Current Market Conditions Essay

Current Market Conditions When people speak of the last hundred years a few major events come to mind being the Great Depression, World Wars I and II, the Berlin wall, hippies, Martin Luther King Jr. , and the advent of amazing technologies such as Automobiles. Ford Motor Company has survived through all these things in the past 90 years. With the economy in the current state of recession and uncertainty one thing that remains is Ford. The market structure, price, and technology of Ford are proven, tried and tested.

The competitors, the overall supply and demand of Ford and the impact of government regulations are blue prints to success. Ford Motor Company’s success to following standards of the consumer, market, and the government can help companies become successful in an unstable market. Market Structure Theoretically speaking four different market structures exists in today’s world. Monopoly, oligopoly, imperfect competition and perfect competition are those four market structures.

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Monopoly and perfect competition are the two extreme cases, in monopoly the market is governed by one seller, while in perfect competition, many sellers exist but none of them has any power to control the market. Oligopoly and imperfect competition are the two common market structures and examples for them are easy to find in the real world. Oligopoly market structures usually consists of a very few firms in a given market and thus these firms enjoy quite a strong control over the market.

Ford Motor Company was founded in 1903 and quickly became one of the dominant players in the American auto industry. As such, the company is referred to as an oligopoly. An oligopoly has very high entry barriers, which make it very difficult to compete with the already established companies. Because of close competition, automakers produce vehicles that are similar, but also unique to that particular manufacturer. Any real competition has been prevented due to the strategy of keeping the auto industry in an oligopoly market structure. Oligopoly’s have considerable control over their prices, but each must consider the possible reaction of competitors to its own pricing, output, and advertising decisions” (McConnell 2004). Due to the situation in this industry, Ford will set its prices in conjunction with the other three automakers. A drastic change in price of their products would turn into a price war, which would not be beneficial to either company. In the 1960s GM used its size to hinder Ford and Chrysler from setting lower prices (White 1975).

Ford Motor Company maintains its market share by controlling several other auto brands. These include Lincoln, Mercury, Mazda, Volvo, Jaguar and Land Rover. The size of Ford and its subsidiaries allows the company to advertise its products and develop new technologies. Impact of new companies entering the market Some companies may view competition as a negative; driving down sales, because consumers have more choice more selection. Ford has had an increasing number of competition entering into them market.

The standard American made cars such as General Motors and Chrysler have always been competition for Ford, but new companies have entered into the market in recent years, this is due to globalization. Globalization has brought many new car manufacturers into the American market. Consumers have more choices and are better educated when it comes to their choices. Those consumers have become more refined, pickier and their needs and wants in cars. As a result Ford needs to stay current with their products and stay competitive with foreign and domestic competitors (Chalhoub, 2007).

Automobile Prices As heard in the news lately, the automobile industry has been struggling with many firms asking for financial assistance from the U. S. government. Ford Motor Company, which is also hurting financially, has not yet sought this bailout help (CNBC, 2009). While each firm appears to be suffering through this crisis, all have remained competitive with their pricing, including Ford. The price of a vehicle is the cost at which the vehicle will be purchased, expressed in monetary terms (Investorwords, 2009).

Due to the current economic conditions, automobile industry leaders have been offering enormous deals to consumers. Deals such as employee pricing, higher trade in value of used cars, buy two for the price of one, and zero percent financing, with consumers being able to use multiple tactics at once to lure them back in to their market. Ford is no exception. All these offers directly affect the pricing of the vehicles being sold because while offering these various options to consumers, the vehicles must be priced to still earn Ford a profit but remain competitive. The following chart shows ow Ford ranks among their competitors with their pricing (Yahoo Finance, 2009): AUTOMAKERS RANKED BY SALES CompanySymbolPriceChangeMarket CapP/E General Motors CorporationGM 2. 045. 70%1. 25BN/A Daimler AGDAI 32. 321. 13%29. 97BN/A Toyota Motor Corp. TM 79. 194. 64%124. 18B19. 41 Ford Motor Co. F 4. 247. 34%10. 16BN/A Ford Technology Ford is committed to attempt all the research and innovation in order to reach millions of customers with the latest solutions that make Ford vehicles the safest, cleanest, and the most convenient and reliable. Ford’s innovations include the EasyFuel cap less fuel system.

