Case 10

Ford Motor Company

Jeff Andress, Dennis Horton, Cody Kleven,
Mike McCullar, Hollon Stevens, Robin Chapman
Arizona State University

G
Introduction in 1943. Intense dissension about who should succeed
Edsel Ford continued until Henry Ford, at the age of 79,

IN
William Clay Ford, Jr., was staring out the window of
returned from retirement to lead the company. For the
his office in Dearborn, Michigan, lost in thought. The
next two years under Henry Ford the company operated
future of Ford Motor Company was hanging in the
with massive losses of $10 million dollars per month.3

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balance, and no one was certain how best to save this

LE E
Finally, in 1945, Henry Ford was forced to step down and
once-great company. Question after question without
Henry Ford II assumed the role of president.4 Henry Ford
any easy answers kept going through his mind. . . . How

AR
E AL much longer can Ford survive with the large losses? Will
II managed to successfully maneuver the company back
to productivity and empowered Robert McNamara and
it have to sell off assets or financially restructure? Can
his group (planning and financial analysis) to transform
it cut enough costs, and where should it cut? Will the
Ford’s leadership style from a tyrannical dictatorship to a
union leaders realize the situation, and how much will
AG S

“powerful, professional oligarchy.”5 Over the next 20 years,

they be willing to help? When will Chinese competitors
Ford Motor Company’s presidents and CEOs turned over
enter the U.S. market? How can Ford develop its prod-
13 times.6 The current CEO, Alan Mulally, was appointed
uct offerings to adjust for higher fuel costs? How can
G OR

in September 2006 to take over for William Clay Ford, Jr.,

Ford improve its product offering to reverse or at least
who had served as both president and CEO since 2001.
stop the market share losses? How much more market
William Clay Ford, Jr., led Ford Motor Company to three
share will it lose?
straight years of profitability followed by a sharp decrease
The magnitude of the situation seemed overwhelm-
in profits marked by a $1.44 billion loss in the first half
ing. In order to overcome these challenges, it seemed as if
EN F

of 2006.7 These losses motivated Ford Motor Company

Ford would have to restructure every aspect of its business.
to search for a new CEO from outside the industry, Alan
It would require improved product offerings with cutting-
Mulally, formerly of Boeing Corporation. Mulally stood
C T

edge design and high quality; improved operation with

out as a qualified successor because he demonstrated the
more flexibility and lower costs; and improved marketing
leadership skills Ford had established many years ago as
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with better brand image and customer interest. Ford was at

critical to success.
a crossroads, and the way ahead remained shrouded in fog.
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History Strategic Leadership

Ford has gone through many evolutions since its hum- Ford Motor Company, recognizing the importance of
ble beginnings on June 16, 1903.1 Henry Ford began this human capital development in strengthening the com-
corporation, now synonymous with the assembly line, pany as a whole, developed a leadership training pro-
© Don Hammond/Design Pics/Corbis

the Industrial Revolution, and the American Dream, gram in the late 1990s comprised of four separate courses,
with 11 business associates and $28,000 in capital.2 Ford Capstone, Experienced Leader Challenge, Ford Business
Motor Company continued along with minimal leader- Associates, and New Business Leader. These programs
ship problems until the death of its president, Edsel Ford, were designed to instill the mind-set and vocabulary of

This case was developed with contributions from Melodie Bolin.

123

81133_24_cs10_p123-138.indd 123 12/6/07 4:13:20 AM

 124

a revolutionary leader as well as to teach the tools neces- The former COO for the Americas affirmed, “The com-
Case 10 • Ford Motor Company

sary to steer a leadership and manufacturing revolution.8
Ford also planned to use its Business Leaders Initiative
to get all 100,000 salaried employees worldwide involved
in “business-leadership ‘cascades,’ intense exercises that
combine trickle-down communications with substan-
tive team projects.”9 In 2000, Ford planned to guide 2,500
managers through one of its four leadership courses.10 Yet
in 2006, Ford Motor Company’s leadership structure re-
mained complex, highly bureaucratic, and comprised of a
six-layered management scheme on which pay is based.
pany has too many layers, the company is too bureaucratic,
and it takes too long to get things done.”11 (See Exhibit 1
for Ford senior leadership structure.) Ford geared up
for many changes under the leadership of Alan Mulally,
including the replacement of many members of the top
leadership team.12
Alan Mulally
Alan Mulally was named CEO and president of Ford
Motor Company in September 2006. He is also a member

Exhibit 1 Ford’s Top Management Structure

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Executive Chairman
William Clay Ford Jr.

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CEO Alan Mulally

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Executive Vice Presidents

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Ford of Europe & Premiere
President, The Americas Chief Financial Officer President, Int’l Operations
Automotive Group
Mark Fields Don R. Leclair Mark A. Schulz

AR
E AL Chairman Lewis Booth

Group Vice Presidents

Chairman & CEO, Ford North America Marketing, President & CEO. Product Development, Corporate Human
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Motor Credit Company Sales & Service Ford of Europe The Americas Resources
Michael Bannister Francisco Codina John Fleming Derrick Kuzak Joe W. Laymon

Global Product
Design and Chief
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Corporate Affairs Asia Pacific and Africa Development & Chief

Creative Officer
Ziad Ojakli John Parker Technical Officer
J. Mays
Richard Parry-Jones

Senior Vice Presidents

Chief Marketing Officer,
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President, Ford Customer Non-Executive Chairman,

Global Purchasing Controller General Counsel
Service Division Volvo Cars
Thomas K. Brown Peter Daniel David Leitch
Darryl B. Hazel Hans-Olov Olsson
C T

Vice Presidents

President & CEO, Product Development, International President – Ford Motor Environmental & President & Ceo,
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Volvo Cars Corp. Ford of Europe Governmental Affairs Company (China) Ltd. Safety Engineering Ford of Mexico
Fredrik Arp Joseph Bakaj Stephen Biegun Mei Wei Cheng Sue Cischke Louise K. Goeser
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Finance, Strategy & Engineering, The

Human Resources & President, Ford & Lincoln Executive VP,
Business Development, Americas Product
Labor Affairs Mercury Marketing & Sales Mazda Motor Corp.
Int’l Operations Development
Felicia Fields AI Giombetti Robert Graziano
Jim Gouin Paul Mascarenas

Advanced &
Manufacturing CEO, Jaguar & Powertrain Product Controller, The
Treasurer Labor Affairs
Engineering & Quality, Land Rover Development Americas
Ann Marie Petach Martin Mulloy
The Americas Geoff Polites Barb Samardzich Robert L. Shanks
Bennie Fowler

Chief Communications Marketing, Sales & North America Research & Advanced Manufacturing, Ford of
Officer Service, Ford of Europe Manufacturing Engineering Europe
Charlie Holleran Stephen Odell Joseph R. Hinrichs Gerhard Schmidt James Tetreault

Source: 2006, Ford Company Media, http://media.ford.com.

81133_24_cs10_p123-138.indd 124 12/6/07 4:13:21 AM

 125

of the board of directors. Prior to joining Ford, Mulally 2001, by focusing on improving quality, lowering costs,

Case 10 • Ford Motor Company

was an executive vice president at Boeing as well as the
president and CEO of Boeing Commercial Airlines.
Mulally has received many accolades throughout his ca-
reer and has been recognized for his contributions and
industry leadership by being named one of the “Best
Leaders of 2005” by BusinessWeek magazine. Mulally
is perhaps best known for his efforts to streamline
Boeing’s production system and the associated transfor-
mation of the company’s commercial airplanes product
line.13 Despite his many successes in the airline industry,
chiefly his turnaround of Boeing’s commercial airline
division, it remains to be seen whether these turnaround
experiences will be applicable to the turnaround Ford is
and delivering new products that satisfy customers.”14
On his step back from CEO to executive chairperson,
William Ford said in an interview with journalist Keith
Naughton of Newsweek, “I’ve always said that titles are
not important to me. This company has been part of
my life since the day I was born and will be until the
day I die. What’s important is getting this company
headed in the right direction.”15 According to Ford’s
Web site, William Ford continues to focus on the fu-
ture of Ford Motor Company and the strategies that
will move it successfully into the future. He is quoted
as saying, “Innovation is the compass by which Ford
Motor Company sets its direction. We want to have an

G
seeking. even bigger impact in our next 100 years than we did
in our first 100.”16
William Clay Ford, Jr.

