Ford Motor Company - 2009

Case Notes Prepared by: Dr. Mernoush Banton

Case Author: Alen Badal

A. Case Abstract
Ford Motor Company (www.Ford.com) is a comprehensive strategic
management case that includes the company’s calendar December 31, 2008
financial statements, competitor information and more. The case time setting is
the year 2009. Sufficient internal and external data are provided to enable
students to evaluate current strategies and recommend a three-year strategic
plan for the company. Headquartered in Dearborn, Michigan, Ford Motor
Company is traded on the New York Stock Exchange under ticker symbol F.

Ford operates in two segments: Automotive and Financing. Products offered

include: Ford, Mercury, Lincoln, Volvo and Jaguar. Ford was founded in 1903
and operates worldwide. The company is led by CEO William Ford Jr. and
employees over 280,000. The firm’s major competitor is General Motors.

B. Vision Statement (Actual)

Our vision is to become the world’s leading consumer company for automotive
products and services.

C. Mission Statement (Proposed)

Ford Motor Company’s mission is to anticipate consumer needs and provide

safe, quality, reliable, and innovative automotive products and services to
consumers around the world (1, 2, 3). Meeting and exceeding customer’s
expectations for exceptional quality, cutting-edge technology, and superior
customer service will enable us to maximize returns to our shareholders. (4, 5).
The customer is Job 1. We are passionately committed to ensure we do the right
thing for our customers, our employees, our environment, and our society (6, 9).
Ford is committed to leading all automotive firms in quality and safety in America
and abroad. Along with our commitment to saving the environment, we can
continue to add to our proud heritage (7, 8).

1. Customer
2. Products or services
3. Markets
4. Technology
5. Concern for survival, profitability, growth
6. Philosophy
 7. Self-concept
8. Concern for public image
9. Concern for employees

D. Current Situation
1. The Big Three hope to gain further concessions from the United Auto
Workers regarding labor costs
2. The few consumers purchasing vehicles are doing so for practical
reasons, with a focus on fuel efficiency, durability, and carmaker’s
sustainability
3. According to CSM Worldwide light vehicle production exceeded the
production of cars and trucks in North America and Europe by an
estimated 16 percent and 14 percent, respectively
4. In 2008, the Big Three began offering lowered interest rates or zero
percent financing to lure buyers
5. The auto industry has experienced a shift from trucks and SUVs to hybrid
and small fuel-efficient vehicles
6. Specialized in car parts for business/aftermarket
7. Consumers/dealers willingness to improve brand/sales
8. Due to global economic recession, consumer demand for new autos has
plummeted
9. Consumer confidence is the lowest in 40 years
10. Unemployment rates exceed 10 percent in many areas in the United
States and is expected to remain high for part of 2010
11. Unavailability of credit and high unemployment have pushed automakers
to rethink methods of producing and selling cars
12. Automakers have faced rising costs of health care and pension
13. The Big three also suffer from an oversupply for dealers
14. The government bailout money is diminishing, and Ford has exhausted its
credit lines
15. Consumers are concerned over the Big Three’s possibility of going out of
business in terms of voided Warranties
16. Many banks are just not making car loans
17. Ford Credit Division operates globally
18. Independent among Bailout from Government
19. Vehicles marketed in 6 continents, over 200 countries
20. Ford has strong brand image and is considered an American icon
21. Strong consumer loyalty on their popular F-150
22. Diverse vehicle lines give the company more flexibility to their customers
to choose the desired car model
23. Sales in S. America and European segments increased by $3.5 billion
from 2007 to 2008
24. In one year, revenue decrease by approximately $30 billion
25. While the company’s inventory was reduced from 2007 to 2008, the
dealers are having higher inventory to sell
 26. Current asset dropped by approximately $18 billion from prior year
27. Current liabilities increased by $30 billion from prior year
28. Operational costs typically higher in a company with multi-segment
business

Financial Ratio Analysis (December 2009)

Growth Rates % Ford Industry S&P 500

Sales (Qtr vs year ago qtr) -2.70 -19.00 -4.80
Net Income (YTD vs YTD) NA -21.00 -6.00
Net Income (Qtr vs year ago qtr) 719.30 -18.00 26.80
Sales (5-Year Annual Avg.) -2.51 2.92 12.99
Net Income (5-Year Annual Avg.) NA 1.67 12.69
Dividends (5-Year Annual Avg.) NA 8.76 11.83

