Course: MGT 745 Strategic Planning, at Francis Marion University, Florence, South Carolina a case project by an MBA Student In Dr.

Transcription

1 Course: MGT 745 Strategic Planning, at Francis Marion University, Florence, South Carolina a case project by an MBA Student In Dr. David s Spring 2017 Class (written permission is required from Dr. David for any use of this material) freddavid9@gmail.com

2 Table of Contents Page Introduction 1 Old Vision Statement 1 Old Mission Statement 1 Revised Vision Statement 2 Revised Mission Statement 2 Industry Overview 2 Competitor Overview 3 Competitive Profile Matrix (CPM) 4 Current Financial Position 4 Company Valuation 5 Key Financial Ratios 6 Liquidity, Leverage, Activity Ratios 6 Profitability, Growth Ratios 7 Graph: Current and Quick Ratio 8 Graph: Debt to Equity and Net Margin Percent 9 Graph: Return on Assets and Return on Equity 10 Graph: Fixed Asset Turnover and Inventory Turnover 11 Graph: Earnings per Share 12 External Factor Evaluation (EFE) Matrix 12 Internal Factor Evaluation (IFE) Matrix 14 SWOT Matrix 15 SO Strategy 16 WO Strategy 16 ST Strategy 17 WT Strategy 17 Strategic Position and Action Evaluation (SPACE) Matrix 18 Boston Consulting Group (BCG) Matrix: Automotive and Financial Division 19 Boston Consulting Group (BCG): Ford Automotive Sectors 20 Internal - External (IE) Matrix 21 Grand Strategy Matrix 22 Quantitative Strategic Planning (QSPM) Matrix 23 Perceptual Map: Truck Comparisons 25 Perceptual Map: Mid-Size Comparisons 25 Perceptual Map: Manufacturer Comparisons 26 Organizational Chart: Old vs Revised 27 Company Valuations: Ford vs GM and Toyota 28 Recommendations 29 EPS/EBIT Analysis 30 Income Statement and Balance Sheet 2014 and Year Projected Income Statement and Balance Sheet 32 Notes to Projected Income Statement and Balance Sheet 33 Statement of Projected Retained Earnings 34 Historical Ratios 35 Executive Summary 36

3 Introduction Ford Motor Company Henry Ford and his investors formed the Ford Motor Company in 1903 and introduced the Model T in Ford Motor Company was incorporated in Delaware in Ford Motor Company pioneered the modernday assembly line allowing them to produce over half of the vehicles on the road. Ford Motor Company is a global automotive and mobility company with headquarters in Dearborn, Michigan. The Ford core includes designing, manufacturing, marketing, financing, and servicing a full line of Ford cars, trucks, SUVs, and electrified vehicles. Ford also holds the Lincoln line of luxury vehicles. The future of Ford is in the pursuit of emerging opportunities in international markets notably and through Ford Smart Mobility. Ford aims to be a leader in connectivity, mobility, autonomous vehicles, the customer experience, and data and analytics. Additionally, Ford provides financial services through Ford Motor Credit Company LLC. Ford is divided into two major business divisions, Automotive and Financial. The Automotive sector deals in vehicles primarily under two brand names, Ford and Lincoln. This sector sells and provides ongoing maintenance and repair services to fleet customers and markets its products through distributors and dealers domestically and abroad. It is divided into 5 sectors: North America, South America, Middle East and Africa, Europe, and Asia Pacific. The Financial Services sector, offers various automotive financing plans to include retail sale contracts for vehicles, leases options, wholesale financing, lending, and insurance services to commercial and retail consumers. Old Vision Statement: People working together as a lean, global enterprise to make people s lives better through automotive and mobility leadership. Old Mission Statement: Ford. One Team. One Plan. One Goal One Team: People working together as a lean, global enterprise for automotive leadership, as measured by: Customer, Employee, Dealer, Investor, Supplier, Union/Council, and Community Satisfaction. One Plan: Aggressively restructure to operate profitably at the current demand and changing model mix; Accelerate development of new products our customers want and value; Finance our plan and improve our balance sheet; Work together effectively as one team. One Goal: An exciting viable Ford delivering profitable growth for all. 1

4 Revised Vision Statement: Ford Motor Company will be the global automotive industry leader through innovations in automotive transportation and service to its customers, employees, and the environment. Revised Mission Statement: Ford Motor Company strives to become the global automotive industry (3) leader delivering quality innovations to transportation (2) that meet the needs of our customers (1). Ford Motor Company is dedicated to adapting the latest technology (4, 7) to facilitate change and social connectivity through transportation (6). Our highly-trained professionals (9) support our efforts for continued growth and profitability (5) while keeping our promise of environmental responsibility and sustainability in our communities (6,8). (1) Customers (6) Philosophy (2) Product or services (7) Self-Concept (distinctive competence) (3) Markets (8) Public image (4) Technology (9) Employees (5) Survival, growth and profitability Industry Overview 2015 was another banner year for automobile manufacturers. U.S. industry leader General Motors was up 5% with competitors Ford and Toyota up 5.3% and Chrysler up 7.3% from There was very little market shift with no automaker gaining or losing more than 0.2% of market share from Domestic sales were led by a 55.7% growth in sales for trucks spurred by low interest rates and low gas prices. Despite trucks holding the top three best-selling vehicles in 2015, sales of small SUVs no lead the industry in market share. The combination of increasing employment, growth of the personal income, and low interest rates along with lower energy costs, has strengthened consumer spending and kept market momentum steady. Global automotive markets also showed strong results in China and Europe but slower movement in Indonesian and Russian markets. India had strong growth at 6% in 2015 and is expected to eclipse that by a projected 9% in Forecasts for growth in these markets range from 2% 5% through South America fell dramatically in 2015, losing 20% as a region and 22% for Brazil. Major automakers continue to invest heavily in emerging markets vying for increased market share and capitalizing on a forecasted global economic growth of 3%. Shifts in the global emerging markets along with industry trends in consumer demand, expanded regulation for safety and fuel economy, and the use of integrated technology, will be top priorities when preparing strategic initiatives. Companies will need to navigate short term changes to build market share and profitability while also positioning themselves for success 3, 5, and 10 years from now. The automotive industry is becoming increasingly competitive with brand loyalty and differentiation waning as the gap in vehicle quality, choice, and price becomes increasingly smaller. Automakers will need to embrace innovation and change to attract new and old customers while maintaining efficiencies and profitability year after year. 2

