CASE 4

Ford Motor Company: Will the

Company’s Strategic Moves
Restore its Competitiveness
and Financial Performance?

Marlene M. Reed Rochelle R. Brunson

Baylor University Baylor University

A
report by Road Show on CNET, dated June 5, automobiles as car sales had been its lifeblood since
2019, suggested that the Ford Fusion 2020 1908 when Henry Ford revolutionized passenger trans-
model would be the last car Ford would pro- portation with production of the Model T.  Industry
duce. The discontinuation of the Fusion was said to analysts also wondered if the American love affair
be a part of Ford’s shifting strategic focus away from with the SUV and trucks would continue if the price
passenger cars toward crossovers and SUVs—many
with electrified powertrains.1 Observers wondered Copyright ©2021 by Marlene M. Reed, Baylor University and Rochelle
if Ford could essentially abandon the market for R. Brunson, Baylor University. All rights reserved.

EXHIBIT 1 History of the Ford Motor Company

1896–Henry Ford built the Quadricycle, the forerunner of the automobile.
1899–Henry Ford joins a group that founded the Detroit Automobile Company.
1901–Henry Ford defeats the top racecar driver of the era in his 26. The victory led to Sweepstakes. The victory led to
Ford’s second short-lived attempt at auto manufacture—the Henry Ford Company.
1903–The Ford Motor Company is incorporated with an initial 12 investors and 1,000 shares. The company had spent
almost all of its $28,000 cash investment by the time it sold the first Ford Model A on July 23. By October, the company
had turned a profit of $37,000.
1904–Ford Motor Company of Canada is founded. The plant was built in Windsor, Ontario, across the river from Ford’s
existing facilities. The company was created to sell vehicles not just in Canada but also all across the British Empire.
1907–Ford introduces the scripted typeface of its trademark.
1908–Ford introduces the Model T. Ford sold 15 million of this model before ceasing production in May 1927. It
became the most famous car in the world.
1913–Ford introduces the integrative moving assembly line to auto production. This innovation reduced the Model
T’s chassis assembly line from 12.5 to 1.5 hours and brought about a revolution in manufacturing.
1914–Ford institutes the famous “$5 Day.” This wage payment to Ford’s employees was double the existing rate
for factory workers. The company also reduced the workday from 9 to 8 hours. The day after this wage rate was
announced, 10,000 people lined up hoping to be hired by Ford.
C-44 PART 2  Cases in Crafting and Executing Strategy

1917–Ford produces its first truck. The truck was called the Ford Model TT based on the Model T car but with a
reinforced chassis and rear axle.
1919–Edsel Ford succeeds Henry Ford as president of the company.

1922–Ford acquires the Lincoln Motor Company.

1925–Ford begins production of the Ford Tri-Motor airplanes. The “Tin Goose” was the first airplane used by America’s
early commercial airlines.
1927–Ford begins selling the 1928 Model A. The company closed plants all over the world to spend six months
retooling factories and perfecting the design of the car.
1936–Ford begins selling the Lincoln Zephr line. Lincoln Zephr’s sleek, aerodynamic shapes helped make the brand a
sales success, but when auto production ceased during World War II, the Zephr name was dropped as well.
1941–Ford begins producing Jeeps for the U.S. military.
1942–Ford halts production of automobiles in the United States to produce military equipment.
1948–Ford produces the F-Series line of trucks. The company ceased building trucks on car platforms and used a
purpose-built truck platform instead.
1954–Ford introduces the Thunderbird. This car would become a classic.
1956–Ford becomes a publicly-traded company.
1959–Ford Credit is established. The company offered loans and leases to car buyers.
1964–The Ford Mustang goes on sale. The car was a huge success and has remained one of the fastest-selling
vehicles in history.
1965–Ford-Philco engineers unveil the Mission Control Center used to put a man on the moon.
1976–Ford of Europe introduces the Ford Fiesta.
1986–Ford introduces the modular assembly line at its St. Louis assembly plant. This made use of automated ancillary
assembly lines to produce vehicle subassemblies.
1990–Ford introduces the Explorer. With this model, Ford helped launch the SUV market. This became one of Ford’s
most successful models.
1996–Ford introduces the Ford Ranger Electric Vehicle. This was a forerunner of today’s electric vehicles and hybrid
energy systems.
1998–The Lincoln Navigator is introduced and spurs rapid growth in the luxury SUV segment.
2011–Ford discontinues the Mercury line to concentrate all of its efforts on the Ford and Lincoln brands.
2016–Ford Mobility, LLC is created. This focused on changing the way the world moves. Ford Smart Mobility was
designed to take the company to the next level in connectivity, mobility, autonomous vehicles, the customer experience
and data analytics.

