Strategic Audit for Ford Motor Company - V1.2

Strategic Audit for Ford Motor Company

Strategic Audit for Ford Motor CompanyAs per Ford Business report 2011

Prepared by:Nermin Abou el NagaKholoud MaherAhmed HamdyAmr Gamal

Table of ContentsI.History3II.Current Situation3A.Current Performance3B.Strategic Postures41.Mission42.Objectives43.Strategies4III.External Environment5A.Societal Environment51.Economic52.Technological53.Sociocultural5B.Task Environment5IV.Internal Environment6A.Corporate Structure6B.Corporate Resources61.Marketing62.Finance63.R&D64.Operations65.Human Resources6V.Analysis of Strategic Factors7A.Strengths7B.Weaknesses7C.Opportunities7D.Threats7VI.Strategic Priorities7Weighting, AS & TAS scores reflected the priorities of the three main strategies:7VII.Implementation8VIII.Evaluation & Control8References9Appendix10HistoryFord Motor Company was founded in 1903 by Henry Ford and has continuously remained under family ownership since this time. Ford has operated internationally since 1904, when it opened a branch in Canada to gain access to Commonwealth markets. For the first half of the 21st Century, Ford remained the dominant car manufacturer within the market it had effectively created. In 1956, Toyota exported its first automobile to the United States, and began acquiring market share. In hindsight this was a turning point in the U.S. market, and as the 21st Century drew to a close Ford faced declining market share and had difficulty remaining competitive in the global marketplace.In 2006, Alan Mulally was hired as CEO and took over a company at the precipice of failure. Mulally announced a new restructuring plan in 2006 entitled The Way Forward, designed to better align capacity to demand. At its core, this plan involved the closure of seven assembly plants and strategic reorientation towards One Ford. Championed by Mulally, this strategy focuses on creating a standard Ford personality which is seen and felt within every automobile produced by the company.Current SituationCurrent PerformanceWith substantially strong financial position, Ford sold approximately 5,695,000 vehicles at wholesale throughout the world in 2011. The worldwide automotive industry continues to face a very competitive pricing environment, driven in part by industry excess capacity, particularly in mature markets such as North America and Europe, along with the significant effect of the economic conditions. For the past several decades, manufacturers typically have given price discounts and other marketing incentives to maintain market share and production levels.Although Fords revenues was increasing year after year, it still faces a furious competition on both divisions (automotive & financial services), lots & lots of threats coming mainly from the global economic conditions & some internal weaknesses that it should tackle to keep on the good performance

Strategic PosturesMission

ONE TEAM;People working together as a lean, global enterprise for automotive leadership, as measured by: Customer, Employee, Dealer, Investor, Supplier, Union/Council, and Community SatisfactionONE PLANAggressively restructure to operate profitably at the current demand and changing model mix Accelerate development of new products our customers want and valueFinance our plan and improve our balance sheetWork together effectively as one teamOUR GOALAn exciting viable Ford delivering profitable growth for all.Developed in 2006, stating the following;

Objectives To aggressively restructure our business to operate profitably, accelerate development of new products customers want and value, finance our plan and strengthen our balance sheet, and work together effectively as one team leveraging our global assetsStrategies Penetrating markets to serve the key geographic markets with a complete family of small, medium, and large, cars, utilities, and trucks that have best-in-class design and quality. Developing products customers want and value for Ford and Lincoln demands consistent focus on the four pillars of our global product strategy Cutting Costs as much as Ford can, & divert revenues toward internal developments Related Diversification through Ford Motor Credit Company LLC ("Ford Credit") offering a wide variety of automotive financing products to and through automotive dealers throughout the world.External EnvironmentSocietal EnvironmentEconomic The global economy grew by about 4% during 2010, as the economy began to emerge from deep recession. During 2011, global economic growth slowed to an estimated 3%, as the worsening debt crisis in Europe. The Economy expected to have a growth of 4% in 2012 (O) Uncertainties associated with the European debt crisis and policy responses to it could keep Europe Economy stagnant in 2012 (T) Fluctuations in Exchange rates & Interest rates. These risks affect our Automotive and Financial Services sectors. (T) Increase in Fuel Prices, continued price volatility, or reduced availability of fuel, particularly in the United States, could result in further weakening of demand for relatively more-profitable large cars, utilities, and trucks, while increasing demand for relatively less-profitable small vehicles. (T) Higher unemployment rates (T)Technological Energy Price Increases (oil prices increased from an average of $80 per barrel in 2010 to about $100 a barrel in late 2011), leading to a trend from consumers towards buying energy-saving cars (O)Sociocultural Expectation of increased demand for smaller vehicles will continue in the mature markets of North America and Europe (O)

