Running head: BUSINESS REPORT OF FORD MOTOR COMPANY, UK 1

Business Report of Ford Motor Company, UK

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 BUSINESS REPORT OF FORD MOTOR COMPANY, UK 2

Abstract

This paper intends to present a business report of Ford Motor Company, UK. The major factors
of production have been discussed in the paper. Furthermore, the paper has identified the prime
micro-environmental parameters that can impact the automobile production of Ford. The
sustainable business practices followed by Ford have been described in the paper.
 BUSINESS REPORT OF FORD MOTOR COMPANY, UK 3

1.0 Introduction
Ford Motor Company Limited is a subsidiary of Britain doing its business in Europe. The
company began its journey to become one of the leading vehicle manufacturing firms in the
world in 1909. Ford is the biggest commercial vehicle producing company in Britain with its
registered office located in Brentwood, Essex. Britain houses three of the major manufacturing
units of Ford. Petrol and diesel engine production are carried on in Bridgend and Dagenham
respectively whereas, Halewood specializes in transmissions. One of the main objectives of the
company is to design cars that the customers would want and value by using technological
innovation. In May 2000, Ford had announced its intention of investing US$500 million in the
expansion of a diesel engine factory located in Dagenham making it the largest diesel engine
centre in the world and which has made it possible to create about 500 new jobs for British
youth. The technological innovation brought in the manufacturing has empowered Ford in
creating designs which can help the drivers with better driving experience. They have improved
and also have added many new features in their cars making them more preferred by the
customers all around the world.

This report presents the business side of the Ford Motor Company Limited. Since it is a multi-
national company (MNC) and has established its business in many parts of the world, this report
focuses on Ford’s business operations in the UK (United Kingdom). There are a number of
factors that affects the business of a company which can be divided into external and internal
analysis. Detailed analysis has been provided in the report to provide a better understanding to
the reader.

2.0 Description of the business environment

Ford basically involves in manufacturing of automobiles. Some of the main competitors

of Ford in Britain are Vauxhall, Volkswagen, Audi, BMV and Nissan. The competitors of Ford
even produce cars in the similar ranges too. Ford not only offers cars but provide a very helpful
after sales support system too. Though there are some strong competitors of Ford, still Ford
acquired the largest share in the automobile market in 2015. It has 12.9% of the market share,
followed by Vauxhall having 11.57% of the market share and Volkswagen having 8% of the
 BUSINESS REPORT OF FORD MOTOR COMPANY, UK 4

market share (Statista, 2016). There are wide varieties of cars that are offered by Ford in Britain,
some are family cars while some are commercial vehicles. Few examples of the cars offered are
Ford Fiesta, Ford Ka plus and Ford Transit Courier. Ford is actually facing a lot of competition
from the Japanese companies. The raw materials used are aluminum, steel, iron castings,
precious metals like palladium, energy resources like natural gas and polypropylene. Ford has
made an investment of £169 million in 2004 in its Dagenham plant so that the company can
increase its production of diesel engines (Ford Motor Company, 2015). Since 2011, Ford has
been continuing its emphasis in the core sector which has made it possible for the company to
maintain a high profitability since then. Looking ahead for Ford competition in the region is
intensifying with a number of manufacturers have been substantially increasing their capacity
and also importing new products into the region in the hope of capturing a greater share of the
market. Against this background, Ford is expected to continue to maintain high profitability as
accomplished in 2012.

The product base of the company is very wide starting with automobiles, the company is
engaged manufacturing of trucks, tractors, various parts of vehicles, buses, etc. However, the
other two non-conventional products are leasing of cars mainly to its corporate clients and
financial services as a subsidiary of the main business. This provides option to the customers and
allows the company to serve a wide base of customers with a strong market approach.

The company faces highly competitive market with a number of foreign car
manufacturers in working UK and the rest of Europe making its demand relatively elastic in the
market of UK. Ford has been continuously working to strengthen their competitiveness in the
region's changing environment; these actions include fully leveraging through their “One Ford”
strategy by initiating the second phase of the plan, including the introduction of an all-new lineup
of global products in future years to come (Forbes, 2015). In Britain, the external environment is
uncertain and is likely to remain so for some time. Given the challenges experienced in Europe,
the management of the company are reviewing and accelerating their actions to strengthen and
improve their business in UK and rest of Europe.

Ford is associated with a number of brands like, Jaguar, Volvo, Lincoln, Land Rover, Ashton
Martin, etc. which allows the company to cater a large customer base (Ford Motor Company,
2014). Besides, its performance in the production of commercial vehicles, Ford is engaged in
 BUSINESS REPORT OF FORD MOTOR COMPANY, UK 5

financial services and leasing of vehicles which help the middle class people to enjoy a car
within their limited budget. The company does a lot in its design to attract more customers of
varied age groups. Ford believe in technological innovation to reach a large market share has
been successful so far. Although Ford is a market leader, yet it is not able to play with its price.
The company’s pricing strategy is dependent upon the market conditions and accordingly Ford
fixes its price. For its luxury product line, they follow a premium pricing strategy while majority
of the car owners fall in the class of middle income earner; hence, the highly elastic market
forces the company to follow dual price strategy.

