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The Automobile IndustryAntonio Pasqualucci

12/05/2015

Industry Analysis

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Table of Contents

• Introduction, 3• Porter’s Five Forces, 8• Critical Succes Factors, 9• Today’s Global Automobile Market, 10• Key Drivers of Change, 14• Strategic Implications for Industry Players, 20• Financial Industry Data, 22

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Introduction• The Auto Industry is a Critical component of the economic

system[3.5 percent to the overall GDP of the U.S.] and has encouraged the development of many ancillary industries and became one of the largest buyer of industrial products .

• Market Capitalisation: $2,ooo billion (2015)• Higly Labor intensive

• Major Actors are: Auto-makers and Original Equipement Manufactures ( OEM) SuppliersDistributors

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Industry Value Chain

Source: Noealt Corporate Services

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Introduction

• Market Structure: impure oligopoly with characterised by few big producers, a differentiated product, large number of potential buyers and high barriers to entry.,high profitability.

• Mature stage of development but the decline phase is still far and there is an huge potential deriving from innovation opportunities and emerging markets.

6Source: www.edmunds.com

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Top Manufacturers by units sold

Source: www.statista.com

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Threat of new entrants:Relatively low- High barriers to entry (capital for production and distribution)- Existing players exploit economies of scale and scope

Threat of Substitutes:Moderate- Many indirect substitutes but non of them provides the same level of confort of a car.-The higher the cost of operating a vehicle the more a costumer will search for alternative transportation methods.

Bargaining Power of Suppliers:Low/Increasing

-Traditionally very low power of suppliers due to the large numbers , but in last years this power

is increasing. -Suppliers are becoming bigger and more

specialized.

Bargaining Power of Buyers:Moderate/High

-Costumers choose considering price, quality, appaerance, environmental effects and the brand.

- Many models and brands offering similar products at similar prices : low switching cost- Individuals buyers can non affect the price

Competition among existing players: Despite being a concentratre industry, the

competition is intense. Emerging markets are playing an important role. The industry is no longer the playground for the big 3 (Chrysler, Ford , GM)

Competition is intensified by Maturity of developed markets, diversity of companies in term of culture

and strategies and low switching cost for costumers.

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Critical Success Factors

Flexybility

Operational Efficiency

Distribution

NetworkBrand

Loyalty

Focused Strategy

LiquidityCompliance

with regulatory requirements

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Today’s Global Automotive Market

• Phase of strong growth and profitability. Despite that there is still uncertainity about the future.

• Main challenge: Uneveness of global markets.

• International expansion and globalisation provide the most potential growth opportunity in unsaturated markets as Brazil, Indonesia, India and China

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Today’s Global Automotive Market(Sales Growth 1990-2015)

• The Global economic dowturn and the credic crisis in 2008 resulted in large losses for many actors of the industry.

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Automobile Core Markets, 2015

Source: www.statista.org

13Source: Adapted from PWC, 2015 Auto Industry trends

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Key Drivers of Change• «Innovation is more critical in the automotive industry today

than ever before and it is changing the balance between automakers and their suppliers» (Corwin, 2013)

• Technology drives the change: Eco-efficiency, hybrid, autpiloted cars.

• Changing role of OEMs and Suppliers: Shift toward a more decentralized model of innovation approach where OEMs serve as integrators, while large suppliers play an expanded role

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Key Drivers of Changes

• International Expansion is one of drivers of change:

• Conglomeration In mature markets: From the 1990 occurred a spate of mergers between American, Eurpean and Japanese companies.

• Distribuited Competition in emerging markets: In emerging markets the industry is formed by numerous smaller company.(i.e China has more than 120 auto-makers companies.

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Key Drivers of Change

Three powerfull forces are driving the change of the auto industry:

1. Shift in consumers’ demand: Affecting how much people are willing to pay for a car

2. Expandend regulatory requirements

3. Increasing availability of data and information

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Key Drivers of Change

• These trends offer huge risk as well as huge opportunities, it is crucial to analyze how these trends are already affecting the industry in order to adress changes and translate them in competitive advantage:

• Increasing of electronic content• Product-mix changes made to meet regulatory

requirements• The changing face of retail• Platform modularization.

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Key drivers of Change

Increasing Electronic Content:

Electronic contents and software accounts for the

35% of total cost of a car and accounts for the 90 % of new

features and innovation.Telematics

features, also present a chance to build a closer

relationship with customers and increase margins

Platform Modularization:OEMs are increasing model choice and reducing vehicle

architecture, common components can be produced

in larger scale and are less expensive

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Key Drivers of Change

Changing product-mix to address regulatory

requirements:Corporate Average Fuel

Economy (CAFE) regulations are more expensive for OEMs

to comply with, requiring higher volume to amortize

increasing costs. Regulators also requires higher safety

standards

Changing of Retail Activities:Customers have access to

more and better information hence are more involved in

the purchase decision , inculding financin and

insurance.Customers requires quick

transactions and to be involved in the choice of

features and model’s characteristics.

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Strategic Implications for Industry Players

• Reacting strategically to demand shift is a priority• OEMs must collaborate with suppliers and focus R&D

investments on their core competencies and technologies while outsourcing to suppliers other technological developments

• OEMs must improve data anlysis in order to understand consumers’ need and improve brand’s loyalty

• Cooperation

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Strategic Implications for Industry Players

• Suppliers should collaborate with non-traditional automotive electronic suppliers and rationalize their portfolio to achieve competitive advantage . OEMs will seek for top suppliers to co-invest in new platforms and innovations

• Distributors: to address changes in customers’ decision process they should invest in technologies that make the transaction ickerqu, more efficient and pleasing. Improve on-line capabilities and develop continuous connection with costumers.

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Financial RatiosRatios Industry Average5 Years sales growth 5,11%P/E 12,70Dividend Yeld 2%Current Ratio 1,30Quick Ratio 1,10Total debt to Equity 1,46Gross Profit Margin 22,60%EBITD Margin 10,30%Net Profit Margin 4,86%ROE 12,7%ROI 6,80%ROA 3,50%