Ford Motor Company

A. Case Abstract Ford Motor Company (www.ford.com) is a comprehensive business policy and strategic management case that includes the companys fiscal year-end December 2006 financial statements, competitor information and more. The case time setting is the year 2007. Sufficient internal and external data are provided to enable students to evaluate current strategies and recommend a three-year strategic plan for the company. Headquartered in Dearborn, MI Fords common stock is publicly traded on the New York Stock Exchange under the ticker symbol F. Ford operates in two segments: Automotive and Financing. Products offered include: Ford, Mercury, Lincoln, Volvo and Jaguar. Ford was founded in 1903 and operates worldwide. The company is led by CEO William Ford Jr. and employees over 280,000. The firms major competitor is General Motors. B. Vision Statement (actual) Our vision is to become the worlds leading consumer company for automotive products and services. C. Mission Statement (proposed) Ford Motor Companys mission is to anticipate consumer needs and provide safe, quality, reliable, and innovative automotive products and services to consumers around the world (1, 2, 3). Meeting and exceeding customers expectations for exceptional quality, cuttingedge technology, and superior customer service will enable us to maximize returns to our shareholders. (4, 5). The customer is Job 1. We are passionately committed to ensure we do the right thing for our customers, our employees, our environment, and our society (6, 9). Ford is committed to leading all automotive firms in quality and safety in America and abroad. Along with our commitment to saving the environment, we can continue to add to our proud heritage (7, 8). 1. 2. 3. 4. 5. 6. 7. 8. 9. D. Customer Products or services Markets Technology Concern for survival, profitability, growth Philosophy Self-concept Concern for public image Concern for employees

External Audit Opportunities 1. Slowing global economy could lower price of oil. 2. Airline travel as declined with the top 10 US airlines losing a combined $27 billion in 2005. 3. European market shear has been relatively stable around 10 percent for each of the last five years.

4. Ford is an American company, which results in customer loyalty. 5. By 2010, electronics are expected to account for nearly 40 percent of an average vehicles value. 6. Advances in technology have allowed for less engineers to be needed by auto companies. 7. Growing technology in automobiles forces customers to return to dealer for service. 8. Weak dollar makes products cheaper in international markets. Threats 1. The US motor vehicle market has become the worlds most vigorously competitive auto market since the 1970s. 2. US market share is on a steady decline from 20.5 percent in 2003 to 18 percent in 2005. 3. New Toyota manufacturing plant in Texas that will be capable of producing 200,000 full-size pick-up trucks per year. 4. Franchised dealerships are free to set vehicle prices, and they may or may not offer customers the discounts that automakers provide. 5. The US dollar depreciated against most major currencies since 2002. 6. GM, Toyota, and other manufacturers offer great rebates. 7. Most Americans think foreign cars are of better quality. 8. United Auto Workers (UAW) is one of the most powerful unions in the world. CPM Competitive Profile Matrix Ford Rating 3 4 1 1 3 3 2 2 4 3 2 2 GM Weighte d Score 0.12 0.20 0.02 0.01 0.12 0.12 0.40 0.30 0.08 0.21 0.40 0.32 2.30 Toyota Weighte Rating d Score 0.12 3 0.10 3 0.04 2 0.01 2 0.16 3 0.12 3 0.60 4 0.60 3 0.08 3 0.14 3 0.60 4 0.48 2 3.05

Critical Success Factors Price competitiveness Global Expansion Organizational Structure Employee Morale Technology Product Safety Customer Loyalty US Market Share Advertising Product Quality Product Image Financial Position Total

