Term Paper on "Investment Prospectus With a Major Corporation"

Term Paper 10 pages (3869 words) Sources: 4

[EXCERPT] . . . .

investment prospectus with a major corporation, it is often helpful to provide an historical background of the company, as well as information designed to uncover the company culture, prospects for future growth, and marketing/communication issues. Ford Motor Company's first car was sold on July 23, 1903. In 1906, the first Model T. was made available and the millionth car produced on December 10, 1915. Production of trucks and tractors began in 1917. Ford became the first international company when they started exporting cars to Europe. Within 10 years Ford had plants in 5 countries. In 1956, Ford went public with the largest stock issue of all-time; 10.2 million shares. The Ford family still retains 34% of the firms voting stock. Ford's finance subsidiary, Ford Motor Credit, was formed in 1959 and is the number one auto finance company worldwide. Ford unleashed an automotive revolution in 1964 when Ford unveiled the Ford Mustang. It was the first time the world had seen a sporty car with a youthful touch. The 70s were a time for quality reflection, assessment, and improvement. In 1980, Ford introduced the Escort, which was their first attempt at a car that could be globally marketed. The 80's were also the decade in which the Taurus made its first appearance. Ford then developed the Global Car referred to as CDW27. It was a highly sophisticated car that sent all over the world with only slight modifications for various regions. In 1987, Ford earned record profits of $4.63 Billion and three years later they suffered their largest one-year loss of $2.3 Billion. Ford makes vehicles under the following names: Volvo, purchased in 1999; Aston Martin, acquired fully by 1994; Jaguar, purchased in 1990; Mercury, production began in 1938; and Lincoln, purchased in 1922. In addition, Ford owns a controlling 33% stake in Mazda; 81% of Hertz, and Ford Motor Company of Canada, Ltd. Currently, Ford is the #2 maker of cars and trucks worldwide, but the largest truck manufacturer. Fortune 500 ranks Ford as the second largest industrial corporations (included are its major subsidiaries -- Hertz, Ford Motor Credit, and Visteon) (Glancey, 2008).

Fiscally, Ford has had two major recent periods; one of prosperity, one of decline. Period #1, the late 1980s to 19979, showed a steady pattern of growth, about 5-7% per annum. Sales in 1998 were down 6%, up 14% in 1999, giving the decade an average of 5.4% growth and a profit margin slightly above the industry of 7-9%. Costs of goods remained consistent at around 72%, and debt/leverage ratios steady. (Also see Appendix 1 -- SWOT Analysis for Ford). Since 2000, though, and most especially since 2007, Ford has seen its sales and profits diminish, its international market share decline, and its ability to compete effectively erode. In fact, as of the quarter ending March 31, 2009, we note the following as compared to the previous 3 quarters:

Issue

End 3/09

End 12/08

End 9/08

Ends 6/08

Total Revenue

24,778,000

29,192,000

32,045,000

41,527,000

Gross Profit

3,116,000

2,653,000

7,046,000

1,531,000

Operating Expenses

4,129,000

5,009,000

4,973,000

7,918,000

Operating Income/Loss

(1,013,000)

(2,450,000)

2,073,000

(6,387,000)

(Source: Yahoo Finance, amounts in thousands unless noted: http://finance.yahoo.com/q/is?s=F)

For the primary market segment of Ford, the automotive side, financial and marketing decisions are based on numerous trends: competitive pricing, cost of goods and projections, ability to recap money through subsidiaries (maintenance, Ford Credit, etc.), global vs. U.S. sales, and demographic trends.) Unfortunately, over the past decade, Ford has not read the market correctly in its ability to provide the successful vehicles that the public wishes to purchase, with the exception of its number one selling truck worldwide, the Ford F-150 (Wood, 2006, pp. 166-80).

Ford faces a dual difficulty when utilizing accountancy data in its pricing decisions; since the automotive market is highly competitive and comparative (e.g. consumers are able to instantly use the Internet to compare prices), Ford must ensure that its vehicle line-up stands up to consumer pricing pressure; the elasticity of the market is almost a circular argument. Ford's costs have increased domestically due to union contractual obligations, healthcare and benefit costs, as well as simple production costs (Laljee, 2009).

