Wall Street

Hoffman, Bryce G., “Book Excerpt: Inside Ford’s Fight to Avoid Disaster”, Wall Street Journal, March 9, 2012, Online.

In Ford’s effort to avoid disaster, they spent countless hours at the Product Development center’s conference room reviewing, analyzing, and weeding out their long list of suppliers. They called this consolidation campaign “Project Quark”. They closely examined all aspects of each of their suppliers and created a risk profile for each supplier. They named GM and Chrysler as the most likely to fail first so they quickly ended their relationship, as well as with any companies who were heavily dependent on work from GM or Chrysler. Ford eventually narrowed their list of suppliers down to 850 and made it their top priority to help these companies survive the crisis. Both Toyota and Honda forged an alliance and all three companies agreed to share the cost of keeping their critical suppliers afloat this tough time. They knew if their suppliers failed, they would have no parts, and without parts, they would no longer matter.

This article demonstrates differentiated oligopoly. Each firm knows that any changes in its product’s quality, price, output, or advertising policy may prompt a reaction from its rivals. Trouble at the microeconomic level began for GM as Toyota began steadily eating into GM’s market share and GM did not meet its competition head-on. Consumers gravitated away from GM when their competitors started making cheaper cars, with better gas mileage and overall better quality. These cars eventually won an increasing share of the automobile market. The number of units manufactured for each of these brands represented too much output, a situation in which the marginal revenue is less than the marginal costs. Despite the obvious decline in demand for automobiles that were not fuel-efficient, GM persisted in marketing them, reflecting a microeconomic decision of management that seemed to disregard data on consumer preferences.