5 Competitor Overview General Motors Company (GM) General Motors, headquartered in Detroit, Michigan, is considered to be the largest of the Big Three within the automotive industry which includes Ford Motor Company and Chrysler Corporation. GM designs, manufactures, markets, and distributes vehicles and parts, and sells financial services to both commercial and retail consumers domestically and globally. The current company, General Motors Company LLC ("new GM"), was formed in 2009 following the bankruptcy of General Motors Corporation ("old GM"). The new company purchased the majority of the assets of the old GM, including the brand "General Motors". GM has a total employment over 215,000 and over 400 facilities globally. GM posted solid financial results off of record sales of over 9.9 million units globally and was the industry sales leader in the U.S., North and South America, and China. Globally, GM achieved a market share of 10.8% vs Toyota s 11%. GM, its subsidiaries, and joint venture produce brands Buick, Cadillac, Chevrolet, Baojun, GMC, Holden, Jiefang, Opel, Vauxhall, and Wuling. Toyota Motor Corporation The Toyota Motor Corporation was incorporated in 1937 and is one the leaders in the automotive industry. Toyota operates under three major brands Toyota, the luxury line Lexus, and Scion. Toyota is the world's market leader in sales of hybrid electric vehicles, and one of the largest companies to encourage the massmarket adoption of hybrid vehicles across the globe. As of July 2014, Toyota was the largest listed company in Japan by market capitalization. Toyota has surpassed North American sales to overcome Chrysler and emerge as a strong competitor to General Motors and Ford. In 2015, domestic market share was third (14.3%) with GM first (17.7%) and Ford second (14.7%). Globally, they are expanding into emerging markets and growing in market share as they drive sales of the Toyota brand. Toyota was the industry leader in market share with 11.2%, overcoming GM at 10.8%. 3

6 Customer loyalty and product quality have been the critical mainstays for success to date, however, the strategy will shift given new industry trends and successes in emerging markets. All three are fairly close in total score giving further evidence to the competitive nature of the market. Ford s relative strengths and weaknesses to date compared to competitors is presented below. Competitive Profile Matrix FORD GMC TOYOTA Critical Success Factors Weight Rating Score Rating Score Rating Score Advertising Customer Loyalty Customer Service Employee Loyalty Financial Health Global Expansion Management Manufacturing Plants Market Share Price Competitiveness Product Quality R&D Technology Social Responsibility Total Current Financial Position Ford remains competitive in their financial position relative to peers General Motors and Toyota. Despite a decline in their current ratio from 2012, the current ratio has grown since 2014 and is close to its peers. Contrast this with stable growth in the quick ratio from 2012 that exceeds GM and remains competitive with Toyota. Ford is managing short term liabilities and providing a positive and stable position with which to increase presence and improve market share in key markets. Ford s debt to equity ratio appears off balance relative to GM (showing nearly 3 times as much), however, this debt is largely due to its growing finance division which holds 90% of long term debt. This long term debt is used to offer loans at higher interest rates through the finance division creating a positive return on revenues since 2012 and averaging $7.8 billion in revenue each year since Net Margin has rebounded from the year over year decline from 2013 to 2014 and is showing value of Similarly, return on assets and return on equity ratios improved over 2014 by 109% and 122% respectively. These profitability ratios demonstrate that Ford is making significant business improvements that are stable and conducive to growth. 4

7 Ford s company valuation and key financial ratios compared to GM and Toyota are presented below. Ford Motor Company Stockholders' Equity - (Goodwill + Intangibles) Net Income x 5 (Share Price/EPS) x Net Income Number of Shares Outstanding x Share Price Method Average $57,284,000 $29,850,000 $12,531,580 $12,531,580 $28,049,290 General Motors Stockholders' Equity - (Goodwill + Intangibles) $39,871,000 Net Income x 5 $48,435,000 (Share Price/EPS) x Net Income $55,745,325 Number of Shares Outstanding x Share Price $510,150 Method Average $36,140,369 Toyota Stockholders' Equity - (Goodwill + Intangibles) Net Income x 5 (Share Price/EPS) x Net Income Number of Shares Outstanding x Share Price Method Average $139,989,000 $90,610,000 $679,796,000 $407,385,440 $329,445,110 5

8 Key Financial Ratios Liquidity Ratios Current Ratio FORD GMC TOYOTA Quick Ratio FORD GMC TOYOTA Leverage Ratios D/E Ratio FORD GMC TOYOTA Activity Ratios Inventory Turnover FORD GMC TOYOTA Fixed Assets Turnover FORD GMC TOYOTA

9 Profitability Ratios Net Margin % FORD GMC TOYOTA ROA % FORD GMC TOYOTA ROE % FORD GMC TOYOTA EPS % FORD GMC TOYOTA Growth Ratio Net Income% FORD GMC TOYOTA

