Business Model of Ford Motor Company
About Ford Motor company
Ford Motor Company is among the largest automobile companies based in the United States.
Incorporated in Delaware in 1919, Ford Motor Company has its headquarters in Dearborn, Michigan, United States.
The company has maintained a strong global presence and operates its business worldwide through a large distribution network that includes around 10,700 dealerships.
The business model of Ford Motor Company has some unique strengths, including a strong manufacturing and supplier network.
The company had maintained a solid growth rate, except for the impact of the pandemic, which brought car sales sliding downward in most regions of the globe in 2020.
Ford also suffered a heavy drop in sales caused by the pandemic.
Worldwide, the demand for vehicles remained lower compared to the previous years. It might still take a few years before demand surges back to the pre-pandemic levels.
Ford has focused on creating a resilient business model that performed fine during challenging times.
However, the company still strongly felt the bitter impact of the pandemic and experienced around an 18% decline in unit sales of vehicles overall.
Ford is among the largest vehicle brands in the US market, where its leading rivals include General Motors and Toyota. The company has maintained a strong manufacturing network in the US and some other parts of the globe.
It had 54 manufacturing locations in 2020. Ford produces a large range of cars, trucks, and SUVs. The company has expanded its portfolio of electric vehicles fast in recent years to meet the growing demand globally.
As of 2020, the company employed around 186,000 globally. Ford has established a culture of creativity and innovation to fuel the company's faster growth. Its employees are among its most critical sources of competitive advantage. Its culture has also remained a crucial driver of performance and growth.
The largest market for Ford products is the United States. The company achieves more than half of its total sales from the North American market.
In 2020, the company sold 4.5 million vehicle units globally compared to 5.5 million a year ago. Its unit sales in the United States in 2020 were 2 million units in 2020 compared to 2.4 million units a year ago.
The company sold 2.3 million units in the North American market in 2020 compared to 2.8 million units a year ago. Its net revenue fell to $127.14 billion in 2020 compared to $155.9 billion in 2019.
However, as demand returns on track globally and the automobile industry emerges from the impact of the pandemic, Ford Motor Company’s sales worldwide are expected to improve.
How does Ford make money (generate revenue and profits)?
Ford Motor company generates a substantial part of its net revenues from automotive sales worldwide. The company sells its automobile products globally in 200 countries.
However, more than half of its net revenues come from the North American market. In 2020, the company generated more than 90% of its net revenues from sales of automobile products.
The United States market alone accounted for around 65% of the company's total net revenues in 2020, generating $82.5 billion as revenues. Apart from that, of all the vehicle types, trucks represented the largest share of Ford’s vehicle sales in the United States, followed by SUVs.
Ford Motor Company also generates a small part of its revenue from Ford credit or the financial services division of Ford. It generated around $11.2 billion in net revenues for Ford Motors in 2020, or around 9% of its net revenues.
Due to the sharp decline in vehicle sales in 2020, Ford incurred net losses for the first time in the past several years.
Business Segments of Ford Motor Company:
Ford Motor Company has divided its business into three main segments: the Automotive segment, Ford mobility, and Ford credit.
The automotive segment is the largest segment of Ford Motor Company based on the net revenues it generates, followed by Ford credit and mobility segments. In 2020, the automotive segment generated around 90% of the company’s net revenues for the year.
Brief description of the Ford automotive segment:
The automotive segment, the largest business segment of Ford Motor Company, accounts for a substantial portion of the company’s annual net revenues of the company.
This segment mainly includes the sale of Ford and Lincoln vehicles, services, and accessories globally. The company has divided its automotive segment into the following regional business units: North America, South America, Europe, China (including Taiwan), and the International Markets Group.
North America is the largest regional business unit based on unit sales and net revenues of the company. The United States is the single largest market for Ford vehicles, followed by China. The following table shows Ford retail vehicle sales in 2020 for each regional business unit.
|Region:||2019 (in Millions)||2020 (in Millions)|
|International Markets Group:||0.4||0.3|
The following table shows the retail sales data of Ford Motor Company in the US by vehicle type and the number of units:
Brief description of the Ford credit segment:
The Ford credit segment is Ford's financial services business involved mainly in the financing and leasing of vehicles. This segment offers a large range of automotive financing products to automotive dealers and through them to customers globally.
