Entrepreneurship and its Affect on Market

A high school friend worked for entrepreneur Michael Hinderliter for about 2 years. My friend's job was to prepare and serve bubble tea for the Chill Bubble Tea franchise, but he came into contact with the owner because they shared a common interest: custom car parts. The entrepreneur also ran a car parts importing business. He started by importing crates of the parts he wanted for his car and selling off the parts he did not need on the internet and eventually became the sole US importer for an international suspension manufacturer (1).


It is not easy to enter the auto manufacturing industry; the barriers to entry are very high (1). Tesla Motors is one example of a successful auto manufacturing business, but they are the minority: Their electric car sector has countless examples of failed start-ups. The affect their success has had on the auto market is also very limited: they expect to sale only 20,000 by 2013 worldwide (2).


Opportunities to enter the auto manufacturing business are therefore severely limited. Despite this, there are opportunities for entrepreneurship within this industry. There are opportunities for new firms manufacturing and importing after-market performance parts, like in the case of Hinderliter. Often these new parts will fill different niche markets in the aftermarket parts sector.


There are also opportunities for entrepreneurs to enter the auto industry by participating in its distribution chain. Most auto manufacturers sell new cars exclusively through franchised dealerships (4). Because cars are among the few products still only available through a physical retail location, entrepreneurs can affect regional markets dramatically by bringing new manufacturers to an area. Because car prices are often negotiated at the dealer, the price for a new car can change dramatically if there are more dealers in an area selling cars in the same segment or even of the same model.


Sources
(1) Michael Hinderliter, personal communication (2011)
(2) http://mises.org/freemarket_detail.aspx?control=384
(3) http://money.cnn.com/2011/06/21/autos/tesla_roadster_selling_out/index.htm
(4) http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.24.3.233
(image) http://upload.wikimedia.org/wikipedia/commons/thumb/9/98/Lexus_Car_dealership_%28setagaya_tokyo%29.JPG/800px-Lexus_Car_dealership_%28setagaya_tokyo%29.JPG

Read More

Toyota's Profits Dip, Earthquake to Blame

Toyota has seen a significant drop in profits in its most recent quarterly report for FY2012 Q1 (1). This drop was expected due to the Japanese earthquake. Toyota's net income dropped from over 210,582 million yen to 2,859 yen, a 207,732 million yen decrease. Toyota is has been worldwide leader in and is often the leader in profits by net income (2). While Toyota's costs decreased in all areas since the this time last year, it's sales have dropped even more and it operated at a loss. These numbers show a significant drop in profit for Toyota, but it still had a profitable quarter despite the Japan crisis.


With Toyota in recovery, there has been some question to who will become the sales leader for 2011. General Motors has been suggested as a possibility for the number one position (3). It's earnings have increased this year from 2,110 million dollars US to 2,579 millions dollars US (4), supporting this prediction.


(1) http://www.toyota-global.com/investors/financial_result/2012/
(2) http://www.netadvantage.standardandpoors.com.proxyau.wrlc.org/NASApp/NetAdvantage/simpleSearchRun.do?ControlName=CompaniesSimpleSearch
(3) http://www.netadvantage.standardandpoors.com.proxyau.wrlc.org/NASApp/NetAdvantage/showIndustrySurvey.do?code=aup
(4) http://finance.yahoo.com/q/is?s=GM
(image) http://pressroom.toyota.com/images/toyota/photo//2008_10_09_Venza_41-prv.jpg

Read More

Ford Up in Revenue, Down in Earnings

        Ford Motor Co. has seen a sudden 2% drop in earnings, even though its revenue has increased by 14% (1). Revenue is the value of what a firm received for goods sold, services performed, and other additional payments received.  If their revenue escalated by such a large amount than why is Ford seeing a drop in earnings?

            This question is answered by simple accounting equations such as net income or net loss. Subtracting the total cost of goods sold and operating expenses from the total revenue gathered throughout the quarter calculate these losses or gains. What Ford endured was a sudden increase in the cost for commodities, materials, warranty and freight costs (1). This cost increased by more than $1 billion in comparison to the previous quarter (1). Ford Chief Financial Officer Lewis Both said “the commodity costs caused Ford to lower its estimate for automotive operating margins to 5.7% from 6.5% for the full year” (1).

