1 Ford and the European Automotive Market The University of Illinois at Urbana-Champaign Executive MBA Program

2 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

3 Analysis  Porter ’ s Five Forces Model  The Value Chain  Standardization vs. Differentiation  Platform Strategy  Summary

4 Michael Porter’s Five Forces Model Threat of Rivalry Threat of Substitutes Power of Buyers Power of Suppliers Threat of Entry

5 Threat of Rivalry Substitutes Power of Buyers Suppliers Threat of Entry Threat of Substitutes Low Switching Costs Low Priced Substitutes Few High Quality Substitutes MODERATE European Automotive Sector

6 Competitors Threat of Substitutes Power of Buyers Power of Suppliers Threat of Entry 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

7 Threat of Rivalry Threat of Substitutes Buyers Power of Suppliers New Entrants European Automotive Sector Threat of Entry Economies of Scale Technology Advantages Experience Curve Effects High Brand Loyalty High Customer Loyalty High Capital Requirements WEAK

8 Threat of Rivalry Threat of Substitutes Buyers Power of Suppliers New Entrants 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

9 Threat of Rivalry Substitutes Power of Buyers Suppliers Threat of Entry 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

10 European Automotive Sector Forces Threat of Rivalry Strong Threat of Substitutes Moderate Power of Buyers Weak to Moderate Power of Suppliers Moderate Threat of Entry Weak

11 Block Exemption Proposal  Spring announcement - Fall implementation  Less exclusive selling  Less regional control  Bypass OEMs

12 Raw Materials Standard Parts Supplier Component Specialists Systems Leasing/Financing OEMs New Car Retailing Used Car Retailing Service and Parts Car Rental Insurance European Automotive Value Chain Concurrent Infrastructure

13 Insurance Raw Materials Standard Parts Supplier Component Specialists Systems Leasing/Financing OEMs New Car Retailing Used Car Retailing Service and Parts Car Rental Insurance European Automotive Value Chain 2% 5% 8% 7% 16% 5% 9% 15% 12% 17% 4% Credit Suisse/First Boston: European Automotive Sector January 29, 2002

14 Insurance Raw Materials Std Parts Supplier Component Specialists Systems Leasing/Financing OEMs New Car Retailing Used Car Retailing Service and Parts Car Rental Insurance European Automotive Value Chain 2% 5% 8% 7% 16% 5% 9% 15% 12% 17% 4% ThreatsOpportunities Commodity type productsComposite materials

15 Insurance Raw Materials Standard Parts Supplier Component Specialists Systems Leasing/Financing OEMs New Car Retailing Used Car Retailing Service and Parts Car Rental Insurance European Automotive Value Chain 2% 5% 8% 7% 16% 5% 9% 15% 12% 17% 4% ThreatsOpportunities Created from outsourcing Margin squeeze Software systems Parts sales to others Consolidation Increasing power Sole source Information sharing Additional outsourcing

16 Insurance Raw Materials Standard Parts Supplier Component Specialists Systems Leasing/Financing OEMs New Car Retailing Used Car Retailing Service and Parts Car Rental Insurance European Automotive Value Chain 2% 5% 8% 7% 16% 5% 9% 15% 12% 17% 4% ThreatsOpportunities 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

17 Raw Materials Standard Parts Supplier Component Specialists Systems Leasing/Financing OEMs New Car Retailing Used Car Retailing Service and Parts Car Rental Insurance European Automotive Value Chain 2% 5% 8% 7% 16% 5% 9% 15% 12% 17% 4%

18 Standardization vs. Differentiation Standardization Cost-Focused Customization Customer-Focused Differentiation Individualization Goal: Low cost with high product differentiation while maintaining or extending the identity of the relevant brand 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

19 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

20 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

21 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

22 Ranger Europe SEAT Alhambra Nissan Terrano Windstar Escort Ka Puma Mondeo Fiesta Cougar ExplorerMaverick Transit Scorpio Ford EAO Platform Strategy Pre-1999 Aston Martin JaguarMazdaMercuryLincoln Sub-B Class B Class C Class C/D Class D Class M Class (MPV) People Mover/Cargo SUV/Truck VW Sharan Galaxy Ford

23 Ford Ka Ford EAO Car Platform Strategy Aston Martin JaguarMazdaMercuryLincoln Sub-B Class B Class C Class C/D Class D Class E Class F Class Volvo Land Rover Mondeo Premium Automotive Group LSS-Type V70 S80 Europe ? X-Type Fiesta XRV Focus Fiesta Options

24 Ford Ford EAO SUV/MPV Platform Strategy Mazda MPV SUV Land Rover Europe Ford Escape Maverick Mazda Tribute SEAT Alhambra VW Sharan Windstar Galaxy

25 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

26 Ford and the European Automotive Market The University of Illinois at Urbana-Champaign Executive MBA Program

27 Standardization vs. Differentiation Platform StrategyBadging Strategy Advantages/Opportunities  Reduced complexity  Sharing of innovation  Economies of scale  Increase multi-branding strategy  Manufacturing flexibility 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 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 Drawbacks/Risks  Product dilution  Cannibalization  Gener-isizing the product line  Incompatibilities  Risk concentration

28 Fiesta XRV SEAT Alhambra Ford Escape VW Sharan Ford Windstar Ka Maverick Galaxy Transit Ranger Ford EAO Platform Strategy Near Term Austin Martin JaguarMazdaMercuryLincoln Sub-B Class B Class C Class C/D Class D Class M Class (MPV) People Mover/Cargo SUV Volvo Land Rover Mazda Tribute Mondeo PAG FiestaFocus Europe

29 Ford Ford EAO SUV/MPV Platform Strategy Mazda MPV SUV Land Rover Europe Ford Escape Maverick Mazda Tribute SEAT Alhambra VW Sharan Windstar Galaxy

30 Nissan Terrano Ford Escape SEAT Alhambra VW Sharan Ford Windstar Focus Ka Puma Fiesta Cougar ExplorerMaverick Galaxy Transit Ranger Ford EAO Platform Strategy Current Austin Martin JaguarMazdaMercuryLincolnVolvo Land Rover Mazda Tribute Mondeo PAG Europe Scorpio Sub-B Class B Class C Class C/D Class D Class M Class (MPV) People Mover/Cargo SUV/Truck

31 Global Centralized and globally scaled HIGH Pressures For Global Integration LOW Pressures for Local Responsiveness HIGH Transnational Dispersed, interdependent, and specialized International Sources of core competencies centralized, other decentralized Multinational Decentralized and rationally self-sufficient Integration-Responsiveness Grid

32 Standardization vs. Customization Outsourcing Identical Part Strategy Platform Strategy Badge Engineering High Low Low High Product Differentiation Cost per Car

33 Global HIGH Pressures For Global Integration LOW LOW Pressures for Local Responsiveness HIGH Transnational InternationalMultinational Integration-Responsiveness Grid

34 Global HIGH Pressures For Global Integration LOW LOW Pressures for Local Responsiveness HIGH Transnational InternationalMultinational Integration-Responsiveness Grid