magna - opel ppt

2008GM and Chrysler declare bankruptcy

High fuel costs, credit freeze and recession lead to steep drop in demand for new vehicles globally

Manufacturers and parts suppliers announce layoffs, idle plants and close operations

Domestic automotive companies and financial institutions exit leasing business

Big Three sales fall 36% while Japanese imports account for 53% of market

Increased government intervention and regulation in auto and financial sectors

Growth of auto sector in low cost, emerging markets of Brazil, Russia, India and China

Source: Mergent Automotive Industry Report – May 2009

Thursday, 8 September, 11

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Focus• Is “Opel” strategy appropriate?

– Auto manufacturing industry attractiveness– Distinctive capabilities and competitive advantage– Current strategy and client base

• Examine alternative strategies that help mitigate downturn and help Magna grow in future


• Opel is German automaker acquired by GM in 1929 -> now GM Europe’s largest brand– UK based Vauxhall – same cars with different

badging• Opel designs/models are sold

worldwide by GM under different brands

• Relatively strong financial performance

Opel-Vauxhall Background


• Magna would control 55%– 35% owned by Russian's largest lender Serbank – Russian truck maker GAZ to provide “expertise”

• GM 35% stake. Opel employees 10%.• Minimize job loss and closures in Germany• Use idle plants to produce vehicles for other

manufacturers• Aim to increase production in current

facilities

Opel-Vauxhaul Deal


• Expand passenger car business in Russia– Grow Opel share to 22% -> 700K cars/year

• Launch environmentally friendly small cars for untapped markets

• Create a platform to produce complete cars for other manufacturers

Opel-Vauxhall Strategy


Company Overview• Founded by Frank Stronach in ‘57 as one

man tool and die shop. First parts contract in ’60– ‘70s & ‘80s: diversification, growth and constitution– ‘90s: geographic expansion and technology

innovation– ‘00s: drivetrain and full vehicle assembly

• Highly diversified global automotive supplier• Supplier to over 70 car brands globally• Strong dependence on Detroit 3 - 50%

revenue


Industry Analysis: Highlights and Trends

• Parts:– Strong dependence and knowledge share with OEM’s– OEM’s exerting pricing pressure and tougher terms– Increased consolidation of vehicle platforms– Increasing value in assembly and powertrain

• Auto:– Increasing demand in BRIC, shifting manufacturing– Government regulation and pressure for fuel

economy– R&D in electric and hybrid technologies

significant– Rising costs of raw material


Internal Analysis: Current Strategy

• Parts and Geographic Diversification– Continually add capabilities and expand to growing

markets• Growth by Acquisition and Alliances

– Weak NA auto industry has required growth in Eurasia

• Forward Integration– Gain greater footing in value chain

• Develop “green” capabilities– Develop electric and hybrid technologies and vehicle


Internal Analysis: Corporate• Extremely Decentralized

– Each division entrepreneurially run / shared destiny– High employee involvement & rich reward structure

• Good Labour Relations– “Framework of Fairness“ - No strike/No Lockout

policy– Worker constitution

• Very high worker productivity• Technological Innovation

– Committed R&D investments


Option 1: Become Auto Manufacturer

• Stay on course to buy Opel and expand to acquire other complementary manufacturers with access to foreign markets

• Build own small cars and mid size cars for emerging markets and eco-friendly car for the NA market

• Become outsourcer of complete vehicle for larger base of customers and models


Option 1: EvaluationBecome Auto Manufacturer

• Advantages– Access to growing markets and use of underutilized

plants to serve Europe– Leverage against declining auto sales– Ensure supplier relationship stand

• Disadvantages– Cannot translate competitive advantages to sector– No experience in marketing to end consumer– Conflict of interest with its customers


Option 2: Maintain Supplier Focus

• Continue current strategy of diversified parts, full assembly in global markets

• Acquire (business from) weaker or failing competitors

• Establish further co-development deals with manufacturers– e.g. Deal with Ford to release electric vehicle in 2011

• Continue R&D in alternative energy


Option 2: EvaluationMaintain Supplier Focus

• Advantages– Stick to core capabilities, model and resources– Partner to manufactures not competitor– Opportunity to become more integral to success of

Detroit 3 – increase power• Disadvantages

– Greater share of shrinking pie– Doesn’t hedge against failing manufacturers– Supplier margins are being squeezed


Option 3: Backwards Integrate

• Acquire Tier 2 suppliers in North America– Consider global suppliers where it makes

sense• Joint venture or partnership with other

Tier 1 suppliers• Selective suppliers that support

lucrative and growing areas– Powertrain– Alternative energy


Option 3: EvaluationBackwards Integration

• Advantages– Ensure survival of supply for current operations– Cut costs and extract greater profits in mid-term– mitigate OEM power and price pressures– Firms could be available at “bargain prices”

• Disadvantages– May not protect from growing costs of raw materials– Bucks trend of focus on higher value-added activities– Risky in a time where cash reserves are precious


Recommendation Criteria• Mitigate against drop in sales of new cars• Allow for corporate culture to be infused

– Independent business, high productivity, constitution• Not threaten current or future base of client

– Have to navigate manufacturer waters carefully• Takes advantage of global presence and

trends


Recommendation• Option 2: Maintain Supplier Focus

– Magna has resources to withstand industry shakedown and still invest in R&D

– Partly avoids travails of auto manufacturing where success requires customer and market insight

– Partnerships with OEM’s ensure mutual survival• Option 3: Backwards Integrate

– Ensure supply– Increase power with OEM’s


Questions?


Global Presence

240 manufacturing operations & 80+ product development centres in 25 countries


Capabilities


Auto Parts Industry AnalysisSupplier Power

•High bargaining power•Raw material suppliers •Many auto-suppliers

Threat of Substitutes (-)

•Automaker self supply

Buyer Power (-)

•Corporation, Manufacture•Strong bargaining power•Lower switching cost•Multiple Choice to buyers

Barriers to Entry (+)

Tangible Barriers•Functional Facility•High efficient production line •High operating costIntangible Barriers •Advanced R&D, Technology•Distribution Channel•Government Regulation


Auto Industry Analysis

Barriers to EntryTangible Barriers•Efficient Facility•High startup capital investment •High operating costIntangible Barriers •Advanced R&D, Technology•Great management •Distribution Channel

Industry Competitor•GM, Ford, Daimler Chrysler•Japanese Automaker, Honda, Toyota, Nissan•European Automaker-Fuel economic•Globalization, Diversification, Vertical•Cost efficiency, Differentiation

Supplier Power•Low bargaining power•More supplier•Supplier rely on Carmaker

Buyer Power•Individual, corporation,•Strong bargaining power•Lower switching cost•Diversified buyer•Lower cost to buyer

Threat of Substitutes•Competitor’s Product•Public Transit•Other transportation tools•Buyer preference


Magna Performance (2008/9)


magna - opel ppt

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