1. INTRODUCTION
The automobile industry involves large capital for a minor decision to be made. Making decisions can be difficult because there are many competitors and one wrong selection can cause immense failure. The victory of any firm in this industry depends on the sales of the vehicles, meeting the customer demands and overall control and management of the finance with appropriate implementations.
A total of 6 manufacturing firms were competing in the industry with variety of vehicle class. Each firm had a management team according to the Stratsim programme. The teams had to formulate strategies and make decisions for period 2 to 5. This programme had two basic objectives; to manage the short cash flow for a positive return for the shareholders and to adapt to the changing environment so as to manage long term returns to the shareholders. This report illustrates the analysis of firm A(amazing cars)with the strategic decisions and goals of the automobile industry according to the team
2. INDUSTRY OVERVIEW
Initially, the economy was fairly stable with the reasonable gas prices the demand for vehicles had increased creating opportunities for the manufacturers to have maximum vehicles sales. All the firms started at the same level which gave all he firms a fair chance to compete in the industry, creating market and value for their vehicles.
3. STRATEGIC ANALYSIS
3.1 INITIALLY STRATEGY
Since all the firms had started on an equal ground, the main aim for firm A was to maximize the vehicle sales in order to overcome some of the debt by generating into existing markets for its vehicles with regard to positive customer feedbacks. Failure of any vehicle class would be discounted of produced in limited inventory while remaining resources can be used to develop and manufacture new/existing vehicle.
3.2 MISSION and VISION of Firm A (Amazing cars)
Mission
The mission was "to develop quality cars in order to satisfy customer demands"
Vision
The vision of the firm was to grow into the leading vehicle manufacture in the industry and produce a variety of other vehicles in the long run with competitive pricing so as to cover all the consumer market segments.
3.4 INTERNAL ANALYSIS
3.4.1 SWOT
Strengths
The team was working unanimously in all the decision making process by giving different strategies and various marketing, operational and technological tools to be used for the decisions.
Our aim was to satisfy and overwhelm the customers by fulfilling the demand and requirements
Weakness
Decisions were made based on short- term returns thus causing financial loss at the end
All the firms started at the same level with similar product specification, leaving no room monopoly of firm A
The variety of the vehicles firm A offered was relatively less thus may not be meeting all the consumer market segments
Weak financial position to start with as there was a debt and decision costs were high.
3.4.2 VRIO
Value: initially the firm started with a positive cash flow to take the company forward. The decision to upgrade Alec and Alfa in period 2, was fruitful as it increased sales and there was a profit which helped to clear part of the debt
Rareness: starting at the same level in the industry left rareness out of the box for firm A (amazing cars). The rareness came in the final decision when the new product AEV was launched, creating a need for it in the first three decisions made.
Imitability: the imitability was relatively high in the programmes since any firm could duplicate other firm's decisions because all the decisions were available on the web for the other firms to see. Thus there were high risk factors in the Stratsim programme. This programme had very little differentiating options to create uniqueness of the firms
Organisation: the organisation started off well but due to mismanagement of the funds and weak strategic planning the decisions did not favour the organisation resulting into the decline of the firm's growth rate. At the end the firm had incurred a loss. (See appendix 1)
The VRIO model was not practical at first due to the similar firm attributes in the industry but with the ongoing decisions and periods the model could come handy for firm A when undertaking strategies and decision making process.
3.5 EXTERNAL ANALYSIS
3.4.3 CRITICAL SUCCESS FACTORS
Critical success factors are divided into two; threshold factors and differentiation factors.
In the case of firm A (amazing cars), we have tried to concentrate on the basics like vehicle performance, safety and durability. Example for the family and economy vehicle, safety has been the main aspect and performance for the truck.
The differentiating factors can be fuel efficiency and interiors because 5 of 6 firms are competing with the same vehicle class making it difficult to differentiate the vehicles from one another.
3.5.1 PESTEL ANALYSIS
Political: the changing policies and government intervention on gas prices and pollution may cause the sales to drop because people may purchase fewer automobiles.
Economical: financial crisis, economic instability and natural disasters may pop in anytime leaving the car industry in jeopardy. This is because cars are expensive and it's not a necessity to have a luxurious automobile resulting into lower sales.
Social: the change in taste and preference of the consumer may occur anytime due to the economic factors or rise in income which may lead to the demand of luxurious automobiles.
Technological: the development in technology is increasing causing people to desire for new and eco friendly automobiles. The initial capital to manufacture cars is high thus the Firm may not be able to change and produce new cars all the time.
Environmental: the automobile industry is always under great pressure as the gas emissions from these automobiles are harmful to the environment. In totality all aspects of pollution is covered like noise pollution is also another environmental factor which can and does affect the industry.
