Automobile Sector Analysis: Five Forces and SWOT

Automobile field Analysis Five Forces and SWOT1. Overview of the railway locomote sectorFive forces digest combative Rivalry between Existing Players HighCompetition between existing simple machine companies is high. Although the automobile commercialize was dominated by the three big auto manufacturers in US, Toyota and Honda in Japan, the situation is changed. With the growing demand in emerging grocery store, the emerging competitors in China and India may drive an intensified outlay arguing. However, the competition could likewise focus on the caoutchouc, warranty and financial services etc.Threat of New Entrants MediumAlthough the entrant barrier is high for the automobile intentness beca lend oneself the requirement of metropolis and technology, an increasing number of automobile manufacturers atomic number 18 emerging in China and Asia due to the economic expansion and growing demand. However, these automakers are in the development status and may non catch up the leading technology in Japan and US, so the threat from new entrants is medium.Threats of Substitutes LowCustomers could involve to careen to transportation means early(a) than automobile such(prenominal) as bicycles, b single-valued functions and subways. However, the automobile is still the favourite despite the relevant high cost than other mentioned transportation means because its flexibility, comfort and convenience.Bargaining Power of Suppliers LowIn automobile industry, the component supplier has little bargaining personnel because the manufacturer could switch to other suppliers easily. On the other hand, the components are generally low value and the suppliers find it difficult to bargain with automakers.Bargaining Power of Customers HighThe competition in the automobile industry is intense as mentioned above. So the customers have many choices on the brands and models. Customers care about(predicate) the smell, price, safety, comfort, appearance of the car. Rec ently, customers are also more(prenominal) and more concerned about the environmental effect of the automobile and the energy efficiency. So the customers get more and more bargaining business leader in automobile industry.2. Toyota locomote community2.1 Overview of the companyCompany profileToyota force Corp. is one of the largest and leading automobiles manufacturers in the globe. It operates in three main credit line segments the two biggest are automobile and financial services whereas the third one is comprised by many smaller other divisions. It is spread worldwide as it has 50 manufacturing facilities in 27 countries and regionsToyota designs, manufactures and gross sales passenger cars of several types and utilities, trucks, tractors and material handling equipment, minivans and other car accessories. Its ingatherings mountain be divided into 2 main categories, conventional and hybrid vehicles. The company sells its products nether Toyota, Lexus, Hino and Daihatsu b randsThe company is also engaged in the financial industry as it provides financing to its customers and dealers. It is also involved in housing, marine, e-commercial, ITS and biotechnological activities.Toyota sells its vehicles in more than 170 countries and regions worldwide. Toyotas uncomplicated trades are Japan, North America, atomic number 63 and Asia. It is headquartered in Toyota City, Japan and employed around 316,121 people as on March 31, 2008Strategy AnalysisToyotas strategy can be summarised under three key principles growth, efficiency and stability. These are the three priorities the companys management will pursue to achieve future sustainable growth and augment the economic value.Growth will be achieved through continuous investment mainly in hybrid vehicle segment to meat the increasing demand. expertness is mainly focused on cost management and further reduction in order for the company to be able to provide high quality products in affordable prices and main tain its competitive values. Stability will be ensured by maintaining a solid financial base. Within the economic downturn it is authoritative for Toyota to maintain sufficient liquidity in order to continue to finance its investments in research and development of new technologies, which is an integral and essential part of the companys advantages. associate GroupAs Toyota operates in the global market its competitors come from all around the world. Its major competitors are BMW AG, DaimlerChrysler AG, ordination S.p.A., crosswalk Motor Company, General Motors Corporation, Honda Motor Co. Ltd., PSA Peugeot, Renault S.A., Volkswagen AG and many othersSWOT AnalysisStrengthsWeaknessesStrong overall financial performanceStrong reputation and qualityStrong position is Asiatic marketResearch and developmentProduction pipeline system and cost managementDiversified product portfolioFinancial services are still rudimentaryHuge expenses on pensions and post-retirement benefitsOpportuni tiesThreatsIncreasing demand for hybrid and environmental-fri