Assessment 2: DIET 1

Ford Motor Company

Introduction

The contemporary global economy is faced with dynamic changes in the macroeconomic

environment which have significant impacts operations and financial success of multinational

firms (Ahuja, Makan, & Chauhan, 2012). One such company facing the impacts of the dynamic

changes is Ford Motor Company. The American multinational company, also known simply as

Ford, has its headquarters in Michigan (Dyrud, 2016). The corporation sells cars and trucks

under its brand Ford, and it deals in luxury vehicles under the brand Lincoln. Furthermore, the

rand Ford also owns 32 per cent of China’s Jiangling Motors (Balawardhana, 2020). Standing as

a dynamic company with diverse operations, Ford is also affected by a range of macro variables

which need to be closely looked at the assess and manage the impacts. Looking into this, the

following essay explores the complex interrelationship between macroeconomic changes and

Ford Motor Company operations, a major player in the automobile manufacturing business

(Rychtyckyj, 2007). This analysis aims to shed light on the challenges faced by the company by

examining the implications of important macro variables, such as inflation, unemployment,

economic growth, and the balance of payments, within the specific context of Ford as well as by

closely examining transformative occurrences like BREXIT and changing trade relations (Ahuja,

Makan, & Chauhan, 2012). Additionally, this essay promotes the adoption of well-prepared

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government policy interventions as a way to reduce any negative impacts and guide Ford toward

sustained success in the context of a fast-changing global economic scene.

Evaluation of Key Macro Variables

Inflation

As pointed out by (Chifurira, Mudhombo, Chikobvu, & Dubihlela, 2014), the cost structure of

the automobile industry faces huge impacts from inflationary pressures. Increased input

expenses, such as those for labour and raw materials, could potentially reduce the profit margins

of companies such as Ford. Inflation also lowers consumer purchasing power, which can

diminish demand for cars and affect Ford's income (Shkliarevsky, 2023). The extensive supply

chains, production procedures, and customer behaviour patterns of Ford, a major participant in

the automotive manufacturing industry, are all subject to the knock-on effects of inflationary

pressures (Mallik & Chowdhury, 2002).

Figure 1: Automotive Production of Ford (Hellenic Shipping News, 2022)

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The supply chain interruptions faced during the Covid-19 pandemic have had the greatest impact

on automotive companies, although it is not evident in their profits (Hellenic Shipping News,

2022). As reported by the General Motor Company (GM), the EBIT adjusted margins are

recorded to be 11.4 per cent in its 2021 year-end profits. This is due to the skyrocketing cost of

automobiles (Hellenic Shipping News, 2022). The percentage of new vehicles in the CPI figure

for February increased by 12.4% year over year, while the percentage of used vehicles increased

by a startling 41.2% (Hellenic Shipping News, 2022). As pointed by (Hellenic Shipping News,

2022), the issue isn’t pricing, rather, automakers are unable to obtain the materials like

semiconductors necessary to construct their automobiles, forcing them to halt manufacturing.

GM has had operations slowdowns and shutdowns that lasted for several weeks across Asia,

South America, and North America (Hellenic Shipping News, 2022). Ford (F) hasn't fared much

better and has had many weeks of factory shutdowns. However, it has restored its dividend to

60% of what it was before COVID-19 (Hellenic Shipping News, 2022).

The strategic environment for Ford Motor Company is made more complicated by the interaction

between inflation and political choices, particularly those involving environmental rules and

incentives (Musiałowski, 2018). Policy changes can have a substantial impact on customer tastes

and the demand for Ford's vehicles because inflation impacts both production costs and

consumer purchasing power (Ahuja, Makan, & Chauhan, 2012). The environmental policy

choices made by other governments also have a considerable impact on customer preferences

and the demand for Ford's vehicles (Hellenic Shipping News, 2022). Consumer interest in more

environmentally friendly and fuel-efficient solutions is increased by regulations that encourage

electric cars (EVs) or impose tighter emission limits, for instance (Yanase & Tsubuku, 2021).