Legal: the changing laws and regulations on traffic control and pollution may either favour the industry or not favour the firm thus causing a risk to the firm
3.5.2 SWOT analysis
Opportunities
Every firm started at the same level thus there was zero competition. Thus firm A had a fair chance to make its mark in the market with its strategies
Firm A was manufacturing 3 vehicle class meaning that other market segments for the remaining vehicle class like AEV , minivan and luxury were untapped creating an opportunity for Firm A
Appropriate use of the funds in research and development can lead to profitable long term returns.
Threats
Every firm had the advantage of being first mover in the industry since all the firms started at the same level making it a risk for Firm A. This is because the other firms can launch a new product before Firm A.
Changing laws and regulations of the economy regarding gas emissions
Economic instability like inflation and recession could lead to downfall in the vehicle market.
The ongoing competition for the top manufacturer by the firms in the industry.
3.5.3 PORTER'S FIVE FORCES
Threats of new entrants: the threat of new entrants if low due to the high capital investment required for the manufacturing plant. Also the programme started at a fixed level allowing no liberty for new entrants
Threat of substitutes: the threat of substitutes is low. 5 of 6 firms are producing similar products in industry and the period for competition is fairly less so there are very little options for substitutes. Manufacturing new product takes time so that is another contributing factor.
Bargaining power of supplier: according to my knowledge car parts and necessities are manufactured by few specific suppliers for a single firm thus giving an upper hand to the suppliers. The other aspect it that there are very few suppliers in the overall industry making it difficult for a Firm to change/shift to other suppliers, therefore bargaining power of the suppliers is medium to high.
Bargaining power of consumer: with 5 firms producing similar product in the market, the consumers have their pick with the best vehicle available considering the major factors like price, quality, safety and efficiency. The bargaining power of the consumers can be a risk if other firms have competitive price range.
Existing rivalry amongst firms: with the ongoing level of competition in the industry the existing firms are giving a stiff competition to Firm A. The fraction of differentiation between the vehicles is relatively less and the time frame of the programme limited product differentiation resulting in all the firms into using price differentiation strategy. Thus the existing rivalry is high in the industry
4. SIMULATION RESULTS
Initially, in the first decision the management team upgraded 2 vehicles, Alec and Alfa. These were minor upgrades done in the area of interiors, safety, style and quality. The dealer were offered higher discount percentage so to increase sales and also dealerships in north and south were increased 10 and 20 respectively. The first decision brought significant profit and amazing cars was going on the right track. (Appendix 6.1)
The family car did subsequently well and become the most preferred vehicle until period 4. The sales for both Alec and Alfa increased. Ace, the truck was upgraded in the 3RD period since the Firm had 2 development centre and only two products could be upgraded at the same time.
In period 4, the sales dropped due to poor strategic planning. According to the decision in period 2, a new product was to be manufactured in period 4 but due to less funds and poor marketing decisions, the firm postponed the launch till period 5. This resulted into
risk from other firms as firm D launched a car in period 4 using the first mover advantage.
The team tried to market the products in the best way possible by increasing dealers in north, south and west regions so as to get maximum coverage. We also offered extra discount to the dealers which would motivate them to sell more vehicles in order to earn higher commission.
In the technological aspect no new development centres where launched as the cost were really high. The team was not ready to take the risk which probably caused the decline at the end.
The portfolio analysis shows the vehicles are between question mark and dogs implementing that the vehicles need to either be enhanced to suffice the customer needs or further decline may cease manufacturing one of the vehicles. (Appendix 6.10)
The launch of two new vehicles Altima (AEV) and Acra (minivan) is expected to boost sales and do well in the market. This will only be known in period 7 since the programme has been over with. Thus this remains suspense.
5. CONCLUSION
The firm's objective was to increase returns and become the largest manufacturer in the industry. The first two decisions made it a little possible but gradually the sales dropped (appendix 6.1) and the growth curve was going downwards. This may be because the firm wanted to play safe with the funds and did not invest in the right areas of technological aspect and marketing aspect. According to the performance summary the firm is forth out of five firms for Alec and Ace. Alfa did a slightly better and is rated 3 from the 5 firms
In totality the firm started off well with high returns and declined towards period 5. This may be due to the lack of strategic planning. Although the firm has made a significant profit over 4 years as the initially opening cash balance was 485 million and ending cash balance was 616 million, but debt has increased to 14902 million. (Appendix 6.3 and 6.4)
6. APPENDIX
6.1 Performance Summary - Period 5
Firm A
Per. 2
Per. 3
Per. 4
Per. 5
Sales ($)
$19,478.2
$20,132.7
$18,477.2
$14,461.6
Sales (000's units)
1,229
1,270
1,170
930
Market Share ($)
21.4%
20.5%
20.1%
15.2%
Market Share (units)
21.5%
20.5%
18.9%
14.2%
Net Income
$120.9
$89.3
$-294.9
$-3,187.8
Cum. Net Income
$805.0
$894.3
$599.4
$-2,588.4
Stock Price
$29.54
$26.44
$20.61
$5.88
Market Value
$14,771.0
$13,219.7
$10,305.9
$2,942.0
Return on Sales
0.6%
0.4%
-1.6%
-22.0%
Return on Assets
1.6%
1.3%
-3.8%
-22.5%
Firm Preference
19.0%
17.6%
16.9%
14.2%
Dealer Rating
61
61
60
57
COGS
80.1%
80.9%
82.3%
83.2%
Capacity Utilization
123.4%
133.0%
130.1%
120.1%
Debt
$3,897.0
$3,401.0
$4,795.0
$14,902.0
Stock Issue/Purch. %
0.0%
0.0%
0.0%
0.0%
Note: Dollar amounts are in millions.
