+ All Categories
Home > Documents > Report FCA new car

Report FCA new car

Date post: 17-Jul-2016
Category:
Upload: vincenzomontalbano
View: 225 times
Download: 2 times
Share this document with a friend
Description:
How having NPV positive
14
BALILLA The new FIAT B SUV Technical & Financial analysis for the launch The following paper has to be considered as a complementary part of the final presentation. It explains further details and shows how to reach the overall results and the related calculations more deeply. The document has been realized by the consulting team of the ESCP Europe Business School. The information provided acquires value only if properly commented by the authors. Working team Benatti Elisa Drocco Simone Montalbano Vincenzo Querci della Rovere Aurora Solmona Mattia Toffali Francescaa Turin, January 15 th 2012
Transcript
Page 1: Report FCA new car

BALILLA The new FIAT B SUV

Technical & Financial analysis

for the launch The following paper has to be considered as a complementary part of the final presentation. It explains further details and shows how to reach the overall results and the related calculations more deeply. The document has been realized by the consulting team of the ESCP Europe Business School. The information provided acquires value only if properly commented by the authors.

Working team

Benatti Elisa Drocco Simone

Montalbano Vincenzo Querci della Rovere Aurora

Solmona Mattia Toffali Francescaa

Turin, January 15th 2012

Page 2: Report FCA new car

Balilla, The new FIAT B SUV

1

Contents CURRENT SITUATION ......................................................................................................................................... 2

INDUSTRIAL COSTS ANALYSIS ............................................................................................................................ 3

Available versions .......................................................................................................................................... 3

Suppliers material costs................................................................................................................................. 3

Interior design analysis .................................................................................................................................. 4

Investments (plant, tooling plant and suppliers, R&D) ................................................................................. 4

Plant analysis ................................................................................................................................................. 4

ENTERING NEW MARKETS ................................................................................................................................. 4

Plant capacity ................................................................................................................................................ 4

Investments (plant, tooling plant and suppliers, R&D) ................................................................................. 5

Distribution costs ........................................................................................................................................... 5

MARKETING STRATEGY ...................................................................................................................................... 6

Pricing ............................................................................................................................................................ 6

EMEA ......................................................................................................................................................... 6

USA ............................................................................................................................................................ 6

China .......................................................................................................................................................... 6

Discount ......................................................................................................................................................... 7

EMEA ......................................................................................................................................................... 7

USA ............................................................................................................................................................ 7

China .......................................................................................................................................................... 7

Advertising ..................................................................................................................................................... 8

1st step ........................................................................................................................................................... 8

2nd step .......................................................................................................................................................... 8

3rd step ........................................................................................................................................................... 9

EVALUATION OF ENTERING IN NEW MARKETS ............................................................................................... 10

References ....................................................................................................................................................... 13

Cost reduction ............................................................................................................................................. 13

Marketing .................................................................................................................................................... 13

New markets................................................................................................................................................ 13

Page 3: Report FCA new car

Balilla, The new FIAT B SUV

2

CURRENT SITUATION Initial plan and drop of the sales

FIAT launch of the new Balilla was aimed by results’ of market analysis which describes the segment of B SUV compact regular, in which FIAT is not present yet, as the one with the highest grow rate. Basing upon these evidences management builds an entering strategy considering the following elements:

- Market data: expected volume of sales, price to final customers, discount to dealers, advertising campaign expenditure

- Industrial cost: suppliers material costs, variable and fixed production costs (assembly and shop press), direct manpower, distribution costs (outbound logistics and warranty), powertrain material cost (engine and transmission), residual generic depreciation

- Industrial spending: specific investment for product development, R&D, Provision found, Start-up, and overall plant investment

Simulating data from 2011 to 2019, the launch will happen in 2013, shows a positive perspective scenario of 17.8 Mio € of NPV within 7 yrs.

However, despite the comforting analysis of segment growth, a severe economic crisis forced analysts to reduce their forecasts of 20%, which cause a drop of volumes and an increase of overhead costs and a drop in the NPV, now set to (85.5) Mio €.