           To account for this decrease, Ford is also planning on lowering its capital spending to $4.6 billion down to $5-$5.5 billion (1). Mr. Booth said that Ford will restore the dividend, which has been gone since 2006, “as soon as our balance sheet can stand it” (1). Ford will continue to lower its company’s debt, which sits at $12.7 billion but was once at $33 billion in 2009 and is expecting industry sales to be higher than its previous quarters this year (1).

Sources

(1)http://online.wsj.com/article/SB10001424052970203687504576654740804146776.html#articleTabs%3Darticle

(Image) http://smallbiztrends.com/wp-content/uploads/2009/09/reduce-boost-graph.jpg

Read More

"U.S. and China Play Chicken Over Accounting"

In recent weeks we have noticed that the finance relationship between two global rivals, USA and China, are sharpened. The main reason is the audit reports for Longtop Financial Technologies; the electronics firm that was kicked off the New York Stock Exchange in August. One of the worst-possible case outcomes is that China companies could be completely shut out of U.S. capital markets. Moreover, future accounting data on American multinationals operating in China could also be deemed untrustworthy (1).

"It's really a Cuban missile crisis that we are looking at right now," says Paul Gillis, an expert in trans-national accounting who spends most of his time in China. The U.S. Securities and Exchange Commission (SEC) which holds primary responsibility for enforcing the federal securities laws and regulating the securities industry along with the Justice Department are investigating possible investor fraud by Longtop. Although the SEC has asked China for vital documents, China has refused to provide for violation of the prohibition to provide requested documents directly abroad. This shows that China is not yet ready to work with actors such as the SEC or the PCAOB (Public Company Accounting The Oversight Board) (1). 

Although the U.S. regulators have displayed remarkable patience in dealing with foreign nations, especially China, there was no meaningful movement in negotiations with this country in recent years. Because China needs access to the US capital and China does not want to be a global financial outlier, the PCAOB predicts one or two joint inspections of China-based auditors this month (1). But according to the last information, the planned visit to Washington by their Chinese counterparts to continue the talks has been postponed (2).

Source

(1) http://online.barrons.com/article/SB50001424052748704429004576600932739440342.html?reflink=wsj_redirect

(2) http://online.wsj.com/article/SB10001424052970204524604576609183570744552.html?mod=WSJ_Accounting_leftHeadlines

Image http://djaloezakie.blogspot.com/2010/10/american-vs-china.html

Read More

GM Leader in Global Sales, Lags in Global Brand Equity

General Motors again took the top spot in the automobile industry as the number one global auto company, in terms of autos sold. In 2009, Toyota stripped GM of the title it previously held for years (1). Toyota took the number two spot in the wake of its recalling of 8.1 million cars and its slashing of production due to the March earthquake in Japan. However, it wasn't just the misfortune of another firm that put GM on the top. 


One of the driving forces behind GM's position is its sales in emerging markets, specifically those in China. General Motors alone sold 1.27 million autos in the China in the first half of 2011. Bolstering sales in China is GM's Buick brand, one that was nearly on the chopping block due to lagging sales in the U.S. In 2009, GM sold four times as many Buicks in China than they did in the U.S. In fact, the Buick brand and its developments within the industry helped GM convince the federal government that with the bailout funds they received the company could eventually turn a corner (2). China now stands as the premier market for the Buick brand. Buick models and new technology within current models often appear in China before they appear in the U.S. market (3). Expanding the Buick brand in China and its other brands in emerging markets have helped put GM on top. 


While GM leads in sales worldwide, there is a different leader in terms of brand equity. Toyota, despite its hardships that caused it to drop to number two in terms of sales, holds the highest brand value of any global auto maker. The BrandZ Top 100 Most Valuable Global Brands study ranked car makers by combining financial reports with consumer opinions. BMW previously had the most valuable car brand in 2010. Toyota's brand value in 2011 is estimated at $24.2 million (4). General Motors was not within the world's 10 most valuable car brands, according to the BrandZ study (5). 




