The Morale of the Automobile Industry: Aston Martin - Assignment Example

The Morale of the Automobile Industry: Aston Martin Historical Background: Found in 1913 as Bamford –Martin Limited by Robert Bamford and Lionel Martin, Aston Martin name was conceived after success at Aston Hill Climb. Over a 95 year history, Aston Martin has proved itself one of the finest luxury & sports car brand exuding and speaking of British style. A1 shock to many British people came when Ford acquired 100% holding in Aston Martin in 1994.In 2007, Aston Martin was sold to a consortium of two major international investment houses Investment Dar and Adeem Investment, a deal that brought it back under partial British control. Considering this, our report will evaluate the future prospects for Aston Martin in seemingly difficult world economic conditions especially since the company has been facing takeovers a number of times in its history. External Analysis: The Macro Environment for Luxury Cars: According to a Luxury Institute Wealth Survey of luxury consumers, the luxury market consumers in the year 2009 are predicted to be: Internet Savvy, mobile commerce driven & price driven Aware of Corporate Social Responsibility; luxury will embrace corporate social responsibility Apart from these changes in consumers tastes and choices, At a global level, there has been a world wide recession whereby food inflation has increased by 14% in UK and prices generally have increased all over the world. The impact of these on automobile industry has been that US automobile industry has landed in financial trouble and is seeking the financial bail out promised by President Bush. The UK automobile industry is following the same track and the sales of cars started deteriorating in 2006 when UK was hit by a recession in the real estate sector. 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Cars Home Market 787 778 738 729 649 578 599 582 514 467 411 336 Export Market 745 908 973 1,031 1,150 1,063 894 1,047 1,144 1,180 1,185 1,106 Total 1,532 1,686 1,712 1,761 1,786 1,641 1,493 1,630 1,658 1,647 1,596 1,442 Commercial Vehicles (http://www.autoindustry.co.uk/statistics/production/uk/index) An article published in the Daily Telegraph describes the current situation as “The luxury car business is a ruinous place to be at present – which is unfortunate, given that these cars are a British specialty. Aston Martin, Bentley, Rolls-Royce and Jaguar Land Rover are all on short-time work, extending Christmas breaks and laying off staff. Last week, Aston Martin laid off 600 full- and part-time workers in Warwickshire”i Pestle Analysis: Political: The car manufacturers of UK are currently meeting up ministers and seeking financial help in the down term times of the industry. According to Sunday Times, the Government was evaluating options to boost sales including loan guarantees for car firms, loans on easy terms, however, no firm measures have been taken as yet.iiConsidering this, the future of the automobile industry in UK depends to a large extent on short term financial help from the Government. Economic: The credit crunch has impacted the UK Automotive industry negatively and the automotive sector is facing smallest sales figures in 17 years an article in The Guardian has reported.iii Social: Due to the economic down turn, people in the luxury goods market are more concerned about the corporate social responsibility of the company or brands they like.iv Technological: Being the twelfth largest manufacturer of vehicles around the world, UK is known to be a design, process and technological innovation centre and due to this Ford and Nissan have also shifted their design studios to UK. However, will the R&D budgets remain the same or will they by slashed in view of the given economic downturn? Environmental: The current trend is that consumers demand more fuel efficient vehicles both from a savings point of view as well as from a green living point of view. Considering this, the manufacturers have to make the difficult trade off choice between whether to have fuel efficient cars by compromising on horse power or have high house power with more fuel consumption. Legal: The legal procedures applicable to the automotive companies can be divided into two major categories, regulations on import and regulations related to export of vehicles. Compared to other countries, the UK taxation laws are lenient for the UK manufacturers. Five Forces Porter’s Five Competitive Forces Porter’s five competitive forces model was developed by Michael E Porter and provides insight into the opportunities and threats that corporate strategy should cater to. The Five competitive forces are supplier bargaining power, bargaining power of customers, Threats of new entrants, threat of substitutes & competitive rivalry: The luxury car market is highly competitive especially in bad economic times. The cutting edge that all big companies have is embedded in their strong brand names. Aston Martin has an advantage in this that it is a well known sports and luxury car brand. Supplier bargaining power: The UK automotive industry is divided into the component and manufacturer segment. According to the UK government statistics “There are around 2,600 component manufacturers in the UK, ranging from the global players to small and medium-sized businesses. Together they contribute over £4.5 billion added value and employ around 115,000 people”vconsidering this, due to the competition factor within the supplier market, the supplier bargaining power is not very strong. However, the presence of industry associations gives suppliers somewhat authority. Both the component manufacturers and vehicle manufacturers are n equilibrium. Competition: According to an article published at the Christian Science Monitor, “With so many new sports cars congesting