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Q: economics ( Answered 5 out of 5 stars,   1 Comment )
Subject: economics
Category: Business and Money > Economics
Asked by: vergita-ga
List Price: $180.00
Posted: 05 Mar 2003 09:03 PST
Expires: 04 Apr 2003 09:03 PST
Question ID: 172167
External factors and the Economic Environment. 
Please choose from one of the following engineering companies: 
Q1.)Identify and describe your chosen engineering company. For
a.)Type of company(e.g manufacturer,service industry, and the type and
range of products or services that it offers, etc).
b.)Size of the company (e.g number of employees, branches and
countries in which it operates).
c.)Overall structure of the organisation. 
Q2.)Describe the external factors and economic environment in which
the company operates and consider:
d.)The market in which the company operates and its customers . 
e.)Any demographic and social trends that relate to the company and
its operation.
f.)The impact of innovation and technical change with respect to it
products/services or the organisation.
Also describe the: 
g.)contribution that the company makes to GNP,GDP and balance of
h.)Value that the company provides to the local,regional and national
i.)Impact of changes in interest and exchange rates could or have had
on the engineering company.
j.)compare and contrast the effect that the range of external factors
has on the company.
    please answer the questions as it is laid out and marking it with
the same letter as the questions, look into> Q2.)j < and explain it
with laid very understandable and clear and also directly relating too
the subject.
remember to choose only one of the companies. 

Request for Question Clarification by claudietta-ga on 19 Mar 2003 15:27 PST
In what stucture do you need this in?  Is it intended to be one
comprehensive report, or could short essays be give for each
individual question?  What's the length?

Subject: Re: economics
Answered By: ragingacademic-ga on 01 Apr 2003 01:07 PST
Rated:5 out of 5 stars
Dear vergita,

Thanks for your question.  First, let me request that if any of the
following is unclear or if you require any further research – please
don’t hesitate to ask me for a clarification.

Q1. Description of Selected Company

Company Type:

Ford Motor Company is the world’s second largest manufacturer of cars
and trucks.  The company also produces plastic, glass and electronic
components as well as replacement parts for its various lines of cars
and trucks.  In addition, Ford has a rapidly growing financial
services division.

Company Size: (see also under company structure below)

Ford employs over 350,000 people worldwide across all of its
divisions.  It has operations and offices in more than 150 countries.

Company Structure:

Company structure has become quite complex following an acquisition
binge over the past several years.

Cars and Trucks

Car and truck operations now encompass Ford, Lincoln Mercury, Aston
Martin, Jaguar, Volvo and Range Rover.  Ford also owns a 33%
controlling stake in Mazda.  Ford sells cars through a vast dealer
network that includes:

Ford dealers – 13,000
Mercury dealers – 2,141
Lincoln dealers – 1,561
Volvo dealers – 2,500
Jaguar dealers – 787
Land Rover dealers – 1808
Aston Martin dealers – 100

Between 22% and 23% of company car sales are to fleet customers, which
include rental companies, commercial fleets, leasing companies and
government entities.

The company’s Ford, Mercury, Lincoln, Volvo and Jaguar brands
accounted for 17.7% of U.S. vehicle sales in 2001, down from 19.1% in
2000, 19.9% in 1999 and 20.4% in 1998.  Truck sales accounted for
27.5% in 2001, 28.2% in 2000, 28.6% in 1999 and 30.5% in 1998.

Total unit sales in 2001 were 6,980,000 (cars and trucks combined), of
which 4,408,000 were sold in North America.

Ford Motor Credit
Ford also owns Ford Motor Credit, a major automotive finance company
with operations in 36 countries, partnerships with over 12,500 car
dealers and more than 11 million customers worldwide.  The company
does business in all 50 US states through 165 local branches and seven
regional service centers.  It also does business in Canada through 16
automotive financing branches and two regional service centers there. 
Ford Motor Credit is the largest auto finance company in the US.

Car Rental Services
Ford owns Hertz completely following the acquisition of all of Hertz’s
outstanding shares in March of 2001.  Hertz operates from
approximately 7,000 locations in 150 countries worldwide, and is the
world’s largest car rental firm.

