Automobile

The Ford Motor Corporation has always been regarded as a world leader from pioneering mass production to being one of the first car manufacturers to build overseas assembly plants. Ford Europe, founded in 1967, proved the value of the overseas strategy and in the 1980s its profits offset US losses. However, by 2000, its market share was only 8 percent and accumulated annual losses totaled $2.6 milliard dollars. A recent study by Coventry Business School looks at what went wrong and how Ford fixed it.

The industry model: global, rational and modular

Ford Europe’s difficulties become clearer against the background of the automobile industry where three trends dominate:

• (1) Globalization – giant companies reduce costs and expand market share by moving production overseas and through mergers and acquisitions. Success depends on balancing global strategy with local markets’ needs.

• (2) Rationalization – Lean production is now the norm as Japanese principles such as zero stock, TQM and continuous improvement are adopted.

• (3) Modularization – Engines, transmissions and other key parts are interchangeable between models in order to cut costs and reduce new product development time from six years to three or less.

These three concepts – particularly modularization – allow companies to concentrate on building a range of products; and enable fast response to an increasingly segmented market where distinct consumers demand the latest MPVs, SUVs or executive saloons.

Ford Europe: strategy under-steer

Ford Europe operates 35 plants employing 100,000 people. It competes with around 30 other manufacturers in a market with excess capacity of 3-5 million units. By the mid-1990s, this market was almost static with annual growth at 2 percent, and new capacity outstripping the closure of obsolete plants. In addition, major competitors like Fiat and Chrysler increased output massively and Japanese imports rose 30 percent between 1995 and 1999.

The Coventry study traces Ford Europe’s problems to poor NPD, excess capacity, and failure to cut costs and to recognize and respond to market segmentation. For example, its capacity was 2.25 million vehicles but its sales only 1.7 million. Similarly, $30 billion sales delivered only $28 million profit. In 1990 demand for new cars in Western Europe was 10 million units and had grown 50 percent by 2000: in contrast Ford’s market share grew only 5 percent.

These problems were made worse by Ford’s attempt to globalize by merging Ford America and Ford Europe into Ford 2000. The strategy was bold – annual costs would be reduced by $3 billion, for example – but led to increased centralization. All decisions were made in the US and focused on Asian and Latin American expansion. In addition, the Ford range was old