markets of the world and headquartered in the USA. It stocks are listed and actively traded on the bourses of the New York Stock Exchange (Ford Motors Corporation, “Our Company”). The economic recession had a severe impact on the business prospects and profitability of the company. The effect of recession on the fortunes of the company can be analyzed from the fact that the company applied for a 9 billion bailout from the US government in the form of short term and working capital loans so as to ensure that the company was sustainable. However the company was better placed than any of its competitors as it was able to maintain grounds even without the bailout package (The New York Times, “Background”). Management Strategies The period of economic recession was among the worst periods seen by the company as it was the period that saw the lowest sales since ten years. The absence of credit facilities and price margin pressures led to considerable issues for the organization. However in spite of the issues Ford Motor Corporation was able to maintain sustainability even without a bailout package as was given out to the top competitors of the company namely General Motors, Chrysler that were on the verge of closure and bankruptcy. The company fared better than most of its competitors and also overtook Toyota Motors as the rank one automobile company in the US market in the year 2010. Behind this successful management of a stressful period lies a mix of effective strategies sided by a visionary leader and a good management that has successfully used the best financial, HR and marketing strategies to help make the company stronger even in the most turbulent periods in history (The New York Times, “Background”). One of the reasons for the successful turnaround of Ford Motors Corporation was the successful marketing strategies being implemented by the organization. The company unveiled a product strategy that involved launching smaller cars and economic versions rather than focusing on premium products. In this regard the company chose to keep focus on the sub compact cars like Fiesta that was economical. This strategy played off during the times of recession as the purchasing power of the consumer was very low and hence cheaper models were more in demand. This helped the company to generate a considerable amount of sales even in times of poor market demand. The company chose a strategy of promoting and focusing on products that largely took into account the needs and wants of the customers. Products were customized on the demands of the customers that helped it to generate healthy sales so as to help maintain sustainability. The company also made greater focus on the devlloping markets of Asia where the effects of the economic recession was less pronounced than those in the Western nations. The company chose to leverage on its brand image in these markets to create customer interests and help generate sales for the company. Operationally the company relocated the manufacturing units for larger trucks and premium versions to make way for the sue of these facilities for smaller and compact cars that were more in demand due to the dip in the level of disposable income among the target market consumers. The product portfolio was also modified with the conditions prevailing in the market. In case of vans segment the company went about to manufacture and focus upon fuel efficient vans like the F-150 in the market. This had better fuel efficiency and was also economical on mileage that made it popular with the consumers on the backdrop of rising fuel prices and cut in expenses that have made smaller and low priced economic models more viable and attractive to the customers. Another significant marketing strategy undertaken by Ford Motors Corporation was to continue with its promotional activities. Most of the competitors chose to cut down on promotional expenses, while Ford continued with its promotional activities especially in regions around Asian markets where the effects of recession were less pronounced as in the developed markets of Western Europe and USA. The company chose to promote the products that were in demand in the market such as lower priced versions and smaller compact cars that were more popular with the customers. This allowed the firm to leverage on the very limited demand that existed in the market and take full advantage over its competitors in the market that were reeling under clouds of bankruptcy. Other than marketing strategies effective financial planning also put the company much ahead of its competitors. The company had lined up a reserve amount of 24 billion US dollars by mortgaging and from other sources to help keep a contingency financial resource base. This was at a time when other companies chose to aggressively engage in expenses and expansion. This cautious approach of Ford Motors Corporation helped in keeping a fund base for the crisis period that was unmatched by any of its competitors. In this way Ford Motors Corporation was in a much better shape as compared to its competitors who were on the verge of bankruptcy and required a bailout package by the Government. Ford also hived of certain business units that had premium products including Jaguar and Land Rover to Tata Motors India and the Volvo bus manufacturing unit. The mortgage strategy also helped the company to maintain its operational expenses and promotional budgets during periods of reduced sales and negative cash flows (Carney, “Fords cash position”). The divestment of these business units helped the company to move ahead with its new strategy of focusing on smaller cars and targeting the value for money segment. Divesting the premium business units also meant a lesser financial liabilities for the company at the time of recession during which premium products were less in demand owning to the dip in disposable income and lower purchasing power parity of the individuals. In addition to financial and marketing strategies effective HR strategies also had a key role in helping the company maintain sustainability. The company was forced to undertake retrench employees during the phase of recession, however it also promised to create new job opportunities that it did accordingly. The company also maintained a complete transparency in all personnel management aspects that helped it to better communicate its message to the employees of the organization. A good communication strategy with regards to internal communication also helped boot up the morale of the employees. Focus was also given on training programs that helped the employees improve their learning abilities. All these strategies along with an effective and visionary leadership helped generate considerable advantage for the organization at a time when other players were neck deep in troubles and had to secure government bailout packages. These shows that careful planning and focus on long term strategies can not only help generate sustainability but can also help generate aspects that can be used to derive competitive advantage even during crisis period like the economic recession and help improve the brand image and profitability of the organization. Strategic Leadership In the backdrop of a successful management of the period of recession by Ford Motors Corporation lies a visionary leadership led by the CEO of the organization Mr. Alan R. Mulally who took over the reins of the company in September 2006. The dynamic leadership of the CEO acted as rudders for the company to steer it during one of the worst periods of economic crisis faced by the organization. It was the decision of the CEO to mortgage and keep a contingency fund for the company that helped the company stay afloat during recessionary periods. It was the vision of the CEO that helped foresee an emergency period that was waiting for the company. The decision of the company to continue with promotions and put focus on customer needs and demands of the business environment also helped the company to remain in a much better position as compared to its rivals in the industry. The financial strategies proposed by the CEO helped generate good margins for the company in showing profits in the first quarter of 2008 after the company posted huge losses in the previous years. The decision to keep focus on emerging markets with Asia in particular was also the brainchild of the CEO of the company. This largely reflects the role and the importance of quality leadership in defining a company’s business prospects (The New York Times-a, “Alan R. Mulally”). Conclusion The analysis of the topic of study reveals considerable pressures on the automobile industry during the phase of recession. However it also shows that effective planning and focus on customers along with proper long term vision and focus on future can also help a company to maintain sustainability even during periods of economic downturn. It also reflects the role of the top management in particular the leadership strategies of a company as highlighted by the case of Ford Motors Corporation that can help a company generate sustainable competitive advantage even during a recessionary environment. References Carney, D. Fords cash position. 2008. Ford better positioned to ride out recession. October 24, 20111 < http://www.msnbc.msn.com/id/27723139/ns/business-autos/t/ford-better-positioned-ride-out-recession/#.TqUmlHJ2AUU>. Ford Motors Corporation. Our Company. 2011. Ford Motor Corporation - Company Information. October 24, 20111 < http://corporate.ford.com/our-company>. IMI Research Department. Summary. 2009. The Automotive Retail Sector – Impact of the Recession. October 24, 20111 < http://www.motor.org.uk/documentlibrary/Research/Impact%20of%20the%20Recession%20on%20the%20Automotive%20Retail%20SectorJune%20update%20vFINAL.pdf>. The New York Times. Background. 2011. Ford Motor Company. October 24, 20111 < http://topics.nytimes.com/top/news/business/companies/ford_motor_company/index.html>. The New York Times-a. Alan R. Mulally. 2011. Alan R. Mulally News - The New York Times. October 24, 20111 < http://topics.nytimes.com/top/reference/timestopics/people/m/alan_r_mulally/index.html?8qa&scp=1-spot&sq=alan+mullaly&st=nyt>. Read More