the fast lane, bargains may leap out for consumers. Automobile manufacturers are building all these ultra-high-end cars, because there's so much competition squeezing their profits in the lower end”. There are many brands dominating this market and Aston Martin yet has to come amongst the top ten brands of luxury cars. Bargaining Power of Customers: Nowhere is the saying “Customer is the king’ more appropriate than this sector. This is the high end luxury market where customers have a wide variety of options to choose from in an economic down turn .The ultimate power lies with the customers. Threat of Substitutes: The luxury car segment is actually a luxury and not a necessity. The basic need is being satisfied by any car below the GBP 20,000 range. However, the differentiating factor lies in the perception of customers with reference to the car brands. So, competition comes from high end luxury car brands like Lamborghini Gallardo that apparently satisfy the same need. Threat of New Entrants: The investment required is so high, that there is virtually little threat from new entrants. SWOT ANALYSIS Strengths: 1. The greatest strength of Aston Martin is its heritage and brand name and the Lagonda Brand which is still very popular. The branding of Aston Market is very strong and the target market perceives them to have power, beauty and soul. The co branding of DBS model with Jaeger Le Coultre is a good branding strategy since both are high end brands. 2. Servicing & Maintenance Centre located at Newport Pagnell is a to world class facility where customers from all over the world can bring their cars for maintenance. Moreover, in certain cases, the technicians can even be sent to the customers. 3. Another strength of Astin Martin brand is the affiliation of James Bond with the car and the different car models have been featured in Bond movies giving them lasting publicity. Weaknesses: 1. The greatest weakness of Astin Martin is their weak financial performance due to which its ninety five year old history is marred by takeovers. 2. Another weakness is that even though Aston Martin has been in business for long, it still has not managed to be amongst the top ten manufacturers. Opportunities: An articlevi “Russians Take the Wheel at LDV”, published in The Guardian state: 1. The forecast is that the Russian market might double from 2.4m units to 5m over the next five years. 2. Russia is likely to overtake Germany as the biggest car market in Europe by 2010. With Russia partially protected from the global economic meltdown by surging oil and gas prices, demand for top-end vehicles can only increase 3. Foreign car market (in Russia) had grown by 64% in 2007 The above mentioned facts are a clear indication that Russia is the next emerging market for luxury vehicles and so Aston Martin should focus on this market. Threats: 1. The current economic downturn that has had a negative impact on the UK automotive industry is the greatest threat that Aston Martin faces. If it is able to face the difficult times, Astin Martin would emerge as a stronger brand. 2. The threat form competition and better technology is always a threat in this industry where latest technology and design justifies the premium prices that the companies claim. Strategic Challenges-Aston Martin Under the present circumstances, Aston Martin has two critical issues to deal with: The most important aspect is to survive the difficult times and the credit crunch which may last up to the year 2010. The other challenge for Aston Martin is to capitalize on the emerging Russian car market and establish a leadership position before nay other competitors. If not a leadership position, they should try to become one of larger car providers in Russia. STRATEGIC OPTIONS Strategy to deal with Credit Crunch and Economic Downturn: The aim of Aston Martin at this point should be to cut costs and aim all their efforts towards cost savings. The current strategy that Aston Martin has adopted is to raise the prices of the carsvii and lay off staff. But the question is whether this strategy will work in future? This strategy has been tried by various owners of Aston Martin but the greatest hitch has been extremely low levels of production. Considering this, for future it is proposed that the production levels should be increased in view of the expanding market in Russia and the premium prices should be retained to combat the financial downturn. Entry Strategy in Russian Markets: considering the immense potential that the Russian markets offer and from the success of Land Roverviii, Aston Martin should launch the DBS in Russia by establishing a service centre. Presence in a new market will be a plus point in face of competition. Brand building exercise in Russia should be started. Implementation & Change Factors: The greatest change that would be required is that the temporary layoff or the option of sending employees on sabbaticals or extended leaves on 1/3rd pay, will not be open any more to Aston Martin if they opt for stepping up production. Another issue that they may encounter is how to ask for price premiums after the supply of the car have increased. Moreover, the management of Aston Martin would have to pump in some cash in order to step up production as it would mean higher costs in form of salaries. Another cash intensive strategy is the launch of Aston Martin in the Russian market. The greatest issue that the management would face is to generated profits. On the other hand, the morale of the automobile industry workers including the workers of Aston Martin would be very low following layoffs and forced extended leaves at Aston Martin, which has taken place in the recent future. The prevailing uncertainty may lead to low employee motivation levels, turnover and low productive efficiency. REFERENCES Read More