Sources
(1) http://www.dailyfinance.com/2011/08/05/gm-reclaims-crown-as-no-1-global-car-company/
(2) http://www.msnbc.msn.com/id/37361381/ns/business-autos/t/buick-may-owe-its-survival-china/#.TpzarGb_kcg
(3) http://content.usatoday.com/communities/driveon/post/2011/05/gm-sells-3-millionth-buick-in-china/1
(4) http://www.egmcartech.com/2011/05/09/toyota-overtakes-bmw-as-most-valuable-global-car-brand-in-2011-brandz-ranking/
(5) http://www.millwardbrown.com/BrandZ/Default/Categories/cars.aspx
(Image) http://www.automotorblog.com/gm-china-stands-to-sell-more-than-gm-usa/

Read More

Outsourcing in the Auto Industry

Many if not all major Auto manufacturers outsource or have outsourced during their company history (1). For those familiar with the industry, it can be difficult to to imagine the industry without outsourcing.


A recent trend for both US companies and US divisions of companies based overseas is to open domestic factories (2, 3, 4). In some cases this is done to cut costs. This recent trend of "insourcing" is also used as a selling point for automakers that are opening new US plants (5, 6).


Volkswagen, specifically, made news in 2008 when it announced plans to open a new, state-of-the-art US facility in Chattanooga, Tennessee (7). It opened the plant in May of this year (8) and has been able to cut labor costs (2). It has also designed a vehicle specifically for the US market that is being manufactured specifically at the Chattanooga plant (9).


Sources:
1. http://it.toolbox.com/blogs/sourceoff-blog/big-three-automakers-outsourcing-to-mexico-39465
2. http://online.wsj.com/article/SB10001424052748704083904576335501132396440.html
3. http://www.kmmgusa.com/
4. http://www.reuters.com/article/2010/03/07/us-toyota-idUSTRE6260DA20100307
5. http://www.youtube.com/watch?v=j264EVvD4gI
6. http://www.youtube.com/watch?v=clwZqni4a9U
7. http://www.autoblog.com/2008/07/15/volkswagen-announces-plans-for-factory-in-chattanooga-tenn/
8. http://www.timesfreepress.com/news/2011/may/24/live-grand-opening-chattanoogas-volkswagen-plant/
9. http://www.autoblog.com/2011/01/09/2012-volkswagen-passat-chattanooga-vw/
image: http://greennews4u.com/wp-content/uploads/2011/05/VW-Plant-Chattanooga.jpg

Read More

Foreign Auto Companies

According to this graph, it shows a clear downhill trend in the top revenues for the “Big Three” between the years 2005-2008 (1). The Japanese automakers however saw tremendous success. As a result, revenues for the GM, Ford, and Chrysler are all significantly lower in 2008 compared to what they were ten years ago (1). Economists noted that, “General Motors shifted from being the highest revenue earner at $167 billion in 1998 and a high of $184 billion in 2000 to drop down to $122 billion in revenue in 2008—a distant second among automakers” (1). However, all three major Japanese automakers saw their revenues expand over this period with Toyota increasing its revenues from “under $100 billion in 1998—a distant third in ranking—to an astounding record $214 billion in 2008” (1).Toyota is now the largest automaker in the world and their constant annual growth of 8 percent in this period seems to show that they were the biggest reason of the decline of the American carmakers. (1)

These foreign-owned companies such as Kia, Mercedes, Toyota, Nissan, and Suzuki have actually been somewhat beneficial to particular southern areas in the United States. Two-thirds of "foreign imports" are, in fact, built in the United States in nonunion shops, where it costs at least $2,000 less in labor to build each vehicle (2).

Americans claim that the Japanese, Korean, and German auto companies are taking advantage of desperate communities in the South. But among people in West Point, Ga. disagree.

"Workers [in the South] understand that in order for them to have a job these companies have got to make money, because if they don't, they're not going to have a job," says Rep. Lynn Westermoreland "That's the first issue [Detroit auto executives] need to address before they come to Congress asking for a bailout or a loan or whatever it is," she says in a phone interview (2). Around the South and especially here on Interstate 85 – nicknamed the "autobahn" for the prevalence of foreign-owned car plants along its stretch – the manufacture of foreign vehicles has jumped 450 percent since 1986 (2). While the Big Three have lost more than 600,000 jobs since 1980, foreign automakers have created about 35,000 jobs in the same amount of time (2).

