Ford Motor Company: Challenges and Opportunities

The purpose of the following report is to identify the most significant problems facing the Ford Motor Corporation and recommend a course of action that most adequately resolves the challenges of today’s marketplace. It begins by outlining three of the major challenges facing the Ford Motor Company:

Ford’s current business plan is not as financially and environmentally sustainable as it could be.
Global economic markets are performing far worse than Ford had expected in prior planning.
Ford’s market share in developing foreign markets is lower than desired.

The report recommends that Ford should focus on creating a more financially and environmentally sustainable business model by developing energy efficient and environmentally sustainable automobile models in every vehicle class. These models should be developed without significant increases in consumer cost or decreases in overall performance. This is to be accomplished by revamping Ford’s research and development program. Some potentially promising areas of research include hybrid electric vehicles, natural gas vehicles, and electric vehicles.
Ford has the opportunity to make the most progress by focusing on hybrid vehicle research and development. This is to be done by redirecting other R&D expenditures and efforts, scaling back production to free up additional funds, initiating a new public relations campaign to inform consumers about the new sustainable Ford plan, and creating partnerships with leading technology and engineering firms.

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The report then presents an ethical screen outlining the moral considerations this course of action entails. While the creation of a more sustainable business model builds upon Ford’s ethical commitments, the loss of jobs resulting from proposed production and retail facility closures conflicts with these principles. And while a course of action that brings about greater job losses to Ford employees is less than ideal, it arises from market conditions. Lack of action may result in even greater job losses on a long-term scale. In this way, the recommended course of action resonates with the ethical commitments outlined in Ford’s Mission Statement.
A feasibility report discusses Ford’s ability to achieve these goals. As of 2007, the Ford Motor Company maintained the second highest R&D budget in the world, with a hybrid vehicle program already well underway. In the year 2000, Ford unveiled the first U.S. made hybrid-vehicle, an accomplishment that sets Ford apart from its U.S. competitors. This report concludes that Ford possesses adequate resources and abilities to reach these new goals.
A cost-benefit analysis then weighs potential losses against gains that may arise from this plan. The proposed course of action is high-risk is cost-intensive, however the potential benefits of increased income outweigh the expenditures Ford stands to lose while pursuing this goal and the equally high-risk option of failing to act on this pressing challenge and opportunity.
Finally, the report outlines a preliminary budget, timeline, and a step-by-step course of action. Overall, the proposed plan is intended to cost Ford little in terms of net expenditure, and should be completed in its entirely by the year 2015.
Position
The Ford Motor Company is one of the largest automotive manufactures in the world (OICA). Founded in 1903 by Henry Ford, Ford Motor Company is currently one of America’s ‘Big Three’ auto manufacturers, along with Chrysler and General Motors (Datamonitor 13). As of 2009, Ford’s net worth in assets was $222.977 billion (Ford 67). Ford’s market capitalization in 2006 was reported at just over $13 billion (Kiley), and the company’s total equity as of 2009 stands at negative $17.311 billion (Ford 67). Debt notwithstanding, Ford stands apart from Chrysler and GM as the only Big Three manufacturer to not seek bankruptcy or government bailout since the onset of the current financial recession. Ford has incorporated Lincoln Mercury, Volvo, Aston Martin and one-third of Mazda into its brand roster.
Ford’s Mission Statement is titled the One Ford Mission. It is divided into three parts – One Team, One Plan, One Goal – and is included in this report’s Appendix on page 17. Ford strives to be one of the leading automotive manufacturers in the world, and to sustain this position for generations to come. Furthermore, Ford strives to provide its consumers with an affordable, ethical, and quality product.
There are a number of key stakeholders that rely on the Ford brand, including financial investors, consumers, and large companies and government organizations that depend on Ford to maintain reliable fleets of vehicles (Datamonitor 14).