IN
The current executive chairperson of Ford Motor Board of Directors
Company is William Clay Ford, Jr. William Ford has Ford Motor Company’s board of directors is comprised
been a member of the board since 1988, and was of 13 extremely diverse members who have many dif-

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LE E
elected to the office of chairperson on January 1, 1999. ferent corporate and personnel backgrounds, ranging
He is also the chair of the board’s Finance Committee from professor of physics to publishing, banking, and

AR
and a member of the Environmental and Public Policy auditing. Three of the directors are members of the Ford
E AL Committee. William Ford also served as chief executive family, and six have served on the board of directors for
officer from October 2001 to September 2006. As CEO, more than 10 years (see Exhibit 2). Despite the myriad
William Ford led the company to three straight years of backgrounds presented in Ford’s board of directors,
of profitability, after experiencing a $5.5 billion loss in
AG S

past decisions have shown that the Ford family retains

G OR

Exhibit 2 Ford’s Board of Directors

Director Position Member Since
William Clay Ford Jr. Executive Chairman, Ford Motor Company 1988
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John R. H. Bond Group Chairman, HSBC Holdings plc 2000

Stephen G. Butler Retired Chairman and CEO, KPMG, LLP N.A.
C T

Kimberly Casiano President and COO, Casiano Communications, Inc. 2003

Edsel B. Ford II Retired Vice President, Ford Motor Company Former President 1988
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and COO, Ford Credit

William Clay Ford Director Emeritus 2000
Irvine O. Hockaday, Jr. Retired President and CEO, Hallmark Cards Inc. 1987
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Richard A. Manoogian Chairman and CEO, Masco Corporation 2001

Ellen R. Marram Managing Director, North Castle Partners, LLC 1988
Alan Mulally President and CEO, Ford Motor Company 2006
Homer A. Neal Director, University of Michigan ATLAS Project, Samuel A. Goudsmit 1997
Distinguished University Professor of Physics, and Interim President Emeritus,
University of Michigan
Jorma Ollila Chairman, CEO, and Chairman of the Group Executive Board, Nokia Corporation 2000
John L. Thornton Professor and Director, Global Leadership Program, Tsinghua University, 1996
Beijing, China

Source: 2006, Ford Company Media, http://media.ford.com.

81133_24_cs10_p123-138.indd 125 12/6/07 4:13:21 AM

 126

most of the decision-making power and influence. It production in the United States should continue
Case 10 • Ford Motor Company

was only after Ford Motor Company began to lose bil-
lions of dollars that William Clay Ford, Jr., stepped down
as CEO. Even with his resignation as CEO, it is clear that
William Ford still wields most of the power at Ford, as
evidenced by his renaming the board chair position,
“Executive Chairman.” William Ford was honored as the
2006 Automotive Industry Executive of the Year, a great
honor considering the trends taking place within the au-
tomotive industry.17
Trends in the U.S. Auto Market
Although the U.S. auto market is large, it is not a high-
as Ford and GM continue to trim production in the
United States.
Consolidation
A consolidation of auto manufacturing firms has affected
both the global and domestic markets. Chrysler merged
with German manufacturer Daimler-Benz in 1998 to
form DaimlerChrysler, but Daimler sold Chrysler shares
in 2007. Over the past several years, Ford purchased or
formed agreements with Mazda, Volvo, Jaguar, and Land
Rover. In 2006 GM began discussions about possible
alliances with Renault and Nissan, but skeptics were re-
lieved when these talks broke off. However, the competi-

G
growth market. The average growth rate has been less tive structure of the global automotive industry makes
than 1 percent over the past seven years. However, further mergers and alliances that involve firms compet-
competitors have experienced market share shifts. ing in the U.S. market likely.

IN
Despite the fact that GM still has the dominant
market share, both GM and Ford have been losing Market Segmentation
market share to foreign competition. (See Exhibit 3 Another trend has been further market segmentation.

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LE E
and 4 for trends related to U.S. light vehicle market With the increased number of foreign competitors and
share from domestic, Japanese, Korean, and European little differentiation between manufacturers, firms com-

AR
producers.) In 1995, the Big Three American auto
E AL
producers held 73 percent of the U.S. market share, but
by third quarter 2007, that number had dropped be-
low 50 percent.18 Similarly, foreign firms have steadily
increased production in the United States. In 1986,
AG S
peting in the U.S. market have continued to target smaller
customer segments, increasing the number of models
each maker produces in an effort to attract each smaller
customer group. Analysts predict that the number of
available car models in the U.S. market will increase from

U.S. firms produced about 95 percent of the cars made 250 in 1999 to 330 by 2008. Similarly, the average annual
in the United States, but by 2005, that number had sales of each model decreased from 106,819 to 48,626 in
fallen to 47.7 percent.19 The trend of increased foreign the years between 1985 and 2005.20
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Exhibit 3 U.S. Light Vehicle Market Trends

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Left Axis = German & Korean American & Japanese Brands

Brands Market Shares Market Shares = Rt. Axis
8% 80%
C T

7% 70%
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American Brands
6% 60%
German Brands
5% 50%
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Korean Brands Japanese Brands

4% 40%

3% 30%

2% 20%

1% 10%

0% 0%
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

German Korean Japanese American

Sources: Ward’s AutoInfoBank; 2006, The road ahead for the U.S. auto industry, Office of Aerospace and Automotive Industries International Trade Administration
U.S. Department of Commerce, April.