Sources

(1)http://www.ibrc.indiana.edu/ibr/2010/spring/article2.html

(2)http://www.csmonitor.com/Business/2008/1205/p01s04-usec.html

(Image) http://www.ibrc.indiana.edu/ibr/2010/spring/article2.html

Read More

Global Companies

To be considered as a multinational corporation, company has to show some physical presence in different nations. There are many companies, such as Toyota, Ford and Global Motors which operate in different countries all around the world (North and Latin America, Europe/Africa, Oceania & Middle East, Asia) (1) + (2). One of the advantages of being in global market is not only establishing foreign subsidiaries in host countries, but it´s also creating new jobs for people in the host countries. A perfect example is Japanese Toyota which has a seat in Japan but also form much oportunities for unemployed people in the USA by launching their subsidiaries. 

 

The success of automotive companies in different countries depends on many factors. Companies must adapt to socio-cultural, economic, legal and environmental forces. The most important is probably sociocultural adaptation. As the Toyota´s summary about the overseas model line up shows, Toyota´s model Land Cruiser Prado is almost unknown in North America but it´s very well produced overseas in Europe. On the other hand, the other model Camry is exactly the opposite (3). Companies has to find the primary needs and interests of people. 

Next, the key success of any company is to find the best time to export or import, depending on the exchange rate. The high value of the dollar is good for domestic traders and vice versa.

Sources:

(1) http://www.toyota-global.com/company/profile/overview/in_the_world/

(2) http://www.gm.com/toolbar/allGMSites.html

(3) http://www.toyota-global.com/company/profile/overview/in_the_world/pdf/regional_sales_en_V2.pdf

Image:http://www.shutterstock.com/pic-59286079/stock-photo-best-internet-concept-of-global-business-from-concepts-series.html

Read More

Economy, Gas Affect Consumer Buying Trends

Gone are the days when auto makers can rely on marketing or strong fads to get cars off the lot. During the recession and in its wake, car buyers are making rational, price-based decisions that are influenced largely by gas prices. Auto makers have slimmed back their product lines in the interest of fuel efficient cars. Interestingly enough, consumers did not wipe out supply of hybrid cars during the recession. In April 2009, sales of Toyota's hybrid, Prius, fell 61.5 percent (1). But by February 2010, sales of all Toyota's hybrids rose 50 percent compared with sales from the previous year (2). This signals that gas prices alone do not determine buying trends in the industry. Consumer confidence in the overall economy greatly influences buying patterns for large purchases such as autos. 


Sales are also influenced by which areas of the economy show more growth. If the home market rises, demand for construction and other services like landscaping also rises. This in turn gives construction, landscaping, and other firms more buying power in terms of commercial vehicles and light trucks. In February 2010, sales of light trucks were higher than sales of consumer autos. Consumer autos held in the edge, however, in the same period of 2009. 


Consumer trends can be tough to predict within the auto industry. Auto makers face the challenge of having to know what buying trends will exist in two to five years. New autos that meet market trends and demands cannot be produced overnight. Time, the economy, and gas prices will determine the future rules of the road in terms of buying trends. 

Sources 
(1) http://www.autotropolis.com/krome-on-cars/auto-sales-figures-and-consumer-behavior.html
(2) http://www.csmonitor.com/Business/2011/0301/Auto-sales-rise-but-gas-prices-may-test-Detroit-recovery
(3) http://gas2.org/2008/06/25/are-automakers-to-blame-for-consumer-car-buying-trends-auto-alliance-weighs-in/
(4) http://gasbuddy.com/gb_retail_price_chart.aspx
(Image) http://blogs.internetautoguide.com/6301538/auto-news/how-to-buy-a-car-in-todays-economy/index.html

Read More

Big Three

       When it comes to automakers in the United States, one term that will be consistently brought up is the term  “Big Three”.  The “Big Three” consists of the auto companies Ford, General Motors, and Chrysler.  Other than producing the most vehicles in Northern America, these three automakers have a huge influence on the overall economy. Because they are huge employers, the economy will grow due to their high union wages and benefit packages.