Challenges to Ford
While the Ford Motor Company’s influence on the automotive industry is undeniable, a wide variety of challenges are preventing Ford from capitalizing on the opportunities presented by today’s shifting economic and social landscapes. Three of these challenges will be outlined in the following section. They are listed in order of priority.
Ford’s current automobile models are not as energy efficient, environmentally friendly, and sustainable as they could be. William Clay Ford Jr. echoes the sentiments of Ford Motor Company’s Mission Statement in a recent interview: “For us, sustainability is not just about the environment – if you don’t have a sustainable business model, none of the rest matters” (Bonini and Kaas). Ford prides itself as a company built both on innovation as well as ethical responsibility. Yet Ford trails significantly behind Toyota in terms of hybrid technology and GM in terms of larger-class hybrid vehicles (Carr-Ruffino and Acheson 21). With no hybrid or alternative energy models of its own in several vehicle classes, Ford has much ground to cover in becoming a leader in environmental sustainability.
Global economic markets are performing far worse than Ford had expected in prior planning. This poor planning has resulted in a $34.3 billion debt that strains Ford’s already tight budget (Ford 28). Compounding these problems, consumer confidence is, in turn, exasperatingly low (Datamonitor 9) with most consumers unwilling to make large purchases until markets improve. While government incentives such as the so-called ‘cash-for-clunkers’ legislation and tax-credits for hybrid vehicle owners have helped American auto manufacturers weather unusually low sales figures, these fixes are temporary (U.S. Department of Energy).
Ford’s market share in developing foreign markets is lower than desired. While Ford posted a 1.1% gain in domestic market shares this year (16.1% up from 15.0% at the close of 2008), the company remains fourth in total global sales behind Toyota, GM, and Volkswagen (OICA) and possesses only 2.0% of all automotive sales in the company’s South Asia Africa sector, which includes the rapidly emerging markets of China and India (Ford 19).
While Ford ultimately must address all of these challenges to remain competitive and fulfill its Mission Statement, the remainder of this report will focus on how Ford can create more energy efficient, environmentally friendly, and sustainable automobiles. In so doing, Ford stands to develop consumer acquisitions and brand loyalty by addressing rapidly changing needs of consumers and other stakeholders.
Consumer Needs
Research is showing that more and more consumers do not want to own cars that are not fuel-efficient. This is due to financial as well as ethical considerations (Prickett 29). Rising gas prices are increasing the importance of fuel-efficiency for consumers (Bonini and Kaas) and governments are willing to offer incentives to consumers in exchange for their purchases of more fuel-efficient vehicles. As the U.S. economy is based largely on fossil fuel usage – and as increasing scarcity is beginning to characterize fossil fuel sources worldwide – there is social interest vested in increasing overall reliance on sustainable energy sources. To remain competitive, Ford must not only acknowledge this future, but embrace it.
Domestic and global auto-manufacturers stand to gain a competitive edge if Ford does not act on this changing consumer need quickly. More and more hybrid models emerge every year, with GM leading the way in larger hybrid vehicle models (Carr-Ruffino and Acheson). China’s government and domestic auto-manufacturers have made it clear that they intend to make China the next center of hybrid and light vehicle construction (Gallagher). The clock is ticking and Ford’s window of opportunity is closing.
Sustainability at Ford
Ford must work to create sustainable models in all vehicle classes. These models must compare to conventional counterparts in terms of ticket price. On top of this, Ford must ensure that public infrastructure can adequately support these innovations so that consumers are not burdened with new operating complications, costs, or maintenance issues.
Potentially promising areas of development include hybrid vehicles, natural gas vehicles, and electric vehicles (Bonini and Kaas). Hybrid vehicles present the least complicated fix in terms of infrastructure and consumer familiarity compared to other alternative fuel types. And while all options must be explored, Ford’s first step is to focus on developing and expanding its hybrid program. Ford’s hybrid program is already well underway, and would require less allocation of resources to build upon in comparison with other areas of research and development.
