ABSTRACT

Ford Motor Company have been around since 1903, and although in the past they lost
market shares due to production and marketing scandals, they remain robust in 2005.
This paper has been written to thoroughly analysed Ford through PESTEL analysis to
comprehend the macro environment in, Porter’s Five Forces analysis to determine the
competition and lastly SWOT analysis to depict the micro environmental factors of
the company in question. It has been concluded that due to the fierce competition in
the industry, and due to the changes in the environmental factors, Ford Motor
Company needs to concentrate on improving on its weaknesses in order to avoid and
overcome the threats.

COMPANY ANALYSIS: FORD MOTOR COMPANY

Introduction

Ford Motor Company was founded in 1903, in the United States of America,
by Henry Ford and eleven other investors. By 1919, the business began to prosper.
Following disagreements with the other investors, Henry Ford and his son, Edsel Ford
bought the shares of the investors and became the sole owners and decision makers of
Ford Motor Company (Brinkley, 2004).

Today, William Clay Ford Junior is the leader of a company with a well established
product portfolio of cars, trucks, vans and Sport-Utility Vehicles under the following
brands; Ford, Lincoln, Mercury, Mazda, Volvo, Jaguar, Land Rover and Aston Martin
(Ford 2005; BBC, February 2002).

The world’s largest car manufacturer in the world by volume is General

Motors Corporation, followed by Ford which is then followed by DaimlerChrysler
(Reuters, 2005; Yahoo Finance, 2005).

This paper will be thoroughly analysing Ford through the use of various analytical
tools, such as PESTEL analysis to comprehend the macro environment in which Ford
operates in (Campbell et al., 2002), Porter’s Five Forces analysis to determine the
competition (Clegg et al., 2004) and lastly SWOT analysis to depict the micro
environmental factors of the company in question (Stone, 2003).

PESTEL Analysis
Political Factors

• The September 11th terrorist attack which had occurred in the US reduced the
sales of automobiles in the US, and specifically Ford’s sales by 10% (Ford Annual
Report, 2001).
• The economic recession in Argentina in 2002 adversely affected car sales in
Argentina, production volume fell from 57,200 units to 31,000 units. (BBC, January
2002; Ford, 2005)
• The Iraqi war affected Ford adversely as their US sales declined by 7% (Ford
Annual Report, 2003). The war has had a similar affect on other firms operating in the
industry also.
• The United Nations World Forum for Harmonisation of Vehicle regulations
introduced a global technical regulation in 2004 regarding door locks for vehicle
safety, which manufacturers must abide by (Key Note, 2005).

Economic Factors

• Rising petrol prices make it more expensive for consumers to drive petrol
fuelled cars which consequently means that consumers are inclined to change their
cars which operate using diesel. (The Guardian 2005)
• Ford’s SUV’s (Sport Utility Vehicle) sales declined due to rising gasoline
prices, in turn their share prices also declined (Reuters, 2005)
• The rise in the demand for Japanese cars which consume less petrol than most
American cars has meant that automobile manufacturers have needed to reduce their
prices in order to sell their vehicles and to maintain their market shares.

Social Factors

• Cars are viewed as a status symbol (Key Note, 2005). The brand choice of a
car influences the way a person is perceived by the public.
• The demand for luxury cars are on the increase in the EU. Ford entered the
luxury cars market in the EU with Cadillac in September, 2004. (Ford, 2005)
• Smaller, city cars are also in demand in the EU to facilitate access in busy city
centres, to allow for easier parking and also due to their lower consumption of petrol
(Key Note, 2005)
• Although the Japanese cars are a success in the US, the public in the US
demonstrate a hostile approach towards them. Since the Japanese cars entered the US
market, the American companies such as Ford and GM have been losing market
share. (BBC, November 2005)
• Women drivers and cars for women attract many stereotypical viewpoints.
Ford has stated that “a man cannot be expected to design a car for a woman, since a
man will not fully understand their needs and wants. For this reason we have women
designers to design cars for women” (Ford, 2005). This provides Ford with a
competitive edge in attracting women drivers to purchase their cars.
Technological Factors

