Ford SWOT analysis 2016

| July 18, 2016

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Company Background

Key Facts
Name Ford Motor Company
Logo
Industries served Automotive and Financial Services
Geographic areas served Worldwide (62 countries)
Headquarters Dearborn, Michigan, U.S.
Current CEO Mark Fields
Revenue (US$) 149.558 billion (2015) 3.8% increase over 144.077 billion (2014)
Profit (US$) 7.373 billion (2015) 598% increase over 1.231 billion (2014)
Employees 199,000 (2016)
Main Competitors Fiat Chrysler Automobiles, General Motors Company, Honda Motor Company, Hyundai-Kia Automotive Group, PSA Peugeot Citroën, Renault-Nissan B.V., Suzuki Motor Corporation, Toyota Motor Corporation, Volkswagen AG Group and many other automotive companies.

Ford Motor Company is an American multinational corporation, which designs, manufactures and sells passenger cars and commercial vehicles under Ford and Lincoln brands. Ford brand is one of the oldest in the automotive industry and has experienced considerable success over its 100 years old history.

The company’s main market is the U.S. where the company sold over 2.6 million vehicles and earned 62.3% of its total revenue. Other considerable markets are the United Kingdom, Canada, Germany and China.

Ford’s most successful product is its F-150 pickup truck, which is the No. 1 vehicle, in terms of sales, in the U.S. for the last 34 years.

You can find more information about the business in Ford's official website or Wikipedia’s article.

This is an old Ford SWOT analysis...

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Strengths

1. Sound financial performance

In 2015, Ford had another great financial year. The company’s revenue grew by 3.8% from US$144.077 billion in 2014 to US$149.558 billion in 2015. The company’s profits grew by almost 600% to US$7.373 billion, while the assets increased significantly more than the debt.

Figure 1. Ford Motor Company’s key financial data 2014-2015 (in US$ billions)
2014 2015
Revenue 149.558 144.077
Profit 7.373 1.231
Cash 10.757 14.272
Assets 210.531 227.902
Debt 119.171 132.854

Source: Ford Motor Company’s financial statements[1]

Ford’s sound financial performance allows the company to invest more easily into new riskier projects, spend more on marketing and advertising its own products as well as venture into new acquisitions. Few of the company’s rivals are as financially secure as Ford.

2. Accelerating ‘One Ford’ plan

Ford Motor Company first introduced its ‘One Ford’ plan back in 2008. In 2015, the company was still committing to and even accelerating its plan, which focuses on the following 3 key areas:[1]

  • One Team. Ford emphasizes that it is important to work together as a lean global enterprise in achieving automotive leadership. This is measured by the employees’, customers’, dealers’, suppliers’ and other business partners’ satisfaction.
  • One Plan. One plan focuses on improving company’s profitability, maintaining strong balance sheet and accelerating the development of new products.
  • One Goal. Everyone should strive to make Ford successful and profitable company.

The company’s commitment to the ‘One Ford’ approach proves that the plan is working and bringing success to the company.

3. One of the most valuable brands in the automotive sector

Ford is one of the oldest automotive brands in the world and the one that has experienced great success over the years.

That’s why it is one of the most widely recognized and one of the most valuable automotive brands in the world. Interbrand[2] and Forbes[3], which evaluate the companies’ brands according to their reputation and recognition, rank Ford as the 33rd and 35th most valuable brand, worth US$12.962 billion and US$14.1 billion, accordingly.

Figure 2. Ford’s brand value

Ford's brand value is US$12.962 billion according to Interbrand and US$14.1 billion according to Forbes.

Source: Interbrand[2] and Forbes[3]

Only Toyota, Mercedes-Benz, BMW and Honda brands are more popular than Ford’s.

4. Being one of the largest automotive companies in the U.S.

The U.S. is the second largest automotive market, with the sales of 17.47 million vehicles in 2015 alone.[4] Ford, which sold over 2.6 million cars was the second largest U.S. automotive company with a 14.9% market share, just behind General Motors.

The U.S. automotive market, while not the largest in the world, is certainly the most profitable. There is a huge demand in the U.S. for crossovers, pickup trucks, electric vehicles and other more profitable types of vehicles, compared to the Europe’s or Asia’s markets. Therefore, Ford’s huge market share in the U.S. is the company’s strength that is very well exploited. Fords’ F150 pickup trucks are the best-selling vehicles in the U.S., bringing in huge amounts of revenue and profits to the company.