The main business of this segment includes financing Ford vehicles and supporting Ford dealers worldwide. This segment generates revenue mainly from payments made under retail installment sale and retail financing and operating lease contracts that it originates and purchases; interest rate supplements and other support payments from Ford and its affiliates; and payments made under dealer financing programs.
Ford credit has a large portfolio of finance receivables and operating leases. It has classified them into two main categories, including consumer and nonconsumer.
The company offers consumer products to individuals and businesses that finance the acquisition of Ford vehicles from dealers for personal and commercial use.
Retail financing includes retail installment sale contracts for new and used vehicles and finance leases for new vehicles to retail and commercial customers.
These customers generally include leasing companies, government entities, daily rental companies, and fleet customers. Finance receivables in the non-consumer portfolio include products the company offers to automotive dealers.
Apart from these, Ford credit offers significant loans to dealers for financing the purchase of vehicle inventory, also known as floorplan financing, as well as loans to dealers for financing working capital and improvements to dealership facilities, financing the purchase of dealership real estate, and financing other dealer vehicle programs.
Ford credit has business centers in the US and Canada. Outside the US, its largest operations are in Europe, which the company operates through its United Kingdom-based subsidiary FCE Bank plc. The largest markets of Ford Motor Company in Europe include the United Kingdom and Germany.
In 2020, the Ford credit segment generated $11.2 billion in net revenues. While the other segments incurred operating losses in 2020, the Ford credit segment generated operating income equal to $2.6 billion.
Brief description of the Ford mobility segment:
The Ford mobility segment is the smallest segment based on the net revenues it generates. This segment mainly includes development costs for Ford’s autonomous vehicles and related businesses, Ford’s equity ownership in Argo AI (a developer of autonomous driving systems), and other mobility businesses and investments (including Spin, a micro-mobility service provider). In 2020, this segment generated only $56 million in net revenues. This segment incurred net losses worth around $1.3 billion.
Evaluating Ford’s Business Model based on five performance objectives
Operating an organization successfully requires having a set of well-defined performance objectives. There are five basic types of operational performance objectives applicable in the case of nearly any kind of organization. These performance objectives include cost, dependability, flexibility, speed, and quality.
There are both internal and external implications of these performance objectives for business operations.
Let’s start with a discussion of how quality affects performance in the context of Ford motors or, more generally, the automobile industry. In the simplest terms, quality means performing well and consistently according to your customers’ expectations. Your customers will not appreciate your product quality or brand if it has been a bumpy ride.
For example, in the case of an automobile brand, if the car starts performing poorly in terms of mileage just a few months after the purchase, the customers will speak about it, and poor word of mouth will spoil sales of the particular model.
So, it is important for business managers in nearly every industry that the quality of products/services affects the brand image, customer satisfaction, and even its success. If the product is poor in quality, the marketing strategy will not yield the desired results. Apart from it, quality also has an important role in terms of customer experience.
Quality acquires different meanings in different industrial environments. The same quality standards do not apply to all industries and can acquire a different meaning in the products industries and a different one in the services industries.
For example, the quality standards that apply in the fast food or hospitality industry do not apply in the automobile or tech industries.
Quality has many dimensions, and one or the other grows prominent in the case of each industry. In the hospitality industry, the level of staff friendliness and customer service may have critical importance in quality and affect brand image directly.
However, in the automobile industry, the performance, efficiency, and durability of products are crucial. Above all, quality has critical importance in each industry and directly impacts the results or sales and revenues. It also affects the level of customer satisfaction and customer loyalty.
Ford Motor Company is among the leading players in the automobile industry, and one of the critical factors driving its success worldwide is its focus on product quality. It is an industry-leading brand whose products have achieved critical acclaim across several markets, including Western and Eastern markets.
The company is also among the largest players in the US automobile industry. It continues to maintain its strong position there and popularity by its focus on product quality. The automobile industry is marked by heavy competition, and companies globally have increased their focus on product quality and customer experience to maintain demand and customer loyalty.
Several factors affect quality in the automobile industry, including technological innovation, fuel efficiency, after-sales service, marketing, and prices. However, Ford has focused on all these aspects of quality and gained a strong competitive edge which has helped it maintain its leadership in the United States market.
