Analysis Of Ford Motor Company Through Porter’s Five Forces Model

Introduction

Since 1903, Ford Motor Company has been a leader in the automotive industry. Henry Ford wanted to create a better motor car that would also be affordable to all consumers. Until 1999, Ford Motor Company saw remarkable profits and held a 24. 8% U. S. market share. Ford’s CEO at the time focused their efforts on acquisition and diversification, rather than new vehicle development. This huge mistake cost Ford a 6% drop in market share and the CEO lost his job. After this loss Bill Ford, Ford’s chairman, started the search for a new CEO that would help bring the company back on top. Ford’s new CEO, Alan Mulally, joined after a history with Boeing Commercial Airlines. At Boeing, Mulally helped to gain the top position in the market and he planned on doing the same at Ford. Mulally was determined to cut costs and transform how the corporation did business. Ford released their “ONE Ford plan” to create a clear and universal plan for all of their business partners. Mulally implemented the One Ford vision by focusing on globalizing their brand. At the time, Ford was an American brand name that wasn’t as favorable in outside countries. The plan was to expand to Asia and Europe because their segments were the same as in North America. It was easier said than done, Ford struggled with their global strategies and even product recalls. Looking at Michael E. Porter’s concept on the “Five Forces”, Mulally has to consider their new entrants, the power of their consumers, the power of their suppliers, the threat from competing products, the rivalry from their competition, and the economy. All of these forces just made Ford stronger in the end.

Background

Since Ford Motors Company has such a historical presence in the automotive industry it is not surprising that little change has been involved in their management strategy. It is often difficult for a company to stray from a system that has worked for such a long period of time. Similar to any market the automotive industry was ever changing and Ford Motor Company had to adapt to the times. Since Alan Mulally came from an outsider’s point of view it helped bring different ideas to the Ford’s management platform. Alan Mulally played an intricate role in revolutionizing the concept behind Ford Motor Company, which was the “One Ford” philosophy. Alan had three main priorities which were to determine the brands Ford would offer, second, to be “best in class” for all its vehicles, and third to make sure that those vehicles would be accepted and adapted by consumers around the globe. The “One Ford” message was intended to communicate consistency across all departments and all segments of the company requiring all departments and all segments of the company to work together as one team with one plan and one goal. Mulally’s concept is simply unifying the company to increase efficiency and profitability. Michael E. Porter developed the five forces model that illustrated how each force is used to explain an industry’s profitability. The “five forces” model is described as five basic competitive forces which are, threat of new entrants, bargaining power buyers, bargaining power of suppliers, threat of substitute product and services, and the intensity of rivalry among competitors in an industry. With Mulally’s concept of “One Ford” Porter’s five forces model plays a major role in many decisions that he used in different sectors within the company. Ford Motor Company had to reevaluate within the automotive market and therefore had to dive into Porter’s five forces in order to increase market share and its competitive position. These five forces will be used to help demonstrate Ford’s background information, operations and theories they have developed to help better the brand. Ford Motor Company has been around for many years and throughout those years the forces have been tested.

Discussion

The first force is the threat of new entrants. Because of the type of industry Ford is associated with, automotive, there are many old and new entrants, also known as competitors, out there that they must look out for. Porter described the heart of competition as creating value, not beating rivals. When products are high in demand there are always multiple options available for consumers. No matter what the industry is there is a technology component that will always help a company innovate. An example for a possible threat of new entrant for Ford would be Apple, who might enter the industry with a self-driving vehicle in 2020. Looking ahead there are several shifts that will create challenges for Ford like, interest, worldwide components, and electric or alternative fueled vehicles. How they choose to handle situations like this will determine how long the company will survive. Another upcoming threat for Ford Motors Company would be Tesla. Tesla similar to Google is creating new technology to almost create a different sector within the automotive industry contrast to the typical automobile. Tesla has emerged as one of the pioneers in a different kind of car and it actually the most advanced in the area of its autopilot system. Tesla is not just innovated with its technology similar to Apple and Google but it is also innovative with its sales force. Tesla has eliminated the franchised dealerships and has created the concept of the customers purchasing directly from Tesla themselves. It seems most of the emerging companies have very innovative concepts that Ford Motor company needs to reevaluate to keep up with changing times.

