Ford - The 'Way Forward' Restructuring Program

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Case Details:

Case Code : BSTR204
Case Length : 15 Pages
Pages Period : 1996-2006
Organization : Ford
Pub Date : 2006
Teaching Note :Not Available
Countries : US
Industry : Automobile

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Rising Competition

Since the US was the largest consumer of oil in the world, the restrictions had a tremendous impact on the US economy. The oil crisis created the need for fuel efficient cars. US customers moved towards small and fuel-efficient Japanese cars over large US-made cars. The performance of Japanese cars was superior to the US-made cars. Further, the pricing of Japanese automobiles was very competitive and attractive to buyers. Gradually, manufacturers such as Honda and Toyota started offering cars even in the luxury segment and began taking over the market share of the Big Three (General Motors, Ford and Chrysler)...

Ford in the Early 2000s

By the early 2000s, the sales of SUVs began slowing down due to increase in gasoline prices. To add to Ford's problems truck sales slowed down too. The company was engaged in a price war with GM in the pick-up trucks segment. At the same time, the Japanese manufacturers using lean manufacturing systems brought out several attractive truck models which affected the sales of Ford and other domestic manufacturers. In 2003, Nissan also entered the fray with 'Titan' which was built in its own plant at Canton, Mississippi. In 2003, Toyota started building its second truck manufacturing plant in San Antonio, Texas, which was to be opened in late 2006. Apart from the competition, Ford was affected by its rapidly increasing pension and healthcare liabilities and weakening brands...

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Pensions and Healthcare Costs

One of the major problems for Ford (also for other US-based competitors) was its huge under-funded pension fund and mounting healthcare costs. These problems had their roots in the late 1940s, after the World War II, at the time when the Big Three virtually held the entire share of US automobile market.

During the 1950s, the per capita spending on healthcare benefits in the US was just US$ 500. In the next two decades, there was a substantial improvement in the field of medicine but medical costs also increased. This increased the per capita spending on healthcare to US$ 1,500 by the 1970s. According to some analysts, powerful worker unions such as the UAW demanded more and more benefits from the motor companies. As there was no dearth of funds, the Big Three paid generous benefits such as free healthcare insurance, dental insurance and retiree healthcare benefits. With the advent of Japanese automakers, the scenario changed significantly. In 1979, Chrysler came close to bankruptcy but survived due to concessions made by the UAW...

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