Ford Motor Co. Freedom and Dangers of Entry

Ford Motor Company is the second largest automotive manufacturer in the United States, trailing only General Motors (GM), with a domestic market share of 14.6 percent and a North American market share of 13.9 percent. The rest of the globe market accounts for around 54.6 percent of the company’s sales. The company operates and sells motors bearing its name. The period 2015-2016 saw a consistent pattern in domestic auto sales: Ford Motor Company sales fell by 0.1 percent, with 2.6 million vehicles sold (Umpfenbach, Dalkiran, Chinnam, & Murat, 2017). General Motors (Ford Motor Company’s main competitor) fell by 1.3 percent, selling around 3 million vehicles. Ford’s US domestic market share estimated at 15 percent in 2016. The company registered sales of 2.2 million units in 2016. Local competitors to Ford Motors Company include General Motors Company, Chrysler, Toyota, American Honda, Nissan North America, Mazda America and Mitsubishi which command 16.8, 12.8, 13.9, 9.4, 9,1.7, and 0.6 percent respectively (Umpfenbach et al., 2017).

Comparing the results to its competitors, Ford Motor Company registered an increase in total revenue by 0.93 percent YoY in the second quarter of 2017. In this period, however, the domestic auto market recorded about 4.36 percent contracted revenues. The company’s sales volume, regarding the number of automobiles, sold decreased by 1.0 percent YoY: though the reduction is insignificant. The company failed to attain its forecasted sales by 2.4 percent (Umpfenbach et al., 2017).

Costs of sales increased by 6.9% more than revenue. In the first quarter of 2017the operating margin decreased by 9.8 percent compared to the company’s record of 5.4 percent registered in 2016. As a result of the decrease in the margin, the net income dropped from $2.5bn to $1.6bn prompting the company to reduce the number of supplementary dividends in the first quarter of 2017 (Umpfenbach et al., 2017).

Global Competition

The global auto industry is dominated by American, Asian and European companies. The most prominent car manufacturers in the world market are Toyota, GM Co., Ford, Volkswagen, and Hyundai. There are a few players in the global motor industry. Current type of market has Oligopolistic nature. In this oligopolistic market, financial activities of any single firm affect the counter-action of the rest of the auto companies in the industry. The 2008-2009 recession manifested the interdependence of significant motor companies as they experienced similar problems (Lee, 2011). In spite of the way that car manufacturers in the business make cars used for transport purposes, they practice a substantial amount of product differentiation. Car features and prices differ across manufacturers. In light of this variety, every one of the manufacturers uses advertising and marketing as critical competition apparatus. Auto producers subdivide their market segments and practice price discrimination depending on demanding elasticities of the customers in the various market segments. Below is the analysis of the competition in the global motor business using Porter’s five forces.

Freedom and Dangers of Entry

Presence of substitutes poses a great danger to firms in the automobile manufacturing industry. The business has several companies that are substitute firms and ready to attract clients delicate to price changes. Customers lean toward autos that are affordable and less expensive to maintain. For example, purchasers will incline toward substitutes (manufacturers) that make durable cars to the detriment of less durable autos. Clients will likewise buy vehicles that are fuel-productive and adaptable. Price elasticity in this industry influences buyers to look for more data on the items previously settling on purchasing choices.

Buyers Power to Bargain

In the motor industry, consumers have considerable bargaining power. Most purchasers are responsive to prices and would negotiate with automakers to get lower prices. In any case, manufacturers prefer offering cut-off rates to the customers buying in mass. In balancing the effect, the firms provide autos for profits while protecting loyalty of the clients by striving to make reliable and proficient cars (Porter, 2008). They additionally give excellent services to their customer to persuade their customers to buy autos at favorable costs.

Power of the Suppliers

There is low supplier power in the global motor industry. A large number of suppliers in the industry reduces their bargaining power. A large number of suppliers gives manufacturers a wide range of options (Lee, 2011). Manufacturers prefer suppliers which incur low production and labor costs as they charge fair prices (Min, 2005). The suppliers’ bargaining power is further weakened by the preference by some car manufacturers to make their parts.

Threat of Substitutes

Substitutes of Ford products, include bicycles and public transportation. However, the alternatives are not appropriate in some areas or not always available. Moreover, the cost of switching to these substitutes is moderate for Ford’s customer, but they can not do so because most of them take the cars on loan. Therefore the cannot default on the loans. Also, on several occasions, the available substitutes perform poorly in comparison to Ford’s products concerning safety and convenience. Therefore from this analysis, Ford needs to handle suppliers as a second-priority external threat.

