LEARNING UNIT 3 CASE STUDY Chapter 5 - Planning and Decision Making Case Assignment: Ford Motor Company An icon of U.S. manufacturing, Ford Motor Company has been one of the most prominent automobile producers in the world for almost 100 years. Founded by Henry Ford in 1903, his vision was the production of cars that were affordable to the masses. Today, Ford has been losing money, particularly in its North American operations. Ford produces more vehicles than it can sell and does so under very difficult personnel conditions. The history of the company and its relations with the United Auto Workers labor union has left it with extraordinary long-term expenses in an environment of increasing competition from younger, more focused car companies. Furthermore, Ford's Premium Automotive Group (PAG), which manufactures their luxury Jaguar, Aston Martin, Land Rover, and Volvo brands, has been consistently losing billions of dollars year after year. Although the company has substantial cash reservesover $20 billionoperating losses were steadily diminishing the company's financial safety net. Chris Bolen, Ford's manufacturing director said, \"We took our eye off the ball and got intoxicated with just making trucks...internally we ignored a lot of waste...we let manufacturing get in trouble.\" This was the situation Alan Mulally found himself in when he took over as the new Ford CEO in 2006. As Mulally stated, \"Our number one priority is to restructure ourselves in the near term.\" In the interest of curbing losses and increasing their manufacturing efficiency, Ford needed effective strategic planning to save their company. At this juncture, four particular options presented themselves. First, Ford could close older plants to cut production costs and excess manufacturing, but it would also raise issues regarding employee layoffs. The second option would involve cutting back on SUV and truck manufacturing to focus on smaller, more fuel efficient cars. Third, Ford could reduce its North American presence to focus on their more successful markets in Europe, South America, and China. In doing so, however, Ford would essentially be abandoning its home market. Finally, Ford could sell the PAG group, returning their focus to the cars that have traditionally been their area of expertise. Mulally began by reducing dependence on large trucks and SUVs and aggressively closing plants. Seven plants will close by 2010, and more than 30,000 jobs were eliminated in the past year. In March 2007, Ford sold the majority stake in Aston-Martin to an investment consortium. Reducing personnel costs has been a priority as well; Ford's profit gap is over $2,400 per vehicle with roughly $1,000 to 1,300 coming from labor. Actively working with the United Auto Workers labor union, Ford has renegotiated agreements with 33 of its 41 US factories to achieve more flexible rules and timing and reduce embedded expenses. Mulally has moved to improve communication levels and commitment throughout the organization. Many of these policies are new to Ford, but Mulally hopes to match the practices used by Toyota and others in a continuous improvement system that should help the company move towards increased sales, reduced costs, and improved quality. In the case assignment for Chapter 5, you learned about the problems with Ford Motor Company. An icon of American business, this company sells millions of vehicles a year, but does so very unprofitably. The history of the company, including its relations with its largest labor union, the United Auto Workers (UAW), has left it with extraordinary long-term expenses in an environment of increasing competition from younger, more focused car companies. In 2006 the company lost an astonishing $12.7 billion and was on pace to drop to fourth place in automotive sales worldwide behind Toyota, GM, and Renault-Nissan. Designing a plan that works is difficult under any circumstances, and all the more so when in a situation like Ford's. Four options were presented: 1. Close down older plants. 2. Produce primarily smaller cars, eliminating or sharply reducing the sluggish SUV and truck lines. 3. Sharply reduce the company's North American presence and focus on Europe, South America, and China. 4. Sell the Premium Automotive Group (PAG) with its hand-built automobiles and very low sales volumes. ANSWER THE FOLLOWING QUESTIONS: 1. What would be the best way to evaluate these options and make good decisions? What criteria might you use to decide which of these four options would be the best for the company? 2. How might you build in some flexibility in case the market conditions change quickly