Oligopoly Oligopoly High Fixed COGSConsumer Discretionary: Cyclical IndustryQualities of a Good Company: - Follow the market shift
- Control Fix cost
- Steal the market
Market Shift Market Shift- Shift from Truck to Cars
- Shift from Large to Small
- Shift from US, Europe to Asia and South America
- Gas to Hybrid
Over capacity- Over capacity 21M in 5 years
- US: 96%, Europe 37%
Threat to New Entry (Very Low) Threat to New Entry (Very Low)- Require large amount of investment
- Brand Effect
- Economic of scale
Threat of Substitute (Low)- Mass Transit Service
- Car Sharing
Competitive Rivalry (High)
The Bargaining power of Supplies (Very Low) The Bargaining power of Supplies (Very Low)- Many companies in this industry have their own factory to produce the components for assembling
- The raw material is 2nd tier commoditized (Steel, Tires, Glass, etc)
The Bargaining power of Customers (High)- Lots of similar car to choose (GMC vs F150)
- Not a kind of necessarily goods
Ford is struggling to retain dominance Ford is struggling to retain dominance- Consumer preferences shifting due to fuel prices
- High legacy (employee) costs
- Entrenched management
Bonds downgraded to Junk (2005)- Eroding market share
- Declining margins
- Reliance on financing for profit
Ford announces restructuring plan in 2006 Ford announces restructuring plan in 2006Main Focus- Reduce fixed capital costs
- Special focus on cars & crossover vehicles
- Profitability across product lines
Reducing Fixed costs- Multiple Divestitures
- Planned closings of 14 plants, 7 which make cars
- Reduced Ford’s capacity by 26% by 2008
- Eliminates up to 30,000 factory jobs by 2012
Focus on cars & crossover- New Product offering of high mileage cars
- B-Class subcompact auto platform
- Crossover vehicles built on Fusion platform
- Return of the Taurus!
Profitability across product lines- Global Product Development system
- Reduces cycle times to compete w/ Japanese
- New vehicle R&D costs reduced by 60% (2005-2008)
Ford (wholly owned) Ford (wholly owned)Lincoln (wholly owned)- Luxury Brand; focus of revitalization
Mazda (minority stake)- Current ownership of 3.5% stake in Mazda
- Reduction from 33.4% stake as of 2008
Aston Martin (minority stake)- Sold in 2007 at a $925 MM valuation with Ford retaining a $77 MM (8.3%) investment
Jaguar & Land Rover (no stake)- Sold to Indian company Tata motors in 2008 for $2.3 Billion (about half of purchase price)
Volvo (no stake)- Sold to Geely Auto in 2010 for $1.8 Billion
Mercury (no stake)- Discontinued in late 2010
Chairman Bill Ford- Commissioned the writing of a restructuring plan
- Steps down as President and CEO
Alan Mulally- Former VP of Boeing and CEO of Boeing Commercial
- Engineer credited with BCAs revival in early 2000’s
- Mortgaged company in 2006 for $23.6 Billion
- Successful negotiations with UAW
- Reduced Labor cost per hour by ~ 28%
Total Liabilities / Total Assets = 100.6% Total Liabilities / Total Assets = 100.6%Quick Ratio = 1.5x- (Cash + Receivables + Securities) / Current Liabilities
EBIT / Interest Expense = 4.9x
Potential Market Movers- Return to Investment grade debt status
- Resumption of dividend
Increasing Nationalism- Ford is linked to national psyche
- Highest brand loyalty in the United States
No Bailout- Increases goodwill with investors & consumers
- Proven (or lucky) financiers
Short-Term Short-Term- Supply Chain disrupts production at two plants
- Mustang, Super Duty F-Series, Expedition / Navigator
- Increased costs due to search for new suppliers
Long-Term- Provides opportunity to gain and hold market share in the small car market
- Loss of sales by competitors could force industry capacity shrinkage
US: 15.3% US: 15.3%Europe: 10.4%South America: Approximately 15%Asia Pacific: 2%- Emphasis of expansion efforts
Place order for 300 shares at $14.95 Place order for 300 shares at $14.95- Limit, good through 5-3-2011
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