The Analysis of Australian Automobile Company - Holden - Case Study Example

Business report about the analysis of Australian automobile company-Holden Student’s name Professor’s name Course title Date Introduction Automobile industry in Australia is one of the industries facing a lot of competition, leave alone problems. The industry is made up of a number of firm players which include, Holden, Mercedes Benz, Mazda, BMW, Jaguar as well as Toyota, to name just but a few. Of the players, some are based in Australia, whereas others are firms based in other nations, but have just expanded its operations to Australia (Holden, 2016). For example, Toyota is one of the firms in the automobile industry in Australia based in Japan, but has expanded its operations to Australian markets. Because of many players, the industry is facing stiff competition, which requires that a business firm needs to be competitive in the manner in which it undertakes its operations in order to achieve competitive advantage. Founded in 1856, Holden has grown over the years to be Australia’s leading car maker, a position Holden has held for over twenty years. However, in the 2000s, Holden ceased taking leads as far as car production is concerned as Japan’s based Toyota out beat it in the market place (Holden, 2016). Holden’s market performance has been wanting since then, with the company making a declaration of its intention to quit production by the end of 2017. The company has been reputable in its involvement in Social corporate responsibility programs and the concern in environment conservation (Holden, 2016). This report therefore focuses on Holden as one of the firm players in the Australian automobile industry, discussing majorly its operations in terms of market establishment, products, financial performance, Problems faced by the firm as well as providing recommended solutions to problems encountered. Holden’s Operations Holden’s history Holden is rich of history in Australia. The company dates back to as early as 1856, the time when James Alexander Holden began as a saddlery business in South Australia, Adelaide to be specific (Holden, 2016). The business firm evolved and grew over time, its operations expanding progressively, starting with the repair of vehicle upholstery to the massive production of vehicle bodies. With increased performance and progressive growth, in 1924, the company was selected to be the supplier of America’s car manufacturer, General Motors in Australia (Margaret, 2013). Additionally, Holden had the better part of 1920 supplying Tramcars for Melbourne in Australia. However, owing to the good performance of Holden in Australia, the American General Motors became interested in Holden’s operations and in 1931, the two companies entered into a merger, merging to become General Motors-Holden Limited (GM-H) (Resources News, n.d.). In the 1990’s the company was beaten in the market by Japan’s Toyota, for the first time in Australia’s History. Out of the competition in the automobile market in the 1990’s, Holden’s market share started falling in the 2000s with Holden’s market share falling by close to 15% in the year 2006 (Holden, 2016). However, in the year 2003, a new plant worth $400 Million was opened in Melbourne and this therefore saw Holden start the business of exporting to countries like Korea, USA and China. In fact, according to (Holden, 2013), the V6 engine plant established in Melbourne is one of the company’s largest business investment in Australia. Toyota became the Countries top selling brand, beating Holden, A position Holden has been holding and boasting of for the last over 20 years (Holden, 2016). However, the changing business operations in the automobile industry in Australia have altered Holden’s business operations today (Raleigh, 2013). After enjoying more than 20 years as Australia’s top selling brand, Holden Commodore was beaten by Japan’s Toyota and Mazda 3. In fact, it is the first time in Australia’s history for a locally manufactured brand to be outsold by a foreign brand. However, Holden, with a view to struggling for its share in Australian market, continued to undertake it operations in Australia but as a subsidiary of General Motors, engaging in exportation of vehicles and engine parts to other nations (Farrell and Pankhania, 2013). Holden’s operations, products and markets Holden’s plant, known as Holden’s Vehicle Operations (HVO), situated in Elizabeth in South Australia is still in full operation, producing more than 50 car models with more than six different styles and more than nine variations. In fact, according to Holden (2016), it is one of the few facilities capable of producing different car models and variants. The plant produces two different types of vehicles, both large and small which include Holden commodore and Holden Cruze (Holden, 2016). HVO is made up of press shops as well as metal assembly operations besides facilities that deal with hardware, painting and plastic operations. The $400 Million plant that was set up in the year 2003 gives Holden state of the art flexibility regarding the range and type of engine models that can be produced, with the variety ranging from 2.8, 3.0, 3.2 to 3.6 litres (Media GM, 2016). The V6 engines produced can be exported to various countries including Korea, Sweden and Thailand (Holden, 2013). Holden has a powerful design and engineering center situated in port Melbourne which has a lot of expertise in design and engineering for General Motors (GM) internationally. The center is among General Motors (GM’s) nine engineering and design centers responsible for producing Holden’s brands like Commodore and Chevrolet Camaro. The center also produces powerful engines like V6 and V8 (Holden, 2016). Holden’s financial performance Holden’s performance in the automobile industry has been declining in the recent past, partly due to reduced operations and partly due to the intensive competition in the industry. In the year 2012, Holden made a loss of more than $152.8 Million. There was an additional loss of