1.State the problems facing the manager/key person

2.Identify and link the symptoms and root causes of the problems

3.Differentiate short term from long term problems

4.Conclude with the decision facing the manager/key person

Transcribed Image Text:T8 Ford Motor Company – 2009 - Alen Badal The Union Institute F www.ford.com Ford recently received $5.9 billion in Energy Department loans to help retool its plants in Illinois, Kentucky, Michigan, Missouri, and Ohio to produce 13 fuel-efficient mod- els, including 5,000 to 10,000 electric cars per year starting in 2011. In mid-2009, Nissan Motor was granted $1.6 billion in loans also from the U.S. Department of Energy to build as many as 100,000 electric cars a year at its plant in Smyrna, Tennessee, by 2013. Ford's newest competitor may be the U.S. government because GM and Chrysler LLC are in line to get $62 billion in investments from the U.S. Treasury. GM and Chrysler have cut their debt and closed hundreds of dealers with that money, while Ford still has $33 billion in debt including its obligations to retirees. Since CEO Alan Mulally's arrival at Ford in 2006, the company has cut 40,000 jobs and closed 17 plants, reducing costs by more than $5 billion. Ford has a $10 billion note that comes due in 2011. Ford increased its production 16 percent in the third quarter of 2009 versus the third quarter of 2008. This was good news for Ford shareholders and customers. In May 2009, Toyota posted a $4.4 billion loss for its fiscal year, the first time Toyota posted an annual loss since 1963. Virtually all automobile companies are suffering in the bad economy. Ford is on track, however, to break even or perhaps make a profit in 2011. Ford is also trying to sell its Volvo division but has decided to wait until GM com- pletes the sale of its Opel division in efforts to get a higher price for Volvo. Three firms as of August 2009 were bidding on Volvo: Geely Holding Group, Beijing Automotive Industry Holding, and a Europe-based group of investors. Sales of Volvo in the United States fell 36 percent in the first six months of 2009 as compared to 2008. An American icon for over a century, Ford's revenue decreased from $172.5 billion 2007 $146.3 billion in 2008. Born 1863, Henry Ford founded Ford Motor Company in 1903 and launched the Model T in 1908. Henry died in 1947. The great- grandson of Henry, William Ford, is today chairman of the board of Ford. Exhibit 1 fea- tures the leadership of the Ford Motor Company. Ford's icon vehicles, such as the Mustang and the F-150 truck, can be spotted on the roadways worldwide. Headquartered in Dearborn, Michigan, Ford has a 13.8 percent market share of the auto industry as of February 2009, as compared to 17.5 percent in 2007. Ford Motor oper- ates two service businesses: Ford Motor Credit Company and Genuine Parts and Motorcraft. Ford manufactures and distributes automobiles across six continents with a team of about 246,000 employees. The company operates about 108 plants globally and produces such models as Ford, Lincoln, Mazda, Mercury, and Volvo. The company has sold its Jaguar, Land Rover, and Aston Martin businesses. The subsidiary, Ford Motor Credit Company, offers auto financing to both dealers and customers globally. The company also assists dealerships with funding for such CASE 18 • FORD MOTOR COMPANY - 2009 177 EXHIBIT 1 Ford Motor Company Corporate Officers William Clay Ford, Jr. Executive Chairman Alan Mulally, President & CEO Michael E. Bannister, Exec. V.P. Chairman/CEO, Ford Credit John Fleming, Exec. V.P. & Chairman/CEO Ford of Europe Lewis W. K. Booth, Exec. V.P. & Chief Financial Officer Mark Fields, Executive V.P. & President, The Americas John G. Parker, Executive V.P. Asia Pacific & Africa Source: www.ford.com. EXHIBIT 2 Ford versus Toyota and the Industry Ford Toyota Industry Market Capitalization $24.9 # Employees 213,000 324,222 33,200 Revenue 113.8B 193,9B 14.5B Gross Margin 7,69% 7.25% 17.83% Earnings Before Interest and Taxes 2.95B 4.36B 176.2M Net Income -5.22B -9.28B EPS -2.072 -5.92 -0,14 Note: M = million; B = billion Source: Based on info at www.financeyahoo.com. EXHIBIT 3 The U.S. Market Share of Top 11 Auto Firms (February 2009) Company % of Market Share General Motors Corp. 18,8 Toyota Motor Sales USA Inc. Ford Motor Company 16.9 13.8 Chrysler LLC 10.9 American Honda Motor Co. Inc. 10.6 Nissan North America Inc. 8.0 Hyundai Motor America 4.1 Kia Motors America Inc. 3.3 Mazda Motor of America Inc. 2.4 Subaru of America Inc. 1.9 Mitsubishi Motors N A, Inc. 0.7 Source: Based on http://online.wsj.com/mdc/public/page/2_3022-autosales.html#autosalesD. purposes as improving sites and acquiring real estate. Ford's Motorcraft division offers parts for its vehicles through the company's Web site (www.ford.com). Ford's major competitors are General Motors, Toyota, and Chrysler. Ford and rival General Motors are losing market share to Toyota and other foreign automakers. Exhibit 2 and 3 provide comparative information on Ford versus its rival firms. Note that Ford is number three in market share in the United States. The 2009 Motor Trend truck of the year was the Ford F-150. 