Figure 3. Largest U.S. automotive companies
Automaker 2015 U.S. market share
General Motors Company 17.6%
Ford Motors Company 14.9%
Toyota Motor Corporation 14.3%
Fiat Chrysler Automobiles N.V. 12.8%
Honda Motor Co., Ltd 9.1%
Nissan Motor Co., Ltd. 8.5%

Source: Detroit News[4]

5. Extensive distributions channels

Ford operates in 62 countries, where it sells Ford and Lincoln vehicles across 11,971 dealerships. The company’s dealership network is one of the largest among all of the automotive companies and allows the company to reach many more consumers than its rivals can reach.

In addition to the company’s dealership network the company operates 67 plants, of which 29 plants are in North America, 8 plants are located in South America, 16 plants in Europe, 2 plants in Middle East & Africa and 12 plants in Asia Pacific. Ford has plants in every major region and in the company’s largest markets such as the U.S., China, United Kingdom, Canada, Brazil, and Germany.

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Weaknesses

1. Unprofitable operations in South America, Middle East, Africa and Europe

Figure 4. Ford pre-tax results by segment in 2015 (in US$ millions)

Ford's pre-tax profit was US$10.8 billion. The profit in North America was US$9.345 billion, in South America Ford has losses ofUS$832 millio, in Europe the pre-tax profit was only US$259 million, in Middle East & Africa pre-tax profit was US$31 million, in Asia Pasific US$765 million. All other automotive losses were US$795 million. In addition to automotive sector, Ford's financial sector's pre-tax profit was US$2.028 billion.

Source: Ford’s financial statements[1]

The chart reveals that Ford’s automotive operations incurred losses in South America and were only slightly profitable in Europe and the Middle East & Africa regions.

2. Overdependence on the sales of pickup trucks

Ford’s F-Series pickup trucks are the most popular pickup trucks in the U.S. and the company’s most profitable vehicles. In 2015, Ford sold 780,354 F-Series pickup trucks, which made it the best-selling U.S. pickup truck for the 39 consecutive years and the best-selling U.S. vehicle overall for 34 consecutive years. An average price of Ford’s F-Series pickup is US$44,000,[5] which should generate at least US$34.3 billion in revenue for the company in the U.S. market alone.

Figure 5. Ford’s revenue breakdown by product in the U.S.

Ford has earned 37% of its revenue in the U.S. by selling F-series pickups.

Source: Money[5]

The company’s dependence on the pickup trucks sales makes it vulnerable to the changes in consumer tastes, trends, supply chain interruptions, as well as oil prices.

3. High cost structure

Although ‘One Ford’ initiative led to the substantial cost reduction, Ford still has a high cost structure when compared to other automobile manufacturers. Ford’s costs are driven by its generous employee compensation and pension plans. This makes the company’s gross profit margin quite low when compared to rivals and should be improved if the company expects to compete successfully in the future.

4. Very few brands

Ford Motor Company manufactures and sells 2 different brands: Ford and Lincoln. The absolute majority of the vehicles are sold under Ford brand, which means that the company is effectively represented by only one brand.

Figure 6. Brand portfolio of selected major Ford competitors
Company Brand portfolio
Ford Ford, Lincoln
Toyota Toyota, Lexus, Daihatsu, Hino
General Motors Holden, Buick, Cadillac, Chevrolet, GMC, Opel, Vauxhall, Alpheon, Baojun, Jiefang and Wuling.
Volkswagen Volkswagen, Audi, SEAT, Škoda, Bentley, Bugatti, Lamborghini, Porsche, Ducati, Volkswagen Commercial Vehicles, Scania, Man.

Source: The respective companies’ financial reports

By having only one major brand, Ford can increase its recognition and reputation more easily. Nonetheless, the disadvantages are far more damaging. First, with one brand the company can only target a few consumer segments. Second, if the brand’s reputation suffers, no other company’s brand can substitute for the lost reputation and sales.

No other major Ford’s competitor operates with only 2 brands and is exposed to this weakness.

Opportunities

1. Increasing government regulations

Many governments around the world are committed to reducing the greenhouse gas emissions and are encouraging fuel efficiency initiatives. Such environmental initiatives may increase production costs for the car manufacturers and these costs will be either passed to price sensitive consumers or will decrease the company’s profits. Ford Motor Company may take advantage of this by introducing more car models running only on electricity and bypassing all the government regulations associated with the greenhouse gas emissions.

2. Acquire skills and competences through acquisitions

In order to fulfill its goals to introduce more hybrid, electric and autonomous cars, Ford will have to develop better competence in battery technology, digitalization and autonomous driving.

The fastest and least costly way to do that is by acquiring smaller startups, which have already developed the skills and the technology needed for Ford. Usually, acquisitions are costly, but the current interest rates are very low, so capital can be acquired cheaply.