more than $225 million as a result of restructuring and alignment of the company’s demand which has been reducing in the recent past. In the year 2012, Holden’s revenue turnover was estimated at $4.0 Million which is lower than 2011’s revenue turnover, which was estimated at $4.3 Million (Holden, 2013). This is attributable to reduced sales for locally manufactured brands like commodore and Cruze. According to Holden’s chief financial officer, the financial performance replicated in the year 2012 was as a result of intensive competition in the Australian automobile industry. Australian automobile industry is one of the most open and exposed automobile industry in the whole world with a variety of passenger vehicles to choose from. In fact, research shows that there are more than 180 passenger vehicles to choose from (Holden, 2016). Holden’s financial performance is also negatively affected by the decline in Australian dollars. The company boasts of its locally manufactured brands like commodore and Cruze contributing to more than 60% of its total sales, with the remaining portion of 40% being contributed to by company imports (Federal Chamber of Automotive Industries, 2014). However, despite the losses Holden has been incurring in the recent past, it is geared towards profitability in spite of the fact that the company has made an announcement of the intention to quit the Australian market by the end of 2017. As at 2012, the company’s financial position was good as depicted by its balance sheet which had zero debt balance. In the year 2012, Holden increased their capital expenditure to over $100 Million up from $35 Million in the year 2011 (Holden, 2013). The capital expenditure was in relation to purchase of new Property, Plant and Equipment (PPE). Besides the intensive capital expenditure, Holden further invested a whopping $197 Million in Research and Development (R&D) (Holden, 2013). Holden’s operations and environmental impact The manufacture of cars is a very valuable industrial process in any country which has ventured into the same (YOU, COULTHARD, and PETKOVIC-LAZAREVIC, 2010). However, in as much as the industrial process has some form of value attached to it; it impacts on the environment through the rate at which it consumes resources and emits waste into the environment. Holden has taken the challenge by its horns by ensuring that it strikes a balance between its production needs and environmental needs (Holden, 2016). Holden has an environmental management system which complies with the requirements of ISO 14001. Holden’s environmental management system is in consistence with General Motor’s (GM’s) environmental management system. According to Holden (2013), Holden’s environmental management system is made up of a four process which include: Plan, Do, Check and Act. The processes ensure that environmental measures or rather metrics like water and waste are regularly monitored. Holden has been structured in such a way that every business unit in Holden is held accountable for its environmental performances. GM undertake a periodic review of its environmental measures in order to remain relevant in as far as environmental issues is concerned. This move acts as a benchmark through which Holden reviews its environmental measures on a regular basis (Holden, 2016). Holden’s reputation Holden is reputable in its involvement in activities that are meant to benefit the whole community. The company has developed structures that ensure that employees participate various donation programs. Research shows that Holden has more than 26,000 charities (Holden, 2013). The organization has designed its structure in such a way that donations are automatically deducted from the employees’ pre-tax pay. In the year 2012 alone, Holden contributed more than $1.28 Million in the form of donations to the general Australian community. In fact, according to Holden (2013), the cash donations made in the year 2012 to the tune of $1.28 Million were way far less than the donation made in the year 2011 (Holden, 2016). This is because a sizeable amount of donations made in the year 2011 was directed towards catering for disasters that struck the nation in the same year. Holden ‘s program that is meant to benefit the community focuses majorly on ensuring road safety, provision of good quality education to the Australian community as well as ensuring proper conservation of the environment. According to Holden’s community participation policy, provision of projects that enhance continuity and development in automobile technology besides improving roads safety and child safety is one of their core mandates as far as social corporate responsibility is concerned (Holden, 2016). Within the framework of Land care Australia, Holden supports quite a number of programs aimed at restoring and protecting g the environment in Australia (Holden, 2016). Holden is reputable for involvement in activities like planting of trees and conservation of natural habitat, a move that the company has successfully undertaken through its collaboration and partnership with Landcare Australia. According to (Holden, 2013), through Holden Environmental Landcare Partnership (HELP) that was incorporated in the year 2010, Holden has been in a position to assist in rebuilding Australian natural habitats that had been affected by fires thereby restoring natural habitat for Australian native animals. Holden’s strengths in operations a. Holden, having been founded in the year 1856, managed to maintain its motor vehicle brand in spite of intensive competition in the automobile industry. b. The company has employed more than 6000 employees in Australia (Holden, 2016). c. Holden is known as Australia’s car maker in the Australian automobile industry that is specialized in SUV and minivans. d. Holden has the strongest brand image, especially in countries like Australia and New Zealand. Holden has significantly grown in the recent past and the growth is owed to its merger with General Motors (GM). e. Holden boasts of reduced labor costs