polely carsExpansion in emerging Asian marketsFinancial and other non-auto division developmentNew car modelsGlobal economic crisisStrong competition in automotive industryYen and US dollar bill exchange ratesTight environmental regulations on carbon sackingsProblems with specific components of sell cars. (Recent brake problem)2.1. Key Financials Analysis31/3/200931/3/200831/3/200731/3/200631/3/2005gross revenue207,852.40264,120.58202,821.01178,294.05173,443.60Operating Income-4,667.5222,809.8218,959.8415,919.5115,192.39Net Income purchasable to Common-4,423.7917,259.0513,923.6211,629.6310,950.45Total Assets292,725.95324,979.61275,051.76242,604.35227,515.08Total Liabilities185,398.39199,132.47169,488.89148,104.55138,230.49Common Equity101,865.07119,249.79100,242.1589,502.9484,563.86Net specie coalesce Operating Activities14,724.726,357.627,783.522,136.222,144.6* master(prenominal) First year to report losses* Stabl e increase in sales Decline in 2009 greatly affects income* Severe decrease in specie flowing from operating activities, nearly 50%* Very big difference between sales and operating income points out severe cost expenses for the company. As this differences is perpetually increasing it is not far from the truth to say that Toyota is gradually loosing its competitive advantages in cost efficiency against its competitors.* General trend in key financial s shows a steady and permanent increase until 2008 and a sharp dip in 2009, due to severe problems of economic recession and its great involve on automobiles industry.This trend applies for almost all financial s, pointing out that the companys performance as a whole followed a movement like this.2.3. Multiples analysis31/3/200931/3/200831/3/200731/3/200631/3/2005 legal injury To Earnings-22.439.1914.7415.2511.23Price To Book0.971.322.041.971.44Price To specie geological period7.414.837.837.805.87Price To Sales0.50.70.81.00.7* M ultiples follow companys general trend, namely increase until 2007 and then decreasing sharply* Consistent with overall picture of company, multiple analysis show the economic downturn of the entity from 2007 onwards* Point to mention prejudicious P/E ratio. Markets expectation about company looks really slim. The economic crisis, aboard with its severe problems generating income and its recently damaged reputation, create really unfortunate future prospects for Toyota. The prejudicious P/E ratio and specifically its magnitude (-22) implies that nobody is neither willing to pay to buy the companys share nor expecting any profit generation.* Very sharp descend as wholesome 31.62 units is something extremely noticeable. If we focus on decline itself, it shows an extremely quick unfavorable turn of the market towards the company.2.4. Companys performance31/3/200931/3/200831/3/200731/3/200631/3/2005ProfitabilityReturn on Equity-3.9814.4914.6814.0013.60Operating Profit Margin-2.258. 649.358.938.76Asset UtilizationTotal Assets Turnover0.710.810.740.730.76Net Sales % work Capital28.93180.701412.6229.7815.30 power trainEBITDA / Interest Expense20.9486.1977.33153.70146.20 ache Term Debt/ Common Equit62.6350.4052.9253.4155.44Valuation InvestmentEarnings Per Share-1.415.434.343.573.32Dividend Yield Close3.212.821.591.401.63Liquidity busy Ratio0.810.770.760.810.87Current Ratio1.071.011.001.071.15* invalidating profitability in 2009* Fluctuating sales/working capital as a take of fluctuation if investments (working capital)* Gearing increase in 2009 at the same time with high decrease of interest cover* Stable and quite low liquidity2.5. Cash Flow analysis31/3/200931/3/200831/3/200731/3/200631/3/2005Cash Flow Operating Activities14,724.726,357.627,783.522,136.222,144.6Cash Flow Investing Activities(12,265.3)(34,254.0)(32,727.4)(29,704.4)(28,591.6)Cash Flow Financing Activities6,967.46,242.77,565.67,716.83,917.0Effect of exchange rates-1,294.04-749.27218.18604.9423 2.09Net Cash Flow8,132.86-2,402.992,839.91753.58-2,297.85* Severe decrease in silver flow from operating activities, nearly 50% which vividly affects its operating income* Extreme decrease in investing activities around 70%, probably caused by bills shortage and policy change. The company issued a new project with main goal to improve profits and cover operating expenses and as a result we see a large negative impact in new investments.* Financing activities exhibit a stationary trend over the past a couple of(prenominal) age indicating the stable financial policy of the entity.