81133_24_cs10_p123-138.indd 126 12/6/07 4:13:22 AM


Exhibit 4 North American Automotive Market Share (GM, Ford, Toyota)
35
30
Market Share (%) 25
20
15
10
0
Nov 2004 Feb 2005 May 2005
Note: Black line represents the trend of the individual automakers North American market share.
Source: 2006, North American Automotive Market Data, http://www.wardsauto.com, December 2.
Alternative Fuels
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LE E
Another change is the significant trend in building cars
that use alternative fuels and have higher fuel efficiency.
AR
Although hybrid cars that combine small engines with
E AL electric power currently are gaining the most attention,
other alternatives such as bio diesel, electric, or hydrogen
fuel cells have also been developed. Given the increasing
AG S
global demand for fuel, and the recent increase in gas
prices in the United States, the drive toward alternative
fuels and greater efficiency should continue.
One cost-effective alternative currently being used
G OR
by automakers is E85, a corn based fuel,which is a blend
of 85 percent ethanol (a form of alcohol) and 15 percent
gasoline. E85 provides about 25 percent less energy than
traditional gasoline, but advocates argue that it will re-
EN F
duce U.S. dependence on foreign producers and develop
a domestic industry that supports farmers.21
As noted previously, electric hybrid vehicles have al-
C T
ready been commercialized and represent a significant
technological change, but if hydrogen fuel cell technol-
O
ogy can be commercialized, it would represent an even
more radical technological shift. These technological in-
novations represent an opportunity for the auto manu-
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facturers to differentiate themselves from the competi-
tion. Just as important as considering the current trends
in the market place, automotive firms must examine the
competitive environment.
U.S. Auto Industry Competitive
Environment
The United States comprises the largest auto market in
the world with more than 16 million vehicles sold in
each of the last seven years.22 Given its size, automakers
81133_24_cs10_p123-138.indd 127
127
Case 10 • Ford Motor Company
GM Market Share
Sep 2005 Dec 2005 Mar 2006 Jul 2006 Oct 2006 Jan 2007
G
IN
from around the world have targeted the U.S. market
for exports. Although at least 22 firms compete in the
U.S. market, the four largest firms (GM, Ford, Toyota,
and DaimlerChrysler) control more than 68 percent of
the market and the top six firms (including Honda and
Nissan) control 83.5 percent of the market.23 See Exhibit 5
for a breakdown of light vehicle U.S. market share.
General Motors (GM) and Ford are the only two domes-
tic firms that still have a significant presence. Chrysler
had been the third largest U.S. auto manufacturing firm
before it merged with Daimler-Benz AG in 1998 to
form DaimlerChrysler. Many of the foreign firms who
compete in the U.S. market also produce vehicles in the
United States. In 2006, 11 firms produced cars and light
trucks in the United States (BMW, DaimlerChrysler,
Ford, GM, Honda, Hyundai, Mazda, Mitsubishi, Nissan,
Subaru, and Toyota).24
DaimlerChrysler
As mentioned, DaimlerChrysler was formed in 1998
as the result of a merger between Daimler-Benz and
Chrysler. At year-end 2006 it employed approximately
360,000 people and sold almost 4.7 million vehicles (both
passenger and commercial) to consumers in 200 different
countries.25 Similar to the financial struggles experienced
in recent years by Ford and GM, DaimlerChrysler an-
nounced a $1.2 billion loss in 2006, a 9 percent decrease
in sales, and a 0.5 percent decrease in market share to
13.5 percent.26 The merger did not prove to be benefi-
cial for Daimler and the majority interest of Chrysler was
recently divested to a private equity group, Cerberus
Capital Management (August 2007). DaimlerChrysler
(to be renamed Daimler AG) continues to hold 19 per-
cent ownership and will strive to help Chrysler succeed
as a stand-alone car company.27
12/6/07 4:13:22 AM
 128

Exhibit 5 November 2006 and Year-to-Date U.S. Light Vehicle Market Share
Case 10 • Ford Motor Company

November 2006 YTD

Maker Volume % Change Market Share Volume % Change Market Share
GM 291,061 6.0 24.3 3,698,026 (8.3) 24.5
Ford 166,397 (10.6) 13.9 2,504,151 (7.5) 16.6
Toyota 196,695 15.9 16.4 2,314,202 12.5 15.3
Chrysler 164,556 2.9 13.7 1,952,090 (7.7) 12.9
Honda 106,446 0.6 8.9 1,377,580 3.6 9.1
Nissan 76,015 (1.6) 6.3 927,474 (5.9) 6.1
Hyundai 28,417 (14.9) 2.4 418,155 1.5 2.8
BMW 25,889 (3.6) 2.2 280,186 0.7 1.9
Kia 22,203 10.5 1.9 264,298 2.8 1.7

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Mazda 20,729 16.7 1.7 248,874 4.1 1.6
Mercedes 22,079 20.8 1.8 219,678 13.9 1.5
Subaru 15,800 8.8 1.3 180,090 2.3 1.2

IN
Mitsubishi 9,256 4.0 0.8 108,648 (5.0) 0.7
Volvo 9,229 14.3 0.8 107,282 (6.3) 0.7

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Suzuki 6,395 12.1 0.5 93,673 27.5 0.6

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Audi 9,209 16.4 0.8 78,219 5.4 0.5

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E ALLand Rover
Saab
4,229
2,497
(7 .6)
19.4
0.4
0.2
41,760
32,814
6.4
(7 .8)
0.3
0.2
Porsche 2,611 (2.4) 0.2 31,377 7.9 0.2
Jaguar 1,256 (35.2) 0.1 19,130 (31.6) 0.1
AG S

Isuzu 565 (23.4) 0.0 7,977 (29.6) 0.1

Source: 2006, U.S. Light Vehicle Sales, Market Share for November.
G OR

The major brands comprising DaimlerChrysler DaimlerChrysler’s diesel product line to produce higher-
include Mercedes-Benz, Dodge, Chrysler, Jeep, and quality diesel than that made from crude.30
EN F

Smart (initially only available in Europe but slated for

U.S. debut). Within these brands are a wide variety General Motors
of vehicle types: trucks, SUVs, sedans, compacts, and General Motors, the world’s largest automaker, was
C T

sports cars. founded in 1908 and currently employs approximately

Like other major automobile manufacturers, Daimler- 284,000 people and manufactures its cars and trucks in
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Chrysler focuses on finding alternative sources of power 33 countries.31 While Ford suffered a 7.5 percent market
to gasoline. The 2006 DaimlerChrysler lineup of vehicles share loss in the last 6 years, from 22.8 percent in 2000 to
included five E85 capable vehicles: the Dodge Durango about 15.3 percent in second quarter 2007,32 GM expe-
N

(SUV), Dodge Ram 1500 Series (truck), Dodge Stratus
(sedan), Chrysler Sebring (sedan), and Dodge Caravan.
In 2007, three additional vehicles were added to the
lineup. As for hybrid technology, DaimlerChrysler is far
behind U.S. and Japanese competitors, but instead has fo-
cused on clean diesel power using its BLUETEC technol-
ogy that reduces nitrogen oxide levels.28
R&D efforts are focused on fuel cell infrastructure
and vehicle development and GTL (gas to liquids) die-
sel. Similar to Ford and GM, DaimlerChrysler is pilot-
ing fuel cell powered vehicles; it has 60 vehicles deployed
worldwide.29 Its GTL initiatives are meant to enable
rienced a somewhat less significant 6 percent loss, from
28.1 percent to 22.1 percent.33 Like Ford, GM has been
working to increase profitability by decreasing costs and
maintaining market share.
On November 21, 2005, GM announced plant clos-
ings and the loss of jobs that resulted in an annual reduc-
tion of expenses totaling $7 billion, and a 30 percent loss
in capacity. The already depleted workforce, which has
been reduced by 40 percent since 2000,34 will continue to
decline by 30,000 employees by the end of 2008.
In terms of maintaining market share in future years,
General Motors has focused its R&D efforts on gasoline-

