Business Report

Motor car industry - OPEL

SABATIER Alexandre SN: 1122020 (Erasmus) Words: 1976

MODULE TITLE: Principles of Business Management MODULE CODE: 4AC008 SUBMISSION DATE: 07/11/2011

Table of contents

1. Introduction 2. The macro-environment A. The PESTLE analysis B. The SWOT analysis C. The Porters Five Forces 3. The implications for Opel A. Strategic implications B. Management focus C. Competitive advantage 4. Conclusion 5. References 6. Appendices A. Appendix A B. Appendix B C. Appendix C

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1.

Introduction

This business report examines the external environment of the automobile industry and mainly focuses on the brand Opel. It describes the key factors which have an impact on organisations performance and how the external drivers can define their structures and competitive strategies. These performances can be measured in terms of effectiveness, which is affected by at least eight attributes (Peters and Waterman, 1982), but Robins (2005) estimates that there are more than 60 different codes of practice worldwide that an organization could try to adhere to. The report uses three essential analytical tools to identify them: PESTLE and SWOT analyses, and Porters Five Forces. Adam Opel AG is a German automobile manufacturer founded in 1862. Although it became a subsidiary of the American giant General Motors in 1931, Opel has been chosen as the leading brand outside the NAFTA market (US, Canada, Mexico) and shares its models with Vauxhall in UK. The slogan Wir leben Autos (We live cars) characterizes its passion and its insurance. In despite of the economic crisis, Opel remains the fifth top-brand in Europe with 1,178,157 units sold and a market share of 6.2 percent (Opel, 2010).

2.
A.

The macro-environment
The PESTLE analysis

The PESTLE Analysis is a marketing tool used to measure the effect of external factors on the business and to make decisions which could improve its performances. Politically, almost all the last government car policies are in favour of the environment or try to encourage people to buy new vehicles. For example, until 31 March 2010, the UK cash-for-scrap sheme provided financial support to the car industry. Another government policy is the Vehicle Excise Duty, based on CO2 ratings. Both of them are an incentive to purchase vehicles with lower emission ratings: according to Clarkson (2009), cars sold under the scheme emit 25% less CO2 than their previous vehicle. Moreover, the tension over oil supply and prices became one of the most important issues in the world, especially with the Near-East situation. The IEA (2009) believes peak oil will come by 2020. The late-2000s financial crisis can be considered as the worst since the Great Depression. It doesnt lead people to buy new cars and the demand for luxury items declines, even the US Big Three grazed the bankruptcy. On the other hand, the Japanese earthquake revealed the nuclear dependence from automobile manufacturers: the shutdown of Hamaoka nuclear plant (Schmitt, 2011), which serves Toyota and Suzuki, was the reason of subsequent electricity shortages (the crisis has cost Toyota output of 400,000 vehicles in Japan (Associated Press, 2011)). But the social trends have also a strong impact on the demand because your car is an indicator of your wealth. In 2007, main media advertising in the UK by car manufacturers totaled 564.286M (Key Note, 2008). But, in despite of a strong Car Culture in Europe, the carmakers have also to follow the green movement (Swim, 2011) and need to protect their ethical images thanks to hybrid and electric cars. Following the green trend, new technologies are developed. The use of biofuels could reduce the greenhouse gas emissions by around 90% (CSIRO, 2007) when compared with fossil petroleum. Besides, in 2010, Renault-Nissan decided to build the first European battery plant in Sunderland. Legal factors are able to influence the general industry, especially the rules of the European Union: the European emission standards define the acceptable limits for exhaust emissions of new vehicles sold on the common market while some ECE Regulations are related to safety testing. These are all restrictions for manufacturers. On the other hand, the National Minimum Wage doesnt exist everywhere and it is an incentive for companies to relocate in emerging countries (the number of persons directly employed in the UK automotive industry has shrunk by 90,000 between 1996 and 2006) (Holweg, 2009). Finally, the End of Life Vehicles Directive aims to reduce the amount of waste produced from vehicles when they are scrapped (2M in the UK each year, according to Environment Agency). But even if all the external factors are pretty much related to environmental issues, the competition for green cars is just beginning. Slowly, the vehicle manufacturers announce their projects of hybrid/electric cars: Mitsubishi, Opel, Nissan In Strasbourg, Toyota has even loaned one hundred Prius to businesses in order to test them in real conditions (Michael, 2011).