The Industry’s Profitability Potential

The examination of the five powers reveals the possibility of productivity of the carmaking industry. Barriers to entry of new firms provide an opportunity for the existing companies to make profits. The low risk of entrants additionally suggests that the current firms have substantive powers to limit the number of rivals companies entering the industry. However, the high threat of substitutes brings down the business’ benefit. Automakers confront increased dangers from alternatives (Porter, 2008). Also, raising of prices urges buyers to resort to substitute motors. Correspondingly, reduction in the quality of cars produced by a manufacturer makes customers search for alternative or substitute cars. Car consumers know about the availability of substitute motor plants makes the auto business less lucrative.

A considerable level of competition in the auto manufacturing industry reduces the profitability of the firms in the industry. There is a tremendous and stiffer competition among the big five car manufacturers. This economic rivalry reduces the firms’ profit margins. To stay gainful, these makers must adopt market segmentation. In this view, companies that manufacture cheap cars, such as Toyota and General Motors, can increase their profits by targeting developing markets and price-reliant markets. Manufacturers that make durable vehicles, such as Ford Motors Company and Volkswagen, can increase their profits by targeting developed markets that value car durability. Low negotiation power of suppliers renders the business profitable as automakers can acquire auto parts at decreased costs, in this manner, bringing down cost of production (Min, 2005). The direct haggling power of customers makes the business profitable as automakers can attract buyers to buy cars at favorable prices.

SWOT Analysis of Ford Motor Company

Strengths

The key strengths of the company include the brand outlook, efficiency in online marketing, customers appraisal and allocation and actionability: Brand Outlook - The products are very popular in automobile organizations worldwide due to their high-level of promotion and marketing. Efficient Online Marketing - Ford is among famous automobile companies with a website where customers are consented to alter the engine, exterior, interiors, and color. Customers Appraisal - The firm receives several positive reviews from their customers for creating commercial vehicles, cars, and Heavy vehicles. Allocation and Actions ability - Ford is conducting trade in more than 30 countries with more than 90 production plants.

Weakness

The shortfalls of the company include: Large unfunded allowance - Ford is spending a significant amount of resources in the preservation of better working atmosphere. The organization is more accountable for health and safety of the worker. Weakening presence in North America – The company suspended its operation in these regions due to enormous antagonism with other major companies such as Toyota and General Motors (GM). The effect of reduced presences in the north saw a decline in income by 2.4%.

Opportunities

The opportunities available for the company include: Production of fuel-efficient cars- As opposed to the last few decades Ford motors have begun creating vehicles with grasp and mileage. The technologies available can enable the company to develop solar or bio-powered. These are automobiles that have electric driven engines. Hybrid cars have a low maintenance cost and thus will attract more customers. Market conditions in China and India – The two countries have the highest population in the world accompanied by varst geographical areas. Therefore, the people in these countries would wish to have a vehicle for their families. The company should own a substantial portionof these markets.

Threats

The challenges include: Ever increasing the cost of raw materials – Production of vehicles depends on rolling and hard steel, therefore a higher price of these inputs translates into high production cost with low-profit margins. Increased competition- Ford advancement may actuate by a rapid increase in the number of competitors in the transport industry. Ford’s primary competitors include BMW, Honda, Toyota and General Motors (GM).

PESTLE Analysis of Ford Motor Company

Political

The factors that influence the operations of an organization regarding rules and laws fall under political environment. Moreover, these factors include; regulations and requirements, standards and restriction enacted by the state. Ford motors operate in more than 30 countries of the world, but the company has its origin and headquarters in the United States of America. The firm have a strong political will in countries that are neutral or allied to the U.S. In countries such as North Korea, Russia and Some Middle East countries the company does not have any presence. Therefore, the political strategies of the US directly impact on the performance of the company in the international market (Wind, 2012).

Economical factors

The chief financial elements essential to Ford Motor Co. include increased development in the US motor markets and growing U.S general economy. However, the main threat is the strengthening dollar. The consistent growth in the US economy is an opportunity for the company since it forms the most significant percentage of the total market for the firm. Moreover, the company has the possibility of expansion into developing markets where it has little presences (like African and Asian countries). However, increasing value of U.S dollar against other currencies would reduce profit margin for the company branches because most of the raw materials used in the company are manufactured in the U.S.

Social factors

The social changes that impact on the industry include a moderately changing attitude of clients towards customer service, increasing demand for electric and hybrid vehicles and widening wealth gap. Based on these opportunities Ford can improve its sales by manufacturing products that address the growing demand for electric and hybrid automobiles. The company also has the chance of developing its service delivery (particularly aftersales services) to draw new clients. The growing wealth gap act both as a demerit because the company deals in luxury products which are high priced and thus widening wealth gap will reduce the number of potential customers.

Technological factors

The most significant technical factors in the business include limited network of alternative fuel stations. Second, increasing use of mobile computing. Third increasing use of online platform in the automobile industry. The rising use of mobile computing is an external factor that creates opportunities for Ford Motor Company to grow through mobile marketing and service. Also, the firm can improve its performance through enhanced online platforms.

