A Question Concerning Expansion

By: Peter Wittwer
After our visit today with Federal Mogul and Ford, the two companies seemed to have very different business models. As Ellen Hughes-Cromwick and Dennis Tosh reiterated today, Ford is not trying to expand their company through the acquisition of other companies. They are focused on growth from within, specifically focusing on making great Ford cars as well as pushing Lincoln to become their single luxury car brand. Mulally consolidated the brand to shed costs of the other brands, such as Jaguar, Land Rover, and Aston Martin. He believed that getting the focus back on the Ford brand would increase quality and increase sales. It was Mulally’s, “One Ford,” that allowed the company Ford survive the financial crisis without declaring bankruptcy in the mid 2000’s. On the other hand, Ford Mogul has had a very different approach to growth. In 2002, Federal Mogul was catapulted into bankruptcy because of the purchase of Turner & Newall. They were responsible for the Armley asbestos disaster in Leeds, UK. The large number of products liability claims was the main cause of Federal-Mogul’s Chapter 11 bankruptcy. To emerge from this economic disparity, Federal-Mogul acquired many companies such as Robert G. Evans Co., Hanauer Machine Works, Inc., Metaltec, Inc., Mather Co. and Fel-Pro, Inc. They emerged from Chapter 11 in 2008, and since have solidified their position as one of the leaders in their industry as a supplier of various automobile parts. Since 2008, they have purchased the Daros Group in 2010 and the BERU spark plug business in 2012. Ford tried to maintain multiple companies they acquired and ultimately it led to spreading themselves thin. It will be interesting to see if Federal Mogul will meet a similar demise if they continue to expand and acquire different firms, or if Ford can continue to grow just focusing on producing great Fords as well as if they can turn Lincoln into a competitive luxury car brand.

4 comments to A Question Concerning Expansion

  • mayolj16

    I think the difference in strategies comes from the different industries they are in. While selling Land Rover, Aston Martin, and Volvo would represent selling some of the substitutes for the products produced by Ford and Lincoln, for Federal Mogul, buying other companies would represent buying producers of other autoparts that they do not produce, or buy producers of the same parts but in other countries, as it happened in Argentina with the purchase of In.De.Co. H. Minoli.

  • Alexander Dawejko

    I think because of the nature of the two businesses that they are both correct in their moves. Ford needs to focus (no pun intended) on itself; even Lincoln is a ball and chain that if cut Ford would be better off. Fed. Mogul is putting numbers on the board for the first time in years because they are diversifying their portfolio of products. Ford has been doing really well with the recent success of the Focus, the dashing Fusion, and of course the classics F150 and the Mustang. With the new CEO Fed Mogul is moving towards more after market goods which is exactly where the profit is.. and it shows! They profited for the first time in a decade last year! So by doing opposite things with their businesses they are in fact doing the same thing… making profit.

  • Louis Ike

    I somewhat disagree with the comments of my peers above. I accept that the nature of the supplier industry is much different in many aspects from the nature of the OEM business. Nonetheless, I am not sold that the differences arising between the two calls for such an incredibly different growth strategy that one would grow entirely internally and the other solely through M&A’s. Sometimes companies attempt to hide losses or dodge diminishing market shares by acquiring other companies, but this is only temporary and the wary investor can easily look into the financials to find out the truth. It is possible that all of Federal Mogul’s acquisitions provided synergies enhancing the business of both organization, but I am not entirely sold. That said, I do understand the strategy of Ford to look internally for growth seeing the bleak history of success by OEM’s in acquisitions.

  • The pre-bankruptcy M&A surge at Federal-Mogul led to Chapter 11, too hasty. But the underlying set of firms was reasonable, and since then the acquisitions have been quite selective (I’d have to research to find what if anything they’ve sold off). Some of this comes from other firms trying to rebalance after their own M&A boom that left them with product lines that didn’t fit the rest of the company (BERU). There’s a lot of this focused M&A the past couple years.

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