Ford Motors and the Automobile Industry

Ford Motors and the Automobile Industry

admin / January 12, 2019

Introduction

In 2009, Ford Motors was rated the second motor vehicle manufacturer in the world according to Standard & Poor’s. However, negative forces to include the rumblings of its shareholders made Ford to encounter environmental forces, which were not favourable for its growth.

Henry Ford founded the company with many innovations introduced in manufacturing. One of these is the best-known Model T of mass production, the moving assembly line – which is actually composed of conveyor belts – where time of work was reduced (Goh & Garg, 2008, p. 57). Ford revolutionized the car industry, paid higher wages to factory workers, and made cars affordable to anyone.

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The company became a multinational corporation in 1970 but was predominantly operating in North America with subsidiaries in major markets in countries like Britain, Germany or Australia. These subsidiaries however have their own manufacturing plants. With intense globalisation, the Ford organization started to restructure internationally. In Europe, Ford was consolidated with further product development and designs which were originally European. (Grant, 2005, p. 440)

Ford is best known in the United States for its cars, trucks, crossovers and SUVs (Ford, 2010). In 2008, Ford was adjudged by Standard & Poor’s (2009) as the world’s second largest motor vehicle manufacturer, producing cars and trucks, including plastic and glass parts of the cars they make, and replacement parts.

Financial services include Ford Motor Credit (automotive financing and insurance) and American Road Insurance. Ford has a big share in the world market. It has a 33% stake in Mazda Motor Corp. It has ventured in many countries, trying to feel its presence even in China, which is the fastest growing market in the automobile industry. (Rushton & Walker, 2007, p. 32)

The World Automobile Industry

Automobile industries around the world have a great part in the nation states’ gross national product (GNP), accounting for at least ten percent or more. These industries have evolved and encountered many changes over the years. (Shimokawa, 2010, p. 1)

Technological advancement and continuous innovations have motivated organisations and businesses to react to changes in the global competition. Organisations have to reorganise, re-evaluate and reprogram outdated functional programs and activities, and realign them to the present trends for improvement and competition.

Personnel and field people, ordinary employees, including middle-level and top management have to refocus along the line of technological innovations. External and internal environments in organisations are becoming complex; thus they are handled with a globally-oriented brand of management.

Ford Motors is a knowledge-based, global firm, the world’s second in the vehicle automotive industry. General Motors was once the world’s leader in vehicle manufacturing but with the recent global economic downturn, there are doubts now to its leadership since it needed government bailout.

Data for the world automotive markets are confusing. Different companies publish their own information on sales and market shares based on some segmentation.

GM, for example, defines its markets to include trucks and vehicles like buses and lorries. With these data and profiles, it is really difficult to have a comparison among the different vehicle manufacturers. Most world automotive companies are involved in the commercial and passenger markets. This is because the technology and the production systems are the same. (Lynch, 2006, p. 767)

Globalisation impacted on the automobile industry which resulted in mergers and acquisitions of well known car brands. Ford acquired Jaguar and Volvo and also partnered with Mazda Motor Corporation. (Plunkett, 2006, p. 18)

The automobile industry has been characterised by intense competition, lower market share, and there are many products coming from different competitors. Other environmental forces include high prices of gasoline and a sudden change in the demand for Ford’s pick-up trucks. Ford’s sales were down during the period 2008-2009. (Standard & Poor’s, 2009, p. 211)

Leading car manufacturers in the United States have been threatened by the Japanese car firms, forcing them to modernise their plants and cut costs of parts, or introducing new designs of vehicles. In 2003, Toyota was the second largest car producer, with seven million vehicles to boast.

Ford then was tailing Toyota, having a market share of 12 percent. Ford was followed by two German firms, Volkswagen and DaimlerChrysler. Others in the competition were Fiat, PSA Peugoet Citroen and Renault of France, the Japanese Honda and Nissan, and the Korean Hyundai. (Lynch, 2006, p. 767)

The rising costs of manufacturing have forced car makers to find ways and implement innovative solutions. Outsourcing of parts and car components is now a trend, and many of them have merged or have used companies in China which manufacture cheap parts.

Stiff competition is a big challenge to the automotive industry, and this is of Ford’s problems. Consider Toyota. This is a fast growing company and a threat to American car manufacturers. Toyota has been in the forefront of car making because of an effective strategic and operational management coupled with an efficient and s competitive workforce.