10 Current Ratio FORD GMC TOYOTA Quick Ratio FORD GMC TOYOTA 8

11 Debt to Equity Ratio FORD GMC TOYOTA Net Margin % FORD GMC TOYOTA 9

12 Return on Total Assets (ROA) FORD GMC TOYOTA Return on Equity (ROE) FORD GMC TOYOTA 10

13 Fixed Assets Turnover FORD GMC TOYOTA Inventory Turnover FORD GMC TOYOTA 11

14 Earnings Per Share (EPS) FORD GMC TOYOTA Now that we have reviewed Ford s financial position in the market relative to key competitors, it is necessary to examine key external factors that present as opportunities and threats to the future of Ford. Key internal strengths and weakness are presented to provide input to strategy development. By matching both external and internal factors, we can formulate strategies that will place Ford in the best position for success. External Factor Evaluation (EFE) Matrix Key External Factors Weight Rating Weighted Score 1 2 Opportunities Global economy growth predicted to improve from 3.0% in 2016 to 3.4% in 2017 Ageing vehicle fleet in Europe and 1.5% growth year over year will continue to boost sales over 14 million US GDP to increase 2.6% The global middle class is expected to grow from 1.8 billion in 2009 to 3.2 billion by 2020 Technology is becoming a deciding factor for car buyers. 61% said the right technology was more important than car color. The tele-commuting workforce grew 79% between 2005 and

15 % of Chinese and 84% of Indian adults can see themselves buying a self-driving car in the future 40% of US automobiles are at least 12 years old The Millennial population (ages in 2015) of auto buyers grew to 28% Technology is becoming a deciding factor for car buyers. 48% said the right technology was more important than the brand or style of car Threats President Trump may impose large tariffs (up to 35%) to automakers that manufacture outside of the US U.S. regular gasoline retail prices are expected to increase from an average of $2.25/gallon (gal) in December to $2.31/gal in the first quarter of U.S. regular gasoline retail prices are forecast to average $2.38/gal in 2017 and $2.41/gal in A 26% reduction in the peso vs the dollar in Mexico will reduce car sales Brazilian GDP shrank 3.5% in Current Corporate Average Fuel Economy Standard is between 50 and 52.6 mpg by % rise in the price of steel may increase cost to build an automobile up 1.5% Finance rates expected to rise from 4 to 4.5% on new cars 2015 length of vehicle ownership was 6.5 years, up from 4.3 years in % of US and 62% of Chinese and Indian adults say they will keep their car at least 10 years Auto loan delinquency are projected to have a 21.3% increase over the last 5 years TOTAL Ford s opportunities are evident in emerging markets and sales trends abroad. A strengthening global economy, growing middle class, and ageing vehicle fleet offers opportunities for future growth and market seizure. The rise in importance of technology will play into Ford s current line-up of tech-savvy vehicles. External threats are most related to political and economic uncertainty both domestically and in emerging markets such as Brazil, Mexico, and Russia. Gas prices and government regulatory standards will also impact sales and investment expenses in research and development. 13

16 Internal Factor Evaluation (IFE) Matrix Key Internal Factors Weight Rating Weighted Score Strengths 1 Sales in China grew 14% in Sales of Lincoln in China grew 180% in Demand for Ford Edge and Ford Explorer in China grew 159% combined in Demand for Ford Mustang and Focus ST/RS in China rose 57% combined in 2016 Ford is the best-selling brand of commercial vehicles in Europe for the second year in a row holding 13.2% of market share Ford European performance car sales Fiesta ST, Focus ST, Focus RS, Mustang and GT grew 60 percent from Ford SUV European sales up 31% Sales of Lincoln in the US grew 14% Ford F150 number 1 selling truck in Ford European sales rose 5% in Weaknesses Ford South America posted an $832 million loss in 2015 Ford expanded recall from 830K vehicles to 2.4M at a cost of $640 million Ford posted a $3 billion charge against 4th QTR 2016 earnings due to its accounting change in pensions Ford lost 0.1% total market share from Ford stock has underperformed against peers GM, Fiat Chrysler, and Toyota Ford Super Duty recall of 8,000 vehicles The first 11 months of 2016 showed a 13.1% year over year global decline in car segment sales Total debt of $132 billion Wholesale volume 3Q 2016 down 4% Revenue volume 3Q 2016 down 7% TOTAL Internal strengths are attributable to strong sales growth in Asian Pacific and European markets showing triple and double digit increases in demand. The continued growth of a variety of models is positive for these markets and shows Ford s increasing take on market share for these sectors. Weaknesses are largely internal 14

17 with expenses incurred due to costly recalls. Despite strong sales in China and Europe, global market share and sales volume decreased in The SWOT matrix that follows reviews some key strengths, weaknesses, opportunities, and threats. From this, 18 strategies are proposed that Ford may consider in capitalizing on its current position. They are organized into four categories: strengths-opportunities (SO), weaknesses-opportunities (WO), strengths-threats (ST), and weaknesses-threats (WT). The SWOT Matrix Strengths 1 Sales in China grew 14% in Sales of Lincoln in China grew 180% in Demand for Ford Edge and Ford Explorer in China grew 159% combined in Demand for Ford Mustang and Focus ST/RS in China rose 57% combined in Ford is the best-selling brand of commercial vehicles in Europe for the second year in a row holding 13.2% of market share. 6 Ford European performance car sales Fiesta ST, Focus ST, Focus RS, Mustang and GT grew 60 percent from Ford SUV European sales up 31%. 8 Sales of Lincoln in the US grew 14%. 9 Ford F150 number 1 selling truck in Ford European sales rose 5% in Weaknesses 1 Ford South America posted an $832 million loss in Ford expanded recall from 830K vehicles to 2.4M at a cost of $640 million. 3 Ford posted a $3 billion charge against 4th QTR 2016 earnings due to its accounting change in pensions. 4 Ford lost 0.1% total market share from Ford stock has underperformed against peers GM, Fiat Chrysler, and Toyota. 6 Ford Super Duty recall of 8,000 vehicles. 7 The first 11 months of 2016 showed a 13.1% year over year global decline in car segment sales. 8 Total debt of $132 billion. 9 Wholesale volume 3Q 2016 down 4%. 10 Revenue volume 3Q 2016 down 7%. Opportunities 1 Global economy growth predicted to improve from 3.0% in 2016 to 3.4% in Ageing vehicle fleet in Europe and 1.5% growth year over year will continue to boost sales over 14 million. 3 US GDP to increase 2.6%. 4 The global middle class is expected to grow from 1.8 billion in 2009 to 3.2 billion by