B. The SWOT analysis

As a subsidiary of General Motors, Opel enjoys huge assets upon its challengers: brand image, global presence, market share (GM is ranked second global automaker with 10.9 percent) (OICA, 2010)... Although their market share in Europe has dropped since 2008, Opel is still competitive with 6.2 percent and is ranked fifth. Moreover, the brand forecasts to increase its market share in Russia to 5 from 2.6 percent in the next three years, CEO Karl-Friedrich said (2011). But the core competence of Opel is to be a pioneer of the alternative energy movement thanks to a lot of innovations: fuel-saving technology, maintenance-free diesel, ecoFlex (extremely low CO2 emissions) and the first extended-range electric vehicle (Ampera). Paradoxically, its dependence from General Motors could quickly become a problem for Opel. When GM grazed bankruptcy in 2009, they thought to sell Opel. Finally, they reversed course and decided to reorganize its division by cutting capacity by 20 percent and reducing employees by 8300. There are too many changes in brand positioning, and that doesnt provide a clear message to customers. Hybrid technology gives Opel the opportunity to become the automotive Europeans leader in innovation. The brand will launch its biggest project Ampera at the end of 2011: the first car that can be used even if the battery is empty. According to Opel (2011), around 5,000 customers across Europe have reserved an Ampera. This model is a derivate from the American Chevrolet Volt which won five awards and recognition. But Europe wont be the only one market anymore, because GM decided to sell Opel cars in Asia, Australia, South Africa, Chile and Argentina. Because of GMs financial problems, the employees of Opel scared to lose their jobs and threaten to stage strikes. For example, Opels union boss said: GM would like to have the subcompact (Agila) produced in South Korea. Instead, we will fight to have it built in Gliwice (Poland). Nevertheless, in despite of the Ampera, the growth of competitors on the electric cars market could be a real problem for Opel: in September 2010, the brand announced that its electric entry-level minicar has been canceled because of the excessive additional cost investment (Automotive News Europe, 2011), and the brand cant thus compete with its rivals Peugeot iOn and Citroen C-Zero.

C. The Porters Five Forces

Porter's Five Forces examine the attractiveness of an industry and determines its profitabily.

1. Threat of new entrants (low)

To set up an automobile company costs a lot of money, but there is also a need of building your brand image in a new country. Moreover, the multiplication of car legislations (safety, CO2 emissions) makes harder an implementation. Nevertheless, in 2010, the Chinese brand Geely announced a new factory in Bulgaria: it means that all the models produced there can be sold freely without quotas between the 27 EU members. They forecast to produce low-cost small cars, and Opel has no equivalent for this model.

2. Bargaining power of buyers (high)

Nowadays, customers can easily switch to another dealer without any cost. The Internet also provides a free access to market information and enhances their bargaining power. Moreover, even cars can be purchased on the Internet with a few clicks on the mouse: since 2008, the Chinese brand Geely can thus save costs (infrastructure, human ressources) by selling cars online.

3. Threat of substitute products (high)

Thanks to the Internet, buyers are able to compare hundreds different models. But there are also many cars which are similar, so the choice will only depend on the taste of each. Nevertheless, more and more people prefer public transportation. In France, a survey (CSA, 2010) revealed that 39% of French people think to use more the public transportation in the next years in order to protect the environment (42%) and because of the cost of fuel (35%).

4. Bargaining power of suppliers (low)

Its hard to evaluate this power because some suppliers may only have one client while the others can supply components for dozens of carmakers. But the concurrence from emerging countries could regularly decrease this power. Nevertheless, their bargaining power also refers to the assembly line workers and, for example, the United Auto Workers (US) is the only supplier of labor for General Motors.

5. Competitive rivalry (high)

The car industry is one the most rivalry, and its difficult for Opel to face its challengers while General Motors is in a defensive position (cutbacks, pension payouts, and financial help). Automobile manufacturers have to innovate and product new models all the time, especially since the electric cars became a key aspect of the competition.

2.