178 ALEN BADAL Company Brands Ford consi catering to a variety of consumer needs and wants. The vehicles span cars, trucks, and super utility vehicles (SUVS). Ford also produces the Mondeo found in Europe and the EcoSport in South America and some parts of Asia. of five brands and is generally perceived as being an affordable brand name Lincoln/Mercury Ford's Lincoln (www.lincoln.com) vehicles are perceived as a luxury line and include five models such as the popular Navigator and Town Car. Ford's Mercury (www.mercuryvehicles.com) line also offers five different models, such as the Mountaineer and the Milan. Mazda A Japanese line named after the ancient god of wisdom is Mazda (www.mazda.com). Mazda evolved in 1931 representing a three-wheeled truck combining a motorcycle and automobile. Mazda today offers 11 different models along with its Mazda Verisa. The company posted sales in the first nine months of fiscal 2008 of 2.1 million yen (¥). The company's Web site contains information about Mazda in some 54 different countries. Mazda's revenues dropped from 2.5 million yen in the first nine months of 2007 to 2.0 million yen during that period in 2008. Volvo Volvo (www.volvocars.com), a brand name that created the first three-point seat belt, has built strong brand recognition as a safe vehicle. Volvo in 1955 began exporting cars to the United States. Ford acquired Volvo in 1999, but the division is now up for sale. Volvo ma- kets in some 58 countries. This Sweden-headquartered division sells the line in more unan 185 markets. This division sold 374,297 units worldwide in 2008, an 18 percent decrease in sales from 2007. The stronger demand was in the United Kingdom while the U.S. and Sweden markets weakened. Volvo achieved net sales of $14.7 billion in 2008, compared to $17.9 billion in 2007, as described in Exhibit 4. Ford Motor Credit Founded in 1923, Ford Motor Credit Company (www.forderedit.com) offers financing to consumers and dealerships nationwide and is the world's largest finance company. Ford Credit offers innovative products and competitive financing rates with flexible terms applied toward leasing and/or financing purchases. Genuine Parts & Service Genuine Parts & Service (www.genuineflmservice.com) offers the know-how about parts, repairs, and maintenance to owners of Ford, Lincoln, and Mercury vehicles. First introduced in 1991, the concept was to help provide better owner satisfaction, which has provided better vehicle brand success for Ford. EXHIBIT 4 Ford Motor Company Sector Revenues (2007 vs. 2008) Sector 2007 2008 North America $71.5 billion $53.4 billion South America $ 7,6 billion $ 8,6 billion Europe $36.5 billion $39 billion $14.7 billion $ 6.5 billion Volvo $17.9 billion $ 7 billion $ 0 Asia Pacific/Africa Mazda $ 0 $15 billion $18 billion JLR & Aston Martin $ 0 Financial Services $17 billion Source: Adapted from www.ford.com. CASE 18 • FORD MOTOR COMPANY – 2009 179 Motorcraft Ford purchased Electric Autolite Company in 1961 and later changed the name to Motorcraft (www.motorcraft.com), which makes parts for Mercury, Lincoln, and Ford vehicles. The division is a subsidiary business offering premium parts/services ranging from motor oil to transmission assemblies. This business emerged for Ford as a result of the lack of replacement vehicle parts available by the manufacturers. Global Operations Ford markets vehicles in over 200 markets across 6 continents. Ford's recent One Ford strategy focuses on standardizing the production of vehicles, technologically tracing pro- duction throughout the life cycle, cross-shipping of components to ensure speedier time to markets, and finding the Ford-ingredients to meet the automotive needs of the global mar- ket. One such example is Ford's Fiesta, which is available in Europe and expected in 2010 in the United States. Ford's truck lines are still strong with the award-winning F-150. The Euro (€), British pound (£), and the Japanese yen (¥) currencies have been valued more than the U.S. dollar ($). Ford's North America sales have dropped substan- tially; however, South America and Europe achieved sales increases in 2008 for Ford, as shown in Exhibit 4. Ford's income statements are provided in Exhibit 5. Note Ford's massive losses in both 2006 and 2008. Ford's balance sheets are provided in Exhibit 6. Note that Ford is EXHIBIT 5 Ford Motor Company Income Statement (all numbers in thousands) Period Ending 31-Dec-08 31-Dec-07 31-Dec-06 Total Revenue 146,277,000 172,455,000 160,123,000 Cost of Revenue 127,103,000 142,587,000 148,869,000 Gross Profit 19,174,000 29,868,000 11,254,000 Operating Expense Research Development Selling Gen & Admin Non Recurring 21,430,000 21,169,000 19,180,000 2,400,000 Others 1,874,000 668.000 241,000 Total Operating Expenses Operating Income or Loss Income from Continuing Oper (4,130,000) (5,631,000) (8,167,000) Total Other Income/Exp. Net (755,000) (1,550,000) (1,899,000) EBIT (4,722,000) (7,181,000) (6,268,000) Interest Expense 9,682,000 10,927,000 8.783,000 Income Before Tax (14,404,000) (3,746,000) (15,051,000) Income Tax Expense 63,000 (1,294,000) (2,646,000) Minority Interest (214,000) (312,000) (210,000) Net Income from Cont. Ops (14,681,000) (2,764,000) (12,615,000) Non-recurring Events Discontinued Operations Extraordinary Items Effect of Acct. Changes 9,000 41,000 2,000 Other Items Net Income (14,672,000) (2,723,000) (12,613,000) Source: www.ford.com.