18 5 Technology is becoming a deciding factor for car buyers. 61% said the right technology was more important than car color. 6 The telecommuting workforce grew 79% between 2005 and % of Chinese and 84% of Indian adults can see themselves buying a self-driving car in the future. 8 40% of US automobiles are at least 12 years old. 9 The Millennial population (ages in 2015) of auto buyers grew to 28%. 10 Technology is becoming a deciding factor for car buyers. 48% said the right technology was more important than the brand or style of car. Threats 1 President Trump may impose large tariffs (up to 35%) to automakers that manufacture outside of the US. 2 U.S. regular gasoline retail prices are expected to increase from an average of $2.25/gallon (gal) in December to $2.31/gal in the first quarter of U.S. regular gasoline retail prices are forecast to average $2.38/gal in 2017 and $2.41/gal in A 26% reduction in the peso vs the dollar in Mexico will reduce car sales. 4 Brazilian GDP shrank 3.5% in Current Corporate Average Fuel Economy Standard is between 50 and 52.6 mpg by % rise in the price of steel may increase cost to build an automobile up 1.5%. 7 Finance rates expected to rise from 4 to 4.5% on new cars length of vehicle ownership was 6.5 years, up from 4.3 years in % of US and 62% of Chinese and Indian adults say they will keep their car at least 10 years. 10 Auto loan delinquency are projected to have a 21.3% increase over the last 5 years. Proposed strategies developed in the SWOT Matrix: SO Strategies 1 Increase (10%) marketing of Ford commercial vehicles in Europe. (S5, O2) 2 Expand factories in China (1), India (1), Europe (1). (S1, S3, S4, S6, S7, S10, O1, O2, O4) 3 Increase (10%) marketing of luxury Lincoln brand in China, Europe, and India. (S2,O3) 4 Increase (5%) marketing of sales and finance options to boost domestic sales of Ford F150 trucks. (S9, O3, O8, O9) 5 Increase (5%) marketing of sales and finance options to boost domestic sales of luxury line Lincoln. (S8, O8, O9) 6 Increase (5%) marketing and sales of European performance cars. (S6, O1, O2) WO Strategies 1 Continue to lay foundation for emerging market in South America with investment in marketing for brand loyalty and recognition. (W1, O1) 2 Improve quality control programs/measure to mitigate future recalls to 0%. (W2, W6, O8) 3 Increase (10%) marketing to younger generation of auto buyers (Millennials) to capture population segment. (W9, W10, O4, O6, O9) 4 Invest $200M in new technology to capture market share for tech savvy buyers. (W4, W5, W7, O5, O6, O7, O9, O10) 16

19 ST Strategies 1 Increase $300M in R&D to produce new models and styles to encourage sales. (S1, S2, S3, S4, S5, S6, S7, S9, S10, T7, T8, T9) 2 Continue to develop strategies for fuel efficiency in Ford fleet line of vans and trucks. (S9, T2, T5) 3 Create performance packages for Ford Mustang and Ford Focus ST/RS to target new sales by greater than 10%. (S4, T9) 4 Continue to develop Eco-Boost engine to improve fuel efficiency standard for Ford F150 by 2 mpg. (S9, T2) WT Strategies 1 Continue to lay foundation for emerging market in South America with investment (5%) in marketing for brand loyalty and recognition. (W1, T4) 2 Create 4 new Incentive programs to offer new and loyal customer discounts on new vehicles. (W4, W5, W7, W9, W10, T3, T4, T7, T8, T9) 3 Continue to develop Ford Financing division and joint ventures to offset liability. (W1, W2, W3, W8 W9, W10, T3, T4, T6, T7, T10) 4 Develop new automotive model within 5 years to target new car buying interest. (W7, T9) 17

20 The SPACE Matrix has been used to help identify Ford s overall strategic position. Competitors GM and Toyota are also represented for comparison. Ford s position suggests that it is close to GM and Toyota but still holds a less aggressive and less competitive strategic profile. Given their position, Ford should seek strategies that allow for market and product development and increasing market penetration. Strategic Position and Action Evaluation (SPACE) Matrix x -axis y -axis Ford GM Toyota Conservative FP Aggressive 3.0 CP 1.0 GMTOYOTA IP Defensive -7.0 Competitive SP Internal Analysis: Financial Position (FP) Return on Investment (ROI) Leverage Liquidity Working Capital Cash Flow External Analysis: Stability Position (SP) 4 Rate of Inflation -2 1 Technological Changes -4 4 Price Elasticity of Demand -4 4 Competitive Pressure -3 3 Barriers to Entry into Market -3 Financial Position (FP) Average 3.2 Stability Position (SP) Average -3.2 Internal Analysis: 18 External Analysis: Competitive Position (CP) Industry Position (IP) Market Share -4 Growth Potential 5 Product Quality -3 Financial Stability 4 Customer Loyalty -4 Ease of Entry into Market 4 Technological know-how -3 Resource Utilization 3 Control over Suppliers and Distributors -4 Profit Potential 5 Competitive Position (CP) Average -3.6 Industry Position (IP) Average 4.2

21 Analysis of Ford s divisions can further help guide the direction of strategies based the company s position. Here we examine Ford s two major divisions, Automotive and Financial. Both are in Quadrant II (Stars) indicating both divisions favor long term growth and profitability. This reinforces the SPACE Matrix for seeking strategies that will allow for market and product development and increasing market penetration. The Boston Consulting Group (BCG) Matrix Ford Motor Company: Automotive and Financial Division High 0.20 High 1.0 Relative Market Share Position Low 0.0 Stars Question Marks Industry Sales Growth Rate Ford Financial Services Division Ford Automotive Division Low Cash Cows Dogs Ford Motor Company Automobile and Financial Service Divisions Division Revenues (millions) Top Firm Division Revenues Growth Rate (%) RMSP Automotive $140, $145, Financial Services $10, $10,