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alternative sources of power. It currently offers 16 E85
capable vehicles which include sedans, trucks, SUVs,
and vans. In September 2006 GM announced “Project
Driveway,” which highlighted the Chevy Equinox Fuel Cell.
The hydrogen-powered Equinox is slated to be delivered
to 100 customers in the fall of 2007, in three different geo-
graphic areas: California, New York City, and Washington,
D.C. Drivers will be asked to report on all aspects of their
driving experience. According to GM, these customers
will provide the first “meaningful market test.”35
Another aspect of GM’s effort to reduce vehicle emis-
sions and improve fuel efficiency is the research and devel-
opment of hybrid vehicles. The focus has been placed on
high-volume, high fuel-consuming vehicles first, but even-
tually GM plans to develop 12 different hybrid models The
current hybrid offerings include the 2006 Chevy Silverado
Classic, 2006 GMC Sierra Classic, 2007 Saturn Vue Green
Line, 2008 Chevy Tahoe, and the 2008 GMC Yukon.
Toyota
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LE E
Toyota Motor Company is one of the principal competitors
to Ford domestically. The Japan-based automaker has made
tremendous strides in increasing market share and sales
AR
E AL volume in the North American automotive market. Since
2000, Ford’s market share has continuously fallen while
Toyota continues to gain ground. In 2000 Ford and Toyota
had 25 percent and 10 percent of the market respectively,
AG S
while at the start of 2007 they possessed 14.8 percent and
15 percent respectively.36 Ford sold 3.05 million vehicles
during 2006 while Toyota sold 2.5 million cars and trucks.37
G OR
Toyota’s success in the United States has led to a change in
the “Big Three” moniker; Ford, GM, and Chrysler have in-
stead been designated as the “Detroit Three.”38
Toyota’s appeal is based on its vehicle lineup, qual-
ity, safety ratings, and resale value. Toyota offers a vehicle
EN F
lineup that spans the breadth of the automotive market
from subcompact autos to full-size SUVs. Toyota cur-
C T
rently produces seven (7) passenger cars, six (6) SUVs,
two (2) truck models, and one (1) minivan, under its
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flagship name, with prices ranging from $11,000 to
$60,000.39 Of the vehicles in Toyota’s lineup, three, one
in each category except the minivan, are offered with
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hybrid technology. The number of available vehicles and
fuel options give the consumer a great deal of flexibility
when choosing an automobile.
Toyota’s flagship models are considered to be high-
quality vehicles and among the safest vehicles available.
The National Highway Traffic Safety Administration
(NHTSA) performs safety tests on each vehicle design
for a given year. For the vehicle year 2006, the NHTSA
rated all but one of Toyota’s vehicles, the Matrix, with
at least a four-star rating. Five of Toyota’s vehicles
received a five-star rating, the highest possible safety
rating.40
81133_24_cs10_p123-138.indd 129
129
Innovation is another of Toyota’s competitive ad-
Case 10 • Ford Motor Company
vantages over not just Ford, but the majority of the auto
industry. Booz Allen, which rates companies against
their peers on research and development, rated Toyota
highest among major automobile producing compa-
nies.41 In 2005, Toyota spent $7.2 billion on R&D while
Ford, which spends the most on R&D within the do-
mestic automotive industry, spent $8 billion.42 The
Booz Allen rating indicates that Toyota achieves the
highest return on its R&D expenditures.
Firms within the automotive industry have had to
be wise in the battle for market share by evaluating and
paying attention to important factors such as suppliers,
customers, possible threats, and operating costs.
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Suppliers, Customers, and Other
Competitive Threats
IN
Suppliers
The auto industry obtains resources from a wide array
of firms globally. Although the number of suppliers has
dropped since 2001, an estimated 450 suppliers still pro-
vide output used in each automotive plant.43 Many of
these suppliers rely heavily on the auto industry for a
large percentage of their revenue. For example, Gentex
Corp., who supplies high-end rearview mirrors, realizes
96 percent of its sales from the auto industry.44 Large
diversified suppliers such as BASF and Dow Chemical
supply plastics, foams, paint, and other basic materials
to the auto industry along with many other industries.
Although the large suppliers are diversified with many
products in many industries, the automotive industry is
still a significant customer especially for specific divi-
sions within the large firms.
Delphi and Visteon are two key part suppliers for the auto
industry. These two firms used to be the GM and Ford
parts divisions until they were spun off. Since then, both
firms have struggled with high debt, burdensome union
contracts, and declining sales from their primary custom-
ers (GM and Ford). In fact, Delphi which was spun off
from GM in May 1999 filed for Chapter 11 bankruptcy in
October 2005.45 Visteon which was spun off from Ford in
2000 has also struggled with high debt. In November 2006,
Visteon’s debt rating was further cut into junk bond rating
by Moody’s, who also lowered Visteon’s credit rating from
B2 to B3.46 Although Delphi and Visteon have remained
independent, financial troubles for both suppliers create
concerns for GM and Ford. First, both automakers are
still dependent on their spun off parts suppliers for a large
amount of their parts, so supply uncertainties are a con-
cern.47 Second, when the parts suppliers were spun off,
certain agreements where made with the unions that leave
the automakers still potentially liable for labor costs. Ford,
for example, has committed to the Visteon workers that
12/6/07 4:13:23 AM
 130
they still would have jobs if Visteon folded.48 Although
Case 10 • Ford Motor Company
Ford and GM both have financial strains of their own,
they would likely have to step in if needed to ensure that
their previously spun off parts suppliers remain viable.
Customers
Auto manufacturers sell their cars to a distribution net-
work of dealerships that then sell to the general public.
Additionally, the auto manufacturers sell to fleet sales
firms, such as rental car companies. Although fleet sales
generally are not as profitable as sales to the general public,
they do account for a significant volume of sales. With pro-
duction of the Taurus being discontinued, Ford is expect-
ing fleet sales to decrease by 175,000 vehicles in 2007.49
Although the auto manufacturers sell to the dealer-
ships, they have to be able to supply products that the
end customer wants to purchase from the dealers, which
means the auto manufacturers have to focus on the qual-
ity, design, performance, and cost desires of the general
public. In addition, auto manufacturers need to recognize
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the emerging challenges dealers are facing. Harsh com-
petition has minimized profit margins, especially with
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the current surplus of dealerships. In fact, an article in
E AL
BusinessWeek stated, “There are too many dealers out
there. If normal economic rules applied, say industry
insiders, the nation’s dealer population of 21,000 (three-
quarters of them Big Three stores) would be cut by at
AG S
least 3,000.”50 The challenges drive down margins even
farther and affect compensation of car salespeople. With
the explosion of information available on the Internet,
G OR
the end consumers have access to more information to
compare products and determine which vehicle meets
their needs. Well-informed consumers are able to shop
and negotiate pricing between dealerships, which dimin-
EN F
ishes a salesperson’s tactical advantage.51
Additional Competitive Threats
C T
Many urban areas have considered opportunities for
improved public transportation via rail or bus. Salt Lake
O
City recently implemented a mass transit system, and
built the TRAX rail in time for the 2002 Winter Olympics.
Phoenix is one of the most recent to begin construction
N
of its mass transit system in the metropolitan area.
Even though factors such as capital requirements,
economies of scale, need for distribution channels, and
threat of retaliation make it unlikely for a new entrant
to sprout up from within the United States, history has
shown that new entrants can succeed in the U.S. mar-
ket. Asian automakers such as Toyota and Honda have
successfully entered and established themselves as key
players in the market. More recent entries from Kia and
Hyundai are also making progress in the United States.
Automakers that are established in foreign countries have
been able to gain a foothold by exporting to the United
81133_24_cs10_p123-138.indd 130
States and targeting a niche market. Once they have estab-
lished a reputation and distribution channels, they then
have been able to expand into the broader market. After
reaching an economic scale, they typically then establish
production within the United States. Chinese auto manu-
facturers will likely provide the next wave of new entrants
into the U.S. market. China is now the second-largest
auto market in the world and has a growth rate of nearly
26 percent.52 One Chinese auto manufacturer (Greely
Automotive Holding Company) recently displayed a
car at the Detroit Auto Show, and they intend to begin
exporting to the United States in 2008.53
Operating Costs
G
Fueled by intense competition and excess capacity within
the market, automakers feel an ongoing drive to reduce
costs and improve efficiencies. These desires contributed
IN
to some of the mergers and alliances already discussed,
but other activities are also ongoing to reduce expenses.
Ford and GM have been working to gain concessions,
especially in relation to retiree medical costs, from the
United Auto Workers (UAW) association, which rep-
resents many of the automaker’s hourly workers. They
are also striving to shed excess capacity and reduce
fixed costs by closing manufacturing sites and bringing
capacity more in line with their current market share.
Additionally, firms are looking for more efficient ways
to produce automobiles. Several firms are implementing
flexible manufacturing capabilities to increase their pro-
duction flexibility. For example, GM’s new plant in Delta
Township, Michigan, will have the new Tru-Flex system.
This system will allow them to produce vehicles that have
different platforms on the same assembly line.54
In light of the many factors associated with the auto-
motive industry, it is wise for Ford to continue to invest
heavily in R&D.
Research and Development
In addition to developing alternative fuel vehicles and
associated technology, Ford Motor Company’s primary
engineering efforts include developing attractive safety
and convenience features.
Safety Features
Ford has been working to improve the safety features
of its vehicles. In an effort to reduce the probability of
a rollover, Ford developed Roll Stability Control for the
Volvo XC90, Lincoln Navigator, Lincoln Aviator, Ford
Explorer, Mercury Mountaineer, Ford Expedition, and
Ford E-Series vans. This feature detects when drivers
corner too fast and applies pressure to the brakes on the
outside of the turn, reducing understeer and the likeli-
ness of a rollover. Additionally, Ford implemented what
12/6/07 4:13:23 AM