Transcribed Image Text:Source: www.ford.com. 180 ALEN BADAL EXHIBIT 6 Ford's Balance Sheets (all numbers in thousands) PERIOD ENDING 31-Dec-08 31-Dec-07 31-Dec-06 Assets Current Assets Cash and Cash Equivalents $22,049,000 $35,283,000 $28,894,000 Short Term Investments Not Receivables 6,165,000 8,863,000 8,772,000 Inventory 8,618,000 10,121,000 11,578,000 Other Current Assets Total Current Assets 36,832,000 54,267,000 49,244,000 Long Term Investments 112,487,000 160,676,000 136,378,000 Property Plant and Equipment 54,303,000 36,239,000 38,505,000 Goodwill 1,190,000 1,504,000 5,839,000 Intangible Assets 403,000 565,000 30,932,000 Accumulated Amortization Other Assets 10,005,000 22,513,000 12,706,000 Deferred Long Term Charges 3,108,000 3,500,000 4,950,000 Total Assets 218,328,000 279,264,000 278,554,000 Liabilities Current Liabilities Accounts Payable 78,158,000 44,411,000 24,416,000 Short/Current Long Term Debt Other Current Liabilities 4,093,000 28,128,000 Total Current Liabilities 78,158,000 48,504,000 52,544,000 Long Term Debt 154,196,000 168,530,000 172,049,000 Other Liabilities 55,000 50,158,000 51,477,000 Deferred Long Term Liability Charges Minority Interest Negative Goodwill 2,035,000 5,023,000 4,790,000 1,195,000 1,421,000 1,159,000 Total Liabilities 235,639,000 273,636,000 282,019,000 Stockholders' Equity Misc Stocks Options Warrants Redeemable Preferred Stock Preferred Stock Common Stock 24,000 22,000 19,000 Retained Earnings (16,145,000) (1,485,000) (17,000) Treasury Stock (181,000) (185,000) (183,000) 9,076,000 7,834,000 Capital Surplus Other Stockholders' Equity 4,562,000 (10,085,000) (558,000) (7,846,000) Total Stockholders' Equity (17,311,000) 5,628,000 (3,465,000) Total Liabilities and SE 218.328,000 279,264,000 278,554,000 Source: www.ford.com. CASE 18 • FORD MOTOR COMPANY – 2009 181 carrying over $1 billion in goodwill, which is not good. Nor is its $154 billion in long-term debt a good thing. The company may be doing better than some of its rival firms, but make no mistake, Ford is in financial trouble. Ford produces energy hybrid vehicles and has joined forces with British Petroleum (BP) to develop hydrogen power. Ford's Rouge Center in Dearborn, Michigan, represents the world's largest living roof and covers the Dearborn Truck Plant's final assembly building. Competitors Chrysler LLC Founded in 1883, Chrysler LLC (www.chryslerllc.com) currently holds 10.9 percent of the U.S. market share as of February 2009. At the conclusion of fiscal 2008, Chrysler employed approximately 54,007 employees. A privately owned company, Cerberus Capital Management, currently owns 80.1 percent of Chrysler, with the remainder owned Daimler, the former parent company of Chrysler. The company manufactures seven different models, including Jeep and Dodge. Chrysler LLC also owns Global Electric Motorcars (GEM), low-speed vehicles often used in parks and industrial campuses. The company sells parts and vehicle accessories under a MOPAR brand name and has a Chrysler Financial division, which offers financing opportunities for buyers in North America, Puerto Rico, and Venezuela. Chrysler received $9 billion in bailout monies from the United States, with a possibility of needing an extra $3 billion. It reportedly used up $3 billion in cash in the last quarter of 2008. Headed by previous CEO of Home Depot, Robert Nardelli, Chrysler had requested $7 billion in “bridge funding" to save the company. Chrysler has contracted with Nissan and Volkswagen to manufacture cars. This cost- saving strategy, coupled with speculations of Envi, an electric car, and smaller cars built by Nissan, are expected to improve the firm's financial position. Chrysler's sales in February 2009 as compared to February 2008 were down 44 percent. General Motors Corporation (GM) Headquartered in Detroit, Michigan, GM (www.gm.com) employs approximately 244,500 and reported annual revenues of $149 billion in 2008 as compared to $181 billion in 2007. GM manufactures cars and trucks in 34 countries. GM also operates a Financing and Insurance Operation. Saab, Pontiac, and Cadillac are among the many GM models. GM holds an industry leading 18.8 percent of the U.S. market share as of February 2009. GM's sales in February 2009 when compared to the prior year were down by 53 percent. GM experienced a steady decline in sales and received an $18 billion (with more requested) government bailout from the United States. GM's Saab division in Sweden is attempting to isolate itself from GM to avoid the country losing a carmaker. Saab's units-sold in 2008 were down 34.7 percent compared to 2007. GM has plans to phase out its Saturn and Hummer brands. The plans also call for reducing Pontiac production. GM has been criticized for not adapting its cars and production system to address the needs of consumers. The future of GM is reliant on hybrid electric Chevy Volt along with models such as the Malibu. GM's cars have produced negative sales figures, such as a 50.9 percent reduction in Hummer units sold in 2008 as compared to 2007. Chevrolet, Cadillac, GMC, and Buick have ranged from 20.4 percent to 26.2 percent reduction in units sold in 2008 compared to the previous year. GM's goal is to have a production-ready fuel-cell vehicle by 2010. Toyota Motor Corporation Headquartered in Toyota City, Japan, Toyota Motor Corporation (www.toyota.co.jp) reported annual revenues of $249.5 billion in 2008. Toyota currently holds 16.9 percent of the U.S. market share as of February 2009. The company has 316,212 employees and was founded in 1933. It was ranked by J.D. Power and Associates as number one in customer loyalty, with 68.9 percent of new purchases whose previous new vehicle was from Toyota. Not all of Toyota's makes and models are manufactured in America; the company has production plants across the globe. 