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The Revolution at Ford
History Innovation Nasser's Stratey Will it Work? Sources If most American's were asked the question, "who invented the automobile?", a high percentage of the answers would be, "Henry Ford." This popular misconception is a tribute to the man who made the automobile possible for millions of people. 2 Although it is generally conceded that the automobile was conceived and born in Europe, a number of American and European experimenters were working on the idea at approximately the same time in the late 1800's. However, full credit can be given to Henry Ford for building the automobile millions could afford. His guiding philosophy was: "I will build a motor car for the great multitude…it will be so low in price that no man…will be unable to own one."
The Ford Motor Company was launched in a small converted wagon factory in Detroit on June 16, 1903. Its assets consisted of tools, appliances, machinery, plans, specifications, blueprints, patents, a few models and $28,000 in cash supplied by 12 investors. Along with Henry Ford, the first stockholders of the corporation were a coal dealer, the coal dealer's bookkeeper, a banker (who trusted the coal dealer), two brothers who owned the machine shop that made the engines, a carpenter, two lawyers, a clerk, the owner of a notions store and a man who made windmills and air rifles. 2 The first car was offered for sale later that year. It was described as "the most perfect machine on the market" and "so simple that a boy of 15 could run it." The first sale was made to Dr. E. Pfennig, of Chicago, who bought the car a month after the company's incorporation. This gave much delight to many of the worried stockholders who were nervously eyeing a bank balance that had dwindled down to $223. 2 After only one year the Ford Motor Company inaugurated its foreign expansion program. In 1904 it opened a plant in Walkerville, Ontario, named Ford Motor Company of Canada, Ltd. As of today, Ford has manufacturing, assembly or sales facilities in 30 countries worldwide. Ford produces millions of cars, trucks and tractors annually; it is a leader in automobile sales outside North America. 2 In January of 1956, Ford Motor Company became a publicly owned corporation. Since going public, the company has continually revolutionized the car industry. One of the first expamples of the innovation occurred in the 1960's. At this time, Ford Motor Company recognized a strong market demand for an inexpensive sporty new vehicle targeted to the young buyer. Lee Iacocca, then the General Manager of the Ford Division, personally sold the startling new concept to Henry Ford II and a skeptical finance department. Start-up costs for this new model were only $75 million due to the incorporation of the existing Falcon engine, transmission and axle. Although the innitial costs were low, the return on investment would prove to be phenomenal. 2 In 1964, The Mustang exploded onto
the scene with an introduction that drew thousands to showrooms across
the country. Such intense interest in an automoble hadn't been witnessed
since the introduction of the Model A. The sharp, 4-seat 1965 Mustang
became the known as the "darling" of America. 2 Another Ford Motor Company success story occurred on the heels of the recession of the early 1980's. Skyrocketing gas prices and declining car sales prompted Ford to create a vehicle that was both fuel-efficient as well as radically different in design. The goal was to produce a world-class leader in the middle to upper middle market segment. The result was the Ford Taurus and Mercury Sable. These automobiles set the stage for future design trends in the auto industry, and embodied a new commitment to quality throughout the ranks at Ford. 2 At a time when Ford's losses were staggering, the $3.5 billion gamble on the Taurus' success represented dramatic decision-making. No one was certain how the public would respond to a daring new aerodynamic look. However, Ford took the risk and. Team Taurus was established with the objective of achieving perfection in every detail. With support from top management, the team members were uncompromising in their commitment. Everyone became involved in the development of Taurus, from the company's top executives to assembly line workers. Feedback was solicited and suggestions implemented. A feeling of dedication prevailed. Ford Motor Company worked together on all levels to make the Taurus a winner. 2 The risk put forth in the Taurus paid off in a big way. Although the Taurus' introduction had been postponed for over one month (after the team discovered that quality was not up to its rigorous standards), it did not effect sales. As it turned out, even the busy holiday season and cold weather didn't hamper the late arrival. The Taurus was named 1986 Car of the Year and in 1987 was the No. 1 selling car in America. 2 Ford's product innovation would continued into the next decade. 1993 produced the debut of the Ford Mondeo, (European "Car of the Year" and the first of Ford's family-size world cars), along with the redesigned Mustang. Introduced as a 1994 model, the Mustang quickly became another hit with consumers. Also new for 1994 were the Ford Aspire and Ford Windstar minivan. The Ford Contour and Mercury Mystique, North American versions of the world car, outsold their nearest Japanese competitor by 88,000 units in the 1995 calendar year. North America then saw Ford take the wraps off the redesigned Ford Taurus and Mercury Tracer which revealed the first major changes to the vehicle since it stormed the market in the mid 80s. 2 Ford has always strived for continuous improvement in the product and design of their automobiles. Today, Ford's plans for continued expansion domestically as well as overseas. Ford continues to be the world's largest producer of trucks, and the second largest producer of cars and trucks combined. They sell more than 70 different types of vehicles worldwide, marketed under the Ford, Lincoln, Mercury, Jaguar and Aston Martin brands. Ford also has equity interests in Mazda Motor Corporation (33.4 percent) and Kia Motors Corporation (9.4 percent). However, the current CEO Jac Nasser has plans to alter Ford's primary focus. For nearly the past one-hundred yeary Ford has been the symbol of mass automobile producution. In recent years, however, automobile compaines have been struggling to produce high returns on their investments. For this reason, Mr. Nasser has plans to turn Ford from a simple car manufacturer into a leader in consumer products and services. 1 The first thing Mr Nasser plans
