The Aston Martin and the BMW Company Industry - Case Study Example

Aston Martin and the BMW Company Student’s Name Course Code Class Institution Date Introduction The automobile industry has transformed the society for more than a century now. Many companies that developed throughout this period have had their moment of financial success as well as the financial meltdown (Gardener, 96). The financial swings have been attributed to the firms’ marketing strategies, quality of their product, political stability as well as the prevailing economic conditions. However, despite the volatility associated with this industry, most entrepreneurs have risked venturing into the manufacture and sale of vehicles, as there is a ready market for them. Each company strives to be as unique as possible by producing high quality and affordable vehicles that people can identify with. As a result, the competition for customers is currently fierce, and each company gets pushed to the limit to deliver in terms of design, performance, and affordability. Aston Martin and the BMW Company are two examples that bring out the real picture of what it takes to make it in the automotive industry. History Aston Martin was founded in 1913 under the name Bamford & Martin Ltd by Robert Bamford and Lionel Martin. The name Aston Martin came to be, a year later, following successful runs at the Aston hill climb in Buckinghamshire England (Colson, 16). The company later became associated with the manufacturing of high-end luxury cars in 1950’s and ‘60s. To date, the company has remained among the top manufacturer of high-quality vehicles in Europe and across the globe. BMW, on the other hand, became an automobile manufacturer in 1929 after purchasing Fahrzeugfabrik Eisenach. Its engineers progressively developed their cars from small cars into six-cylinder luxury cars (Colson, 80). During World War II, the company became fully engrossed in the production of aircraft engines and motorcycles. The company resumed the building of cars in 1952 in Bavaria, where the BMW 501 luxury saloon was first produced. Since then, a wide range of vehicles have been developed, including the BMW 7 series (E65) (Colson, 72). Market As a reputable luxury car in the world, Aston Martin is currently revising its market by targeting younger and female buyers as opposed to wealthy men. By targeting female customers, the company aims at expanding its customer base by providing a vehicle that they can identify with. The company is targeting China as a prospective future market as it is among the fastest growing automobile markets in the world (Clark, 53). The skyrocketing demand for luxury goods in the country amid the rise of the new class of millionaires has led to Aston martin’s anticipation that much of its future profit growth will come from China. The company is, however, at a disadvantage since companies such as Audi and Mercedes had already been in the market earlier and had already established themselves in the region. It is not the market establishment that Aston Martin is cashing in on, but rather, the purchasing power and generosity of Chinese customers (Clark, 64). According to Aston Martin’s Asia Pacific director, Matthew Bennett, there is nothing as a “typical customer” because the company ensures that it has one-to-one relations with each of its customers. Currently, the firm has segments in the global market, in three regions, with each comprising of roughly 30% of the total market share (Colson, 74). Since the inception of the BMW Company, its mission has been to provide its customers with sheer driving pleasure. The constantly changing market has enabled the company to focus on segments of production that have a high likelihood of developing in the future. Taking a bold step of venturing into an unknown niche of production is a risky decision that requires the company to fulfill 100% of its consumers’ expectations (Colson, 79). Thus, the company has a clear strategy on its target market in that it only targets premium-priced cars. It also avoids the already saturated middle-of-the-road vehicles and instead focuses on the luxury sector. Through market research, BMW settled for following three segments: The post-moderns- these are innovators like architects, entrepreneurs, and artists that have high imagination and usually prefer head-turners like convertibles. The upper-conservative-The individuals in this category are wealthy and tend to think traditionally. Their preference is luxury and comfort rather than the driving performance. They usually struggle with sophistication and elegance. In response to this group of customers, BMW developed the Rolls Royce Phantom that is intended for the very wealthy upper conservatives The modern mainstream- The people in this category are normally family oriented and purchase near premium brands like Honda and Volkswagen. Their ever increasing numbers have made them open to luxury brand cars that they previously considered too expensive. Thus, BMW launched the Mini in 2001 that enabled the company to venture into a completely new market without affecting the perceptions of its existing brand (Colson, 81). Technology The AM29 V12 engine from Aston Martin is among the most powerful engines ever created. It boasts a peak torque of 630 Nm and a top speed of 201mph with an incredible 0-60mph in just 3.6 seconds. This stunning performance, as well as the improved fuel efficiency of 22.1 mpg, ensured that the company delivered more than its customers’ expected. The Bosch engine management system ensures that there is seamless communication between the engine and the Touchtronic eight-speed transmission in order to enable precise engine control and accurate fuel monitoring (Colson, 90). All Aston Martins are hand made in a hi-tech facility in Warwickshire. In the facility, the use of advanced technology is in balanced with effective traditional manufacturing. The company has over the last few years placed its accounting system with Microsoft, whereby it is currently deploying Microsoft Dynamics AX 2012 which will enable it to acquire resilient and more accurate product structure and engineering environment. The IT department was not left behind as it has began migrating to cloud-based computing. BMW are at the forefront of the automotive technology with the Twin Power turbo engines that comprise of both the petrol and diesel engines. They incorporate the latest injection systems, innovative turbocharger technology as well as variable performance control. Moreover, the e-drive