EcoBoost engine helps increasing fuel efficiency and delivering the power and performance of a large engine. Communications and connectivity were considered by Ford which is leading the way with 1 million SYNC-equipped vehicles in early 2009 in Ford, Mercury, and Lincoln products (Ford, 2009). Ford provides the new in-dash Ford Work Solutions technology equipped in the Ford F-Series trucks and the Ford E-Series vans enabling business to have a fully-integrated mobile workplace. The system helps bringing the office to the job site improving flexibility, connectivity, and productivity security (Ford, 2009).

The nickel metal hydride (Ni-MH) battery is one of Ford technology choices that go with the revolution of hybrid electric vehicles. “Ford can already point to the robustness of its hybrid technology with the Ford Escape Hybrid” (Ford, 2009). Productivity (consider the law of diminishing marginal productivity) On a typical assembly line common knowledge tells a story of a guy arranging parts and making sure they function correct for their distinct purpose being a window or a door lock, testing and retesting until perfection is acquired.

While the law of diminishing marginal productivity says that work increases until a certain number of individuals are working on the job then the production plateaus until the production would essentially decrease by that last unit or employee working on the line. Then when looking at the Ford Motor Company as a whole and realize how vast the corporation is and realize there are going to be front line assembly workers but also the salesman, testers, repairman, management, technicians, HR department and so much more its easy to think about a complicated system of productivity.

Since Ford is apart of a union that protects the rights of its employees it makes it a little more complex. See the union is a double edged sword for the company since it protects the employees and makes sure that they get benefits, 401k plans and retirement options but on the other side it has so many retired workers who are receiving benefits and haven’t worked for the company in the last 20 years. Recently Ford met with the United Auto Workers (UAW) and renegotiated their pension plans and over half of the employees approved it (Johnson, 2009). Cost Structure

When Henry Ford became the popular automobile inventor he also became a businessman. Ford invented the assembly line for mass producing his Model T and he also invented and made popular the 40 hour work week. He created the idea of having dealerships in every town to make buying a car easy and personable. Henry Ford created normal work life that not only Americans but people all over the world can accredit. In 1914 Henry Ford created the $5 a day wage which almost doubled the current day rate at the time. Ford believed in efficiency and hiring and keeping the best workers.

Price Elasticity of Demand The automotive industry is considered elastic as the prices fluctuate depending on supply and demand. In current times consumers can choose from a vast amount of makes of vehicles with as many models that although the auto itself has become a necessity, some cars could be considered a luxury. Elasticity is basically an indicator that demonstrates how much the market will react to the shift of price by a certain degree. It is common knowledge that the modern world is mostly demand-driven. That is why the elasticity of demand is the issue to be analyzed.

An elastic demand shows that even the minor increase in price shall lead to the significant reductions in the demand for the products. An inelastic demand would mean that the quantity sold would not much depend on the shifts of the price. Competitors Today, Ford Motor Company is fighting for all the sales they can get. This is being done through aggressive pricing, including competitive sticker prices, great financing, and deals such as employee purchase price for all consumers. These deals are imperative in the competitive market Ford is located in.

While the entire automotive industry is in competition with Ford, Ford’s three main competitors are Chrysler, General Motors, and Toyota (Hoovers, 2009). Ford Motor Company’s competitors are primarily in the auto manufacturing industry; Ford Motor also competes in the lending sector as well (Hoover, 2009). The following chart gives a snapshot of where Ford ranks among their competitors (Yahoo Finance, 2009): DIRECT COMPETITOR COMPARISON F Pvt1GM TM Industry Market Cap:10. 16BN/A1. 25B124. 18B2. 95B Employ¬ees:213,00066,4091243,000322,045178. 6K Qtrly Rev Growth (yoy):-33. 80%N/A-34. 50%-28. 40%11. 90% Revenue (ttm):146. 28B59. 70B1148. 98B234. 38B112. 24B Gross Margin (ttm):10. 44%N/A3. 69%13. 64%13. 64% EBITDA (ttm):8. 28BN/A-4. 65B21. 70B848. 72M Oper Margins (ttm):-2. 77%N/A-9. 05%2. 62%-7. 01% Net Income (ttm):-14. 68BN/A-30. 86B6. 42BN/A EPS (ttm):-6. 458N/A-53. 2994. 080. 68 P/E (ttm):N/AN/AN/A19. 4119. 41 PEG (5 yr expected):N/AN/AN/AN/A6. 95 P/S (ttm):0. 06N/A0. 010. 510. 42 Pvt1 = Chrysler LLC (privately held) GM = General Motors Corporation TM = Toyota Motor Corp.

