Running head: TECHOLOGICAL ANALYSIS FOR FORD MOTOR COMPANY 1

Analysis for FORD Motor Company

Name
Affiliation

Abstract
This paper examines the Technological of Ford Motor Company and its consequences to the firms

operations. Analysis will focus on the Technological Trend and supply conditions within the industry.

The determinants of Technological Trend and supply for the automotive industry as well as Fords are

also investigated. Additionally, this paper presents price elasticity of Technological Trend and how it

affects the companys pricing strategies. The cost of production as well as an overall market analysis is

conducted to put the matters into perspective. Finally, recommendations pertaining to how Ford can

improve on its operations in relation to the microeconomic factors are presented.

AUTOMOTIVE ANALYSIS FOR FORD MOTOR COMPANY2

Microeconomic Analysis for FORD Motor Company

Technological refers to the study of behavior of firms and individuals decision making when

faced with limited resources (Investopedia, n.d.). Typically, Technological pertains to how market

factors affect the conduct and behavior of the firm. Specifically, Technological looks at the behavior

and decisions of firms that are affected by the Technological Trend and the supply of services and

goods. The supply and Technological Trend of goods and services has an impact on the prices that are

levied by firms and those expected by the customers. Analyzing the Technological factors that affect a

firm is important as it enables the firm to understand these factors and readily determine their effects.

This is important in designing the best way to approach their effects.

The purpose of this paper has been highlighted as looking at the forces of international trade on

the company. Also, the paper looks at the cost of production. These factors are important in supporting

the conclusion in a bid to understand the best strategies that can be adopted by the firm.
History
Ford Motor Company was founded by Henry Ford in the year 1903 (Ford, 2015)in conjunction

with twelve (12) other investors including Alexander Malcomson, John Gray, Horace Rackham and John

Anderson. Henry Ford began the profitable automobile maker known as Ford. The company has

managed to remain under the ownership of the Ford family since its inception. In 1909, the company

produced its famous Model T cars that revolutionized the sales of vehicles to middle and lower class

workers in large numbers. The company also produced vehicles and planes for the allied forces during

the First World War. Internationally, Ford has operated since the 1904 when a branch was opened in

neighboring Canada in a bid to gain the commonwealth market. These vehicles were hand built by

workers using parts that were procured from other companies.

While the company managed to largely remain competitive and profitable in the automotive

business, trouble started when other companies entered the United States (U.S.) market. In 1956,

Toyota Motor Company entered the U.S. market and made its first car in the country. This move marked

the beginning of a transition in the U.S. motor market. With the 20 th century coming to an end, Ford

began experiencing falling market shares and difficulties maintaining the competitive company that

characterized the first half of the 20thCentury. Falling Technological Trend in its most profitable line of

vehicles coupled with the increased costs of operations, such as pensions for retiring workers,were

some of the challenges the company faced during this period.

AUTOMOTIVE ANALYSIS FOR FORD MOTOR COMPANY3

In 1996, the company attempted to make a strong comeback in the industry by launching Ford

2000. However, despite the streamlined organizational structure as well as success in lines such as

Ford Focus, the costs incurred by Ford were still higher compared to those of its competitors. The

appointment of Alan Mulally as the Chief Executive Officer (CEO) of Ford Motor Company in 2006

provided some reprieve for the company (Ford, 2015). The Way Forwardcampaign, launched in 2006,

managed to push the company back into the top three automobile companies in the world. The CEO has

managed to make the company more stable with the ability to compete against its perennial

competitors, such as Toyota, General Motors and Honda.

Ford Motor Company produces a variety of motor vehicle models and types. There are race and

rally cars such as the Ford C100 and the Ford GT40. The company also manufactures vans such as the

Ford E-Series, Ford Econoline, Ford Transit and Ford Supervan. In addition, the company produces

Sports Utility Vehicles (SUVs) with models such as its Ford Explorer, Ford Flex and Ford

Expedition.Finally, the company produces other popular models such as the Ford Taurus, Ford Focus

and Ford Fusion among others. The company is also in the business of producing school buses and

tractors.
Supply and Technological Trend Conditions
The automobile industry is a combination of consumers with different tenets and

characteristics. As such, manufacturers and companies in the automobile industry have segmented the

market into small units in a bid to position their products with the needs of the consumers in mind.

There are consumers who purchase vehicles because of need. These include those who require

transporting products from one area to the other. This market prefers the use of trucks. Other

consumers buy vehicles based on reliability. For instance, individuals who live in areas with bad access

of roads may purchase an SUV like a Land Rover. Still other consumers purchase vehicles for prestige;

flashy brands such as Mercedes or Jaguar. Toyota has managed to create a segment in the industry as a

firm that produces pocket friendly vehicles in terms of the price of the vehicle or fuel consumption

(Auto Sales, 2015). As such, the automobile market is a vast one which is affected by different factors

that consumers investigate prior to making a purchase.

