Ford - The 'Way Forward' Restructuring Program
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Case Code: BSTR204 Case Length: 14 Pages Period: 1996-2006 Pub Date: 2006 Teaching Note: Not Available |
Price: Rs.300 Organization: Ford Industry: Automobile Countries: US Themes: - |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Rising Competition
Since the US was the largest consumer of oil in the world, the restrictions had a tremendous impact on the US economy. The oil crisis created the need for fuel efficient cars. US customers moved towards small and fuel-efficient Japanese cars over large US-made cars. The performance of Japanese cars was superior to the US-made cars. Further, the pricing of Japanese automobiles was very competitive and attractive to buyers. Gradually, manufacturers such as Honda and Toyota started offering cars even in the luxury segment and began taking over the market share of the Big Three (General Motors, Ford and Chrysler)...
Ford in the Early 2000s
By the early 2000s, the sales of SUVs began slowing down due to increase in gasoline prices. To add to Ford's problems truck sales slowed down too. The company was engaged in a price war with GM in the pick-up trucks segment. At the same time, the Japanese manufacturers using lean manufacturing systems brought out several attractive truck models which affected the sales of Ford and other domestic manufacturers. In 2003, Nissan also entered the fray with 'Titan' which was built in its own plant at Canton, Mississippi. In 2003, Toyota started building its second truck manufacturing plant in San Antonio, Texas, which was to be opened in late 2006. Apart from the competition, Ford was affected by its rapidly increasing pension and healthcare liabilities and weakening brands...
Pensions and Healthcare Costs
One of the major problems for Ford (also for other US-based competitors) was its huge under-funded pension fund and mounting healthcare costs. These problems had their roots in the late 1940s, after the World War II, at the time when the Big Three virtually held the entire share of US automobile market.
During the 1950s, the per capita spending on healthcare benefits in the US was just US$ 500. In the next two decades, there was a substantial improvement in the field of medicine but medical costs also increased. This increased the per capita spending on healthcare to US$ 1,500 by the 1970s. According to some analysts, powerful worker unions such as the UAW demanded more and more benefits from the motor companies. As there was no dearth of funds, the Big Three paid generous benefits such as free healthcare insurance, dental insurance and retiree healthcare benefits. With the advent of Japanese automakers, the scenario changed significantly. In 1979, Chrysler came close to bankruptcy but survived due to concessions made by the UAW...
Ford's Other Problems
According to analysts, other major reasons for Ford's sagging sales were its models which failed to attract new customers. Customers preferred the superior and efficient models manufactured by foreign manufacturers.
To improve its sales, Ford started offering heavy discounts on its vehicles. For example, in October 2005, US automobile manufacturers including Ford gave incentives worth around US$ 2,800 for each vehicle while Japanese manufacturers gave only US$ 950.
The result was that the Japanese automobile manufacturers gained a record 36% market share while the market share of US automobiles fell to an all time low of 52.3%.
Industry analysts said that young people in the North American region preferred trendy vehicles manufactured by the Japanese manufacturers and considered them superior to domestic models...
Efficiency in Production
In order to reduce costs and improve the quality of its products, Ford planned to make its production systems leaner and more efficient. In North America, instead of working on developing a new model, Ford planned to use similar architecture that its manufacturers in Europe and other parts of world had used to build vehicles.
This measure would significantly reduce the company's R&D investments and save time. Ford planned to decrease the number of various engine architectures from 30 in early 2006 to around 14 while increasing the percentage of identical parts that were used in its models from the current 21% to about 50% gradually. The global architecture program included brands such as Ford, Jaguar, Mazda, Lincoln and Volvo. Ford would also make efforts to reduce its product development time and invest in making its production system lean and flexible by the end of 2008. For this, it planned to enter into strategic long-term relationships with its suppliers globally...
Smaller Organization
One of the main objectives behind the 'Way Forward' program was to improve the capacity utilization of Ford's assembling plants in North America. Towards this, Ford planned to close down its 14 manufacturing facilities which included seven vehicle assembly plants by 2012. The company named only a few facilities that would be closed by the end of 2006...
Will the Plan Work?
A few analysts felt that 'The Way Forward' program was likely to steer Ford in the right direction. They said that it was only a matter of time before Ford could get its act together. According to Scott Roth, President of the Greater Louisville Automobile Dealers Association, "The market today dictates what manufacturers are making. I think the technology is there for Ford to respond to customer demands. It's just a matter of making it happen..."
Exhibits
Exhibit I: US Market Share of Ford (1990-2004)
Exhibit II: Ford Revitalization Plan
Exhibit III: Ford - Financial Performance in North America (2001-05)
Exhibit IV: Ford - Financial Performance (2001-05)
Exhibit V: Aligned Business Framework
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