The Impact of Recession in the Automotive Market

Mai Pham, Jing Sun, Kelly Buck, Xiaowei Gong, Natalia Vargas February 2, 2015

The case of

1

Content

1.The global recession

2.The car industry during the global recession

3.Case Study: Ford

4.Conclusions

2

1. The global recession 2007 -2010

3

Real GDP in G7 Economies

4

Ireland’s GDP

5

Consumer confidence weakened

6

7

Drop in disposable income and private consumption (USA)

Ireland

8

Consumption trends during recession

9

2. Industry overview during the recession

10

Global car sales from 2005 to 2013 (in million units)

11

- 8.3%

Source: Data from European Automobile Manufacturer’s Association and Bureau of Economic Analysis (BEA)

Most affected: US and Europe Markets

12

0

2

4

6

8

10

12

14

16

18

20

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Mill

ion

s

US Car Sales and Europe Car Registrations (Units)

US Europe

-22%

-35%

Europe Car Registrations Vs GDP

Source: European Automobile Manufacturer’s Association

Europe registrations vs. GDP

13

Source: European Automobile Manufacturer’s Association

Registration in Ireland

14

230.000 units

68.000 units

- 71%

Sales in US and Europe vs. less affected markets

15

Market share in US and Europe vs. less affected markets

16

Worldwide Automobile Production from 2000 to 2013 (in million vehicles)

17

3. Ford: surviving and recovering from the recession

18

19

Part I:What happened to Ford during the

recession?

20

-40,000

-20,000

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

2006 2007 2008 2009 2010 2011 2012 2013

USD

Mill

ion

s

Revenue, Operating income, Net profit (2006-2013)Revenue Operating income Net profit

-15

-10

-5

0

5

10

15

20

2006 2007 2008 2009 2010 2011 2012 2013

Operating Margin & Net Margin (2006-2013)

Operating margin Net margin%

21

Part II: How Ford survived and recovered from the

recession?

22

Our focus: US Market

Ford sales by region

How Ford survived and recovered from the recession

Change in leadership

23

Marketing strategy

Financial strategy

CEO, Alan Mulally, 2006 – 2014

Change in leadership

25

22.7 24.522.9

25.8 26.727.9 28.7 28.8

-

5

10

15

20

25

30

35

2006 2007 2008 2009 2010 2011 2012 2013

USD

Th

ou

san

ds

US - Average price per vehicle 2006 - 2013

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

0

0.5

1

1.5

2

2.5

3

3.5

2006 2007 2008 2009 2010 2011 2012 2013

Re

ven

ue

Un

its

sold

Mill

ion

sUS - Units sold and Revenue 2006-2013

Unit Sold Revenue

MS: Price strategy

USD

Bill

ion

.

from 2007 to 2013 (in billion U.S. dollars)

MS: Ford’s advertising spending in the U.S

MS: Product - The “Ford Fiesta Movement”

25% of Marketing on Digital and Social Media

Target Audience: Millennials, 14-29

Build Awareness in 2011 Ford Fiesta

Convince target market that small cars were functional & stylish

Ford Fiesta’s Campaign Objectives

Ford Fiesta: Consumer-generated Content

50,000 leads

97% of leads did not own a Ford

38% prelaunch brand awareness

11 million social networking impressions

Ford Fiesta- Key Performance Outcomes

31

Financial strategy

Selling assets

Long – term loan from banks

Consolidate assets and resources

Sufficient operating cash flow

Sustainable operation

Cutting costs

32

Why Ford needed money to support its operation?

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

2006 2007 2008 2009 2010 2011 2012 2013

Trend of revenue and cost 2007-2013 (million)

revenue cost

33

23.5USD billion

Long term loan -2006

34

Sales of Rover and Jaguar

2.3 USD billion

+

Cutting costs

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

2007 2008 2009 2010 2011 2012 2013

USD

Mill

ion

Cost reductions 2007-2013 (million)

cost

36

Result: stable cash flow

0

5

10

15

20

25

30

35

40

2007 2008 2009 2010 2011 2012 2013

US

Bill

ion

Free cash flow 2007-2009 (billions）

35

22 21

37

Financial strategy results

Ford was the only one didn’t receive the government

subsidy.

Ford was the only one turned loss

into profit in 2009

Ford was the only one that didn’t

apply for bankruptcy protection.

38

Video:

Allan Mulally and Ford’s turnaround

4. Conclusions

39

1. Trickle-down effect of economic performance: GDP, disposable income, consumption.

2. Durable goods consumption indicates economy performance (e.g. car industry)

3. Companies that survived are

the ones that

are the most agile

and

adaptive.

The Impact of Recession in the Automotive Market

Mai Pham, Jing Sun, Kelly Buck, Xiaowei Gong, Natalia Vargas February 2, 2015

The case of

41