The second force, bargaining power of buyers, emphasizes the power that the customers hold. Consumers drive the business because without them there would be no one to buy products and services. Cars and trucks in particular are items that aren’t bought as much as toothpaste due to its durability. In 2013, the average age of a vehicle was climbing up in double digits at around 11 years or older. Because of this, the replacement demand for vehicles increased sales for year 2015 and beyond. When it comes to products that aren’t bought regularly buyers tend to hold out before buying either because of the price of the product or how stable the economy is at the time of purchase. For example, in the year 2010, oil prices began fluctuating causing consumers’ buying habits to change and reducing demand for larger vehicles. However, later in 2014, gas prices stabilized enough to change customers’ buying habits again, sparking their interests in SUVs.

The third force, bargaining powers of suppliers, changed due to Alan Mulally, Ford CEO beginning 2006, creation of the ONE Ford vision. This vision was created to show the consistency across the board; one goal, one team and one plan. To implement this vision Ford decided to cutback on costs. For instance, 14 plants closed, 30,000 plus jobs were cut, and they reduced suppliers from 1,150 to 750. Cutting back helped Ford exceed the targeted $5 billion cost cuts by the end of 2008. According to ICD reports based upon 2014, the cost structure of Fords has dramatically improved and the balance sheet greatly strengthened. Though cutting back on suppliers has helped Ford get to their goal, there could be a downfall in regards to force number three. If the remaining suppliers find out that Ford receives supplies from less suppliers they do have the power to increase their prices, which will defeat the purpose of eliminating suppliers. Though Ford can choose to cutback it is ultimately the suppliers who have the power. Since Ford is trying to increase their presence in the global market they have used international suppliers to assist in the process. However this process seemed to backfire in 2014 when Ford used Japanese airbag maker Takata but unfortunately Ford had to recall 850,000 vehicles. Often when companies use multiple vendors to the same product, in this case airbags, there is threat in quality and risk uniformity in the product.

The fourth force, is the threat of substitute products and services, refer to products or services that can be bought if the consumers first choice is not there or no longer is their first choice; a substitute. For the automobile industry, substitutes include Toyota, Nissan, Chevrolet, and etc. With many places open for customers to find cars it makes the industry’s competition tough. Not only does Ford need to look at who their competition is they also need to pay attention to what their competing brands are doing to keep their customers loyal. Japanese companies are starting to pose a real threat to Ford and other United States car manufacturers. To help companies like “Nissan, Toyota, and Honda from being seen as a foreign company, they built production facilities in the United States in-order to gain acceptance from American consumers. Soon after Japanese companies, became see as a better value proposition than Detroit’s product”.

The fifth force, intensity of rivalry among competitors in an industry, tells Ford what other brands are doing. Around 1980 Japanese carmakers started to make their entrance into the business and quickly gained buyers interests with their quality cars at exceptional prices. However, David Sargent, vice president of global vehicle research at J. D. Power and Associates, says that making vehicles with high quality is just some of the struggle because convincing the buyers to trust in the quality vehicle is just as important. The Japanese car makers already have this trust of many consumers often swaying many consumers to their product eliminating those potential customers from Ford. Ford took notice of this intensity from Japanese carmakers and pushed themselves to improve on their vehicles and customer belief by hiring a new CEO with a new vision.

Another factor that can affect businesses is economic power. The economy is a factor that cannot be controlled but there are precautionary measures that can be taken just in case the economy falls. For instance, in 2009 there was a economic downfall so large it caused a financial disaster for automakers in the United States, except Ford who had a solid plan and precautionary measures that they were able to avoid bankruptcy making them the competitor to beat.

With the way that Ford has handled these forces, it shows that they are a powerful contender in the automotive industry. As Ford’s chief financial officer, Donat R. Leclair, said they are actually focused on hitting the numbers and can communicate how far off the plan they are. If they can pinpoint their mistakes and know how to fix them, it shows why they have been so successful. Ford has had best sales performance for 11 years in a row and their F series pickup has been the best selling truck for 38 years straight. With numbers like these it’s not hard to prove Ford’s success. Ford management believes the ONE Ford plan to be fundamental and can help them grow going forward. However, due to many unforeseen global changes, government regulations, fluctuations and the continuing need for innovation, will the ONE Ford motto continue to bring success to Ford?

The “One Ford” motto made many adjustments using the theory of Porter’s five forces in order to gain an advantage to the automotive market. A main change is how Ford is trying to adapt to the international automobile market. Ford is attempting to create uniformity to its products and offering the same models that are offered in the United States. This strategy, how Ford, faced with competition will achieve superior performance; will help create awareness of various brands and styles that may not be as prevalent in other national markets. Mulally also made a priority to become first in its class. The first step in doing to is concentrating on a fewer number of products which they have done successfully. Ford has gone from selling 97 different automotive products to just 20. Ford is now able to concentrate on fewer products, which will increase the quality and performance of each vehicle. Similar to the F-series for Ford the ultimate goal is to be top of the class in multiple categories such as sedans. Overall Ford is going towards the right direction in adapting new ideas, cutting costs, and creating uniformity throughout the company.

