Ford Competition
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In a present day of global warming, environmental issues, labor unions, and other impacts, the automobile industry is in an era of instability and change. Ford Motor Company has been traditionally considered one of the “Big Three” in the auto industry, but they are not adapting as well as hoped to the changing industry, and will have to strategize to survive in a struggling industry.
There are many different risk factors for Ford and its competitors. In this paper we will look at two competitors for Ford that are also considered to be members of the “Big Three” and coincidently, are not adapting to changes in the auto industry as quickly as other competitors. These other companies are General Motors (GM) and Daimler Chrysler. We will also look at the general group of foreign car manufacturers who are steadily acquiring market share from the Big Three.
The first major risk for the auto industry in general is that of global warming and a growing concern for environmental issues among consumers. This is a risk that is spread among the entire auto industry, not just Ford Motor Co. Consumers are becoming more aware of the impact the auto industry has on the environment, and making their purchasing decisions with that on the criteria.
Another factor involved with the auto industry, is a pressure on the companies ability to increase prices. Due to excess capacity and the ability of Japanese and Korean auto manufactures to mass produce and thus lower cost prices, many companies in the auto industry are producing vehicles at little to no profit due to the inability to raise prices.
A major risk or concern for North American auto makers is the employees health care expenses. For Ford, in 2006 their health care expenses for U.S. employees and dependants was $3.1 billion, and with $1.8 of that in postretirement health care. Ford feels that although steps have been taken to lower their health care expenses, the cost to the company will continue to rise for the foreseeable future. Foreign car manufacturers have on average lower health care and employee costs, giving them an advantage over Ford, GM, and Daimler Chrysler. Ford Motor Co is hoping to take steps to offset the costs of employee benefits; however, this could also lead to negative publicity for the company. Foreign auto makers are able to maintain lower costs with non-unionized and on average, younger employees.
The next risk factor for the auto industry is commodity and energy price increases. Steel and resin (plastic) are the two most used commodities for auto manufacturers, and they are products in high demand for many industries. Rising awareness of sustainability and rising demand for these products has lead to recent price increases, and it is estimated to continue this trend. This factor targets all of the auto industry, but again hits the big three and other auto manufacturers harder then it does some of the foreign car manufacturers. Japanese auto makers have long been seen as efficient smaller car manufacturers, where the “big three” have moved to the larger SUV type vehicle. By building smaller vehicles, Japanese auto makers reduce their dependency and therefore their costs on steel and resin. The second risk coming from the comparative sizes of vehicles being manufactured by the auto makers is the cost of gasoline. As the price of gasoline increases, consumers are looking more towards smaller vehicles, and going with an auto manufacturer traditionally associated with smaller vehicles, such as Honda or Toyota, as compared to the big truck and SUV manufacturers that the Detroit manufacturers are linked with.
The fifth risk for US auto manufacturers is the depreciation of the US dollar, a trend that has been occurring since 2002. Many of Fords models are built in foreign countries, putting pressure on the pricing of the vehicles. Despite a depreciation of the US dollar, and prices lowering, Ford finds itself unable to lower the prices of the vehicles to match the depreciation due to its high costs from foreign manufacturing.
In the category of other economic factors, issues such as a contraction within the housing industry, CO2 emission standards, crowded market place for new cars and trucks, more efficient production by foreign companies (Toyotas Total Production System which is a just-in-time production that other companies have attempted to emulate with little success) and a downward trend in buying are all risk factors that the entire industry needs to take into consideration.
The first video watched on Hoovers.com is a video with Fords CEO Alan Mulally, the first of two. The CEO was at an auto show, introducing a new cross over vehicle. Risks that are alluded to in this interview are centered on the large truck and SUV markets versus the smaller vehicles and cross over vehicles that are being produced. A major problem Ford had seen in the past was that consumers and industry analysis had not seen them as moving forward into the future, and matching consumers wants and demands as well as some of the foreign manufacturers.
The second Ford video with CEO Alan Mulally shows the outcome of Fords realization that they need to concentrate on other markets and producing new vehicles. For the first time in two years, they are in the black for the current quarter (at the time of this video). However, when asked if the trend will continue, the CEO acknowledges that because of having to reduce production during the 3rd quarter (due to a lower buying trend) that it is a difficult time for them. This CEO interview illustrates that when risk factors are analyzed and considered as real risk factors to the company, steps can be taken to improve on those. Ford shows that they took into account various factors; environment and emissions regulations, commodity and energy price increases, and pricing and costs; and by taking all these considerations into account, they came up with a strategy to take them out of the red.
In Hoovers videos with GMs CEOs Rick Wagoner, they recognize that pricing in the US is a major factor. One of the risks recognized by Ford was that they could not price to the US market as well as could be hoped due to the depreciation of the US dollar, and the pressure on the pricing from production in foreign companies. GM has been able to price