* Adverse effects of exchange rates during the last two years indicating the risk the company runs because of the Yens depreciation to the U.S dollar and the Euro.2.6. Stock PerformanceThe companys share performance seems to move according to the index, with the trend to over perform it constantly. We can see the decline of the shares price, which started right before the end of 2008, following the global economic recession. At the turning point, which is in the beginning of 2009, we observe a relatively high trading volume, probably indicating the forthcoming upward(a) movement. It is also really significant to point out the extreme high trading volume observed during the first months of 2010, followed by a new decline of the shares price. This reflects the problems that Toyota is facing right offadays. There is a considerable lack of trust from the market towards the company which is mainly caused by its severely damaged reputation and loss of quality.3. cover Motor Company3.1 Overview of the companyA . Company profileThe group operates in two segments Automotive and Financial Services. For the automotive segment which consists of Ford, Lincoln, Mercury and Volvo has a main operating activity in manufacturing, sale and service of component for cars and trucks.The Financial services segment is included of financing, insurance and leasing regarding to cars, trucks, industrial equi pment, construction equipment and other activities. The company has operation in North America, South America, Europe, Africa and Asia- Pacific.B. Strategy Analysis One FordThe Company has initiated the new strategy called One Ford which has gunpoint as followo ONE TEAM focuses the significant of team work in order to reach the automotive leadership. The measurement is satisfactory of business partners, employees, investors, and related companies.o ONE PLAN The four-step plan has been established which composed of balance between cost structure and revenue develop new product follow customer preference develop balance sheet status and finance the plan and cooperation around the world to leverage companys resources.o ONE ending That is to create an exciting and viable company with profitable growth for all.Ford has started the restructuring business process before the economic crisis which the Company has reduced the nimiety capacity, closed some unprofitable plants and swallow prodigality workforce. In addition, Ford has improved the product line in term of higher quality, more safety, use less energy and more economic.* Affordable Fuel Economy Focusing on deliver fuel efficiency engine to the market. For example, the 2010 Ford Fusion is now Americas most fuel efficient midsize sedan for both the hybrid and conventional gasoline models.* Electrification strategy plan to bring pure batteryelectric vehicles, next-generation hybrids and a plug-in hybrid to market quickly and more affordably over the next four years.* Safety leadership Ford got totaling 16 models picked from the Insurance Institute for Highway Safety which more than other brands.* EcoBoost Engine delivers significant gains in fuel economy along with a great performance drive feel.C. Peer GroupFords peer group is Daimler AG, Fiat Spa Honda Motor Company Limited, Motors Liquidation Company, Nissan Motor Company Limited, Toyota Motor Corp and Volkswagen AG.D. Fords SWOT AnalysisStrengthsWeakness esl Wide geographicOperate passim the world and has a strong market in North America, Europe and Asia. Sales of each region of 2008 are 49%, 39% and 12% respectively. The well diversified market of ford reduces the risk of economic problem in specific area.l Brand royaltyFord has renowned reputation about quality and also owns other renowned brands such as Lincoln, Mercury and Volvo.l Quality carFord owns totaling 16 models of car that rated as safety car by the Insurance Institute for Highway Safetyl Product RecallExperienced many recalled products due to the quality of defective travel control switch which may cause fire. Even though there is no fire cases reported but the Companys reputation is negative affected.l Negative operating resultl Low gross marginGSKs long-term debt increased by 115.5% in 2008, which may lead to problems such as flagitious interest payment, risk of having too little working capital and even increasing possibilities of bankruptcy.l Too much long-term debtThis may lead to problems such as heavy interest payment, risk of having too little working capital and even increasing possibilities of bankruptcy.OpportunitiesThreatsl Expanding market in emerging marketFord has a plan to expand its sale in the emerging market which has great buying power in the future.l Eco-friendly engineFord has high reputation in the eco-friendly engine such as hybrid engine which has very promising market.l Fuel efficiencyFord entrap another opportunity in the market for fuel-efficient in small and middle car.l High competitionDue to new competitor, lower demand and excess capacity.l Economic crisisEconomic crisis and regression in USA where is the main market of Ford caused severe effect to the Company.3.2. Key Financial Analysis stock ThomsonFinancialScaling factor in 1,000,000 USDCurrency USD12/31/0812/31/0712/31/0612/31/0512/31/04Net Sales or Revenues146,277.00172,455.00160,123.00177,089.00171,652.00Operating Income3,518.008,031.00-8,167.007,010.00 10,681.00Earnings Before Interest And Taxes (EBIT)-4,885.006,792.00-6,689.009,354.0011,669.00Interest Expense On Debt9,682.0010,927.008,783.007,643.007,071.00Net Income Available to Common-14,681.00-2,764.00-12,615.002,441.003,634.00Total