Recommendations

For an automobile company to stay competitive and relevant within the market, they need to adapt and innovate their vehicles. Consumers generally want to buy vehicles that have the newest technology, are affordable and have extensive safety features. For the past couple of years, consumer demands have increased in acquiring hybrid and fully electric vehicles than ever before. “By 2025, 25% of cars sold will have electric engines, up from 5% today. But most of those will be hybrids, and 95% of cars will still rely on fossil fuels for at least part of their power. ”

In order for Ford to increase their car sales percentage, they need to invest in their research and development department and revolutionize their vehicles. Ford is not the only automobile company changing their design and in result is facing severe pressure from new market entrants. The combination of technology driven companies, Apple and Google, and the up and coming automobile brand, Tesla Motors, are pursuing innovation and creating self-driving vehicles. The future of creating technology driven vehicles is what the new market and consumers are looking for. In the past century, technology has advanced rapidly and will continue to do so. Ford has been able enter the market and adapt to current technology pressures by implementing SYNC Tech in several of their Ford models, which gives the consumer hands-free technology. Ford SYNC Tech has done great, but it needs to be implemented in every new model as a standard feature. Many car models will have different versions and there is always one that includes all the features and is the most expensive of that model type. For a vehicle to compete with others it must surpass it in the technology it offers to consumers and offer the features as a standard and not as an extra feature that has to be paid for. Several competing companies have used Active Park Assist, so Ford is required to adopt this technology and make it better if possible for consumers to stay loyal to the company. There are other various features that are becoming popular additions to vehicles such as, pre-collision assist with pedestrian detection, standard rear view cameras, blind spot monitors, lane departure assist and cruise control with stop and go. With many other competing companies using these same technological features, it is required and recommended for Ford to get ahead of the game and come up with new additions to their vehicles that will make them stand out. Safety is always a top priority for consumers when looking for a car and a major concern to automakers because consumers are relying on them. The car industry has many regulations and requirements to follow to make sure that a car is suitable for the road. There have been many recalls in recent years for safety reasons on various brand name vehicles.

Ford needs to make sure to avoid going through expensive recalls that could drain resources, increase liabilities and anger consumers. After all the threat of a recall can damage the Ford image and increase the probability that consumers will choose other competitors. Quality is a benefactor that consumers look for when shopping for a car. Ford should consider committing to manufacturing affordable yet quality orientated vehicles. The sight of a luxury car and the sleek design will always attract a consumer’s eye and if Ford can achieve that they would gain the image of a luxury car at an affordable price. For an example, Tesla went from an above average price car to an affordable price with the same features it originally had in order to be available to the majority of consumers. If Ford would commit to quality, luxury looks and technological features it would outperform in the automobile industry market and maintain themselves as the leading car company. With heavy competition, Ford only has one option and that is to continue being part of the innovative culture and continue to adapt to all the changes that are to come. Blockbuster is a perfect example of how a company did not adapt to change. They may not be part of the car world, but they do provide a service to customers in a similar way that Ford does. Blockbuster was once the main source for access to movies and games, but it quickly became nothing when streaming was the up and coming trend and they were not able to adapt to the change. Ford is the one who revolutionized transportation, but that doesn’t prevent them from becoming unknown in the future if they don’t quickly adapt.

Conclusion

After a long battle Ford is starting to see improvement. In 2015, Ford was the fourth largest car manufacturing company in the world. They have risen above the competition, regardless of their corporate problems. After seeing a 56% drop in profits and a 6% drop in market share, there needed to be a large internal change. The first step was hiring Alan Mulally, a former executive from Boeing Airlines. The changes Mulally implemented have helped them reach their goals of reducing corporate complexity and cutting spending costs. Mulally aligned Ford with his “ONE Ford” plan and made changes to the plan by using Porter’s Five Forces whenever necessary. With companies like Google making plans to enter the automobile industry, Ford needs to stick with their “ONE Ford” plan. For the future, Ford Motor Company should work on discovering new technology to make their company and cars more innovative. Ford also needs to ensure that they are a reliable and safe, while still remaining innovative. Ford’s consumers want to see a company that works hard regardless of the forces pushed at them. As the market around Ford is changing so rapidly, Ford needs to change with it.

10 December 2020
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