Risks for Ford Motor Company
Ford Motor Company seems to be doing quite well, in comparison to last year. Estimates for vehicle sales appear to keep inflating, however, there is no such thing as zero risk. There are some factors that could upset vehicle sales. Here is how U.S. vehicle sales came in last year, with projections for this year:
These estimates are critical in order for Ford to prepare operations and inventories to meet the demands of the consumer. Obviously, if management overestimates sales, then Ford Motor Company will be left with excess inventory and may be forced to offer large incentives to move vehicles. On the other side, if management underestimates sales, Ford could be left with factories running under capacity, causing overhead that will eat into profits. On top of that, Ford risk losing sales and market share to competitors if they do not have inventory to supply the demand. If Ford Motor Company can react quickly to demand or can manage estimates more accurately, they will put themselves in the best position to gain sales and market share.
Increased competition can dampen vehicle sales. It would be ludicrous to think that if sales continue to climb upward, they would benefit only the players already entrenched in the market. The fact is, once a market becomes more profitable, it attracts more outside competition. If the U.S. market continues to creep toward its all-time high of vehicles sold, additional companies will be vying for their pieces of the pie (Miller, 2013). Competition will come and competition will go but there is an ever-present risk.
According to Miler, On Jan. 1, when the payroll tax cut expired, automakers and retailers held their breath, hoping it would not cause an immediate decrease in consumer spending. It did not have an effect on numbers in January, although it is possible we could see it cause a slowdown in spending in the coming months. This is a real threat: Automakers are increasing estimates, and the consumer is a finicky creature
These estimates are critical in order for Ford to prepare operations and inventories to meet the demands of the consumer. Obviously, if management overestimates sales, then Ford Motor Company will be left with excess inventory and may be forced to offer large incentives to move vehicles. On the other side, if management underestimates sales, Ford could be left with factories running under capacity, causing overhead that will eat into profits. On top of that, Ford risk losing sales and market share to competitors if they do not have inventory to supply the demand. If Ford Motor Company can react quickly to demand or can manage estimates more accurately, they will put themselves in the best position to gain sales and market share.
Increased competition can dampen vehicle sales. It would be ludicrous to think that if sales continue to climb upward, they would benefit only the players already entrenched in the market. The fact is, once a market becomes more profitable, it attracts more outside competition. If the U.S. market continues to creep toward its all-time high of vehicles sold, additional companies will be vying for their pieces of the pie (Miller, 2013). Competition will come and competition will go but there is an ever-present risk.
According to Miler, On Jan. 1, when the payroll tax cut expired, automakers and retailers held their breath, hoping it would not cause an immediate decrease in consumer spending. It did not have an effect on numbers in January, although it is possible we could see it cause a slowdown in spending in the coming months. This is a real threat: Automakers are increasing estimates, and the consumer is a finicky creature
References: Miller, D. (2013, February 23). 2 risks for ford and gm. Retrieved from http://www.fool.com/investing/general/2013/02/23/2-risks-for-ford-and-gm.aspx