Business Analysis Part II – Ford Motor Company Rocio Rodriguez MGT/521 Management May 25, 2011 Nickolas Skelton Business Analysis Part I – Ford Motor Company Henry Ford and a group of investors founded what is known as the Ford Motor Company in 1903 based out in Dearborn, Michigan. The entrepreneur began manufacturing all of the automotive parts used in production and started the innovation of a moving assembly line to mass produce vehicles that are affordable to the public.
Although the company changed names and investors a few times, it remained strong enough to survive through the great depression and become one of the largest auto manufacturers in the world today.
The following analysis covers the company’s strengths, weaknesses, opportunities, and threats to obtain a better understanding of the successes and downfalls of Ford Motor Company. Strengths Despite of the recent downturn in the economy, Ford remains a competitive force in automobile manufacturing market. Certain factors exist that strengthen the company’s brand and product.
For example, Ford Motor Company is the top 4th largest car manufacturing entity in the world (Ford, 2011). The company has 90 manufacturing plants worldwide, 7,000 supplier facilities that distribute vehicles in six continents, and all 50 U. S. states (Ford, 2011). Ford has a strong presence in the market and is easily recognized worldwide with the slogan “Built Ford Tough” as the company motto (Ford, 2011). The company keeps a competitive advantage by following innovative trends that attract the attention of more consumers.
One of these trends focuses on fuel efficiency, brought on by the current deteriorating economic state.
Ford’s fuel-efficient lineup increased sales by 19% since the launch in 2009 (Ford, 2011). Even the less economic models are still in demand because of their design, durability, and versatility. The Ford-F150, Ford’s most popular vehicle, is the current top seller on the market for this year (Ford, 2011). Ford is comfortably sitting at #10 on the Fortune 500 list and has made an astonishing $6. 6 billion in net income for the first quarter of 2011, which is the most the company has made in the ast 10 years (Ford Motor Company, 2011). Ford established Ford Motor Credit Company to offer the public a more accessible way to finance vehicles and survived through the failing economy. The company made it without any government bailout funds because the owner made a wise move and obtained $24 billion in financing a short time before the economy took a turn for the worse (Ford Motor Company, 2001). That money helped the company stay afloat until they could make profit again. Another strength the company has is its reputation and their corporate social responsibility with the public and the environment.
Ford Motor Company provides support to many causes such as disaster relief efforts in the United States, invests in education for children, promotes safe driving programs for teens, and helps American farmers strive (Ford Motor Company, 2011). Ford is also a proud supporter of NASCAR and started the Performance Racing Parts segment of the business. The company is following the trend of environmentally friendly products by researching solar powered and electric vehicles that reduce emissions and harm the environment.
The company plans to invest $14 billion in Research and Development in 2011 to improve fuel efficiency in Ford models by over 25% (Mulally, 2010). Because of the constant contribution and involvement in the community, the public is aware that Ford is not in it just for the money; ultimately Ford contributes and makes a difference in society and embraces the earth’s environmental health. Weaknesses Despite all the strengths mentioned above, there are weaknesses that can hinder Ford’s success. The most obvious weakness is the troubling economy.
The economic downfall affected everyone including all car manufacturers. Consumers lost jobs, homes, and stability during these tough times, and purchasing vehicles was no longer a priority for most Americans. The demand for vehicles, especially trucks, dropped dramatically because of the lack of income for consumers, the rise in gas prices, and fewer lending opportunities. Additionally, just as the economy began to fall, so did the stock prices. Ford stock prices hit the ultimate low in 2009 selling at $1. 74 compared to the $14. 91 in the first quarter of 2011 (History of the Stock Market Crash, 2011).
The most dangerous disadvantage for Ford’s weak market share North American automotive operations. Ford’s market share dropped 6. 3% from 2003 to 2008 and is currently making a slow and steady increase (Ford, 2008). Competitors like Toyota and Honda led the market with quality, fuel efficient models, at a bargain price. The weakness that tarnished Ford’s reputation and financial health has to be the recalls of some models because safety concerns. Ford recalled a total of 16 million vehicles in 2009 because of a faulty cruise control switch that causes a fire in the vehicle (Ford, 2008).
Similarly, in 2008 Ford recalled Escape models due to transmission failure issues. Additionally, who can forget the notorious Firestone tire recall in 2001 that claimed the lives of many drivers worldwide (Ford, 2008). The tread on the defective tires on most Explorer models peeled off and when they failed it caused the vehicle to roll over and cause fatal accidents (Legal Information Center, 2001). This recall cost Ford $2 billion, the competitive advantage in the United States light-truck and sport/utility vehicle market, and the trust of the consumer (Isidore, 2001).