Page 4: Report FCA new car

Balilla, The new FIAT B SUV

3

INDUSTRIAL COSTS ANALYSIS

Available versions It’s possible to increase net revenues from options of 132 €/veh (Gasoline) and 143 €/veh (Diesel) The new FIAT Balilla is produced in two versions: gasoline and diesel engine. In the initial hypothesis they are available only with manual gearbox, but in order to better satisfy the requests of consumers the new Fiat Balilla will be provided both with a manual and automatic transmission.

GASOLINE DIESEL Engine Gearbox

Fire 1,4 16 V 100 HP E5 C514 Manual and Automatic

Multijet 1,3 16v 85 HP E5 C510 Manual and Automatic

This causes an increase of net revenues from options. In fact, where installed, it generates an increment of costs of 150 € but an increase of net revenues from option larger than 550 €/veh.

Product Unitary costs

Unitary Revenue

% sales

%mix (G/D)

Net Revenue (€/veh)

Avegrage cost (€/veh)

Average net Revenue (€/veh)

Gasoline

Manual 230 850 88% 65% 620 266 1,018 Automatic 530 2,250 12% 65% 1,720

Diesel

Manual 240 950 88% 35% 710 282 1,126 Automatic 540 2,350 12% 35% 1,810

* Average costG/D = (ucG/D, M * %salesG/D,M *%mixG/D*V+ ucG/D, A * %salesG/D,A *%mixG/D*V)/V * Average revenueG/D = (urG/D, M * %salesG/D,M *%mixG/D*V+ urG/D, A * %salesG/D,A *%mixG/D*V)/V

Suppliers material costs It’s possible to save 135 €/veh (Gasoline) and 121 €/veh (Diesel) Change the suppliers’ inventory management model from HILL to Consignment Stock (savings: 75 €/veh). Since Fiat works closely with suppliers it would be possible to use a new approach for inbound inventory. In this way suppliers are charged with the financial costs of inventory providing savings for Fiat as buyer but they will save costs for orders emission adopting an e-procurement strategy: in fact the FIAT integrated IT system, if extended, could allow suppliers to know Balilla’s demand and level of stock in every moment.

Change of the platform (savings: 55 €/veh). It’s strongly recommended the adoption of the SCCS platform (Small Common Components and Systems) jointly developed by Opel and Fiat, already used in the chosen plant. It is considered an ideal solution for Balilla development since it is modular and could be easily re-arranged even for different sizes.

135 121

0 20 40 60 80 100 120 140

SUPPLIERS' COSTSframe and otherssuspension parts

breaking partsfuel system

electrical partswheels and tyres

transmission

Saving on suppliers costs (€/vehicle)

com

pone

nts/

mat

eria

ls fro

m

supp

liers

Fiat Balilla Diesel model Fiat Balilla Gasoline model

Page 5: Report FCA new car

Balilla, The new FIAT B SUV

4

Interior design analysis The re-style of internal design allow to save 50 €/veh for both models Thanks to the cooperation with the FIAT engineering department it is possible to modify some features of the first design of the FIAT Balilla. This presented a vent for the air conditioning and a lot of buttons on the front top. The re-arrangement of the front top, the reduction of buttons (0.6 €/button) and the vent elimination cut the material and production costs: mold simplification and cost reduction, less holes in the front top, less risk of damages during drilling, less parts to be installed, less electrical wirings, no air tunnel connection, less manpower.

Investments (plant, tooling plant and suppliers, R&D) It’s recommended to invest more money in the equipment to sustain the interior redesign which lead to a reduction in press shop working time for each vehicle and in tooling suppliers in order to increase the standardization of components produced by suppliers and a reduction of time needed on the assembly line. The new production function is estimated as following.

Diesel AS-IS Diesel TO-BE Gasoline AS-IS Gasoline TO-BE Assembly Line 14.60 hours 13.1 hours 0.75 hours 0.72 hours Press Shop 14.35 hours 12.83 hours 0.75 hours 0.72 hours Due to the high profitability of the new business plant, FIAT has the opportunity to invest in green direction in order to reduce the CO2 produced by its plant. Saving and re-using the excess heat for pre heating ovens for painting cycle or conditioning the building FIAT also reduces fixed costs.