of gasoline began to escalate as the United States, company’s revenues had rebounded due to increased
Russia, and the United Arab Emirates. engaged disposable income levels, falling unemployment, and a
in tactics to alter energy prices around the world. renewed demand for big-ticket purchases. However, the
Exhibit 1 below outlines key milestones in the history company reported falling sales in some of its established
of the Ford Motor Company. markets in 2019 and 2020—partially due to the spread
of the COVID-19 virus in early 2020. Exhibit 2 pres-
ents Ford’s stock performance between April 2015 and
Ford’s Strategic Situation in 2020 April 2020. The company’s consolidated income state-
By 2020, Ford employed over 200,000 people world- ments for 2017 through 2019 are presented in Exhibit 3.
wide in 70 plants producing midsize cars, SUVs, Ford Motor Company’s consolidated balance sheets for
and pickup trucks. Since the recession of 2008, the 2018 and 2019 are presented in Exhibit 4.
 CASE 4  Ford Motor Company C-45

EXHIBIT 2  Performance of Ford Motor Company’s Stock Price, April 2015 to

April 2020

(a) Trend in the Ford Motor Company’s Common Stock Price

16

14

12
Stock Price ($)

10

4
2016 2017 2018 2019 2020
Year

(b) Performance of the Ford Motor Company’s Stock Price Versus the S&P 500 Index
+60%
Percent Change (April 2015 = 0)

+45%
+30%
+15%
+0% S&P 500

-15%
-30%
-45% Ford Motor
Company’s Stock
-60% Price
-75%
2016 2017 2018 2019 2020
Year

Ford’s New Product Strategy systems; and (4) cloud-based mobility experiences
William Clay Ford, Jr., Executive Chairman of Ford, that deliver recurring revenue.
suggests that 115 years ago, when the company began, The winning portfolio in 2020 was envisioned to
the company’s mission was to make people’s lives be the Escape, Expedition, Explorer, Ranger, F-150
better by making mobility accessible and affordable. Hybrid, Bronco, and the Mustang Shelby GT500.
By 2020, the company was moving toward manufac- The Ford Bronco was produced between 1966 and
turing “smart vehicles for a smart world.” The world 1996 and was discontinued when the smaller two-
plan focused on four pillars: (1) A winning portfolio; door Bronco II suffered from a tipping problem. The
(2) new propulsion options; (3) a high-level autono- reintroduced Bronco will be modular with a remov-
mous business built on the most trusted self-driving able top and doors.
C-46 PART 2  Cases in Crafting and Executing Strategy

EXHIBIT 3 Consolidated Income Statements for the Ford Motor Company,

2017–2019 ($ in millions except per share amounts)
2017 2018 2019

Revenues
Automotive $145,653 $148,294 $143,599
Ford Credit 11,113 12,018 12,260
Mobility 10 26 41
  Total revenues 156,776 160,338 155,900
Costs and expenses
Cost of sales 131,321 136,269 134,693
Selling, administrative, and other expenses 11,527 11,403 11,161
Ford Credit interest, operating, and other expenses 9,047 9,463 9,472
  Total costs and expenses 151,895 157,135 155,326
  Operating income 4,881 3,203 574
Interest expense on Automotive debt 1,133 1,171 963
Interest expense on Other debt 57 57 57
Other income/(loss), net 3,267 2,247 (226)
Equity in net income of affiliated companies 1,201 123 32
Income/(Loss) before income taxes 8,159 4,345 (640)
Provision for/(Benefit from) income taxes 402 650 (724)
Net income 7,757 3,695 84
Less: Income attributable to noncontrolling interests 26 18 37
Net income attributable to Ford Motor Company $7,731 $3,677 $47
Earnings per share attributable to Ford Motor Company common and class B stock
Basic income $1.94 $0.93 $0.01
Diluted income $1.93 $0.92 $0.01
Weighted-average shares used in computation of earnings per share
Basic shares 3,975 3,974 3,972
Diluted shares 3,998 3,998 4,004

Source: Ford Motor Company 2019 10-K.

