Strategic Management: European Automobile industry - Essay Example

Munchener AG: Strategic Management Plan Our Vision The Business Climate Our Performance The Challenges The Competitors A Strategic Business Plan ----------------------------------------------------------------------------------------------------------------- Ladies and Gentlemen, I welcome you all to this meeting to review the status of your company’s business and financial performance, and to draw up a winning strategy for facing the emerging challenges in the global automobile marketplace in general and European markets in particular. At the outset, I thank you all for reposing your trust in me to steer your company to commanding heights in the next four years. Our Vision Our vision to 2010 is to position Munchener AG as a market leader in automobiles recognised by consumers and the industry in Europe and worldwide for excellence in technology, quality, and product range. The Business Climate We have been operating under an extremely trying and challenging business environment. During the last several years, the automobile industry worldwide and European markets in particular have been witnessing high levels of competition, with little signs of real growth in terms of volume of sales, revenues, and profit margins. This has forced automobile companies to offer better value for money to the customers, squeezing prices and profit margins in the process. This was particularly so in case of commoditised type of passenger vehicles. High volatility in world oil prices continues to remain as a major cause of concern, having steadily risen during the recent years, and hovering between $60 and $70 in 2004-05. This has adversely impacted prices of petrol and diesel in Europe. There is little sign of hope that the oil price levels will fall in the near future. On the other hand, it is expected to maintain the current levels, if not escalate, in the next 18 months. This is bound to act as a dampener for automobile users and buyers, with a telling effect on demand worldwide. The rising demand and competition in the steel sector, especially due to the growing markets in China and Asia, will inevitably lead to a rise in the cost of basic raw materials for automobile manufactures in Europe. Your company is no exception. We need to factor this in our business plans for the future. New legislation relating to automobiles has put further constraints on sales and profitability through increased cost burdens. For instance, the End of Vehicle Life legislation, passed by the European parliament in 2002, mandates ownership of vehicles right through to the end of their natural life, after which they must be removed from circulation. Although the impact is not significant right now, it is bound to cover all new and old vehicles by the year 2007. Our Performance Europe continues to be the world’s largest car market, with total units sold having exceeded the corresponding numbers in the United States. However, given the flat economic conditions and slowdown globally, passenger car sales across Europe in the last four years (2001-04) remained rather dull, except for UK, where 2.5 million units were sold in 2004. Despite the challenging conditions and stiff competition in the automobiles marketplace, your company has continued to maintain its position as the leading automaker in Europe with a strong brand image and sound financial performance. During the year under review (2004-05), total sales recorded Euro 3,875 million, with profit of Euro 160 million, and cash at Euro 664 million. In comparison, the sales revenue in the previous year stood at Euro 3,567 million. This accounts for an encouraging growth rate of 8.6% in sales. You will be glad to know that while the European automobile markets fell by 4.5%, and US markets by 3.2% in the first six months of 2004-05, your company registered a sales growth of 4.7%. Brand sales of the company in US alone grew by 10% during this period. Two models of the company registered a significant market share during the year. Model 320 I sold 65,000 units with a price tag of Euro 25900, with a market share growth of 1.33%, and gross profit percentage of 26.7. Model 525 SE sold 56,200 units at a price of Euro 39,000, with a market share growth of 1.44%, and gross profit percentage of 32.4. In the year under review, your company continued to invest in promoting brand awareness and advertisement programs with a view to developing long-term relationships with the customers. In recent years, Munchies also undertook an overhaul of products with a view to making them more attractive to the new generation customers. You would be aware that in last month’s Board Meeting, a decision was taken to invest in a brand development programme that would be capable of attracting customers by turning them away from the more traditional companies in the marketplace. The meeting also took note of the need to involve an effective dealer network in this programme. This would be taking shape in the form of an Autumn promotion focused on a series of Television and media exposures. We also need to fine-tune the details and logistics of this programme, including the products and brands that we propose to feature in this brand development campaign. The Challenges A lot has been