182 ALEN BADAL Toyota operates in two segments: Automotive and Non-Automotive Operations. Toyota models include the Corolla and RAV4. dize vehicles and mortgage loans. Toyota provides financing to dealers. Other operations include designing and manufacturing of prefabricated housing and information technology related businesses. The company operates an e-commerce marketplace known as Gazoo.com and sells vehicles in Japan, North America, Europe, and Asia. However, Toyota experienced a 40 percent decrease in revenues in February 2009 compared to 2008. Honda and Nissan experienced similar figures with a decrease of 38 percent and 37 percent, respectively. Toyota is focusing on its all-new Prius, which promises fuel economy to exceed the current model's 48 mpg. Also, Toyota will become the first automaker of a hybrid-only luxury car: the Lexus HS250h, with fuel economy of 40 mpg. financial service helps consumers subsi- Industry Analysis The auto manufacturing industry has been crushed of late by the global economic recession as consumer demand for new autos has plummeted. Consumer confidence is the lowest in 40 years, and unemployment rates exceed 10 percent in many areas. Unavailability of credit and high unemployment have pushed automakers to rethink methods of producing and sell- ing cars. Automakers have faced rising costs of health care and pensions. The Big Three hope to gain further concessions from the United Auto Workers regarding labor costs, among oth- ers, in times of hardship. The Big three also suffer from an oversupply for dealers. The few consumers purchasing vehicles are doing so for practical reasons, with a focus on fuel efficiency, durability, and carmaker's sustainability. Consumers are concerned over the Big Three's possibility of going out of business in terms of voided warranties. According to CSM Worldwide, an automotive research firm, light vehicle production exceeded the production of cars and trucks in North America and Europe by an estimated 16 percent and 14 percent, respectively. Many banks are just not making car loans. This situation has been detrimental to auto firms. In 2008, the Big Three began offering lowered interest rates or zero percent financing to lure buyers. Ford, Chrysler, and even Toyota are offering employee prices to consumers. The auto industry has experienced a shift from trucks and SUVS to hybrid and small fuel-efficient vehicles. The government bailout money is diminishing, and Ford has exhausted its credit lines. Emerging Automotive Markets While the economy in the United States slowed and new car sales drastically declined, Russia's grew 15.1 percent, Brazil's 15.5 percent, China's 12 percent, and India's 5 percent, respectively, in the third quarter of 2008. GM and Ford have had some success in markets outside the United States. GM achieved 61 percent of total revenues in the third quarter of 2008 outside of North America. Ford is counting on China for sales as is Volkswagen, AG. The Future Ford's midsize 2010 Fusion in August 2009 set a monthly sales record for the model for the fifth consecutive month. A sedan redesigned for the 2010 model year, the Fusion competes with the high-volume Toyota Camry and Honda Accord in one of the biggest segments of the U.S. auto market. "It's a very tough segment to be in. It's been dominated by the imports over the last several years," Chantel Lenard, Ford's global small and medium car group marketing manager, said in an interview. "We are starting to break through and break that grip the imports have had on that segment." The Fusion has a long way to go to meet the U.S. sales volumes generated by the Toyota Camry and Honda Accord. Through July, sales of Ford's Fusion totaled 102,756 in 2009, while Camry sales totaled 184,216 and Accord totaled 160,817. Both the Camry and Accord cracked the top 10 in cars bought under the U.S. government Cash for Clunkers incentive program that ended in August 2009. Ford reported strong Fusion sales in the program, but it did not crack the top 10 list. CASE 18 • FORD MOTOR COMPANY - 2009 183 In late 2009, Ford added shifts at its truck plants in Michigan and Missouri due to increased demand for its F-150 pickup trucks and Escape SUVS. The company's Dearborn, Michigan, truck plant and the Kansas City, Missouri, plant returned to a three-shift operation. The action increased production of F-150 pickup trucks by about 10,000 units and boosted production of Ford's Escape and Mercury Mariner SUVS together by 2,400 units. Ford's increased production for the third and fourth quarters of 2009 were some- what driven by strong sales in the Cash for Clunkers program. The program, launched by the U.S. government gas-guzzling cars and trucks with a mileage of 18 miles per gallon (mpg) or less for a value of up to $3,500-$4,500. Ford had two models in the top-10 buy list of the Cash for Clunkers program. The company's Ford Focus (30 mpg) ranked fourth and Ford Escape SUV (24 mpg) ranked tenth. Ford boosted third quarter 2009 production in North America to 495,000 vehicles and then produced 570,000 vehicles for the fourth quarter, a 33 percent rise from the year-ago period. For July 2009, Ford reported an astounding 2 percent year-over-year sales gain when other major automakers reported declines. The sales gain was the company's first since November 2007. Ford still, however, is in financial trouble. Develop a strategic plan of action for Ford. Provide a detailed strategic analysis for CEO Alan Mulally. Include the methodology and costs associated with implementation of your recommended strategies for the next three years. July 2009, abled qualifying consumers in their old

