Ford Motor Company Essay Example For Students

Ford Motor Company Essay Ford Motor Company Ford Motor Company was a very successful business. The automobile industry began with Henry Fords production of the Model T in the early 1900s. With the creation of the assembly line, cars became cheaper and quicker to produce, making them affordable for many people. There were originally 500 auto manufacturers. By 1908, there were only 200; and in 1917 only 23 remained. This vast reduction was due to large amounts of consolidation within the industry. Currently, the major competitors within the industry are Ford, DaimlerChrylser, General Motors (GM), Honda, Toyota, and Volkswagen. A few United States (US) manufacturers produce 23% of the worlds vehicles while Japan is responsible for 21%. The tendency for the industry is to be a global producer of automobiles; parts can be made throughout the world and assembled in many different places. The trend of consolidation has continued throughout today. Presently, this is evident in the recent acquisition of Chrysler by Daimler-Benz in late 1998, thus forming DaimlerChrylser. These consolid ations have proved beneficial to consumers since companies have been able to reduce costs and pass those savings on to the customers. Some of the other major examples of consolidation are Nissan selling off a controlling 37% interest to Renault; General Motors 49% ownership of Isuzu; and Fords 33% majority of Mazda. Other efforts to become more competitive have translated into the European Union dropping trade barriers and European carmakers employing cost reducing efforts. American manufacturers have seen 2-3% growth over the last few years. Some current trends are the explosion in popularity of the Sport Utility Vehicle (SUV) and big luxury vehicles. In the future the global car market is full of potential. There are currently 44 million vehicles and by the year 2002 experts estimate that number will grow to 64 million. That growth is not expected to be in the US, rather in countries such as: China, India, The Pacific Rim, South Africa, and South America. In America, a current tre nd is for the neighborhood car dealer to be purchased by a large manufacturer, such as GM, so cars can be sold through retail outlets. Other future endeavors include low emission cars, which are expected to provide expansions in sales. Some major automakers are investing in fuel cells, devices that convert liquid hydrogen into electricity, hoping to make future vehicles more environmentally friendly. The automobile industry will see more changes in the next 10 years than it has in the last 100. Economic Climate In the past, the oversized vehicle was the body-style of choice among American consumers. In the 1970s, oil shortages led to an increase in demand for more fuel-efficient cars, thus the sub-compact car became popularized. After 1979, Japans efficiency at producing this type of car allowed them to take 30% of the U.S. automobile market away from American manufacturers. In 1999, total industry sales have risen 8%2. Now, unprecedented competition has pressured firms to reduce co sts. This competition is a result of the mass consolidations occurring among worldwide automotive manufacturers. These immense companies are able to offer many styles and options, but so many options come at a cost. This could become a problem for them as more informed consumers insist on lower prices and more add-ons. The World Wide Web, which allows consumers to thoroughly research and purchase automobiles from home, has become an essential ingredient to any successful automakers arsenal, and will continue to play a large role in the 21st Century. The luxury vehicle segment has grown more competitive, yet maintains large profit margin potential. American buyers have been showing increased interest in European and Japanese manufacturers. A study in 1990 revealed 11% of Americans wanted to purchase European luxury cars, a number that has increased to 23% in 1999. The Sport Utility Vehicles (SUVs) segment has emerged as one of todays hottest markets through its increased sales. North -American consumers in higher income brackets are choosing, with increasing frequency, to put SUVs in their garages. Minivans market share was 8% in 1998, which was down 12% from 1991. This is a result of a shift in consumer demand away from these vehicles. Overall market analyst agreement is that minivans have entered the mature stage of the product life cycle. Pick-up trucks, uniquely American vehicles that span all of the consumer target markets, show good potential for domestic manufacturers. U.S. manufacturers have sustained