happening in the industry in recent years, and we need to brace ourselves to effectively face much more in the near future. Pressures on consumer demand for passenger cars due to rise in world oil prices are expected to continue in the medium term, with estimates forecasting the price to hover between $60 and $80 in the next 20years. Although the recent OPEC meet resolved to hike production of crude, it is unlikely to bring down the escalated prices. With the US$ losing strength gradually and the global impact of the Iraq issues beginning to be felt across economies, the prospects of a favourable oil price stabilisation appear to be far from encouraging. This is bound to hit the luxury car segments most. The recent investigations by the European Union (EU) into the pricing and anti-competition practices in European automobile markets are perceived to be very much in tune with many governments across Europe to chalk out a more stringent regime of legislation and controls and to put in place integrated transport policies. These include plans and policies to tax motorists and to increase the tax imposed on motorcars in general, especially SUVs and 4x4 vehicles. London has already imposed City Tolls in the name of congestion charging, while Paris is reported to be following suit soon. There has been continuing pressure on UK to join the EU. However, this is unlikely to take place in the next 4-5 years, more so in light of rejection of the European constitution by both the French and Dutch governments. Although the Bank of England and the European Central Bank have left interest rates untouched, there are genuine fears that the growing signs of an economic slowdown may eventually lead to a cut in interest rates in the short-term horizon. These are factors that are bound to impact overall demand for our products across European markets. Cost of raw materials, especially steel, is likely to be on the upside with growing demand coupled with the recent instability in global commodity markets. With the fast-paced advances in e-commerce and online portfolio services, the time has come to get into this fray by launching suitable websites, and by resorting to outsourcing and adopting modern supply chain management tools. The Competitors A good number of competitors in the automobile markets in Europe and worldwide pose challenges relating to product range, pricing, quality, and value-for-money propositions that we need to take not of while drawing up our strategic business plan for the next three years. These include: Vorspring AG, Megane Cars SA, Civic Class Cars, Sunny Autos, and Sloane Motor Co. A Strategic Business Plan Given this complex industry scenario that is expected to continue for the next 3-4 years, there is an urgent need to realign our business priorities to emerge as a winner in the increasingly competitive marketplace. Your company will continue to focus on retaining the engineering and build strengths while promoting changes that may be necessary to make them more appealing to the clientele, especially the young family. Munchener will continue to be committed to the highest quality in all product and service activities. Our strengths include an impeccable reputation for quality, an easily recognised brand despite low spend on marketing, and a very loyal customer base. Our business is strongest in the luxury saloon market, which at the same time is marked by tough competition from traditional rivals such as Vorspring and Mercedes, and new entrants such as Lexus and Ford (a major player, with the Lincoln range in the US). These competitors also boast of well-known brands and loyal clientele. It is estimated that the premium brand would grow by as much as 50% in the next 10 years, while the mass volume segments could register a growth of 25%. Our strategic business plan would focus on three basic parameters of achievement: consolidation and strengthening of premium brands; improved profit margins; and better revenue growth. I propose the following outline of our strategic business plan for further discussions: Target premium brands in the international automobile markets with a view to offset the glut, overcapacity, and economic slowdown in the European markets. Achieve higher revenue per vehicle on the basis of high value product substance and an unmistakable brand profile Enhance our capacity for bringing out new brands from the present one in 2 years to one every year. This would imply greater R&D effort. Group Research and Technology group will be assigned this task of innovative designs after consumer surveys in the global marketplace. The Group Research and Innovation Centre would incubate the idea, in collaboration with the Virtual Innovation Agency (VIA). Develop a couple of multi-brand manufacturing complexes for economies of scale (one in Europe, and one or two in other global regions such as Asia and Africa. Group Research and Technology will take up feasibility studies before finalising the proposals. Expand the MINI brand in a big way, and bring out a new version in the year 2006. We have already acquired the rights and invested Euro 500 million. Expand the motorcycles business into global markets, as it has massive potential demand, especially in the developing markets in Asia and Africa. * * * * Read More