Opportunities Nonetheless, Ford has moved forward and learned from their experiences and is focused on expanding the opportunities for the business. Because the environmental factor is a leading trend in the market, Ford has taken the opportunity to expand their product line to align with the consumer demand. The company developed the EcoBoost V6 engines that provide 20% better fuel economy and reduce carbon monoxide emissions by 15% (MediaFord. com, 2011). Hybrid models are currently in production and the company plans to double their output in 2009 to meet consumer demand.
Ford is investing and researching new technology to produce electric and solar powered vehicles in the near future as well as intelligent vehicles, or talking vehicles designed to help make the roads a safer place. The company’s efforts have not been in vain. The company was awarded the 2011 Best New Technology Award for their innovative rear inflatable seat belt design (Ford Motor Company, 2011). Similarly, the giant car manufacturer also became the first to earn top safety ratings worldwide for their Fiesta and Ford F-150 models (Ford Motor Company, 2011).
The last opportunity that can help Ford gain global market share is the partnership with China to produce the Ford Fiesta model. Ford unveiled the Fiesta in China in 2009 and by 2010 the company sold more than 75,000 vehicles, 59% more than the previous year (MediaFord. com, 2011). The Fiesta received a warm welcome from the Chinese consumers with its stylish exterior, fuel efficiency, and even received a five-star safety rating from the China Automotive Technology and Research Center (CATARC) (MediaFord. com, 2011).
With the success of the launch in China, Ford can expand worldwide and explore other opportunities in foreign countries to penetrate and grow the Ford name. Threats The last factor to consider in the analysis is the threats that hinder Fords success in the market. These factors can prevent the company from growing as planned and potentially harm the giant automaker’s financial stability. Many of the same factors listed as weaknesses can be potential threats. For example, the recession and the rise in fuel prices.
As prices rise, consumers look for ways to reduce their expenses by either consuming less gas or replacing their gas guzzlers with compact fuel efficient models. If Ford fails to produce a compact, fuel efficient model that meets the consumer’s demands, the public will still purchase a vehicle but definitely not a Ford model. The rise in raw materials can also pose a threat to Ford because the company needs to provide an affordable product that meets the demand for safety, durability, and quality, all while keeping production costs at reasonable rates to make a profit.
Producing vehicles with subpar materials to keep within budget can risk the safety of the end user and risk the reputation of the Ford brand. Fixing any potential issues with future recalls is usually more expensive than producing the product meeting all federal guidelines. The last major threat to the Ford Motor Company is the lack of investment in Research and Development and Quality Control. Compared to the competition, Ford falls short in capital spending, which can hinder the possibility of growth. For example, Ford’s biggest competitor, Toyota reduced their capital spending from $1. trillion to $670 billion during 2010 because of the financial crisis (Dow Jones, 2010). In comparison, Ford usually spends five to six billion dollars in capital spending each year totaling $4. 5 billion during 2010 (Ford Motor Company, 2011). With that much difference in capital spending, the competition has the means and the edge to develop the next best thing out on the market, leaving Ford behind. To summarize the analysis, the Ford Motor Company has the potential to remain one of the top car manufacturers in the world if the company takes advantage of all strengths and opportunities to grow and xpand the business worldwide. The key to staying competitive is following consumer trends and above all take pride and care to produce the best product for the end-user. Keeping a close eye and managing the weaknesses and threats to the business will serve as a learning experience and help the company adapt, improve business practices, and processes. The company has been successful thus far, even through a recession, and once the economy recovers Ford has the potential to become more thriving than ever with the latest advances in technology the company plans to develop.
Business Analysis Part II – Ford Motor Company Financial Health Comparison The financial statements in Appendix A-C reflect the income statement, balance sheet, and cash flow for Ford Motor Company for recent and previous years. Comparing the numbers side by side helps understand the trends in the economy and the company and gives a better understanding of the company’s financial health. After reviewing each statement one can see that the company has been a successful one, and recently suffered during the time of recession.
Profits went down as well as stock value as seen in Appendix D. Capital Expenditures were reduced and the company even faced negative figures in most statements during the recession in 2008. The company had a healthy cash flow and earnings in the years before 2008, and is presently recovering at a steady pace. The one major concern noted after reviewing the statements is the slow recovery of the company. With the recession out of the way, the company has enough new products and incentives to help boost sales and make profits similar to those seen in 2005-2007 at a faster pace.
The slow recovery can help the company prepare for future periods of recession by having a plan implemented to develop the most innovative, quality, and affordable product for the consumer and increase demand worldwide, thus making profits at a faster pace.