unparalleled sales in this segment due to the popularity growth of trucks. The largest and most important product segment in the automotive industry is mid-size cars. It is an area of intense competition for car sales in the United States. Popularity for mid-size vehicles is due to consumers preference for luxury cars they cannot afford and compacts that they do not like. All of these vehicle segments combine to form an industry in which consumers have cont inuously changing tastes. Recent years show that, for those manufacturers who can compete worldwide, profit and growth potential will be ever present. The company who is able to produce vehicles incorporating the most recent technologies at the lowest cost will find themselves with the competitive advantage. Ford Motor Companys first car was sold on July 23, 1903. In 1906, the first Model T was made available and the millionth car was produced on December 10, 1915. Production of trucks and tractors began in 1917. Ford became the first international company when they started exporting cars to Europe. Within 10 years Ford had plants in 5 countries. In 1956, Ford went public with the largest stock issue of all-time; 10.2 million shares. The Ford family still retains 34% of the firms voting stock. Fords finance subsidiary, Ford Motor Credit, was formed in 1959 and is the number one auto finance company worldwide. The Thunderbird, a two-seater sports car, was produced in 1954. A revoluti on was started in 1964 when Ford unveiled the Ford Mustang. It was the first time the world had seen a sporty car with a youthful touch. The 70s were a time for quality reflection, assessment, and improvement. In 1980, Ford introduced the Escort, which was their first attempt at a car that could be globally marketed. The 80s were also the decade in which the Taurus made its first appearance. Ford then developed the global car referred to as CDW27. It was a highly sophisticated car that sent all over the world with only slight modifications for various regions. In 1987, Ford earned record profits of $4.63 Billion and three years later they suffered their largest one-year loss of $2.3 Billion. Ford Motor Company of Canada, Ltd. Currently, Ford is the #2 maker of cars and trucks worldwide. They are also the worlds largest truck manufacturer and are ranked by Fortune 500 as the second largest industrial corporation. Fords three major subsidiaries are Hertz, Ford Credit, and Visteon. Her tz is the U.S.s largest rental car company. They have seen five years of record profits and seven straight years of increased earnings. Ford Credit is the worlds largest automotive finance company. In 1998 its earnings were $1.1 billion, an increase from last year. Visteon is a component manufacturing operation with annual sales of nearly $18 billion. Future Plans: According to the company, Fords prime focus in the 21st Century will be on the consumer. Fords management stated, Our vision is to be the worlds leading consumer company that provides automotive products and services. In addition, Ford has made a deal with Microsoft in an effort to take advantage of the MSN CarPoint service. In addition, Ford recently announced an agreement with Yahoo! which will allow car owners to register their cars online. Their plans project that cars will be able to connect within 3 years. That online service is known as 24-7. With this service car owners will see such benefits as: being able to get service reminders, information on credit accounts; and real-time traffic reports. Voice-activated Internet access is also projected to be available within 3 years. With that service, things like email capabilities and direction retrieval will be possible in a hands-free atmosphere. Ford is also trying to expand in the area of e-commerce. Their focus is on five areas: Telematics, Business to Consumer, Customer acquisition, Customer retention, and Business to Business. Ford is striving to make advances that will keep it competitive in a global market during the information revolution. General Ford has shown a steady pattern of sales growth from 1994 to 1997, growing at 5-7% each year. However, in 1998 sales were down 6%. In 1999, sales were up 14% from the previous year, giving them an average over the 94-99 period of 5.4% growth. Profit margin has remained steady, always ranging between 7% and 9%, slightly above the industry average. Cost of goods sold has remained around 72%, which shows consistency within Fords manufacturing plants. Fords borrowing can be explained by its leverage ratios. Fords debt ratio has remained relatively steady over the last 5 years. 