Plant analysis The production of the new FIAT Balilla is forecasted in the Italian plant of Melfi where the production capacity is not saturated. Today the plant is producing 440.000 vehicles/year while the total capacity is close to 860.000. This residual capacity allows FIAT to produce all new Balilla in this plant. Furthermore this choice is convenient because the SCCS platform is already used in the plant to produce Punto, Punto EVO and Grande Punto.

ENTERING NEW MARKETS

Plant capacity The capacity of the plant is enough to produce the volumes forecast to new markets (USA and China), so it’s recommended the entrance in those. Country in order to decrease generic depreciation costs and fixed overall costs.

2013 2014 2015 2016 2017 2018 2019 EMEA 64000 65600 67240 68921 70644 72410 74220 US 25129 28001 36401 42754 49136 60383 72680 CINA

24764 33388 46302 63936

Balilla volumes 89129 93601 103641 136439 153168 179095 210836 Total production 529,129 533,601 543,641 576,439 593,168 619,095 650,836 Utilization % 62% 62% 63% 67% 69% 72% 76% Residual capacity 330,821 326,349 316,309 283,511 266,782 240,855 209,114

Page 6: Report FCA new car

Balilla, The new FIAT B SUV

5

Investments (plant, tooling plant and suppliers, R&D) Entering new markets will cause an increase in investments not proportional to the increase in volumes thanks to the economies of scale reachable. Thanks to the increment of volumes also fixed costs and generic depreciation will decrease on single vehicle.

Distribution costs While considering the entrance in new markets the shipping costs have been charged. They already consider ship transportation with load and unload, packaging, damages warranty and duties. Furthermore FIAT signed an agreement with Grimaldi Lines for the ship transportation in order to reach a very convenient price towards both U.S. and China. The new Balilla are stocked in Chrysler warehouses in the U.S. and in third parties warehouses in China. In order to be efficient on this aspect the optimization of the way and the saturation of trucks and ships is made thanks to a new IT technology.

Unitary transportation cost [Euros] Overall volumes [Units] EMEA 200 483035 U.S. 1800 314482

China 2400 168390

400000500000600000700000800000900000

1000000

2013 2014 2015 2016 2017 2018 2019

Volu

me

[Uni

ts]

Current volumeMaximum capacityCurrent+EMEA

050

100150200250300350400

2011 2012 2013 2014 2015 2016 2017 2018 2019Tota

l Ind

ustr

ial I

nves

tmen

t fo

reca

st (M

io €

/yr)

yr EMEA EMEA+US EMEA+US+CHINA

0%10%20%30%40%50%60%70%80%

2013 2014 2015 2016 2017 2018 2019

% u

tiliza

tion

Current+EMEA Current+EMEA+USCurrent+EMEA+US+China

Page 7: Report FCA new car

Balilla, The new FIAT B SUV

6

MARKETING STRATEGY

Pricing

EMEA Considering both the prices of the SUV Compact Regular Segment in EMEA and the offering of vehicles of other segments in the same price range, we concluded that the purposed prices are appropriate. The resulting price positioning is slightly under the average of the segment, this would foster sales and penetration, without setting the model in a “cheap” slot. From a price range point of view it would position the Balilla among models of esteemed manufacturers, this should not be considered as a threat, instead is part of the FIAT brand repositioning strategy. In 2016 as we plan a renewal of the model we suggest the prices to rise of 4%.

2013 2016 EMEA

€ €

18.150 18.700 Petrol

19.450 20.000 Diesel

USA Considering the purchasing downtrend due to the crisis and the low penetration of the FIAT brand in the country we suggest lower prices as shown in the table, in order to foster a fast market share growth. In 2016 as we plan a renewal of the model we suggest the prices to rise of 4%.

2013 2013 2016 2016 USA

$ € $ €

21.150 17.950 21700 18.450 Petrol

22.150 19.650 23750 20.200 Diesel

China 2012 McKinsey report “Bigger better broader: A perspective on China's auto market in 2020” predicts the Chinese biggest automotive segment by price range to be the 11.200-21.00€, between the years 2011-2020 (with 37-41% market share, growing). In order to value the brand and attract the newly rich middle-class longing to exhibit their status, we set the prices in the highest 3/4 level of the segment just described.

