Case study
Ford and the world Automobile Industry in 2007
Industry Analysis
Jasmine Bajwa
BBA09003
Business Strategy
Ms. Luvjit Antal
21 March, 2011
History of Ford and the world Automobile Industry:
This case study is about The Ford motor company in crisis in the year 2007. Although the main
company in the case study is Ford Motor Company but the case study talks about the automobile
industry in general . the ford company had changed 3 CEO’s in the past 4 year prior to 2007.
This just told that how much the company was in trouble and how much their CEO’s were
unsuccesfull in bailing the company out of trouble..Ford had suffered a 10% fall in unit sales
year-on-year with sharp declines in sales of pickup trucks and jaguar cars. The company’s most
promising problem was not lack of strategy, but was ineffective execution. One of the CEO of
Ford perceived a lack of dialogue, inadequate cooperation, weak accountability, excessive
complexity, turf battles, and debilitating cross-functional conflict- especially between finance
and engineering. Moreover, he realized that Ford’s problems were not wholly of its own making:
the entire industry had been earning minimal profits for years. During 2005, the world’s 34
largest automotive companies earned an average net margin of 2.1%; 2006 profitability was
unlikely to be significantly higher. In autos, Ford was one of the 12 major international players
all battling for more market share.
The CEO’s main concern was the possibility that the buyer would “trade down” to smaller, more
economical cars in preference to the SUV’s and luxury cars that had long supported Ford’s
profits. After the industry’s consolidation during the past decade, not only the medium sized car
makers were stable and profitable, but several of the emerging-market new comers expanded
internationally.
STEEP ANALYSIS:
1.Sociocultural: A few sociocultural factors have led back the automobile industry. Ford had
suffered 10% fall in unit sales year on year with sharp declines in sales due to inaffective
execution of the companies strartegies. The survival of ford depends critically on yhe state of the
world auto industry.
2. Technological: Earlier horseless carriages were used as a source of conveyance. With the
upgradation of technology the Ford Model T was introduced in the market. It was the first
dominant design in automobiles. With the passage of time more new designs like VW Beetle
with its rear, air cooled engine, the citrogen 2-CV and its idiosyncratic braking and suspension
system, and many more inventions. The automotive engineering’s main advances were multi-
valvecylinders, traction control systems, all-wheel drive,electronic fuel injection, variable
suspensios and intercooled turbos. Earlier it took 23 man hours to assemble a Model T, just after
14 months later it took only four man hours.
3. Economic: To lower costs and to increase flexibility outsourcing of materials, components,
subassemblies were increased. In Ford’s giant river Rouge plant, iron ore entered at one end,
Model Ts emerged at the other. Ford even owed a rubber plantation in the Amazon basin. The
advancement of technology leads to fall in the price of cars.
4. Ecological: The fuel efficiency was increased and more environment friendly vehicles like
hybrid cars were introduced to increase upward pressure on product development budgets.
5. Political: Due to liberalization there was a major shift in the political opinion which resulted
in demand for less government regulation and greater reliance on market forces. This led to
greater completion as there were competitors in large number and ultimately there was and
downfall in the prices and the fares.
PORTER’S APPROACH:
Barriers to new
entrants
Threat of Industry Competitors Rivalry among
substitute existing firm
products
Bargaining Bargaining power
power of buyers of suppliers
Barriers to new entrants: The cost of new product development has been the major reason for
the wave of mergers and acquisitions in the industry. Economies fron sharing development costs
also encouraged increased collaboration and joint venture : Renault and Peugeot established joint
engine manufacturing, GM with Suzuki, etc.to build cars and share platforms and components.
Flexible manufacturing technology together with modular designs reduced the extent of scale of
economies in assembly since different models could be manufactured within the same plant. To
enter into the automobile industry requires a huge amount of investment in automobiles,
certification to set up plant and marketing.
Rivalry among existing firms: With the convergance of new designs and technologies, the
range of new vehicle types has increased. New vehicles include passenger vans, SUVs, micro
cars, etc. All the emphasis by manufactures was on global models, national markets were
characterized by their differences than by their similarities. A major problem for the industry was
the tendency for the growth of production capacity to outstrip the growth in the demand for cars.
In the market where the demand was growing faster , growth of production capacity outsripped
growth in demand.
Threats of substitute products/Services: Generally people prefer to travel by their own
convenience that can be car etc. There is little more public transportation also which an
individual can choose as a way of travelling i.e. bus and rail. Therefore, the switching cost to
substitutes is really high making automobile industry very defenseless towards other
transportation modes.
Bargaining power of buyers: When the buyer (consumer) has a wide choice of automobiles, it
was obvious that the ball was in his court. With the internationalization of the industry the
bargaining power of buyer was increased.
Bargaining power of suppliers: As the leading component suppliers have gained increasing
responsibility for technological development- especially in sophisticated subassemblies such as
transmissions, braking systems, and electrical and electronic equipment – they have also grown
in size and global reach. Relationships with suppliers also changed. In contrast to US model of
arm’s length relationships and written contracts, the Japanese manufacturers developed close
calloborative long run relationships with their suppliers.
Industry Analysis: To converse regarding the automobile industry it is an industry consisting of
many firms with an aim of earning goodwill and market share. They also put great efforts to
differentiate their services from their competitors. The main strengths for the industry of
automobile is increasing demand with increase in population but the market of the automobile
keep on decreasing and therefore companies need to keep on searching for new potential markets
to sell their products. Moreover, global competition and fixed cost makes the business of high
risk. New rules and regulations of government are forcing companies to produce new fuel
efficient and eco friendly cars.