they call AdvanceTrac, which is designed to increase ve-
hicle stability in emergency maneuver situations. Ford
also developed adaptive cruise control. This feature is
available in the Jaguar S-Type and uses radar to adjust
the cruise control speed to the speed of the vehicle im-
mediately in front.
Ford-engineered safety features reduce the likelihood
of serious injury or death in case of a collision. One of
these features is the safety canopy: In the event of an ac-
cident, airbags not only deploy in front of the driver and
front passenger, but also from the sides of the vehicle to
prevent passengers from being thrown into the side glass.
Additionally, Ford developed what it calls an “Intelligent
Safety System.” The airbag inflator and steering column
absorption adjust to driver variables such as seat posi-
tion, body weight, and event severity.
Convenience Features
Convenience features are also a focus of Ford engineer-
ing, both as a means of product differentiation and to
N
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customer satisfaction. McKinsey & Co. estimates that
electronics will comprise 40 percent of COGS by 2015
as opposed to the present 20 percent.55 Although a large
AR
E AL percentage of those COGS are safety related, many are
convenience related, such as the integration of PDAs and
cell phones for voice-activated dialing and hands-free
operation, voice integration for GPS navigation, enter-
AG S
tainment, climate control, retractable roof, and so on. For
the more adventurous consumer, Ford developed a ter-
rain response system, currently being tested in the Land
G OR
Rover Range Stormer concept vehicle, which adjusts the
engine, gearbox, air suspension, driveline controls, trac-
tion control functions, and brakes according to the envi-
ronment and driving requirements.
EN F
Ford can get the greatest return on investment for
R&D expenditures if the company’s branding and mar-
keting strategies are taken into account.
C T
Branding and Marketing Strategies
O
Ford Brands
Ford markets automobiles in the United States under
N
the Ford, Lincoln, Mercury, Mazda, Volvo, Jaguar, Land
Rover, and Aston Martin brands. Because some of the
brands have been acquired in recent years, some over-
lap occurs between target markets, but each brand tries
to differentiate itself in order to appeal to a specific
customer segment. Ford groups Jaguar, Volvo, Aston
Martin, and Land Rover into its Premier Automotive
Group (PAG).56 Mazda, which is a Japanese auto manu-
facturer, and Ford started a relationship in 1979 which
has continued to evolve, and in 1996, Ford took over 33.4
percent of Mazda shares.57 The Lincoln and Mercury
brands share a long history with Ford. Historically, the
81133_24_cs10_p123-138.indd 131
131
Ford brand included light trucks and cars targeted at
Case 10 • Ford Motor Company
the more price-conscious consumers. Lincoln targets
higher-end consumers, and Mercury aims to fill the gap
between the upper-end Lincolns and the lower-end Ford
brand.
Marketing Strategies
In an effort to increase online traffic on dealership Web
sites, and provide increased Web customization poten-
tial, in December 2006 Ford planned to implement new
Web sites for 5,000 North American dealerships. The
initiative focuses on bi-directional input, enabling custom-
ers to request key information such as quotes or test drives,
as well as allowing Ford to push targeted advertisements
G
and promotions out to customers. Ford strives to develop
user-friendly, easy-to-operate dealer sites, which can be
integrated with Ford’s current corporate Web sites.58
IN
Product Design and Positioning
Drastic product design transformation and advancement
are critical to Ford’s sustainability in the automotive mar-
ket. The current leadership group is guiding designers to
deliver product designs that demonstrate confidence.
Ford’s design director for passenger cars recognizes the
need for Ford to research the market trends, desires, and
expectations. As an example of the renewed design fo-
cus, in November 2006, Ford unveiled its Super Duty
line of trucks planned for release in 2008, which offers
increased towing capacity, improved interiors, and up-
graded options packages to potential customers. For this
line, Ford added MP3 capability, a superior tailgate step,
and a stowable truck bed extender in its efforts to ap-
peal to consumers. Further, the Super Duties incorporate
Ford’s Clean Diesel Technology, an advanced technology
that equalizes diesel and gasoline emission levels.59
In addition to creating fresh product designs, Ford
aims to further position its vehicles by offering attractive
financing and discount options. In August 2006, Ford
provided 0 percent financing to buyers with solid credit,
and low rates even to those with mediocre credit.60 Ford is
offering bonus cash for purchases of specific 2007 models,
including the Fusion, Escape, and Super Duty F-series.61
Ford continues its efforts to increase sales and enhance
its tired brand image through a variety of approaches,
ranging from participating in automotive exhibitions to
marketing vehicles on film and television. At the Beijing
International Automobile Exhibition, Ford will be the
largest exhibitor.62 The 2007 Ford Mondeo is driven by
James Bond in the 2006 film Casino Royale, contributing
to the positive branding of Ford as chic and powerful. Ford
vehicles also appeared on the popular television show,
American Idol, and the award-winning movie, Crash.63
Despite its efforts to differentiate and survive in an
ever-intensifying competitive environment, the financial
12/6/07 4:13:23 AM
 132

condition of the company has not been as strong as Another financial constraint results from Ford’s agree-
Case 10 • Ford Motor Company

stakeholders would hope.
Financial Condition
Ford’s declining economic performance can be attributed
to two major factors, dwindling demand for its product
and the rising cost of production and operational ex-
penses. Rising fuel costs and increased competition, both
domestic and foreign, have reduced Ford’s sales and led
to a loss of market share.64 Ford’s excess capacity and de-
crease in operating margins have put Ford at a financial
disadvantage. (See Exhibits 6, 10, 11, 12, 13, and 14 for a
comparison of select financial attributes for auto manu-
ments with labor unions and its defined benefit plan, which
spells out its obligations to provide post-retirement benefits
for former employees. These benefits include pension
benefits as well as life and health insurance in the United
States and abroad. For example, in August of 2006, Ford an-
nounced plans to idle 10 of its production facilities as part
of the Ford’s Way Forward Plan, in an attempt to reduce
inventory and production costs. This decision was required
primarily due to the reductions in light truck and SUV sales.
Even though the move will reduce the inventory levels and
cost of machine operation, it will have a minimal effect on
the cost of production personnel, hourly and salaried. Ford’s
agreement with the United Auto Workers union mandates

G
facturers.) One of the major underpinnings of its restruc- that Ford continue to pay union employees the majority of
turing plan is to match capacity with demand. their normal wage and Ford has further extended this to

IN
Exhibit 6 Comparison of Select Financial Attributes (in $ millions)
Selected Auto Maker Market Capitalization Sales, TTM Operating Income Net Income, TTM

N
Ford Motor 15,187 170,425 2,842 1,575

LE E
Toyota Motor 194,505 186,677 16,668 12,176

AR
E ALHonda Motor
DaimlerChrysler AG
63,660
59,044
87,921
187,555
7,710
2,779
5,298
3,564

Source: 2006, Ford Motor Company, http://www.morningstar.com.