Environmental factors

The ecological changes that impact on the company include declining oil reserves, low- carbon trends and climate change. All these three factors act as an opportunity for the firm in that they produce vehicles that conserve the environment. Examples include low carbon emitting vehicles and low fuel consuming automobiles. Also, the company can manufacture new cars that use electricity or alternative fuels to address the influence of the reducing oil reserves.

Legal

The regulatory factors that influence the company include worldwide rising intellectual property laws, increasing safety requirements and environmental protection regulation. Ford can advance its operations significantly to incorporate the consequences of environmental protection laws such as producing low carbon emission vehicles. Based on safety the company is among the major firms with a proven track record of manufacturing safe automobiles worldwide. Finally, increasing intellectual property laws create more protection for Ford’s intellectual rights and properties.

Recommended Strategy and Strategic Actions

Adopting a cost leadership technique

In a cost leadership procedure, an organization endeavors to make cars at a cost lower than its rivals. It involves overseeing expenses in all activities related to marketing and other non-marketing activities. As indicated by Baroto, Abdullah, and Wan (2012), cost authority methodology causes firms to make an upper hand over their rivals. The company will take a few vital steps to be a cost pioneer in the business.

The organization will guarantee that it buys parts from more affordable suppliers. The company will exploit the reduced negotiation suppliers’ power in the business to get auto parts at moderately less expensive costs.

Second, the organization will aim at attracting customers who are sensitive to price changes. Having diminished production costs by obtaining more affordable car parts, the business will discover untamed markets with the opportunity of selling at relatively high prices. Finally, the company will utilize them in the nick of time framework to be a successful cost leader. The structure includes conveying items at whatever point purchasers require them. The organization will open assembling plants in business sectors with poor, talented work to diminish production costs. The procedure is useful in barring new entrants into the industry.

Share platforms and manufacturing

If vehicle manufactures extended their cooperative efforts, the industry would be keen small-sizing leading to a few independent car makers and a more efficient supply market. By removing idle capacity and integrating supply, these community-oriented arrangements offer a portion of same advantages from industry union — specifically, enhancements in capital productivity and capital returns (Lee, 2011).

Offload more celebrated advancement work to innovation providers

Numerous car organizations are profoundly engaged in building up the innovations their clients. OEMs need to distinguish which parts of a vehicle’s advanced highlights they can hand off to tech industry accomplices that have more ability in outlining and delivering computerized segments and programming.

Update appropriation models

Upward of 15 percent of an auto’s cost usually goes to distribution. Despite the fact that OEMs are secured into merchant connections in the U.S. what’s more, Europe, the company should start to investigate and campaign for approaches that will decrease its expenses by utilizing more productive channels to achieve auto purchasers. These adjustments in the dispersion framework ought to at last mean to cut costs by limiting the number and value of retail outlets and utilizing innovation for better stock control (Porter, 2008).

Reserve funds could originate from offering using Web channels. OEMs are finding that as clients use the Internet to examine auto buys, they do less shopping face to face. Auto purchasers are currently going to in the vicinity of one and one-and-a-half merchants previously purchasing a car, contrasted and going by four or five an era back. Utilizing examination to survey this information for statistics and area patterns, car creators want to pick up reserve funds from stock and merchant offices administration. They can target client inclinations all the more adequately and place the proper blend of retail arranges in the correct regions.

Government Policy Effects

China is the most extensive automobile market outside the Us where US carmakers have joint ventures with Chinese manufacturers. Any policies that may destabilize the trade relations with China would imply reduced sales (Ford Motors Company and the US motor firms as well) as a result of the loss of the Chinese market. US trade relations with Mexico with substantially affect the US manufacturing plants in Mexico (Umpfenbach et al., 2017). Corporate Average Fuel Economy (CAFE) measures should rise significantly for automakers offering vehicles in the US by 2025 — that is the MPGs that the auto organizations need to accomplish by and large for every one of their cars and truck, little and expensive.

Conclusion

The worldwide car industry is in a condition of transition with business sectors like India and China driving development. The yearly deals figures in more developed markets are presently at pre-retreat levels, flagging a fresh start for this area. Be that as it may, this transformational stage is additionally loaded down with moderate uncertainties. The most significant test that the business needs to conquer is the unevenness of the worldwide markets coming about because of turmoil in securities exchange levels, permit confinements on new vehicles, stringent emission controls. Government policies of different countries such as taxation and emission controls affect the motor industry. Other externalities such as global geopolitics can pose significant upsets to the operations of motor companies. Recent developments such as the global economic recession, Global geopolitics have massive effects on the worldwide motor industry. Major events such as the outcome of US elections, volatility of oil prices, Brexit, wars, terrorism and geopolitical tensions between the west and the east, have severe effects on the global auto market. Combination of these factors prompts for the adoption of a sound competition strategy for Ford Motor Company to remain competitive in the automobiles industry.

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