The implications for Opel

A. Strategic implications
GMs decision to keep the Opel division surprised all the EU member countries and implied an impressive restructuring plan. They decided to reduce employees but also to sacrifice the assembly plant in Antwerp. It is a part of GMs global strategy that proves their needs to infiltrate the foreign markets: thus, Opel is now allowed to sell cars outside the Europe for the first time. According to GM (2011), their largest national market is now China with 14.7 percent market share but they want to take advantage of the fact that Chinese home-grown brands lose market share (declined 2.86 percent from the year earlier) (CAAM, 2011).

B. Management focus
Opels plants follow the Lean Manufacturing principles since the creation of Eisenach plant, Germany. This management philosophy is derived from the Toyota Production System (TPS) whose the goal is to reduce wastes and improve global customer value. For example, only 30 meters are needed to assemble the whole vehicle in Eisenach. Because of the increasing price of raw materials (for example, the price of aluminium rose until 3000$/tonne in July 2008), Opel follow KanBan rules.

C. Competitive advantage
Opel is one of the oldest automobile manufacturers in Europe and enjoys a strong brand image. They essentially focus on a public of young and educated males, who are able to pay a more expensive price to have a good car. But, according to choisirsavoiture.com, the brand is also really competitive for entry-level cars with its Opel Corsa (3-Door, 12 290) and Opel Agila (5-Door, 11 490). But, once again, the strongest Opels competitive advantage is about innovations. Their Ampera can travel 40-80 kilometres on battery alone with zero tailpipe emissions. Actually, it is almost a revolution because it is the first electric car able to be used even if the battery is empty thanks to the extended-range mode operation. The battery will even continue to store energy from braking and unused electricity when this mode is activated.

4.

Conclusion

Between the increasing concerns about global warming and the economic volatility, the motor industry is facing new challenges and needs to evolve in order to remain competitive. This period is crucial for all the automobile manufacturers, especially for Opel which needs to reassure is investors and to prove they can still be useful to General Motors (in Europe, but soon in the rest of the world). The biggest thing for Opel is to maintain its sales in Europe, to expand its activities on emerging markets and, above all, to develop a fully electric vehicle that will stand out from the crowd.

5.

References

Associated Press (2009) The Independent [online]. [Accessed 11 October 2011]. Available at: <http://www.independent.co.uk/news/world/europe/dutch-first-in-europe-to-adopt-green-tax-for-cars1821268.html>. (2011) Automotive News [online]. [Accessed 23 October 2011]. Available <http://www.autonews.com/apps/pbcs.dll/article?AID=/20111015/ANE/111019901/1198> (2011) Choisirsavoiture.com [online]. http://www.choisir-sa-voiture.com > [Accessed on 29 October 2011]. Available at: at:

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Clarkson R. (2009) Findlaw UK: Government Cash For Scrap Scheme [online]. [Accessed 15 October 2011]. Available at <http://blogs.findlaw.co.uk/solicitor/2009/08/used-cars-government-cash-for-scrapscheme-a-roaring-success.html>. Commonwealth Scientific and Industrial Research Organization (2007) Science Daily [online]. [Accessed 11 October 2011]. Available at: <http://www.sciencedaily.com/releases/2007/11/071127101930.htm>. Conseil Sondages Analyses (2010) Les franais et les transports publics [online] [in French]. [Accessed 14 October 2011]. Available at : <http://www.ushuaia.com/info-planete/actu-encontinu/transport/sondage-les-francais-et-les-transports-publics-6067445.html> (2011) Environment Agency [online]. [Accessed 11 October <http://www.environment-agency.gov.uk/business/regulation/31887.aspx> 2011]. Available at:

International Energy Agency (2009) Key World Energy Statistics [online]. [Accessed 15 October 2011]. Available at: http://www.iea.org/textbase/nppdf/free/2009/key_stats_2009.pdf. Key Note (2008). Motor Industry: Market review. 12th Edition, Dominic Fenn. Holweg, M. (2009) The competitive status of UK automotive industry [online]. [Accessed 11 October 2011]. Available at: <http://wwwinnovation.jbs.cam.ac.uk/publications/downloads/holweg_competitive.pdf>. Michael, M. (2011) Voiture Electrique [online] [in French]. [Accessed 11 October 2011]. Available at: <http://www.voitureelectrique.net/toyota-et-edf-finalisent-leur-projet-pilote-a-strasbourg-2403 >. Organisation Internationale des Constructeurs Automobiles (2010). World Ranking of Manufacturers [online]. [Accessed on 15 October 2011]. Available at: http://oica.net/wp-content/uploads/ranking2010.pdf. Opel (2010) Opel in Europe: Facts and figures [online]. [Accessed 24 October 2011] Available at: < http://www.opel.com/content/dam/Opel/OpelCorporate/corporate/nscwebsite/en/02_ExperienceOpel/0 1_CompanyInformation/01_FactsFigures/Facts_Figures-4.pdf>. Peters, T. and Waterman, R.H. (1982) In Search of Excellence: Lessons from Americas Best Run Companies. Grand Central Publishing. Robins F. (2005) The future of corporate social responsibility. Palgrave Journals.