• Summarize companys financial health – compare it to other companies in the industry
• Summarize the companys technological advantages – compare to others
• How globalization affected the businesses practices
• Benchmark analysis – best practices, operational processes and procedures, products or services References AOL Daily Finance. 2011, May 20). Ford motor company balance sheet. Retrieved from http://www. dailyfinance. com/financials/ford-motor-company/f/nys/balance-sheet Bloomberg Businessweek, (2011, May 24). Financial statements for ford motor company. Retrieved from http://investing. businessweek. com/research/stocks/financials/financials. asp? ticker=F:US Dow Jones, (2010, December 24). Toyota vice president: to hold down capital spending. Retrieved from http://www. dowjones. de/site/2010/12/toyota-vice-president-to-hold-down-capital-spending. html Ford. (2008). Market share and sales. Retrieved from http://corporate. ford. om/microsites/sustainability-report-2008-09/economy-data-market#a Ford Motor Company, (2011, May 12). Safety. Retrieved from http://corporate. ford. com/innovation/car-safety Ford Motor Company, (2011). Ford posts net income of $2. 6 billion in second quarter 2010. Retrieved from http://www. corporate. ford. com/news-center/news/press-releases/press-releases-detail/pr-ford-posts-net-income-of-26-32973 History of the Stock Market Crash, (2011, April 23). Ford stock up 757% since the 2008-2009 crash. Retrieved from http://www. worststockmarketcrashes. com/featured/ford-stock-up-757-percent-since-the-2008-2009-crash/ Isidore, C. 2001, May 21). Ford recalls 13 million tires. Retrieved from http://money. cnn. com/2001/05/22/recalls/ford/ Legal Information Center, (2001). Firestone tire recall. Retrieved from http://www. firestone-tire-recall. com/pages/overview. html Media Ford. com, (2011). Ford fiesta receives maximum 5-star safety rating in china ncap. Retrieved from http://media. ford. com/article_display. cfm? article_id=33815 Microsoft Money, Initials. (2011, April 24). Financial results ford motor company. Retrieved from http://moneycentral. msn. com/investor/invsub/results/statemnt. aspx? Symbol=F&stmtView=Ann Mulally, A. (2010, October 26).
Ford car share in North America on the rise. Retrieved from http://seekingalpha. com/article/232164-ford-car-share-in-north-america-on-the-rise Yahoo Finance, (2011, May 22). Ford motor company cash flow. Retrieved from http://finance. yahoo. com/q/cf? s=F+Cash+Flow&annual Appendix A[pic][pic][pic] |Income Statement Comparison | |Dec 31 |Dec 31 |Dec 31 |Dec 31 | |Currency in | |2007 |2008 |2009 |2010 | |Millions of U.
S. Dollars |As of: |Restated |Restated |Restated |USD | | | |USD |USD |USD | | |Revenues |154,379. 0 |127,635. 0 |103,868. 0 |119,280. 0 | |Cost of Goods Sold |142,667. 0 |120,558. 0 |98,746. |104,372. 0 | |Selling General & Admin Expenses, Total |21,132. 0 |21,049. 0 |12,965. 0 |11,876. 0 | |OPERATING INCOME |-701. 0 |-6,492. 0 |-1,219. 0 |8,892. 0 | |Interest and Investment Income |1,713. 0 |928. 0 |205. 0 |262. 0 | |Income (Loss) on Equity Investments |403. |381. 0 |195. 0 |538. 0 | |EBT, EXCLUDING UNUSUAL ITEMS |-1,018. 0 |-7,151. 0 |-2,249. 0 |7,975. 0 | |Gain (Loss) on Sale of Investments |-109. 0 |-1,309. 0 |373. 0 |125. 0 | |Other Unusual Items, Total |-432. 0 |-5,569. 0 |4,666. 0 |-844. | |EBT, INCLUDING UNUSUAL ITEMS |-3,857. 0 |-14,895. 0 |2,599. 0 |7,149. 0 | |Minority Interest in Earnings |-312. 0 |58. 0 |– |4. 0 | |EARNINGS FROM DISCOUNTINUED OPERATIONS |41. 0 |9. 0 |5. 0 |– | |NET INCOME TO COMMON INCLUDING EXTRA ITEMS |-2,795. 0 |-14,766. 0 |2,717. 0 |6,561. | [pic][pic][pic](Bloomberg Businessweek, 2011) Appendix B Balance Statement Comparison |Period Ending |FY2010 |FY2009 |FY2008 |FY2007 |FY2006 | |Assets | | | | | | |Net Receivables |48. 