Ford and the European Automotive Market

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Ford and the European Automotive Market
The University of Illinois at Urbana-Champaign Exe
cutive MBA Program
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Executive MBA Case Group

• Jeff Attwood
• Jean Baird
• Maryann Carrero
• Lucas Chan
• Susan Krieger

• Ravi Menon
• Kent Miller
• Terry Nichols
• Randy Short

Faculty Advisor Dr. Jeffrey A. Krug University
of Illinois at Urbana-Champaign
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Analysis

• Porters Five Forces Model
• The Value Chain
• Standardization vs. Differentiation
• Platform Strategy
• Summary

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Michael Porters Five Forces Model
Threat of Substitutes
Threat of Entry
Threat of Rivalry
Power of Buyers
Power of Suppliers
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European Automotive Sector
Threat of Substitutes Low Switching Costs
Low Priced Substitutes Few High Quality
Substitutes MODERATE
Substitutes
Threat of Entry
Threat of Rivalry
Power of Buyers
Suppliers
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European Automotive Sector
Threat of Rivalry Many Competitors Competitors
of Equal Size Low Switching Costs Intense
Rivalry High First Mover Advantages High Exit
Barriers Low Entry of New Firms STRONG
Threat of Substitutes
Threat of Entry
Competitors
Power of Buyers
Power of Suppliers
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European Automotive Sector
Threat of Entry Economies of Scale Technology
Advantages Experience Curve Effects High Brand
Loyalty High Customer Loyalty High Capital
Requirements WEAK
Threat of Substitutes
New Entrants
Threat of Rivalry
Buyers
Power of Suppliers
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European Automotive Sector
Power of Buyers (Dealers) Profits are Low
Purchase in Small Quantities High Switching
Costs ? Dealer Size ? Purchase from Several
Suppliers WEAK TO MODERATE
Threat of Substitutes
New Entrants
Threat of Rivalry
Buyers
Power of Suppliers
9
European Automotive Sector
Power of Suppliers (Material and Labor) High
Switching Costs Few Substitute
Products Suppliers have Good Reputations ? Number
of Suppliers ? Opportunity to Integrate
Forward MODERATE
Substitutes
Threat of Entry
Threat of Rivalry
Power of Buyers
Suppliers
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European Automotive Sector Forces
Threat of Substitutes Moderate
Threat of Entry Weak
Threat of Rivalry Strong
Power of Buyers Weak to Moderate
Power of Suppliers Moderate
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Block Exemption Proposal

• Spring announcement - Fall implementation
• Less exclusive selling
• Less regional control
• Bypass OEMs

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European Automotive Value Chain
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European Automotive Value Chain
OEMs
Systems
Insurance
Car Rental
Service and Parts
Raw Materials
Used Car Retailing
Leasing/Financing
New Car Retailing
Component Specialists
Standard Parts Supplier
Insurance
Credit Suisse/First Boston European Automotive
Sector January 29, 2002
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European Automotive Value Chain
OEMs
Systems
Insurance
Threats Opportunities
Commodity type products Composite materials
Car Rental
Service and Parts
Raw Materials
Used Car Retailing
Std Parts Supplier
Leasing/Financing
New Car Retailing
Component Specialists
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16
15
12
Insurance
9
8
7
5
5
4
2
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European Automotive Value Chain
OEMs
Systems
Threats Opportunities
Created from outsourcing Margin squeeze Software systems Parts sales to others Consolidation Increasing power Sole source Information sharing Additional outsourcing
Insurance
Car Rental
Service and Parts
Raw Materials
Used Car Retailing
Leasing/Financing
New Car Retailing
Component Specialists
Standard Parts Supplier
17
16
15
12
Insurance
9
8
7
5
5
4
2
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European Automotive Value Chain
OEMs
Systems
Insurance
Car Rental
Service and Parts
Raw Materials
Used Car Retailing
Leasing/Financing
New Car Retailing
Component Specialists
Standard Parts Supplier
Threats Opportunities
Block Exemption proposal Euro transparency Labor Imports Economies of scale Shorter development cycles Stronger suppliers Block Exemption proposal Flexible manufacturing Information sharing Design/provide solutions Enhance brand/loyalty Direct selling Cost reductions Differentiation Standardization
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Insurance
16
15
12
Insurance
9
8
7
5
5
4
2
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European Automotive Value Chain
OEMs
Systems
Insurance
Car Rental
Service and Parts
Raw Materials
Used Car Retailing
Leasing/Financing
New Car Retailing
Component Specialists
Standard Parts Supplier
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16
15
12
9
8
7
5
5
4
2
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Standardization vs. Differentiation
Cost-Focused
Customer-Focused
Customization
Standardization
Differentiation
Individualization

• Advantages/Opportunities
• Low production and variation dependent costs
• Reduction in complexity
• Reduction in resources

• Advantages/Opportunities
• Meet customer needs/wants
• Define/enhance brand
• More flexible to multi-brand strategy

Goal Low cost with high product differentiation
while maintaining or extending the identity of
the relevant brand
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Standardization vs. Differentiation
How does an automobile manufacturer produce at
low cost and keep a high degree of product
differentiation while maintaining or extending
the identity of its brand?
Multi-branding Strategy breadth of the product
line through internal product development or
acquisitions
Platform Strategy depth of the product line
Badging Strategy cooperation of two different
manufacturers or between brands of one
manufacturer
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Standardization vs. Differentiation
Platform Strategy