AUTOMOTIVE ANALYSIS FOR FORD MOTOR COMPANY4

Figure 1. Sales of vehicles from 1990 to 2016 (Statista, 2016)

The consumer Technological Trend for motor vehicles depends on a variety of factors. First, the

income of the consumer is an important factor that determines the Technological Trend of motor

vehicles. Consumers must have a large enough disposable income to purchase vehicles, because most

individuals have the perception that automobiles are a luxury owned by the affluent of society. This

perception increases with the prices of different automobiles. Figure 1, illustrates that the

Technological Trend of vehicles has steadily increased between 1990 and 2016. This may be attributed

to the fact that overall income has steadily increased over the same period.
Price of related goods is also another factor that is important in determining the Technological

Trend for vehicles. Related goods in this context refer to items such as fuel or gas. The increase of

prices of related products reduces the Technological Trend for motor vehicles. When the price of fuel

increases drastically, individuals reduce their Technological Trend for motor vehicles owing to the

increase in the costs of operating it (Economic Policy Institute, 2015). Populations and demographics

are other factors that are imperative in influencing the Technological Trend for motor vehicles. A larger

population will increase the Technological Trend for motor vehicles. On the other hand, an increase of

individuals entering adulthood will support an increased Technological Trend for motor vehicles as

compared to a demographic that largely consists of children and senior citizens. Studies also point to an
AUTOMOTIVE ANALYSIS FOR FORD MOTOR COMPANY5

increase in the Technological Trend of motor vehicles from men as compared to a population that

largely consists of women.

The taste of individuals and need will also have an impact on the Technological Trend for motor

vehicles. As already stated, people purchase motor vehicles for varied needs and preferences. If the

preferred choice of vehicle exists, then an individual is most likely to purchase it. However, a lack of a

certain preferred type of vehicle may largely reduce the Technological Trend of the automobiles. Also,

when vehicles that are in the market fit the particular needs of different individuals, the Technological

Trend for the motor vehicles would increase. Finally, people operate with the future expectations in

price changes. When the future price of automobiles is projected to drastically decrease, people might

shelve their desires to purchase vehicles until such a date.

Figure 2. Representation of vehicle sales between 2007 and 2015 (Economic Policy Institute, 2015)
Looking at the Technological Trend for Ford automobiles,shown in Figure 3, helps compare the

company with the statistics posted by the industry.

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Figure 3. (Statista, 2016)

How Technological Trend Conditions have been Affecting Ford in Recent Years
According to Figure 3, the Technological Trend for Ford products has been increasing over the

years. In 2012, the Technological Trend for the companys vehicles was 5.6 million. The Technological

Trend increased drastically in 2013 to 6.33 million before dropping slightly to 6.32 millionin 2014

(Statista, 2016). The year 2015 represents the highest Technological Trend for Ford vehicles with the

company making sales of 6.35 million vehicles during the year. The increase in the Technological Trend

of Ford vehicles mirrors that of the automotive industry. It is important to note that the 2008

depression resulted in the lowest Technological Trend for vehicles owing to unemployment and lack of

disposable income (Economic Policy Institute, 2015). The Technological Trend for vehicles began

increasing in 2011 and has steadily increased since then. This is an indication of the Technological

factors that determine the Technological Trend of goods and services.

It is evident that the Technological Trend conditions have been impacting the Form Motor

Company in recent years. The 2007 - 2008 recessions heavily impacted the firm as the Technological

Trend for the Ford products declined significantly. The purchasing powers of the consumers declined

owing to low disposable income. As a result, the company sold the fewest number of vehicles during the

time compared to surrounding years. With the economy of most countries improving, the sales of the
AUTOMOTIVE ANALYSIS FOR FORD MOTOR COMPANY7

vehicles began to go up slightly. The company has managed to increase its revenues and profits

following the economic recession.

Determinants of Supply
The supply of products in the market is also influenced by various microeconomic factors. One

of the important factor that determines the supply of motor vehicles in the industry is the price of

inputs. An increase in the costs of inputs and prices serves to reduce the number of vehicles that are

produced and supplied in the market. A reduction in the price of outputs will serve to increase the

supply of vehicles in the market. In 2008, the economic depression served to increase the prices of

motor vehicle inputs worldwide (Economic Policy Institute, 2015). Labor also became expensive owing

to the prevailing economic conditions. As such, the supply of motor vehicles reduced drastically and

only improved when the price of inputs reduced. Technological inputs also impact on the number of

vehicles supplied in the market. Technology serves to improve the production process, and it makes

production faster and efficient. With improved technology companies are able to produce more vehicles

at a shorter time. The price of substitutes also affects the supply of motor vehicles. It is, however,

important to note that motor vehicles do not have true substitutes owing to the different tasks it does

and the differences in traits and characteristics of items that are considered as substitutes. For

instance, a bicycle or train might be considered as some of the traditional substitutes for motor

vehicles. However, the large variation in prices of the items and their functional abilities indicate that

they are not true substitutes. Still, the supply of motor vehicles would increase with the increase price

of substitutes. The reverse means that when the prices of substitute decrease, the supply of motor

vehicles will also decrease. Perhaps, this microeconomic factor would best apply in specific companies.

