Ford motors Five Forces Analysis

 Porter’s ‘Five Forces’ Analysis of Ford Motors

 

Ford Motors is a leading player in the global automobile sector. The company is based in Dearborn, Michigan, United States.  It employs more than 177000 people worldwide.

Ford has adopted a new operating structure from January 2023. The company has divided its business into three segments that include Ford Blue, Ford Model E and Ford Pro segments.

The Ford Blue segment mainly deals in the sales and service of Ford and Lincoln internal combustion engine and hybrid vehicles while Ford Model E deals in the sales of electric models. Ford Pro on the other hand deals in the sales of commercial vehicles.

Ford owns both Ford and Lincoln brands. In 2023, it sold a total of around 4,413,000 wholesale units. As of the end of 2023, the company had around 9,527 dealerships worldwide. Ford’s largest market is the United States, where the company sold around 2.1 million wholesale units in 2023.  Its total vehicle sales grew in 2023 compared to the previous two years.

In this five forces analysis of Ford Motors, we will discuss how the Porter’s five forces impact the competitive position of Ford Motors and how well Ford is positioned to deal with these five decisive forces.

• Competitive rivalry among the firms:  High

The intensity of competitive rivalry in the automotive industry is very high. Ford faces intense competition from its rivals. Both the investment for entry and exit barriers are high. Firms focus heavily on competing aggressively rather than exiting.  There are several competitors of Ford Motors in the global market including General Motors, Hyundai, Kia, Honda, Totoyta and so on. Tesla is the leading player in the electric vehicle segment. Ford’s competitors are highly aggressive in their approach to manufacturing, marketing and salees. Whether it is in terms of technological innovation or marketing, the rival firms use aggressive tactics to gain market share.

Growth, market share and competitive position of automobile brands depend on several factors. However, the leading factor that has become critical to growth and maintaining market dominance is innovation. Companies are investing heavily in innovation to develop vehicle models that are safer as well as superior in terms of performance. They are also aggressively investing in research and development to grow their sales and market share. Competition in the electric vehicle segment has also increased a lot leading to increased focus on innovation.

Ford has maintained a strong competitive position in the US and the global automobile industry driven by its focus on innovation and vehicle design. It is a highly popular brand in the US and also a dominant player in several more markets. Its brand image and popularity have also helped the company maintain its leadership position and competitive edge.

•  Bargaining power of customers: Moderately high

Customers are an important influence on business in every business sector including the automobile industry. In the automobile sector, the role of customers increases because of the size of the purchase. Due to the moderately large size of purchase, the bargaining power of customers grows. Commercial buyers that buy vehicles in bulk including government buyers also hold some bargaining power. Due to the increased bargaining power of customers, companies like Ford invest more in marketing and innovation. Increased competition in the automobile sector has also led to increased bargaining power of buyers. Companies are now investing in creating loyalty programs to improve customer loyalty.

There are a few factors like good brand image, customer experience and marketing that can moderate the bargaining power of customers to some extent. Ford is an innovative brand and it has maintained a strong brand image. It also enjoys strong customer loyalty. Overall, the bargaining power of Ford customers is moderately high.

• Bargaining power of suppliers: weak

The bargaining power of suppliers in the automobile industry is weak. Suppliers can be a significant influence in any industry sector. It is because the strength of the supply chain is critical to performance across sectors including the automobile sector. This was proved during the pandemic. However, in the automobile sector there are many factors at play that moderate and weaken the bargaining power of suppliers.

Most of these suppliers lack the ability of forward integration. So, they lack control on their sales or distribution. Ford’s vertical backward integration is also a major factor that reduces its suppliers’ bargaining power. It limits Ford’s dependence on the suppliers.  Ford can produce some of the parts required for manufacturing its vehicles inhouse. To reduce the bargaining power of the suppliers further, it can focus on being more self-dependent.  In terms of production as well as sales and marketing, Ford must reduce its dependence on its suppliers. If the bargaining power of the suppliers is allowed to increase, it will lead to an increase in production costs.

Ford suppliers also have weaker bargaining power because they are mostly smaller firms with lower financial strength compared to Ford. These supplier firms are also scattered and not concentrated in a single geographic area or business sector. The competition between the suppliers is also high. Overall, these factors have weakened the bargaining power of Ford suppliers.

Threat of Substitutes: High

The threat of substitutes in the automobile industry mainly comes from products made by rival brands. Ford faces a high threat of substtiute products. Apart from other vehicle brands, there are public modes of transportation that also provide substitutes. To some extent, this threat gets mitigated by Ford’s performance and quality.

Ford has focused on differentiation through innovation. Its products provide superior customer experience. They are technologically innovative and equipped with superior safety features. The quality of Ford products minimizes the threat of substitutes and competition. Its products can be superior in terms of quality, style as well as safety. Apart from that, its focus on customer service and customer experience have also led to higher customer loyalty.

Despite all these things, the number of brands offering substitute products is high and includes names like Toyota, General Motors, Hyundai, Kia, Nissan, Renault, Tesla, BMW, VW and so on. Overall, the number of substtitutes for products made by Ford is high and so is the threat from substitute products.

Threat of new entrants: weak

 

The barriers to entry in the automotive industry are high. It limits the capacity of the new players to enter this sector. A very large investment is required to lay the foundation of a brand. The costs of marketing and brand development are also high. Investments in research and development as well as  customer service and supply chain network are all high. This limits the capacity of the new entrants.  As a result, they do not pose a significant threat to Ford. Brand image becomes a very important factor in terms of sales and profits. Any new brand would have to invest a lot in terms of time, efforts and money. New brands also need the knowhow and technology for creating products that can withstand competitive pressure. They will also need to develop a strong brand image and expansion into new geographical markets can also be difficult. Ford has a strong brand image and established brand presence. These factors minimize the threat from new entrants in the automobile sector.

A few last words:

A Porter’s five forces analysis of Ford motors shows that the company is in a strong bargaining position across most categories. Whether it is the suppliers or the customers, none is in a very strong position to have a significant bargaining power. However, customers must remain a central focus for the company due to their integral role in terms of business and because of the very high competition in the industry sector.

Apart from that, Ford has been able to moderate the threat from substitutes and competing brands to some extent.  New brands generally find it difficult to enter unless they can invest a very large sum in developing their own production system. It can be quite difficult to build and grow a brand with a great image and other significant capabilities.  All these factors indicate the strong position of Ford in the industry.