Monday, April 4, 2011

My Project Thesis for Ford Motor Company Chapter Two.

I am posting this in a more blog friendly format. I couldn't get the pictures on this blog, but we all know what a Chevette, Cruze and the Focus models look like.

This chapter will explain the options that Ford Motor Company may have in improving overall sales and to select effective leadership. Both of these are absolutely necessary to get this firm out of the dire situation that incidentally is not unique to Ford. General Motors and Chrysler LLC are in similar circumstances and are considering a merger or buyout of the latter to the former. If this happens, it is very possible that Chrysler, along with Dodge and Jeep will go the way of Willys, Nash, Studebaker and American Motors. It may also further erode consumer confidence in “homegrown” auto industries, including, but limited to, availability of parts and service for “orphaned” models already stigmatized for poor reliability and resale value. Ford will need to make some critical choices if has not already. First and foremost, they will need to strengthen their position globally if part of their domestic competition no longer exists. They may no longer have Chrysler to insulate them from buyers forced to seek the likes of Hyundai, Kia, and Honda for products that Ford no longer offers or offers poorly.
Throughout most of its 105 year history, they have been known for building the right product at the right time. The Model T, Model A, the Falcon and even the panned Mustang Two are examples of the right car at the right time . More often than not, they have also made the wrong product at the wrong time. The ill-fated Edsel, which contrary to popular belief, was never branded as “Ford” but was a brand in itself and consisted of no less than 18 models (Willson, 1997). The 1958 Lincoln Capri, 1959 Fairlane 500 Skyliner, Lincoln Aviator, and the Ford Excursion were all products that were either too technically audacious or not economical for the time. The present products that Ford offers, while of good quality, are not keeping up with the times stylistically or in economy, fuel and otherwise. The Ford Taurus, Mercury Sable (soon to be discontinued as of this writing) and Ford Focus have these traits to some degree.
The Focus is a product that has a checkered history in the United States. When it was first introduced in 1999 as a 2000 model, problems manifested quickly. Ignition locks broke repeatedly and there were issues with brakes, fit and finish, not to mention the appearance of the car was controversial for its time. The current model is loaded with new options, including SYNC from Microsoft that includes a built in mobile phone and music player that costs about $400. However, the styling is pedestrian. While the four door model has not changed much from the 2000 model year, the 2009 three door model (figure 1) is reminiscent of the 1976 to 1987 Chevrolet Chevette (figure 2). In other words, it looks cheap. However, the price of the coupe starts at $17,000 and can swell to over $20,000 fully equipped.
While Chevrolet is planning the Cruze, a modernistic-looking competitor for the Focus, Ford is still mulling over trying to bring the European model (figure 4) to the United States. Chevrolet will have had three models in the same time that Ford has had one in this very important segment. The Cavalier, Cobalt and soon the aforementioned Cruze (figure 3), that will leapfrog even the European version of the Focus in looks and relevancy. The fact that Ford does not share all of its tooling on an otherwise world auto is probably expensive to say the least. The European version has been more reliable and was one of the best selling cars there while the North American version has suffered from a myriad of defects and recalls. For a time the Focus was the most recalled model in automotive history . Ford should introduce the European version and drop the “Focus” nameplate as there are still many owners that may associate it with the lackluster performer of the 2000 model year. The current model still shares many visual traits with earlier versions to make a name change on this one ineffective.
In addition, Ford tried this with the Freestyle, changing it to the Taurus X, and adding a few minor cosmetic changes. The result was that sales were off by over twenty-five percent and the model was considered redundant by the introduction of the Flex this year.

The mid-sized Taurus is due for a restyling in the next two years, but the current offerings suffer pedestrian styling, which is hurting sales. Ford has also spent much money on restyling its F Series truck that they had to delay several months while they sell off the 2008 models. What is worse is that this new product will not get the exposure it needs from the road on dealers’ lots. This is because dealers like Grand Ledge Ford of Grand Ledge, Michigan, Courtesy Ford of Okemos, Michigan and other dealers selling competing products have moved their small cars to the front of the lots.
This means that Ford has their Focus, their worst looking car line, to attract new customers. Only used car dealers with their glut of trucks and SUVs in proportion to passenger cars are still keeping the former to the front of the lot (figure 5).