Additional Ford Businesses
Ford owns Kwik-fit, Europe’s largest vehicle maintenance and light
repair chain, as well as a founding equity stake in Covisint LLC, a
business-to-business Internet based supplier exchange.  The company
also owns a significant share of American Road Insurance Company, as
well as of Granite Management, which manages a portfolio of real
estate loans.

Q2. External Factors and Economic Environment

Market and Customers
Between 22% and 23% (average over past five years) of Ford’s customers
are defined as fleet customers as described above.  The residual 77%
to 78% of customers are private individuals who purchase Ford vehicles
through licensed dealers.  Ford customers come from all demographic
strata given the diverse brand lineup and product mix, and Ford’s
products are purchased and driven the world over.

Argus Research estimates that the car market will decrease 3.8% in
terms of units sold during 2003, and that light truck sales will
increase 0.2%.  The company predicts an decrease of 3.9% in car sales
and an increase of 0.7% in light truck sales for the company during

Relevant Demographic and Social Trends
Again, because Ford is so diversified across its product and brand
base, it is rarely impacted by demographic and social trends. 
Nevertheless, some trends may impact Ford’s sales mix.  For example,
as gas prices continue to increase worldwide, consumers are switching
from gas guzzling trucks and SUVs to more compact vehicles such as the
Ford Focus, Mondeo and Export.  And, as the American and European
populations continue to age older consumers are buying more
traditional models such as the Sabre and the Taurus.  But because the
company’s product mix is both broad and deep, the company can capture
sales lost in one segment by increasing marketing and sales efforts in
another.  The flexibility of modern production lines also allows the
company to rapidly switch from one model to another in order to
quickly meet changing consumer demand patterns.

Impact of Innovation and Technical Change
A November 2001 article in Business Week pegs much of Ford’s current
challenges on issues related to innovation and technology – “Toughest
of all will be Ford’s deepest problems – quality snafus, putting the
Firestone debacle behind it, a lack of exciting vehicles in the
pipeline, and a brain drain.” (Kerwin and Muller, 2001)  The authors
of the article predict it will take Ford years to reverse the damage
created by these issues.

Rebuilding Ford’s “depleted talent bank” could take many years.  In
the meantime, the lack of talent will prevent the company from being
able to rapidly design and manufacture innovative car and truck
models.  Given shrinking sales levels, the company also needs to
quickly reduce capacity, and should shut down two or three assembly
plants, according to analysts.  But the company is hampered on the
technology end because of strict labor agreements with the UAW, and
will therefore likely reduce shifts and slow down assembly lines
rather than close plants completely.

During Jack Nasser’s tenure, the company pursued a downstream vertical
integration strategy, acquiring various replacement parts and
maintenance companies such as Kwik-Fit in Europe.  In order to
generate cash flow and reduce expenses, the company is now seeking to
offload such subsidiaries.

Nasser also invested heavily in various eBusiness ventures such as
Covisint, believing that Ford would be able to benefit from the boom.  As the prospects for the success of such ventures have
all but evaporated, Ford is now seeking to exit such eCommerce related

Contribution to GNP, GDP and Balance of Payments
Ford’s 2002 net sales totaled $163.4 billion, with a net loss of $980

US GDP for 2002, according to the United States Government Office of
Management and Budget, is estimated at $10,860 billion.  US GNP is
estimated at approximately $10,000 billion.  Ford, therefore,
contributes approximately 1.5% of GDP and a little over 1.6% of GNP.

Given the extremely complex international structure of the Ford Motor
Company at this point in time, estimating the company’s impact on the
US balance of payments is a very intricate accounting calculation that
would have to account for the net exports of every one of the
company’s subsidiaries.  Since Ford now imports many of the components
for its cars, I would venture to estimate that the company’s impact on
the US balance of payments is negative.

Value Provided by Ford to Local, Regional and National Economies
Given the size of the company, with approximately 350,000 employees
worldwide and a relatively significant share of US GDP/GNP it is clear
that Ford also has a significant impact on the regions in which it
operates.  In the US, with more or less every fifth person driving a
Ford, there is likely no one in the country who does not at least know
someone who owns a Ford.