Assets215,773.00276,459.00275,337.00264,891.00294,447.00ST Debt Current Portion of LT Debt63,972.0061,052.0062,456.0059,904.0066,433.00Long Term Debt90,716.00107,478.00109,593.0094,428.00106,540.00Total Liabilities231,889.00269,410.00277,643.00250,812.00277,525.00Common Equity-17,311.005,628.00-3,465.0012,957.0016,045.00 Net sales decreased from 2007 about 15% as the economic crisis in the State which is the main market of Ford. The Company has had substantial losses from operation since 2006. Ford has high outstanding of long-term loan which may causes liquidity deficiency or bankruptcy if the Company still has continuously loss in the future. As a result of net losses from operation since 2006, Ford has had negative shareholders equity since the n.3.3. Multiples Analysismonthly HISTORICAL MARKET PRICESY2008Y2007Y2006Y2005Y2004January6.648.138.5813.1714.54February6.537.917.9712.6513.75March5.727.897.9611.3313.57April8.268.046.959.1115.36May6.808.347.169.9814.85June4.819.426.9310.2415.65July4.808.516.6710.7414.72August4.467.818.379.9714.11September5.208.498.099.8614.05October2.198.878.288.3213.03November2.697.518.138.1314.18December2.296.737.517.7214.64.5 Year5 YearVALUATIONY2008Y2007Y2006Y2005Y2004Y2003Growth Rate fair(a)P/E Ratio (High)-1.36-6.93-1.4112.949.6334.66-1.042.57P/E Ratio (Low)-0.16-4.75-0.906.647.0113.16-1.01P/E Ratio (Close)-0.35-4.81-1.126.778.1332.00-1.011.73Price/Sales0.040.080.090.090.180.18-0.800.10Price/Book Value-0.322.62-4.141.141.742.62-3.940.21Price/Cash Flow0.441.241.760.701.111.35-0.671.05Price/Working Capital0.000.000.000.000.000.00-0.167.78TARenderChart.png* P/E ratio turned to be negative since net losses from operation since 2006 and also the market price has continuously decreased from 8.58 in the beginning of 2006 to 2.29 at the end of 2008.* P/B ratio had negative value in 2008 from the negative book value of Ford.3.4. Companys performanceWorldscopeCurrency USDPROFITABILITY RATIOS12/31/0812/31/0712/31/0612/31/0512/31/04Return On Invested Capital0.251.921.952.953.32Operating Profit Margin2.432.943.125.026.54ASSETS UTILIZATION RATIOSAsset Turnover0.630.600.590.590.58Net Sales Pct Working Capital10.626.215.6811.0641.64leverage RATIOSEBITDA / Interest Expense-0.500.62-0.761.221.65LT Debt Pct Common Equity-76.88233.49316.381,268.121,229.66LIQUIDITY RATIOSQuick Ratio1.051.081.121.081.03Current Ratio1.211.251.301.251.19 Profitability ratios do not show the skilful performance as Ford has had net loss from operation since 2006. Leverage ratios also go in the same trends as a result of negative equity and high outstanding balance of long-term loan. Liquidity ratios present that Ford still can generate cash to supply its working capital but if consider to the long-term debts For d may cannot provide enough cash to support its debt payment since these ratios are still in the low thread compared with its debt outstanding amount.3.5. Cash flow analysisSource ThomsonFinancialScaling Factor 1,000,000 USDCurrency USD12/31/0812/31/0712/31/0612/31/0512/31/04Net Cash Flow From Operating Activities-179.0017,074.009,609.0021,674.0022,591.00Net Cash Flow From Investing Activities3,143.006,457.0024,862.00-7,462.008,567.00Long Term Borrowings42,163.0033,113.0058,258.0024,559.0022,223.00Inc(Dec) In ST Borrowings-5,120.00919.00-5,825.00-8,591.004,937.00 simplification In Long Term Debt46,299.0039,431.0036,601.0036,080.0036,021.00Net Cash Flow From Financing Activities-9,104.00-5,242.0015,273.00-20,651.00-14,226.00 The Company cannot generated sufficient cash from operation and had negative net cash flow from operation. Moreover the Company had to pay interest expenses for loans and had high net cash paid for financing activity.3.6. Stock market performance Ford shares ha ve been traded lower than SP500 since 2001 until 2010. Especially since 2006 that the operating results had continuous substantial losses.4. Honda Motor Company Limited4.1. IntroductionHonda Motor is one of leading automobile manufacturers in the world. The company develops, manufactures and markets automobiles, motorcycles and power products. The company also provides financing services to the dealer and customer for the sale of products. Honda has global operations in areas including North, South and Central America, Asia, Middle East, and Europe with its headquarter at Tokyo in Japan.Strategy analysisHonda Motor has three strategies. They are Staying Close to Customers, g topical anestheticization and five region strategy. Staying close to customers mean the maintenance of the qualities of a small company, Provide value product with flexibility and efficiency as a small company does and maintain global reach and technology advantage as a large company does is the drive to the fut ure growth of Honda. Glocalization means the effort to launch subsidiaries in regions that could best meet the demand of local customers and expand the subsidiaries as the local demand increases. Five region strategy requires the operations focus on five areas the world. They are North America, South