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Ford Case - Problems the Industry and Ford Faced

Essay by   •  November 17, 2012  •  Case Study  •  681 Words (3 Pages)  •  1,584 Views

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The industry structure had remained unchanged between 1990 and 2008, and the world's biggest auto makers struggled to stay profitable with return on invested capital, lower than cost of capital, which led to loss of shareholder value. In 2004 a downward trend in total production begun to occur, due to market saturation aggravated by the ability of cars to last longer. Market for the industry reduced and firms started to look for opportunities internationally. By 2000 the industry had realized the need for innovative products to keep demand, and begun to develop "new concept " cars. Cost of new product development in the meanwhile increased and mergers and acquisitions begun to occur as Sharing of development cost was crucial and encouraged increased collaboration and joint ventures. The automobile industry however was still troubled, during the recession governments around the world had stepped in to keep plants open and assembly lines running, pumping in excess of $100billion to save the industry. However, despite the intervention saving jobs, the industry was still not producing the 86million units they were capable of producing, even after plants stayed open (Grant, 2010).

Problems the Industry and Ford Faced

Excess capacity was a structural problem the industry was facing. Production capacity in the early 1980's surpassed the demand for cars, and import restrictions aggravated the problem. Firms raced to build factories in areas showing great opportunities, and by 2009, global excess capacity was estimated at 34 million units. Slow new product development intensified due to high costs of development caused by increased design complexity, changing safety and environmental standards, and applications of new electronics. Creation of a new car, by the 1990's from the design aspect to production would cost over $15billion per car (Grant, 2010).

Lack of consolidation during signs of trouble in the industry was worrying. While the Japanese choose to collaborate and form long-term relationships displacing the U.S model of contractual based and arms-length relationship, other companies in the industry did not see it as a path to success. The strategy however was successful and gave companies a global reach and enhanced growth (Grant, 2010 ).

Steep Analysis

Socio-cultural

Ford had suffered a 10% every year in the 1980's through 2000's, with sharp declines in sales due to ineffective execution of the companies strategies' and its failure for collaboration with other contenders in the industry for efficient production on low overhead costs. Fords survival was critically depended on the world's auto industry. Changing cultural aspect such as, demand for innovative design by consumers was a challenged that Ford faced, and would have to be closely monitor social trend

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