comparative analysis: ford motor company toyota motor corp

COMPARATIVE ANALYSIS: COMPARATIVE ANALYSIS: FORD MOTOR COMPANY FORD MOTOR COMPANY TOYOTA MOTOR CORPTOYOTA MOTOR CORP

dr Agata Kociadr Agata Kociabased on presentation by:based on presentation by:

PAWEŁ ORZECHOWSKI, MACIEJ OŚWIT & ANDRZEJ BENCZEK

FORD: the beginningFORD: the beginning Henry Ford designed his first moving assembly Henry Ford designed his first moving assembly

line in 1913line in 1913 ““Wheels for the world”-the motto behind Wheels for the world”-the motto behind

popularization of carspopularization of cars Each section of the production process was Each section of the production process was

divided into component partsdivided into component parts Combination of precision, continuity, and fast-Combination of precision, continuity, and fast-

paced brought the world – mass productionpaced brought the world – mass production In Highland Park, Model T production reached In Highland Park, Model T production reached

record levels, every day a car came of the record levels, every day a car came of the assembly line every ten seconds assembly line every ten seconds

TOYOTA: the beginningTOYOTA: the beginning Toyota's history began at the end of XIX centuryToyota's history began at the end of XIX century Sakichi Toyoda invented Japan's first power Sakichi Toyoda invented Japan's first power

loom which revolutionized the country’s textile loom which revolutionized the country’s textile industryindustry

Two years later, he founded the company Two years later, he founded the company Toyoda Automatic Loom WorksToyoda Automatic Loom Works

Toyody Sakichi’s son, Kiichiro Toyoda invested Toyody Sakichi’s son, Kiichiro Toyoda invested 100,000 pounds in the creation of Toyota Motor 100,000 pounds in the creation of Toyota Motor Corporation in 1937 (TMC) Corporation in 1937 (TMC)

Sakichi Toyoda received this money for selling Sakichi Toyoda received this money for selling the patent rights to an automatic loomthe patent rights to an automatic loom

FORDFORD The fourth-largest automotive company in the world in terms of The fourth-largest automotive company in the world in terms of

sales sales Sells cars on 6 continentsSells cars on 6 continents Car Brands: Ford, Mercury, Lincoln and Volvo Car Brands: Ford, Mercury, Lincoln and Volvo

in March of 2010 confirmation of sale of Geely Automobile Holdings Ltd)in March of 2010 confirmation of sale of Geely Automobile Holdings Ltd) Since the mid-90’s Ford continually loses significance in the Since the mid-90’s Ford continually loses significance in the

American marketAmerican market Over the same period steadily increases its share in the European Over the same period steadily increases its share in the European

marketmarket Reasons for the gap between the development of the brand in the Reasons for the gap between the development of the brand in the

U.S. and Europe:U.S. and Europe: high labor costs in the U.S.high labor costs in the U.S. high expenditure on healthcare in the U.S.high expenditure on healthcare in the U.S. strong trade unions in the U.S. (high pension commitments)strong trade unions in the U.S. (high pension commitments) strong economic growth in lower combustion cars strong economic growth in lower combustion cars

TOYOTATOYOTA

The biggest carmaker in the world in 2009 The biggest carmaker in the world in 2009 (more than 7.5 million cars)(more than 7.5 million cars)

Main markets are Japan and North Main markets are Japan and North America, but recently we can see a strong America, but recently we can see a strong growth in Asian and South America growth in Asian and South America markets markets

Toyota has three brands: Toyota, Lexus Toyota has three brands: Toyota, Lexus and Scion and Scion

FORD: more economicFORD: more economic Dominance of large cars: SUVs, Pick upsDominance of large cars: SUVs, Pick ups Rapid fluctuations in oil prices and legislators Rapid fluctuations in oil prices and legislators

striving to reduce consumption of materials led striving to reduce consumption of materials led to reorganizationto reorganization

