Introduction
The Ford Motor Company is a multinational corporation that deals with the manufacturer of automobiles. It is the fourth largest company in the field of motor vehicle manufacturing after Toyota, GM and Volkswagen. It is an American company with its headquarters in Dearborn, Michigan and has been in existence since the year 1903. Their concept of large scale manufacturer of automobiles and management industrial workforce has seen them to remain at the top of the game even during hard economic times. Since its establishment, the company has been the pillar of American Corporate stability (Batchelor, p.14). It did survive the great depression and it seems to be replicating the same move in 2009 as the only Automaker which will not crumble under the weight of steeping sales without government bailout. The company has experienced rough economic times but it always emerges out victorious, though hard hit. This paper will give highlights on the state of Ford Motor Company during the great depression and currently with the 2009 bad economic times, which has gripped the entire globe. The paper will further compare and contrast the events and the processes of the company during the two bad economic times.
The Companies Current Position
The Ford motor company despite these hard hit economic times that rocked the entire world, especially the manufacturers has always insisted that they have enough funds to push forward their business plans. They further maintained the position that they will not file for government bail unless the economy worsens so significantly that it can not be avoided; or otherwise unless their competitors apply for bankruptcy protection. The management believes that they will break even and make good profits come 2011. And just like they overcame the depression giant of 1930, so will they outsmart this.
During the Great Depression
The Great depression erupted in the year 1929 and continued for well over a decade. Though many factors have been reported to have resulted to the Great Depression, the major one however is said to be unequal wealth distribution in the 1930’s. This led to the widening of the gap between the rich and the poor, creating a very grave imbalance which affected all sectors of the economy. This imbalance was depicted openly in the Ford Motor Company where in the same year that the average personal income was $750, Henry was making a personal income of $14 million (Woeste, pp.877-879). Being the driving force of the American economy, the Automobile industry tried to stay afloat, but the pressure was so high…Ford Motor Company in the log run made a record loss of 72%, but it still waged on. At this time when equality would have saved the world, the unevenness in wealth was bold and alive. It was said that over 30% of America’s wealth was concentrated only among the top 5% rich individuals, and over 80% of the entire population had no savings of any nature. In an attempt to shield itself from the severe effects of the slump, Ford Motor Company went on a Steel acquisition spree. As their inventories got worked down, they bought as much manufacturing materials because they feared for the cut of supply if the situation persisted for long. This action was followed by many other industries in the public utility sector (Woeste, p.892).
Just like all the other manufacturing firms, Ford was not spared by the great depression; the responded to it buying scaling down most of their operations (closed even the assembly of Model T and later Model A) and lay off many employees. A total of 60,000 people were reported to have lost their jobs. The Company gave out loans to some hardly hit families and some parcels of land to till and make a living out of. Though this was done out of good faith, it was like a drop of water in the ocean. Not everyone benefitted out of that, so most of the unskilled workers, who were the majority, were left to fend for themselves. Later, Henry Ford made a statement that angered many people, especially the unemployed lot. He publicly declared that the numerous unemployed unskilled people should not sit back and wait for handouts, but instead, they should do a little more and find work for themselves. This statement did not go well with the targeted group. This led to the organization of “the Ford Hunger March” which culminates into a violent protest and the police came in and in the attempt of dispersing the crowd, four people were shot and killed on the spot while the fifth one succumbed to the injuries he sustained from the brutal policemen later. A total of 60 people were seriously injured…this way no good show of the company (Mitchell, pp.21-25).
As a ground breaking advocate, that Henry Ford saw himself to be, he introduced an eight hour working day and believed that in the long run, the economy will surely turn round and reverse to its former self. He talked out workers from depending on charity and on benefactors for survival. For those who kept their jobs in the company, the wages which they were entitled to receive seemed great them, but the rules which they had to live by were harsh and strict. For instance, no employee was allowed to talk to another during work and dance lessons were made mandatory for everyone of them. The response of Ford to lay off workers was met with an equally aggressive from consumers; who decided to sit on the already stained pockets and go for no more luxury shopping (Mitchell, p.26).
