Hi all, I am doing a review on the article ‘Ford slams brake s on profit plan’ from the BBC news online. Here is the link, http://news.bbc.co.uk/2/hi/business/7415483.stm feel free to take a look.

In the recent years Ford has been suffering from losses due to the weakening economy in the US and the high rising oil prices. As the economy experiences slowdown, causing a drop in demand for goods produced by Ford as they are luxury goods and it has a high income elasticity of demand ( Ey>1)

The high oil price has caused an upward shift in Ford’s AC and MC curve, and due to the slowdown of US economy Ford has been earning subnormal profit for the last 2 years with a loss of more than 15 billion US dollars. Thus in order to cover the losses Ford has to cut more jobs and production and sold its luxury brands Aston Martin, Jaguar and Land Rovers to raise cash in order to reduce its total variable cost so that it can still continue production. In the meantime the market position of Ford is also being threatened. As Ford is being one of the few leading firms in the US’s car industry (Oligopoly) it used to have a relatively large market share, and now it is losing market due to intensive challenge from firms that produce more fuel-efficient cars.

Thus in order for Ford to get over the hard time there are several possible paths to take

1. It can focus more of its resources on technical economies of scale of research and development, which can focus more on its technology on fuel-efficient cars.

2. It can consider merging with its rivals to free more resources for future development.

That’s all I can think of….

Cheers

Siyuan

Output time: 11:09 PM