Monday, April 4, 2011

My Project Thesis for Ford Motor Company Chapter Seven.

The present economic climate has not improved significantly since this project started last year. In fact there are significant changes in the former domestic auto industry. Chrysler LLC has emerged from bankruptcy as a subsidiary of Fiat SPA. The plan is import Fiat vehicles under the Dodge and Chrysler brands. These cars will consume less fuel than the one they will replace. What is unclear is whether or not the North American public, particularly the United States and Canada, will accept re-badged Fiat products. The last vehicle imported by Fiat to North American shores, the Ritmo or Strada, was lackluster in durability, reliability and desirability until Fiat finally stopped importing vehicles into the United States in the mid 1980’s.
General Motors, one of Ford Motor Company’s chief competitors, is still in bankruptcy proceedings as of this writing. However, the United States government is now a 60 percent owner, the United Auto Workers health fund a 17.5 percent owner and the Canadian government owning the remainder. Basically, the beleaguered firm is going to be nationalized. There is deepening resentment toward government involvement in the private sector, at least at the grassroots level concerning General Motors. Add to this the negative publicity concerning Chrysler and their absolution from liability from past claims and the situation can only become more favorable for Ford.
These circumstances are not of Ford’s making and to date; little has been done to increase the availability of smaller cars and trucks to their present sales lineup. There are still only two compact car models in Ford’s offerings and both are Focuses. There are no subcompacts available at this time and their compact pickup truck, the Ranger, is nearly two decades old in design. Ford has five SUV models, four trucks and three crossover models.
As far as Ford’s website is concerned, they have backpedaled on introducing the European version of the Focus to the United States and Canada, instead opting to introduce the much-touted and well-received Fiesta in 2010 as a 2011 model. This is an eternity as far as vehicle models are concerned. While Toyota can restyle, for better or worse, a new model every three to four years, Ford and its “domestic” counterparts struggle to update their wares every five to ten years. What is more is while that even a recently-bankrupted General Motors can pay lips service to introducing credible compacts and subcompacts; Ford cannot even update the two models they presently have. Their solution is to add features that add cost, rather than value to a new vehicle.
Force Field Analysis
In times of tight credit, customers are opting to hold on to their present vehicle over trading it in. Any product offered needs to have visual impact if it going to sell. Positive visual impact is preferred in this day and age, but even negative impact is better than none at all. Producing bland, unassuming products did nothing for their competitors. This kind of strategic err ended Oldsmobile; Saturn and Pontiac are in the process of sharing a similar fate. While it has worked thus far for Toyota and Honda, it will not work for Ford. The former two have a reputation for reliability and quality, Ford is still trying squelch bad press, or worse, none at all.
The people that have money to spend on a new car want something inspiring. They want something to show their friends, family and acquaintances. Even if it is a practical purchase, it need not be a bland one. While this is arguably subjective in nature, it is a matter of subjectivity that got the “Big Three” where they are today; bankrupted and losing market share in a growing pool of competent and no so competent competitors. Ford has done the predictable that has “helped” it in the past.
These have involved addressing the hurdles of financing, restyling the higher-profit, lower-cost vehicles and ignoring the lower-profit ones, or not building them altogether. Time will tell if this strategy works for Ford yet again. The economic picture painted during a recession has always been fatalistic, even in ones past. If this was the only argument to increase sales of smaller, lower-cost vehicles, it would be a financial dead end. However, the current political situation in the United States is such that not addressing this issue will be a fatal flaw. The domestics of yesteryear were completely unprepared for the 1973 oil embargo, (OPEC’s punishment for the United States’ support for Israel during the Yom Kippur War), as well as the four-fold increases in oil prices, the chaos and the resultant government regulation that followed.
What followed was that the domestics, Ford included, had to implement short-term solutions to long-term problems. Engineers had the daunting task of making a vehicle safer in a crash, more durable, more fuel-efficient and with less harmful emissions. All of these will conflict with each other to some degree. To use less fuel, for example, a vehicle must be light and will be more harmful to air quality. Ford found it much easier to shift consumer focus to light trucks, which has less regulations involved, were less expensive to build and they were able to realize higher profits.
Since 1973, Ford has known that oil supplies were a scarce resource controlled by despots and tyrants. They have also known about air quality and since 2000, carbon emissions. In addition, Toyota and Honda have outstripped Ford in quality and reliability in vehicle class once deemed as safe territory for the beleaguered automaker. It has been 36 years as of this writing for them to resolve issues such as unions, vehicle quality and fuel economy. To date, they have not addressed this adequately. Customers and the government will not idly stand by while fuel prices climb and air quality deteriorates.
The only proven, tried and true method to increase fuel economy is to build and sell smaller vehicles. The technology is simply not available to the masses that can allow everyone to drive a three ton truck and expect it to get thirty miles to the gallon. A three-hundred horsepower engine will consume more fuel than one at one-hundred horsepower. No amount of hybridization is going to accomplish real savings to the consumer. It will only shift it from operating costs to the purchase price.
Recommended Alternative Solution
Ford needs to offer more and competent choices to its small vehicle offerings if it is to stay credible as an automaker. Although there is still a market for larger vehicles, Ford at present is putting too much emphasis on these. In addition, the market is not the only determinant anymore. Government regulation, after a nearly 30 year of a laze faire policy, has redoubled their efforts to curtail emissions and increase fuel mileage. The present lineup heavy of fuel-hungry cars and light trucks will make Ford a soft target for regulators. Having more economical alternatives to SUV s and crossovers will at least secure sales that Ford would lose to competitors and help boost corporate average fuel economy. The Fiesta should be introduced as soon as possible and the international version of the Focus brought to market in the United States and Canada. Several years ago, Ford offered the wagon variant of the Focus, but discontinued it as a way to save money. It would be the economical alternative made mention of earlier in this paper.
Ford should also consider cutting the Taurus X from their lineup, as it was never a strong seller to begin with, even as the Freestyle. Eliminating this slow selling vehicle with poor gas mileage would have the effect of boosting average fuel economy without the expense of introducing a new model.
Recommendations for Further Research
There are numerous problems in which Ford, as with any firm of this size, must address. Ford should conduct more research in what customers desire in a vehicle, as well as what they would in a small car. Admittedly, if most buyers, especially in the United States and Canada, had a choice, a larger vehicle would be the preferred means of conveyance. However, there is still a valid argument to make smaller vehicles more credible for Ford. They should be safer, be cost-effective to own and operate, as well as something desirable to the average consumer. Economics, as well as government action, mandates this. Overseas manufacturers will capitalize on these mandates because they already build vehicles which are not only desirable, but are reliable and therefore credible to the consumer. Research is not needed as much as action. There has been more than enough, through focus groups, blog posts and the lack of sales to show the need to effect change.
Ford’s financial situation does not allow it to make significant changes to its small car lineup. Nevertheless, it has the means at its disposal to increase car sales with minimal effort and expense through the items specified in this writing.

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