As the only anti-dot to the crisis, the management put a lot of emphasis on cross cutting measures to cushion the falling prices besides the lay-offs meant to thin out non-performing worker. The management did away with measures like the savings plan, affordable insurances and many other bonuses that did exist before the Great Depression. Ford did survive the Great Depression, and to date, it still remains the world’s largest family controlled company; it has been so for the past 100 years. Reports indicate that Ford survived the depression because of the principles that the founder upheld, and if that remains so. Definitely, any economic challenge in the future, including and not limited to the current one which weighing down on manufacturers will be no different to the company.
Present Economic Crisis
The present economic downturn is described by economic analysts as the worst since the great depression; the economists refer to it as “recession”. The situation is not yet bad, but if the same trend continues, predictions are that it would be worse than the great depression. Many industries have lay off their workers and sent them off with worthwhile packages when they still can afford it. Every sector has been affected, and worse hit is the manufacturing industries which have to use fuel, electricity and their employee welfare; yet all these factors have sky rocketed and hard to maintain. More than any other times in history, journalists and financial experts have publicly expressed their fears of the possibility of the economic status culminating into a serious depression. They are saying that the situation will go deeper than the recession as it was earlier feared. The revelation is real and it is apparent”…the world is back to depression…the feared “D” word is with us” (Woeste, p.902).
The business leaders who were more of cheerleaders have been trying tirelessly to find a soft spot in the economy have been disappointed so much, it is now the time for real leaders to show their worth and prove their dominance in management. This is where the Ford Motor Company comes in. The company did survive the aggressive 20th Century Depression and so the present the same feeling are spreading among the entire world population that the company will beat this one. Even though this current problem has got its differences from the previous one, a lot has since changed, but the bottom line is that there is a financial crisis; hence presenting challenges similar to the great depression.
The company has accumulated a lot of debts and they are now seeking a way to reduce this trend from worsening. The company decided to give cash and stock too debt holders to at least revamp its balance sheet. This step was meant to reduce the rate of borrowing by about 40%. The decision not to apply for government bail out is proving to be hard but it has drawn back the public confidence during these challenging times. The company has shown that by being proactive; the future will surely be bright for them. Some strategies to counter the ensuing bad effects include releasing of 500 million shares of stock to creditors and bondholders. The company also went for some agreement with U.A.W (Union of Automotive Workers) so that it would be able to substitute equity for an equivalent amount of cash for the retiree benefits (Babson, p.59).
The recent economic challenges have come with challenges in a large share; challenges which far and wide even into the environmental sector. Apart from the purchasing power of customers having gone down, the public has also become more cautious about their environmental concern that is, the need to preserve the environment. Therefore the company is set to manufacture a car model for sustainability on Carbon dioxide strategy through the year 2030. To this effect the company also launched an EcoBoost model which is a kind of a machine that mates the two vital requirements of an automobile. It combines both the direct injection and turbo charging of a gasoline engine in order to boost fuel economy and CO2 emissions by about 30%. The latest economic challenges that griped the world did not spare Ford Motor Company; the strategies that were put in place to counter the bad times were initiated in the year 2007 to date through 2008. They were to help the company lay a strong foundation for long term growth and development. The 1930’s challenges and those that face the company presently are just similar but due to the change in timeframe, there has to be difference in the way of tackling the current emerging issues. Even though the steps might have worked then, not everything has to be done the same old way…every problem has to given its unique approach if a lasting solution has to be sought and made practical. The company has grown smaller to what it used to be in the early years, it has become leaner and globally integrated to meet the customers’ needs and stay way above the competitors mark. The world is becoming cautious about their spending and their environment too, so the only way out for the company to continue making good sales despite the fallen spending rate is by looking for ways to offer affordable sustainable transportation solutions in a way that is acceptable socially, environmentally and economically. Ford has done exactly that and the steps have achieved it big, winning the confidence of many customers, keeping the loyal ones on board as well as attracting and retaining more and more new customers to their camp (McElvaine, pp.59-63).
The Union Auto Workers have also been integrated into the plan and are helping the company make difficult decisions to deal with the bitter reality of the current economy which is threatening to drive to a halt the Auto Industry. The Union agreed not to make terms so hard for the company and the company also made a promise not to hurt the union members so much. The partners agreed to settle on a win-win situation where there would either be both loses or winners depending on what the future holds. The recommended changes were carried out in a very responsible manner so that the Ford Company can remain on a competitive parity with its opponents and at the same time protect the interest of the union’s active and retired members. Reports in (Patterson, p.55) revealed that the decision that came out of the discussion by the two groups saved Ford Company more than $2 billion which is hoped will help the company turn around and stop being a shadow of its former self.