Revamping Ford’s hybrid program will require significant financial commitments. In markets that already leave little breathing room for addition expenditure, this report recommends that Ford funnel all research and development funds into innovating Ford’s hybrid program. Ford must also develop cooperative R&D facilities with leading energy firms, government research groups, and NGOs to save on costs and consolidate resources and knowledge. In addition, Ford should continue scaling back production to meet the lower demands of recession markets (Canis and Platzer) and redirect most of these savings into an expanded R&D program.
By making these changes in tandem with a massive PR campaign, Ford stands to gain considerable market shares both domestically and abroad (Byron). And while this recommendation is high-risk, the history of the Ford Motor Company demonstrates that Ford functions best when setting itself apart from competitors and taking risks. The Ford Motor Company was build on big thinking and technological innovation (Wren and Greenwood 73), and it is through these methods that Ford will overcome the most pressing challenges of today’s market.
Benefits to Sustainability
Ethical screen. The notion of a more environmentally friendly Ford Motor Company is not only ethically compatible with Ford’s Mission Statement, it reaffirms and builds upon it. At the same time, there are consequences to this course of action that contain further ethical considerations. Due to the proposed closing of several production and retail facilities, a number of Ford employees stand to lose their jobs. This move is extremely unwelcome in a nation with an unemployment rate already averaging 9.7% (Bureau of Labor Statistics). Ford stands to suffer from bad publicity and to potentially contradict the ethical commitments outlined in its mission statement.
This course of action, however, is necessitated by recession markets and does not represent the ultimate intentions of the Ford Motor Company. The strategy of creating a more sustainable Ford is intended to protect the job security of all Ford employees on a long-term basis (i.e. the creation of a more sustainable business model). It is the conclusion of this report, therefore, that this course of action complies with and upholds the ethical commitments outlined in Ford’s mission statement.
Feasibility analysis. In terms of pure research, hybrid technology is fairly well understood and is already utilized by the Ford Motor Company. Focus must be placed on improving hybrid efficiency, performance, and reliability, as well as maintaining affordable costs to consumers. Furthermore, Ford’s R&D facilities are top-notch and already working to develop Ford’s hybrid program. As of 2007, Ford had the second-largest research and development budget in the world at approximately $8 billion annually (Vijayenthiran). Additionally, Ford was the first auto-manufacturer to offer a U.S.-made hybrid vehicle (in the year 2000) (Carr-Ruffino and Acheson). Based on this information, it is entirely feasible that Ford can produce additional landmark models in the near future provided that adequate resources and proper strategies are applied towards revamping its current hybrid R&D program.
Cost-Benefit Analysis. There are a number of initial costs that Ford must account for in order to properly execute this course of action. Costs must be covered immediately and will rely on the success of several preliminary budget-saving steps. That said, the total price of developing hybrid models for all vehicle classes is intended to be accounted for through internal budget recoveries; reductions in production costs are meant to reduce the need for increased net spending.
The potential benefits of these investments far outweigh initial costs, but are long-term and may not bring significant returns until the entirety of the plan is completed. And while this proposal is financially risky, the current problems facing the Ford Motor Company – its potential inability to respond to the challenges and opportunities of a changing marketplace – are dire enough that the competitiveness of the company itself is at risk. In this sense, these costs should not only be considered investments, but preventative measures.
Costs: public relations campaign: $300 million annually – includes costs due to advertising in print, television, radio, and internet media, partnerships with non-profit organizations, market research, and product promotions; revamped R&D facilities: $700 million annually – includes costs due to equipment, larger research/design staff, new/upgraded facilities, fair-use of patents and other legal expenses, materials, and partnerships with technology firms, government research groups, and NGOs. Total costs: approximately $1 billion annually for the next five years.
