Sunday, October 22, 2006
Economics
In the late 1990s Ford had gained market share, with record profits, its stock price soared. The U.S. economy had experienced an increase in savings rates as the stock market rose.
In 2001 the Ford motor company suffered a severe pension and benefit fund crisis, and the value of their pension funds plummeted. Ford's stock dropped, along with many other American companies'. These events led to a widespread bond rating downgrades in the U.S. by the rating agencies, which eventually affected the automakers in 2005.
In May 2005, the recognized bond rating agencies downgraded the bonds of Ford Motor Company to below investment grade. Stock market jitters brought on by the September 11, 2001 attacks combined with high U.S. health care costs for an aging workforce, higher fuel costs, and a reliance by the company on profits from the sales of sport utility vehicles led to the downgrades. Profit margins decreased on large vehicles from increased "incentives" (in the form of rebates or low interest financing) to offset declining demand from high fuel costs. Foreign manufacturers, not having the truck manufacturing capabilities to form a platform base for similar vehicles, have instead introduced so called "crossover" SUV's — vehicles built on an automobile or minivan platform rather than a truck chassis. These vehicles have proven to be very popular in the market, and Ford has introduced such vehicles as the Escape (including a Hybrid-Electric version), along with the similar Mercury Mariner and Mazda Tribute, and the Freestyle and Volvo XC70 and Volvo XC90 crossover SUVs. In the fall of 2006, Ford is scheduled to introduce the 2007 Ford Edge, Lincoln MKX, and Mazda CX-7. These vehicles were revealed at the 2006 North American International Auto Show and other car shows.
The September 11, 2001 attacks delayed Ford's introduction of new product, and cost the company market share. In some ways, this has bolstered the false perceptions generated by Ford's long-time adversaries and critics. Ford's new products have been well received by the public. The 2005 Mustang has had strong sales. Ford hopes to reverse its sales trend with the introduction of the new 2006 Ford Fusion, Mercury Milan, and Lincoln Zephyr mid-size cars, which are expected to compete well in this segment.
While rebates and reduced interest financing may be popular with the public, they have the tendency to erode residual value on paper, unless the residual value is calculated from the actual purchase price instead of the manufacturers suggested retail. Foreign manufacturers have used this to their advantage to generate the perception that their products 'hold value'. In fact, the consumer has saved money by purchasing the heavily incentivized domestically produced vehicle, while the buyer of the vehicle from the foreign manufacturer has actually paid higher interest charges.
Ford continues to respond to false perceptions. Media critics claim that heavy incentives have an effect for owners who frequently trade-in and for those who lease their vehicles; the resale values are reflected in substantial cost differences, with domestic vehicles costing more in overall costs. However, owners who frequently trade are typically from higher income brackets and less influenced by the remaining balance on their loan or the residual value. Higher income buyers are more likely to trade to simply keep up with the latest trends. There is little evidence that these buyers from higher income brackets who frequently trade are deterred from buying a new car by value or loan balance. Middle income buyers are more likely to keep their vehicle until it is paid in full, and stand to benefit from heavy incentives and reduced rate financing the most.
In 2001 the Ford motor company suffered a severe pension and benefit fund crisis, and the value of their pension funds plummeted. Ford's stock dropped, along with many other American companies'. These events led to a widespread bond rating downgrades in the U.S. by the rating agencies, which eventually affected the automakers in 2005.
In May 2005, the recognized bond rating agencies downgraded the bonds of Ford Motor Company to below investment grade. Stock market jitters brought on by the September 11, 2001 attacks combined with high U.S. health care costs for an aging workforce, higher fuel costs, and a reliance by the company on profits from the sales of sport utility vehicles led to the downgrades. Profit margins decreased on large vehicles from increased "incentives" (in the form of rebates or low interest financing) to offset declining demand from high fuel costs. Foreign manufacturers, not having the truck manufacturing capabilities to form a platform base for similar vehicles, have instead introduced so called "crossover" SUV's — vehicles built on an automobile or minivan platform rather than a truck chassis. These vehicles have proven to be very popular in the market, and Ford has introduced such vehicles as the Escape (including a Hybrid-Electric version), along with the similar Mercury Mariner and Mazda Tribute, and the Freestyle and Volvo XC70 and Volvo XC90 crossover SUVs. In the fall of 2006, Ford is scheduled to introduce the 2007 Ford Edge, Lincoln MKX, and Mazda CX-7. These vehicles were revealed at the 2006 North American International Auto Show and other car shows.
The September 11, 2001 attacks delayed Ford's introduction of new product, and cost the company market share. In some ways, this has bolstered the false perceptions generated by Ford's long-time adversaries and critics. Ford's new products have been well received by the public. The 2005 Mustang has had strong sales. Ford hopes to reverse its sales trend with the introduction of the new 2006 Ford Fusion, Mercury Milan, and Lincoln Zephyr mid-size cars, which are expected to compete well in this segment.
While rebates and reduced interest financing may be popular with the public, they have the tendency to erode residual value on paper, unless the residual value is calculated from the actual purchase price instead of the manufacturers suggested retail. Foreign manufacturers have used this to their advantage to generate the perception that their products 'hold value'. In fact, the consumer has saved money by purchasing the heavily incentivized domestically produced vehicle, while the buyer of the vehicle from the foreign manufacturer has actually paid higher interest charges.
Ford continues to respond to false perceptions. Media critics claim that heavy incentives have an effect for owners who frequently trade-in and for those who lease their vehicles; the resale values are reflected in substantial cost differences, with domestic vehicles costing more in overall costs. However, owners who frequently trade are typically from higher income brackets and less influenced by the remaining balance on their loan or the residual value. Higher income buyers are more likely to trade to simply keep up with the latest trends. There is little evidence that these buyers from higher income brackets who frequently trade are deterred from buying a new car by value or loan balance. Middle income buyers are more likely to keep their vehicle until it is paid in full, and stand to benefit from heavy incentives and reduced rate financing the most.
# posted by Prima : 12:30 AM