Weight 0.04 0.05 0.02 0.01 0.04 0.04 0.20 0.15 0.02 0.07 0.20 0.16 1.00

Rating 3 2 2 1 4 3 3 4 4 2 3 3

Weighted Score 0.12 0.15 0.04 0.02 0.12 0.12 0.80 0.45 0.06 0.21 0.80 0.32 3.21

External Factor Evaluation (EFE) Matrix Key External Factors Opportunities 1. Slowing global economy could lower price of oil. 2. Airline travel as declined with the top 10 US airlines losing a combined $27 billion in 2005. 3. European market shear has been relatively stable around 10 percent for each Weight 0.05 0.03 0.08 Rating 3 3 4 Weighted Score 0.15 0.09 0.32

of the last five years. 4. Ford is an American company, which results in customer loyalty. 5. By 2010, electronics are expected to account for nearly 40 percent of an average vehicles value. 6. Advances in technology have allowed for less engineers to be needed by auto companies. 7. Growing technology in automobiles forces customers to return to dealer for service. 8. Weak dollar makes products cheaper in international markets. Threats 1. The US motor vehicle market has become the worlds most vigorously competitive auto market since the 1970s. 2. US market share is on a steady decline from 20.5 percent in 2003 to 18 percent in 2005. 3. New Toyota manufacturing plant in Texas that will be capable of producing 200,000 full-size pick-up trucks per year. 4. Franchised dealerships are free to set vehicle prices, and they may or may not offer customers the discounts that automakers provide. 5. The US dollar depreciated against most major currencies since 2002. 6. GM, Toyota, and other manufacturers offer great rebates. 7. Most Americans think foreign cars are of better quality. 8. United Auto Workers (UAW) is one of the most powerful unions in the world. Total

0.06 0.06 0.06 0.08 0.08

2 3 3 4 4

0.12 0.18 0.18 0.32 0.32

0.10 0.10

2 2

0.20 0.20

0.03 0.05 0.08 0.06 0.04 0.04 1.00

2 2 4 3 2 2

0.06 0.10 0.32 0.18 0.08 0.08 2.90

E.

Internal Audit Strengths 1. 2. 3. 4. 5. Releasing the Volvo C70. Introducing Mercury Mariner Hybrid in 2007. Introduced Ford Iosis in 2006. Total sales have remained strong over the past 4 years at over $150 billion. European market share has remained consistent over last five years, averaging over 10 percent. 6. Ford F-series was the best-selling truck in the USA for the 29 th year in a row, selling more than 900,000 units for the 2nd straight year. 7. Operates in 200 markets on 6 continents. 8. Wide range of products targeting all income classes. 9. Great customer loyalty.

Weaknesses 1. 2. 3. 4. 5. 6. 7. Operating with $172 billion in debt compared to GM of $42 billion in year end 2006. Marketing inefficiencies in US markets. Market share declined over past 4 years. Cut 30,000 jobs and more cuts expected. Closing 14 manufacturing facilities in N. America. Poor mission statement. Weak organizational structure and only white males in upper level management. Limited warranty of only 36,000 miles or 36 month. Competition offers 100,000 mile warranty. 8. Reported year-end 2006 loss of $12 billion. Financial Ratio Analysis (January 2008) Growth Rates % Sales (Qtr vs year ago qtr) Net Income (YTD vs YTD) Net Income (Qtr vs year ago qtr) Sales (5-Year Annual Avg.) Net Income (5-Year Annual Avg.) Dividends (5-Year Annual Avg.) Price Ratios Current P/E Ratio P/E Ratio 5-Year High P/E Ratio 5-Year Low Price/Sales Ratio Price/Book Value Price/Cash Flow Ratio Profit Margins Gross Margin Pre-Tax Margin Net Profit Margin 5Yr Gross Margin (5-Year Avg.) 5Yr PreTax Margin (5-Year Avg.) 5Yr Net Profit Margin (5-Year Avg.) Financial Condition Debt/Equity Ratio Current Ratio Quick Ratio Interest Coverage Leverage Ratio Book Value/Share Investment Returns % Return On Equity Return On Assets Return On Capital Return On Equity (5-Year Avg.) Return On Assets (5-Year Avg.) Return On Capital (5-Year Avg.) Management Efficiency Income/Employee Revenue/Employee Ford 9.40 NA 51.00 1.23 NA NA NA NA NA 0.08 NA NA NA -2.2 -1.4 48.5 -1.5 -1.0 NA NA NA NA NA NA NA NA NA NA NA NA NA NA Industry 9.40 111.80 616.60 6.84 8.54 18.86 10.8 8.4 2.8 0.60 1.50 5.90 19.2 7.2 3.9 20.7 5.6 3.6 NA NA NA NA NA NA NA NA NA NA NA NA NA NA SP-500 9.00 15.40 0.90 13.05 19.88 10.03 22.9 22.7 6.7 2.49 3.53 10.40 33.7 17.5 12.4 33.4 16.6 11.5 NA NA NA NA NA NA NA NA NA NA NA NA NA NA