There are Chinese products copying western models and sold for much lower prices, but Chinese customers usually consider in-house products to have lower quality and often despise them, so they don’t have to be considered as real competitors.

2016 2016 CHINA

¥ CNY €

128.500 18.500 Petrol

140.000 19.600 Diesel

Page 8: Report FCA new car

Balilla, The new FIAT B SUV

7

Discount

EMEA The discount has been computed considering the 2012 FIAT contract with the dealers, which settles the invoice price with a discount at 9%, plus bonuses on volumes targets granted to the dealer usually on a quarterly base or each six months, evaluated it as an average additional 3-4%. Discount than includes the average rebate made to the final clients (7%), laying 50% on the producer and the rest on the dealer. From an accounting point of view it should be calculated before taxes, but with such small order of dimension it allows a clearer computation to incorporate it in the discount without affecting the result. Thus the initial suggested discount in EMEA is 16,5%. It will raise slowly of 0,5% in the following years as the bonuses to the dealers increase with the volumes sold and to encourage dealers to push the product as its life cycle moves to an end. It remains constant during the launch of the new version of Balilla in 2016, and restart increasing the following year at a 1% rate. Breakdown Value Drivers Dealer Invoice 9,0% Fixed contracts Bonuses on volumes sold 4,0% Encourage dealers to support the model 50% rebates/promotions 3,5% Promote the new model

Discount 16,5%

USA In The USA the dealer’s invoice is still 9%, to which each producer adds a fixed holdback after sales have taken place. FCA average holdback in the States is 3%. Furthermore, since FIAT brand is not yet strong in the market we suggest to pledge bonuses (additional 1%) to foster penetration and grow market share rapidly. Average rebates to the final client are verified both vertically along the segment and horizontally for other FIAT models. Thus the initial suggested discount in EMEA is 17,5%. It will raise slowly in the following years as in EMEA

Breakdown Value Drivers

Dealer Invoice 9,0% Fixed contracts

Holdback + bonuses 4,0% Encourage dealers to support the model

50% to final customer rebates 4,5% Promote the model and FIAT brand, react to the crisis

Discount 17,5%

China Chinese dealers usually have higher earnings than the rest of the world, due to both higher invoices and higher bonuses. The discount to be applied in China is calculated taken into account high bonuses and also medium-low rebates, sacrificing some revenues in order to penetrate the market rapidly and to build a strong Brand. Indeed the marketing strategy in China leverages on the western origins of FIAT, which Asians find so attractive. Therefore building the Image is crucial, and gaining a big share in short time is necessary to reduce costs and solidify FCA presence in the market. Thus the initial suggested discount in 2016 in China is 18%. It will raise slowly of 0,5% in the following years. Breakdown Value Drivers

Dealer Invoice 11,0% Fixed contracts

Bonuses on volumes sold 5,0% Encourage dealers to support the model,

achieve fast penetration 50% to final customer rebates 2,0% High level brand positioning Discount 18,0%

Page 9: Report FCA new car

Balilla, The new FIAT B SUV

8

Advertising Entering into new markets involve new advertising campaigns which have to be efficient to guarantee visibility to our cars. Then we studied the markets and our target we built the campaigns , during the 9 years, to reach the target and achieve a great gross rating point (GRP).

1st step Average price of medium involved in the campaign.

US Prices

TV 100.000$-2.000.000$ 30 Sec spot RADIO 4.000$-6.000% weekly INTERNET 50$-300$ weekly PRESS 10.000$-150.000$ ADV placement MAGAZINE 200$-10.000$ ADV placement CHINA prices

TV 350$-12.000$ 10 sec spot RADIO 500$-6.000% weekly INTERNET 50$-300$ weekly PRESS 500$-100.000$ ADV placement MAGAZINE 200$-10.000$ ADV placement

2nd step After the evaluation of the total number of our target, through special tools such as “Sinottica” of Eurisko, and the calculation of the penetrations of each medium (Percentage of the target striked by the media), we deviced the campaign considering the prices of each spot, billboard and general adverting.