1998s debt ratio was 82.65%. This shows how they were relying heavily on borrowed funds to finance operations. This is further evinced by Fords debt-to-equity ratio of 4.77 in 1998, which is up from past years. Compared to the 1.97 industry average, Fords number appears quite high. Fords times-interest-earned for 1998 was 3.68, an increase from previous years. This could be due to the $15,955 million gain Ford recorded as a result of the spin-off of their interest in The Associates, Inc. The liquidity of Ford, indicated by its current ratio of .41, shows that they have many current liabilities. This number is much lower than the industry average of 1.8. Fords quick ratio has trended upward over the last 4 years, with 1998 finishing at .29. This is, again, below the industry average of .90. With a company as large as Ford, having as many current liabilities as they do is not necessarily an indication of a problem. Dupont Fords efficiency can be determined by examining the asset turnover ratio and the days inventory held ratio. These show how effectively Ford is using its assets. The asset turnover ratio for Ford has averaged .71 times over the last 5 years. 1998 turnover was .79 times. The days inventory held ratio for Ford has fluctuated over the past 5 years. Fords reduction from their 1994-1995 average of 25.79 days to 22.25 in 1996 was a significant improvement. Their further reduction to a 1997-1998 average of 19.07 shows a continued effort by Ford to reduce inventory costs. Days sales outstanding (average collection period) in 1994-1997 saw a range of 8.23 days to 9.24 days. Ford improved this number significantly in 1998 to 6.49 days. Business Ethics EssayThe threats that face Ford include an increasing number of well-informed consumers attributable to the availability of information on their the web. The demand for higher quality vehicles at cheaper prices has forced the automobile manufacturers to become more efficient and competitive. Honda, GM, and Chrysler are Fords main competitors in the industry. Even though the worldwide automotive market is very large the companies in this industry are fiercely competitive for every part of the market. For the past 5 years, Ford has been a leader in the automobile industry. They are the number one maker of cars and the number two maker of trucks in the world, assuring them a strong market share. Their estimated 17.11% long-term annual growth rate shows they do not face a going concern problem and that they expect to be profitable for many years to come. Between 1997 and 1998, net income rose by 10%, as did earnings per share and dividends per share. Between those two y ears, the common stock price rose by 31% and total shareholder returns by 32%. Vehicle unit sales and the total company sales and revenues were both down by 1% in 1998. Current stock price: Ford is traded on the NYSE under the symbol F. As of March 17th 2000, Fords current stock price was listed at $44.625. This is close to its 52- week low of $40.25. The 52- week high was $67.875. With 1,222 million shares outstanding, this gives Ford a market capitalization rate of $54,531 million. Dividends per share were $1.84 and earnings per share were $5.86. Thus, our Price/Earnings Ratio is 7.61. Average daily trading volumes for Ford are 4,022,000 shares. A regression analysis of Ford produces a beta of 1.0151. This beta appears correct when compared with well-known financial news providers estimates. Data from the last two years, most recently being January 1st, was used to find a market return of 20.90% and a risk-free rate of 1.49%. Inserting these numbers into the Capital Asset Pricing Model (CAPM), a resulting stock price of $52.81 emerges. Using published betas for a comparison reference, the CAPM produces stock values between $37.61 and $54.38 and a weighted-average of $50.09. Using the January 1st stock price of $52.75, it appears that Fords stock is correctly valued. This makes sense, considering that Ford is a large, widely held, and often-analyzed firm. Bibliography Sources Web Sites: http://www.askjeeves.com http://www.astonmartin.com/ http://www.auto.com http://www.bloomberg.com http://www.cbs.marketwatch.com/ http://www.cnbc.com http://www.cnnfn.com http://www.ford.com/ http://www.hoovers.com http://www.jaguar.com http://www.lincolnvehicles.com http://www.mazdausa.com/ http://www.mercuryvehicles.com/ http://www.morningstar.com http://www.thestreet.com http://www.volvocars.com/ Books: Brealey, Richard A., and Myers, Stewart C. Principles of Corporate Finance. Sixth ed. McGraw Hill, New York, 2000. Brigham, Eugene F., and Houston, Joel F. Fundamentals of F inancial Management. Second ed. Dryden, New York, 1999.