Task Environment Rivalry is high in both the Automotive & Finance BU Many banks are competing in offering car loans. No single company is a dominant force in the automotive finance industry. Most of Ford Credit's bank competitors in the United States use credit aggregation systems that permit dealers to send, through standardized systems, retail credit applications to multiple finance sources to evaluate financing options offered by these finance sources. (T) Power of Supplier is High High power of supplier, since they are imposing pressures to receive their money quickly (T) Due to the global economic condition, Raw materials cost are fluctuating (T) Consumer power is high as well Many Suppliers (T) Excess capacity, coupled with a proliferation of new products being introduced in key segments, will keep pressure from consumers on manufacturers' ability to decrease prices (T) Threat of Substitute is low (O) Entry Barriers are high. Since the global economic conditions are not engorging for such huge investment (O)Internal EnvironmentCorporate Structure Ford Motor Credit offers a wide variety of automotive financing products to and through automotive dealers throughout the world. The predominant share of Ford Credits business consists of financing our vehicles and supporting our dealers. (S)

Corporate ResourcesMarketing Strong Brand Equity perceived as affordable brand catering to a variety of consumer needs and wants. (S) Discovery of defects resulting in delays of new launches, reputational damage...etc, as a result government investigation is increasing (W)Finance Fords revenue is increasing by 6% compared to 2010. (S) High liquidity ratio compared to industry (S) Receivables turnover is faster than that of industry average (S) The gross profit margin is increasing from 2009 (S) Shareholders might not be satisfied, although the EPS is increasing it is still below the industry average by far (W) Healthcare & life insurance liabilities affecting the liquidity position (W) Higher-than-expected credit losses; mainly because of economic factors including unemployment, consumer debt service burden, personal income growth, dealer profitability, and used car prices (W)R&D Ford received a huge loan from USA government to produce fuel-efficient model & electric cars (S)Operations Single-source supplies all components & materials, where Many components used in Fords vehicles are available only from a single supplier and cannot be re-sourced quickly or inexpensively to another supplier (W) Growth in Sales of North America (by 10%), & South America (by 8%) compared to 2010 (S) Sales in Europe, Asia & Pacific are stagnant compared to 2010 (W) Ford market share is growing slowly (W)Human Resources Ford stoppages at limiting production due to labour disputes, as a result of disputes under existing collective bargaining agreements with labour unions or in connection with negotiation of new collective bargaining agreements, or as a result of supplier financial distress or other production constraints or difficulties, or for other reasons. (W)Analysis of Strategic FactorsStrengths Automotive financing products through Ford Motor Credit Growth in Sales of North & South America Revenues are increasing High liquidity ratio Receivables turnover is faster The gross profit margin is increasing Loan form USA Government to help in R&DWeaknesses Sales in Europe, Asia & Pacific are stagnant Slowly growth of Market share Labour disputes Single-source supplies all components & materials Discovery of defects resulting in delays of new launches & reputational damage Higher-than-expected credit lossesOpportunities The Economy expected to have a growth of 4% in 2012 Increased demand for smaller vehicles Trend from consumers towards buying energy-saving cars Threats Europe Economy is stagnant Raw materials cost are fluctuating Pressure from consumers to decrease prices Fluctuations in Exchange rates & Interest rates Increase in Fuel Prices Supplier are imposing pressures to receive their money quickly Many banks is competing in offering car loans Higher unemployment rates Strategic PrioritiesAfter finalizing the 5 matching tools & taking the common strategies among all tools, which are: (Intensive) Product Development, Market Penetration & (Integration) Backward Integration respectivelyWeighting, AS & TAS scores reflected the priorities of the three main strategies: 1. Priority 1: Product Development (TAS: 5.65) which mainly utilizes the trend towards fuel efficient cars, USA loan to intensify the R&D, global pricing pressures from consumers & high fuel prices along with utilizing the additional liquidity position that Ford reached to.2. Priority 2 (Contingency Plan): Market Penetration (TAS: 4.85) which mainly utilizes the global economic growth rate of 4%, extra promotions & advertisements to the existing customers base & providing customers & dealers credit incentives to adapt to the new global saving trends3. Priority 3: Backward Integration (TAS: 3.45) through utilizing the extra cash & good liquidity position & overcome the threats of fluctuating raw materials & high power of suppliers to open its own raw material factory to supply its own operations & avoid the above threatsImplementation Tips Establish a mission committee (ProductDevelopmentTeam), including one member from each department, in order to enhance the strategy communication, aligned on one vision, mission and objective and will come up withan efficient and effectives product development. This committee should be responsible on building a detailed plan, where objectives will be subdivided into tasks then steps. This will facilitate evaluation & control of Strategy implementation Understanding the new forces of the new economic situation (energy saving , low price, fuel efficient,...) dimension should be taken into consideration during the product development phases Expertise of each function should be recruited if neededEvaluation & Control TipsBalanced Score Cards (BSC) management tool should be designed and implemented through Management Information System for each and any function or task during strategy implementation phases, which willfollow, control, evaluate and correct the implementation in order to meet the desired objectives