Monetary benefits: A report from 2009 estimates that by 2015 the global hybrid vehicle market will have risen by 31.3% and be valued at around $67.7 billion (Global Markets Direct). In 2009 the U.S. market comprised 47.5% of all hybrid vehicles sold worldwide (or a predicted $32.16 billion annually in 2015, if the U.S. market share remains the same). Of these 2009 sales, Toyota has currently sequestered the highest market share of 72% percent (R.L Polk & Co.). If Ford succeeds in obtaining the highest U.S. market share in prospected hybrid sales by 2015 – and if this market share is roughly the same as Toyota’s first-ranked share in 2009 – Ford could earn up to $23.15 billion in hybrid vehicle sales in 2015 in the U.S. alone (72% of $32.16 billion). While this estimate is extremely rough and represents a very high performance in terms of Ford’s future hybrid sales, it illustrates the potential monetary benefits that may result from focusing on hybrid development over the next several years.
Other benefits: Financial and environmental sustainability should be considered tremendous benefits in their own right. It is through both that Ford ensures future competitiveness and remains true to its Mission Statement.
Recommendations for Ford
This report recommends the following steps to achieve success in its goal of creating a more sustainable Ford Motor Company. First, Ford must begin a PR campaign focused on educating consumers about the current status of the automotive industry and to raise awareness about the future Ford is helping to build. The campaign should focus both on consumers who, in general, already look favorably on hybrid vehicles, as well as those who may be skeptical about hybrid performance, cost, and feasibility on a larger scale. Ford must use this campaign to unveil to consumers its five-year plan to create a more sustainable Ford. This should begin immediately and be fully operational after a transition period of no more than four full quarters. Ford should continue this campaign until the Ford brand is synonymous with sustainability. A total of around $300 million per year (from an estimated $1 billion gleaned annually from facility closures) will be allocated towards the development and maintenance of this new PR campaign. Market research teams will evaluate the success of this campaign twice per quarter. The PR campaign will be considered a success once the Ford brand is recognized above all global competitors as the leader in sustainability and hybrid vehicle production.
Second, Ford must begin to significantly scale back production. This should be completed within the next four quarters. While the PR campaign should begin immediately, it may take several months for Ford to assess which production and retail facilities are most extraneous. Qualified workers can be transferred to different positions at R&D facilities and public relations departments (Ford will begin recruiting internally). This step will be considered successful once Ford has reduced its production costs by a goal of around $1 billion annually. Managers will monitor the progress of facility closures with goals set at reducing operating costs by about $250 million annually per quarter for the next four quarters.
Third, Ford must immediately direct newly acquired funds towards revamping its R&D program and focusing this program upon the development of hybrid technologies. This should be completed within the next four quarters and will utilize an additional $700 million annually (gleaned from the estimated $1 billion in reduced annual operating expenses). Achievement teams will assess the growth of Ford’s hybrid R&D program twice per quarter, ensuring that a gain of at least $175 million in addition annual R&D funds are available at the end of each quarter.
Fourth, Ford must begin to develop relationships and partnerships with leading energy firms. By creating cooperative R&D facilities – where research tasks, budgets and innovations are shared – Ford stands to make significant strides at lower costs and accelerated rates. By sequestering their cooperation early on, Ford stands to gain a competitive edge against competitors. Ford must gain cooperative relationships with the majority of leading energy and engineering firms – such as General Electric and Lockheed Martin – as well as non-government organizations and federal research groups like the EPA’s National Vehicle and Fuel Emissions Laboratory (NVFEL) in Ann Arbor, Michigan (U.S. Environmental Protection Agency). Costs and evaluations will be incorporated into expanded R&D departments.
Fifth, Ford must unveil several new models of hybrid vehicles in all vehicle class types. This should be accomplished completely by 2015, followed by the eventual discontinuation or transformation of existing conventional-engine-models in years to follow. Hybrid models should cost no more than current conventional counterparts, and perform comparatively. Vehicle design budgets will be incorporated into expanded R&D departments.
The challenges facing the Ford Motor Company are great, but will be overcome through innovation and an increased dedication towards environmental and financial sustainability. Ford has repeatedly acted as a revolutionary force throughout history, and it is only through equally radical revolutions and innovations that Ford can help usher a new era in the global automotive industry.