Restructuring of the three production lines for Restructuring of the three production lines for production of more economic models in Europe production of more economic models in Europe (Mondeo, Focus etc.)(Mondeo, Focus etc.) in short-run minimization of costsin short-run minimization of costs

Ultimately, Ford intends to make engines in all Ultimately, Ford intends to make engines in all their models to be more economical their models to be more economical

In 2009 to market were introduced four hybrid In 2009 to market were introduced four hybrid models based on technology leased from Toyota models based on technology leased from Toyota

FORD: hybrid technologyFORD: hybrid technology Currently, Ford has four hybrid modelsCurrently, Ford has four hybrid models

Ford Focus Hybrid is a direct threat to so far the most Ford Focus Hybrid is a direct threat to so far the most popular Prius (hybrid line of Toyota)popular Prius (hybrid line of Toyota)

In 2010, the company plans to spend an In 2010, the company plans to spend an additional $450 million to develop electric motorsadditional $450 million to develop electric motors

By 2012, Ford wants to produce own hybrid By 2012, Ford wants to produce own hybrid technology and plug-instechnology and plug-ins Ford has invested more than $550 million in Ford has invested more than $550 million in

restructuring its manufacturing facility in Michiganrestructuring its manufacturing facility in Michigan What if the market chooses a different path? What if the market chooses a different path?

TOYOTA: hybrid technologyTOYOTA: hybrid technology Toyota as one of the first ones started a hybrid Toyota as one of the first ones started a hybrid

cars production line (including leasing its cars production line (including leasing its technology to Ford)technology to Ford)

At present, hybrid Toyota - Prius line, represents At present, hybrid Toyota - Prius line, represents approximately 73% of all hybrid vehicles sold in approximately 73% of all hybrid vehicles sold in the U.S.the U.S.

So far in the U.S. Toyota sold the 1,000,000+ So far in the U.S. Toyota sold the 1,000,000+ hybrid carshybrid cars

In addition, Toyota announced its intention to In addition, Toyota announced its intention to manufacture electric cars with lithium-ion manufacture electric cars with lithium-ion batteries “Toyota Plug-HV”batteries “Toyota Plug-HV”

FORD: ONE FORDFORD: ONE FORD Despite the very large amount Despite the very large amount

of cars produced, so far Ford of cars produced, so far Ford has derives small economies has derives small economies of scale by applying a of scale by applying a separate, independent separate, independent technologies and models for technologies and models for European, US and developing European, US and developing markets markets

““One Ford” – changed One Ford” – changed approachapproach

Ford moves the emphasis to Ford moves the emphasis to universal models for use in universal models for use in different regions of the world different regions of the world (the first "world car"-new Ford (the first "world car"-new Ford Fiesta)Fiesta)

FORD: wrong sales modelFORD: wrong sales model From the 90s Ford has created demandFrom the 90s Ford has created demand

sales on installments without interest chargedsales on installments without interest charged discountsdiscounts promotions combined with a loanpromotions combined with a loan

Ford exceptionally strong suffered from a crisis on a real Ford exceptionally strong suffered from a crisis on a real estate marketestate market

in recent years, sales in the U.S. were strongly associated with in recent years, sales in the U.S. were strongly associated with the property marketthe property market

it is estimated that in California, 30% of car purchases has been it is estimated that in California, 30% of car purchases has been financed with a mortgagefinanced with a mortgage

Feeling the effects of this approach, Ford began to Feeling the effects of this approach, Ford began to change strategychange strategy

less emphasis on creating demandless emphasis on creating demand emphasis on quality and safety emphasis on quality and safety

FORD: developing marketsFORD: developing markets Ford is mainly engaged in the American market,Ford is mainly engaged in the American market,

which slowly begins to lose its attractivenesswhich slowly begins to lose its attractiveness Ford’s task now is to develop a universal line for Ford’s task now is to develop a universal line for

use in every country (European Ford Fiesta in use in every country (European Ford Fiesta in the U.S., Ford Transit Van in Asia)the U.S., Ford Transit Van in Asia)

Whether european car models will be appealing Whether european car models will be appealing to clients in India or Brazil depends the future of to clients in India or Brazil depends the future of Ford in the long term.Ford in the long term.