References Ford Motor Company Annual Report, December11

AppendixExhibit 1; EFE & IFE for Ford Motor CompanyExternal FactorsWeightRatingWeighted Score

O 1The Economy expected to have a growth of 4% in 2012 10%10.1

O 2increased demand for smaller vehicles 10%10.1

O 3trend from consumers towards buying energy-saving cars 10%10.1

T1Europe Economy is stagnant5%20.1

T2Raw materials cost are fluctuating 10%10.1

T3Pressure from consumers to decrease prices 15%20.3

T4Fluctuations in Exchange rates & Interest rates5%10.05

T5Increase in Fuel Prices5%10.05

T6Supplier are imposing pressures to receive their money quickly10%10.1

T7Many banks is competing in offering car loans15%30.45

T8Higher unemployment rates 5%30.15

Total Score100%1.6

Internal FactorsWeightRatingWeighted Score

S1Automotive financing products through Ford Motor Credit5%40.2

S3Growth in Sales of North & South America10%10.1

S4Revenues are increasing 5%10.05

S5High liquidity ratio5%30.15

S6Receivables turnover is faster5%10.05

S7The gross profit margin is increasing5%30.15

S8Loan form USA Government to help in R&D15%20.3

W1Sales in Europe, Asia & Pacific are stagnant5%20.1

W3Slowly growth of Market share10%30.3

W4labour disputes10%20.2

W5Single-source supplies all components & materials15%10.15

W7Discovery of defects resulting in delays of new launches & reputational damage5%10.05

W8Higher-than-expected credit losses5%30.15

Total Score100%1.95

Exhibit 2; EFE & IFE for Ford AutomotiveExternal FactorsWeightRatingWeighted Score

O1The Economy expected to have a growth of 4% in 2012 10%10.1

O2increased demand for smaller vehicles 10%20.2

O3trend from consumers towards buying energy-saving cars 15%30.45

T1Decline in industry sales of US & Europe due to impact of financial crisis5%30.15


