Sunday, January 08, 2006

Billy Draws The Line

William Clay Ford, chairman and CEO of Ford Motor Company has announced that his company will hold on to its market share in 2006. The automaker has been losing market share every year for the past five years and Mr. Ford has vowed that this is the end of the line. Of course losing market share isn't always a bad thing. The highest volume manufacturer is not always the most profitable manufacturer, which partially explains why this vow to hold on to market share can be viewed as a change of strategy rather than simply stating the obvious. In recent years Ford allowed market share to slip at times when retaining it would have caused losses. Back in 2002 when William Ford replaced Jacques Nasser as CEO of Ford this strategy made a lot of sense. The company was reeling from a $5.5 billion loss in 2001 and it was crucial to show a profit quickly, even if it meant sacrificing market share. Today Ford's most visible setback (besides having its debt rating cut to junk status) is losing the distinction of being the world's second largest car manufacturer. Toyota recently surpassed Ford in global sales, leaving Ford in the number three slot. Holding on to its number two position in the US market probably seems rather important now, and might even be worth sacrificing profits for. However Mr. Ford insists that they won't be buying the market share with hefty discounts and incentives but will win it through their strong product line.

If this all sounds a little familiar, think back a few years to the period when GM made a whole lot of noise about its intentions to reach 30 percent domestic market share. After years of slipping they wanted to climb back up to what they considered a reasonable share, and intended to get there through sustainable business practices. All of the executives wore gold pins advertising their intent to hit the thirty percent mark. After a while it became clear that they would never even crack twenty seven percent and the pins quietly went away.

Does Ford have a better shot? Arguably yes. Its product line is the best it has been in years, and the company seems to have a good idea of what its customers want. But competition from both domestics and imports is fierce, and Ford will have to work hard to hold on to the market share it has.

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