Toyota strategies involve innovations in production, marketing, sales and promotions, and branding. But to top it all, it has been able to handle knowledge management like it is a part of ordinary business. Along with a determined workforce, Toyota introduced the kaizen and kanban concept of production.

Kaizen means “continual improvement”. Toyota engineers cut or shortened some stages of production to save time and provide flexibility. (Gourlay, 1994, p7, cited in Lynch, 2008, p. 773)

Ford‘s Performance

Labour unions have to be dealt with squarely and provided affordable benefits. The automobile industry is one of the most labour-intensive industries in the world. Labour unrest is one challenge Ford has to face.

Additionally, Ford’s products were becoming less in demand; it needed successful products to be on the competition again. This is one of the most important needs for Ford. According to Standard & Poor’s (2009, p. 211), Ford lost market shares in 2008. That year, Ford had trouble reaching an agreement with the labour union, UAW.

It was crucial and one that involved life or death, and it still is a question whether Ford chose the former. Having an agreement with the demands of UAW was a big challenge for Ford.

The agreement included unprecedented benefits and giving in to some of the demands of the union like changing some work rules. The company had also to establish the health care trust system to be managed by union people.

In other words, Ford was freeing on the reins, leaving some of the responsibilities and allowing the workers to hold power. This is a question whether this strategic move put Ford into a competitive advantage or into a suicidal situation.

But UAW won, and it is believed Ford got its share of successes too, in terms of providing health and other benefits for its thousands of employees. Satisfied labourers create a wholesome atmosphere in the workplace, and satisfied workers will rebound into satisfied customers. (Standard & Poor’s, 2009, p. 212)

In terms of work and life balance for the Ford employees and workers, Ford management may have done its share of promoting the well-being of its employees and providing inspiration and motivation. The management believes that when people are motivated, they accomplish goals.

Workers become productive when they feel they are a part of a team, or part-owners of the organisation. They feel this sense of belongingness and so they strive for the organisation’s improvement. They do not regard money as an objective, and work becomes a part of life.

However, the Ford management has not yet freed itself from the traditional form of management. Some members of the Board are chosen from the members of the Ford clan and decisions are biased to the side of the family rather than the organisation. (Standard & Poor’s, 2009, p. 212)

What is needed inside Ford?

Ford’s vehicles are not anymore the quality-oriented vehicles that it used to be. During 2008, revenues fell and it was not yet clear when it was going to go up. This has been made complicated by the supply and demand scenario. Up to 2010, there has been a weakening demand of cars in the United States and Europe. (Standard & Poor’s, 2009 p. 212)

Intense competition, a lowering of the market share, and gas hikes have characterized the dilemma in the automobile industry in the different areas of the globe. Ford’s pride, the pickup trucks, was no longer selling.

With the recession, car and vehicle lovers wanted affordable cars, but full of quality. And that’s not enough. For instance, in India when there has been a desire for cheaper cars, Tata Motors manufactured the world’s cheapest car, the Tata Nano, but it was not selling.

Ford Motors came in to the rescue, or, it wanted to have a share of the losses that Tata Motors was having. Ford penetrated the India market, made some acquisitions, and introduced its own small cars at a time when Tata Motors was not reaping the gains of the cheapest cars in the world. Ford announced to build a new model, the Figo. (Canis, 2011, p. 49)

The Indians were laughing at the Tata Nano cars. Many commentators have said that Tata Motors’s manufacturing of the small cars was a mistake. The cheap cars flopped.

Corporate Governance

Another problem is corporate governance. Ford’s family members have more voting rights than other shareholders. This has been a problem of the Board and the rest of the company. This could be the answer to the negative show in the stockholders’ equity.

Ford has a reputation of high sales in new light vehicles, but its leadership has been threatened by the increase in competition by Asian companies, the Tata Motors from India, and the merged companies in China.

There is also a shift from the large SUV to smaller crossover utility vehicles (CUVs). In 2008, Ford has to introduce its own CUVs. In 2010, Ford has diversified some of its vehicle designs, such as the CUVs.

Ford made some mergers and acquisitions to be able to compete financially. In December 2005, it sold its Hertz Corporation unit for $15 billion. Ford’s finances for the future were to be diluted with this sale because according to Standard & Poor’s, Hertz contributed to Ford’s profits.