T3pressure from consumers to decrease prices 15%30.45





Total Score100%2


S1Strong Balanced Portfolio of fuel efficient vehicles15%4 0.60

S2Perception of Ford as an affordable Car5%2 0.10

S3Growth in Sales of North & South America10%1 0.10

S4Auto Revenues & sales increase5%2 0.10

S5Total decrease of Ford Auto debt 5%2 0.10

S6Loan from USA Government to help in R&D10%2 0.20

W1Sales in Europe, Asia & Pacific are stagnant5%2 0.10

W3Slowly growth of Market share10%3 0.30

W4labour disputes10%3 0.30

W5Single-source supplies all components & materials15%1 0.15

W7Discovery of defects resulting in delays of new launches & reputational damage10%1 0.10

Total Score100%2.15

Exhibit 3; EFE & IFE for Ford Motor CreditExternal FactorsWeightRatingWeighted Score

O1The Economy expected to have a growth of 4% in 2012 10%10.1

O2increased demand for smaller vehicles 10%30.3

O3trend from consumers towards buying energy-saving cars 15%30.45

T1Decline in industry sales of US & Europe due to impact of financial crisis5%30.15


T3pressure from consumers to decrease prices 10%30.3





Total Score100%2.5


S1Variety of Automotive financing products to customers & non-customer15%40.6

S2Retail Financing Installements of used Cars10%30.3

S4Offering credit incentives to car dealers15%30.45

S6Global coverage through FCE worldwide trade financing division5%20.1

S7Regional Credit business centers in US & Canada5%20.1

S8FCE "Ford's Credit Largest Operation" in Europe10%20.2

W3Revenues decreasing10%20.2

W4Debt is increasing10%20.2

W6Inability of Ford credit to access debt at competitive rates15%40.6

W8Higher-than-expected credit losses5%30.15

Total Score100%2.9

Exhibit 4; Ratio Analysis for Ford Motor CompanyFord Motor CompanyIndustry Average

Valuation Ratios

P/E Ratio (TTM)2.411.5

Price to Book (MRQ)2.291.28

Price to Tangible Book (MRQ)2.31.67

Price to Cash Flow (TTM)1.85

Price to Free Cash Flow (TTM)11.7-14.6

Dividends

Dividend Yield (%)21.8

Payout Ratio (TTM)29

Growth Rates (%)

Sales - 5 Yr Growth Rate (%)-4.7-9.39

Capital Spending - 5 Yr Growth Rate (%)n.a.-16.38

Financial Strength

Quick Ratio (MRQ)1.71.1

Current Ratio (MRQ)1.81.4

LT Debt to Equity (MRQ)4.230.95

Total Debt to Equity (MRQ)5.031.42

Interest Coverage (TTM)2.72.6

Profitability Ratios (%)

Gross Margin (TTM)19.222

EBITD Margin (TTM)10.311.5

Pre-Tax Margin (TTM)5.22

Management Effectiveness (%)

Net Profit Margin (TTM)0.130.03

Return on Assets (TTM)9.82.1

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Exhibit 5; SWOT MatrixStrengthsWeaknesses

S1Automotive financing products through Ford Motor CreditW1Sales in Europe, Asia & Pacific are stagnant

S3Growth in Sales of North & South AmericaW3Slowly growth of Market share

S4Revenues are increasingW4labour disputes

S5High liquidity ratioW5Single-source supplies all components & materials

S6Receivables turnover is fasterW7Discovery of defects resulting in delays of new launches & reputational damage

