Ford General Motors Case Study

Analysis

In the 1980’s there was four top domestic car manufacturers; Ford, General Motors, Chrysler and American Motors Corporation. Ford and GM were the two that were taking the lead for the highest market share. Ford Motor Company was one the best top largest car manufacturers as well as sellers. However, early in 1987 Ford was facing a big external change that one of their largest competitors introduced; new warranty program. Not only would this new program policy change Ford’s sales and market share but would also affect the different departments involved within the organization. This competitor, General Motors, announced that they would be introducing a new and improved warranty. They would be upgrading their powertrain warranty which was currently 3 years/ unlimited miles up to 6 years/ 60,000 miles, as well as their corrosion warranty which was 3 years/ unlimited up to 6 years/ 100,000 miles. (Ford Case: Pg. 8) Not only was there a new program but also with this program came guidelines; only the first car owner would be covered by the warranty. However, they did establish that the warranty could be transferred but at a cost of $100 and any third or successive owners “would be entitled to a powertrain warranty of 2 years/ 24,000 miles.” (Ford Case: Pg. 8) Having these guidelines added another twist to this external change which was the focus now was not just on the vehicle but also on the owner.

The reason that the warranty change was a big announcement was because warranties were what the customers wanted and helped close a deal. For example take Chryslers change in their warranty policies. They had been the most aggressive warranty marketer in the entire industry. They focused a lot of their marketing on the warranty of their products, which was increased for domestic cars from 2 years/ 24,000 miles up to 5 years/ 50,000 miles. With this change they saw a market share gain of approximately 3% while Ford and GM unfortunately saw a loss of market share of about .5%. In order to counteract Chryslers improved warranty, both Ford and GM increased their powertrain warranties to 3 years/ unlimited miles but only for nonluxury cars. On top of the powertrain offer, Ford also offered four different type of ESP plans; ESP BASE, ESP PLUS, ESP TOTAL and ESP CARE. (Ford Case: Pg. 8) As shown in Exhibit 9 of the case, extended service plans sales increased greatly over the years. From $140.2 in 1984 up to $195.0 in 1985 then all the way up to $265.4 in 1986. The ESP program was a great source of revenue for Ford.

Recommendations

As stated in the case, the executives of Ford have to make a decision in regards to the best way to respond General Motor’s new warranty. They currently have five options, 1. Do not respond, 2. Match GM’s terms, 3. Exceed GM’s terms, 4. Offer less than GM but