Investment Prospectus With a Major Term Paper

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In general, Product Development at Ford involves three major stages, all leading up to the manufacture of the vehicle: Plan, Design, and Verify -- then manufacture. To do this, though, functional areas need to manage costs, plan marketing programs, ensure that needed parts are available, plan manufacturing schedules, hiring (if needed), shift changes, and numerous other data (a/p, a/r, payroll, etc.). The model for Ford is:

(Source: Murthy and Desai)

Thus, on a daily, or ongoing basis, employees in numerous functional areas are able to pull up historical data on models, features, issues; find out stages of development for new models or new programs; chart advertising effectiveness using detailed database parameters, preplan tooling, resource, and supplier needs; access accounting and invoice functions, and, system wide, use the available information for appropriate levels of knowledge management (Maynard 2004).

By department, a needs analysis shows that each individual department has both similar and quite different regular needs for deeper, more robust information. In general, the decision making process at Ford has changed from simply making a presentation to the Board or Upper Management, to thoughtful and considered scenarios utilizing the best available data, much of it in real time. Thus, a brief view of informational needs supplied by Chargeback Ford:

Department

Access Need

Typical Information

Result

Executive Management

Cross-Functional, higher level reports or analysis; conglomeration of data

Better decisions, more real-time data, ability to react to small changes and appropriate levels of PR and crisis management

Human Resources

Daily

Production planning, staffing, training issues; appropriate HR forms, issues, departmental management as appropriate

Ability to manage staff and future needs within the company, increasing moral and loyalty; management of human needs to better provide for overall strategic planning

Finance and Accounting

Daily

Production, purchasing, needs analysis, supplies, projections, resource allocation

Forecasting, data analysis, cross-functional department information

Sales

Daily

Stages of production, inventory management, strategic planning, advertising and marketing issues

Inventory, demographic information, higher level sales analysis, feedback to marketing

Marketing

Daily

Strategic planning, production, what-if scenarios, accessory development, customer profiles, warranty information, demographic and psychographic data

Feedback to sales, planning of strategies, tracking of sales and advertising effectiveness, issues surrounding individual products and/or accessories; dealer relationship and customer service issues

Procurement and Purchasing

Daily

Production needs and pre-planning, special tooling needs, engineering issues

Real time needs assessment, inventory management; cost control, avoidance of duplication of effort

AP/AR Functions

Daily

Invoices, auditing materials, cost functionality

Real time access to information, issues dealt with immediately, auditing of issues done quicker

Vendor Relations

Daily

Orders in/out, inventory management, production scheduling

Inventory management, impact studies, production and preplanning issues; future what-ifs, synergies costs

I.T.

Daily

Usage, system issues, upgrades, unique issues, interface with computer manufacturer

Access to department issues, load statistics, planning for upgrades, appropriate data support

Governmental Regulations

Sales and marketing issues, cross-functional governmental issues, EPA requirements, new issues from Washington and globally

Dissemination of information, access to needed information within moments; real time scenario development

(Sources: Ingrassia and White 1995; McDermott and O'Dell 2001; Murthy; Byrd).

Strategic Issues - Since the early 2000s, Ford's marketing and strategic pricing group has changed their historic strategies due to several external factors that are dramatically changing the industry as a whole:

Longevity -- Vehicles, due to engineering and production advances, are lasting longer and are able to provide higher mileage without significant replacements.

Warranty -- APR, warranties, and ability to get alternative financing has increased.

Additional revenue sources -- due to longevity, service department revenues are down, so alternative approaches to regular maintenance are becoming more important.

Pre-Owned -- Many consumers are waiting until the car of their dreams has 10-20,000 miles, vastly reducing its price, but still giving them adequate longevity; consumers are also keeping their cars longer, not trading as fast, and taking better care of their vehicle.

Demographics -- the continued trend towards suburbs and urban sprawl requires more Americans to drive longer distances and be in their vehicles for a larger part of the day. This has changed perceptions about what is important in a vehicle (assessors, etc.) and vehicles are now seen as extensions of the office in many cases.