technology offers drivers with unmatched agile driving experience and breathtaking acceleration (Clark, 94). The electric mode is free of emissions while fuel mode ensures that the emissions given out are way below the acceptable limits. To cap it all, the company has the Connected Drive Services that offers customers with a range of unmatched intelligence services and applications that serve to provide information and entertainment throughout the journey. The driver can link up with important devices like smartphones and tablets. Amazingly, drivers can also search the internet from the comfort of their cars. With Connect Drive Services, every trip offers a chance for a new and unique experience at all times (Colson, 65). Marketing Strategy When it comes to marketing, Aston Martin is at the forefront of ensuring that their products become as attractive as possible in order to build a comprehensive and reliable customer base all over the world. The company boasts of being among the first companies to embrace product placement as its main way of marketing. Product placement occurs when a product features in a movie scenes where it gets heard or seen. This marketing strategy is preferred for its advantages such as captivating movie audiences, lack of clutter and it's relatively cheap cost. For Aston Martin, the marketing strategy has been closely associated with James Bond films (Gardener, 89). The company has sustained its product placement strategy with the most recent placement of the Aston Martin DBS in the Casino Royale movie of 2007. The Bond franchise has been instrumental in the company’s image around the world. According to studies, product placement enhances brand recall and promotes more brand exposure. It is known to influence the development of familiarity and a sense of belonging associated brands that appear in movies. The study also found out that brand recall is actually achieved when a product appears jointly with a major character in the movies which also provides it with greater marketability (Gardener, 96). BMW competitors forced it to change its approach in the way it marketed the product through the message of outstanding quality. The company, therefore, decided to come up with a unique approach of reaching its target audience. Working hand in hand with Fallon Worldwide, an advertising company based in Minneapolis, the firm wanted to change its overall image as well as well as make it look not only cool, but likable. It was a major step in combating negative perceptions that some people develop based on old associations with the 80’s yuppie arrogance (Colson, 112). Throughout the adoption of a consistent advertising strategy, the company has been able to maintain its four core values: Technology, quality, performance, and exclusivity. In all its advertising campaigns, BMW ensures that it expresses one or more of these values explicitly in all of its advertisements. However, the adverts also rely on sensitivity to the environment as clearly demonstrated, by the way, the company advertises in response to economic, environmental and competitive changes. Dealers get encouraged to run their local campaigns in synchrony with the high profile national color press and television advertising (Colson, 97). While the local press, radio and bus adverts are available, brochures, price lists and dealership point-of-sale materials are readily available through corporate offices. In order to ensure that communication remains standardized, BMW provides its dealers with a central source for advertising. Customer Relations Aston Martin regards its customers highly. Consequently, they created an interactive website whereby customers and interested parties can get in touch with the company anytime. Not only do customers get to know how often they should change different components of their cars, but they also get to comment on their experience with the company as well as subscribe for invitations and updated information about its products. All Aston martin parts come with a 12-month warranty (Colson, 75). BMW, on the other hand, is determined in ensuring that they retain their market share by constantly interacting with their customers. It is for this reason that each customer’s unique needs are prioritized by the use of the BMW Individual Manufaktur that enables customers to design their unique vehicle. In addition, all the vehicles have a warranty of 12 months in which any breakdowns are attended by BMW specialists. The company also helps their customers with a servicing chart that indicates when to service the vehicle and what to replace. The social media also provides an effective way for the company to keep in touch with its current and prospective customers. Financial report for Aston Martin The Aston Martin company plans to make a significant profit after 2016.it was in response to the five-year 500 million pound investment program since the last financial breakdown of 2008.The company’s pretax post for 2012 was 24.6 million pounds down from 21.2 million pounds the previous year. Liquidity As of November 2012, the company had an unattractive liquidity profile. The reduced profile forced the company to downgrade by as much as six notches and effect a 304 million pounds of the company’s debt. Talks were underway with two potential bidders, Mahindra and Investindustrial that would see the company get new cash flows and the investors as much as 50% of the stake. The sales dropped by 20% to 2,520 units in the first nine months of 2012. A weaker demand for 12-cylinder engine vehicles resulted in an operation loss of 3.6 million pounds. However, the company’s rating would only come down if its cash generation remained weak with a negative free cash flow of more than 30 million Pounds the following year or its liquidity profile deteriorated significantly. Profitability and efficiency The company is vigorously defending its reputation as a unique and independent manufacturer. Its profitability is set to improve when the expansion plans to China and around the world get completed. Revenues rose in 2011 by 7% despite numerous macroeconomic challenges due to a richer product mix. However, the profitability for the same year was negatively impacted by the ongoing investments in new market development at the time. There was a decrease of 18% from 93.3 million pounds the previous year. There were 4200 in car sales in 2013, and future sales are expected to fall by at least 2%. Its peak sales in 2007 when it hit the 6700 sales mark. With fierce completion from rival