22 A second BCG analysis was performed to look at the sectors within the Automotive division. North America, Europe, and Asia Pacific continue the previous assessment of Quadrant II (Stars) classification. South America displays prominently in Quadrant III (Cash Cow), however, there are no temporal qualities to the BCG and analysis of South America shows a year over year for wholesale volume, revenue, and operating margins. Losses were reduced by 29% over the previous year, however, this still presented as a 14.4% loss in profit margin in 2015, declining 1.2% from the previous year. Despite holding market share, the deteriorating business climate in South America does not forecast a positive outlook in the next 3-5 years. Ford Motor Company Automotive Division Sectors: Ford North America, South America, Europe, Asia Pacific High 0.20 High 1.0 Relative Market Share Position Low 0.0 Stars Question Marks Industry Sales Growth Rate Ford Europe Ford North America Ford Asia Pacific Ford South America Low Cash Cows Dogs Division Ford Motor Company Automotive Sectors Division Revenues Top Firm Division Revenues Growth Rate (%) RMSP Ford North America Ford South America Ford Europe Ford Asia Pacific

23 The Internal-External Matrix provides us with another analysis of Ford s automotive sectors. From this we can see that North America is firmly in cell III while Europe, and Asia Pacific are situated in between cells IV and V. Position in these cells reinforce prior analysis for strategies to allow for market and product development, and increasing market penetration. The IE Matrix demonstrates the weak position of the South American sector in cell IX, suggesting a strategy to harvest or divest. The Internal External (IE) Matrix Ford Motor Company Automotive Divisions: Ford North America, South America, Europe, Asia Pacific High 4.0 THE IFE TOTAL WEIGHTED SCORES Strong Weak THE EFE WEIGHTED SCORES Low 1.0 North America Asia Europe Ford Pacific Motor Company South America Automotive Sector Division Revenues (Billions) Estimated IFE Score Estimated EFE Score Ford North America $ Ford South America $ Ford Europe $ Ford Asia Pacific $

24 The Grand Strategy Matrix further provides direction to formulating alternative strategies. This analysis further strengthens the direction towards market and product development, and increasing market penetration for the European and Asia Pacific sectors. The South American sector is again shown to be in a weak position. Ford Motor Company as a whole is displayed to show its position relative to its sectors. Positioned between Quadrants I and II, it is in stable and competitive position for the industry. The Grand Strategy Matrix Ford Motor Company Automotive Divisions: Ford North America, South America, Europe, Asia Pacific Rapid Market Growth Quadrant II Quadrant I Ford Asia Pacific Ford Europe Weak Competitive Ford Motor Company Ford North America Strong Competitive Ford South America Quadrant III Quadrant IV Slow Market Growth The Quantitative Strategic Planning Matrix that follows analyzes the relative attractiveness of two proposed strategies: 1. Develop one new factory with joint ventures in both China and Europe. 2. Increase engineering, research and development expense by $500 million for new technology and model development over the next three years. The sum total of the attractiveness scores revealed that strategy 1 is the most promising in meeting the opportunities, threats, strengths, and weaknesses identified by the EFE and IFE matrices. However, strategy 2 is not without merit and recommendations stemming from this may be beneficial to long term profitability and market relevance. 22

25 The Quantitative Strategic Planning Matrix (QSPM) Ford Motor Company Develop one new factory with joint ventures in both China and Europe Increase Engineering, Research and Development expense by $500 million for new technology and model development over the next 3 years Strengths Weight AS TAS AS TAS 1 Sales in China grew 14% in Sales of Lincoln in China grew 180% in Demand for Ford Edge and Ford Explorer in China grew 159% 3 combind in Demand for Ford Mustang and Focus ST/RS in China rose 57% 4 combined in Ford is best selling brand of commercial vehicles in Europe for 5 the second year in a row holding 13.2% of market share Ford European performance car sales Fiesta ST, Focus ST, 6 Focus RS, Mustang and GT grew 60 percent from Ford SUV European sales up 31% Sales of Lincoln in the US grew 14% Ford F150 number 1 selling truck in Ford European sales rose 5% in Develop one new factory with joint ventures in both China and Europe Increase Engineering, Research and Development expense by $500 million for new technology and model development over the next 3 years Weaknesses Weight AS TAS AS TAS 1 Ford South America posted an $832 million loss in Ford expanded recall from 830K vehicles to 2.4M at a cost of $640 2 million Ford posted a $3 billion charge against 4th QTR 2016 earnings 3 due to its accounting change in pensions Ford lost 0.1% total market share from Ford stock has underperformed against peers GM, Fiat Chrysler, and Toyota 6 Ford Super Duty recall of 8,000 vehicles The first 11 months of 2016 showed a 13.1% year over year global decline in car segment sales 8 Total debt of $132 billion Wholesale volume 3Q 2016 down 4% Revenue volume 3Q 2016 down 7% (Continued next page) 23