3. Growing ASEAN markets

Currently, Ford’s strongest market is the U.S., where the company controls nearly 15% of the market. The company has significant success in Canada, Brazil, Argentina, United Kingdom and Turkey, where the company controls over 10% market. The downside of this is that South America’s and Europe’s markets aren’t growing as fast or even declining and the company has to find new growth venues elsewhere. The fierce competition in the U.S. and China’s markets leaves little opportunity to expand sales faster than the organic market growth.

This leaves Ford with only a few markets where it can grow its sales with relative ease. Those automotive markets are ASEAN countries, or mainly Philippines and Vietnam. Philippines and Vietnam automotive markets grew by 23% and 57%, respectively. Both markets added almost 130,000 new vehicles combined in 2015 alone.[6]

Ford has great opportunity to expand its market share in these countries.

4. Revenue from subscription-based services, such as General Motor’s OnStar service

Ford emphasizes connectivity as one of the key emerging opportunities in the automotive markets. The company has introduced and is expanding its SYNC Connect service, which allows the car owners to lock, unlock, start, check the status and locate the vehicle remotely via an app. While this is a step forward in connectivity for Ford, the company still lags behind General Motors’ subscription based OnStar all-in-one assistant service.

OnStar was introduced to GM vehicles in 1997 and now has over 7 million subscribers. It has emergency, security, navigation, connections and vehicle manager services, which are capable of calling the emergency services for you and even allows to stop the vehicle remotely if it’s stolen.

OnStar service is a feature that does not only add uniqueness to General Motor’s vehicles, but also add significant revenue. Ford should also expand its SYNC connectivity platform to compete with General Motors OnStar all-in-one assistant.

Threats

1. Increasing competition in the worldwide automotive market

Ford is faced with an ever increased competition from the traditional automotive companies, the new automotive companies and the saturation of its main markets.

In China, one of the key company’s markets, new home based Chinese manufacturers are competing by offering lower prices, but similar quality build vehicles.

New companies, such as Tesla with its electric cars will make it very hard for Ford to compete in the electric cars segment. The competition is further fueled by the fact that the global automotive production capacity far exceeds the demand. In 2015, there was an estimated global excess production capacity of 31 million units.[1]

2. Rising fuel prices

Larger vehicles, which are Ford’s most profitable product lines, invariably use more fuel than smaller models. This makes Ford vulnerable to any rise in fuel prices over the medium to long-term. Consumers in such an environment may opt for smaller vehicles as a corresponding medium to long-term trend, adversely affecting Ford’s profitability if they are unable to improve the profitability of the small models in their product range.

3. The U.S. automotive market is likely to slow down

In the U.S., 2015 was the best year for automotive industry since 2007. New vehicle sales have increased by nearly 6%.[1] Every automaker competing in the U.S. was able to grow their sales even when losing market share. Ford also benefited from that.

Nonetheless, automotive market growth in the U.S. is slowing down. According to Ford and General Motors, new vehicle sales will slow down or even decline over the next few years due to the oversaturated market.

4. Fluctuating exchange rates

Over 37.7% of Ford’s revenue come from the international markets, which means that the company has to convert foreign currencies to U.S. dollar in order to calculate its revenues and send profits back to the U.S.

Figure 7. Ford geographic revenue breakdown

In 2015, Ford has received 62.3% of its revenue from the U.S., 7.7% from the United Kingdom, 6% from the Canada, 4.6% from Germant and 19.4% from all other countries.

Source: Ford’s financial statements[1]

Currency rates are volatile and the company’s profits and revenue highly depend on the fluctuating exchange rates. The company cannot control currency exchange rates, therefore it is at risk, if the U.S. dollar exchange rates would start to rise. In this case, the company’s profits would decrease significantly.

Sources

  1. Ford Motor Company (2016). Form 10-K for the Fiscal Year Ended December 31st, 2015. Available at: http://otp.investis.com/clients/us/ford_motors/SEC/sec-outline.aspx?FilingId=11166733 Accessed July 18, 2016
  2. Interbrand (2016). Best Global Brands 2016. Available at: http://interbrand.com/best-brands/best-global-brands/2016/ranking/ Accessed July 18, 2016
  3. Forbes (2016). The World’s Most Valuable Brands. Available at: https://www.forbes.com/powerful-brands/list/ Accessed July 18, 2016
  4. Wayland, M. and Burden, M. (2016). Auto industry sets all-time sales record in 2015. Available at: http://www.detroitnews.com/story/business/autos/2016/01/05/auto-sales/78295542/ Accessed July 18, 2016
  5. Tuttle, B. (2015). The Hot New Luxury Car Isn't a Car at All. Available at: http://time.com/money/3975761/luxury-pickup-trucks-prices/ Accessed July 18, 2016
  6. ASEAN Automotive Federations (2016). Sales: 2015. Available at: http://www.asean-autofed.com/files/AAF_Statistics_2015.pdf Accessed July 18, 2016

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