TOTOTA: withdrawal of modelsTOTOTA: withdrawal of models Several serious flaws in the models has significantly hurt Several serious flaws in the models has significantly hurt

Toyota’s imageToyota’s image in 2009, the company had to withdraw from the market 3.8 in 2009, the company had to withdraw from the market 3.8

million vehicles due to the acceleration system flawmillion vehicles due to the acceleration system flaw In the short term:In the short term:

it is estimated that due to defects and withdrawals Toyota it is estimated that due to defects and withdrawals Toyota models suffered losses of $ 3 billion in 2010models suffered losses of $ 3 billion in 2010

over the past year, throughout the world over 9 million vehicles over the past year, throughout the world over 9 million vehicles have been withdrawn have been withdrawn

for consideration more than 30 lawsuits are waiting for consideration more than 30 lawsuits are waiting In the long term:In the long term:

current crisis has significantly hurt the reputation of the companycurrent crisis has significantly hurt the reputation of the company competition has used well (Chrystler, Ford and Honda competition has used well (Chrystler, Ford and Honda

hasorganized the promotions, giving discount on a new car for hasorganized the promotions, giving discount on a new car for customers who got rid of the old Toyota)customers who got rid of the old Toyota)

TOYOTA: the futureTOYOTA: the future Car Sales in highly developed countries will fall and Car Sales in highly developed countries will fall and

remain at low levelsremain at low levels majority of consumers’ demand is already satisfiedmajority of consumers’ demand is already satisfied relatively low economic growthrelatively low economic growth

The biggest outlays directed on emerging marketsThe biggest outlays directed on emerging marketsmainly Brazil, Russia, India, China (BRIC) countries mainly Brazil, Russia, India, China (BRIC) countries

Toyota earlier than other companies in the sector began to Toyota earlier than other companies in the sector began to invest in the development of appropriate infrastructure and brand invest in the development of appropriate infrastructure and brand awareness in the above countriesawareness in the above countries

in 2009 Toyota announced the beginning of motor vehicle in 2009 Toyota announced the beginning of motor vehicle production in India (the company Toyota Kirloskar)production in India (the company Toyota Kirloskar)

in 2010 Toyota plans to produce 100,000 cars in the new factory in 2010 Toyota plans to produce 100,000 cars in the new factory opened in Indiaopened in India

TOYOTA: TOYOTA: trends and expectations (1)trends and expectations (1)

JapanJapan investing in luxury brands (Lexus)investing in luxury brands (Lexus)

• in 1990 10% of Japan's population was over 65 years, in 2006, the number in 1990 10% of Japan's population was over 65 years, in 2006, the number suppose to double suppose to double

• older society saves more and raises the demand for more luxury goodsolder society saves more and raises the demand for more luxury goods USAUSA

collapse of the real estate marketcollapse of the real estate market• strength of real estate market has always been related to car market strength of real estate market has always been related to car market

because consumers often fund the purchase of car with a mortgage owed because consumers often fund the purchase of car with a mortgage owed • stagnation in credit market will reduce demand for new carsstagnation in credit market will reduce demand for new cars

demand for green technologiesdemand for green technologies• oil prices are rising, resulting in increased demand for cars Hybrid (Prius oil prices are rising, resulting in increased demand for cars Hybrid (Prius

model)model)• in December of 2007. U.S. government passed a law requiring the car in December of 2007. U.S. government passed a law requiring the car

manufacturers to reduce the combustion of up to 35 mpg for cars, trucks and manufacturers to reduce the combustion of up to 35 mpg for cars, trucks and SUVs – Toyota,SUVs – Toyota,typically produces small, economical cars and its standards are already typically produces small, economical cars and its standards are already satisfy new requirementssatisfy new requirements