Locally, Ford impacts the economy by creating jobs both directly and
indirectly.  Even where Ford does not have manufacturing facilities,
every community in the US and most communities abroad will have at
least one Ford dealer.  The need to refuel and maintain Ford vehicles
creates additional employment.  The regional impact is similar, albeit
on a greater scale.  Nationally, however, Ford impacts not only
employment but also the balance of payments as well as the stock
market – as a component of the Dow Jones Index, for example, swings in
the value of Ford stock – brought about by changes in Ford financial
performance or forecasts – can have tangible impact on the behavior of
the market as a whole.

Interest and Exchange Rates
This is an interesting issue to consider.  When interest rates drop,
people are more likely to increase demand for cars because financing
the purchase is a more affordable proposition, and Ford will therefore
sell more cars.  Ford’s financing subsidiary will also benefit because
more people will likely finance their Ford purchase through Ford Motor
Credit – but Ford Motor Credit will benefit again because it will be
able to refinance its outstanding debt at lower rates, and will
therefore be able to earn greater profits on its loan portfolio. 
However, when interest rates increase, such advantages are reversed –
demand for both cars and financing drops, and Ford Motor Credit is not
able to generate increased profits off of its loan portfolio.

When exchange rates increase, and more dollars are necessary to
purchase foreign currency, the relative price of foreign goods drops
and people will tend to purchase more imports.  Abroad, American cars
become more expensive.  People abroad will therefore purchase fewer
Ford vehicles.  Ford theoretically suffers a double whammy – however,
as in the case of the balance of payments above, it is difficult to
assess the net effect on the company because it is so diversified
globally.  If the exchange rates decrease, the effects are reversed.

External Factors Summary
The sum total of the impact of such external factors as described
above could have a variety of effects on the performance of the Ford
Motor Company.  Considering such effects at this point in time, it is
clear that the company is quite challenged.  With the economy in
recession, Ford had to resort to extreme promotions to drive vehicle
purchases, and even so it is quickly losing market share.  While lower
interest rates have helped support the company’s promotional tactics,
the weakening dollar is impacting US consumption patterns as foreign
cars become more affordable here – but American cars become less
affordable abroad.  At the same time, the company must invest
significantly to accommodate technological challenges and to reignite
the innovative spirit across the company, negatively impacting
margins.  When all is said and done, it is therefore not a surprise
that the company’s stock is down more than 50% over the last 52 weeks,
while most analysts have a “sell” out on the company.  A Ford rebound
in the short term is highly unlikely, and it is even harder to predict
what he long term may bring this company.

I hope this response adequately addresses your request.  Please let me
know if you are in need of additional information concerning this



Hoover’s Company Information Capsule – Ford Motor Company (2003)


Kathleen Kerwin and Joann Mueller (2001), Bill Ford Takes the Wheel,
Business Week Nov 1 2001

MultexInvestor Ford Motor Company Business Description

Standards & Poor’s Stock Reports – Ford Motor, March 29 2003
(not available online)

Argus Ford Motor Company Analyst Report, March 31, 2003
(not available online)

Request for Answer Clarification by vergita-ga on 12 May 2003 09:10 PDT
ragingacademic-ga hi there again ur answers were very good soo i
thought i should try too get in touch with u it's not a clarification
i want, its a question that i would like you to answer for me because
its based on the same subject. i would be pleased if u can have a
crack at it.
Question ID: 202727

and see what u can do about this question.
Question ID: 202694


Clarification of Answer by ragingacademic-ga on 12 May 2003 09:17 PDT
vergita -

Hi again, thanks for the rating - and for referring another question
to me!

I've asked for clarification on the new question - please address at
your convenience; will try to answer for you as best I can, but will
let you know if I feel I cannot provide an adequate reply.

vergita-ga rated this answer:5 out of 5 stars


Subject: Re: economics
From: ewelka-ga on 21 Dec 2004 03:53 PST
its such a good answer i will put links to it on my sites. They should
publish a book with all those GOOOOOOD answers. So i put links here and other sites about
cars and especially Ford Motor Comapny

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