Receivable Turnover NA Inventory Turnover NA Asset Turnover NA Adapted from www.moneycentral.msn.com Date 12/07 12/06 12/05 12/04 12/03 Date Avg. P/E -6.00 -1.10 11.90 9.10 30.50 Price/Sales 0.08 0.09 0.09 0.18 0.18

NA NA NA Price/Book NA -4.09 1.07 1.54 2.51 ROE (%) NA 364.5 12.2 18.3 5.5

NA NA NA Net Profit Margin (%) -1.6 -7.9 0.9 1.8 0.4 ROA (%) NA -4.5 0.6 1.1 0.2 Interest Coverage NA NA -0.2 0.3 NA

Book Value/ Debt/Equity Share 12/07 NA 0.00 12/06 -$1.84 -49.65 12/05 $7.21 11.40 12/04 $9.52 9.31 12/03 $6.36 15.44 Adapted from www.moneycentral.msn.com Net Worth Analysis (January 2007 in millions)

1. Stockholders Equity + Goodwill = -3,469 + 5,839 2. Net income x 5 = $-12,613 x 5= 3. Share price = $6.85/EPS -2.88 =$NA x Net Income $-12,613= 4. Number of Shares Outstanding x Share Price = 2,110x $6.85 = Method Average Internal Factor Evaluation (IFE) Matrix Key Internal Factors Strengths 1. Releasing the Volvo C70. 2. Introducing Mercury Mariner Hybrid in 2007. 3. Introduced Ford Iosis in 2006. 4. Total sales have remained strong over the past 4 years at over $150 billion. 5. European market share has remained consistent over last five years, averaging over 10 percent. 6. Ford F-series was the best-selling truck in the US for the 29th year in a row, selling more than 900,000 units for the 2nd straight year. 7. Operates in 200 markets on 6 continents. 8. Wide range of products targeting all income classes. 9. Great customer loyalty. Weaknesses 1. Operating with $172 billion in debt compared to GM of $42 billion in year end 2006. Weight 0.05 0.05 0.05 0.07 0.07 Rating 4 4 4 3 4

$2,370 $ NA $ NA $ 14,453 $8,412

Weighted Score 0.20 0.20 0.20 0.21 0.28

0.06 0.06 0.06 0.05 0.10

4 4 4 3 1

0.24 0.24 0.24 0.15 0.10

2. Marketing inefficiencies in US markets. Market share declined over past 4 years. 3. Cut 30,000 jobs and more cuts expected. 4. Closing 14 manufacturing facilities in N. America. 5. Poor mission statement. 6. Weak organizational structure and only white males in upper level management. 7. Limited warranty of only 36,000 miles or 36 month. Competition offers 100,000 mile warranty. 8. Reported year-end 2006 loss of $12 billion. TOTAL F. SWOT Strategies SO Strategies

0.09 0.05 0.06 0.02 0.02 0.04 0.10 1.00

1 1 1 1 1 1 1

0.09 0.05 0.06 0.02 0.02 0.04 0.10 2.44

1. Continue R&D for hybrid automobiles (S2, O5, O6, O7). 2. Open new facility in Eastern Europe (S5, O3, O8).

WO Strategies 1. Improve mission statement (W5, O3, O4). ST Strategies 1. Focus development automobiles (S1, S2, S3, T1, T2). WT Strategies 1. Build smaller more efficient plants in the United States (W4, T1, T3). 2. Offer new 100,000 mile warranty on all vehicles (W7, T6, T7). on cutting edge fuel efficient

G.