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Ford is therefore faced with the need to swiftly modify its product strategy to meet these shifting

consumer needs (Chifurira, Mudhombo, Chikobvu, & Dubihlela, 2014).

Rate of Unemployment

High unemployment rates in important markets tend to hurt Ford's sales, especially for big-ticket,

discretionary items like cars (Sorrentino, 2000). A rise in unemployment decreases consumer

spending, which could result in fewer vehicle sales and poorer firm profitability. Ford is

significantly impacted by the unemployment rate, which affects a number of its operational,

financial, and strategic decision-making factors (Elsaied & Nobanee, 2020). Ford's supply has

been affected by changes to trade agreements, tariffs, and customs processes brought on by

BREXIT (Gupta, Hasan, Islam, & Yasmin, 2023). Production delays or inefficiencies were

observed to have resulted from supply chain disruptions, which may have an indirect impact on

employment if production modifications are required (Simionescu, Bilan, Smrčka, & Vincúrová,

2017). These supply chain disruptions are further seen to have affected the customs, procedures,

and revised laws for the company, which impeded the seamless transportation of crucial

components. According to studies, the automobile industry is faced with the surging need to

interfere with the production procedures and satisfy consumer demands (Hiraide & Chakraborty,

2012).

Reductions in consumer purchasing power and discretionary spending result from high

unemployment rates (Ciftcioglu & Sokhanvar, 2020). People tend to put off or forego large

purchases, such as automobiles when some more unemployed people or people are worried about

their job security (Emmons, 2015). Ford's sales and revenue are directly impacted by this drop in

customer demand, which could result in decreased production and inventory changes (Gupta,

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Hasan, Islam, & Yasmin, 2023). The automobile sector may be affected negatively by

unemployment. Sales volumes may decline as a result of lower consumer demand, which could

affect Ford's income sources (Gupta, Hasan, Islam, & Yasmin, 2023). The business might have to

change production levels to adapt, which could result in layoffs, the closure of factories, or a

shift in the emphasis on manufacturing (Simionescu, Bilan, Smrčka, & Vincúrová, 2017).

Economic Growth

The history of Ford Motor Company is significantly shaped by economic growth, which is the

foundation of a thriving economy (Hiraide & Chakraborty, 2012). Ford is a significant player in

the automotive manufacturing industry, and as such, its success is closely correlated with the

state of the whole economy. Ford's sales volume and profitability may be negatively impacted by

economic downturns or slow growth in important areas (Balawardhana, 2020). The company's

expansion objectives may be hampered by delayed or postponed automotive sales as a result of

lower consumer confidence and disposable income (Rychtyckyj, 2007).

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Figure 2: Ford's Economic Growth (Revenue for FY 2008 TO 2022) (Carlier, 2023)

As depicted in the chart, Ford has had profound growth in revenue through the years. The

statistics of 2020 point to the intermixed impacts of economic fluctuations through BREXIT

(Gupta, Hasan, Islam, & Yasmin, 2023). The three interrelated factors of economic growth, trade

relations, and the seismic effects of BREXIT are deeply entwined with the activities of Ford

Motor Company (Carlier, 2023). The market presence, profitability, and strategic choices of

Ford, a major player in the automobile industry worldwide, are greatly influenced by its capacity

to respond to these forces (Balawardhana, 2020). Ford's international activities are significantly

impacted by trade relations. The development of trade agreements, tariffs, and international laws

can help or hurt a company's capacity to enter other markets (Li, Shishank, Ruyter, & Ali, 2019).

In contrast to unfavourable trade relations, which can lead to supply chain inefficiencies, higher

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prices, and difficulties in accessing markets, favourable trade relations allow Ford to efficiently

source components and distribute vehicles (Carlier, 2023).