            The Big Three have been hurt from perceived poorer quality and reliability compared to their Japanese competitors. They have also been slow to bring new vehicles to the market, while the Japanese are considered the leaders in productivity and introduction to more sustainable cars (1). Falling sales and market share have resulted in the Big Three's plants operating below capacity, which lead to production cuts, plant closures and layoffs (1). They have had to rely solely on offering high buyer incentives and subsidized leases to sell vehicles. These desperate actions drove down a significant portion of the Michigan economy (1). CBC News explains, “Promotional strategies, including rebates, employee pricing and 0% financing, have boosted sales but have also cut into profits.” (1)

            In the 1990s, North American automakers made a big commitment to large sport utility vehicles (1). For a while, that was the segment that was selling. SUV sales peaked in 1999 and have been declining ever since (2). The gasoline price spiked hurt sales of SUVs even more, which only continued into April 2008. Sales of trucks dropped 17 per cent while sales of large SUVs suffered by 29 per cent (2). The Big Three’s primary product is now being overshadowed by Toyota’s and other automakers’ econ-friendly small and compact cars that have a much higher gas mileage. As stated in the CBC News, “New products, more efficient plants, fewer employees, renegotiated contracts and government loans may help the Big Three succeed.” (1)

 Sources

(1) http://www.cbc.ca/news/business/story/2009/02/17/f-bigthreeupdate.html

(2) http://www.washingtonpost.com/wp-dyn/content/article/2009/01/09/AR2009010903657.html

(Image) http://blogs.dailypennsylvanian.com/thebottomline/files/2009/03/detroit_3.jpg

Read More

How do companies differentiate themselves from one another?

Companies differentiate themselves by having different mission statements as well as different models. Each company wants to be the most successful and respected car company in various part of the world, but only some of them actually uses efficient strategies to help the buyers buy. The main distinction is in promoting the product. Whereas one of the last Toyota Venza commercials pointed out the difference between virtual and real life, the last promoting commercial of Chevy Silverado (part of General Motors industry) showed the single parts of the car (1), (2). People are interested in different kinds of cars and different kinds of commercials, but there should be something interesting, unusual and fresh in commercials, therefore from my point of view the first commercial is definitely better.   

Although most cars have the same overall purpose, they vary in different models, accessories and efficiency as well as in placing the product. People in the different parts of the world prefer various types of cars. The last news of Toyota company announced starting export from their foreign subsidiary in India to South Africa in March 2012 (3). On the other hand, General Motors focuses on producing Chevrolet Colorado Pickups in Thailand (4).

All car companies have one thing in common. They´re instantly trying to act "green" to our environment. Car designers and engineers work to find the most sensitive ways to improve the impact of products during their entire lifecycle.

Sources

(1) http://www.youtube.com/watch?v=TUGmcb3mhLM

(2) http://www.youtube.com/watch?v=Re5PPoHQ3gs

(3) http://www2.toyota.co.jp/en/news/11/10/1006_2.html

(4) http://media.gm.com/content/media/us/en/gm/news.detail.html/content/Pages/news/us/en/2011/Oct/1006_colorado_thailand

(Image) http://www.google.com/imgres?q=chevrolet+in+thailand&hl=cs&biw=1280&bih=670&gbv=2&tbm=isch&tbnid=WU_5fO4cvRPyPM:&imgrefurl=http://www.gmthailand.com/index.php/press-center/press-release-view/2009_032/&docid=Dl3BJrbJy9GzYM&w=420&h=279&ei=HV6STubRAajx0gHPvthV&zoom=1&iact=hc&vpx=587&vpy=144&dur=532&hovh=183&hovw=276&tx=88&ty=86&page=3&tbnh=135&tbnw=201&start=30&ndsp=15&ved=1t:429,r:7,s:30

Read More

Hyundai CEO Yang Seung-suk Retires

Yang Seung-suk has retired from his position as CEO of Korean automaker Hyundai Motor Co. Mr. Yang held this position for only three years, but in these years led Hyundai to among the top of its market despite the economic downturn. Hyundai became the 5th largest automaker by units sold. Despite his success, Yang's departure is not unusual: Hyundai generally changes its C-suite every two or three years.


What is unusual about this story is that this is 2nd major executive to leave in the past year. In March, Head of Research and Design Lee Hyun-Soon retired. A major part of Hyundai's success during the recession was manufacturing vehicles whose reliability rivaled those of Honda at significantly lower prices. Hyundai also pushed into the growing Chinese market under Yang. Hyundai's challenges in coming years will be to continue that growth without these 2 key executives.


Articles Mentioned:
http://online.wsj.com/article/SB10001424052970204138204576602682341427992.html?mod=WSJ_auto_LeadStoryCollection
(Image) http://www.motortrend.com/roadtests/coupes/1004_2011_mustang_v6_vs_2010_genesis_coupe_3_8_vs_2010_camaro_rs_vs_2010_challenger_se/photo_71.html#photo 

Read More