Analysis of Australia Holden Subsidiary - Case Study Example

HOLDEN SUBSIDIARY Student’s name Code & Course Professor’s Name University City Date Introduction Several times business enterprises, companies and Strategic Business Units (SBUs) find themselves tangled within financial distress. This could be attributed to several factors ranging from, failure to penetrate target markets, loss of potential markets, inability to stand up to stiff competition, failure to sustain customer preference, ineffective considerations of business environments among other factors (Bak, 2011). As such, these situations call for drastic measures by the entities to restructure or rehabilitate the companies through a strategic plan. This process is referred to as business rescue plan. In this paper, a fictional imagination of a scenario is used to design a prospective rescue plan. The rescue plan is targeting at developing a new venture (SBU) for Holden, a subsidiary of General Motors-USA. In as much as the scenario is fictional, the paper generates and uses realistically applicable marketing principles and analysis, strategies and plans to construct an organized business rescue plan for the Holden subsidiary (an Australian arm of GM). However the plan is targeted at promoting rapid business growth of the company, rather than a rescue plan for directly countering or averting a business crisis. Background of General Motors General Motors Company, which is commonly referred to as GM is a Multinational American corporation, with its headquarters at Detroit, Michigan. The company designs, manufactures, markets and distributes vehicle parts and assembled vehicles, while also selling financial services. In the international vehicle market, GM is a producer of vehicles under thirteen brands in 37 countries; Holden being the company’s Australian arm (Bernaciak, 2013). Holden LC Strategic Business Unit Description This venture entails the designing and manufacturing of a hybrid luxury sports car model, Holden LC. Ideally, the model will: have both electric powering and gasoline propulsion capabilities, minimize fuel consumption, on average consuming less than 2.51/100km be able to propel from 0-100kph in less than 4.5 seconds have a perfectly streamline silhouette, with precise contours have sharp steering, agile handling and a great braking system have a superstar car stance Be perfectly fitted with safety apparatus and mechanism, among other admirable features that would attract customer preference. The strategic design of this car would not only be a luxury suite but also an efficient car perfectly fit for the Australian local market. To the cool drivers, this Holden LC would be a reliable posh model but because of its double propulsion system, efficient for both short distance outs and long distance travels. This venture would be wholly owned by Holden Limited. The model, which could be considered as something closer to the Volt model but much superior to the Volt, could be manufactured within the Port Melbourne manufacturing plant and target the Australian richer or wealthy class of Australian population within the ages 30-40. Marketing The locally unique design of the venture, which is projected, to attract customer preference guarantees a favourable market position in relation to the main competitors Toyota and Ford. The market share metric projection would provide the market evaluation of Holden LC. Looking at future projections, using the market analysis and observation of car user trends, the venture is expected to be a business success and attract high profits for the company. External Environment SWOT Analysis Strength The company has a strong brand presence in Australia, given its inclusion of Chevrolet Lumina, sedans and V8 powered vehicles. As such, a renowned brand name is instrumental in increasing the company’s competitive edge. Evidently, it has a string backing from GM. Consequently, the Holden plant is one of the most flexible plants within the GM group, hence can be upgraded to comply with divergent changes. Weaknesses Reduced dealer network has seen it revise its dealerships market for closure. This will significantly reduce its propensity to renew its agreements with over 1000 dealership. Evidently the company registers a low debt rating following a 2008 audit from Fitch Ratings DBRS and other three companies. Opportunities Growth potential of markets in India and china hence the company can exploit such markets. China experienced a 14 % growth in motor vehicle to $ 97 billion in 2008 (PocketBook, 2014). Contrariwise, India’s growth in demand for new car was 15.5 % by 2009 (PocketBook, 2014) Increased global truck market is projected in the next few years, where the market volume has grown to 21.5 million by 2013 (Citation). The light commercial vehicles have grown by the 9.8 million units by 2010 (PocketBook, 2014). The rising demand of hybrid vehicles should offer considerable market penetration for the development of such vehicles. Evidently, G.M has produced six hybrid vehicles namely; Saturn Vue, Chevrolet Malibu, Aura Hybrids and Tahoe Hybrids. Threats Increased competition from Volvo, Daaimler, Fiat Group, Ford Motors and Isuzu motors, to name a few, offer significant threats to the competitive nature of the industry. As such, the company is compelled to increase enhancements that reduced the company’s effects. Porter’s Five Forces Analysis Analyzing the market forces that would have implications on the market of the Holden LC, the following observations are significant to the establishment of the venture: The bargaining power of the suppliers is strong. With Holden Ltd having established a manufacturing plant within Australia, most of the manufacturing assembly requirements are supplied by local Australian suppliers. The SBU would still engage the usual suppliers focusing priority on the quality of their products. Due to the prospective high market prize of the Holden LC, the bargaining prize of the buyers would be weak. However, the venture strategically identifies a specific potential target market locally for the car model. With prospects of reaching the international market, the U.S, Germany, France and UK also provide potential markets for this model. In addition, the threat of new entrants is low. The