Question

1.State the problems facing the manager/key person

2.Identify and link the symptoms and root causes of the problems

3.Differentiate short term from long term problems

4.Conclude with the decision facing the manager/key person

Transcribed Image Text:T8 Ford Motor Company – 2009 - Alen Badal The Union Institute F www.ford.com Ford recently received $5.9 billion in Energy Department loans to help retool its plants in Illinois, Kentucky, Michigan, Missouri, and Ohio to produce 13 fuel-efficient mod- els, including 5,000 to 10,000 electric cars per year starting in 2011. In mid-2009, Nissan Motor was granted $1.6 billion in loans also from the U.S. Department of Energy to build as many as 100,000 electric cars a year at its plant in Smyrna, Tennessee, by 2013. Ford's newest competitor may be the U.S. government because GM and Chrysler LLC are in line to get $62 billion in investments from the U.S. Treasury. GM and Chrysler have cut their debt and closed hundreds of dealers with that money, while Ford still has $33 billion in debt including its obligations to retirees. Since CEO Alan Mulally's arrival at Ford in 2006, the company has cut 40,000 jobs and closed 17 plants, reducing costs by more than $5 billion. Ford has a $10 billion note that comes due in 2011. Ford increased its production 16 percent in the third quarter of 2009 versus the third quarter of 2008. This was good news for Ford shareholders and customers. In May 2009, Toyota posted a $4.4 billion loss for its fiscal year, the first time Toyota posted an annual loss since 1963. Virtually all automobile companies are suffering in the bad economy. Ford is on track, however, to break even or perhaps make a profit in 2011. Ford is also trying to sell its Volvo division but has decided to wait until GM com- pletes the sale of its Opel division in efforts to get a higher price for Volvo. Three firms as of August 2009 were bidding on Volvo: Geely Holding Group, Beijing Automotive Industry Holding, and a Europe-based group of investors. Sales of Volvo in the United States fell 36 percent in the first six months of 2009 as compared to 2008. An American icon for over a century, Ford's revenue decreased from $172.5 billion 2007 $146.3 billion in 2008. Born 1863, Henry Ford founded Ford Motor Company in 1903 and launched the Model T in 1908. Henry died in 1947. The great- grandson of Henry, William Ford, is today chairman of the board of Ford. Exhibit 1 fea- tures the leadership of the Ford Motor Company. Ford's icon vehicles, such as the Mustang and the F-150 truck, can be spotted on the roadways worldwide. Headquartered in Dearborn, Michigan, Ford has a 13.8 percent market share of the auto industry as of February 2009, as compared to 17.5 percent in 2007. Ford Motor oper- ates two service businesses: Ford Motor Credit Company and Genuine Parts and Motorcraft. Ford manufactures and distributes automobiles across six continents with a team of about 246,000 employees. The company operates about 108 plants globally and produces such models as Ford, Lincoln, Mazda, Mercury, and Volvo. The company has sold its Jaguar, Land Rover, and Aston Martin businesses. The subsidiary, Ford Motor Credit Company, offers auto financing to both dealers and customers globally. The company also assists dealerships with funding for such CASE 18 • FORD MOTOR COMPANY - 2009 177 EXHIBIT 1 Ford Motor Company Corporate Officers William Clay Ford, Jr. Executive Chairman Alan Mulally, President & CEO Michael E. Bannister, Exec. V.P. Chairman/CEO, Ford Credit John Fleming, Exec. V.P. & Chairman/CEO Ford of Europe Lewis W. K. Booth, Exec. V.P. & Chief Financial Officer Mark Fields, Executive V.P. & President, The Americas John G. Parker, Executive V.P. Asia Pacific & Africa Source: www.ford.com. EXHIBIT 2 Ford versus Toyota and the Industry Ford Toyota Industry Market Capitalization $24.9 # Employees 213,000 324,222 33,200 Revenue 113.8B 193,9B 14.5B Gross Margin 7,69% 7.25% 17.83% Earnings Before Interest and Taxes 2.95B 4.36B 176.2M Net Income -5.22B -9.28B EPS -2.072 -5.92 -0,14 Note: M = million; B = billion Source: Based on info at www.financeyahoo.com. EXHIBIT 3 The U.S. Market Share of Top 11 Auto Firms (February 2009) Company % of Market Share General Motors Corp. 18,8 Toyota Motor Sales USA Inc. Ford Motor Company 16.9 13.8 Chrysler LLC 10.9 American Honda Motor Co. Inc. 10.6 Nissan North America Inc. 8.0 Hyundai Motor America 4.1 Kia Motors America Inc. 3.3 Mazda Motor of America Inc. 2.4 Subaru of America Inc. 1.9 Mitsubishi Motors N A, Inc. 0.7 Source: Based on http://online.wsj.com/mdc/public/page/2_3022-autosales.html#autosalesD. purposes as improving sites and acquiring real estate. Ford's Motorcraft division offers parts for its vehicles through the company's Web site (www.ford.com). Ford's major competitors are General Motors, Toyota, and Chrysler. Ford and rival General Motors are losing market share to Toyota and other foreign automakers. Exhibit 2 and 3 provide comparative information on Ford versus its rival firms. Note that Ford is number three in market share in the United States. The 2009 Motor Trend truck of the year was the Ford F-150. 