Figure 5
Restyling their current offerings is a couple of years away. Yet there are many of the current ones still on dealer’s lots that need to be sold. Ford probably cannot reasonably be expected to sell these cars at a loss, but the styling is something that needs to be overcome in creative fashion. The current Focus, Taurus and Fusion are competent models. In fact the Fusion has been rated high by several independent rating firms.
These car lines are more relevant than trucks, SUVs and even the CUVs such as the Edge, Taurus X (which is soon to be discontinued in favor of the Flex) and the Flex because of their perceived economy. It is understood that smaller cars mean smaller profits for the automaker, even when they add options reserved for larger, more luxurious cars. As credit tightens further, trying to justify a “loaded” Focus is going to be a harder sell because of the higher price. Most buyers purchase a small car for its economy and lower price tag. Having too many “loaded” small cars on the lot will defeat the purpose in short order. Most savvy new car buyers also know that larger vehicles are not much more expensive than smaller ones. However, separating them into classes, especially the “economy” models will discourage, rather than encourage up selling. This is something that Ford really needs as they make more money on the options and the larger cars than the stripped down smaller ones. What is more is that even customers with their minds set on buying the “cheapest” and will not want to hear the sales pitch for the more expensive models will be more likely to buy the higher-profit ones if they can see these ones as well. Ford should aggressively market their cars as practical and economical. They should also eliminate options that add cost instead of value to their products. Dealers typically “load” up their inventory with costlier models to increase their profits and they should not be expected by Ford to stop this practice.
Nevertheless, items such as power windows, leather interior, ambient lighting and even SYNC may make the Focus more palatable to younger buyers with more disposable income; this demographic is small and shrinking. These are also taking sales away from Ford’s higher-profit models and negating any real savings to the customer, driving many to the used car market. In short, this practice is performing a terrible disservice to Ford.