manufacturing of Holden LC would essentially require the assembling of several small parts that would require external suppliers and would cost too much time and money for new entrants. Moreover, there would still be the marketing and advertising costs. As such, Holden LC faces a minimal threat from possible new entrants. For the Holden LC, the threat of substitute products is strong. Holden Ltd owns a rich variety of appealing cars diverse to different tastes. However, to counter this threat, the model is specifically targeting a special strategic market. It would be designed with adorable features that would make it stand out as a revolutionary luxury sports car, thus attracting customer preference. Basically, it can be described as “that car that technologically-savvy persons would not only enjoy to ride and own but also as a revolutionary model with 100% cool appearance, a perfect suit for the cool driver.” Finally, with US carmakers, Ford and Japanese company Toyota also strongly established in Australia and devoting themselves to manufacturing electric cars, industrial rivalry on the local Australian market is very high. However, the Holden LC would possess a powerful visual appeal through an adorable physical appearance and attractive physical appearance that would give it competitive advantage over other company models. To add to that, with no limit to propulsion mechanism, the hybrid aspect would strongly attract customer preference to the Holden LC. Operations Considering the Australians government withdrawal of subsidies on car manufacturers locally, which is seen as a major setback and a reflection of the storm brewing in the Australian automotive industry according to Dan Akerson (GM CEO), that culminated into the announcement of Holden Ltd announce abandoning car manufacturing in Australia by 2017; Holden LC would be a perfect way of leaving the Australian automotive manufacturing space while also making a statement of significance in the exit. The US based Ford company has also announced exiting the manufacturing market by 2016 leaving only Toyota (Taylor, 2013). Therefore, Holden LC could go as the last manufactured product in Australia for the Australian Market while also opening up to future prospects of international exportation of the model. Funds for this project could be drawn from the company’s share holders and investors. Regarding the company’s current operations, it would be a strategic way to leave the manufacturing market while ushering in the future importation plans. Management of the SBU There venture shall require a particular organizational structure that shall me managed through several departmental levels performing various stipulated roles and reporting to one operations manager. Financials The SBU would ideally obtain funding from Holden Company’s investors and shareholders, which is so far deemed adequate for the entire manufacturing and marketing processes. Budget Analysis Sales 2015 2016 New Hybrid 1570 1700 Financial Results 2015 2016 Worldwide $ 55,780 $ 55, 567 Earnings Before Interests and Income tax $ 3257 $ 2978 Net Income linked to Common Stakeholder $ 2345 $ 2076 Diluted Earnings per Share $ 4.58 $ 2.91 Automotive Liquidity Available Liquidity Credit facilities 2501 3445 Cash and Marketable Securities $ 10, 645 $ 7, 234 Total Liquidity $ 13, 146 $ 10, 679 Adjusted Automotive Free Cash Flow Capital Expenditure (2,421 (2,117) Operating Cash Flow $ 4345 $ 3367 Free Cash Flow $ 1924 $ 1250 Critical risks The following are potential risk and probable suggestions and solutions for the venture: i. Competition from the BMW i8, a hybrid luxury car that has already launched sales internationally. However, Holden Ltd will take advantage of the already established brand in Australian market and on the international market on GM brand, thus equally attracting market preference and countering this competition. ii. Too high market prize for the model may discourage potential buyers. However, the model has a specific marker target of the wealthy class and thus affordability would not be a major issue in such a case. iii. Future competition on the local market with the Japanese Toyota company that has not declared intentions to leave the market yet. This would be countered by a powerful car model in the hybrid Holden LC, which would attract customer preference in comparison to the other brand models. iv. Preference of other imported GM imported models by Holden as from 2017, which would acquire solution through the launching of the Holden LC on the international market such that it is not only restricted to the Australian market. v. Weakened market response due to the governments weakened position stand on the automotive industry. The Holden LC would probably be the last of Holden’s manufactured on Australian soil, as such powerfully made hybrid brand to exit the manufacturing industry powerfully- targeting to leave a great impression in Australia and attracting international preference. Harvest Strategy In the occurrence that the venture becomes a cash cow and the production costs outweigh the market returns then the company would consider conducting a liquidation process, whereby all the proceeds would be given to the investors, shareholders and creditors within a period of 5 years. Milestone schedule Calendar Months 2015 - 2017 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 … Management Technology Assessment Benchmarking Analytical surveys Assessment of risks Integration, test and Validation Standard procedures Plug in hybrid test beds Benchmark testing Validation Energy storage DOE/USABC Battery Materials Applied R&D Manufacturing technology Power electronics and electric motors Converters & Inverters Motors Thermal control Integrated systems Engines and Fuels Engine and Fuel analysis Integrated systems Vehicle efficiency technologies Analysis Hardware studies Having a short time before manufacturing market exit, Holden LC would be designed and manufactured within a period of 2 years before the anticipated exit. Summary Holden LC is seen as a timely venture that would meet Australian car users’ needs. The venture is an ultimate business strategy that when implemented would maximize on the company’s profits through sizeable sales. 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