Industry = Auto Manufacturers – Major 1 = As of 2007 Supply and demand analysis Ford is always trying to align its capacity with demand and accelerate the development of demanded products. Demand for more fuel-efficient vehicles has become one of the consumers’ concerns regarding car purchasing decision over pricing value and advanced features. This demand was initiated after the growing concern over environment change, energy security, and the instability and increasing in fuel prices, which reflected shifts in vehicles purchased (Raymond, 2008).

Therefore, Ford was trying to meet this demand and succeeded in improving the overall fuel economy of its whole lines without affecting style and performance putting the company under pressure to look for better products at a cheaper price in order to make profits to cut cost. Ford and suppliers has experienced a recent spike in the demand for hybrid vehicles, which will likely continue to increase. The spike has made it difficult for suppliers to meet the demand of its hybrid vehicles. Increased gas prices created a shift in demand, resulting in increased interest in the more economical hybrid vehicles.

The supply of the hybrid Ford Escape was high in California where the highest numbers of produced hybrid Ford Escapes were being shipped due to the highest gas price in the state (Freeman, 2007). As a consequence, supply and demand will concurrently increase and consumers will pay more to own a hybrid economical car. Impact of government regulations Ford Motor Company borrowed billions of dollars to avoid going bankrupt. As a result of this government loan Ford Motor Company was asked to manufacture fuel efficient cars. The problem arises where how can Ford manufacture more fuel efficient vehicles and still be profitable?

Fuel efficient vehicles such as hybrids and electric plug-ins are expensive to produce. The batteries and power trains in those vehicles are costly despite the improved technology that goes into making them. Many believe that if the government does not increase fuel taxes, making the cost of gasoline higher, it will not push the American public into purchasing fuel efficient vehicles (Staff, Dec 2008). As one can see, Ford has a great deal of areas to attribute to their success during these trying times. With the economy in the current state of recession and uncertainty as stated earlier, Ford still existing.

Their success can be attributed to their market structure, pricing, technology, productivity, and cost structure. Besides the economy, Ford also has to fight against competitors, understand the overall supply and demand, and realize the impact of government relations. With Fords ability to understand and maintain all aspects of their business, they have remained a prominent figure, even today. References Chalhoub, Michel (2007). A framework in strategy and competition using alliances: Application to the automotive industry. International Journal of Organization Theory and Behavior.

Retrieved April 11, 2009, from ABI/Inform Global Database CNBC. (2009). GM, Chrysler Could Receive More Financial Aid. Retrieved April 4, 2009, From: http://www. cnbc. com/id/29898832 Ford. (2009). Retrieved April 11, 2009, from http://for. digitalsnippets. com/technology/ Freeman, Sholnn. (2007). “Ford Strives to Meet Hybrid Demand. ” The Washington Post Retrieved April 11, 2009 from http://www. washingtonpost. com/wpdyn/content/article/ 2007/08/15/AR2007081502169. html Hoovers. (2009). Ford Motor Competitors. Retrieved April 12, 2009, from http://www. hoovers. com//free/co/burn. html? ID=10597&cm_ven=PAID&cm_cat=GGL Investorwords. (2009). Definition of Pricing. Retrieved April 11, 2009 from www. http://www. investorwords. com/3807/price. html Johnson, K. S. (2009, March 9). Ford workers approve UAW contract changes. Retrieved April 11, 2009, from report on business: http://www. theglobeandmail. com/servlet/story/RTGAM. 20090309. wUAWFord0309/BNStory/Business/ McConnell, Cambell R. , Brue, Stanley L. (2004). Economics: Principles, Problems, and Policies, 16e. Retrieved from https://ecampus. edu/content/ebooklibrary/content/print. asp Raymond. (2008).

AP Central, International Economics and the AP Microeconomics Course Retrieved April 11, 2009 from http://apcentral. collegeboard. com/apc/members/courses/ Teachers_coner/180545. html Staff. (December 8, 2008). Impact of Government Regulation on General Motors, Ford, and Chrysler. Retrieved April 11, 2009, from http://blogs. automotive. com White, Lawrence. A Legal Attack on Oligopoly Pricing: The Automobile Fleet Sales Case. Journal of Economics Issues: Vol. IV nr 2, June 1975, pg. 10 Yahoo Finance. (2009). Ford Motor Company. Retrieved April 11, 2009, from http://finance. yahoo. com/q/co? s=F


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