Ford also acquired AB Volvo for $6.45 billion, and in 2000, Land Rover was bought from BMW for $1.9 billion. Moreover, Ford sold Jaguar and Land Rover to Tata Motors for $2.3 billion. There was sort of discrepancy in the goals of Ford because it used $600 million from the sales acquired from Tata Motors for the pension plans of Jaguar and Land Rover. (Standard & Poor’s, 2009, p. 213)

Corporate Strategy

With U.S. market share down, Ford started to restructure plans so that it could lower down the costs of production and operations. Ford made a shabby performance for its corporate strategy in 2008-2009. The reason for this is that it received some obligations out of its partnership with Visteon Corporation, the parts manufacturing firm to whom Ford had some obligations that had to be ironed out. It had to face additional expenses at a time when it was struggling to reduce costs of production and operations.

Out of these transactions, Ford acquired 23 manufacturing plants from Visteon which were considered additional obligations and not real assets.

Standard & Poor’s (2009) says they were money-losing plants delivered to them by Visteon Corporation. Ford had to provide financial assistance to this company in exchange for warrants for company shares of Visteon. It was not a good deal after all.

Mergers and acquisitions

Was Ford’s continued effort of M&A a necessary strategic move? Ford acquired various companies in the different areas of the globe.

According to Grubb & Lamb (2000, p. 24), mergers and acquisitions (M&A) should be properly planned and executed. In other words, there are many requirements and preparations before the actual execution of M&A; otherwise, this will fail. M&A should not be executed for the sole purpose of expanding (because this is now the age of globalisation) or to fulfil the goals of some ego-boasting managers.

Careful study and preparation can minimise financial losses and prevent the flight of significant and top talents of the organisations. There are long-term benefits that a firm can attain, not just market share gains. One is the vital core competency as a “Great Acquirer” with benefits such as financial, managerial, and reputational aspects of M&A moves. Great Acquirers are approached by competing companies if they have such reputation.

Grubb and Lamb (2000) praised Ford Motor Company for reaping big dividends as the world automotive industry scampered to find partners in the rush for M&A. (Simison, 1999, p. A3)

Conclusion

Ford Motors follows the present trend in global organizations, the horizontal structures of business organizations. The traditional structure uses the vertical set up where top management takes the reins of power from the top down to the low level employees.

Ford Motors have subsidiaries worldwide, a characteristic of multinationals. However, these subsidiaries have their own independence. They manage and rule themselves and manufacture their own products.

Mergers and acquisitions are a normal activity among global organisations. How can this be properly managed is still a question. Ford should pause and think before taking another M&A activity. Ford’s decision to build small cars in India, in reaction to the launching of the Tata Nano was not a good choice. Manufacture of a new product has to be afforded with serious study and R&D.

References

Canis, B. (2011). U.S. motor vehicle industry: confronting a new dynamic in the global economy. United States of America: Diane Publishing. p. 49.

Ford (2010). The Ford story. Retrieved from http://www.thefordstory.com/.

Goh, M. & Garg, M. (2008). ChangAn Automotive Co. – making supply chains work. Asian Journal of Management Cases, 5 (2), 2008: 57:71. DOI: 10.1177/097282010800500203.

Grant, R. (2005). Contemporary strategy analysis (fifth edition). Oxford, UK: Blackwell Publishing. p. 440.

Grubb, T. M. & Lamb, R. B. (2000). Capitalize on merger chaos. New York: Simon & Schuster, Inc. p. 24.

Lynch, R. (2006). Global Automotive Vehicle – Strategy in a Mature Market and Toyota: What is its Strategy for World Leadership. In Strategic Management, 5th edition (Financial Times/ Prentice Hall), pp. 767-773.

Plunkett, J. (2006). Plunkett’s automobile industry almanac 2007 (e-book): automobile, truck and specialty vehicle industry. Houston, Texas: Plunkett Research, Ltd. p. 18.

Rushton, A. & Walker, S. (2007). International logistics and supply chain outsourcing: from local to global. UK: Kogan Page Ltd. p. 32.

Shimokawa, K. (2010). Japan and the global automotive industry. UK: Cambridge University Press. p. 1.

Simison, R. L. (1999). “Ford to Acquire Volvo’s auto operations,” The Wall Street Journal, January 28, 1999, p. A3. Cited in: Grubb, T. M. & Lamb, R. B. (2000). Capitalize on merger chaos, pp. 24-5. New York: Simon & Schuster, Inc.Standard & Poor’s (2009). Standard & Poor’s 500 guide 2009 edition: America’s most watched companies. United States of America: The McGraw-Hill Companies, Inc.

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