26 Opportunities Weight AS TAS AS TAS 1 Global economy growth predicted to improve from 3.0% in 2016 to 3.4% in Ageing vehicle fleet in Europe and 1.5% growth year over year will continue to boost sales over 14 million US GDP to increase 2.6% The global middle class is expected to grow from 1.8 billion in 2009 to 3.2 billion by Technology is becoming a deciding factor for car buyers. 61% said the right technology was more important than car color The telecommunting workforce grew 79% between 2005 and % of Chinese and 84% of Indian adults can see themselves buying a self-driving car in the future 8 40% of US automobiles are at least 12 years old The Millenial population(ages in 2015) of auto buyers grew to 28% Technology is becoming a deciding factor for car buyers. 48% said the right technology was more important than the brand or style of car Threats Weight AS TAS AS TAS President Trump may impose large tariffs (up to 35%) to automakers that manufacture outside of the US U.S. regular gasoline retail prices are expected to increase from an average of $2.25/gallon (gal) in December to $2.31/gal in the first quarter of U.S. regular gasoline retail prices are forecast to average $2.38/gal in 2017 and $2.41/gal in A 26% reduction in the peso vs the dollar in Mexico will reduce car sales Brazilian GDP shrank 3.5% in Current Corporate Average Fuel Economy Standard is between 5 50 and 52.6 mpg by % rise in the price of steel may increase cost to build an 6 automobile up 1.5% Finance rates expected to rise from 4 to 4.5% on new cars length of vehicle ownership was 6.5 years, up from 4.3 years 8 in % of US and 62% of Chinese and Indian adults say they will 9 keep their car at least 10 years Auto loan delinquency are projected to have a 21.3% increase 10 over the last 5 years TOTALS Develop one new factory with joint ventures in both China and Europe Develop one new factory with joint ventures in both China and Europe Increase Engineering, Research and Development expense by $500 million for new technology and model development over the next 3 years Increase Engineering, Research and Development expense by $500 million for new technology and model development over the next 3 years

27 Perceptual Maps Top 10 Trucks 2015: Cost vs Efficiency The perceptual map analyses below represent automotive categories which Ford is actively competitive in and provides the most models. Opportunities exist in trucks for building and marketing a vehicle moderate to low in cost and efficiency that can compete with the Honda Ridgeline, Toyota Tacoma, and Nissan Frontier. High Cost Ford F150 Raptor Ford F150 Lariat Ram 1500 HFE Low Efficiency Toyota Tundra Nissan Titan Chevy GMC Sierra Silverado Toyota Tacoma Honda Ridgeline High Efficiency Nissan Frontier Low Cost Top 10 Mid-size 2015: Cost vs Technology offered In the mid-size category, Ford is able to deliver a relatively middle of the road technology at a lower cost than Honda, Volkswagon, Kia, and Nissan however may benefit from improving technology and keeping cost to compete with Mazda and Chevy to distinguish itself from the group. High Cost Honda Toyota Accord Camry Volkswagon Kia Optima Nissan Altima Passat Low Tech Ford Fusion Chevy Malibu High Tech Hyundai Sonata Subaru Legacy Mazda 6 Low Cost 25

28 Manufacturer Reliability and Cost Compared to industry rivals, Ford is positioned well with Toyota for ratings on high reliability and moderate affordability. BMW, Mercedes, and Audi trail slightly behind in perceptions of reliability with a higher cost. High Cost Mercedes BMW Audi Low Reliability Volkswagon Mazda Ford GM Kia Toyota Honda High Reliability Low Cost 26

29 The old organizational chart has a loose structure with several group VP s reporting to several Executive VP s depending on projects or scope of service. Titles and positions reflect dated nomenclature. The revised organizational chart below organizes the reporting structure divisionally by offering leadership at key positions to monitor similar categorical groups. It further defines and clarifies the level of divisional reporting from the bottom up. Titles and nomenclature have been updated. 27

30 Company Valuations Ford vs General Motors and Toyota The valuation of Ford Motor Company using the four methods below show that it is in a good position relative to Generaly Motors and Toyota when looking at the method average. Ford Motor Company Stockholders' Equity - (Goodwill + Intangibles) $57,284,000 Net Income x 5 $29,850,000 (Share Price/EPS) x Net Income $12,531,580 Number of Shares Outstanding x Share Price $12,531,580 Method Average $28,049,290 General Motors Stockholders' Equity - (Goodwill + Intangibles) $39,871,000 Net Income x 5 $48,435,000 (Share Price/EPS) x Net Income $55,745,325 Number of Shares Outstanding x Share Price $510,150 Method Average $36,140,369 Toyota Stockholders' Equity - (Goodwill + Intangibles) $139,989,000 Net Income x 5 $90,610,000 (Share Price/EPS) x Net Income $679,796,000 Number of Shares Outstanding x Share Price $407,385,440 Method Average $329,445,110 28

31 Recommendations Year 1 Year 2 Year 3 Total Cost 1 Develop 1 factory in both China and Europe with help of joint ventures. 2 Create new 3 new automobile models with current base platform compatibility to be released in 3 years. 3 Increase engineering, research and development budget by $300 million over 3 years to focus on fuel efficient and alternative fuel engine development. 4 Develop upgrades in 6 plants over 3 years to mitigate risk of recalls and improve operational efficiency. 5 Increase engineering, research and development budget by $200 million over 3 years to focus on developing technology for Ford Smart Mobility Initiatives: Sync, Autonomous vehicles, and Ford Pass. 6 Increase & market loan and lease incentives through Ford Credit on commercial and retail sales of automobiles (projected 10% increase in revenues and 5% increase in expense for next 3 years). 7 Shift & increase marketing campaign by 3.3% in Europe to focus on strengthening sales of Ford commercial vehicles. 8 Shift & increase marketing campaign by 3.3% in China towards luxury line Lincoln. 9 Shift & increase marketing campaign by 3.3% to target Millennial segment and younger generation of consumers. 10 Continue current level of marketing and operations in South America to maintain and/or improve market share from competitors. $750,000,000 $750,000,000 $0 $1,500,000,000 $1,100,000,000 $0 $0 $1,100,000,000 $100,000,000 $100,000,000 $100,000,000 $300,000,000 $80,000,000 $80,000,000 $80,000,000 $240,000,000 $68,000,000 $66,000,000 $66,000,000 $200,000,000 $400,000 $400,000 $400,000 $1,200,000 $30,000,000 $30,000,000 $30,000,000 $90,000,000 $30,000,000 $30,000,000 $30,000,000 $90,000,000 $30,000,000 $30,000,000 $30,000,000 $90,000,000 $0 $0 $0 $0 TOTALS $2,188,400,000 $1,086,400,000 $336,400,000 $3,611,200,000 Ford s 3 year recommendations are aimed at taking advantage of opportunities for growth and marketing, notably in key emerging markets (China and Europe) along with improving the efficiency of existing operations and creating a strong base for engineering and technology moving forward. Costs will be financed through equity and spread along three years to sustain dividend payouts from retained earnings. 29

