Ford Automotive Company Case Analysis

3. Vulnerability of the firm

To understand the vulnerability of Ford, we need to understand the following cost structure which includes the short run, long run average total cost, fixed and Variable costs.

Ford has very high fixed costs and the below figure 3 shows that in short run if Ford has to deliver more cars from quantity Q1 to Q2 , then they cannot expand the size of the factories or build new factories instead they can hire more workers at the factories. This increases the average total cost to C2 from C1 in short run. In long run Ford can build new factories and expand their work force to bring back their average total cost C2 to the original level C1. Another vulnerability from the below diagram is for low levels of production,

The auto industry grew by more than 25 % from 2002 to 2007

(Oica.net, 2015).Beginning of later half of 2008, the global auto industry was affected by the recession. The customers were already turning away from the SUV’s and trucks because of the oil crisis linked to 2003 – 2008 and with this recession in 2008 , they were deferring the purchases due to lack of finance(nbcnews.com ).

Table 5 – Ford Vs Global Production growth (Source – Oica.net, 2015)

Ford’s production was affected by this recession as shown in Table 5 but was the only company who survived the bankruptcy out of the “Big Three” US car manufacturers – General Motors and Chrysler because of large line of credit they obtained in 2007. Ford sold their most prestigious brands Jaguar and land rover to an Indian company Tata Motors to have a break even during the crisis.

Figure 5 – Ford stock movement at Nasdaq (Source –

In 2010, Ford again had its first back-to-back market share increase in the United States since 1993, and the largest sales percentage increase of any full-line automaker. In Canada, Ford finished 2010 as the best-selling automaker for the first time in more than 50 years. Ford sales increased by 32 percent in China in 2010 and by 168 percent in India (Ford Annual Report, 2010). Because of this sales in 2010 followed by high income in 2011, the stock prices soared up and hit a high of USD 16 in 2011.

http://www.nasdaq.com/symbol/f/interactive-chart

4.2 GDP development

Every Industry which is globalized is affected by the GDP. Ford with its 62 locations worldwide is highly vulnerable to the GDP of every country its present in the form of sales office or manufacturing location. Ford’s sales were very good pre-recession in their main markets – USA, Europe and Asia. Post-recession, the consumer spending was down resulting in reduction in sales in all the main markets of Ford. There is a direct relation between the change in GDP to the variation in the sales figures of Ford as shown in Table 5 and Table 6.

Table 5 – GDP % growth change in Ford main markets (Source – data.worldbank.org, 2015) Table 5 –Ford’s region wise sales (Source - (Source – Ford Annual reports,