SEMA 2011

SEMA (the Specialty Equipment Market Association) held its annual SEMA Show in Las Vegas from November 1st through 4th this year. (1)

In recent posts, we've talked about entrepreneurship in the auto industry and some of the difficulties faced by entrepreneurs trying to enter the market. Effective marketing can be a difficult task for an entrepreneur in any industry, but especially one dominated by several well known brands. One traditional method to spread the word about a new product or business is to buy space at a trade show. SEMA Show is an annual show that features small specialty car makers, parts makers, custom tuning shops, and other companies focussed on highly specialized cars rather than equipment for the mass market. Unlike most auto industry trade shows which focus on major corporations, small companies and individuals present their products with GM or Toyota. (2)


Phoenix-based Local Motors has created buzz at SEMA events since the 2008 show. (3) Local Motors is company with a unique product called the Rally Fighter that fits a very specific need: A purpose built vehicle for the Baja 1000 race and similar events. (4) It also has a very unique value proposition: The vehicle is designed and built by a method called crowd-sourcing, which means potential customers from around the world contributed which components should be used and selected a design from several entries during a design contest. The company also sells their build experience: included in the price of the vehicle, the owner builds the vehicle and learns how to drive it (5).


While major companies tend to make major announcements at more mainstream shows like the upcoming Tokyo Auto Show, small companies like Local Motors are able to connect directly to those interested in their product by going to targeted shows like SEMA.


(1) http://www.autoblog.com/sema/
(2) http://www.autoblog.com/2011/11/02/chevrolet-camaro-concepts-storm-the-general-motors-booth/
(3) http://blog.local-motors.com/2008/11/reflections-on-sema.html
(4) http://jalopnik.com/5398864/local-motors-rally-fighter-the-first+ever-creative-commons-car
(5) http://www.rallyfighter.com/buy-a-rally-fighter
(image) https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiaX6PCoRWtsV_-sbvVSoBHDE4q6ObJ7eVU9kEFXZihnMoFKy9Tx3WZ9ma2NoTDNpGKGksSitOjS-rWQASVFXrvMDRqS6C4sHmGdL8L_7GcfpkPJ_PgFXKA9j9bhmSFo9LQqk4BOuB8-5yN/s1600/1841.parker.race.still.jpg

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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

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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

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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

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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 

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Ford Expecting Significant Growth in Asia Pacific, Africa

Ford's Figo model for India

Ford Motor Company is expecting significant growth in the Asia Pacific and Africa markets in the next decade, from one sixth of their total sales currently to one third by 2020 (1). Its Asia Pacific and Africa region includes emerging markets such as China and India, as well as Australia, South Africa, and Thailand. Many automakers, Ford included, have shifted their focus from the domestic market to these emerging markets since the recent economic downturn.


Ford's strategy for capitalizing on this emerging market includes designing and marketing more products for this region. The popularity cars with diesel engines, historically unpopular in the US, is growing more rapidly in India than in any other market (2). Ford will invest $72 million in a South India plant; the entire investment will go towards production of diesel engines for its Figo hatchback.


(1) http://online.wsj.com/article/SB10001424053111904106704576582193344608536.html?mod=WSJ_auto_IndustryCollection
(2) http://online.wsj.com/article/SB10001424052748703632304575451720343127244.html
(Image) http://www.autotribute.com/wp-content/uploads/2010/01/Ford-Figo.jpg

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Revenue Growth - International and Domestic

The auto industry, like all industries, is being changed massively by technology and trends like globalization. Emerging international markets, especially, are changing where and how revenue is growing for this industry. The US car market is changing as well due to changes in complimentary goods (primarily oil), different needs, and (to an extent) different tastes.

International Auto Markets

The international auto markets are growing rapidly. US automakers and international automakers alike are expanding (or attempting to expand) into these markets. Automakers local to these emerging markets are also growing. The auto industry in some markets has grown more then 90% in recent years, compared to US growth which has remained stable or even shrunk in recent years.

Domestic Auto Industry Trends

The “green” trend has affected the Auto industry just as it has affected other industries, be it the trend to save money in hard financial times or to save our natural environment. The US trend in recent years has been towards smaller cars. Companies that can change with this trend are finding success while companies that could not have seen far less revenue growth in recent years. As these companies change to keep up with the cars consumers are buying, their revenue is beginning to grow as well.

Articles mentioned in this post:

http://online.wsj.com/mdc/public/page/2_3022-autosales.html

http://online.wsj.com/article/BT-CO-20110913-713052.html

http://oica.net/category/production-statistics/

http://online.wsj.com/article/SB121726248201090179.html

(Image) http://commons.wikimedia.org/wiki/File:China_Sign_Slow.jpg

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