EMEA Communication Plan

0

20

40

60Produzione

Outdoor

Print

TV

Internet0

20

40

60Produzione

Events

Outdoors

Print

TV

USA Communication Plan

0

20

40

60Produzione

Outdoors

Print

TV

Internet

CHINA Communication Plan

Page 10: Report FCA new car

Balilla, The new FIAT B SUV

9

3rd step Finally, we calculated the GRP that s a measure of the size of an advertising campaign or by a specific medium or schedule. It does not measure the size of the audience reached. Rather, GRPs quantify impressions as a percentage of the target population, and this percentage may thus be greater than, or in fact much greater than, 100.

The purpose of the GRP metric is to measure impressions in relation to the number of people in the target for an advertising campaign. GRP values are commonly used by media buyers to compare the advertising strength of components of a media plan

GRPs are most directly calculated by summing the ratings of individual ads in a campaign.

Our campaign has an average rating of 10 for person,

GRPs are simply total impressions related to the size of the target population:

Impress: 100*470 mln =4722,861

GRPs= 100 * Impressions/Defined population (#) = 100*4772,861/587,239 mln= 804,2484

46%

20%

34% TARGET EMEA

TARGET USA

TARGET CHINA

Page 11: Report FCA new car

Balilla, The new FIAT B SUV

10

EVALUATION OF ENTERING IN NEW MARKETS

In a horizon of negative NPV together with the need of overcoming overcapacity, one of the main drivers considered is the expansion in countries where the Fiat Balilla is not sold yet.

According to KPMG Global Automotive Survey the high potential of following this way should be mitigated/merged by/with a negative effect: the considered new growing markets (China, India, Brazil) will take the control of the global automotive market, as a further advice is to have as a long term strategy an increasing in the joint ventures and/or M&A in that countries. Moreover an advice about the mid-term objective is to add value to the product by meeting technological needs of customer (plug-in an technological connection tools installed in the car).

LATAM

Unless LATAM is expected to increase by 24% the car sales (2012-2019) and Fiat is the market leader in one of the dominant country in car sales, Brasil, (22% of market share in 2012) within a different segment (C). Moreover an increasing in taxation in the region doesn’t allow us to foresee a promising future sales.

APAC

Selling forecast in China = 168390 cars in 4 years (2015-2019) Considering the Asia and Pacific region, statistics from consulting reports forecast a huge growth of the automotive market in the region. In particular China and India are the two driving countries. The reasoning is based on selling a product where a developing market is huge. About India we found out that is true that the automotive market will grow by 2020 of 113%, on the other side the

LATAM APAC NORTH-US

2012-2019 Car sales growth

24% 109% 31%

B segment growth (sales) 32% 6% (191% China)

62%

Brand awareness + - +/-

2010-2025 GDP growth 10% 50% 15,2%

% CO2 constrain + + +

Page 12: Report FCA new car

Balilla, The new FIAT B SUV

11

main two segments growing in the country are the extreme ones, unless, we are in the middle. So we will take into account to enter in the market with different models. China is the other main Country we have considered with a huge potential growth, particularly in our segment (191%). Moreover, a distribution channel is already set there (200 dealers by 2013 are expected), as a JV was just made this year (2012) with Gaig. The resulting GAC partnership will allow us to have a facilitator in the potential future production inside the country.

Moreover the country GDP is increasing and in three/four years also a mid-income Chinese person can effort to buy our car. Indeed our advice is to plan the entrance in that market in 2016. We suggest as well to help our brand awareness increase by introducing a car sharing six months in advance to the city launch. The last advice can also contribute to control pollution and turnaround the disadvantage of lack of car plates in some main cities (due to CO2 restriction) in an opportunity.

The increase in Fiat Market sales in B segment, by 150% from 2016 to 2019, is justified both by the increasing in Fiat market share in B segment, as well as the huge growth of compact regular SUV segment.

North-US

Selling forecast in North US = 314482 in 7 years (2012-2019) The first advantage in going overseas with Balilla model is the opportunity to take advantage of the distribution channel and economy of scale and scope already set in the country by Chrysler. Consumer’s willingness to buy is also increased by the fact that Fiat merged with FCA, now the patriotic behaviour of Americans is touched.

