Microeconomics research paper on Ford Motor Company
Ford Motor Company (NYSE:F) is the world's fourth largest automotive manufacturer by production volume. The company sells vehicles under the Ford, Mercury, Lincoln, and Volvo (to be sold) brands.
Since the mid-1990s, Ford has been steadily losing market share in the US car market, from 25% in FY1995 to 5.5% in FY2009. At the same time, Ford's European operations have increased share by producing many critically acclaimed vehicles well known for quality.
This difference between Ford's domestic and international operations is a result of costly US manufacturing facilities caused by high wages and expensive healthcare and retirement obligations for union labor. Therefore, improving operational efficiency and developing a more fuel efficient product offering are the centerpieces of Ford's turnaround plan. For example, Ford has cut 40,000 jobs in the past three years and closed seven factories in the past five years. Meanwhile the company has unveiled plans to bring six of its fuel efficient models (average fuel economy of over 30 mpg) currently sold in Europe to the U.S. market. In addition to answering demand for smaller cars in the short-term, Ford hopes that offering the same lineup of automobiles in all of its international markets will provide considerable economies of scale in the long-term.
Ford has been restructuring Volvo and separating its operations to run on a stand-alone basis. Ford started discussions on the sale of Volvo in the first quarter of FY2009, and in March 30, 2010, Ford confirmed that it had sold its Volvo unit to Chinese automaker Geely Automobile Holdings Ltd. for $1.8 billion, $1.6 billion in cash and another $200 million note. Ford expects the transaction will be complete by third quarter FY2010, when regulatory applications have been settled.
[Dollar figures in billions.]
Business and Financial Metrics
Ford makes money by selling and financing motor vehicles on six continents. At the end of FY2009, Ford had about 198,000 employees, down from 213,000 at the end of FY2008). Ford bought several foreign luxury auto brands during the 1990s, but as the company's financial position became more tenuous, most of these have been sold off in order to focus on the core brands of Ford, Lincoln, and Mercury.
Ford has also been successful in drastically improving the quality and reliability of its cars. These improvements meant that by early 2009 Ford exceeded Honda in initial quality rankings and in a statistical dead heat with Toyota. Not only do such improvements make cars more attractive to consumers, but they have also reduced Ford's warranty costs by $127 million in FY2009. On January 11, 2010, Fitch Ratings announced that it has upgraded Ford from CCC to B-, in lieu of a positive outlook for FY2010, such as Fitch's expectation that Ford will turn a positive cashflow in FY2010.
FY2008 worldwide wholesale unit volumes by automotive segment (in thousands)