The company has not directly asked for funds from the American government, but it has instead used the concessions to get some help from the union. It has also requested for the government’s assistance with its suppliers. The company did not stop at that. It has requested the government of Sweden to give them some assistance with the Volvo Subsidiary. The Belgium government has already given Ford a node to reduce waged of the Volvo workers in the country. The contact concession will save the company expenses which they could have incurred on two paid holidays and some unpaid unemployment benefits (Patterson, p.67).
Similarities
The financial times that Ford Motor Company is undergoing are a replica of what it had previously faced. In both cases, the company was trapped in what economists called “debt deflation trap”. It was faced with incidences of falling prices and soaring debts which seemed so persistent. And just like during the great depression when several businesses scampered for cover from the financial dilemma, Ford Motor Company jumped on an opportunity and trounced their competition, thanks to their ever innovative approach. Their customers did not let them down either, but they kept coming for more and more. The effects witnessed currently are global, just like the Great Depression; hence policies that are put in place to cushion the decline have to be those that can have global outreach (Samuelson et al, pp.185-189).
Despite the bad times, the companies seem to be doing not that bad one factor has been identified to be the major force behind the Ford Motor Company successes. In both occasions, the employees were made aware by the management on the financial condition of the company and were kept informed of any eminent change before it was pulled into effect. At no pint did he moral of the worker leave them as witnessed with the Chrysler and General Motors. As financial dilemma took its toll, the employees in General Motors and Chrysler pondered with the idea of how they could make an earlier escape with early retirement benefits because they saw no future of the companies. On the contrary, the Ford Motors Employees had a positive feeling that they were able to turn the situation round, and they surely did it during the great depression. We are sure that with the same spirit put in place, the present economic times will be overcome. The employees believe that they have great leadership to rely on in all their needs in the management.
During the recession, there was this problem of “job bank”. This is a situation that the company still continued paying wages to some individuals even though they had stopped being of direct service to the company. The company has tried to bring this trend to a stop but the union wants to hear nothing of that sort. It is worsening the company’s state and contributing to more strain and jeopardizing the plans to match the challenges. It has been one model that has contributed to the slight failure of the company (Samuelson, pp.198-199).
The Ford Company is employing the same strategy that it used during the great depression to sail through. As most companies waited for the consumers of their products to show a need of buying them, Ford Motor Company management knew that this was not going to be. Buyers had reduced extensively and waiting for buyers was simply not going to help. Therefore, the company assumed as if there was enough money and that its consumers had enough to spend, so they sprang into grievous advertising mode. Reports indicate that only those companies which opted for aggressive marketing strategy survived and did well; just like Ford. Most companies decided to cutback on their production, Ford utilized the opportunity to expand their customer base by convincing people to fulfill their un-identified need of automobiles. The strategy placed them well above their opponents who felt that the public had no more money to spend on luxury. Ford Company is doing towards the same direction now. The expenditure has gone down world wide, the fuel cost has shot, and so many environmental challenges are not letting the public buy just anything without a thought of its environmental future implication, Ford is as taking note to none of these. Despite all the negatives in the current market, they are leaving nothing to chance, they have relentlessly continued to advertise and encourage people to buy more cars with a positive encouragement that all will be just fine. They have therefore won so many loyal customers out of this strategy and believe the trend will continue to be so. Empirical evidence presented in (Kydland, pp.473-475) hold it that advertising was the factor that led to downfall as well as the growth of many companies during the biting economic hard times. For those companies which advertised their products, they made it big; the converse is true for those that sat on this opportunity. A conclusive analysis was done during the great depression on all Ford branches world wide and the non performing ones were closed. The company has embarked on the same strategy, the only difficult thing this time round is that, literally all the branches are doing bad. The management therefore is finding it so hard separating the chaff from grain, since all the branches seem to be on a downward trend. The management is faced with the decision of finding out which country branch is making more loses than the others and not the previous trend where they checked on which one among the numerous branches is not making enough profits. The decision to offload the company was however ruled out by the top brass.
Differences
The approach by which the current economic downturn has been given draws the line between the 1930’s depression and now. While the great depression was left to individual countries to contend with, the current response has been given a global approach; so the solution that is being sought are geared to achieve overall solutions. That is what has made the biggest difference between the two scenarios. To Ford Company therefore, are integrating all their branches into the operations as opposed to previously when they were only interested in working with the mother company in the United State, then trickling down the benefits to the other branches. For instance, if it comes to marketing of a new product, it is done both in the developed and developing world; even if there seem not to be a chance of getting potential buyers (Bird, p.31).