Ford is a popular and well-known vehicle brand. It has introduced a wide range of automobile products, including trucks, SUVs, cars, electric vehicles, and Lincoln brand luxury products. The company has introduced products in diverse price segments, including entry-level, mid-level, and higher-end segments.
Pricing is also an important factor in the automobile industry that helps companies maintain their competitiveness and market share. Apart from that, customers worldwide have grown highly value-conscious and want products that offer value for money. Ford has invested in developing unique capabilities that help it control costs while retaining product quality.
The company is also investing in innovation and continues to improve its vehicle models and introduce new ones. Other areas that impact quality and customer experience are supply chain management and distribution. The company has maintained a strong focus on all these areas and successfully maximized customer satisfaction from good quality.
Speed has also become critical to the success of business operations worldwide in each industry. Companies invest in business processes and value chains to streamline operations to gain higher agility and business success. Toyota popularized the concept of lean, and speed is one of the central elements of Lean management.
Speed is critical in business operations, including marketing, production, supply chain, and customer service. In many aspects of the business operations, speed acquires just as critical a role as price or quality.
In the automobile industry particularly, the role of speed is vital. The pace of innovation affects several things in the automobile industry, including sales and revenues, popularity, and brand image. Companies invest heavily in innovation. Ford invested $7.1 billion in research and development in 2020.
Apart from that, it has also created a culture of creativity and innovation. AI and digital technology have also helped automobile businesses to speed up things and bring higher efficiency and agility to business operations. Many automobile businesses are using blockchain to manage their supply chains and bring faster growth.
The automobile industry is undergoing a transition, and speed would have acquired an even critical role in the future. Digital technology has helped the automobile industry bring higher speed and efficiency to various automobile companies’ business operations.
Apart from superior ROI on marketing, it has helped businesses gain more from their investment in the other areas, including production and customer service, and supplier management.
Speed helps a lot in the automobile industry, particularly since there is heavy competition in this sector. Companies that have maintained a higher focus on innovation can bring innovations or models to the market faster. It helps them maintain their market leadership and dominance in the global market. Ford’s business model is also highly resilient, and speed is among the most critical factors driving its resilience.
The pandemic had put the resilience of the business models in the automobile industry to test. It disrupted supply chains globally and brought down everything to a halt, causing a steep decline in demand and sales.
However, the pandemic has also brought some lasting changes industry-wide, including a higher dependence on digital technology for sales and customer service. On the one hand, while the automobile industry experienced one of the worst slowdowns of the century, on the other, it is also gearing up for higher speed and has grown its use of cloud and digital technologies.
Reliability or dependability is also a critical sign of a strong market position and brand image in the automobile industry. Companies invest heavily in building trust and gaining customer loyalty.
The brands that can build higher trust can strengthen their competitive advantage in the industry. Automobile brands use several methods to gain the customers’ trust and retain customers.
While quality is among the most critical factors that drive higher trust in an automobile brand, other factors like brand image, organizational culture, innovation, marketing, and customer service are essential to maintaining higher trust among the customers.
It is true about all industries and not just the automobile industry. Companies that customers rely on are ahead of the others and have a strong competitive advantage compared to their rivals.
While in some industries, it is mainly product quality that decides how reliable the brand is for its customers. In others, customer service, marketing, and brand image also have a critical influence on the reliability or dependability of the brand.
The above-listed factors are critical drivers of Ford’s competitive advantage, but its pricing strategy has also helped the company gain customers’ trust. The leading brands in the automobile industry like General Motors, Ford, Toyota, Tesla, and Hyundai are considered highly reliable by customers globally.
However, if Ford has maintained a leadership position and the image of a highly dependable brand, the reason is that apart from a strong focus on product quality and innovation, its strong image, marketing, and customer service have also helped the company maintain and grow its trust among customers worldwide.
The companies that invest in building higher trust can also gain higher visibility and earn higher support from their customers. Word of mouth is also an important factor, and how much your customers recommend your business and products to the other customers affects your sales and growth in the longer term.
Businesses need to focus on building trust and asking themselves why their customers would trust them? Understanding customers’ needs and preferences are critical to winning in a hypercompetitive industry environment.
Ford has focused on understanding customers’ changing needs and preferences and brought products to the market that match the preferences of its customers. Understanding customers’ needs better help gain higher trust and form long-term relationships.