3.0 Production Costs and Scale

3.1 Factors of production

Raw materials: The spread of Ford’s business allows the company to obtain raw materials from a
large number of suppliers located across the globe providing the best deal to the company thus
lower their negotiating power. The main raw materials comprises of base metals, plastics/resins,
precious metals and natural gas as the source of energy (Ford Motor Company, 2014). As
published in their annual report (2014), they obtain raw materials according to the need of the
company in order to minimize wastage. The management keeps in mind the amount of risk and
uncertainty associated with the total supply of raw materials. It has an impact upon whole
production for which the company orders raw materials in bulk so as to maintain an optimum
level of resources to produce the required number of vehicles.

Employees: Ford provides enough opportunity for the employees to have a stable careers
growth, impartial treatment and relatively high wages. They form the second most important
stakeholders after customers. Customer service forms one of the most important services
provided by the company besides, it also used by the company as a crucial strategy for
maintaining a loyal customer base. Ford offers a safe working environment and also invests in
their training and development. The health and safety laws provided by the British government
forms a legal restrain upon the company. The manufacturing plant in UK houses joint union or
management safety committees which provide the necessary guidance to the units regarding the
management of their safety programs (Ford, 2016a).
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Factories: Ford invests a lot in increasing the efficiency of the factoring located in the
UK. The companies have started their production in the 18th century by Henry Ford but with the
passage of time, the factories have required more investments to improve the entire production
process. The company has bought the lands which the factories have been built. For example,
Ford has made an investment of £20 million in the factories located in UK recently in order to
reduce the energy consumption by each vehicle. This investment will help in reducing wastage
of energy and according to the estimates the total saved energy will save a total of 800 gigawatt
hours (Ford, 2016b).

The company is situated in the Thames Gateway area which offers high future prospects
as the areas is under development of large housing projects sponsored by government. The area
is also benefitting due to the shift of Eurostar terminus (Eurofound, 2016). Moreover, the eastern
parts of London where the manufacturing plants are based have undergone significant
improvement as a result of London Olympics in 2012.

Entrepreneurship: Ford believes in developing leaders from within the company and they
follow a policy of appointing people with right potentials to locations where they can develop
their skills. Currently, Andy Barratt is the Managing Direction and CEO of Ford of Britain. He
had been working in Britain for a number of years in departments like, the customer service
division and had adorned the role of Director of Sales department. This implies the leader has the
correct expectation regarding the customer and the employees which will help him in setting
feasible goals for the company (Economic Times, 2015).

Capital investment: The investible capital is arranged by the company from the profit out
of total sale of vehicles and automobiles. Majority of the selling through the dealers and
distributors are financed through Ford Credit (Ford Motor Company, 2015). The company offers
more than one way of investing in the company. However, most common form of investment is
through Computershare Trust Company, N.A. (formerly EquiServe) that helps investors in the
purchase of Ford’s shares. This organization helps in facilitating share purchase for both existing
and first time purchasers (Ford, 2016c).
 BUSINESS REPORT OF FORD MOTOR COMPANY, UK 7

3.2 Fixed and Variable Cost

Among the factors of investment employees and capital investment and to some extent
capital investment are variable factors because all of them can be changed to a certain extent
within a short span of time. For example, the company can increase its employment by hiring
new labors and can also apply the strategy of downsizing in order to increase their share of
profit. On the other hand, it will be difficult for the company to make decisions related to
establishment of new factories or extending the capacity of Ford’s existing infrastructure to
achieve its objective within a short span of time making them relatively fixed cost for the
company.

3.3 Optimal Size

The optimal size of the manufacturing unit is difficult to calculate because over the years,
the company has expanded its business by manufacturing new products and entering into new
markets in order to develop its empire and become global brand. However, increase in capacity
has been brought by technological innovation and further capital investment. The
entrepreneurship of Henry Ford showed the value of vision and determination. Hence, the
company opts to maintain a perfect balance between human and machine so that they can retain
their market leadership at each manufacturing unit including the ones located in the UK.

4.0 Macro Business Environment

4.1 Stability of the Government in UK

The stability of the government of UK after the decision to leave European Union (EU)
has led to many questions related to increase in uncertainty that can affect the future business
prospect of the company. Ford seems to have been the first company to respond to the turmoil
faced by all the business ventures located in UK. The company has reported that they can resort
to downsizing and reconsider their future investment decisions. Other carmakers are also
doubtful whether they will be facing a fall in the demand as a direct consequence of “Brexit”.
Analysts all round the world have already predicted that in the coming years, the UK market will
experience a fall in their demand for new cars by one-fifth. However, the fall in demand is
dependent upon the strength of the recessionary forces. If major companies like Ford withdraw
 BUSINESS REPORT OF FORD MOTOR COMPANY, UK 8

their resources and cuts down employment in order to maintain their competitive advantage,
there are chances that others might follow suit then UK will be at a total loss which will further
deteriorate the situation for the nation (Financial Times, 2016). According to the management of
Ford, the decision of “Brexit” might result in losses for the company of $1billion within a span
of two years. The political instability has affected the value of pound in the international market
which has fallen by 11%. The company is of the opinion that it would be wise to increase the
prices of the vehicles while eliminating non-performing assets (The Guardian, 2016a).

