Ford Motor Company

analytical Essay
3002 words
3002 words


Industry Analysis

The automobile industry began with Henry Ford’s production of the Model T in the early 1900’s. With the creation of the assembly line, cars became cheaper and quicker to produce, thus making them affordable for many people. There were originally 500 auto manufacturers. By 1908, there were only 200; and in 1917 only 23 remained. This vast reduction was due to large amounts of consolidation within the industry.

Currently, the major competitors within the industry are Ford, DaimlerChrylser, General Motors (GM), Honda, Toyota, and Volkswagen. A few United States (US) manufacturers produce 23% of the world’s vehicles while Japan is responsible for 21%. The tendency for the industry is to be a global producer of automobiles; parts can be made throughout the world and assembled in many different places. The trend of consolidation has continued throughout today. Presently, this is evident in the recent acquisition of Chrysler by Daimler-Benz in late 1998, thus forming DaimlerChrylser. These consolidations have proved beneficial to consumers since companies have been able to reduce costs and pass those savings on to the customers. Some of the other major examples of consolidation are Nissan selling off a controlling 37% interest to Renault; General Motor’s 49% ownership of Isuzu; and Ford’s 33% majority of Mazda. Other efforts to become more competitive have translated into the European Union dropping trade barriers and European carmakers employing cost reducing efforts. American manufacturers have seen 2-3% growth over the last few years. Some current trends are the explosion in popularity of the Sport Utility Vehicle (SUV) and big luxury vehicles.

In the future the global car market is full of potential. There are currently 44 million vehicles and by the year 2002 experts estimate that number will grow to 64 million. That growth is not expected to be in the US, rather in countries such as: China, India, The Pacific Rim, South Africa, and South America. In America, a current trend is for the neighborhood car dealer to be purchased by a large manufacturer, such as GM, so cars can be sold through retail outlets. Other future endeavors include low emission cars, which are expected to provide expansions in sales. Some major automakers are investing in fuel cells, devices that convert liquid hydrogen into elec...

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...or a comparison reference, the CAPM produces stock values between $37.61 and $54.38 and a weighted-average of $50.09. Using the January 1st stock price of $52.75, it appears that Ford’s stock is correctly valued. This makes sense, considering that Ford is a large, widely held, and often-analyzed firm.


Web Sites:


Brealey, Richard A., and Myers, Stewart C. Principles of Corporate Finance. Sixth ed. McGraw Hill, New York, © 2000.

Brigham, Eugene F., and Houston, Joel F. Fundamentals of Financial Management. Second ed. Dryden, New York, © 1999.

In this essay, the author

  • Explains that the automobile industry began with henry ford's production of the model t in the early 1900s. with the assembly line, cars became cheaper and quicker to produce.
  • Explains that the industry is a global producer of automobiles, which is evident in the recent acquisition of chrysler by daimler-benz.
  • Predicts that the global car market will grow to 64 million vehicles by the year 2002. the automobile industry will see more changes than it has in the last 100 years.
  • Explains that the oversized vehicle was the body-style of choice among american consumers. japan's efficiency at producing this type of car allowed them to take 30% of the u.s. automobile market away from american manufacturers.
  • Explains that the luxury vehicle segment has grown more competitive, yet maintains large profit margin potential. american buyers have been showing increased interest in european and japanese manufacturers.
  • Explains that the sport utility vehicle segment has emerged as one of today's hottest markets through its increased sales. north-american consumers in higher income brackets are choosing suv’s in their garages.
  • Explains that minivans market share was 8% in 1998, which was down 12% from 1991, due to a shift in consumer demand away from these vehicles.
  • Explains that pick-up trucks, uniquely american vehicles that span all of the consumer target markets, show good potential for domestic manufacturers.
  • Explains that the largest and most important product segment in the automotive industry is mid-size cars. popularity for midsize vehicles is due to consumers’ preference for luxury cars they cannot afford and compacts that they do not like.
  • Explains that all these vehicle segments combine to form an industry in which consumers have continuously changing tastes. manufacturers who can compete worldwide, profit and growth potential will be ever present.
  • Explains the history of ford, which began with the first car sold in 1903 and the millionth car produced in 1917. ford's finance subsidiary, ford motor credit, was formed in 1959.
  • Explains that ford's three major subsidiaries are hertz, ford credit, and visteon.
  • Explains that ford's prime focus in the 21st century will be on the consumer. ford has made a deal with microsoft to take advantage of the msn carpoint service.
  • Explains that general ford has shown a steady pattern of sales growth from 1994 to 1997, growing at 5-7% each year. however, in 1998 sales were down 6%.
  • Analyzes how ford's borrowing can be explained by its leverage ratios, and their debt-to-equity ratio, which is up from past years.
  • Explains that ford's current ratio of.41 indicates that they have many current liabilities. this number is lower than the industry average, and their quick ratio has trended upward over the last 4 years.
  • Evaluates ford's efficiency by examining its asset turnover ratio and days inventory held ratio, which show how effectively it is using its assets.
  • Analyzes how ford's profitability is measured by the net profit margin, rate of return on assets (roa), payout ratio, and rate-of-return on common shareholder’s equity.
  • Explains that ford's 1998 price/earnings ratio of 12.64, meaning investors are willing to pay $12.64 per dollar of earnings, has more than doubled from 1997, a positive signal from investors to ford management.
  • Explains that the united auto workers (uaw) union represents the ford motor company's workforce. the company has $22 billion in cash to limit the threatening power of its unionized employees.
  • Explains that interest rate fluctuations affect individuals' willingness to spend large amounts of disposable income and are a concern to ford. ford will spend $74 million to comply with pollution and hazardous waste control standards.
  • Analyzes how ford has come to possess many strengths, such as their brand name, economies of scale, and diversified subsidiaries. ford's product lines reach all target markets.
  • Explains that ford's large size could be a source of weakness to them because of bureaucracy, red tape, and timely reactions to changes in the industry.
  • Opines that the opportunities for ford lie in their ability to lead the automotive industry in a global expansion. internet and e-commerce are examples of technological opportunities available to ford.
  • Explains the threats facing ford include an increasing number of well-informed consumers attributable to the availability of information on the web. honda, gm, and chrysler are ford's main competitors.
  • Explains that ford has been a leader in the automobile industry for the past 5 years. their 17.11% long-term annual growth rate shows they don't face going concern problems and expect to be profitable for many years to come.
  • Compares ford's current stock price with its 52-week low of $40.25, and its high of $67.875. with 1,222 million shares outstanding, ford has a market capitalization of $54,531 million.
  • Analyzes how a regression analysis of ford yields an accurate beta of 1.0151, compared with well-known financial news providers' estimates.
  • Cites the following sources:, cnbc, and msn.
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