178 ALEN BADAL Company Brands Ford consi catering to a variety of consumer needs and wants. The vehicles span cars, trucks, and super utility vehicles (SUVS). Ford also produces the Mondeo found in Europe and the EcoSport in South America and some parts of Asia. of five brands and is generally perceived as being an affordable brand name Lincoln/Mercury Ford's Lincoln (www.lincoln.com) vehicles are perceived as a luxury line and include five models such as the popular Navigator and Town Car. Ford's Mercury (www.mercuryvehicles.com) line also offers five different models, such as the Mountaineer and the Milan. Mazda A Japanese line named after the ancient god of wisdom is Mazda (www.mazda.com). Mazda evolved in 1931 representing a three-wheeled truck combining a motorcycle and automobile. Mazda today offers 11 different models along with its Mazda Verisa. The company posted sales in the first nine months of fiscal 2008 of 2.1 million yen (¥). The company's Web site contains information about Mazda in some 54 different countries. Mazda's revenues dropped from 2.5 million yen in the first nine months of 2007 to 2.0 million yen during that period in 2008. Volvo Volvo (www.volvocars.com), a brand name that created the first three-point seat belt, has built strong brand recognition as a safe vehicle. Volvo in 1955 began exporting cars to the United States. Ford acquired Volvo in 1999, but the division is now up for sale. Volvo ma- kets in some 58 countries. This Sweden-headquartered division sells the line in more unan 185 markets. This division sold 374,297 units worldwide in 2008, an 18 percent decrease in sales from 2007. The stronger demand was in the United Kingdom while the U.S. and Sweden markets weakened. Volvo achieved net sales of $14.7 billion in 2008, compared to $17.9 billion in 2007, as described in Exhibit 4. Ford Motor Credit Founded in 1923, Ford Motor Credit Company (www.forderedit.com) offers financing to consumers and dealerships nationwide and is the world's largest finance company. Ford Credit offers innovative products and competitive financing rates with flexible terms applied toward leasing and/or financing purchases. Genuine Parts & Service Genuine Parts & Service (www.genuineflmservice.com) offers the know-how about parts, repairs, and maintenance to owners of Ford, Lincoln, and Mercury vehicles. First introduced in 1991, the concept was to help provide better owner satisfaction, which has provided better vehicle brand success for Ford. EXHIBIT 4 Ford Motor Company Sector Revenues (2007 vs. 2008) Sector 2007 2008 North America $71.5 billion $53.4 billion South America $ 7,6 billion $ 8,6 billion Europe $36.5 billion $39 billion $14.7 billion $ 6.5 billion Volvo $17.9 billion $ 7 billion $ 0 Asia Pacific/Africa Mazda $ 0 $15 billion $18 billion JLR & Aston Martin $ 0 Financial Services $17 billion Source: Adapted from www.ford.com. CASE 18 • FORD MOTOR COMPANY – 2009 179 Motorcraft Ford purchased Electric Autolite Company in 1961 and later changed the name to Motorcraft (www.motorcraft.com), which makes parts for Mercury, Lincoln, and Ford vehicles. The division is a subsidiary business offering premium parts/services ranging from motor oil to transmission assemblies. This business emerged for Ford as a result of the lack of replacement vehicle parts available by the manufacturers. Global Operations Ford markets vehicles in over 200 markets across 6 continents. Ford's recent One Ford strategy focuses on standardizing the production of vehicles, technologically tracing pro- duction throughout the life cycle, cross-shipping of components to ensure speedier time to markets, and finding the Ford-ingredients to meet the automotive needs of the global mar- ket. One such example is Ford's Fiesta, which is available in Europe and expected in 2010 in the United States. Ford's truck lines are still strong with the award-winning F-150. The Euro (€), British pound (£), and the Japanese yen (¥) currencies have been valued more than the U.S. dollar ($). Ford's North America sales have dropped substan- tially; however, South America and Europe achieved sales increases in 2008 for Ford, as shown in Exhibit 4. Ford's income statements are provided in Exhibit 5. Note Ford's massive losses in both 2006 and 2008. Ford's balance sheets are provided in Exhibit 6. Note that Ford is EXHIBIT 5 Ford Motor Company Income Statement (all numbers in thousands) Period Ending 31-Dec-08 31-Dec-07 31-Dec-06 Total Revenue 146,277,000 172,455,000 160,123,000 Cost of Revenue 127,103,000 142,587,000 148,869,000 Gross Profit 19,174,000 29,868,000 11,254,000 Operating Expense Research Development Selling Gen & Admin Non Recurring 21,430,000 21,169,000 19,180,000 2,400,000 Others 1,874,000 668.000 241,000 Total Operating Expenses Operating Income or Loss Income from Continuing Oper (4,130,000) (5,631,000) (8,167,000) Total Other Income/Exp. Net (755,000) (1,550,000) (1,899,000) EBIT (4,722,000) (7,181,000) (6,268,000) Interest Expense 9,682,000 10,927,000 8.783,000 Income Before Tax (14,404,000) (3,746,000) (15,051,000) Income Tax Expense 63,000 (1,294,000) (2,646,000) Minority Interest (214,000) (312,000) (210,000) Net Income from Cont. Ops (14,681,000) (2,764,000) (12,615,000) Non-recurring Events Discontinued Operations Extraordinary Items Effect of Acct. Changes 9,000 41,000 2,000 Other Items Net Income (14,672,000) (2,723,000) (12,613,000) Source: www.ford.com.