The knee-jerk reaction from the Ford Motor Company during the great depression was to cut costs a little and downsized a bit as the best option then, it the strategy did not escape criticism. There had been a feeling that the steps to shelve the economic decline would be different, but No! The company has done it again, only this time, it is so bold and the affected employees will never be supported like the previous times. Once out of the company, the laid off workers will cease to be the Ford’s liability. Though that is seen as a survival tactic rather than a long term solution, it has been the only best way out of this mess. The Ford management confirmed that they will lay off workers but at the same time keep them in mind, so that the moment things get better, they will be the first to be absorbed. But in the mean time, they can fend for their own. The management has made good their threats by sending home a big number of casual workers and removed their names from the payroll. But even the permanent workers who have been retained so far do not know their fate. The available work is too much for the few workers but the benefits are too limited. The future is so uncertain to this group of individuals.
There has never been a unanimous view among economists and the political leaders on the state of the economy. Apart from a common view that the situation is not good enough, none of them seem to agree on the future of the world’s economy. Most micro-economists have failed to agree among themselves on the right definition to give this current state, while some say it is a replay of the events that led to the 1930’s Great Depression; others on their part claim that the incidences are so much different. They explain that while the great depression was a liquidity crisis, the current state represents a trust crisis that has come as a result of an overabundance of sphinx-like financial instruments (Woeste, p.905).
During the Great Depression Ford Motor Company had transferred some of their staff from non-performing branches to where they could be of service, the current scenario seems to have gripped all the branches, so there is no where to transfer the excess staff…leaving the management with only one option, that is “lay-off” without assurance of for how long. And also while the great depression took place while the labor agreements in the United States only favored manufacturers of automobiles in the U.S, this current crisis has stricken when most of the said “unfair” policies have been revised and the competition is a level playing ground for all. No single company has got imperative advantage over the others. The approach therefore has to be changed. Ford Motors have to change tactics and way of operation if they have to sail through this latest crisis and keep pace with the changing times. Even though some steps will be common with the previous one, the concerned parties within Ford Company management team have to hammer out some compromise between the two times and come out with ways through which they can speed up aid to confront this uphill task.
Some insiders report that even though the Ford Motor Company are just trying to hoodwink the public to believe that they can survive this, but the real truth is that they really cannot operate without a bail out from the government. “Ford Motors is just trying to put a brave face to cover the truth which is open to all the manufacturers” (Kydland et al, p.74). The company will soon follow the footsteps of General Motors and Chrysler of applying for a bankruptcy protection. The report is adding that, Ford can not survive on its own like it did with the great depression; they have to be boosted. In the 1930’s as the financial situation bit the world, Ford decided to make some models which it believed would be vital then for the then customers, and advertised them so much. Presently, we are witnessing a near complete withdrawal from production; the company has decided to concentrate marketing only the models that are already in the market apart from some few modifications to suite the customers needs and suit the environmental concern. This is because not only has the rate of buyers gone down, but the production cost has grown a thousand fold.
To entice their customers to keep on going for their products, Ford Motor Company have tried to go by the regulatory requirements on the fuel efficiency standards and restructured their vehicles so that they achieve long term economic viability. They hope this help them salvage any remains after being buttered by the economic meltdown. Their sales are chocked and their credits frozen, and going by the face value, the company is at its worst point in history. Even though they have stood their ground saying they do not need any bail, it seems apparent that they can not change another calendar without a government lifeline. Justifying their plead, Alan Mullaly, Ford’s CEO finally revealed that they will eventually need government loan, though not to help them in their operation, but to act just as a “stand by cash” to shelve their “Plan One” strategy. The company wanted about $9 billion dollars. The “Plan One” process encompasses the following three major steps. The first one is an aggressive restructure to enable the company to operate profitably at the present demand and alter model mix. The company hopes that this strategy will widen their customer base, dealer network and consolidate their financial wing (Ford Motors Credit Company). The next in line under the Plan One concept is to accelerate development of only those products that stand a chance to sell during this hard economic time.