2011 2012 2013 2014 2015 2016 2017 2018 2019

Automotive Market China 11.100.000 12.237.339 13.491.213 14.873.563 16.400.000 17.688.889 19.079.073 20.578.512 22.200.000

growth % of B segment 10% 11% 13% 14% 14% 14% 14% 15% 16%

Market - compact SUV segment 1.110.000 1.346.107 1.753.858 2.007.931 2.214.000 2.476.444 2.671.070 3.086.777 3.552.000

growth % of Fiat mkt share 1,0% 1,3% 1,5% 1,8%

FIAT Market on "B" Segment 24.764 33.388 46.302 63.936

Page 13: Report FCA new car

Balilla, The new FIAT B SUV

12

About NAFTA region we suggest to enter in north US as we have a retail net already set there. Moreover north US market is now accounting for 30% of the global automotive market and it is expected to growth by 31% in next 8 years. Also statistics tell us that our segment is growing and Fiat market share as well, going from the actual one of 4% to the 8% in the 2018, in that segment

2011 2012 2013 2014 2015 2016 2017 2018 2019

Automotive Market North US

7.362.957 8.629.539 8.974.721 9.333.709 9.707.058 10.095.340 10.499.154 10.919.120 11.355.885

growth % of B segment 6,0% 6,5% 7,0% 7,5% 7,5% 7,7% 7,8% 7,9% 8,0%

Market - compact SUV segment

441.777 560.920 628.230 700.028 728.029 777.341 818.934 862.610 908.471

growth % of Fiat market share

4% 4% 4% 4% 5% 6% 6% 7% 8%

FIAT Market on "B" Segment

17.671 22.437 25.129 28.001 36.401 42.754 49.136 60.383 72.678

Page 14: Report FCA new car

Balilla, The new FIAT B SUV

13

References

Cost reduction http://archiviostorico.corriere.it/1997/giugno/14/automatico_strada_co http://www.autoblog.it/post/41175/usa-consumatori-piu-interessati-a-motori-diesel-che-ad-auto-ibride http://www.fiat500.com/site/it-it/500x-cross/configuratore http://www.slideshare.net/ValerioTorriero/i-mega-trends-dellautomotive-industry-2020 http://www.slideshare.net/ANIEnergia/edf-fenice-efficienza-energetica-nellautomotive http://www.cnhindustrial.com/it-IT/sustainability/environmental_responsibility/factories/performance_monitoring http://scholar.harvard.edu/files/tnkomo/files/analysis_of_toyota.pdf

Marketing EMEA Repubblica, Ma quanto le paga le auto una concessionaria, 2010 Ilsole24ore, La crisi pesa sui concessionari, articolo, 2013 http://www.fiatpress.com/ http://www.patentati.it/blog/articoli-auto/suv-economici-modelli-prezzi-novita-2013.html USA Florida department of Revenue, Tax Information for Motor Vehicle Dealers, 2012 Illinois Department of Revenue Regulation, Title 86 Part 130 Section 130.2125 Trading Stamps, Discount Coupons, Automobile Rebates and Dealer Incentives, 2010 http://www.edmunds.com http://www.car-buying-strategies.com/dealercostcalculator.html https://www.truecar.com/prices McKinsey, Bigger better broader: A perspective on China's auto market in 2020, 2012 KPMG, Gear change ahead: The future of China’s auto dealership market, 2010 Accenture, China’s automotive market, 2013 Deloitte, 2013 Deloitte China Auto Dealership Performance Study, 2014 http://en.wikipedia.org/wiki/Automotive_industry_in_China Further sources Interview to Italian automotive dealers.

New markets http://www.allpar.com/corporate/chrysler-group/plan-by-geo.html http://www.anfia.it/allegati_contenuti/2013_INDUSTRIA_AUTOMOTIVE_MONDIALE_def.pdf http://www.slideshare.net/FrostandSullivan/strategic-analysis-of-the-north-american-small-and-compact-suv-market http://www.rwbaird.com/docs/Automotive_MarketingBook.pdf McKinsey Perspective on Chinas automarket in 2020 https://www.kpmg.de/docs/Auto_survey.pdf


Recommended