How Ford earned $1 Billion in Goodwill
It's scarcely worth repeating that the engine of company growth is marketing, whether the outfit in question is a giant automaker or a small car transport company. Whether through a nationwide television ad campaign, or customer word of mouth, it's only through successful promotion that a company can increase its market share and become a viable competitor. Ideally, the company will combine a memorable marketing campaign with a memorable product; but what if the company is an already-established player with a large market presence and a persistent public perception? Moreover, what if that perception is not entirely positive? This article examines how Ford Motor Co. managed to weather both the long-running troubles of the American auto industry and the devastating recession, coming out a stronger and better-regarded brand in 2010.
There was a time when American auto makers seemed unstoppable. Beginning with Henry Ford's innovations that brought the car within reach of the ordinary consumer, Americans have always had a special relationship with the car. The car was one of the key attributes of the individualist and the free spirit, and the social changes of the '60s and '70s brought the ethos of personal autonomy to its zenith, with enormous and extravagant vehicles coursing the great open roads of the nation.
This was a long time ago. The Big Three American automakers had been plagued by decades of onerous labor contracts, lackluster management and lagging innovation, preferring to lobby Washington for lower fuel economy standards rather than trying to keep up with the more efficient vehicles of overseas competitors.
This situation finally came to a head as the bulldozer of the 2008 financial crisis rolled across the nation and strained already-inefficient businesses to the breaking point. At the time, as credit dried up and it was no longer possible to stave off tough decisions through borrowing, it looked as if the American auto industry was headed for collapse. Chrysler and General Motors both found themselves insolvent. The consequences of bankruptcy and collapse were unthinkable - even if only one of the Big Three companies had gone under, this would have had devastating effects down the chain, with many car part suppliers potentially going out of business, and predictable results for car dealerships, mechanics and auto transport companies. Predicted job losses numbered in the millions.
It was under this threat that the Troubled Asset Relief Program, passed during the waning months of the Bush administration, came to include $25 billion in loans to automakers to prevent their imminent collapse. Chrysler and GM both accepted the government as a shareholder, and managed to weather the storm over the next two years, to the point of becoming profitable again. Ford, however, took a different path - the company raised eyebrows and misgivings by choosing to forgo government help and try to make it on its own.
What allowed the company to remake itself without government aid was a lucky break - back in 2006, Ford took out a gargantuan, $23.6 billion restructuring loan with the entire company as collateral, down to the blue logo. Ford's challenges were formidable - unlike smaller companies that are agile enough to be able to change their strategy and image quickly, and can seize and act upon good ideas with relatively little effort, a large entity has to deal with internal friction and an established management bureaucracy, as well as labor issues and external obligations. It's hard to know how the money would have been spent had the recession not occurred, and what effect it would have had on the company's standing, but as it turned out, under crisis conditions, the head-spinning risk paid off in spades.
With 23 billion in cash, Ford was able to both cushion the losses throughout the recession and revamp their production lines to manufacture leaner and more efficient vehicles faster than the competition.
Ford's new management made a number of decisions to streamline the company, which, by the time the recession struck, found itself with a jumble of different products and brands - in addition to Ford proper, the brands included Jaguar, Land Rover, Aston Martin, Volvo, Mazda, Lincoln and Mercury. Some of those were sold off, and some, like Mercury, are scheduled to be phased out in the next couple of years. The various products were consolidated into a few flagship brands, and the company invested heavily into releasing competitive and technologically-advanced products, like the Ford Escape Hybrid and Ford Fusion Hybrid, the latter posting a highly-competitive 41 miles per gallon in city conditions.
The company's comeback was propelled not just by restructuring and new products - by rejecting public money, the company scored the marketing opportunity of a lifetime. The marketing magazine Advertising Age named Ford the Marketer of the Year in 2010, with good reason - according to Ford marketing chief Jim Farley, the media coverage and customer interest that the company gained by braving the recession on its own was worth about $1 billion in advertising in paid media.
This allowed Ford to actually cut ad spending in 2009 relative to previous years, and still reap the benefits of their new image. The go-it-alone ethic resonated exceptionally well among customers, bolstering the brand's prestige and reviving interest in American automakers among consumers who had long written the companies off. Together with improvements in technology, it has allowed Ford to break into the hybrid market, long the domain of Japanese automakers. The Ford Fusion Hybrid was the second-bestselling hybrid vehicle in 2010, second only to the Toyota Prius.
The turnaround has been staggering. The New York Times reports that Ford made a bigger profit in the first quarter of 2010 than in the previous five years combined. The company's stock, which bottomed out in November of 2008 at $1.43 per share, is currently trading at around $14, and has just posted a 50-cent dividend. All of this was possible because Ford's management acted with a small-business mentality - they consolidated the company's holdings and took advantage of unusual opportunities
Ford's experience demonstrates how a calculated risk and a principled, prestige-boosting decision can help a troubled company get a second wind. By exploiting a once-in-a-lifetime free marketing opportunity and combining it with innovative and attractive products, Ford has changed its fortunes and put itself on a path to prosperity.
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