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Is The Way Forward Really Ford’s Way Forward?

Sameer Kirtane Rachit Shukla Louis Wang Jimmy Zhan

Overview
• • • • Ford’s current status Industry Analysis Recent History What is the Way Forward? – Operations, Infrastructure and Human Resources – Marketing and Sales – Technology Development

• Recommendations

Current Status
• Leadership change • Market share ↓ since 2000 from 23.7% to 15.5% in N.A. • Reported loss of $1.2B qtr ending Sept. 2006 • On its way to losing $8-9B in 2006 alone • Third restructuring effort: Way Forward Alan Mulally

Source: http://media.ford.com

Recent History
• Ambiguous business-level strategy in last decade
– Neither successful differentiator nor cost-leader

• Lacked innovation in compact and mid-sized cars • Focus on SUV division and luxury portfolio • Rising gas prices – Consumers fled SUV and luxury portfolio → Strategic Failure

• Costs grew disproportionately to rivals
– Estimate: Costs Ford $2500/vehicle more to produce than Foreign rivals

Industry Analysis
• N.A. Automotive Industry: Difficult to be in
– Positives
• Captive but essential suppliers • High capital costs of potential entrants • Lack of feasible substitutes

– Negatives
• Low switching cost of buyers between firms • Fierce internal rivalry due to manufacturers competing with extensive product lines Porter’s Five Forces Model

What is the Way Forward?
Operations Infrastructure Human Res.

Way Forward

Marketing and Sales

Technology Development

Areas of Improvement

Operations, Infrastructure, and HR
• Reducing idle or non-profitable plants
– Closure of 9 Plants and 7 Assembly Plants by 2012



~35% reduction in manufacturing jobs
– Reduce hourly headcount by 2530K and salaried headcount by 14K by 2008

• •
Cost Analysis

Target $5B reduction in costs by 2008 → Savings of approx. $1552/vehicle in N.A. However GM’s fixed cost per vehicle is $2354 lower than Ford’s – Further reductions in fixed costs needed to reach parity

Marketing and Sales
• • Currently lack of differentiation between Ford, Lincoln and Mercury results in cannibalization of each other’s sales Refocus on consumer through repositioning of brands – – – Purchases driven by “perceived” value derived from brand reputation and reflection of personality and lifestyle Create an image around brand and give consumers unique reason to buy the brand vs. rivals • • Ford positioned to target active, hardworking individuals Lincoln aimed at Americans living the American dream

Leverage strong following of F-150 and Mustang to impart the Ford spirit

Technology Development
• Introduction of innovative products and new development methods to sustain recovery – Fresh product lineup → 70% of vehicles (by volume) new or significantly upgraded – Hybrid and alternative energy technologies • Introduce hybrid options in existing product lines • Major investments in flexible-fuel, diesel and hydrogen powertrains – Redesign vehicles with new 6-speed transmission to improve mileage

• Leverage global infrastructure to pool design resources
– Sharing “B” and “C” small car chassis used abroad – Leads to decreased costs and capturing efficiencies of scale

Recommendations
• Adopting a clear differentiation strategy and supporting value-chain activities should improve Ford’s N.A. position • Achieve cost parity – Continue cost cutting beyond those already specified in the plan – Focus on reduction of manufacturing costs – Additionally cut $3.2B in cost to achieve parity with Foreign rivals and $2.7B to achieve parity with GM – To compete globally with GM → $11B in overhead needs to be reduced

• Invest in unique advertising to promote differentiation strategy • Create uniquely designed vehicles with shared platforms and technologies

IS THE WAY FORWARD REALLY FORD’S WAY FORWARD? Sameer Kirtane, Rachit Shukla, Louis Wang, Jimmy Zhan November 17th, 2006

Introduction Ford’s market share in the United...
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