Feb 23, 2009

Ford Motor Company

The major American automobile manufacturers are not doing to well...Wikipedia has a pretty decent summary of what happened with the "Big Three" automakers.

If you don't want to read that summary, essentially the "Big Three" suffered from a multitude of problems that their Japanese and Asian competitors don't have to deal with and they were hit hard with the credit crisis in 2008:

1) Unionized Workers - union workers come with higher labor costs, and it is much harder to deal with unions and fire workers who don't perform to the standards of the company. Moreover, the companies also made a lot of pension and health-care commitments for its retirees, which it is finding harder and harder to satisfy (the New York Times had a pretty good article about this).

2) Declining image - the "Big Three" more than other automobile manufacturers have had to tackle with the issue of declining image. Since the Japanese automakers started producing high quality cars at cheap costs, the "Big Three" have found it harder and harder to keep pace, resulting in a decline in consumer confidence in their vehicles. This problem is exacerbated by the fact that declining consumer confidence leads to lower sales, which makes it even harder for the American automakers to be able to produce high quality cars that are able to compete in the market.

3) SUV Craze - back in late 1990's, SUVs became a huge hit and started becoming the backbone of the automotive industry. The price of gas was low enough to sustain the craze, so naturally all the automakers got into the SUV craze sweeping America. However, once gas prices began to spike SUV sales plummeted, and the automakers took a big hit. To be fair to the "Big Three," while they could have been more eco-conscious, as this Time article points out, while SUVs were more dangerous and more expensive to fuel, Americans loved them and there was high demand for them. Even up until the summer of 2007, SUV sales were pretty strong. . And it isn't until recently that Americans have become more eco-conscious and more concerned with fuel economy. In the early 2000's, hybrid cars and alternative-energy cars were a small percentage of the market, and came with such a high price premium, that they were impractical for the average consumer.

4) The 2008 Oil and Credit Crisis - the crisis was essentially the straw that broke the camel's back. High gas prices hit the sales of the "Big Three" automakers pretty hard, and since they relied on SUVs so heavily, it forced them to start massive promotional incentives, which didn't do nearly enough to alleviate the damage. The credit crisis also had the added effect of tightening loans, which reduced the ability of people to buy cars, further hurting automotive sales.

But my main point with this article is that of the "Big Three," Ford stands to be in the best position to make a comeback. They started venturing into hybrid vehicles with the Ford Escape and the Mariner. They've received Michigan tax credits for their research in electric vehicles and their plan to bring 4 electric vehicles by 2012.

From their latest 4th Quarter financial results, they are planning to create 2010 Ford Fusion and Mercury Milan hybrids, and are planning to continue to produce hybrid vehicles over the next 4 years. They have also formed plans with the U.S. Department of Energy to invest $14 billion over the next 7 years to create more fuel efficient vehicles

And while their latest vehicle, the Ford Fiesta won't be available in its more eco-friendly form in the U.S., the car is still a compact car, which is much more friendly to the environment. If Ford keeps up this pace of release more eco-friendly, smaller, and more compact cars, I'm sure they will be able to turn their business around, especially since the market for compact cars is continuing to grow (also here).


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