• Advantages
• Reduced complexity
• Sharing of innovation
• Economies of scale
• Increase multi-branding strategy
• Manufacturing flexibility

• Disadvantages
• Product dilution
• Cannibalization
• Incompatibilities
• Risk concentration

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Standardization vs. Differentiation
Badging Strategy

• Advantages
• Time advantage
• Sharing of development and investment costs.
• Manufacturing and supplier economies of scale
• Risk minimization
• Can fill gaps in multi-branding strategy
• Mutual transfer of technology and knowhow
• Supplier time, production and development cost
  reduced

• Disadvantages
• Limited autonomous control
• Competitive advantage more heavily influence by
  marketing, advertising, dealer networks, and
  pricing strategies

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Ford EAO Platform Strategy Pre-1999
Europe
Aston Martin
Jaguar
Mazda
Mercury
Lincoln
Ford
Ka
Fiesta
Puma
Escort
Cougar
Mondeo
Scorpio
SEAT Alhambra
VW Sharan
Galaxy
Windstar
Transit
Ranger
Nissan Terrano
Explorer
Maverick
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Ford EAO Car Platform Strategy
Europe
Ford
Aston Martin
Jaguar
Mazda
Mercury
Lincoln
Volvo
Land Rover
Ka
Fiesta
Fiesta XRV
Focus
Options
Mondeo
V70
?
LS
S-Type
S80
X-Type
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Ford EAO SUV/MPV Platform Strategy
Europe
Ford
Mazda
Land Rover
SEAT Alhambra
VW Sharan
Galaxy
MPV
Windstar
SUV
Ford Escape
Maverick
Mazda Tribute
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Summary

• Five Forces Model
• Threat of Rivalry
• Power of Buyers and Suppliers
• Value Chain
• Collaboration and Information Sharing
• Design, Development, Brand Loyalty Exploitation
• Standardization vs. Differentiation
• Low Cost with High Product Differentiation
• Platform Strategy
• Brand, Platform and Badging Opportunities

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Ford and the European Automotive Market
The University of Illinois at Urbana-Champaign Exe
cutive MBA Program
27
Standardization vs. Differentiation
Platform Strategy
Badging Strategy

• Advantages/Opportunities
• Time advantage
• Sharing of development and investment costs.
• Mfg. and supplier Economies of scale
• Risk minimization
• Can fill gaps in multi-branding strategy
• Mutual transfer of technology and knowhow
• Supplier time, production and development cost
  reduced

• Advantages/Opportunities
• Reduced complexity
• Sharing of innovation
• Economies of scale
• Increase multi-branding strategy
• Manufacturing flexibility

• Drawbacks/Risks
• Product dilution
• Cannibalization
• Gener-isizing the product line
• Incompatibilities
• Risk concentration

• Drawbacks/Risks
• Limited autonomous control
• Competitive advantage more heavily influence by
  marketing, advertising, dealer networks, and
  pricing strategies. Cost advantages in mfg. can
  be offset partially by cost increases in
  distribution

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Ford EAO Platform Strategy Near Term
PAG
Europe
Land Rover
Ford
Austin Martin
Jaguar
Mazda
Mercury
Lincoln
Volvo
Ka
Sub-B Class
B Class
Fiesta XRV
C Class
C/D Class
D Class
Mondeo
SEAT Alhambra
VW Sharan
Galaxy
M Class (MPV)
Windstar
Ford Escape
Transit
People Mover/Cargo
Maverick
Ranger
Mazda Tribute
SUV
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Ford EAO SUV/MPV Platform Strategy
Europe
Ford
Mazda
Land Rover
SEAT Alhambra
VW Sharan
Galaxy
MPV
Windstar
SUV
Ford Escape
Maverick
Mazda Tribute
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Ford EAO Platform Strategy Current
Europe
Ford
Austin Martin
Jaguar
Mazda
Mercury
Lincoln
Volvo
Land Rover
Ka
Fiesta
Puma
Focus
Cougar
Mondeo
Scorpio
SEAT Alhambra
VW Sharan
Galaxy
Windstar
Transit
Nissan Terrano
Ford Escape
Explorer
Maverick
Ranger
Mazda Tribute
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Integration-Responsiveness Grid
Global Centralized and globally scaled
Transnational Dispersed, interdependent, and
specialized
HIGH Pressures For Global Integration
International Sources of core competencies
centralized, other decentralized
Multinational Decentralized and rationally
self-sufficient
LOW Pressures for Local Responsiveness
HIGH
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Standardization vs. Customization
High Low
Outsourcing
Identical Part Strategy
Cost per Car
Platform Strategy
Badge Engineering
Low
High Product Differentiation
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Integration-Responsiveness Grid
HIGH Pressures For Global Integration
LOW
Global
Transnational
International
Multinational
LOW Pressures for Local Responsiveness
HIGH
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Integration-Responsiveness Grid
HIGH Pressures For Global Integration
LOW
Global
Transnational
International
Multinational
LOW Pressures for Local Responsiveness
HIGH