Ford Motors

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Table of Contents

Introduction…….......……………………………………………………………………………...1

Environmental Analysis…………………………………………………………………...............1

Company Analysis………………………………………………………………………...............4

Decision Options…………….…………………………………………………………………….6

Recommendation………………………………………………………………………………….8
Problem Definition:
In early 2007, Ford Motor Company is struggling to stay afloat with flat sales and increasing costs in an incredibly competitive market. Over the past five years, despite many attempts at restructuring and cutting costs, Ford Motors is suffering falling market shares and serious financial losses. They posted a loss of $12.7 billion for 2006, the largest full year loss in the company’s history, and their stock price is following the same trend, falling by 60% since the end of 2001. In an effort to thwart the company’s decline, the board had decided to recruit an outsider to lead a turnaround. Alan Mulally, a design expert from the aerospace industry, was elected President and CEO, giving new hope to the company’s stakeholders. He is leading a new restructuring and cost-cutting plan with a “less is more” vision, a strategy that stands in stark contrast to Ford’s traditional “bigger is better” approach. With fierce Japanese competitors using lean operations to fight for industry leadership, Mulally’s strategy has to make an impact quickly. Considering Ford’s financial situation and the need for a quick turnaround, several questions loom. What strategy will be most efficient: is the “less is more” vision appropriate? What other strategic decisions should Mulally make?

Environmental Analysis:
The automotive industry in the United States is a multi-billion dollar industry, but it is extremely competitive, with many large players trying to leverage their competitive advantages to gain market share. Let us set the stage by discussing the key factors that are imperative for any motor vehicle manufacturer to be successful. These factors will be important in the subsequent analysis of the industry forces. The number one key success factor in this industry is safety. Because driving a motor vehicle can be so dangerous, it is essential that every automobile be designed and tested with safety in mind, and that inspections are conducted on all vehicles to be sold. The second key factor is reliability. Auto manufacturers must build a reputation and a track record of having reliable and durable vehicles. Drivers expect their vehicles to have a lifetime of ten to fifteen years and up to 300,000kms. But when a new model comes to market, it is difficult to know what its life span will be. As such, manufacturers offer warranties and service agreements that span increasingly long periods. Moreover, they attempt to build a brand image that includes the design of durable and reliable vehicles so that buyers will assume that newer models also have an acceptable service life. We have established the factors that are required to compete in the automotive industry. However, environmental factors play an increasingly important role and so automobile manufacturers cannot rely on just safety and reliability to stay competitive, especially given the maturity of this industry. Let us now examine Porter’s five force model (Porter, 2008) to discuss threats and determine the attractiveness of the industry. Exhibit 1 depicts how these five forces interact in the automotive industry.

There are high barriers to entry in this industry, making the threat of new entrants low. Very few new players enter the automotive industry because it requires a high capital investment to set up manufacturing facilities and a distribution network. In addition, the fact that existing multi-national competitors benefit from economies of scale and scope, makes it very difficult for a new entrant to offer competitive pricing. Finally, because the issues of safety, reliability and durability are so salient, and because buyers base their impressions...
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