EXHIBIT 4 Ford Motor Company Consolidated Balance Sheets, 2018–2019

($ amounts in millions)
December 31, December 31,
2018 2019

ASSETS
Cash and cash equivalents $16,718 $17,504
Marketable securities 17,233 17,147
Ford Credit finance receivables, net 54,353 53,651
Trade and other receivables, less allowances of $94 and $63 11,195 9,237
Inventories 11,220 10,786
Assets held for sale — 2,383
Other assets 3,930 3,339
  Total current assets 114,649 114,047
 CASE 4  Ford Motor Company C-47

December 31, December 31,

2018 2019

Ford Credit finance receivables, net 55,544 53,703

Net investment in operating leases 29,119 29,230
Net property 36,178 36,469
Equity in net assets of affiliated companies 2,709 2,519
Deferred income taxes 10,412 11,863
Other assets 7,929 10,706
  Total assets $256,540 $258,537
LIABILITIES
Payables $21,520 $20,673
Other liabilities and deferred revenue 20,556 22,987
Automotive debt payable within one year 2,314 1,445
Ford Credit debt payable within one year 51,179 52,371
Other debt payable within one year — 130
Liabilities held for sale — 526
  Total current liabilities 95,569 98,132

Other liabilities and deferred revenue 23,588 25,324

Automotive long-term debt 11,233 13,233
Ford Credit long-term debt 88,887 87,658
Other long-term debt 600 470
Deferred income taxes 597 490
  Total liabilities 220,474 225,307
Redeemable noncontrolling interest 100 —
EQUITY
Common Stock, par value $.01 per share (4,011 million shares issued of 6 billion 40 40
 authorized)
Class B Stock, par value $.01 per share (71 million shares issued of 530 million 1 1
 authorized)
Capital in excess of par value of stock 22,006 22,165
Retained earnings 22,668 20,320
Accumulated other comprehensive income/(loss) (7,366) (7,728)
Treasury stock (1,417) (1,613)
  Total equity attributable to Ford Motor Company 35,932 33,185
Equity attributable to noncontrolling interests 34 45
  Total equity 35,966 33,230
  Total liabilities and equity $256,540 $258,537

Source: Ford Motor Company 2019 10-K.

C-48 PART 2  Cases in Crafting and Executing Strategy

Two years before the Bronco was discontin- events and other factors such as the COVID-19 virus
ued, the automobile gained a great deal of atten- threat in 2020.
tion when Al Cowlings drove O.J. Simpson down Some of the greatest challenges to Ford in 2020
a Los Angeles freeway after Simpson was charged identified by management included the following:
with the murders of his ex-wife and her friend. More
1. Acceptance of new and existing products by the
than 95 million people across the United States
market.
watched the two-hour pursuit on television while
crowds gathered on overpasses to cheer on the NFL 2. Sales of more profitable larger vehicles, especially
football legend.2 in the United States.
3. Increased price competition resulting from indus-
Ford Credit Company try excess capacity.
4. Fluctuations in commodity prices, foreign
Although the company experienced profitability dif- exchange rates, and interest rates.
ficulties in 2018 and 2019, its financial arm, Ford
Credit Company, posted its best results in 2019 of 5. Global macroeconomic factors such as protec-
the past nine years. Their profits jumped to $3 billion tionist trade policies and other events including
before taxes. The result was that this arm of the com- Brexit.
pany accounted for 50 percent of Ford’s profits. This 6. The company’s ability to maintain a competitive
was up from 15 to 20 percent in the past. Ford Motor cost structure.
Company had, thus, been able to subsidize Ford’s 7. Pension and other post-retirement liabilities.
losses and allowed the company to maintain a high 8. Defects that result in delays in new model launches.
dividend yield. Unfortunately, data released by the 9. Operational systems could be affected by cyber
New York Federal Reserve Bank in late 2019, indi- incidents.4
cated that the volume of 90+ days delinquent loans
had risen sharply. The value of the overall auto loan
and lease balances had surged to $1.33 trillion that Ford and the Coronavirus Pandemic.
year. In addition, subprime loans reached $66 billion In early 2020, a new virus called the coronavirus
in the final quarter of 2019.3 or COVID-19 began to cause serious illness and
There were several risks for the company in the death around the world. Because of an increasing
2020s regarding the Ford Credit Company. One risk incidence of this disease in the United States, many
was that this financial arm of the company could states declared a “shelter in place” order intended to
experience higher-than-expected credit losses, lower- prevent the spread of the virus by forcing people to
than-anticipated residual values on higher-than- work from home. Ford, on March 31, stated that it
expected return volumes for leased vehicles. Another was delaying the restart of a car plant in Mexico as
risk was that Ford Credit could face increased com- well as four truck, SUV and van plants in the United
petition from financial institutions or other third par- States “to help protect its workers.”5 This postpone-
ties seeking to increase their share of financing Ford ment came just two days after President Donald
vehicles. Finally, Ford Credit could be subject to new Trump extended the national social-distancing guide-
or increased credit regulations, consumer or data lines through the end of April 2020. The shutting
protection regulations or other types of regulations. down of the economy resulted in the loss of more
jobs than had occurred since the Great Depression
Challenges for 2020 and the stoppage of purchasing non-essential goods.
The automotive industry is affected by macro- Because of a shortage of ventilators to treat
economic conditions over which the companies have coronavirus patients, Ford and General Electric’s
little control. Vehicles are durable goods, and con- Health Care Division announced on March 30 that
sumers exert strong choices about when and if they they together planned to produce 50,000 ventilators
will buy a new car. This decision is influenced by over the next 100 days. Ford planned to use a plant
such factors as slower economic growth, geopolitical in Rawsonville, Michigan, and about 500 workers to
 CASE 4  Ford Motor Company C-49