Schmitt, B. (2011) The Truth About Cars [online]. [Accessed 11 October 2011]. Available at: <http://www.thetruthaboutcars.com/2011/05/closure-of-japanese-nuclear-plant-could-affect-toyotamitsubishi-and-suzuki/>. Sanzhao, S. (2011) Chinese homegrown brands lose market share: Data from CAAM [online]. [Accessed 20 October 2011]. Available at: < http://www.chinacartimes.com/2011/09/30/chinesehomegrown-brands-lose-market-share-to-each-other/> Swim, J.K., Clayton, S., Howard S. (2011) Human behavioral contributions to climate change: Psychological and contextual drivers. American Psychologist, Vol 66(4), May-Jun 2011, 251-264.

6.
A.

Appendices
Appendix A (PESTLE analysis) Political factors

Cash-for-scrap sheme

Financial support to the motor industry (until 31st March 2010)

Vehicle Excise Duty

An incentive for customers to purchase vehicles with lower CO2 emissions, whose the maximum cost rose in April 2010 (from 210 to 455)

Petrol prices

Need to develop biofuels and green cars

Economic factors

General industry depression late-2000s financial crisis, US Big Three grazed bankruptcy

Nuclear dependence

electricity shortages because of the Japanese earthquake

Congestion charges

a new pricing structure based on potential CO2 emissions rates

Social factors

Car = indicator of your wealth Towards a green advertising importance of the brand image the environmental protection is everywhere

Technological factors

Biofuels Battery plants alternative energies a new type of factory

Legal factors

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National Minimum Wage (NMW) ECE Regulations European emission standards

temptation of relocating to have a European approval is a necessity defines the acceptable limits of CO2 emissions

Legal driving age

could be change in UK (18 years old ?)

Environmental factors

ELV Directive the manufacturers must cover all or most of the cost of the free take-back system

New models

the development of hybrid and electric cars is a new stake

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B.

Appendix B (SWOT analysis) Strengths

Size and market share Well-known in Europe Support from GM

ranked fifth in Europe one of the oldest automobile brands General Motors chose Opel as the leading brand outside the NAFTA market

Permanent innovations

the extended-range battery is revolutionary

Weaknesses

Bureaucratic culture thanks to the German heritage, the organisational structure is very vertical

Dependence from GM case of

GM could sell the Opel division in

bankruptcy

Opportunities

Opel Ampera World expansion this car could take the lead on the electric car market Asia, South Africa, Australia, and some countries of Latin America 4000 cars sold in China as a testing phase

New models

Opel develops new cars all the time

Threats

Growth of competitors the emerging countries could be new challengers, especially on the entry-level car market

Volatility

too many changes in brand positioning

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C.

Appendix C (Porters Five Forces) Threat of new entrants (Low)

Legislations Brand image Small cars

new legislations from EU lack of trust towards manufacturers from emerging countries but these new companies are specialized in small cars, which is the weakness of a lot of big companies

Bargaining power of buyers (High)

Internet Brand target a free access to market information Opels customers are generally male, young and educated, so they are able to compare and decide which offer is the best for them Numerous dealers

Threat of substitute products (High)

Models Government incentives they are really similar, whatever the brand the governments encourage the using of bicycles or public transportation

Fuel price

it reaches new high scores each year

Bargaining power of suppliers (Low)

Numerous suppliers the brands are used to deal with the same firms

Rising price of raw material

Degree of rivalry among competitors (High)

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Growth of competitors Hybrid/Electric cars

new manufacturers from emerging countries this new market will change the situation

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