The company seeks to concentrate much on size, quality, safety, performance and fuel economy. Under this second step, Ford has also set some cash aside to pump in technological improvement and vehicle electrification and hybrid development. It is focusing on production and marketing of small cars. The third and the last step under the Plan One concept is work together as one team, anchoring global assets in the business arena. The committee charged with effecting policies of Plan One is concerned with reviewing the areas within the concept that do not seem practical or executable. The company has partnered with all the players whom they share a common objective; that include suppliers, shareholders, customers, dealers, UAW, communities, employees, investors, local, federal and the state government,
Lessons to be Learnt
From what has been revealed in this paper, a summery can be drawn from the revelation. First is swayed by the direction is influenced by the approach that Ford Motor Company gave to the times of financial crisis. It is that, with a leader that believes in sustainability and the importance attached to it, coupled with a dedicated workforce, a company can face any challenge. From the strategy employed by the Ford Motor Company, it can also be said that luxury is only luxury if the marketers say so. But through their persuasive advertisements, customers’ ideological reasoning can be displaced to a point that the customers take the companies products more as first choice secondary needs. To some extent the customers can prefer them to primary basic needs if the needs are gravely exploited. Advertising therefore presents a good recipe of overcoming economic crisis.
Companies should not rush into reducing the advertising budget; it should only come as the last option. Let the press carry the good massage of the high quality and strength of your products and swing the customers to your sides as your opponents withdraw adverts. Adverts may weigh so hard on the company in the beginning but in the long run, it has got great benefits. It was true that the bad times were no rumor, and neither arte they now; only those who take the warnings serious and turn them into opportunities will be able to survive. It does pay to take the economic bull by the horns to be able to stand to reap benefits in the future. Trying to employ escapism can never help. It is a reality that the entire world is faced with financial crisis, every corner of the globe is a live with dilemma. There is nowhere to escape to…the developed and the developing world a like are all caught in this vise. Only adept business men will succeed during this volatile market period. It is left to those who take calculated risks, and not escapists to drive and revive the economy.
From my stand as a simple investor, I have come to learn from the research that the period of worse economic times is the best time to invest and not to retract from your earlier scheduled plans. Be it in the stock market, Real estate, or any other business in whatever line. Another thing has also emerged from the study of how Ford Motor Company reacted to the two situations. It shows the importance of reliable and competent staff. For a company’s employment planning, they need to integrate a flexible staffing scheme which will go along way in enabling the company to respond effectively to changes in the technology as well as market demands. If this is achieved well [drawing an example from Ford Motors Company], it will contain costs from going overboard and allow the company’s management to focus more on core values of the business and embrace new opportunities.
In major economic crisis, the paper establishes that lay offs are inevitable. And its damaging effects ripple across the world during national catastrophe, the employees should therefore get used to such drastic measures directed to shelve industries and organizations from crumbling. For companies that were already doing bad before an economic crisis, too bad, they will go down. But lucky are those organizations that are every prepared for any eventuality in the economic arena. There need to be a kind of disaster preparedness plan to cushion a company’s fall and give it a foundation from which it will try navigating its way past a financial crisis. The companies which were already on a downward move are caught flat footed then (during the great depression) and those which have been caught in a similar in the current times can definitely not bear it. The credits have all dried up; this crisis could not have come up at a better time. From this revelation, we get one vital lesson, which is the importance of setting aside a “risk management fund”.
Conclusion
From the details emerging in this paper, we have established the great successes of Ford Motor Company during the hard hit economic times. The company managed to sail past the challenges of the 20th Century. But looking with a prophetic eye, it can be said that the current challenges can only be comfortably tackled if all the parties are brought on board. In the past, Ford Company got concerned with its employees and the Union. But the current scenario has caught every player in the arena. That is the reason why the company has to make friends with its dealers as well and protect their interests’ world over.
With the above step on top of what has been highlighted in this paper, Ford Company will surely achieve its long term goal; and will create stable and secure jobs for their employees. The company is bound to change for the better, but not without making some vital sacrifices that will be countered on the winning path. It can not be said that Ford is inadequately equipped to handle the current economic challenges, but at least they seem to have a plan [Plan One]. The plan is believed to be well coordinated in such a way that it has the capability of restoring confidence of the consumers in their products. Though the consumer confidence has hit its record lowest, the company is positive that this trend will be reversed, and the dismissal shape that the company is in currently will be no more.
Work Cited
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