EXHIBIT 5 Global Automobile EXHIBIT 6 2018 U.S. Retail Sales

Industry Products and Volume Segregated by
Services Segmentation, Product Type
2018 U.S. Retail Sales Percentage
Product Percentage of Market Trucks 1,139,079 45.6%
Cars 36.6% SUVs 872,215 34.9%
Cross utility vehicles (CUVs) 32.1% Cars 486,024 19.4%
Pickup trucks 10.8% Total 100%
Sports utility vehicles (SUVs) 6.9%
Source: Annual Report of the Ford Motor Company, 2018
Other 13.6%

Total 100%
destinations for automobile products.7 The historic
methodology for manufacturing automotive vehicles
Source: Oelkan, Ediz (February 2020). Ibisworld.com, Global Car
& Automobile Mfg. was to assemble cars at a domestic plant and then
export them to their final destinations. However, the
supply chain has become more complex. The shift
make 30,000 ventilators a month. GE had licensed has been toward manufacturing cars close to their
the design of the ventilator from Airon Corporation final destination to save on logistics costs. Another
of Melbourne, Florida. The device works on air pres- part of this strategy is to focus on very specific brand-
sure and does not need electricity. Both Ford and GE ing devices to appeal to the customer. An example of
announced that Ford would help increase produc- this is the logo “Made in America.”
tion of another ventilator based on a design from GE
Healthcare.6 A Future Strategy
By 2020, the Ford Motor Company Board had some
Global Automobile Status difficult decisions to make. Although the developing
A survey of the range of products and services pro- economies of the world primarily demanded smaller
vided by the global automobile manufacturing indus- automobiles, the developed economies preferred
try is shown below in Exhibit 5. the larger crossovers, SUVs, and trucks. The com-
Although the production of cars accounts for pany had already made a decision to discontinue the
36.6 percent of global industry revenue, this was Ford Fusion, its largest automobile, and the public
lower than its production volume because cars wondered if they would drop selling all of their cars
normally sell at a lower price than SUVs and com- except for the Mustang in the United States.
mercial vehicles. Therefore, they contribute less to Another question that arose was: What would
revenue on a per-unit basis. The car segment had happen to large vehicle sales if the price of petroleum
been growing as consumers opted for more fuel rose to alarming rates again? That had seemed to be
efficiency. Ford sales in the United States, however, a remote possibility until the United States, Russia,
showed a lower total sales of cars than trucks or and the United Arab Emirates decided in the spring
SUVs—see Exhibit 6. of 2020 to limit the daily production of petroleum.
Generally, Germany, Japan, the United States, There was also the question of what would happen if
and Canada are expected to be the world’s largest people began financing their vehicles at some place
exporters of cars and automobiles (SUVs, trucks, other than Ford Credit, and what could they do
etc.). On the other hand, Germany, China, the United about that? The Board had much to think about as
Kingdom, and Belgium are expected to be the largest they put their strategic plan together.
C-50 PART 2  Cases in Crafting and Executing Strategy

ENDNOTES
1 6
Ewing, Steve (June 5, 2019). All Ford Fusion com/heres-why-ford-motor-company-still- The New York Times (March 30, 2020).
models will go out of production in 2020. Road cant-avoid-bankruptcy/. Ford joins effort to make ventilators. https://
4
Show by CNET. Annual Report of the Ford Motor Company, www.nytimes.com/2020/03/30/business/
2
Noble, Breanna (March 5, 2020). Ford Bronco 2018. stock-market-today-coronavirus-html#link-
5
poised to return: It’s like a cult vehicle,” The Wayland, Michael (March 31, 2020). Ford 310e3984/.
7
Detroit News. postpones reopening “key” plants due to Ozelkan, Ediz (February 2020). Global
3
Singh, Ayush (March 2, 2020). Here’s coronavirus pandemic. https://www.cnbc. car and manufacturing, Ibisworld.com,
why Ford Motor Company still can’t avoid com/2020/03/31/ford-postpones-reopening- 1999–2020.
bankruptcy, Business News. https://www.ccn. key-plants-due-to-coronavirus-pandemic.html.