Transcribed Image Text:Source: www.ford.com. 180 ALEN BADAL EXHIBIT 6 Ford's Balance Sheets (all numbers in thousands) PERIOD ENDING 31-Dec-08 31-Dec-07 31-Dec-06 Assets Current Assets Cash and Cash Equivalents $22,049,000 $35,283,000 $28,894,000 Short Term Investments Not Receivables 6,165,000 8,863,000 8,772,000 Inventory 8,618,000 10,121,000 11,578,000 Other Current Assets Total Current Assets 36,832,000 54,267,000 49,244,000 Long Term Investments 112,487,000 160,676,000 136,378,000 Property Plant and Equipment 54,303,000 36,239,000 38,505,000 Goodwill 1,190,000 1,504,000 5,839,000 Intangible Assets 403,000 565,000 30,932,000 Accumulated Amortization Other Assets 10,005,000 22,513,000 12,706,000 Deferred Long Term Charges 3,108,000 3,500,000 4,950,000 Total Assets 218,328,000 279,264,000 278,554,000 Liabilities Current Liabilities Accounts Payable 78,158,000 44,411,000 24,416,000 Short/Current Long Term Debt Other Current Liabilities 4,093,000 28,128,000 Total Current Liabilities 78,158,000 48,504,000 52,544,000 Long Term Debt 154,196,000 168,530,000 172,049,000 Other Liabilities 55,000 50,158,000 51,477,000 Deferred Long Term Liability Charges Minority Interest Negative Goodwill 2,035,000 5,023,000 4,790,000 1,195,000 1,421,000 1,159,000 Total Liabilities 235,639,000 273,636,000 282,019,000 Stockholders' Equity Misc Stocks Options Warrants Redeemable Preferred Stock Preferred Stock Common Stock 24,000 22,000 19,000 Retained Earnings (16,145,000) (1,485,000) (17,000) Treasury Stock (181,000) (185,000) (183,000) 9,076,000 7,834,000 Capital Surplus Other Stockholders' Equity 4,562,000 (10,085,000) (558,000) (7,846,000) Total Stockholders' Equity (17,311,000) 5,628,000 (3,465,000) Total Liabilities and SE 218.328,000 279,264,000 278,554,000 Source: www.ford.com. CASE 18 • FORD MOTOR COMPANY – 2009 181 carrying over $1 billion in goodwill, which is not good. Nor is its $154 billion in long-term debt a good thing. The company may be doing better than some of its rival firms, but make no mistake, Ford is in financial trouble. Ford produces energy hybrid vehicles and has joined forces with British Petroleum (BP) to develop hydrogen power. Ford's Rouge Center in Dearborn, Michigan, represents the world's largest living roof and covers the Dearborn Truck Plant's final assembly building. Competitors Chrysler LLC Founded in 1883, Chrysler LLC (www.chryslerllc.com) currently holds 10.9 percent of the U.S. market share as of February 2009. At the conclusion of fiscal 2008, Chrysler employed approximately 54,007 employees. A privately owned company, Cerberus Capital Management, currently owns 80.1 percent of Chrysler, with the remainder owned Daimler, the former parent company of Chrysler. The company manufactures seven different models, including Jeep and Dodge. Chrysler LLC also owns Global Electric Motorcars (GEM), low-speed vehicles often used in parks and industrial campuses. The company sells parts and vehicle accessories under a MOPAR brand name and has a Chrysler Financial division, which offers financing opportunities for buyers in North America, Puerto Rico, and Venezuela. Chrysler received $9 billion in bailout monies from the United States, with a possibility of needing an extra $3 billion. It reportedly used up $3 billion in cash in the last quarter of 2008. Headed by previous CEO of Home Depot, Robert Nardelli, Chrysler had requested $7 billion in “bridge funding" to save the company. Chrysler has contracted with Nissan and Volkswagen to manufacture cars. This cost- saving strategy, coupled with speculations of Envi, an electric car, and smaller cars built by Nissan, are expected to improve the firm's financial position. Chrysler's sales in February 2009 as compared to February 2008 were down 44 percent. General Motors Corporation (GM) Headquartered in Detroit, Michigan, GM (www.gm.com) employs approximately 244,500 and reported annual revenues of $149 billion in 2008 as compared to $181 billion in 2007. GM manufactures cars and trucks in 34 countries. GM also operates a Financing and Insurance Operation. Saab, Pontiac, and Cadillac are among the many GM models. GM holds an industry leading 18.8 percent of the U.S. market share as of February 2009. GM's sales in February 2009 when compared to the prior year were down by 53 percent. GM experienced a steady decline in sales and received an $18 billion (with more requested) government bailout from the United States. GM's Saab division in Sweden is attempting to isolate itself from GM to avoid the country losing a carmaker. Saab's units-sold in 2008 were down 34.7 percent compared to 2007. GM has plans to phase out its Saturn and Hummer brands. The plans also call for reducing Pontiac production. GM has been criticized for not adapting its cars and production system to address the needs of consumers. The future of GM is reliant on hybrid electric Chevy Volt along with models such as the Malibu. GM's cars have produced negative sales figures, such as a 50.9 percent reduction in Hummer units sold in 2008 as compared to 2007. Chevrolet, Cadillac, GMC, and Buick have ranged from 20.4 percent to 26.2 percent reduction in units sold in 2008 compared to the previous year. GM's goal is to have a production-ready fuel-cell vehicle by 2010. Toyota Motor Corporation Headquartered in Toyota City, Japan, Toyota Motor Corporation (www.toyota.co.jp) reported annual revenues of $249.5 billion in 2008. Toyota currently holds 16.9 percent of the U.S. market share as of February 2009. The company has 316,212 employees and was founded in 1933. It was ranked by J.D. Power and Associates as number one in customer loyalty, with 68.9 percent of new purchases whose previous new vehicle was from Toyota. Not all of Toyota's makes and models are manufactured in America; the company has production plants across the globe. 