America, Europe/Middle East/Africa, Asia/Oceania and Japan. The management decisions are served to suit the situation in different areas. The advanced RD capacity equips the Honda to provide flexible products to adjust the need of these regions. commerce activitiesThe company operates through four business segments the automobile business, motorcycle business, financial services, and power products.The automobiles business division manufactures passenger cars, multi-wagons, minivans, port utility vehicle, sports coupe and mini vehicles. Hondas automobiles use gasoline engines of three, four or six-cylinder, diesel engines and gasoline-electric hybrid systems. Honda also offers alternati ve fuel-powered vehicles such as natural gas, ethanol, and fuel cell vehicles. In 2008, the company sold 3,925,000 units of automobiles.The motorcycle business produces a range of motorcycles, including scooters, electric-motor-assisted bicycles, sports bikes and large touring cycles. Hondas motorcycles use gasoline engines developed by Honda that are air or water cooled, two or four cycled, and single, two, four or six cylinder. In 2008, the company sold a total of 9,320,000 units of motorcycles.Honda offers a variety of financial services to its customers and dealers through its far-flung finance subsidiaries.Hondas power products manufactures a variety of power products including power tillers, portable generators, general purpose engines, grass cutters, outboard engines, water pumps, snow throwers, power carriers, power sprayers, lawn mowers and lawn tractors (riding lawn mowers). Honda also manufactures the major components and parts used in its products, including engines, fra mes and transmissions.Peer GroupThe globalization of the Honda motor makes it face the global intense competition. The competitors include Ford Motor, Nissan Motor, Toyota Motor, Volkswagen etc.(in the automobile sector) and Yamaha Motor, Harley-Davidson etc.(in the motor vehicle industry).SWOT AnalysisStrengthsWeaknessesl Global diversificationThe company operates a total of 397 subsidiaries, and 104 affiliates all over the world.l Leading market position and good brand imageHonda is one of the largest vehicle and motorcycle manufacturers over the world with strong brand strength.l Strong Research and breeding capacityThe large investment in RD could equip Honda the capability to differentiate itself in the intense competitive market.l Declining Market Share in SectorEvident of decline in unit sales and lost of market shares in the automobile industry.l Low employee productivityHonda has a weak analogy on the number of employees and the revenues.OpportunitiesThreatsl ontogenesis demand in Asian marketHonda has taken measures to occupy the huge potential Asian market.l Growing demand in hybrid electric vehiclesThe companys emphasis on hybrid technology innovation will capture market trends as an opportunity to put up its market share.l Global competitionThe competition would result in price pressure and thus reduce the profitability.l Tightening emission regulationsThe emission standards will cause Honda to occur more costs in product development, testing and manufacturing process design.4.2. Key Financials AnalysisSource ThomsonFinancialCurrency JPYScaling Factor 1000000 JPY31/3/200931/3/200831/3/200731/3/200631/3/2005Sales10,011,241.0012,002,834.0011,087,140.009,907,996.008,650,105.00Operating Income189,643.00953,109.00851,879.00730,889.00630,920.00Net Income Available to Common137,005.00600,039.00592,322.00597,033.00486,197.00Total Assets11,579,494.0012,439,610.0011,964,917.0010,533,995.009,187,808.00Total Liabilities7,449,150.007,753,539.007,359,399.0 06,320,785.005,828,513.00Common Equity4,007,288.004,544,265.004,482,611.004,125,750.003,289,294.00Net Cash Flow Operating Activities3836411126918904525576557746624l The operating income reduces dramatically, approximately 80% from the previous years result. This result is caused by the severe decline in the sales and the consequently increase in inventory cost.l Before 2009, all the s are in a healthy and steady upward trend. But in the fiscal year ended at 31st march 2009, the volumes all undergo a dramatic decline. They are caused by the sales plunge.l The declines trends are due to the economic recession caused by the financial crisis because the demand in Japan, US and Europe shrank. The automobile industry faces a severe challenge and most companies in the sector reported unsatisfactory results.4.3. Multiple analysis31/3/200931/3/200831/3/200731/3/200631/3/2005Price To Earnings30.78.610.3Price To Book1.01.11.61.5Price To Cash Flow4.64.26.8Price To Sales0.40.40.70.70.6l Althoug h the P/E ratio increases significantly, its not a good sign. The increase in P/E ratio is not due to the high expectation of the investors and the fundamentals such as growth opportunities. Instead, the soaring P/E is the result of the plummeting earnings to common shareholders.l The price to book ratio and price to sales declined in 2008 and 2009, indicating the declining