companies like Maserati and BMW, the company cannot afford to stagnate. The company suffered a significant financial setback when it got forced to recall more than 17,000 cars after it was discovered that a Chinese supplier used counterfeit products in the production of pedals. Over one million pounds were used to correct the pedals with a further negative media coverage barrage in China. Despite all the negativity,Aston martin still grew strong with over 85% of its 70,000 running efficiently. In 2013, Aston’s models sold at an average of $213,000 up from 70,000 pounds in 2007. Notably, Aston can comfortably introduce vehicles 40% less expensive than those from its rival companies and still make a significant profit Investor ratio In order to remain keep pace with its rivals, Aston Martin’s strategy is aimed at lowering the gearing of its investment ratio to deliver higher earnings while spending less. The turnover in 2011 of 1.5billion dollars got from the sale of 7,593 units in 2011 was a wake-up call for the company to a robust investment mechanism to propel it to its desired level of production. Financial report for Bayerische Motoren Werke Profitability and efficiency ratios The ratio calculations on a year to year basis are shown in Appendix 1 below. The evaluation of the gross profit indicates that the company has been experiencing a growth rate since 2011 to 2014. However, the analysis of the gross margin from Appendix 1 show the company has achieved a constant rate of 0.2 moving forward. The value of the ratio is low indicating the company is losing out on sales since expenses as a proportion of sales is high for the company. Therefore, if the ratios were high and closer to one, it would have indicated that the company expenses as a percentage of sales were under control. Therefore the indication that there exists a good combination of operation efficiency and price realization. Liquidity ratios These ratios show the stability of a company. These ratios help explain if a company is able to meet its short-term obligations from its current assets. The company’s current ratio for the period 2011 to 2014 is close to one from Appendix 1. This is an indication that the company’s current assets generate enough liquidity to cover its short-term obligation. However, the ratio has declined in 2014. This indicates that there has been a decline in the company’s ability to meet its short-term liabilities when compared to previous years. Further the consideration of the debt to worth ratio for the same period from Appendix 1, 2014- 2011 the company achieved 0.8, 0.7, 0.8, 0.8 respectively. Since the rates are high and close to one: this is an indication that the company has the ability to cover both the short term and long term obligations from the cash flow generated by its assets. Therefore, moving forward the company is unlikely to face bankruptcy. Asset Management Ratios: Working Capital Cycle Ratios The ratios under this help to indicate the ability of the company in the conversion of current assets to cash. It involves consideration of the working capital of an organization. In 2014, the inventory turnover of the company was 65.3. This was a decline from 316.6 in 2013 and 568.1 in 2012. This means that there has been a decline in the number of days the company converts currents assets to cash. This also explains where from the above where the company’s ability to meet its short-term liabilities has declined. The inventory turn days further explain the frequency in which the company is able to convert current assets to cash. From Appendix 1, the Inventory turn days for 2015 increased to 5.5 from the previous year of 1.1. This means that the company is taking longer in converting its current assets to cash. This further explains why the company’s ability to meet its short-term liabilities has decreased. From Appendix 1, the account receivable turnover which shows the time the company takes to collect debt is 37.3 days in 2014, 31.1 in 2013, 30.2 in 2012 and 20.9 in 2011. This indicates that the company has been taking longer to collect debt moving forward from 2011. This explains why there has been a decline in the liquidity of the company as indicated above. From the appendix 1, the company is taking longer to pay out its debtors. In 2014, the company took 43.8 days in comparison to 35.4 days in 2011. This can be attributed to the decline to the levels of liquidity for the company. Asset Management Ratios: Overall Efficiency Ratios This section will indicate how the company is efficient in using its assets to generate revenue. From Appendix 1, the sales ratio 2014-2011 for the company is 0.52, 0.55, 0.58, and 0.56 respectively. The company has been experiencing a decline at the rate which it uses its assets to generate sales from 2011 moving forward. Further from Appendix 1, consideration of the return on assets shows there has been a decline in the rate at which the company realizes profit from its total assets. Therefore, the performance of the company has been declining over the years since the company ability of making income from its assets is declining. Conclusion From the analysis of the company’s financial statement, several factors have been identified. Despite an increase in the sales volume and profit made by the company, the general performance of the company has been declining. The company’s ability to cover its obligations has been declining. This can be attributed to the company’s decline the ratio to convert current assets into cash. In additional, the rate at which the company is using its assets to generate income has been declining. Further, the company should increase the frequency at which they collect their debts in order to increase the level of liquidity. In conclusion, the company should initiate strategies to enable it use its assets to the maximum productivity. Further, the company should initiate strategies that will aid in managing the expenses more efficiently. References BMW automobiles : BMW AG website. (n.d.). Retrieved April 18, 2015, from http://www.bmw.com/ Clark, A. (2004, September 1). Is This The Golden Age Of Driving? The automobile is faster, smarter and safer than ever before, and we have the numbers to prove it.(The Future Of The Car/Technology)(Chronology). Popular Science. Colson, R. (2011). BMW. New York: PowerKids Press. Colson, R. (2011). Aston Martin. New York: PowerKids Press. Gardener, E. (2001). Bank strategies and challenges in the new Europe. Houndmills, Basingstoke, Hampshire: Palgrave. Appendix 1 Read More