32 EPS/EBIT Analysis Common Stock Financing Debt Financing Recession Normal Boom Recession Normal Boom EBIT $11,500,000 $17,250,000 $23,000,000 $11,500,000 $17,250,000 $23,000,000 Interest $0 $0 $0 $243,194 $243,194 $243,194 EBT $11,500,000 $17,250,000 $23,000,000 $11,256,806 $17,006,806 $22,756,806 Taxes $2,990,000 $4,485,000 $5,980,000 $2,926,770 $4,421,770 $5,916,770 EAT $8,510,000 $12,765,000 $17,020,000 $8,330,036 $12,585,036 $16,840,036 Dividends $6,186,986 $9,074,246 $11,961,506 $6,150,000 $9,020,000 $11,890,000 EATD $2,323,014 $3,690,754 $5,058,494 $2,180,036 $3,565,036 $4,950,036 # Shares 41,246,572 41,246,572 41,246,572 41,000,000 41,000,000 41,000,000 EPS % Stock - 50% Debt 20% Stock - 80% Debt Recession Normal Boom Recession Normal Boom EBIT $11,500,000 $17,250,000 $23,000,000 $11,500,000 $17,250,000 $23,000,000 Interest $121,597 $121,597 $121,597 $194,555 $194,555 $194,555 EBT $11,378,403 $17,128,403 $22,878,403 $11,305,445 $17,055,445 $22,805,445 Taxes $2,958,385 $4,453,385 $5,948,385 $2,939,416 $4,434,416 $5,929,416 EAT $8,420,018 $12,675,018 $16,930,018 $8,366,029 $12,621,029 $16,876,029 Dividends $6,168,493 $9,047,123 $11,925,753 $6,157,397 $9,030,849 $11,904,301 EATD $2,251,525 $3,627,895 $5,004,265 $2,208,632 $3,590,180 $4,971,728 # Shares 41,123,286 41,123,286 41,123,286 41,049,314 41,049,314 41,049,314 EPS EPS-EBIT analysis revealed no difference in EPS when financing with 100%, 50%, or 20% equity over debt. With consideration to Ford s current debt, 100% equity financing is the best option to finance recommendations over the next 3 years. EPS still improves year over year and dividends paid will remain constant to retained earnings. 30

33 Income Statement and Balance Sheet 2014 and 2015 Income Statement Revenues Cost of Goods Sold Gross Profit Operating Expenses EBIT Interest Expense EBT Tax Non-Recurring Events Net Income Balance Sheet Assets Cash and Equivalents Accounts Receivable Inventory Other Current Assets Total Current Assets Property Plant & Equipment Goodwill Intangibles Other Long-Term Assets Total Assets Liabilities Accounts Payable Other Current Liabilities Total Current Liabilities Long-Term Debt Other Long-Term Liabilities Total Liabilities Equity Common Stock Retained Earnings Treasury Stock Paid in Capital & Other Total Equity Total Liabilities and Equity 12/31/ /31/2015 Percent Change $144,077,000 $149,558, % 123,516, ,041, % 20,561,000 25,517, % 15,292,000 13,439, % 5,269,000 12,078, % 797, , % 4,472,000 11,305, % 4,000 2,881, % 0 0 #DIV/0! #DIV/0! 4,468,000 8,424, % 12/31/ /31/2015 Percent Change $73,728,000 $78,017,000 6% 92,819, ,975,000 10% 7,866,000 8,319,000 6% 0 0 #DIV/0! #DIV/0! 174,413, ,311,000 8% 53,343,000 57,526,000 8% 0 0 #DIV/0! #DIV/0! 0 0 #DIV/0! #DIV/0! 23,433,000 22,199,000-5% 251,189, ,036,000 7% 20,035,000 20,272,000 1% 43,577,000 42,546,000-2% 63,612,000 62,818,000-1% 119,171, ,854,000 11% 44,629,000 43,063,000-4% 227,412, ,735,000 5% 39,000 40,000 3% 9,422,000 14,414,000 53% (848,000) (977,000) 15% 15,164,000 15,824,000 4% 23,777,000 29,301,000 23% 251,189, ,036,000 7% 31

34 Looking at the past 2 years of performance and the recommendations set forth, we have created the following 3-year Projected Income and Balance Statement and Statement of Retained earnings. 3-year Projected Income Statement and Balance Sheet Projected Income Statement 12/31/ /31/ /31/2018 Revenues (a) $157,409,795 $170,002,579 $190,402,888 Cost of Goods Sold 130,650, ,102, ,034,397 Gross Profit 26,759,665 28,900,438 32,368,491 Operating Expenses (b) 14,166,882 13,600,206 13,328,202 EBIT 12,592,784 15,300,232 19,040,289 Interest Expense (c) 773, , ,000 EBT 11,819,784 14,527,232 18,267,289 Tax 2,954,946 3,631,808 4,566,822 Non-Recurring Events Net Income 8,864,838 10,895,424 13,700,467 Projected Balance Sheet 12/31/ /31/ /31/2018 Assets Cash and Equivalents $97,722,410 $118,535,138 $141,360,785 Accounts Receivable (d) 103,759, ,544, ,328,686 Inventory (e) 8,568,570 9,254,055 10,179,460 Other Current Assets Total Current Assets 210,050, ,333, ,868,931 Property Plant & Equipment (f) 58,276,000 59,026,000 59,026,000 Goodwill Intangibles Other Long-Term Assets 22,199,000 22,199,000 22,199,000 Total Assets 290,525, ,558, ,093,931 Liabilities Accounts Payable 20,272,000 20,272,000 20,272,000 Other Current Liabilities 42,546,000 42,546,000 42,546,000 Total Current Liabilities 62,818,000 62,818,000 62,818,000 Long-Term Debt 132,854, ,854, ,854,000 Other Long-Term Liabilities 43,063,000 43,063,000 43,063,000 Total Liabilities 238,735, ,735, ,735,000 Equity Common Stock 286, , ,572 Retained Earnings (g) 18,623,070 23,614,795 29,852,209 Treasury Stock (h)) (977,000) (977,000) (977,000) Paid in Capital & Other 33,857,900 52,898,950 72,197,150 Total Equity 51,790,542 75,823, ,358,931 Total Liabilities and Equity 290,525, ,558, ,093,931 32