TOYOTA: TOYOTA: trends and expectations (2)trends and expectations (2)

USAUSA hybrid legislationhybrid legislation

• USA introduces new law to encourage development of hybridUSA introduces new law to encourage development of hybridtechnologiestechnologies

• at present, when buying a car you can count on the hybridat present, when buying a car you can count on the hybridtax relief of up to $ 3,400, depending on the amount of car tax relief of up to $ 3,400, depending on the amount of car sales (the more cars the company sells the smaller the sales (the more cars the company sells the smaller the deduction ) – the aim is to support companies desiring to deduction ) – the aim is to support companies desiring to enter the market with hybrid technologyenter the market with hybrid technology

World MarketWorld Market demand for cars will depend on the trend in oil, steel demand for cars will depend on the trend in oil, steel

and aluminum pricesand aluminum prices

FORD/TOYOTA: general data (in $ mln)

2006 2007 2008 Sales (FORD) 143,249 154,379 129,166 Sales (TOYOTA) 203,874 256,581 2081,262 Income from operations (FORD)

-7,926

8,031

-4,130

Income from operations (TOYOTA)

19,058

22,159 -4,674

Net income (FORD) -12,613 -2,723 -14,672 Net income (TOYOTA) 13,996 16,766 -4,430 Employment (FORD) 283 247 213 Employment (TOYOTA) 286 299 316 Total assets (FORD) 279,196 279,264 218,328 Total assets (TOYOTA) 277256 318875 294627

TOYOTA: production (in 1000s) TOYOTA: production (in 1000s)

2006 2007 2008 North America 1201 1205 1268 South America 122 147 150 Europe 623 709 711 Asia, Africa, Australia 1081 1019 1258 Japan 4684 5100 5160

FORD/TOYOTA: sales (in 1000s)

2006 2007 2008 North America (FORD) 3051 2890 2329 (TOYOTA) 2556 2943 2958 South America (FORD) 381 438 435 (TOYOTA) 233 284 320 Europe (FORD) 1846 1918 1820 (TOYOTA) 1023 1224 1284 Asia, Africa, Australia (FORD)

589 535 464

(TOYOTA) 1384 1361 1559 Japan (TOYOTA) 2364 2273 2188

Risk factors

FORDFORD Ford is exposed to various kinds of risk not only to the Ford is exposed to various kinds of risk not only to the

market riskmarket risk currency risk, commodity price changes, interest rate risk,currency risk, commodity price changes, interest rate risk,

financing risk, risk of extraordinary events are just some of the financing risk, risk of extraordinary events are just some of the most important kinds of risk present most important kinds of risk present

risk of loss of liquidity: hedge against it by sale of receivables risk of loss of liquidity: hedge against it by sale of receivables (securitization), issue of debt and bank loans(securitization), issue of debt and bank loans

insurable risks: the loss (damage) of property, civil liability – insurable risks: the loss (damage) of property, civil liability – companies insure themselves privatelycompanies insure themselves privately

they use derivatives to hedge – currency, interest rate or changethey use derivatives to hedge – currency, interest rate or changein commodity prices risk – by forwards, swaps, optionsin commodity prices risk – by forwards, swaps, options

• does not use derivative to speculate does not use derivative to speculate

TOYOTATOYOTA Toyota is exposed to risks arising from:Toyota is exposed to risks arising from:

changes in exchange rateschanges in exchange rates interest ratesinterest rates availability of materialsavailability of materials changes in prices of materialschanges in prices of materials

Instruments used to protect:Instruments used to protect: forward contracts forward contracts currency and interest rate options currency and interest rate options swapsswaps