S7The gross profit margin is increasingW8Higher-than-expected credit losses

S8Loan form USA Government to help in R&D

OpportunitiesO1The Economy expected to have a growth of 4% in 2012 S1O1: Market Penetration: Utilizing the credit facilities to grab the opportunity of growing economy S4 - S8: O2: Product Development: Utilizing the good liquidity position & excess cash to grab the opportunity of new smaller car trends S4 - S8: O3: Product Development: Utilizing the good liquidity position, excess cash & USA loan to grab the opportunity of new energy saving car trends Opp1,W1: Market Penetration: Capitalizing on the growing economy to increase the sales in Europe, Asia & Pacific Opp2,W3: Product Development: Grab the opportunity of new smaller car trends to increase Ford's market share Opp3, W3: Product Development: Grab the opportunity of new energy saving car trends to increase Ford's market share Solution: W7: Building up a ford service centre to eliminate the delays & lift up the brand image or reputation

O2Increased demand for smaller vehicles

O3trend from consumers towards buying energy-saving cars

ThreatsT1Europe Economy is stagnant S1T1,T3, T8: Market Penetration: Capitalizing on the existing credit facilities to face the price pressures & global high unemployment to facilitate customers lives S8T5: Product Development: Utilize the USA loan to speed up the R&D of fuel efficient cars to win the customers especially with the increase in fuel prices S4:S7,T2T6: Backward Integration: Utilizing the extra cash & good liquidity position & overcome the threats of fluctuating raw materials & high power of suppliers to open its own raw material factory to supply its own operations & avoid the above threats Solution: S1T7 through extensive ads & promotions Solution W5T6: Widening the range of suppliers (Recommended a supplier for each category) W4:T8: Cutting cost through terminating employees causing stoppages & hiring the unemployed ones with lower cost

T2Raw materials cost are fluctuating

T3pressure from consumers to decrease prices

T4Fluctuations in Exchange rates & Interest rates

T5Increase in Fuel Prices

T6Supplier are imposing pressures to receive their money quickly

T7Many banks is competing in offering car loans

T8Higher unemployment rates

Exhibit 6; SPACE MatrixInternal DimensionExternal Dimension

Competitive AdvantageSlowly growth of Market share-4Industry PositionThe Economy expected to have a growth of 4% in 2012 6

Sales in Europe, Asia & Pacific are stagnant-5Europe Economy is stagnant2

Growth in Sales of North & South America-2Raw materials cost are fluctuating 1

Single-source supplies all components & materials-6Fluctuations in Exchange rates & Interest rates3

Automotive financing products through Ford Motor Credit-1Increase in Fuel Prices2

Ford received a huge loan from USA government to produce fuel-efficient model & electric cars-2

labour disputes-5

Discovery of defects resulting in delays of new launches & reputational damage-6

Total Competitive Advantage Weight-3.88Total Industry Position Weight2.8

Financial StrengthRevenues are increasing 5Stability Positionpressure from consumers to decrease prices -5

High liquidity ratio6increased demand for smaller vehicles -2

Receivables turnover is faster4trend from consumers towards buying energy-saving cars -1

The gross profit margin is increasing6Supplier are imposing pressures to receive their money quickly-2

Higher-than-expected credit losses2Many banks is competing in offering car loans-1

Higher unemployment rates -4

Total Financial Strength Weight4.6Total Stability Position Weight-2.5

(0.725, 0.3)((

Exhibit 7; BCG MatrixThe BCG matrix is applied for the two business units of Ford: Ford Automotive business & Ford Motor Credit business.Market Growth Rate (Cash Consumption)Relative Market Share (Cash Generation)

HighLow

HighStars(Ford Automotive Business)Question Mark(Ford Credit Business)