22 B |8. 15 B |64. 43 B |68. 75 B |4. 15 B | |Progress Payments & Others |-865. 00 M |-798. 0 M |-891. 00 M |-1. 10 B |-1. 02 B | |Current Assets Total |90. 87 B |57. 29 B |117. 33 B |135. 72 B |78. 98 B | |Investment in Unconsolidated Subsidiaries |2. 57 B |2. 37 B |1. 59 B |2. 85 B |2. 79 B | |Property, Plant & Equipment Net |23. 03 B |22. 46 B |28. 35 B |35. 98 B |35. 79 B | |Accumulated Depreciation |33. 90 B |33. 41 B |38. 4 B |36. 56 B |34. 98 B | |Tangible Other Assets |4. 16 B |12. 30 B |6. 52 B |18. 34 B |16. 00 B | |Total Assets |163. 32 B |189. 35 B |215. 77 B |276. 46 B |276. 01 B | |Income Taxes Payable |392. 00 M |3. 09 B |2. 79 B |2. 67 B |3. 14 B | |Current Liabilities Total |74. 13 B |77. 85 B |111. 96 B |110. 5 B |112. 65 B | |Provision for Risks & Charges |18. 24 B |17. 76 B |17. 32 B |31. 37 B |35. 91 B | |Deferred Income |1. 62 B |1. 66 B |1. 77 B |1. 99 B |2. 04 B | |Total Liabilities |163. 97 B |197. 13 B |231. 89 B |269. 41 B |278. 31 B | |Common Equity |-673. 00 M |-7. 82 B |-17. 31 B |5. 63 B |-3. 6 B | |Capital Surplus |20. 80 B |16. 79 B |9. 08 B |7. 83 B |4. 56 B | |Equity in Untaxed Reserves |-7. 04 B |-13. 60 B |-16. 14 B |-1. 48 B |-17. 00 M | |Treasury Stock |62. 00 M |407. 00 M |521. 00 M |103. 00 M |— | |Common Shares Outstanding |163. 32 B |189. 35 B |215. 77 B |276. 46 B |276. 01 B | (AOL Daily Finance, 2011) Appendix C Cash Flow Comparison | | | | | | | | | | | | | | | |Period Ending | | | |Dec 31, 2010 | | | |Dec 31, 2009 | | | |Dec 31, 2008 | | | | | | | |Net Income | | | |6,561,000 | | | |2,717,000 | | | |(14,672,000) | | | | | | | | | | | | | | |Operating Activities, Cash Flows Provided By or Used In | | | | | | | |Depreciation | | | |- | | | |- | | | |19,737,000 | | | | | | | |Adjustments To Net Income | | | |- | | | |- | | | |1,027,000 | | | | | | | |Changes In Accounts Receivables | | | |- | | | |- | | | |1,091,000 | | | | | | | |Changes In Liabilities | | | |- | | | |- | | | |(12,647,000) | | | | | | | |Changes In Inventories | | | |- | | | |- | | | |(358,000) | | | | | | | |Changes In Other Operating Activities | | | |- | | |- | | | |2,489,000 | | | | | | | | | | | | | | | |Total Cash Flow From Operating Activities | | | |11,477,000 | | | |15,477,000 | | | |(179,000) | | | | | | | | | | | | | | | |Investing Activities, Cash Flows Provided By or Used In | | | | | | | |Capital Expenditures | | | |(4,092,000) | | | |(4,059,000) | | | |(6,696,000) | | | | | | | |Investments | | | |9,774,000 | | | |10,682,000 | | | |(2,676,000) | | | | | | | |Other Cash flows from Investing Activities | | | |1,226,000 | | | |(4,000) | | | |6,229,000 | | | | | | | | | | | | | | |Total Cash Flows From Investing Activities | | | |6,908,000 | | | |6,619,000 | | | |(3,143,000) | | | | | | | | | | | | | | | |Financing Activities, Cash Flows Provided By or Used In | | | | | | | |Dividends Paid | | | |- | | | |- | | | |- | | | | | | | |Sale Purchase of Stock | | | |1,339,000 | | | |2,450,000 | | | |756,000 | | | | | | | |Net Borrowings | | | |(18,558,000) | | | |(21,710,000) | | | |(9,256,000) | | | | | | | |Other Cash Flows from Financing Activities | | | |(7,202,000) | | | |(3,570,000) | | | |(604,000) | | | | | | | | | | | | | | |Total Cash Flows From Financing Activities | | | |(24,421,000) | | | |(22,830,000) | | | |(9,104,000) | | | | | | | |Effect Of Exchange Rate Changes | | | |(53,000) | | | |454,000 | | | |(808,000) | | | | | | | | | | | | | | | |Change In Cash and Cash Equivalents | | | |(6,089,000) | | | |(910,000) | | | |(13,234,000) | | | | | | | | | | | | | | | |Currency in USD. | | | Appendix D Ford Motor Company Stock Value Comparison