AG S

Exhibit 7 Performance of Ford Stock, January 2001 to December 2006

G OR
EN F
C T O
N

Source: 2006, Ford Motor Company, http://bigcharts.marketwatch.com/quickchart.

81133_24_cs10_p123-138.indd 132 12/6/07 4:13:24 AM


nonunion salaried employees.65 These types of agreements
are one of the principal causes of Ford’s excessive operating
costs as compared to its foreign competitors.
Ford intends to reduce operating costs through the
consolidation of suppliers. To simplify its diffuse supply
chain, Ford intends to consolidate the number of major
parts suppliers for its automotive sector from 200 down
to 100.66 It also intends to continue to source raw materi-
als and supplies from lower-cost geographical regions in
order to improve its gross margin, which has declined
44 percent from 25.9 percent in 1996 to 14.6 percent in
2006.67 As a comparison, the industry average is 19.2 per-
cent,68 representing 32 percent better performance over
Ford. The narrower gross margins represent a challenge
to garner adequate financial resources to mount an at-
tack on market share against its rivals.
To further improve cash flows, Ford also stated that
they will cut their dividend to shareholders of common
stock in half to five cents per share and will also not be
paying board member fees. Ford issued a dividend to
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common shareholders every year over the past 10 years,
which usually yielded between 3 percent and 7 percent
AR
of earnings. The reduction in dividend payments will re-
E AL duce net cash losses by $368 million per quarter.69 (See
Exhibits 7, 8, and 9 for Ford’s stock performance.)
In September 2006, Ford’s balance sheet showed a
working capital deficit exceeding $35 billion with cash
AG S
and cash equivalents balance of $25.5 billion with total
Exhibit 8 Performance of Ford Stock Versus the Dow Jones Index and GM, December 2002 to December 2006
G OR
EN F
C T O
N
Source: 2006, Ford Motor Company, http://bigcharts.marketwatch.com/advchart/frames.
81133_24_cs10_p123-138.indd 133
133
current assets of $64.8 billion. In order to improve its
Case 10 • Ford Motor Company
liquidity and to allow sufficient cash reserves to fund its
restructuring, Ford elected to raise an additional $18 bil-
lion. The financing includes $15 billion that is secured by
current fixed assets with the balance being unsecured. In
addition to funding operations, a portion of the proceeds
from the new debt financing will restructure preexisting
debt. It is the first time in the firm’s history that Ford has
been forced to secure financing with its internal assets.70
The result of the additional debt on Ford’s balance sheet
resulted in further downgrades of its existing commercial
paper to “junk” status. The S&P rating on Ford’s senior un-
secured debt was CCC-plus while Moody’s assigned a Ba3
rating.71 During the quarter ending in September 2006,
G
Ford recorded a net loss of $5.8 billion and consumed
more than $2 billion in cash.72 Analysts anticipate that in
2007, Ford will burn through in excess of $5 billion in cash
IN
as it continues with its restructuring.73
An essential aspect in Ford’s restructuring process is
developing and understanding the corporate strategy.
Corporate Strategy
Ford’s portfolio of automotive businesses includes auto
manufacturers from around the world, replacement auto
parts, and financial services. Ford recently hired Kenneth
Leet, a former investment banker, to assist in developing a
business strategy to improve business conditions. Recent
12/6/07 4:13:24 AM
 134
Exhibit 9 Stock Indices, 2000 to Present
Case 10 • Ford Motor Company

1.60

1.40

1.20

1.00

0.80

0.60

0.40

0.20

G
0.00
1/3/2001

5/3/2001

9/3/2001
1/3/2000

5/3/2000

9/3/2000

1/3/2002

5/3/2002

9/3/2002

1/3/2003

5/3/2003

9/3/2003

1/3/2004

5/3/2004

9/3/2004

1/3/2005

5/3/2005

9/3/2005

1/3/2006

5/3/2006

IN 9/3/2006
Ford Toyota GM S&P 500

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Exhibit 10 Comparative Operating Margin, 1996 to Present

AR
E AL
14

12
AG S

10

8
G OR

6
%
4

2
EN F

–2
C T

–4
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 TTM
O

Period

Ford GM Toyota
N

Sources: 2006, Ford Motor Company, http://www.morningstar.com; 2006, General Motors Corporation, http://www.morningstar.com; 2006, Toyota Motor
Corporation, http://www.morningstar.com.

discussions include the possibility of forming alliances tries to return to profitability.76 This step would help
with other car manufacturers and selling off unprofitable to reduce the pressure from Wall Street for short-term
divisions.74 Due to its Premium Auto Group’s pretax loss results and allow Ford to better focus on making solid
of $327 million in 2006, Ford sold off the Aston Martin long-term decisions. However, other sources dispute
brand in first quarter 2007 and is seeking to divest the this rumor with Bill Ford stating that Ford has no inter-
Jaguar and Land Rover brands.75 est in going private.77
Other rumors swirl around the idea that Ford will Another option to help Ford remedy its financial
go private. An article in CNNMoney.com cites Ford’s struggles, declining credit ratings, and falling stock value
contemplation of going private as it restructures and is declaring bankruptcy, but Ford asserts that bankruptcy

81133_24_cs10_p123-138.indd 134 12/6/07 4:13:24 AM

 135

Exhibit 11 Financial Comparison Summary 2005 (in $ millions)

Case 10 • Ford Motor Company

Ford Corporation General Motors Toyota Motor Corporation
(F) Corporation (GM) (ADR-TM)
Net revenue $ 177,089,000 $ 192,604,000 $ 179,083,000
Cost of revenue 144,944,000 171,033,000 144,249,000
Gross profit 32,145,000 21,571,000 34,834,000
SG&A 24,652,000 22,734,000 18,844,000
Other expenses 483,000
Operating income/(loss) 7,010,000 (1,163,000) 15,990,000
Net Income $ 2,024,000 $ (10,567,000) $ 11,681,000
Total current assets 51,712,000 99,414,000 91,387,000
Total Assets $ 269,476,000 $ 476,078,000 $ 244,587,000
Total current liabilities 95,790,000 113,973,000 85,373,000

G
Total Liabilities $ 256,519,000 $ 461,481,000 $ 154,688,000
Total Stockholders Equity $ 12,957,000 $ 14,597,000 $ 89,899,000

IN
Cash flow from operations 21,728,000 (16,856,000) 21,414,000
Cash flow from investing 7,408,000 8,565,000 (28,735,000)
activities

N
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Cash flow from financing (20,651,000) 3,480,000 7,465,000
activities

AR
E AL Net Change in Cash $ 7,989,000 $ (5,267,000) $ 729,000
Sources: 2006, Ford Motor Company, http://www.morningstar.com; 2006, Toyota Motor Corporation, http://www.morningstar.com; 2006, General Motors
Corporation, http://www.morningstar.com.
AG S

Exhibit 12 Selected Financial Ratios for Toyota Motor Corporation

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
G OR

Revenue ($ millions) $118,558 $114,572 $126,232 $152,237 $173,304 $186,842

Gross margin, % 19.0 20.8 20.4 19.8 19.8 19.5

Operating margin, % 6.0 7.6 8.2 9.6 9.0 8.9

EN F

Operating income $ 7,136 $ 8,751 $ 10,355 $ 14,672 $ 15,621 $ 16,682

Net income* 6,089 4,437 6,113 10,228 10,906 12,176

C T

Cash flow from operations 12,887 12,265 16,978 20,096 22,148 22,341
O

Free cash flow 2,045 (127) 3,866 6,993 4,182 (2,271)

* Unadjusted for nonrecurring above-the-line transactions.

