Ford Motor Company Strategic Report
External Analysis
The Ford Motor Company is one of the leading automobile manufactures in the United States for the past century. With this Five forces analysis it will identify the industry’s most important factors and how they can affect a leading manufacture like Ford. It would be very difficult for a new competitor to enter this industry because of the fierce competition that is already in it. It would be very expensive for a new company to start up and also the cost of staying afloat would also be devastatingly high. Lastly developing into one of the top firms would take lots of time and money so because of that the threat of new entry is low. Fixed costs in this industry would consist of warehousing spaces as well as machinery and other operating devices used to run a production line. As of 2017 the firm’s net fixed asset turnover ratio was 4.12, according to stock analysis on net. Economies of scale is a hug factor in this industry since firms need to sell a large output of cars in order to make a profit. Brand loyalty is a moderate factor due to the switching costs being low for the consumer. With competitive rivalry it is identified that this is a very strong force.
The auto industry is brutal due to dozens of other car companies flooding the market and all competing at a high level. Just a few of the key competitors in this industry are Toyota, Honda, GM, Chrysler, and Volkswagen. This industry is fragmented because not one firm controls the market and leads it in the direction they choose. The car industry will always be growing with new innovation. This industry has a high exit barrier because firms will not just simply give up and stop competing against Ford because of the large investments made to give their firms life. The number of competitors is moderate with ford being one of the top 5 firms in the industry. Those top 5 firms sell 70 percent of their automobiles to the United States market. It’s not a big deal for customers to switch from one firm to another but automobiles are a big investment so it is not that often that you see someone switching firms so quickly. This would prove that switching costs are moderate in this industry. The key buyers are still known to be the baby boom generation, according to US Today.
This industry has a moderate number of substitutes and it is not hard for a customer to abandon a firm’s product and switch to a substitute so it seems that the bargaining power of buyers is moderate. There is a moderate supply as well as a moderate population of suppliers in this industry and that is why there is a moderate bargaining power of suppliers. Firms are granted a limited amount of bargaining power with suppliers. Some of the top suppliers in this industry are Bosch, Continental, and Denso, according to Statista. Suppliers in this industry are most definitely reliant on firms as a primary source of revenue because without them they would have to find a different industry to produce for. The number of substitutes in this industry are scarce. Of course there are bicycles and public transportation but it is very easy for American’s to buy and finance a car and not many people get around by bicycle compared to those who travel by car. Switching costs are low because the consumer can switch to public transportation or riding a bike but it is not very convenient for them to travel that way and would definitely take longer for them to get around. With these factors being considered its apparent that the threat of substitutes is low.
Strategic groups in this industry would be based off of price and quantity of different products they produce. Ford belongs to the moderately priced group and has a high quantity of different models ranging from SUVS to cars to trucks. Macro environment trends in this industry consist of countries trying to reshape their ecological and economical intentions. Consumer confidence has dropped due to the higher percentage of unemployment in the last decade. Also the upcoming innovation in the industry that has led to large technological growth. With that being said that most significant threats would be government regulation due to the diminishment of the environment and the affect that automobiles have on it. As well as the fear of the consumer due to the lack of employment with a risk of substitutes being implemented. A significant opportunity would be making more fuel efficient or environmentally friendly cars at a cheaper price to get a competitive advantage on other firms.
Internal Analysis
One resource Ford has that carries all of VRIN’s attributes is that it is a strong dominate brand. They are the first automobile company and one of the two companies that did not file for bankruptcy during the recession that started in 2008, according to Elon Musk.
Another resource is their distribution network. This network covers all of VRIN’s attributes and covers 6 continents and is the leading automotive company in America. One last resource is the new all aluminum body design for pickup trucks which gives the truck a lighter weight for better gas mileage and also covers all of VRIN’s attributes. These resources give Ford a competitive advantage with the first and last one being a sustained competitive advantage because it is hard for other companies to replicate what they have done and second one could potentially be temporary due to a distribution chain that can be replicated and used by other competitors. Fords ROIC as of 2017 was calculated at 4.56%, according to Morningstar. Over the last 5 years Fords ROIC has been pretty consist. In 2013 it was at a 5 year of 5.93% with it hitting a 5 year low of 2.44% in 2014. Ford no longer has a strong competitive advantage in my opinion due to the fact that there are so many other firms that can achieve the same major innovations that Ford does.
Although are one of the world’s leading car companies they still don’t hold much advantage over the other top companies to claim that they are the best. The automotive industry is really competitive and it is hard to succeed in and with their ROIC over the last 5 years it shows that they are not dominate enough to claim a strong competitive advantage.