f. Holden has divided is business into business units that have turned out to be experienced and successful (Holden, 2016). g. Holden has experienced and qualified staff. Problems encountered by Holden in business operations Holden is set to end its operations by the year 2017 (Emma, 2014). The implication is that out of the more than 6000 employees that the company has employed, close to 3000 employees are also set to lose their jobs (Emma, 2014). Of the 3000 employees set to lose their jobs, 1600 are from the manufacturing plant based in Southern Australian and 1400 are from a plant in Victoria. As a result of the announcement of the intention to end operations in Australia by the year 2017, Toyota, a leading car manufacturer in Australia has also warned of unprecedented pressure to continue manufacturing cars in Australia (Emma, 2014). The decision of finally intending to stop operations by the end of 2017 is a reflection of the negative effects and influences the automobile industry is facing in Australia (Resources News, n.d.). Additionally, the move is as a result of the continued strengthening of the Australian dollar, increased cost of production, reduced market share and increased competition in the automobile industry. Holden is suffering from the brand portfolio because of rigidity in production. The Australian automobile industry is turning out to very competitive with Holden competing with brands like Mercedes Benz, Honda, Audi, BMW, Mazda, Toyota and Hyundai amongst others (Holden, 2016). A Technological innovation that has been adopted by other vehicle manufacturing companies like Toyota and Mercedes Benz have enabled it remain competitive and become leaders in the Australian automobile industry. One of the problems, therefore suffered by Holden is portfolio rigidity and limitation. Given the fact that Holden’s operations have been broken down into business units, the challenge is that the business units are relatively small. Having small business units has rendered the company cave into competition from other car manufacturing companies in Australia (Holden, 2016). Another problem that is faced by Holden is its cost structure. The inability of the company to make profits is as a result of its cost overriding its total revenue. Compared to other players in the automobile industry in Australia, Holden has a very small market share. According to (Holden) 2016, Holden is just present locally in Australia and New Zealand, which makes it a limitation in terms of attaining competitive advantage. Similarly, the inability of Holden to remain technologically savvy is another factor that has made it not enjoy a competitive advantage (Holden, 2016). Recommended solutions i. Because Holden is limited to mostly the local market in Australia, Holden has not been in a position to make much sales to enable it compete with other giants in the automobile industry in Australia like Mercedes Benz and Toyota. Therefore, in order to enable Holden enjoy a competitive advantage, Holden must consider expanding its market operations to Asia and Africa unlike concentrating only in Australia and New Zealand. ii. Since Holden is a subsidiary of General Motors (GM), Holden can capitalize on the opportunity the parent company offers to develop its own brands. This will not only give Holden a mileage as afar as competition is concerned but will also increase its profitability and enable it recover its lost pride, pride the company held for being the leading automobile company in Australia for over 20 years. iii. The company should consider revisiting its innovation strategies. Innovation is one of the elements that enables a business entity to enjoy competitive advantage (Johnson and Lafley, 2010). On matters innovation, Holden should consider moving from production of traditional cars to production of cars which are electronically powered. Besides, the company should segment its market and get to know its customers. iv. Holden should work on reducing its cost of production in order to enable it break-even. However, most of the factors that contributed to Holden’s successive losses in the past years are factors beyond the company’s control. One of the factors is the strengthening of the Australian dollar. This is an economic factor which is beyond the company’s control. However, the company should consider cutting cost caused by factors which are within its power. v. Holden should consider expanding the size of its business units inorder to enjoy the benefits of economies of scale. Conclusion It is evident from the report that the Australian automobile industry is competitive. This is evident from the number of firms in the industry, both local and international. Holden’s operations have been altered by competition. The leading position the company has been enjoying for over 20 years has been challenged, courtesy of competition. The business environment has been extremely competitive to an extend that the Holden has made intentions of quitting production by the end of 2017. However, in the meantime, in spite of the intentions to end operations by the end of 2017, Holden has been actively involved in Social Corporate Responsibility (CSR) directing its interest to the production of environmentally friendly cars and venturing into programs that champion for environmental conservation. Bibliography Emma, G 2014 Holden to stop making cars in Australia in 2017, Available at: http://www.abc.net.au/news/2013-12-11/holden-to-cease-manufacturing-operations-in-australia-by-2017/5150034 (Accessed: 8 October 2016). Farrell, P. and Pankhania, M. 2013, A history of Holden - timeline. Available at: https://www.theguardian.com/business/interactive/2013/dec/12/history-holden-timeline#undefined (Accessed: 8 October 2016). Federal Chamber of Automotive Industries 2014, Federal chamber of automotive industries. Available at: http://www.fcai.com.au/library/publication/G2201_FCAI%20AR%202013_WEB.PDF (Accessed: 8 October 2016). Holden 2013, Holden Business report 2012. 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