N

Source: 2007, Toyota Motor Corporation, http://www.morningstar.com.

is not an option it will consider.78 News that Chapter 11
will not be filed has led to recent improved shareholder
confidence.79
With the new CEO in place, other changes are slated
to take place in Ford’s corporate strategy. Mulally is
determined to decrease the influence of the finance depart-
ment, which historically had significant power in deter-
mining the final product and has too often compromised
an automobile’s competitiveness in order to save a few dol-
lars.80 Mulally believes that the key to its future success is
not squeezing by with fewer resources than competitors
use, but “working smarter with what it has.”81 Another
component of the new strategy directed by Mulally is
ridding Ford of “needless complexity.”82 Mulally stated
that prior to him being on board, “The company was be-
ing managed as a collection of six or seven Fords, each

81133_24_cs10_p123-138.indd 135 12/6/07 4:13:24 AM

 136

Exhibit 13 Selected Financial Ratios for General Motors Corporation

Case 10 • Ford Motor Company

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Revenue
($ millions) $164,069 $178,174 $161,315 $176,558 $184,632 $177,260 $186,763 $185,524 $193,517 $192,604 $207,349

Gross
margin, % 24.5 27.0 26.9 28.2 21.1 18.8 17.9 18.0 17.3 11.2 20.6

Operating
margin, % 7.5 7.8 7.1 9.5 9.1 5.7 5.2 6.7 6.8 (0.6) (3.7)

Operating
income $ 12,371 $ 13,827 $ 11,505 $ 16,797 $ 16,716 $ 10,108 $ 9,795 $ 12,445 $ 13,172 $ (1,163) $ (7,668)

Net
income* 4,963 6,698 2,956 5,922 4,342 502 1,689 3,822 2,805 (10,567) (1,978)

G
Cash
flow from
operations 18,720 16,454 17,067 27,030 19,750 9,166 17,109 7,600 13,061 (16,856) (11,759)

IN
Free cash
flow (9,723) (14,939) (16,076) (3,519) (11,855) (17,505) (6,958) (11,491) (9,016) (40,531) (19,692)

N
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* Unadjusted for nonrecurring above-the-line transactions.

Source: 2007, General Motors Corporation, http://www.morningstar.com.

AR
E AL
Exhibit 14 Selected Financial for Ford Motor Corporation
AG S

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Revenue
($ millions) $146,991 $153,627 $144,416 $162,558 $170,064 $162,412 $163,420 $164,196 $171,652 $177,089 $170,425
G OR

Gross
margin, % 25.9 29.1 27.4 26.8 25.8 20.5 23.4 20.9 20.9 18.2 6.9
Operating
margin, % 10.7 13.1 11.8 11.4 10.4 2.1 6.0 4.9 6.2 4.0 (5.1)
Operating
EN F

income $ 15,707 $ 20,142 $ 17,013 $ 18,592 $ 17,718 $ 3,354 $ 9,857 $ 8,118 $ 10,681 $ 7,010 $ (8,167)
Net
income* 4,381 6,866 21,964 7,222 3,452 (5,468) (995) 495 3,487 2,024 (12,613)
C T

Cash
flow from
operations 19,257 27,634 23,100 29,811 33,764 22,764 18,633 20,195 24,514 21,674 9,609
O

Free cash
flow 10,411 18,585 14,373 21,276 25,416 15,756 11,355 12,446 17,769 14,157 2,761
N

* Unadjusted for nonrecurring above-the-line transactions.

Source: 2007, Ford Motor Company, http://www.morningstar.com.

pursuing its own agenda.”83 Mulally’s focus is to unite the
company with a single business purpose.
Additionally, Ford will concentrate more on the world-
wide market and customers, and work to better utilize its
global assets and capabilities.84 The global organization
will streamline operations rather than differentiating
processes for different countries. Already, Ford has closed
plants in Wixom, Michigan; Louisville, Kentucky; and
Lorain, Ohio, and will soon close its St. Louis, Missouri,
plant. Ford is also attempting to increase operational
efficiency by investing $2 billion in the Rouge manu-
facturing plant in Dearborn, Michigan, for cutting-edge
manufacturing equipment and environmental features,85
$62 million into the Buffalo plant to increase output and
widen the scope of parts production, and $240 million
over the next four years at its Wayne Assembly Plant.86 To

81133_24_cs10_p123-138.indd 136 12/6/07 4:13:25 AM

 137

further aid with this process, Mulally organized a global by between $335 million to $1.1 billion.89 The net effect

Case 10 • Ford Motor Company

product development team.
Mulally has been working closely with labor unions in
an attempt to increase contributions to the retirement plans
helping to relieve the financial burden as it tries to decrease
operating costs. In the effort to alleviate the financial bur-
den of the labor agreements, Ford announced that it would
be offering its 75,000 domestic union workers a buyout
of their existing contracts including an option to receive
lump sum payment in lieu of future pension and health
care obligations.87 Economic terms of the buyouts range
from $35,000 to $140,000 and are based on current com-
pensation, occupation level, and other post-employment
compensation packages elected. Ford originally anticipated
of the buyouts will increase the possibility that Ford could
return to profitability in 2008.90
Conclusion
Ford Motor Company began with Henry Ford and his revo-
lutionary $5-a-day minimum-wage scheme and an 8-hour
work day,91 but now, Ford Motor Company is struggling
to survive. From the advent of the assembly line in 1913,92
well-designed manufacturing has played a vital role at Ford
Motor Company, but now Ford is planning to eliminate
40 percent of its workforce by 200893 in an effort to cut
manufacturing costs. Ford is also striving to improve its
competitive position by driving innovation. Successful

G
that the buyout would allow them to reduce 30,000 of its
hourly positions. In late November 2006, Ford reported innovation in manufacturing processes, product design,
that the acceptance rate for the buyout had exceeded the marketing approach, and business structure will be needed

IN
anticipated number of 30,000 and that roughly 38,000 of its to improve Ford’s brand image, and return Ford to profit-
U.S. employees had opted to participate.88 The reduction in ability. The only remaining question is how and if Ford can
force (RIF) buyout is expected to reduce operating expenses achieve the needed improvements before time runs out.

N
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AR
Notes
E AL
1. 2006, Ford Company History, http://www.ford.com. 24. 2007, The road ahead for the U.S. auto industry.
AG S

2. 2006, Wikipedia, http://en.wikipedia.org/wiki/Henry_Ford. 25. 2006, DaimlerChrysler: Corporate profile, http://www.daimlerchrysler

3. Ibid. .com, December 7.
4. Ibid. 26. 2007, The road ahead for the U.S. auto industry.
5. 2006, Fast Company, http://www.fastcompany.com/online/33/ 27. 2007, DaimlerChrysler closes transaction on transfer of majority
G OR

ford.html. interest in Chrysler to Cerberus, press release, http://www

6. http://www.thehenryford.org/exhibits/fmc/chrono.asp. .daimlerchrysler.com, August 3.
7. R. Jones, 2006, Ford makes bold move, but is it enough? MSNBC, 28. 2006, DaimlerChrysler: Technology & Innovation, http://www
http://www.msnbc.msn.com/id/14687037/, September 6. .daimlerchrysler.com, December 7.
8. K. Hammonds, 2000, Grassroots Leadership—Ford Motor Co., Fast 29. Ibid.
Company, http://www.fastcompany.com/online/33/ford.html, March. 30. Ibid.
9. Ibid. 31. 2007, General Motors: Company Information, http://www
EN F

10. Ibid. .gm.com/company/corp_info/.

11. S. Webster, 2006, Inside Ford: Departing exec Anne Stevens says 32. 2007, Ford makes surprise quarterly profit, MSNBC, http://www
company needs to trim at top and her job is expendable, Detroit Free .msnbc.msn.com, July 26.
C T