Balance of Payments

Ford's worldwide supply chain and market access are directly impacted by changes in trade

dynamics and interruptions, such as those brought on by BREXIT and shifting trade ties (Elsaied

& Nobanee, 2020). Tariffs, regulatory adjustments, and customs complications may result in

supply chain interruptions and higher costs, which may have an impact on the company's ability

to compete. Ford is a significant player in the worldwide automotive sector, and the European

market is vital to the company's operations, supply networks, and trade relationship (Du, Satoglu,

& Shepotylo, 2023)s. The BoP's performance has been significantly impacted by fluctuations

brought on by BREXIT-related disturbances, such as modifications to tariffs, customs processes,

and regulatory requirements (Chang, 2018).

Ford's global operations are impacted in multiple ways by changes in international trade

relations. Ford's products became less competitive in foreign markets if tariffs are imposed on

autos or their components, driving up costs (Ringe, 2018). Additionally, trade disputes and

political decisions changed the geopolitical environment, potentially harming Ford's access to

key markets and its sales figures. Trade relations and laws are currently unknown as a result of

the United Kingdom's exit from the European Union, or BREXIT (Simionescu, Bilan, Smrčka, &

Vincúrová, 2017). Ford is a manufacturer with production sites and supply chains spread

throughout Europe. As a result of regulatory changes, delays in cross-border trade, and customs

inspections, Ford may experience interruptions. Notably, any hiccups in the efficient flow of

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goods notably threaten Ford's Just-In-Time production approach, which aims to reduce inventory

(Ahuja, Makan, & Chauhan, 2012).

Proposal of Policy Interventions

Tariff Reduction Agreements

With important trading partners, governments may negotiate and put into effect tariff reduction

agreements. Such agreements would reduce Ford's expenses for importing and exporting parts

and automobiles, improving the effectiveness of the global supply chain and maintaining

competitive pricing (Yanase & Tsubuku, 2021). For Ford Motor Company, tariff reduction

agreements are crucial because they have the potential to improve the company's ability to

compete, get access to markets, and conduct business globally. Tariffs, which are levies levied on

imports, can directly affect the pricing and cost structure of items, including automobiles

(Pettinger, 2023). As shown below, the theory emphasizes how tariffs decrease consumer surplus

by raising prices and reducing consumer welfare. This understanding is essential to Ford as it

evaluates the potential impact of tariffs on its vehicles as a result of changes in trade ties or trade

policy, such as those caused by BREXIT (Simionescu, Bilan, Smrčka, & Vincúrová, 2017).

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Figure 3: Impact of Tariffs on Consumer Surplus (Pettinger, 2023)

Workforce Reskilling and Training Programs Policy

To combat unemployment, governments can fund reskilling and upskilling initiatives.

Governments can lessen the effect of high unemployment on consumer spending and,

consequently, Ford's sales, by retraining displaced workers for new industries or providing them

with pertinent skills (Ahuja, Makan, & Chauhan, 2012). Ford's capacity to adapt quickly to

shifting trade dynamics and regulatory settings will determine its survival in a cutthroat global

market. Employees that participate in reskilling programs will be more equipped to handle the

complexity of international trade, trade agreements, and export-import laws.

Conclusion

With this, Ford Motor Company stands as a profound example of the significant impacts of the

dynamic changes in the global macroeconomic environment. The complex relationship between

the changes and operations of Ford in the automotive industry has been looked into how

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macroeconomic factors like inflation, unemployment, economic growth, and the balance of

payments affect the company's performance. Additionally, it is seen how BREXIT and changing

trade ties have changed the world and how Ford's worldwide strategies, supply networks, and

market access have been impacted. The necessity of sound financial management is highlighted

by the extensive consequences of inflation on production costs, consumer purchasing power, and

strategic decision-making. The impact of unemployment on consumer spending and sales

demand highlights the necessity of having a steady and employed customer base. Ford's

dependence on favourable global economic conditions is shown by the correlation between

economic growth and market expansion and trade relations.

Amid these challenges, government policy initiatives hold the key to risk mitigation and

resilience development. Agreements on tariff reductions may increase Ford's competitiveness

and global reach, and programs for employee reskilling and training assure the company's agility

in a constantly shifting environment. Ford can maintain its leadership in innovation, customer

demand, and sustainable growth within the dynamic global macroeconomic climate by

proactively tackling these issues.

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