Information -- the Internet has changed the way consumers' shop, compare, and finance their purchase. Edmunds.com, KBB.com and NADA provide even more consumer information on price, comparison, and features; Car buying services (autobytel.com, carsdirect.com) have revolutionized the contact with the consumer, often completely by-passing one of Ford's staunch marketing strategies -- the Ford Dealership as part of the community (See: Patton, 2009; Jim, 2002, Ford.com).

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Strategically, Ford's marketing department has used accounting data, combined with more sophisticated marketing data to change its approach to the market. Prior to these changes, Ford based its accountancy/marketing strategies more on production costs and return on investment than the intricacies of price point relationships, price analysis, and consumer trends. The overall changes in the marketplace, however, required that costing information be combined with alternative data to make better decisions. Thus, Ford's new model is more complex, but more inclusive:

(Model complication from: Sawyer, 2008; Sheena, 2009; Lassa, 2006; "Ford's Business Plan Submission to Congress," 2008).

Highlights of the new, more synergistic strategy -- essentially defined as rather than letting manufacturing drive the company (a cost-based philosophy), combine marketing trends with fiscal data to produce a leaner, more responsive company. There are four major components of this new strategy, articulated by Ford CEO Alan Mulally, "Ford is committed to building a sustainable future for the benefit of all Americans. We believe Ford is on the right path to achieve this vision" ("Ford's Business Plan," 2008). The way this will be done is to focus more on the consumer, using fiscal and marketing experts to drive the company forward:

Aggressively restructure to operate profitably at the current demand/changing model mix;

Accelerate development of new products our customers want and value;

Finance our plan and improve our balance sheet; and Work together effectively as one team, leveraging our global assets.

Fiscal Performance Analysis -- According to analysts, Ford Motor is in a fairly good position for stock purchases over the next 12-14 months. Unlike many other U.S. manufacturers, they seem to have a solid plan and have pulled out of the negative car buying months and showing true market leader potential. Strong partnerships with other companies and countries also increases the likelihood of a stable investment base:

Positive Reasons to Invest in Ford

Negatives About Investing With Ford

Cost Reduction Programs: The Company has undertaken several cost reduction programs to save costs and mitigate earnings pressure in the North American segment.

Increased Competition: Ford is facing increased competition from foreign companies as they increase imports to the U.S. And expand production capacity

Smaller Vehicles: Ford plans to focus its investments on smaller, more fuel-efficient vehicles that will result in a more balanced global portfolio to keep pace with the worldwide shift in demand

Increased Competition: Ford is facing increased competition from foreign companies as they increase imports to the U.S. And expand production capacity

Ford Motor Credit: Ford motor credit earnings were exceptional in 1Q10 and management's outlook for flat FY10 versus FY09 profits may prove conservative.

Unfavorable Currency Translation: Unfavorable currency translation rates remain a consistent problem for the Company.

(Source: "Ford Motor Company," Forbes.com).

Additional fiscal factors seem to bear this out, particularly for those who plan to move a large portion of their portfolio to Ford. The stock price is fairly stable, and at just under $11/share, still affordable for the industry. Clients should also benefit from the issues Toyota is having with their recalls. Additional fiscal and statistical analysis indicates:

Performance Indicator

Ford Scores

Analysis

Cost of Capital

8.5% weighted average

Positive for industry and current economic conditions

Methodology for evaluating capital budget opportunities

Most analysts see Ford as a "hold" stock for time being.

Cautious about too much of portfolio tied up with Ford.

Economic forecasts

Positive because of alliances.

Earnings expected to improve with synergistic alliances with other auto companies (e.g. Mazda).

International markets and forecasts

Placing well within the International Community; likely the result of declines in purchases of Toyotas.

Purchases of Fords are up in Asia and EU

Characteristics of common stock

Tending upwards; 52-week range of $5.51-$14.57

If growth maintains or continues 3/4Q 2010, Ford should be positioned quite well in the industry.

Characteristics of bonds

12.5% earnings, most mature 2018

Great ROI in current market

Optional Capital Structures

High free cash flow ($1.6 billion) positive

Positive for industry and current economic conditions

Key financial ratios

Currently outperforming the industry; 5-year annual average of net income was vastly better than competition.

Sales are trending up as is net income; allowing company to place assets where needed.

(.....

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