• Technological advancements are vital for those in the automotive industry for
several reasons.
• Primarily, research and development is necessary to attract new buyers, and
firms cannot afford to be laggards. (Key Note, 2005)
• Secondly, firms need to be aware of new technologies for their production
lines; this reduces man power and therefore reduces the costs of building vehicles.
Japanese firms owe their success and profitability to technological pioneering. Ford
are said to be pioneers in force-controlled robots for their transmission assemblies
(Kochan, 2001), allowing them to have a competitive edge and to reduce costs
incurred per vehicle.
• According to environmental studies, petrol in the world is anticipated to finish
within the next 50 years (BBC, June 2004). Firms in the automotive industry must
develop cars that use other means of energy in order to survive in the future.
• Verespej (2001), states that it is necessary for manufacturers to develop their
supply chains further to ensure a quicker delivery of custom made cars. He further
states that this can be achieved with more efficient production lines with technological
advancements.
• Technological factors further affect the automotive industry in terms of the
reputation of individual firms. Chrysler, Toyota and Ford have had to recall cars for
expensive repairs in the past, which has had negative affects on their reputations. Ford
has recently been involved in a tyre scandal costing $2bn, Chrysler recalled cars due
to faulty locks and Toyota in November had to recall cars due to corrosion of car parts
(BBC, November 2005). Technology is necessary to ensure the quality of finished
vehicles.
Environmental Factors

• Hurricanes in the US have caused the oil prices to fluctuate (BBC, October
2005).
• Due to global warming and the carbon dioxide gasses emitted from vehicles
the public may seek public transport in an attempt to protect the environment.
• Petrol is anticipated to finish within the next 50 years (BBC, June 2004).

Legal Factors

• Car manufacturers are increasingly reducing their numbers of employees due

to technology replacing man power. However, pressure from Trade Unions in the US
and the EU make it difficult for car firms to dismiss employees. For this reason
individual firms such as Ford and GM are attempting to make deals with trade unions
in order to protect themselves. (BBC, September 2003)
• The European Commission have changed the rules regarding car distribution,
to allow the dealers to have more freedom to compete across the EU. (Europa, 2005)

Porter’s Five Forces Analysis

Competitive Rivalry

• Competition is extremely fierce in this industry. The biggest players in the

industry by volume are; General Motors, followed by Ford, DaimlerChrysler and
Toyota in terms (Reuters, 2005). This order is changeable depending on the actions
taken by companies in attracting consumers.
• Different companies are providing different incentives to attract customers to
purchasing their own vehicles. Ford in the past was very successful due to their
advantages relating to volume and scale and it was anticipated that they would
become the biggest player in the industry taking the place of GM. However, due to
the actions taken by their arch rival, GM, Ford continues to remain in second place
(Taylor III, 2003) Ford experienced adverse publicity due to the tyre scandal and also
the poor marketing of baby Jag while GM introduced incentives such as “GM military
offer” (GM, 2005).
• The demand for cars although remains high, has been declining since the
1990s. A large number of companies are fighting to cater for the existing demand
(Muller et al. 2001).
• Due to the sleek design and price incentives provided by Japanese
manufacturers, US car sales declined by 14% in October; causing Ford and GM to
lose market shares while Toyota and Honda gained. (BBC, November 2005)

Barriers to Entry
• There are distinctive barriers to entry in the automotive industry. The main 10
firms operating in the automotive industry have great power in terms of reputation,
finances, experience, technology and existing large product portfolios. It would be
highly difficult for a new company to compete with the above.
• The existing companies within the industry are joining forces, which at times
do have detrimental effects for new comers to the market and for some existing
companies. For instance, the situation of Rover in the UK. In the past, the profitable
components of Rover were purchased by BMW and Ford, and Rover was left
producing poor quality and old vehicles, which consequently led to its bankruptcy in
April, 2005 (BBC, April 2005).
• Due to the environmental and technological factors mentioned previously, car
firms must heavily invest in research and development. New comers to the industry
may find it difficult to compete with the investments made by existing large firms.
• It is anticipated that the ways of being able to over come the barriers to entry
in this industry would be to enter the market with vehicles that consume other forms
of energy and vehicles that are environmentally friendly.
• As mentioned previously, Chinese cars are entering the industry. It is believed
that they were able to overcome the barriers to entry due to the prices of their
vehicles. Through cheap labour and components, Chinese firms are able to produce
cars at a lower cost than the American manufacturers. (China daily, 2005)
Threat of Substitutes

