Question

Ford executives announced that the company would extend its most dramatic consumer incentive program in the company’s long history—the Ford Drive America Program. The program provides consumers with either cash back or zero percent financing for new Ford vehicles. As the manager of a Ford franchise, how would you expect this program to impact your firm’s bottom line? Explain.

Short answer

This program will impact the firm’s bottom line .

Step-by-step solution

Introduction

When Ford decides to implement the Ford Drive America Program, it will seek to attract a greater market share than its other rivals by offering consumers special and unique benefits such as cash back or zero percent financing.

To expect this program to impact your firm’s bottom line

The decision, despite the fact that it may reduce marginal revenues, will be offset by the greater number of vehicle sales under this program, which will have a positive impact on the bottom line of the firm.

However, if a rival with a Ford-like product (say General Motors) decides to compete by offering similar incentives, the market share of Ford will reduce and balance out, and Ford's overall profits will decline due to lower sales,

Hence, the long term this program does not have as much incentive to maintain it.