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6.2 Income Statement - Period 5
Firm A
$Mill.
$Mill.
Sales
14,462
100.0%
Materials
8,259
57.1%
Labor
3,768
26.1%
Gross Margin
2,434
16.8%
Marketing
240
1.7%
Research and Development
929
6.4%
General and Administrative
904
6.3%
Manufacturing Overhead
580
4.0%
Depreciation
800
5.5%
Income from Operations
-1,019
-7.0%
Extraordinary Items
-530
-3.7%
Interest Income/Expense
-1,639
-11.3%
Net Income
-3,188
-22.0%
Tax
0
0.0%
Income after Tax
-3,188
-22.0%
Dividends
100
0.20/sh
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6.3 Balance Sheet - Period 5
Firm A
Assets
$Mill.
Liabilities
$Mill.
Cash
616
Accounts Payable
1,684
Receivables
1,128
Short Term Debt
14,902
Inventory
6,152
Long Term Debt
0
Plant and Equip.
11,714
Total Liabilities
16,586
Depreciation
-5,436
Stock ($1 par)
500
Retained Earnings
-2,912
Total Equity
-2,412
Total Assets
14,174
Total Liab. and Equity
14,174
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6.4 Cash Flow Statement - Period 5
Firm A
$Mill.
Starting Cash
485
Income from Operations
-1,019
Plant Investment
-3,714
Financial Operations
8,368
Adjustments
-3,504
Ending Cash
616
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Product Contribution - Period 5
6.6 Firm A Product Contribution
Vehicle
Units
(000's)
Dealer
Sales
(mill.)
Direct
Sales
(mill.)
COGS
(mill.)
Gross
Margin
(mill.)
Adv
Promo
(mills.)
After
Mkting
(mill.)
Ace
185
$3372
$0
$2524
$848
$55
$793
Alec
286
$2857
$0
$2925
$-68
$60
$-128
Alfa
460
$8233
$0
$6579
$1654
$75
$1579
Total
930
$14462
$0
$12027
$2434
$190
$2244
Note: Dollar amounts are in millions.
6.7 Per Unit Contribution
Vehicle
Per Unit
Revenue
Per Unit
COGS
Per Unit
Margin
Margin
Pct.
Adv
Promo
Per Unit
Contrib.
Contrib.
Pct.
Ace
$18243
$13654
$4589
25%
$298
$4292
24%
Alec
$9998
$10235
$-237
-2%
$210
$-447
-4%
Alfa
$17908
$14311
$3597
20%
$163
$3434
19%
Total
$15545
$12928
$2617
17%
$204
$2413
16%
Note: Dollar amounts are per unit.
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6.8 Distribution Detail - Period 5
Firm A
North
South
East
West
Total
Full Coverage
200
250
150
200
800
Established Dealers
138
165
120
128
551
Coverage
69%
66%
80%
64%
69%
Planned Openings
-10
-20
0
-15
-45
Support/Dealer (000's)
$86.1
$74.2
$96.9
$91.7
$86.2
Units/Dealer
1,509
1,679
1,634
1,944
1,688
Sales/Dealer (mill.)
$24.9
$28.0
$26.8
$31.7
$27.8
Service/Dealer (mill.)
$1.4
$1.4
$1.7
$1.8
$1.6
Gross/Dealer (mill.)
$1.9
$2.2
$2.2
$2.5
$2.2
Dealer Rating
57
57
58
58
57
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6.9 Manufacturing Detail - Period 5
Firm A
Capacity (000's)
1,000
Coming on Line (000's)
500
Vehicle
Prod.
(000's)
Sales
(000's)
Inv.
(000's)
Days
Inv.
Comment
Ace
224
185
125
246
Alec
353
286
94
120
Alfa
625
460
244
193
Total
1,201
930
462
181
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6.10 Portfolio Analysis - Period 5
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