is to diversify into services related to cars. This was the idea behind
Ford’s recent purchase of the Kwik-Fit
exhausts-and-brakes chain in Europe. It is Nasser's hope that these businesses along with services such as leasing, renting, insurance, finance and car repair can all achieve opearting margins of 10-15%. (Whereas car makers are lucky to scrape operating margins of more than 5%) 8 With this shift of emphasis, Ford will pursue profits right down the value-chain of the car industry. It will try to sell its low-margin parts company, Visteon (a move that is unpopular with Ford workers and may lead to a strike in North America). Along with this, Mr. Nasser is also trying to get suppliers to sub-assemble more of its cars, and may eventually even subcontract their final assembly. 1 All of these actions represent Ford's committment to the new strategy. However, they do not represent the more immediate and demanding task facing Mr. Nasser, fixing Ford’s brand management. Despite the money that the auto industry spends on advertising, few car firms have a strong grasp of their brands. The outstanding exception is BMW , whose customers identify with its slogan, “the ultimate driving machine”. (That is why Mr Nasser hired Mr Reitzlehortly after he left BMW in February) 5 Contrast to previous spending strategies Mr. Nasser’s latest methodology is desgined to exploit brands by sweating every dollar that the firm spends on product development, research and engineering. By spreading the fixed cost of investment across a variety of attractive cars, all made from the same kits of parts, the investment should deliver higher returns. However, this will only work if
Ford can package the combinations of similar components as distinct brands.
Ford,
Lincoln,
Jaguar
or Volvo must each have their
own consumer appeal. Mr. Nasser hopes that importing the techniques
of consumer-marketing to product development will make all new models look,
drive and feel like different and unique brands that Ford has promoted.
Depsite the fact that their underlying engineering is the same. 2
Perhaps the best way for Ford to achieve this is to focus on their target markets for each particular brand. In the past, each of these brand's were not correctly positioned because they were too expensive for their segment. Previous failures have been linkied to " the old Detroit way of selling cars, which was to arm-twist dealers and consumers with special offers in order to move the inventory. 1 The first test of the new Ford
approach to marketing will be the Ford
Focus, which it showed off to America’s motoring press in New Hampshire
last August. Many industry anyalysts say yes. Despite the rumors that Mr. Nasser is overworking himself and his executives, many expert in the automobile industry now say that Ford has a chance of becoming the biggest car maker in the world. This accompanied by their new ambition toward being a premier service provider could have achieving estounding figures such Price to Earnings ratios of near 30. ** However, adopting such a new strategy is an extremely risky venture. This especially true of a corporation with the existing reputation of Ford. The brand's impage produces clear pictures and connations with consumers and it is very speculative to think the those images can be drastically altered over a short period of time. Even if Ford does succeed in marketing their different brands to corresponding market segments, they will have a difficult time establishing their service line amongst a flood of competition in the industry. ** As Ford approaches the end of their
first on-hundred years, the look to move past GM and regain to the number
spot amongst auto manufacutreres. Bill Ford denies that this is the
primary goal, however, he says that the size is the result of success rather
than an aim in itself. The company will be 100 years old in 2003 and world
domination of the auto industry would be a fitting way to celebrate. **
View
Ford's 3rd Quarter Earnings
Related
Sources & Articles (some not used):
9) Ford Unveils New Management, Organization (Saturday, October 16, 1999) 10) Lexis Nexis - Financial News: Canada NewsWire, September 23,
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| ***Case Based on: "The Revloution at Ford", The Economist, August 7-13 1999 |
This "darling" produced sales of 100,000 in the first 100 days alone.
Total sales for the year reached 418,812, which far exceeding the 100,000
projected by market research. After the failure of the Edsel, (Ford's
design innovation of the late 1950's), the Mustang's record-setting first
year sales and $1 billion in profits was the first in a long history of
manufacturing innonovation. 2
Ford has also recently aquired a scrapyard businesses in America and last
August they announced a deal to buy the consumer-finance arm of Japan’s
Mazda. It has even signed a deal to provide drivers with satellite-fed
audio and other services for a monthly fee. These sit alongside the
firm’s huge existing consumer-finance business and its 
This
is the replacement for the Escort; it is the first product to be developed
entirely since the Ford 2000. Ford hopes it can use its new
consumer-marketing techniques to appeal this car toward young Americans.
Ford will use new advertsing techinques such as publicity on the Internet
and sponsorship of adventure sports and live music. The basic idea
is that young customers (whose parents will be buying them their first
car) will think that the Focus (and hence Ford) is “cool”.