For example, in 1995, Ford decided to lower the prices of its high-end vehicles, enough to stimulate demand, but not enough to cut into its profits -- resulting in a 1999 profit of $7.2 billion. Previously, Ford, like most automakers, used entry level vehicles priced at the lowest possible price, to build and maintain market share, while pricing for the mid- and upper-range vehicles held more profit (Raju and Zhang, 2003).

In response to General Motors, Ford looked at the psychographic research, as well as demographic trends in the purchase of specific models. In 2005 and 2006 it extended its employee discount pricing programs on several models, continuing with the $2-3,000 price rebate structure begun after the September 11th, 2001 World Trade Center tragedy. Ford said they hoped to attract Internet shoppers who are reluctant to get to the showroom based on sticker prices. This is so crucial for Ford's strategy, that it's Vice-President for North American Sales and Marketing, Steve Lyons, said about 70% of customers use the Internet to develop their shopping lists, but only 15% continue to find more details in rebates, sales, and packages. "If you sticker price is way out of line with your market, you're going to lose that customer" (Lyons in Carty, 2005).

Ford and Information Dissemination -- Knowing how Ford processes and uses information is critical for our investment decision, most especially since it is some of the data with which we will be judging financial performance.

For almost a century, Ford Motor Company was the global leader in automotive manufacturing technology, continuous profits, and a culture that literally screamed of the early 20th century. Management was hierarchical, fraternal, and part of a club that was content with status quo, outmoded managerial paradigms, and a complete lack of sharing information -- even within the organization (Lewchuk 1993). The change in communication style and the relaxation of information sharing began as Ford's management realized it was not only losing market share, but that employees in different functional areas were being stifled in their duties by the lack of appropriate information. With the change in technology, speed and price of computing, and the ability for documents to be scanned and information systems regulated to all functional areas, processes changed (Magee 2004).

Information is now housed in a secure, encrypted, corporate database; it is all encompassing, holding information from all functional areas. Accounting information specifically dealing with costs structures, productivity, sales, projections; R&D, etc. are available to individuals that have a need to know. HR, for instance, now has a management information system that allows them to project the needs of the workforce using accounting data. There are, of course, some areas that are blocked for use only by upper management, but any fiscal data that is available to stakeholders is also available, in detail, within the company structure. This has resulted in two major paradigm shifts for Ford: 1) the ability for cross-functional teams to access needed information and run "what if" scenarios that are appropriate for their own departments, and; 2) a change in culture that allows information to be more transparent, making employees feel that they are part of a larger team, and trusted with information and sensitive data (Lambreth 2007).

Originally, Ford had a web-based system built to allow for internal communications, sharing of data, cross-functional meetings, information systems, and knowledge based informational requirements. For was looking for a solution that would both simplify it reallocations and have the power and flexibility to support more sophisticated fiscal information. The challenge for Ford, as with most mega-corporations, was the size of company itself -- managing the it needs for each business unit was mammoth, and finding a single service provider that could supply Ford with the structure to feed into its internal solution was problematical (Byrd 2001).

Instead of using current web-based systems, even those on the cutting edge of current technology, Ford opted for MBG to rewrite a "chargeback solution to handle multiple feeds, encompassing a wide range of data…. Resulting in a call accounting solution that supports data down to the individual level" ('Ford Motor Company Drives Down,' 2009). This new system provides Ford's managers and employees with new spreadsheet and data reporting capabilities, data base management, statistical and what if scenario building, and an unlimited number of users, each user assigned privileges to view on specific parts of the data set. The system, known as Chargeback, was so successful with Ford, and so user friendly and adaptable to other scenarios, that it was slightly rewritten and offered to other Fortune 500 companies as part of an integrated approach to it consumption management (Ibid). In general, Ford's it strategy is now included as part of the overall strategic plan for each functional area. Corporate strategy dictated the need for employees to have access to more sophisticated data on… READ MORE

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