35 Notes to Projected Income Statement (a) Revenues: Increases of 5.25% Year 1, 8% Year 2, and 12% Year 3 with addition of 2 new factories (China and Europe), 3 new model releases, increased marketing focus in China, Europe, and Millennial population segment, and Ford Credit growth. (b) Operating Expenses: 9% Year 1, decrease to 8% Year 2 and decrease to 7% Year 3 secondary to 6 plant upgrades creating improved efficiencies. (c) Interest Expense: No new interest expense incurred for projected recommendations. Finance all with equity. Notes to Projected Balance Sheet (d) Accounts Receivable: Historical average of 1.7% increase. (e) Inventory: Plant development in Year 1 and 2 along with plant upgrades Year 1, 2, and 3 will allow for steady increase of inventory produced with 3% Year 1, 8% Year 2, and 10% Year 3. (f) Property Plant & Equipment: Increase of $750 million in Year 1 and Year 2 for plant development. (g) Retained Earnings: See Statement of Projected Retained Earnings below. Dividend payout of 20% year over year 2016 through (h) Treasury Stock: No new additional treasury stock projected. 33

36 (g) Statement of Projected Retained Earnings Dividends are paid at 20% of total income year over year 2016 through Statement of Projected Retained Earnings Retained Earnings 2015 $14,414,000 Net Income 2016 $8,864,838 Total $23,278,838 Less Dividends Paid 2016 ($4,655,768) Retained Earnings 2016 $18,623,070 Retained Earnings 2016 $18,623,070 Net Income 2017 $10,895,424 Total $29,518,494 Less Dividends Paid 2017 ($5,903,699) Retained Earnings 2017 $23,614,795 Retained Earnings 2017 $23,614,795 Net Income 2018 $13,700,467 Total $37,315,262 Less Dividends Paid 2018 ($7,463,053) Retained Earnings 2018 $29,852,209 34

37 Historical Ratios Historical Ratios Projected Ratios 12/31/ /31/ /31/ /31/ /31/2018 Current Ratio Quick Ratio Total Debt-to-Total-Assets Ratio Total Debt-to-Equity Ratio Times-Interest-Earned Ratio Inventory Turnover Fixed Assets Turnover Total Assets Turnover Accounts Receivable Turnover Average Collection Period Gross Profit Margin % 14% 17% 17% 17% 17% Operating Profit Margin % 4% 8% 8% 9% 10% ROA % 2% 3% 3% 3% 4% ROE % 19% 29% 17% 14% 14% Projected key ratios for Ford Motor Company show that the company will improve in its overall growth and sustain gross and operating profit margins of 15% and 7% (average) respectively. Operational metrics improve in a majority of categories showing the promise Ford has in securing growth in emerging markets, expanding its consumer base, investing in expanding operational efficiency, and developing new and improved mechanical engineering and technology. 35

38 Executive Summary Ford is a global leader in the automotive industry. Investment in its operations over the past four years has laid a substantial foundation with which to attain sustainable growth and profitability moving forward. While competitors slow down or retract, Ford moves forward with its unified mission to gain footing in this highly competitive industry. The key to success in the automotive industry is to differentiate oneself from the competition in meeting the customer for both products and service. Ford s ability to overcome the United States economic crisis through solid investments in technology for their products and service to their customers has allowed it to be in a position to reap rewards in growth and finances moving forward. Recommendations over the next 3 years are focused on continuous investments in emerging markets for global growth, investments in engineering and technology so that we are poised to dominate the future of automotive offerings and trends, and investments in infrastructure to continually improve efficiency driving quality up and costs down. Ford recognizes the future of its customer base and will steer marketing to impact both emerging markets as well as, new and old customer bases. Emerging Markets Plant development in China and Europe will increase our ability to deliver vehicles in the most influential growth markets and population segments. We are seeing a consumer shift in both vehicle brand and model offerings at mid to high price ranges. Additionally, presence in these markets will allow easier access through infrastructure and logistics to the Middle East, Africa, and Russia. With the middle class growing globally, the Ford automotive market can be there to reap the benefits. Research and Development in Engineering and Technology Market research shows a growing desire for emerging technology to encompass all areas of the customer s lifestyle. Investment in technologies for the new age of automobiles will cater to customer wants and needs as technology becomes more of a standard than a luxury within the automotive industry. Developing and incorporating this technology will require a solid investment and collaboration with leading technological firms to set Ford apart from its competitors. Engineering in vehicle efficiency is still a key player in consumer decisions. Not only as the customer base becomes more environmentally conscious, but as regulations and cost on fuels increase. Efficient engines and vehicle design that can still perform and excite the customer will always be a mainstay for Ford. Ford Automotive Infrastructure Quality was an issue in 2014 and 2015 with recall costs at an all-time high. Recalls damage automotive credibility and can cost more than what is shown on the expense line on the balance sheet. Investment in the focus on quality and the efficiency of plant operations will show to have an increase in overall production and revenue while driving costs down. Marketing Focus Ford recognizes the changing consumer base. Clients in all markets clamor for different trends to meet their needs. To capitalize on the growth of the Ford brand, we must re-appropriate funds to focus on these 36