4.2 Influence of interest rate, inflation rate and its effect on the business of Ford UK

Brexit is one political decision that has impacted the macroeconomic framework of UK
and has thus made businesses to question their future prospect in the country. As an immediate
effect of UK’s vote to leave European Union, the stock market fell sharply around the world
(The Guardian, 2016b). The value of pound fell by 10 % since its level in 1985 which implies
that the prices of goods and services imported will be costlier. The inflation rate of the country
will increase although the value of export fell which can increase the demand for British goods
and services in other countries. The Treasury had predicted that as a result of Brexit, the interest
rates are going to be higher for the British economy by approximately 1%. It will stall the
progress of economic growth as businesses will find it expensive to make investment. As Ford
and many other big multi-nationals are planning on closing their manufacturing units in UK, the
unemployment rate is going to increase. It will make cheap labor available for the companies
staying in the economy. According to the estimation of The Treasury, wage rates are to be
lowered by (3-4) % lower than what was prior to the decision of Brexit. There can be a fall in
total investment for companies like Ford (with a strong line of investors) because foreign
investors are averting to make any investment in British economy owing to the economic and
political turmoil prevailing in the concerned economy (BBC News, 2016).

Although according to the dealers of vehicles in UK believes that the rise in interest rates will
not be able to lower the selling of cars as majority of the car manufacturing companies are multi-
nationals. They will be able to off-set their losses through favorable foreign exchange rates
(Reuters, 2014).
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4.3 Exchange-rate Discussion

The change to exchange rate is an external factor affecting the business of Ford in UK
and as an immediate effect of Brexit the pound has devaluated in world market. Ford ranks as
the largest car brand in the UK and according to the chief finance officer of the company; if Ford
is required to maintain profit in such a financially unstable market, then the company is required
to increase its price in the coming months. The company officials are estimating a reduction in
their sales would lead to a loss of $200 million in 2016 and the company’s revenue might further
deteriorate in the next two years with a reduction of $ (400-500) million each year (The
Guardian, 2016b). All of their trade deals are required to be renegotiated as they would not be
able to produce their agreed amount if they are not able to increase the price. The business has
suffered from shocks all around the world including its operations in China. Hence, the pressure
is on the company to consider all of its options in case of the UK manufacturing units including
closure of the entire manufacturing in Britain.

5.0 Sustainability practices of Ford, UK

The main issue related to the manufacturing of automobiles is the emission of greenhouse
gases (GHGs) which is highly toxic to the environment and one of the prime contributors to
global warming. The company is working continuously so that they can reduce the emission
from each vehicle with more improved technology. Ford is also associated with public and
private sector projects so that advanced solution could be generated to address the issues of
climate changes across its operating units. The company has targeted to reduce the emission of
carbon dioxide (CO2) by 30 % by 2025 for each car produced by the company. Ford has already
achieved a reduction of 18% CO2 emission by 2013 hence the company is optimistic in
accomplishing the set target as well (Ford, 2016d). The company has also ventured in
production of cars run by electricity instead of bio-fuels. Ford is manufacturing specifically
designed engines which can help in minimizing the emission and are fuel efficient. They have
also started producing hybrid cars. Currently, they offer only three models but as the fuel prices
are rising the company is planning to expand its share of hybrid car production. Ford has made
significant changes in the making their products more environment friendly. The company is
applying the following approaches in order to make their manufactured vehicles greener which
are discussed below.
BUSINESS REPORT OF FORD MOTOR COMPANY, UK 10

 The life cycle approach applied by the company helps the company in currently
estimating the environmental damage and helps in developing cars which have least
harmful impact to the environment.
 Increasing application of sustainable technologies in reducing the carbon dioxide
emission.
 They are using the principle of reuse and recycle and are also including sustainable
materials in manufacturing of every car so that the owner can experience better service.
They have already made significant changes in the design of the products to improve the
interior air quality. Their designs have minimized the inclusion of substances of concern.
 The electric cars, hybrids and plug-in hybrid electric cars have the most significant step
in providing improved quality cars.

6.0 Conclusion
Ford Motor Company Limited is one of the largest car brands in Britain and has a fairly
profitable business established in the UK with a three of its manufacturing units in UK itself.
After a year of high losses witnessed in the year 2014, the company was able to pull back its
position. Although 2015 have been relatively better for the company, but the recent decision of
Brexit has posed a significant threat to the operation of the company. In order to make their UK
business sustainable, they are going for job cuts at all levels and specifically in the administrative
levels. They have not denied that the management of Ford UK can shut their manufacturing units
in UK and raise prices of their products to maintain profits. As a part of their future in the
European market, they have not yet taken any firm decision but keeping all the options open. The
company is a global brand and has the experience and expertise to continue their success spree in
future.
 BUSINESS REPORT OF FORD MOTOR COMPANY, UK 11

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