• Although the public are becoming increasingly aware of global warming and
therefore choosing other forms of transport such as trains, busses and bicycles, it can
still be said that cars and other private vehicles are viewed as a necessity especially
for those who do not live in city centres.
• It is therefore believed that no real threat of substitutes exist today.
• In the future, if cars that use other forms of energy apart from diesel and petrol
are introduced to the market, they may pose problems for the current manufacturers in
the industry.
Buyer Power

• The buyer power is greatly affected by inflation and interest rates which are
further affected by the fluctuations in fuel prices. However, buyer power remains
high for the industry, which also confirms the competitive rivalry within the industry.
• The competition is high in the industry, with similar products that have
minority differences. Car manufacturers are providing other incentives to attract the
buyers to their brands. For instance, Ford are providing free upgrades worth up to
₤2000 for their customers in the UK (Ford UK).
• Consumer preferences determine the type of car sold. With rising interest and
inflation rates, consumers are interested in vehicles that are cheaper to run in the long
term.
• Firms are using fierce marketing techniques in order to attract consumers to
their products. Extra benefits, price incentives and add-ons are some examples of
these marketing activities.

Supplier Power
• Supplier power has a certain affect on the firms in this industry but remains
relatively low. Suppliers provide certain components necessary for the production of
vehicles and also spare parts for future repairs.
• However, in order to benefit from economies of scale, firms are reducing the
number of their suppliers and increasing their orders on their existing suppliers (BBC,
September 2005).
• Due to such actions taken by car manufacturing firms, the competition among
the suppliers is also increasing. Suppliers are reducing the prices of the components
and provide other financial incentives.
• Such competition benefits both the car firms and the suppliers. Car firms
benefit due to being able to obtain cheaper parts and also trough economies of scale
through the large orders which they place. Suppliers benefit through attracting large
and long term contracts with car manufacturers.
SWOT Analysis
Strengths

• Ford Motor Company and all its individual brands have been enjoying the
benefits of the good reputation that they hold. They have brands and models of cars
to appeal to every kind of demographic group, and simply cater for the needs and
wants of consumers.
• Ford is particularly successful in their sponsorships, advertising and other
forms of marketing. Ford is currently sponsoring the football Champions League,
with “Destination Football” slogan (Bloomberg, 2005).
• The current research and development activities of Ford allow them to be
pioneers in certain production technologies (Kochan, 2001).
Weaknesses

• In an attempt to attract younger generations to purchase Jaguar cars, Ford

introduced “baby Jag”. The effects of such an action proved to be negative in
damaging Jaguar’s reputation, and is a weakness for Ford (Kerwin, 2002)
• Quality assurance needs to be more of a focal point for Ford to avoid recalling
cars and expensive repair operations. (Kochan, 2001)
• In 2002, Ford and Bridgestone experienced a faulty tyre scandal which caused
a two billion dollar loss (BBC, January 2002).
Opportunities

• To develop vehicles that uses other forms of energy than petrol and diesel and
to become pioneers in this area.
• The numbers of car owners who replace their old models with new ones are on
the increase (Mintel, 2004).
• Demand for cars by women drivers is on the increase and so is the overall
demand for cars (Key Note, 2005).
Threats

• Further increases in gasoline prices, and eventually the world supply of

gasoline finishing.
• To become laggards in any technological advancements.
• The demand for Japanese cars is on the increase. Unless Ford is able to
improve on their weaknesses, there is a risk of them losing further market share to
other car manufacturing firms.
• The Chinese made sport utility vehicles, sports coupes and sedans are to enter
the US market as of 2007. These cars are going to be sold at $7000 in comparison to
$13,995 the cheapest alternative available from Ford (Business Week Online, 2005;
Ford, 2005). This is thought to have an adverse effect on Ford’s sales unless Ford are
able to further decrease their production costs and be able to sell their vehicles at
cheaper prices.

Conclusion

In conclusion, the macro environment in which Ford Motor Company operates in is

changeable and highly competitive, which was further depicted by the Porters five
forces analysis. The micro environmental analysis indicated that Ford Motor
Company remains robust, however, must ensure that their weaknesses are over come
and that they are prepared for the threats that are anticipated to face them in the
future.

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