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

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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

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Analysis

Porter’s Five Forces ModelThe Value ChainStandardization vs. DifferentiationPlatform StrategySummary

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Michael Porter’s Five Forces Model

Threat of Rivalry

Threat ofSubstitutes

Power of Buyers

Power of Suppliers

Threat of Entry

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Threat ofRivalry

Substitutes

Power ofBuyersSuppliers

Threat of Entry

Threat of Substitutes

Low Switching Costs

Low Priced Substitutes

Few High Quality Substitutes

MODERATE

European Automotive Sector

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Competitors


Power ofBuyers

Power ofSuppliers

Threat of Entry


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

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Threat ofRivalry


BuyersPower ofSuppliers

New Entrants


Threat of Entry

Economies of ScaleTechnology Advantages

Experience Curve EffectsHigh Brand Loyalty

High Customer LoyaltyHigh Capital Requirements

WEAK

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Threat of Rivalry


BuyersPower ofSuppliers

New Entrants


Power of Buyers(Dealers)

Profits are Low Purchase in Small Quantities

High Switching Costs? Dealer Size

? Purchase from Several Suppliers

WEAK TO MODERATE

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Threat ofRivalry

Substitutes

Power ofBuyersSuppliers

Threat of Entry


Power of Suppliers(Material and Labor)

High Switching Costs Few Substitute Products

Suppliers have Good Reputations? Number of Suppliers

? Opportunity to Integrate Forward

MODERATE

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European Automotive Sector Forces

Threat ofRivalryStrong

Threat of SubstitutesModerate

Power of BuyersWeak to Moderate

Power ofSuppliersModerate

Threat ofEntryWeak

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Block Exemption Proposal

Spring announcement - Fall implementation

Less exclusive sellingLess regional controlBypass OEMs

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European Automotive Value Chain

Concurrent Infrastructure

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Insurance

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2%5%

8% 7%

16%

5%9%

15% 12%17%

4%

Credit Suisse/First Boston: European Automotive Sector January 29, 2002

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2%5%

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Threats Opportunities•Commodity type products

•Composite materials

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2%5%

8% 7%

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5%9%

15% 12%17%

4%

Threats Opportunities•Created from outsourcing•Margin squeeze

•Software systems•Parts sales to others•Consolidation•Increasing power•Sole source•Information sharing•Additional outsourcing

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Insurance

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2%5%

8% 7%

16%

5%9%

15% 12%17%

4%

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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2%5%

8% 7%

16%

5%9%

15% 12%17%

4%

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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/OpportunitiesLow production and

variation dependent costsReduction in complexityReduction in resources

Advantages/OpportunitiesMeet customer

needs/wantsDefine/enhance brandMore flexible to multi-

brand strategy

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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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Platform Strategy

AdvantagesReduced complexitySharing of innovationEconomies of scaleIncrease multi-branding

strategyManufacturing flexibility

DisadvantagesProduct dilutionCannibalizationIncompatibilitiesRisk concentration

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Badging StrategyAdvantagesTime advantageSharing of development and

investment costs.Manufacturing and supplier

economies of scaleRisk minimizationCan fill gaps in multi-branding

strategyMutual transfer of technology

and knowhowSupplier time, production and

development cost reduced

DisadvantagesLimited autonomous

controlCompetitive advantage

more heavily influence by marketing, advertising, dealer networks, and pricing strategies

22Ranger

Europe

SEATAlhambra

NissanTerrano

Windstar

Escort

Ka

Puma

Mondeo

Fiesta

Cougar

Explorer Maverick

Transit

Scorpio

Ford EAO Platform Strategy Pre-1999

Aston Martin

Jaguar MazdaMercuryLincoln

Sub-B Class

B Class

C Class

C/D Class

D Class

M Class (MPV)

People Mover/Cargo

SUV/Truck

VWSharan

Galaxy

Ford

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Ford

Ka

Ford EAO Car Platform Strategy

Aston Martin

Jaguar MazdaMercuryLincoln

Sub-B Class

B Class

C Class

C/D Class

D Class

E Class

F Class

VolvoLand Rover

Mondeo

Premium Automotive Group

LSS-Type

V70

S80

Europe

?X-Type

FiestaXRV

Focus

Fiesta

Options

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Ford

Ford EAO SUV/MPV Platform Strategy

Mazda

MPV

SUV

Land Rover

Europe

FordEscape

MaverickMazdaTribute

SEATAlhambra

VWSharan

Windstar

Galaxy

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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

Executive MBA Program

Documents

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