Manufacturers of Automobile: the Ford Motor Company - Case Study Example

Ford case study The ford motor company which is simply known as ford was established in 1903 in America by Henry ford. Since then the company has grown both domestically and international with its plants found all over the world. Its headquarters are found in Dearborn, Michigan which is a suburb in Detroit. The company is a leading manufacturer of automobiles in the world that include commercial vehicles and luxury cars under its ford and Lincoln brand respectively. The company expanded globally and acquired other automobile company over the years by partial or full ownership. Some of the subsidiaries include Mazda, jaguar, land rover, Aston martin, Volvo that were later sold off to other companies. The company has an employee capacity of about 213, 0000 employees globally that are distributed in its more than 90 plants and centers globally. The company is ranked among the top five globally leading manufacturers of automobile. In America it is the second largest vehicles manufacturer, in Europe it is the fifth and is ranked eighth among all companies in America. During its initial stages the company produced a few vehicle models but has increased the models over the years to be more than fifty models. The company financial statements have been good withstanding the great depression, recession, bailouts and other difficulty periods. However the company encountered challenges in the 2000s which led to a decline in its finances and encountered huge loses and declined market share. The company’s mission states “one ford, one team, one plan, one goal” which emphasizes the need for employees to work together as a team with a common goal of achieving success, profitability, fulfilling customers wants and needs under the changing global competition and technology. The company is committed to offer support to the community on various platforms for example education, agriculture sector and food banks. It invests highly in education which the company believes is important for future growth. The company has remained under family control from one generation to the next for more than 100 years. However the family has a minority share holding. The ford motor company experienced serious financial problems between 2000 and 2008 which resulted to a lot of changes within the organization. The problems were as a result of both environmental and organizational issues. The problems brought by environmental issues included, one, intense competition from other automobile manufacturers in the world which saw the company’s market share decline in America and globally. The company lost considerable market share to Toyota and general motors which led to huge loses in the company’s financial statements that was as a result of poor product quality. The company had been manufacturing automobiles that were of less quality and not appealing to customers which made the customers shun their products. The situation deteriorated further when the company was forced to take a 2.1 billion dollar charge to replace Explorer tires that had raised safety related issues following numerous accidents recorded. The company’s automobile models had issues with safety related issues after customers complained upon purchase. This cost the company its market share in America and globally which resulted in decreased dividend payment that were later suspended when the financial crisis increased. The second environmental factor was the recession experienced in America and Europe in 2008, which resulted to less consuming power from customers. During the recession, people lost their jobs through down sizing by companies to reduce costs and remain in business. The others who remained in employment were full of insecurity and uncertainty of their financial situation which made them spend their money on necessary issues. This resulted to a decline in automobile purchases since most consumers did not have much money to spend on luxuries. In addition companies who purchased commercial vehicles were also affected and did not purchase new vehicles as before. This resulted to reduced sale of automobiles hence low sales income was recorded. The ford company was also hard hit by the recession which threatened to make the company bankrupt. This prompted the company’s CEO to ask for a bailout from the government though it later declined the money. The third environmental factor was the increased gasoline prices that were experienced during the recession. The price of gasoline rose so high which led the consumers to rethink about which automobile model was fuel efficient. This was a big blow to the ford company which had relied on trucks and SUVs sales for large margin profit and this models were not fuel efficient. This made the consumers opt to buy smaller vehicles that were fuel efficient from other manufacturers to save on gasoline expenditure. This reduced the income financial statements of Ford Company which continued to incur huge loses and lose its market share. The organizational issues that caused the company to experience problems were one, the company’s structure had become complex over the years with expansion and growth despite being founded on principles of simplicity (Shein and Bell, 2012). The company was run independently in each region, division and brand which made it difficult to effectively introduce a common strategic change in all the company’s subsidiaries and plants. This hindered the company from coming up with quick strategic plans that would counter the problems the company was encountering. The culture of the company was also an issue that contributed to the company’s problems, since there was no open communication skills and transparency to discuss the deteriorating company performance. The top management continued to work as if everything was normal ignoring the reality that the company was encountering loses, losing market share and making low sales. Technology issues rose from long and complex vehicles platforms, countless vehicle configurations, using different parts and manufacture of many models that were of low quality. This complicated the operations of the company and resulted to manufacture of automobiles that were safety insensitive that displeased the customers. The human resource failed in motivating the employees which caused a low morale within the organization. Lastly the company did not make any strategic plans in advance, to counter competition from other manufacturers, manufacture fuel efficient cars or invest in other models which would bring higher profit margin like trucks. This resulted to the company making huge loses due to declined sales and market share loss to competitors. The strategy of intense advertising and marketing which did not reflect the reality on ground led to an excess manufacture of automobiles in the manufacturing plants. This ensured that the expenditure was more than the income hence huge loses were posted yearly. The changes that were effected in the company were one, the company closed down some manufacturing companies to reduce costs. In North America 12 plants were closed down with the plan underway to close 14 more in future globally. In addition to this the company sold some of its subsidiaries to other manufactures and reduced their stakes on others. This lowered the operations costs and ensured that the company concentrated on specific models which improved the quality of the vehicles manufactured. Another change was downsizing the workforce in the company, this was carried out in 2002 by the then CEO and 2006 when a new CEO was appointed. This caused the company to lay off 20, 000 employees in the first phase and another 30,000 in 2006. This saved the company expenditure on money spent paying salaries to this employees yet the income was very minimal. The company changed its strategy by one turning the company into one entity that was run as one rather than independently in each region, division and brand. This made it easier to effect any change made globally without any resistance from management. The company divested other brands and remained with ford and Lincoln brands only but later added more quality, safe, smart design, valuable, and fuel efficient brands. Lastly the smaller cars were made more attractive and interesting by adding voice commanded operating systems that enabled drivers control stereo, seat control and smart phones. The CEO put a stop to the inflated advertising and marketing t hat was costing the company money. The operations changes effected included improving the manufacturing productivity to meet the consumers’ demands. Reducing the product line up from 20 to 8 simplified the line up and increased the productivity. In addition the models manufactured by the company were reduced from 97 to 45 within four years with the plan to reduce the models to twenty five later in order to manufacture best quality products. The configurations on each model were reduced and common parts used to build similar vehicles in different countries which halved the number of suppliers. On finances the CEO raised 23.6 billion dollars by mortgaging the company’s assets to ensure the company did not file for bankruptcy and to fund the changes. This change cushioned the company from a financial down turn and ensured that they did not borrow money from the government for bailout. This change ensured that the company increased its reputation and brand equity that set it apart from its competitors. In addition, new revitalized cost structure ensured incentives were low which increased profit margins and saved from reduced salaried benefits 500 million dollars yearly. At the leadership level the board recognized the need fro a new CEO who would bring about a new framework of business and hired one. The new CEO encouraged team building which improved the employees’ morale and improved communication skills. The CEO changed the culture of the company by creating transparency and encouraging management to share bad situations and news in their weekly meetings held on Thursday. This ensured that the reality on ground was confronted rather than ignored. Lastly the CEO supported the suppliers by providing loans to ensure they did not close down due to recession and create a parts shortage. All this changes were led by internal change agent that is the CEO appointed by the board in 2006. Work cited Shein, James and Bell Matt. “At Ford, Turnaround Is Job One”. Kellogg school of management. Harvard business review. Web. June 28 2012. Read More