SPACE Matrix
Conservative FS 6 5 4 3 2 1 Aggressive

CA

-6

-5

-4

-3

-2

-1 -1 -2 -3 -4 -5 -6

IS

Defensive

ES

Competitive

Financial Strength (FS) Return on Assets (ROA) Leverage Net Income Income/Employee Return on Equity (ROE) Financial Strength (FS) Average Competitive Advantage (CA) Market Share Product Quality Customer Loyalty Technological know-how Control over Suppliers and Distributors Competitive Advantage (CA) Average

1 1 2 1 1 1.2

Environmental Stability (ES) Rate of Inflation Technological Changes Price Elasticity of Demand Competitive Pressure Barriers to Entry into Market Environmental Stability (ES) Average Industry Strength (IS) Growth Potential Financial Stability Ease of Entry into Market Resource Utilization Profit Potential

-3 -4 -3 -6 -2 -3.6

-2 -2 -2 -1 -2

5 3 6 4 5 4.6

-1.8 Industry Strength (IS) Average

x-axis: -1.8 + 5.0 = 3.2 y-axis: 4.8 + -4.0 = 0.8

H.

Grand Strategy Matrix

Rapid Market Growth Quadrant II Quadrant I

Weak Competitive Position

Strong Competitive Position

Quadrant III Slow Market Growth

Quadrant IV

I.

The Internal-External (IE) Matrix The IFE Total Weighted Score Strong 3.0 to 4.0 I Average 2.0 to 2.99 II Weak 1.0 to 1.99 III

High 3.0 to 3.99

Medium The EFE Total 2.0 to 2.99 Weighted Score

IV

VI

Ford

Low 1.0 to 1.99

VII

VIII

IX

Hold and Maintain Business Segment North America Europe PAG Asia/Pacific South America % Revenue 53 20 20 5 3

J.

QSPM

Strategic Alternatives Key Internal Weight Strengths 1. Releasing the Volvo C70. 2. Introducing Mercury Mariner Hybrid in 2007. 3. Introduced Ford Iosis in 2006. 4. Total sales have remained strong over the past 4 years at over $150 billion. 5. European market share has remained consistent over last five years, averaging over 10 percent. 6. Ford F-series was the best-selling truck in the US for the 29th year in a row, selling more than 900,000 units for the 2nd straight year. 7. Operates in 200 markets on 6 continents. 8. Wide range of products targeting all income classes. 9. Great customer loyalty. Weaknesses 1. Operating with $172 billion in debt compared to GM of $42 billion in year end 2006. 2. Marketing inefficiencies in US markets. Market share declined over past 4 years. 3. Cut 30,000 jobs and more cuts expected. 4. Closing 14 manufacturing facilities in N. America. 5. Poor mission statement. 6. Weak organizational structure and only white males in upper level management. 7. Limited warranty of only 36,000 miles or 36 month. Competition offers 100,000 mile warranty. 8. Reported year-end 2006 loss of $12 billion. SUBTOTAL Factors 0.05 0.05 0.05 0.07 0.07 Builder Smaller Plants in the US AS 2 2 2 3 2 TAS 0.10 0.10 0.10 0.21 0.14 Focus on Smaller and Hybrid Vehicles AS TAS 4 0.20 4 0.20 4 2 4 0.20 0.14 0.28