Operational flexibility is also an essential factor when it comes to winning in a hypercompetitive industry environment. The general meaning of flexibility in business terms is adapting the business's operating model as per the changing situations. It means making changes to what, when, and how the business does according to changing situations. The need for higher flexibility has particularly grown highlighted during the pandemic. An industrial scenario includes products/services mix flexibility, volume flexibility, and delivery flexibility.
Product/services mix flexibility is the ability to deliver products according to customer needs or grow or decrease the product range according to the changing times. Companies may often need to bring new products faster to the market as the demand for one type of model rises, and another falls. This is currently visible in the form of the growing demand for electric vehicles. Ford has introduced a wide range of electric models to cater to the growing demand for electric vehicles. The company has also grown its focus on trucks and SUVs since they are in higher demand in the US and other markets. Volume flexibility means the ability to make more or less of the same products according to the situation. For example, if the demand for SUVs or electric cars rises, the company must accommodate the extra demand without feeling any heavy pressure on its manufacturing and supply chain capabilities.
Delivery flexibility, in general, means the ability to change delivery times according to need. However, operational flexibility is crucial to maintaining sales and revenues even during difficult times. Apart from the above-discussed types, flexibility is important in every aspect of business operations, including the supply chain. The automobile companies like Ford have established large supply chains to reduce their dependence on a smaller number of suppliers. It offers them higher flexibility in terms of production and helps maintain quality standards without any difficulty.
The costs in the five performance objectives model denote the costs and expenses of the company. Automobile companies incur high costs of production, marketing, sales, and research and development. They also spend huge sums on their human resources. Companies mainly try to increase their profitability while cutting down on their operating expenses.
Price competition exists in several industries. In the automobile industry, the companies that sell at lower prices can generate higher sales and revenues. Moreover, the companies that can keep their operating expenses low can pass on the benefits to the customers. They can sell at more competitive prices compared to their rivals in the industry. However, all firms do not compete based on prices. Tesla makes premium models mainly. However, its model 3, which is the lowest priced of all the Tesla models, has helped the firm increase its sales worldwide faster. On the other hand, several automobile brands like Ford and GM sell products in a wide price range. Apart from some entry-level cars, they also make premium models. Ford has introduced some models at competitive prices that help it achieve higher sales. The number of SUVs in the idle and higher-end segment made by Ford has also increased, and so has its electric models.
However, cutting down operating expenses is always good for automobile businesses. Apart from streamlining their operations, the automobile companies need to use technologies that help them achieve more while investing less. Since the industry has grown highly competitive, each leading player needs to invest in research and development to maintain their leadership and grow their sales and revenues. There are several areas where heavy cost-cutting can cause the quality of products to fall and sales to reduce, and as a result, companies need to invest heavily in these areas. Ford has managed a strong supply chain and distribution network. Over the past several years, the company has enjoyed a continuous rise in its revenue per vehicle. This is a result of its focus on innovation and managing costs efficiently. Except for the impact of the pandemic in 2020, the company has been enjoying solid profits.
Ford's India exit in 2021
India is a leading automobile market, with the sales of passenger vehicles in 2019 in this market having been 3.4 million. However, Ford has decided to exit it. The company has brought a nice range of cars to the Indian market but few of them were able to garner the kind of success the brand aspired for. Apart from Ford Endeavour, Eco-sport or Ikon did. Ford’s Eco-sport was its most successful vehicle model in India. However, despite the success of Eco-sport, Ford has decided to shut its operations in the Indian market. Previously, the company had planned to enter into a joint venture with the Indian car brand Mahindra but now it has been called off. The main reason cited behind Ford’s India exit is its heavy losses. According to Ford CEO Jim Farley, Ford had accrued $2 billion in losses over the past two decades. While Hyundai, its subsidiary Kia, and some local brands including Tata Motors have experienced growth in demand, Ford has experienced declining demand in India. The pandemic also hurt its Indian operations. Now, Ford is planning to shut down both its plants in India, located in the states of Gujarat and Tamilnadu by the second quarter of 2022. The company was not expecting growth in the Indian market. It will continue to provide its existing customers in India with service support and spare parts for some more years. However, several also believe that it could return to the Indian market in future with a better plan. Its exit from the Indian market has also been less dramatic compared to that of General Motors.