LowCash CowsDogs

Ford Automotive Business:Ford Automotive as one of the market leaders in the automotive business - generating over 67 million in sales volume in 2011, consuming a huge deal of cash in a quickly growing market with new customer trends & needs such as smaller, fuel-saving & environment friendly cars in an intense competitive market has been placed as a Star in Fords business portfolio. A Star that is utilizing integration (backward integration), intensive (Market Penetration & Product Development) and Related Diversification and heading directly to a cash cow that generates a huge amount of cash but consumes a low amount of cash. Ford Motor Credit Business:Ford motor credit is considered a Question Mark that is losing market shares, generating low cash flow vs. its competitors in a quickly growing market that is consuming lots of cash & is characterized by price pressures from customers, high unemployment rate, intense competition coming from banks to car loans, increase in fuel prices, etcThus; as part of Fords efforts to shift their motor credit business into a star, Market Penetration strategy is being conducted to capitalize on Fords strength, capitalize on the expected economy growth opportunity & overcome the threats price pressures, intense competition, the stagnation of the European market of which Ford Motor credit already exists in.As a result of this strategy, Ford Motor credit is expected to have a higher relative market share compared to other competitors in the same quickly growing market.Theoretically, BCG tool in portfolio analysis has some serious limitations such as the assumed relationship between high market share & cash generation. Thus; IE Matching tool is utilized to overcome these limitations in a more accurate portfolio analysis.

Exhibit 8; Internal External MatrixIFE TWS

Strong (3.3.99)Average (2.2.99)Weak (1.1.99)

EFE TWSStrong (3.3.99)

Average (2.2.99)(Motor Credit Business) (Automotive Business)

Weak (1.1.99)

Ford automotive business & Motor Credit business are both candidates for Hold & Upgrade Bundle 2, stabilize on 5 utilizing Integration (Backward Integration) & Intensive (Market Penetration & Product Development) Strategies.

Exhibit 9; QSPM Matrix#Key Strategic FactorsWeightStrategic Alternative

Market PenetrationProduct DevelopmentBackward Integration

AS TAS AS TAS AS TAS

Strengths

S1Automotive financing products through Ford Motor Credit5%4 0.20 3 0.15 10.05

S3Growth in Sales of North & South America10%4 0.40 2 0.20 1 0.10

S4Revenues are increasing 5%3 0.15 4 0.20 2 0.10

S5High liquidity ratio5%3 0.15 2 0.10 4 0.20

S6Receivables turnover is faster5%3 0.15 2 0.10 1 0.05

S7The gross profit margin is increasing5%2 0.10 3 0.15 4 0.20

S8Loan from USA Government to help in R&D15%2 0.30 4 0.60 1 0.15

Weaknesses

W1Sales in Europe, Asia & Pacific are stagnant5%4 0.20 3 0.15 1 0.05

W3Slowly growth of Market share10%3 0.30 4 0.40 1 0.10

W4labour disputes10%------

W5Single-source supplies all components & materials15%1 0.15 2 0.30 4 0.60

W7Discovery of defects resulting in delays of new launches & reputational damage5%2 0.10 3 0.15 1 0.05

W8Higher-than-expected credit losses5%3 0.15 2 0.10 1 0.05

Opportunities

O1The Economy expected to have a growth of 4% in 2012 10%4 0.40 3 0.30 2 0.20

O2increased demand for smaller vehicles 10%3 0.30 4 0.40 1 0.10

O3trend from consumers towards buying energy-saving cars 10%3 0.30 4 0.40 1 0.10

Threats

T1Europe Economy is stagnant5%4 0.20 3 0.15 1 0.05

T2Raw materials cost are fluctuating 10%1 0.10 3 0.30 4 0.40

T3pressure from consumers to decrease prices 15%4 0.60 3 0.45 1 0.15

T4Fluctuations in Exchange rates & Interest rates5%2 0.10 1 0.05 3 0.15

T5Increase in Fuel Prices5%2 0.10 4 0.20 1 0.05

T6Supplier are imposing pressures to receive their money quickly10%1 0.10 2 0.20 4 0.40

T7Many banks is competing in offering car loans15%2 0.30 4 0.60 1 0.15

T8Higher unemployment rates 5%------

QSPM 4.85 5.65 3.45

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Strategic Audit for Ford Motor Company - V1.2