Price Ratios Ford Industry S&P 500

Current P/E Ratio NA 2.1 26.7
P/E Ratio 5-Year High 10.3 2.9 68.0
P/E Ratio 5-Year Low 4.9 0.4 9.9
Price/Sales Ratio 0.30 0.57 2.25
Price/Book Value NA 1.13 3.48
Price/Cash Flow Ratio 8.90 25.70 13.70

Profit Margins % Ford Industry S&P 500

Gross Margin 7.4 11.2 38.9
Pre-Tax Margin -2.8 -11.5 10.3
Net Profit Margin -3.6 -10.6 7.1
5Yr Gross Margin (5-Year Avg.) 10.0 19.2 38.6
5Yr PreTax Margin (5-Year Avg.) -3.4 4.9 16.6
5Yr Net Profit Margin (5-Year Avg.) -2.9 2.9 11.5

Financial Condition Ford Industry S&P 500

Debt/Equity Ratio NA 1.41 1.09
Current Ratio NA 1.1 1.5
Quick Ratio NA 0.9 1.3
Interest Coverage -23.3 -4.6 23.7
Leverage Ratio -23.4 1.8 3.4
Book Value/Share -2.62 36.03 21.63
Adapted from www.moneycentral.msn.com

Net Profit
Avg P/E Price/ Sales Price/ Book
Margin (%)
12/08 -0.80 0.04 -0.32 -10.0
12/07 -5.80 0.08 2.62 -1.6
12/06 -1.10 0.09 -4.09 -7.9
12/05 12.00 0.09 1.07 0.9
12/04 9.10 0.18 1.54 1.8
12/03 30.50 0.18 2.51 0.4
12/02 71.00 0.10 3.05 0.2
12/01 -7.90 0.18 3.65 -3.3
12/00 7.40 0.21 2.31 3.2
12/08 -0.80 0.04 -0.32 -10.0

Book Value/ Debt/ Return on Return on Interest

Share Equity Equity (%) Assets (%) Coverage
12/08 -$7.18 -8.91 84.8 -6.7 -1.4
12/07 $2.56 29.94 -49.1 -1.0 -0.5
12/06 -$1.84 -49.59 364.5 -4.5 -1.9
12/05 $7.21 11.40 12.1 0.6 -0.2
12/04 $9.52 9.31 18.3 1.1 0.3
12/03 $6.36 15.44 5.5 0.2 NA
12/02 $3.05 30.03 6.4 0.1 1.1
12/01 $4.31 21.51 -68.7 -1.9 -4.3
12/00 $10.14 8.93 29.3 1.9 6.0
12/08 -$7.18 -8.91 84.8 -6.7 -1.4
Adapted from www.moneycentral.msn.com

E. EPS/EBIT Analysis
$ Amount Needed: $80 million
Stock Price: $10.00
Tax Rate: (0.4%) for 2008 and 31.1% for 2007
Interest Rate: 6.5%
# Shares Outstanding: 3.3 billion
 Common Stock Financing Debt Financing
Recession Normal Boom Recession Normal Boom
EBIT $300,000,000 $600,000,000 $1,000,000,000 $300,000,000 $600,000,000 $1,000,000,000
Interest 0 0 0 5,200,000 5,200,000 5,200,000
EBT 300,000,000 600,000,000 1,000,000,000 294,800,000 594,800,000 994,800,000
Taxes 0 0 0 0 0 0
EAT 300,000,000 600,000,000 1,000,000,000 294,800,000 594,800,000 994,800,000
# Shares 3,301,464,397 3,301,464,397 3,301,464,397 3,300,000,000 3,300,000,000 3,300,000,000
EPS 0.09 0.18 0.30 0.09 0.18 0.30

70 Percent
70 Percent Debt - 30
Stock - 30 Percent
Percent Debt Stock
Recession Normal Boom Recession Normal Boom
EBIT $300,000,000 $600,000,000 $1,000,000,000 $300,000,000 $600,000,000 $1,000,000,000
Interest 4,160,000 4,160,000 4,160,000 1,040,000 1,040,000 1,040,000
EBT 295,840,000 595,840,000 995,840,000 298,960,000 598,960,000 998,960,000
Taxes 0 0 0 0 0 0
EAT 295,840,000 595,840,000 995,840,000 298,960,000 598,960,000 998,960,000
# Shares 3,301,025,078 3,301,025,078 3,301,025,078 3,300,439,319 3,300,439,319 3,300,439,319
EPS 0.09 0.18 0.30 0.09 0.18 0.30