Finding and Retaining Effective Leadership.
Another weakness that Ford shares with many other United States firms is the propensity to hire ineffective leadership and pay exorbitant salaries to same. Ford paid Jacques Nasser close to $16 million in 2000, in that same time period the vice chairman received $3.3 million, the group vice president for Global Product Development and Quality $2.3 million (This was the same period Ford introduced the problem-ridden Focus in North America). Other compensation including the vice president for the now-defunct Premier Automotive Group was at $2.8 million and the former vice president for the Global Consumer Services and North America at $2.9 million reflects a disparity between compensation and reality in the same time period. While the purpose of this illustration is not to criticize compensation or defame executives, it points out that underperforming in decision making is more tolerated than it is with other aspects of corporate function.
A common argument for keeping compensation the way it is for such personnel is because such talent is scarce relative to the pool of individuals that can effectively perform such duties. If the firm does not pay the rates, then another one will for same person and the first one will lose out. This argument is dissolved when observing the poor performance of a firm such as Ford under such leadership. While this is not to discuss fairness and executive compensation, it is a point this writer must address if he is going to get the firm to do the same on acquiring effective leadership. There are many problems that Ford has to work around to get effective leadership, but there is not enough room in this writing to address them all. Rather, Ford needs to look for the traits of a good leader, or preferably, good leaders. These should be people that have a genuine interest in saving the firm and not just collecting a paycheck. They will need dedication that is greater than the individual to overcome all of Ford’s challenges.
Above all, this person, or group of persons, will need a strong survival initiative. While this writer is adapting this from the Army Survival Manual, a good leader needs to have these qualities in face of overwhelming challenges.
Being able to make up his or her mind.
Being able to improvise.
Being able to live with your decisions.
Being able to adapt to the situation-to make a good thing out of a bad thing.
Remaining cool, calm and collected.
Hoping for the best, but preparing for the worst.
Having patience.
Being prepared to meet the worst that can happen.
Being able to understand and predict what other people will do.
Understanding where one’s special fears and worries come from and knowing what to do to control them.
However, just being able to survive is not going to be of much use to Ford either. They are going to need an individual with vision to realize success that can bring the various groups together. “Is there anything worse than being blind? Yes! The most pathetic person in the world is someone who has sight but has no vision,” is how Helen Keller brilliantly summed this up. Rather than hire “small people” with no vision, drive, or ambition and who only know how to conform, Ford needs to invest the monies into recruiting and retaining a person who knows how to struggle and succeed in business. They also need to have genuine leadership qualities and more than a little charisma would help as well.
There are many websites, books and ideas concerning what a good leader should be and many subdivide them into different classes of leaders. As far as this writer is concerned, these are important, but not so as having a person that can lead Ford into prosperity. This, in retrospect, is going to take a charismatic leader that can bring unions, suppliers, the government, investors and even customers in his or her vision. Ford has been losing ground in customer satisfaction for nearly thirty years. One saying this writer lives by is when one finds oneself in a hole; the first thing to do is stop digging. A good leader can stop this destructive cycle and reverse. The traits this writer found most relevant are from the Women Today website.
Have a Dream (that will make this world a better place). This person should already have a plan to save Ford and keep it going in his or her plan. This person must be able to “hit the ground running” and be dedicated to it. The site refers to this as something one would die for. While this seems extreme, it illustrates the loyalty and commitment that this leader must have. There is no time for a sunshine patriot or summer soldier in this war.
Know their strengths. Leaders need to know their strengths and surround themselves with people that compliment them appropriately. Leaders get things done through other people. Leaders also lead based on their strengths.
Strive for Excellence. Settling for mediocrity is not going to bring Ford to profitability; it will only prolong its decline as Asian competitors improve their products and pricing structure. In order to be the best, Six Sigma, zero percent financing, or all the options and buyer incentives are not going to be enough. The product needs to be solid and something the public will crowd showrooms to buy. They will also be a product that others will tell their friends and relatives about, in evangelistic fashion. This is excellence; something that Ford needs to be synonymous with right now. The leader Ford chooses needs to exude excellence in his or her behavior, manners and be someone that the rest will want to emulate.
Be Persistent. The site uses Mother Theresa as someone that is determined. More importantly, leaders don’t have exceptional abilities but they learn from their mistakes and go on. They also do not grow in a comfort zone, but are willing to take risks. This writer would also add that taking risks does not mean choosing styling that will offend or otherwise harm the potential buyer. The aforementioned Focus was offensive in styling to many people in the pursuit of being different. Those who bought one lived to regret it. Taking risks is being calculating and minimizing damage to the company. Throwing in the towel is not an option.
Being Willing to Stand Alone. Lee Iacocca was such a leader and Ford fired him. While a CEO has to answer to shareholders for his or her decisions, they need to understand that a true leader is going to do things that might not make sense at the time. They may clash with the board of directors and make some angry. A leader is not striving to be popular, but to do his or her job.
Be Ready for Resistance. There is real push at Ford and other carmakers, and that is to maintain the status quo. It’s the surest thing to do, predictable and the easiest way to be in Chapter 11. Not implementing a warranty plan that retains customers and not honoring the one they already have is driving customers away. This is one thing that has not changed since this writer bought his last Ford product in 2002, a 2000 Windstar with numerous problems that resulted in the destruction of said vehicle. Another is not offering products that consumers can finance on less than perfect credit. A leader needs to be addressing these concerns and there will be resistance from dealers, union members and management alike.
Set an Example for Your Staff. “Work hard and be a leader; be lazy and never succeed.” This is the quote from the site. This reiterates the fact that many people want the position and the paycheck, but will not put forth the effort. We all want to escape responsibility, but being a leader takes work, and a lot of it. There is not enough pay or prestige in the world to properly compensate a true leader, but he or she performs this out of dedication. The true leader is a servant as the site points out, and is always “on duty.”
Be Ethical. This goes along with the last principle, and something that the auto industry needs to be perceived as by the public. There are many instances concerning Ford and other automakers where profits were put before people’s lives. Chrysler has one concerning their GEN 3 seatbelts that unlatch in a crash in the interest of saving twenty-four cents a buckle . Fords worst was with the Pinto that still haunts them to this day, nearly forty years later. There are some principles that Ford’s leadership needs to follow even when the government and the law are on their side. Considering the current political situation in this country, the government is solidly on the side of business. However, the buying public can and will call them on these ethical errors. Even if they never win a court case, they can still choose not to buy products they feel are unsafe. This is deadly to an automaker, no matter what friends they have on Wall Street, or in Washington.
Serve a Higher Purpose: This writer paraphrased this to serve the premise that there are people who do not believe in God, but can still serve a purpose higher than oneself. When a leader does his or her job with spirituality in mind, the result is that they serve the good of all involved, and not just the firm or themselves. This may be a tenet lacking in many so-called leaders today, but there are more than enough out there that do their jobs without complaint in their present capacity .
Without effective marketing, the best products in the world will not save Ford. The pivotal models that can save, or sink the firm also have the lowest profit per vehicle. The only way they can turn a profit is to sell more of them than they already do. Other “world” products, such as the Fiesta and the Transit Connect should be considered to add value to Ford’s “top heavy” lineup as these are already being sold successfully in other countries and the cost to bring them here would be small. The Fiesta would be a good alternative to the Chevrolet Aveo while the Transit Connect would be for the effective, but dated and uneconomical E-series van. Another is to drop the “Focus” nomenclature in North America while bringing (and renaming) the European version to the United States.
Without a good leader, or a group of same, Ford will never realize long term profitably and will probably go the way of many other automotive firms in the last century. Firms such as Hudson, Kaiser, Studebaker, American Motors and Packard made outstanding vehicles, yet made costly blunders in considering what customers wanted. These aforementioned firms did not have the issues of higher fuel costs, tight credit and global competition on the scale that Ford has today. Considering the quality control issues that the firm has and the apparent lack of concern they have in correcting them, an effective leader will have surround themselves with brilliant, capable and visionary individuals to turn Ford around for the better.

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