Unfortunately, Toyota does not protect itself from price Unfortunately, Toyota does not protect itself from price changes and changes in supply of materialschanges and changes in supply of materials

only protection is to maintain reserves of some materials only protection is to maintain reserves of some materials

TOYOTA: currency riskTOYOTA: currency risk Toyota settles its invoices in Japanese yen Toyota settles its invoices in Japanese yen

which increases its currency riskwhich increases its currency risk Changes in exchange rates reflect very strongly Changes in exchange rates reflect very strongly

on company resultson company results change in the dollar-yen exchange rate of 1% will change in the dollar-yen exchange rate of 1% will

change revenues by about $42 millionchange revenues by about $42 million Toyota protect itself from risk with the help of Toyota protect itself from risk with the help of

swaps and futuresswaps and futures Despite this, the company is unable to protect Despite this, the company is unable to protect

itself from a falling demand for exports of itself from a falling demand for exports of Japanese cars due to a change in exchange Japanese cars due to a change in exchange rates rates

Ratio analysis

Liquidity ratios (1)Liquidity ratios (1)Current ratio 2006 2007 2008

Toyota 1,00 1,01 1,07

Ford 2,28 2,32 1,33

Liquidity ratios (2)Liquidity ratios (2)Quick ratio 2006 2007 2008

Toyota 0,80 0,82 0,87 Ford 2,13 2,19 1,25

Debt ratioDebt ratioDebt ratio 2006 2007 2008

Toyota 0,62 0,61 0,64 Ford 0,62 0,60 0,71

Turnover ratios (1)Turnover ratios (1)Receivables (A/R) turnover ratio 2006 2007 2008

Toyota 32,14 29,59 26,15 Ford 15,89 17,14 14,95

Turnover ratios (2)Turnover ratios (2)

Inventory turnover ratio 2006 2007 2008 Toyota 13,21 14,79 11,80 Ford 13,60 13,20 13,80

Turnover ratios (3)Turnover ratios (3)

Asset turvover ratio 2006 2007 2008 Toyota 0,70 0,76 0,66 Ford 0,57 0,62 0,67

Profitability ratios (1) Profitability ratios (1)

Net profit margin 2006 2007 2008 Toyota 0,07 0,06 -0,03 Ford -0,08 -0,01 -0,10

Profitability ratios (2)Profitability ratios (2)

ROA 2006 2007 2008 Toyota 0.05 0.05 -0.02 Ford -0.05 -0.01 -0.06

Profitability ratios (3)Profitability ratios (3)ROE 2006 2007 2008

Toyota 0.14 0.14 -0.04 Ford 0.00 -2.52 0.00

Market value ratios (1)Market value ratios (1)

Earnings per share 2006 2007 2008 Toyota 4.34 5.40 -1.42 Ford -6.46 -1.38 -6.72

Market value ratios (2)Market value ratios (2)

Price/Earnings ratio 2006 2007 2008 Toyota 29.94 18.68 -44.58 Ford -1.16 -4.86 -0.34

Market value ratios (3)Market value ratios (3)Dividend yield 2006 2007 2008

Toyota 0,01 0,01 0,02 Ford 0,11 0 0

Cash flow analysisCash flow analysis

FORD TOYOTA Operating Investing Financing Operating Investing Financing

2006 + - + + - - 2007 + - - + - - 2008 - - - - - -

SWOT analysis

FORDFORD

Strengths

Hybrid technology

Well-known brand in the USA

Weaknesses:

Weak sales results

Inability to accommodate products

to changes on the market

Opportunities:

Promotion of ecology-friendly cars

Appeal of a national brand in crisis

Threaths:

Further evolution of the crisis

TOYOTATOYOTA

Strengths

Hybrid technology

Ability to cope in crisis

Weaknesses:

Lack of protection against changes

in prices and demand

Opportunities:

Promotion of economical and

ecology-friendly cards

In crisis, lesser importance of

competitors

Threaths:

Rapid increase of material costs or

decrease in supply

Thank you for your attention