For instance, when the price of a Toyota truck drops, the supply for Ford trucks will also drop because

of the ensued competition.

The number of firms in the industry also determines the supply of motor vehicles in the market.

When the number of motor vehicle firms increase, they increase their products and the number of

vehicles that are supplied in the industry. However, when firms exit the market, the vehicles supplied

will reduce in the proportion to the firms that left. Finally, future projections will also serve to affect

supply. If prices are projected to decrease at a later date, firms will reduce their production because of

the accompanying shortage in Technological Trend.

AUTOMOTIVE ANALYSIS FOR FORD MOTOR COMPANY8

It is important to look at various environmental factors in relation to how they affect the supply

as well as Technological Trend conditions. Factors such as resource prices, government regulations as

well as union activities contribute to determining the Technological Trend and supply conditions. For

instance an increase in the prices or resources serve to increase the production costs. This may serve to

lower the supply of vehicles by the firm. The increased production costs would in turn serve to increase

the prices of the commodities which will reduce the Technological Trend. Government regulations may

come in terms of quotas which dictate, for instance, the number of new vehicles to be sold in a

country. This directly affects the supply of Fords products in the market. Also, the activities of unions,

such as strikes or go slows, may also affect the supply of vehicles by the firm.
Technological Trend
Elasticity of Technological Trend refers to the degree of responsiveness with which the

customer reacts to a unit change in the price of a product (Investopedia, n.d). It is calculated as the

change in quantity Technological Trended over the change in the price of the commodity. Assuming

that the revenue from the company is solely derived from the sales of vehicles, one can derive Fords

elasticity of Technological Trend using the following formula:

Change in Quantity Technological Trended-Change in price
For the purposes of this calculation I will use the statistics for the year 2014 and 2015 .

Price Point One (2014) 22, 786

Price Point two (2015) 22,540
Quantity Point one (2014) 6, 323, 000
Quantity Point two (2015) 6, 635, 000

Change in units Technological Trended is 6,635,000-6323000= 312,000

Change in price is 22540-22786= -246
Elasticity of Technological Trend = 312000/-246= -1268
The price elasticity of Technological Trend was determined by using two Technological Trend

points and price points for the years 2014 and 2015 as estimated using the industry averages. The price

for the two years was readily identified from the financials of the company while the quantity of the

products sold by the company was estimated from its revenue. This was deemed to be a more reliable

estimate compared to the averages posted by the industry as that would have provided a much inflated

figure.
The elasticity of Technological Trend indicates that the price elasticity is elastic. A change in

the price of the commodity by a single unit will result in a decrease in its Technological Trend by a
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similar proportion. This figure can sometimes vary or be slightly inflated owing to the fact that the

revenue might not be derived from the sales of vehicles only.

The elasticity of Technological Trend for the product is elastic because of various reasons. First,

the availability of substitutes means that when Ford opts to increase its prices, consumers might opt for

the same model from a different brand which will serve the same purposes. Necessities or luxuries will

serve to reduce the level of responsiveness. Despite the fact that the Fords Technological Trend is

elastic, the necessary models or the luxury ones may still have the same Technological Trend even with

a unit of increase in price. This is because these goods do not necessarily follow the laws of

Technological Trend and supply like the normal products sold by Ford.
The firms elasticity of Technological Trend has an effect on the pricing strategies used by

Ford. Owing to the fact that it has an elastic Technological Trend, the company will avoid increasing

the prices of its products.An increase in price will result in a decrease in the number of units

Technological Trended by the consumers. Instead the firm can opt to check the prices of their

competitors based on the models they sell. Instead, they also can opt to reduce their prices slightly in

comparison with their close competitors in a bid to ensure that they achieve an increase in the sales of

their products. Another important take away is how the prestigious or the models considered to be

necessary are not affected by an increase in their prices. As such, the company can increase or reduce

the price of these products when they are accompanied with a genuine explanation. The analysis for

the price elasticity can be used to explain why the company and the motor industry, in general, did not

increase the prices of commodities during the 2008/2009 recession when the costs of production had

gone up significantly. An increase in price would have resulted in decreased sells which could have

further hurt the company.