0.06 0.06 0.06 0.05 0.10 0.09 0.05 0.06 0.02 0.02 0.04 0.10 1.00

--------4 4 4 4 ---------

--------0.40 0.36 0.20 0.24 --------1.85

--------2 2 2 2 ---------

--------0.20 0.18 0.10 0.12 --------1.62

Builder Smaller Plants in the US Key External Factors

Focus on Smaller and Hybrid Vehicles

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Weight Opportunities 1. Slowing global economy could lower price of oil. 2. Airline travel as declined with the top 10 US airlines losing a combined $27 billion in 2005. 3. European market shear has been relatively stable around 10 percent for each of the last five years. 4. Ford is an American company, which results in customer loyalty. 5. By 2010, electronics are expected to account for nearly 40 percent of an average vehicles value. 6. Advances in technology has allowed for less engineers to be needed by auto companies. 7. Growing technology in automobiles forces customers to return to dealer for service. 8. Weak dollar makes products cheaper in international markets. Threats 1. The US motor vehicle market has become the worlds most vigorously competitive auto market since the 1970s. 2. US market share is on a steady decline from 20.5 percent in 2003 to 18 percent in 2005. 3. New Toyota manufacturing plant in Texas that will be capable of producing 200,000 full-size pick-up trucks per year. 4. Franchised dealerships are free to set vehicle prices, and they may or may not offer customers the discounts that automakers provide. 5. The US dollar has depreciated against most major currencies since 2002. 6. GM, Toyota, and other manufacturers offer great rebates. 7. Most Americans think foreign cars are of better quality. 8. United Auto Workers (UAW) is one of the most powerful unions in the world. SUBTOTAL SUM TOTAL ATTRACTIVENESS SCORE K. Recommendations

0.05 0.03 0.08 0.06 0.06 0.06 0.08 0.08

AS 2 --1 4 ---------

TAS 0.10 --0.08 0.24 ---------

AS 4 --3 2 ---------

TAS 0.20 --0.24 0.12 ---------

0.10 0.10 0.03 0.05 0.08 0.06 0.04 0.04

2 2 4 -----------

0.20 0.20 0.12 ----------0.94 2.79

3 3 2 -----------

0.30 0.30 0.06 ----------1.22 2.84

1. The QSPM strategies assessed whether building smaller more efficient plants in the US or producing cheaper more fuel efficient automobiles. Given the financial position of Ford, they cannot afford any strategic mistakes. Therefore the EPS/EBIT analysis recommends funding $300 million for R&D and market research to determine the best strategic alternatives in producing hybrid automobiles.

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L.

EPS/EBIT Analysis $ Amount Needed: 300M Stock Price: $6.85 Tax Rate: 35% Interest Rate: 7% # Shares Outstanding: 2,110M
Common Stock Financing Debt Financing Recession Normal Boom Recession Normal Boom (10,000,000,000) 10,000,000,000 15,000,000,000 (10,000,000,000) 10,000,000,000 15,000,000,000 0 0 0 21,000,000 21,000,000 21,000,000 (10,000,000,000) 10,000,000,000 15,000,000,000 (10,021,000,000) 9,979,000,000 14,979,000,000 (3,500,000,000) 3,500,000,000 5,250,000,000 (3,507,350,000) 3,492,650,000 5,242,650,000 (6,500,000,000) 6,500,000,000 9,750,000,000 (6,513,650,000) 6,486,350,000 9,736,350,000 2,153,795,620 2,153,795,620 2,153,795,620 2,110,000,000 2,110,000,000 2,110,000,000 (3.02) 3.02 4.53 (3.09) 3.07 4.61 70 Percent Stock - 30 Percent Debt 70 Percent Debt - 30 Percent Stock Recession Normal Boom Recession Normal Boom (10,000,000,000) 10,000,000,000 15,000,000,000 (10,000,000,000) 10,000,000,000 15,000,000,000 6,300,000 6,300,000 6,300,000 14,700,000 14,700,000 14,700,000 (10,006,300,000) 9,993,700,000 14,993,700,000 (10,014,700,000) 9,985,300,000 14,985,300,000 (3,502,205,000) 3,497,795,000 5,247,795,000 (3,505,145,000) 3,494,855,000 5,244,855,000 (6,504,095,000) 6,495,905,000 9,745,905,000 (6,509,555,000) 6,490,445,000 9,740,445,000 2,140,656,934 2,140,656,934 2,140,656,934 2,123,138,686 2,123,138,686 2,123,138,686 (3.04) 3.03 4.55 (3.07) 3.06 4.59

EBIT Interest EBT Taxes EAT # Shares EPS

EBIT Interest EBT Taxes EAT # Shares EPS

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