Ford Business Analysis
Category : Articles
Business Analysis III
Today??™s market is changing because of many factors, the first is globalization and the affect economies from around the world have on each other. The second significant change to the marketplace is increasing fuel prices driven by demand from growing countries such as China and India. American businesses such as Ford have to adjust to the changing markets. This is a normal function of a capitalist economy, especially when doing business in a global economy. Companies that can change and adapt to the new market will be successful. Strong management teams remain flexible, recognize the changes in a market and adapt to those changes. Ford has proven over the last six years that their management team can adjust and become profitable through proper strategy.
Business Analysis III
Changing Markets: Ford??™s Unique Approach
Cutting Cost and Customers
The effects of the worldwide economic slowdown on the automotive industry have changed the way that Ford is approaching its management strategies. Ford was the only automaker based in the United States that did not take money from the United States government in the bailout of 2009. In the first quarter of 2011 Ford earned $2.55 billion, or 6.1 cents per share. Even though sales were at record low levels Ford successfully has adapted to the changing world market. Ford has emerged has the best positioned of the three United States automakers of Ford, General Motors, and Chrysler and in 2010 Ford surpassed Toyota in sales in the United States. For the first time since 1993 Ford has increased market share for two years in a row and for the first time in 50 years Ford outsold General Motors in the month of February.
In 2006 Ford borrowed $23.6 billion, even putting the Blue Oval, Ford??™s Logo, up for collateral. Although the economy was healthy then, Alan R. Mulally, its new chief executive, said the money would give Ford ???a cushion to protect for a recession or other unexpected event.??? The decision to go into debt helped Ford move quickly as the markets changed. General Motors and Chrysler both seemed to be caught off guard by the way the economy and fuel prices were affecting the auto segment of the market. Ford was able to set in motion the introduction and marketing of smaller, more affordable, and fuel efficient models. Ford started to change the focus from light trucks and sport utility vehicles to the fuel efficient models such as the Ford Fusion that sold 200,000 units in 2010.
In 2009 Ford sold off the luxury brands of Jaguar and Land Rover to Tata Group of India for $2.3 billion. In 2010 Ford sold Volvo to a group of Chinese investors, these two sales put Ford in a better position to survive the changing markets, by increasing cash to the company, removing slow selling subsidies from the company and giving the ability to develop new models specifically designed for improved fuel economy and quality. In 2010 Ford reported profits of $6.6 billion that Ford attributed to increased global sales and cutting cost.
Richard Hanna, global auto leader, PricewaterhouseCoopers LLP said ???During the last decade, the underlying competitive landscape has changed dramatically because of the emergence of new markets and new industry players as well as fundamental changes in the economic environments of the mature markets. The global recession has challenged the core operating models responsible for delivering the business strategy of many companies. In addition to the traditional disclosures on results of operations, cash flows and financial position, users of financial statements want insight into management strategy for dealing with changing industry, extended liquidity information and transparent discussion of risks and the companys outlook. Establishing a regular information flow between companies and the investment community develops a climate of confidence, creating a virtuous circle of transparency and credibility.???
Ford overhauled the balance sheets in March 2009 by eliminating $10.4 billion in debt by giving cash and stock to debt holders. This moved reduced Ford??™s debt by 40% and made it the healthiest automaker in the United States; the debt removal was financed by 500 million shares of stock and $2.2 billion in cash, mostly from the lending subsidiary Ford Motor Credit.
Ford has made an accounting change that reflects the confidence in the recovery process; Ford is removing from its balance sheet a valuation allowance against deferred tax assets, by eliminating the reserve, which was set aside in 2006. A valuation allowance is an account created to offset the liability of another account, in this case it was created to offset money owed in taxes, in a household if a bill is due one time per year the money can be set aside to make sure the payment is made on time, the same is true in business only the money is assigned an account because it has to be accounted for and to keep the financial reports balanced. The elimination of the valuation allowance is a strong indicator that Ford is very confident in the ability to become and remain profitable. The elimination of the valuation allowance from the balance sheet will add $10 billion to $13 billion to Ford??™s net income.
Strategic Initiative: Brand Extension development
Ford signed a deal with a brand merchandising and premier licensing agency to develop and extend Ford??™s corporate brands. The development of brand extension will concentrate on not only automotive accessories but will also develop lifestyle products such as clothing, collectibles, home goods, and sporting equipment. Ford will also develop and market through this agency mobility products, electronics and tools that offer consumer solutions. Ford has partnered with Global Icons to help navigate the laws, customs and global licensing that comes with ventures outside of the management expertise at Ford.
Brand extension is a strategy initiated by Ford to increase brand awareness, introduce Ford into different product categories, and increase a new revenue stream. Brand extension success depends upon how strong consumers associate the Ford brand with value and reliability. Ford is currently doing brand extension with other brands such as Harley-Davidson in the United States. Ford has a line of light trucks incorporating the Harley-Davidson color schemes and badges. Ford has to be careful and brand only quality products that will not hurt the reputation and brand name that Ford has built in the last 108 years.
???Continuing with Ford??™s tradition of providing innovative product solutions that are accessible to everyone, Global Icons will lead the way in driving the Ford brand names into new merchandising frontiers. The Global Icons team will seek out licensing partnership opportunities to build branded merchandise collections for the die-hard automotive enthusiast and the everyday consumer looking for quality products??? (Coal Geology). Mike Gard, COO and partner of Global Icons, added, ???Ford will be backed by our global team of licensing experts and together we will optimize the brand potential and increase market visibility through global licensing endeavors.???
Signs of Success: Change is Good
After years of record setting losses Ford reported to stakeholders a 6.8% increase in sales for December 2010 over the same time in 2009. The new profits are a result of the changes implemented at Ford starting in 2006 before there was an official recession, although slowdowns were apparent. Ford started to bring to market products that the consumers needed and had confidence with. Ford took full advantage of the problems seen by General Motors and Toyota. General Motors was bailed out by the United States taxpayers and Toyota had massive safety recalls, hurting the reputation of the company known for its quality and steering loyal Toyota customers toward other brands. Ford was ready to take the spot of number two car seller in the United States because of the changes implemented five years earlier.
Ford management has set the course for continuing success by good management strategies. Ford has weathered the economic recession in the United States and Europe by creating products that the consumers want now, by cutting cost, placing itself in the growing Asian market and by financial creativity. These achievements were accomplished without harming the Ford reputation started in 1903 by Henry Ford. Today his family still is very involved in the direction that the company is heading. There are five Ford family members that are on the board of directors or work for Ford in some capacity. Having more at stake than just the stock prices has a great deal with the decisions made at an organization, history and wanting to continue a legacy makes Ford unique from the other two United States automakers.
? Coal Geology.? (2011).? Global Icons to support Fords Strategic brand initiatives.? Retrieved from http://coalgeology.com/global-icons-to-support-fords-nyse-f-strategic-brand-initiatives/13525/
The New York Times.? (2011).? Ford Motor Co..? Retrieved from http://topics.nytimes.com/top/news/business/companies/ford_motor_company/index.html
Nickels, W. G., McHugh, J. M., & McHugh, S. M. (2010). Understanding Business (9th ed.). New York, NY: McGraw Hill/Irwin