182 ALEN BADAL Toyota operates in two segments: Automotive and Non-Automotive Operations. Toyota models include the Corolla and RAV4. dize vehicles and mortgage loans. Toyota provides financing to dealers. Other operations include designing and manufacturing of prefabricated housing and information technology related businesses. The company operates an e-commerce marketplace known as Gazoo.com and sells vehicles in Japan, North America, Europe, and Asia. However, Toyota experienced a 40 percent decrease in revenues in February 2009 compared to 2008. Honda and Nissan experienced similar figures with a decrease of 38 percent and 37 percent, respectively. Toyota is focusing on its all-new Prius, which promises fuel economy to exceed the current model's 48 mpg. Also, Toyota will become the first automaker of a hybrid-only luxury car: the Lexus HS250h, with fuel economy of 40 mpg. financial service helps consumers subsi- Industry Analysis The auto manufacturing industry has been crushed of late by the global economic recession as consumer demand for new autos has plummeted. Consumer confidence is the lowest in 40 years, and unemployment rates exceed 10 percent in many areas. Unavailability of credit and high unemployment have pushed automakers to rethink methods of producing and sell- ing cars. Automakers have faced rising costs of health care and pensions. The Big Three hope to gain further concessions from the United Auto Workers regarding labor costs, among oth- ers, in times of hardship. The Big three also suffer from an oversupply for dealers. The few consumers purchasing vehicles are doing so for practical reasons, with a focus on fuel efficiency, durability, and carmaker's sustainability. Consumers are concerned over the Big Three's possibility of going out of business in terms of voided warranties. According to CSM Worldwide, an automotive research firm, light vehicle production exceeded the production of cars and trucks in North America and Europe by an estimated 16 percent and 14 percent, respectively. Many banks are just not making car loans. This situation has been detrimental to auto firms. In 2008, the Big Three began offering lowered interest rates or zero percent financing to lure buyers. Ford, Chrysler, and even Toyota are offering employee prices to consumers. The auto industry has experienced a shift from trucks and SUVS to hybrid and small fuel-efficient vehicles. The government bailout money is diminishing, and Ford has exhausted its credit lines. Emerging Automotive Markets While the economy in the United States slowed and new car sales drastically declined, Russia's grew 15.1 percent, Brazil's 15.5 percent, China's 12 percent, and India's 5 percent, respectively, in the third quarter of 2008. GM and Ford have had some success in markets outside the United States. GM achieved 61 percent of total revenues in the third quarter of 2008 outside of North America. Ford is counting on China for sales as is Volkswagen, AG. The Future Ford's midsize 2010 Fusion in August 2009 set a monthly sales record for the model for the fifth consecutive month. A sedan redesigned for the 2010 model year, the Fusion competes with the high-volume Toyota Camry and Honda Accord in one of the biggest segments of the U.S. auto market. "It's a very tough segment to be in. It's been dominated by the imports over the last several years," Chantel Lenard, Ford's global small and medium car group marketing manager, said in an interview. "We are starting to break through and break that grip the imports have had on that segment." The Fusion has a long way to go to meet the U.S. sales volumes generated by the Toyota Camry and Honda Accord. Through July, sales of Ford's Fusion totaled 102,756 in 2009, while Camry sales totaled 184,216 and Accord totaled 160,817. Both the Camry and Accord cracked the top 10 in cars bought under the U.S. government Cash for Clunkers incentive program that ended in August 2009. Ford reported strong Fusion sales in the program, but it did not crack the top 10 list. CASE 18 • FORD MOTOR COMPANY - 2009 183 In late 2009, Ford added shifts at its truck plants in Michigan and Missouri due to increased demand for its F-150 pickup trucks and Escape SUVS. The company's Dearborn, Michigan, truck plant and the Kansas City, Missouri, plant returned to a three-shift operation. The action increased production of F-150 pickup trucks by about 10,000 units and boosted production of Ford's Escape and Mercury Mariner SUVS together by 2,400 units. Ford's increased production for the third and fourth quarters of 2009 were some- what driven by strong sales in the Cash for Clunkers program. The program, launched by the U.S. government gas-guzzling cars and trucks with a mileage of 18 miles per gallon (mpg) or less for a value of up to $3,500-$4,500. Ford had two models in the top-10 buy list of the Cash for Clunkers program. The company's Ford Focus (30 mpg) ranked fourth and Ford Escape SUV (24 mpg) ranked tenth. Ford boosted third quarter 2009 production in North America to 495,000 vehicles and then produced 570,000 vehicles for the fourth quarter, a 33 percent rise from the year-ago period. For July 2009, Ford reported an astounding 2 percent year-over-year sales gain when other major automakers reported declines. The sales gain was the company's first since November 2007. Ford still, however, is in financial trouble. Develop a strategic plan of action for Ford. Provide a detailed strategic analysis for CEO Alan Mulally. Include the methodology and costs associated with implementation of your recommended strategies for the next three years. July 2009, abled qualifying consumers in their old

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