Oligopoly The general economy drives the sales, out of company’s control


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Oligopoly

  • Oligopoly

  • The general economy drives the sales, out of company’s control

  • High Fixed COGS

  • Consumer Discretionary: Cyclical Industry

  • Qualities 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 2006

    • Titled “The Way Forward”
  • Main Focus

    • Reduce fixed capital costs
    • Special focus on cars & crossover vehicles
    • Profitability across product lines


Reducing Fixed costs

  • 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)

    • Flagship brand
  • 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

  • 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

  • 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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