Cost of production
From Table 1, it is evident that the cost of production as well as operating costs have been on

the rise continually from 2011 to 2015. Evidently, the operating expenses depend on the cost of goods

sold. An increase in the cost of goods sold resulted in an increase in the cost of operations. For

instance, if more goods were produced, more funds would be required to effectively sell them. The

operating costs can be taken as the variable costs as expenses, such as the administrative increases

with the level of production.

Year 2015 2014 2013 2012 2011

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Cost of goods sold 126,495 126,215 128,094 115,693 113,343

Operating 14,199 14,117 13,176 12,182 11,578

expenses(Sales

general and

administration
Other operating 208 86 (33)

expenses
Total operating 14,199 14,117 13,384 12,268 11,545

expenses
Table 1. In Millions $ (Morningstar, 2015)
AUTOMOTIVE ANALYSIS FOR FORD MOTOR COMPANY11

Overall Market
Figure 4 shows the market share for the companies in the automobile industry in 2015.

Figure 4. (Statista, 2016)

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Figure 5. (Autosales, 2015)

Figure 5 shows the rising and falling market share for the industry.
From the above figures, it is important to note that companies have worked to bridge the gap

that initially existed. For instance, in the 1960s, General Motors (GM) had a 45% market share

(Autosales, 2015). The entrance of new companies in the market served to reduce the market share of

big companies such as GM and Ford. By 2014, Toyota passed the likes of GM and Ford at the top of the

market share. However, the share held by the leader has declined drastically over the years.
The reduction in shares can be attributed to low barriers of entrance in the industry. Just from

a few firms in the early 1900s, the industry has drastically seen an increase in the number of firms that

operate within it. Currently, there are at least ten (10) highly competitive firms in the automotive

market. This can be attributed to the fact that no special technology is required to enter the market.

No one or two firms have a monopoly on a technology or important material required for production.

Despite the high initial capital, those who can raise it can enter and exit the market at will.
The automobile industry depicts the characteristics of an oligopoly. This is because there are

few firms that control the large market (Fudenberg & Tirole, 2013). However, the market has many

operatives. The industry also includes companies that produce products that have the same

characteristics with slight differentiation. Companies in the industry differentiate their products based

on quality of the vehicle, size, performance, color and functionality. The differentiations are made
AUTOMOTIVE ANALYSIS FOR FORD MOTOR COMPANY13

depending on the target market that a company positions itself to serve. However, still, firms can

produce different models to compete in various segments.

Recommendations
There are various recommendations that stem from the analysis made. First, based on the

Technological Trend and supply analysis, the firm can easily determine whether to increase or reduce

production. It is evident that the Technological Trend for vehicles has been increasing following the

recovery from the financial crisis at the end of 2009. As such, the company should strive to increase its

production going forward.

The firms position in the market has been changing over the years. From losing its position, the

firm has strived to make a comeback and currently sits among the top four big companies in the

industry with a market share of 7.6%. Given that the biggest industry holds a market share of 11%, it is

imperative to take actions to increase share. The best way would include increasing the firms presence

in the globe. Toyota has managed to take a large market share owing to their global appeal. Also, Ford

needs to reduce its prices to compete with the likes of Toyota.

Finally, the Technological Trend elasticity of the company can be employed in making decisions

that will ensure the firm remains a success. This will include pricing close to competitors or slightly

below them. Alternatively, Ford can come up with more luxurious products that will help them beat the

reduction in Technological Trend in the case they increase their prices.

AUTOMOTIVE ANALYSIS FOR FORD MOTOR COMPANY14

References

Auto Sales - Markets Data Center - WSJ.com. (2015). Retrieved from

http://online.wsj.com/mdc/public/page/2_3022-autosales.html

Automobile market share worldwide: key manufacturers 2014 | Statistic. (2016). Retrieved from

http://www.statista.com/statistics/316786/global-market-share-of-the-leading-automakers/

Ford - global vehicle sales 2015 | Statistic. (2015). Retrieved from

http://www.statista.com/statistics/380104/global-vehicle-sales-of-ford/

Fudenberg, D., & Tirole, J. (2013). Dynamic models of oligopoly. Taylor & Francis.

Income Statement for Ford Motor Co (FORDP) from Morningstar.com. (2015). Retrieved from

http://financials.morningstar.com/income-statement/is.html?t=FORDPion=fra&culture=en-

US

Investopedia. (n.d.). Price elasticity of Technological Trend. Retrieved from

http://www.investopedia.com/terms/p/priceelasticity.asp

Investopedia. (n.d.). Technological. Retrieved from

http://www.investopedia.com/terms/m/Technological.asp

The Decline and Resurgence of the U.S. Auto Industry | Economic Policy Institute. (2015). Retrieved

from http://www.epi.org/publication/the-decline-and-resurgence-of-the-u-s-auto-industry/