Press (Michigan), September 18. 33. D. A. McIntyre, 2007, GM’s market share drives off a cliff, 24/7 Wall
12. S. Webster, 2006, Change looks inevitable at Ford: Analysts expect Street, http://www.247wallst.com, July 7.
more top rank shake-ups, Detroit Free Press (Michigan), September 26. 34. 2006, The road ahead for the U.S. auto industry.
O

13. 2006, Alan Mulally Biography, http://media.ford.com. 35. 2006, General Motors: GM Advanced Technology, http://www.gm.com/
14. 2006, William Clay Ford Jr. Biography, http://media.ford.com. company/gmability/adv_tech/100_news/fc_fleet_launch_091806.html,
15. 2006, New top man at Ford, http://www.carkeys.co.uk/news/2006/ December 7.
N

september/06/11258.asp, September 6. 36. N. Bunkley, 2006, Ford dropped to 4th place in market share last
16. 2006, William Clay Ford Jr. Biography. month, New York Times, http://www.nytimes.com, December 2.
17. 2006, William Clay Ford Media Articles, http://media.ford 37. A. Taylor III, 2007, America’s best car company: Toyota has become a
.com/people/related_articles. red, white, and blue role model. How? By understanding Americans
18. Ibid.; 2007, Auto sales tumble amid housing slump, http://www better than Detroit does, Fortune, http://www.cnnmoney.com,
.msnbc.msn.com, August 1. March 7.
19. A. Halperin, 2006, Does big R&D mean big returns? BusinessWeek, 38. Ibid.
November 26. 39. 2007, Toyota Vehicle Lineup, http://www.toyota.com.
20. Ibid. 40. 2007, http://www.motortrendcars.com.
21. 2006, R. Vartabedian, E85 getting attention, http://www 41. J. Scanlon, 2006, How to turn money into innovation, BusinessWeek,
.energyrefuge.com/archives/e85_getting_attention.htm, June. http://www.businessweek.com, November 14.
22. 2006, The road ahead for the U.S. auto industry, Office of Aerospace 42. A. Halperin, 2006, Does big R&D mean big returns? Yahoo!, http://
and Automotive Industries International Trade Administration, U.S. www.uk.biz.yahoo.com, November 11.
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23. 2006, U.S. light vehicle sales, market share for November, horizon? http://knowledge.wharton.upenn.edu/article.cfm?articleid=
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44. 2006, Gentex Corp Investor Information, Corporate profile, http:// 68. Ibid.
Case 10 • Ford Motor Company

www.gentex.com/corp_investor.html. 69. S. Jarush, 2006, Ford halves dividend, board member fees, The
45. 2006, Delphi (auto parts), Wikipedia, http://en.wikipedia.org/wiki/ Associated Press State & Local Wire, July 13.
Delphi_(auto_parts). 70. 2006, Ford plans to obtain $18 billion financing, http://www
46. Associated Press, 2006, Moody’s lowers Visteon credit rating, .smartmoney.com, November 27.
Yahoo!, http://biz.yahoo.com/ap/061122/visteon_rating.html?.v=1, 71. 2006, S&P, Moody’s rate Ford’s new credit line, http://www.reuters
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47. Ibid. 72. 2006, Third quarter earnings 2006 earnings review, http://media.ford
48. D. Welch, 2003, Ford and Visteon: Ties that bind, BusinessWeek, .com/article_display.cfm?article_id=24527, October 23.
http://www.businessweek.com/magazine/content/03_16/b3829064 73. 2006, Ford plans to obtain $18 billion financing.
.htm, April 21. 74. 2006, Ford review ‘may spark sell-off,’ http://news.bbc.co.uk/2/hi/
49. B. Koening & A. Ohnsman, 2006, Ford’s U.S. sales unexpectedly business/5240794.stm, August 2.
fall: Toyota gains (Update 10), Bloomberg, http://www.bloomberg. 75. J. Reed, 2007, Ford selling Jaguar, Land Rover, http://www.carsguide
com/apps/news?pid=20601087&sid=aYNYk.c_jNrY&refer=home, .news.com.au, June 13.
December 1. 76. 2006, Report: Ford weighs going private, CNN, http://money.cnn
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November 27, 33. 77. 2006, Ford CEO: Bankruptcy ‘not an option,’ Fox News, http://www
51. Ibid. .foxnews.com/story/0,2933,201563,00.html, June 29.
52. 2007, China car sales rev up nearly 26%, Asia Times, http://www 78. Ibid.

G
.atimes.com/atimes/china_business, July 10. 79. D. Kiley, 2006, Lessened bankruptcy fears lift Ford shares,
53. Ibid. BusinessWeek, http://www.businessweek.com, December 21.
54. Ibid. 80. D. Kiley, 2007, Mulally: Ford’s most important new model,

IN
55. 2006, The road ahead for the U.S. auto industry. BusinessWeek, http://www.businessweek.com, January 9.
56. M. Krebs, 2005, Can endangered Jaguar be saved? Edmunds.com, 81. Ibid.
http://www.edmunds.com/insideline/do/Columns/articleId=104594/ 82. Ibid.
subsubtypeId=217, February 7. 83. D. Levin, 2007, Think Bush has had it bad, try a day as Bill Ford, Jr.,
57. 2006, Ford Motor Company, http://www.ford.com/en/company/about/ Bloomberg, http://www.bloomberg.com, January 11.

N
LE E
brands/mazda.htm. 84. 2006, Ford Motor Company, Ford announces corporate realignment,
58. R. Kisiel, 2006, Ford dealerships get new Web site designs, http://www.ford.com/newsroom/pressreleases, December 14.
Automotive News, November 27, 43. 85. 2006, Ford Motor Company: A history of innovative

AR
E AL
59. W. Leavitt, 2006, Ford debuts ‘08 Super Duties, Fleet Owner,
November 1, 101(11).
thinking, http://www.ford.com/en/innovation/technology/
historyOfInnovativeThinking.htm, December 3.
60. J. Saranow & G. Chon, 2006, The return of 0% financing; auto 86. 2006, Change looks inevitable at Ford: Analysts expect more top rank
makers pile on deals to clear swollen inventories; some hot models shake-ups.
excluded, Wall Street Journal, August 31, D1. 87. J. Rodrigues, 2006, Ford employees take deep breaths, weigh
AG S

61. A. Wilson, 2006, Ford, GM launch year-end incentives, Automotive options, Virginian Pilot, September 16.
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62. 2006, Demand for autos moves into high gear, Financial Times www.reuters.com., November 30.
Information Limited - Asia Intelligence Wire, http://www.chinadaily. 89. Ibid.
G OR

com.cn, November 18. 90. 2005 Ford 10-K/A SEC filing, 23.
63. 2006, Q+A: Casino Royale reaffirms 007’s bond with Ford, 91. http://www.time.com/time/time100/builder/profile/ford3.html.
Brandweek.com, http://www.brandweek.com, November 13. 92. 2006, Ford Motor Company: A history of innovative
64. J. Novak, 2006, Ford arranges new financing, Morningstar Report, thinking, http://www.ford.com/en/innovation/technology/
November 28, 1. historyOfInnovativeThinking.htm, December 3.
65. C. Isidore, 2006, Ford slashes production, CNN, http://www.money 93. J. McCracken, S. Power, & J. White, 2006, Sharp skid: Ford and
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EN F

66. 2005, Ford will use fewer suppliers in attempt to cut costs, USA its dividend, cut more salaried jobs; Daimler unit’s loss grows; a
Today, http://www.usatoday.com/money/autos, September 29. ‘Black Friday’ for Detroit, Wall Street Journal, http://www.wsj.com,
67. 2006, Ford Motor Company, http://www.morningstar.com. September 16.
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