Strategic Analysis of the Ford Motor Company

The Ford Motor Company is an American multinational automaker that was founded in 1903 by Henry Ford. Headquartered in Dearborn, Michigan, the company sells commercial vehicles and luxury cars under the Ford brand and Lincoln brand respectively. Ford also owns FPV an Australian performance car manufacturer, Troller, a Brazilian SUV manufacturer. Additionally, it owns shares in Japan’s Mazda (2.1%), the United Kingdom’s Aston Martin and Chana’s Jiangling. Other than that, it has established a number of joint ventures including Ford Lio Ho and Changan Ford Mazda in China, AutoAlliance Thailand, Ford Otosan in Turkey and Ford Sollers in Russia.

Even though they do not have controlling interest, the company is controlled by the Ford family. The company is listed on the New York Stock Exchange and compete with directly with other key players in the US automotive industry including General Motors, FCA US LLC, and the Toyota Motor Corporation. It ranks third After Toyota and General Motors. It should however be noted that the company’s total revenue is singifantly higher than the industry average.

Company	Ford	General Motors	FCA US LLC	Toyota Motor Corporation	Industry
Market Capitalization	62.24B	55.67B	N/A	N/A	34.43B
Employees	187,000	216,000	778,171	3,441,092	57,410
Revenue (TTM)	141.95B	152.76B	83.06B	227.63B	36.04B
Gross Margin (TTM)	0.13	0.12	N/A	N/A	0.19
EBITDA (TTM)	11.73B	12.94B	N/A	N/A	3.07B
Operating Margin (TTM)	0.03	0.05	N/A	N/A	0.07
Net Income (TTM)	3.70B	4.55B	1.21B	18.16B	N/A
EPS (TTM)	0.93	2.71	N/A	N/A	1.35
P/E (TTM)	16.64	13.08	N/A	N/A	11.45
PEG (5 yr expected)	0.42	0.35	N/A	N/A	N/A
P/S (TTM)	0.43	0.35	N/A	N/A	0.6

Porter’s Five Forces

Porter’s five forces were used to identify the factors that influence the competitiveness and level of profit maximization in the industry. These factors include the bargaining power of buyers, the bargaining power of suppliers, the threat of new entrants, the threat of substitute products and competition among existing businesses in the industry (Allen, 2001; Porter, 2008; Johnson, et al., 2011). The strength of these forces was used to determine the overall attractiveness of the industry.

Threat of substitutes

Road is the most common means of transport and as such, the threat of substitutes from other means such as aviation an ship transport is negligible. This is because these means are not only expensive but also have limited accessibility. Rail transport is perhaps the only mode that poses any significant threat to road transport, but it is also not flexible and largely inaccessible. Cars have several advantages over other modes of transport in terms of value, convenience, utility and independence. Motorcycles, which are a much cheaper option compared to cars also lack the level of comfort offered by the latter. Another factor that minimizes the threat of substitutes in the automotive industry is the high switching cost between different vehicle brands.

Barriers to Entry

The automotive industry is characterised by high start-up costs and consequently there are significant barriers to entry. Automobile manufacturing facilities are also highly specialised hence ruling out the possibility of other manufacturers modifying their facilities to accommodate the production of automobile parts. The global automotive industry is however very competitive. For this reason, multinational automotive manufacturers are increasingly seeking to establish strategic alliances with both established and upcoming car manufacturers in foreign markets in a bid to expand their global market share. Additionally, unlike the entry of new start-ups into the market, the barriers to entry into foreign markets are quite minimal. This has made local manufacturers vulnerable to competition from multinationals, especially Japanese manufacturers Such as the Toyota Motor Corporation which is renowned for its low cost and fuel efficient automobiles. On the other end of the spectrum, the globalization strategies adopted by most multinationals in this industry offer excellent exit strategies for new manufacturers.

Rivalry

Despite the barriers to entry into the US automotive industry, there is a very high rivalry in the market. This has been occasioned by liberation and invasion of domestic markets by global car manufacturers. Because of the small rate of market growth in this region, manufacturers have resorted to aggressive marketing strategies in order to retain and expand their market share.

Bargaining Power of Suppliers

The Automotive industry in the US is fairly concentrated, with the total market share controlled by a few major players. Consequently, suppliers have a relatively low bargaining power. Furthermore, courtesy of the internet, information about large global the supplier base is easily accessible to car manufacturers. The internet has also turned the world into a global village, which has seen many manufacturers diversify their production activities to global markets in order to minimize production costs. Sourcing options are therefore not limited to the manufacturer’s country of origin. The low supplier bargaining power can also be attributed to their inability to engage in forward integration due to the capital intensive nature of automobile manufacturing plants

Bargaining Power of Buyers

Because cars are fairly standardized, the bargaining power of buyers is relatively high. Buyers also have a wide variety of brands and models to choose from given the extensive product differentiation efforts in the market. The implication of high customer bargaining power is that car manufacturers have to strive to minimize production costs and continuously improve the quality of their products in order to gain competitive advantage in the industry.

PEST Analysis

A PEST analysis was also carried out to identify the impacts of the external environment on the business (Henry, 2008).

Political

Increasing concerns about the oil crisis have necessitated the production of efficient vehicle designs with smaller engine capacities. To this effect, the US formulated strict emission standards that limit exhaust emissions of the cars sold in the US member states. This has been accompanied by an additional cost for manufacturers despite their best efforts to enhance their cost minimization strategies in order to sustain their profitability. The US also charges high fuel taxes which have only served to discourage potential customers from purchasing vehicles while at the same time escalating the production cost for manufacturers.

Economic

The automotive sector makes very significant contributions to the US economy. It accounts for at least 3.6 million jobs in the country and invests heavily in research and development which has seen to the production high quality products that are supplied on a global scale (Select USA, 2015). The rising oil prices have however proven to be a major stumbling block for the industry, resulting in diminished car sales and commuters opting for public means of transport. The impact of the oil crisis was further exacerbated by the financial crisis which saw a sharp decline in the consumption of luxury goods including vehicles throughout the globe. Despite the recent growth in consumer expenditure in the US, expenditure on cars has lugged behind.

Social

Most car manufacturers are vastly expanding their territories into foreign markets with diverse tastes and preferences. Even though the demand for vehicles in the US is just recovering from the impacts of the financial crisis, most emerging markets such as Brazil and India have exhibited a promising demand. There has also been an increase in the purchase of premium brands in other Asian countries like Japan.

Technological

The invention of the electric and petrol electric hybrid vehicles is one of the fruits of the extensive research and development in the automotive industry. Even though production of electric cars has not been fully implemented by most car manufacturers, petrol electric vehicles have become a common phenomenon in the market today. For this reason, any company willing to venture into this industry should make deliberate efforts to invest in new technologies in order to keep up with the current trends in the industry.

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Strategic Analysis of the Ford Motor Company