The Way of Ford Motor Company

Topics: Automotive industry, Renault, General Motors Pages: 8 (2520 words) Published: January 18, 2013
* Introduction
* Although to be the only one remaining member which have escaped bankruptcy of the Big Three among the automobile industry by June 2009, Ford suffers $14.7 million loss of revenue and elimination of stockholders’ equity due to the record-breaking fall in demand for 2008,US. However, to understand Ford’s position today requires understanding the American automotive industry. * General Industry analysis

* From 1900-2008, US motor vehicle production has a rapid increase to9, 000,000 from 1900 to 1967, after not, there is a graduate decrease to 3,000,000 until 2008. At the mean time, the median age of passenger car in US was Spiral upwards. Combine the two phenomenon, we can get that the automobile industry market is quite saturated and the demand fell down. Regard to the automobile manufacturing technology, despite less differentiation between manufacturers due to the converge of technologies and design, the technological progress was incremental and lead to the various segmentations in each country. Follow the two situations, there are 3 big issues were emerged. One was the deep demand of auto cars result in excess capacity. Another one issues was the high cost among the technological development. Last one issue was the lacking differentiation. However, it also offers automakers new product segmentations and market. For an insightful analysis, we need to look at more information in details. * Porter’s Five Forces

First of all, we can get a comprehensive industry environment analysis through the Porter’s Five Forces. In terms of the threat of new entrants of the automobile industry, it requires high capital costs for potential entrants, as the manufacturers are all carry out the mass-production-scale. However, when a new entrant face with the current competitors’ scale economies, smaller manufacturers could not survive since they cannot afford the massive product development cost, which was in excess of $6 billion. And it is easy to own the cost disadvantages independent of scale. Then, the product differentiation of automobile industry is not high as other industry. The automobile industry was a global network of collaborative arrangements. As the team-based approach became models for all major manufacturers, there is no big difference in the function, model and design. They can only gain their differentiation by the firm’s service and effective advertising. Also, There is no switching cost in the automobile industry because no cost would be incurred when customer switch to a new supplier. However, the large capital requirement is demanding, as the automobile industry needs huge amount of capital to invest in its mass-production line. Furthermore, automakers have benefited from prodigious amounts of direct funds or indirect aids from the government around the world to keep car plants open and assembly line running after the global sales collapsed, and the industry has never operated on the pure free-market principles. It proved that the government always intervened in the automobile industry that suggests the government control entry into this industry. Then, the supplier group of the industry is powerful. In order to achieve lower costs and increased flexibility, the automobile manufacturing trend has been towards outsourcing. All of the manufacturers now have long-term relationships with their suppliers. Especially for the leading component suppliers that have the increasing responsibility for technological development, it gains a strong bargaining power. Because their goods as transmissions, braking systems, etc. are critical to buyers’ market success. Besides, it poses a credible threat to integrate forward into the automobile industry due to some suppliers like Bosch and Denso are as big as some larger automobile companies. What’s more, since a few large companies dominated the suppliers and is more concentrated than automobile industry, it is easy to get the conclusion that these...
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