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Strategic Management class presentation - Auto Industry Analysis

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  5. 5. Arena: Honda has been continuously pursuing since the establishment of the company the advancement of environmental technologies. In 2009, Honda GX will be the first and only natural gas vehicle to be mass produced (at Indiana plant). 33
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  7. 7. Check these facts? -- FCV approved by EPA and California back in 2002. 35
  8. 8. Vehicles: Honda has reached its current leading position in the industry through internal development and JVs. 36
  9. 9. Differentiator: Honda has such manufacturing differentiator as just-in-time parts delivery, quick die changes in metal stamping, rolling model changes to launch new vehicles without stopping production and a high level of flexible model production. Besides, most of our suppliers and customers are close to the plants. 37
  10. 10. Staging: A new auto plant in Indiana, in the U.S., a new engine plant in Canada, and a second auto plant in Thailand has begun operation in the second half of 2008. 38
  11. 11. Economic Logic: Business diversification will bring Honda to success. Other businesses, such as Motorcycles, will support Honda in the difficult business environment. History shows that motorcycles remain strong in a difficult market environment and have always supported Honda in difficult times. 39
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  14. 14. Growing global network of manufacturers and market of buyers. 42
  15. 15. Honda has chosen to focus on the car and motorcycle segments with a recent entry into the light SUV category. The motorcycle business has traditionally been strong but sales have begun to taper off. Obvious business risk associated with having 50%+ revenue coming from North American market. 43
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  17. 17. Well-positioned to take advantage of the future demand for fuel-efficient vehicles. Demand is increasing in underserved, developing areas of the world. While a Big 3 collapse could hurt in some ways, it would also present a market share opportunity. 45
  18. 18. Phase Two: • Innovative Research: This includes the work that Honda is doing in fuel cell technology, hybrids, CVT transmissions • Superior Engineering Design: This includes the process engineering (in terms of designing the process concurrently with the product. Superior design enables Honda to build first-rate products more efficiently than other manufacturers. • Price at High Consumer Value: While some Honda products are priced at a premium over their competition, this is due primarily to the high resale value of Hondas. Taking this into account, Honda small cars are still priced to create consumer surplus. Phase 3: • Efficient Processes: These allow Honda to manufacture complex designs (which often lead to better durability) at low cost, allowing for value creation later in the chain. Phase 4: • These are activities which we feel synergize with Honda’s Tier One and Two activities, reinforcing their key competencies. 46
  19. 19. We have identified 3 areas that we feel best represent Honda’s Competitive Advantage: Engineering Design Research and Development And The Honda Brand The question then becomes: “Are these advantages sustainable?” To answer that, we will consider the Value, Rarity, Difficulty of Imitation, and Organization of these three areas: VRIO Analysis. 47
  20. 20. Starting with Engineering Design, We know that Honda excels at using their engineering prowess and design skills to build reliable cars. However, some other car manufacturers excel in this area as well. For manufacturers who are not already competitive with Honda in this area, it would be difficult to bridge the gap to competitiveness by imitating Honda’s success. Finally, Honda’s business units are aligned to take advantage of design breakthroughs. 48
  21. 21. For Research and Development, Honda’s focus on R&D has placed them at the forefront of technology, allowing them to use their advances in their automobiles. In addition, Honda has a strong level of investment in R&D for a company their size, and will continue to invest heavily in this area, which is not common in the auto industry. Because of the advanced nature of their research, Honda has a strong first-mover advantage over some competitors in this area, and it will be difficult for those not actively pursuing their own research to catch up to Honda. And By keeping the R&D group autonomous from divisions within the company, Honda’s team has the freedom to develop new technologies for the company across the board. 49
  22. 22. Finally, we look at Honda’s brand equity. Consumers are willing to pay more for Honda’s cars because of the power of its brand and its association with quality and value. As a result, Honda has best-in-class repeat purchase rates. However, Toyota, who is a key competitor, also has strength in this area. Because Honda’s brand equity has been built over a long period of time, it would be difficult for competitors to imitate. Honda’s reputation for reliable cars was not earned overnight. Honda takes advantage of the benefits given by their strong brand by using it as the flagship brand for the company, and by supporting it with strong engineering, design, and R&D. 50
  23. 23. So, looking at the combined analysis of these three advantages, we can see that Honda is in a good position to move forward with a strong competitive advantage that should be sustainable over the long term. 51
  24. 24. After we defined our strategy and our sustainable competitive advantage, we assessed our current strategy by looking at a variety of qualitative and quantitative factors. We wanted to understand how our current strategy is working and what we should do moving forward. First, we took a look at our financials over the past 5 years. As you can see here, revenues are continuing to grow. In 2008, revenues surpassed $105 billion USD. This suggests that our steady growth strategy through global expansion and broadening our product offering is working. 52
  25. 25. We also took a look at our net income over time. Net income grew in 2008 relative to 2007. While 2008 net income is still not at 2006 levels, Honda is faring well relative to industry given economic conditions. 53
  26. 26. We also took a look at our profit margins and compared them to some industry benchmarks. Honda’s net profit margin is among the best in the industry. This demonstrates that our strategy of implementing efficient production processes is working. The efficient production helps us keep our costs down so we can continue to offer high-value cars to our customers. 54
  27. 27. Honda has very strong brand loyalty as evidenced by the strong repurchase rate for Honda automobiles relative to the industry norms. 65% of Honda customers purchase another Honda automobile vs. the norm of only 48%. This supports how we’ve successfully built strong equity around the Honda brand and the consumers continue to reinvest in our products as a result. 55
  28. 28. Honda again wins the best brand resale value award from Kelley Blue Book. This also reinforces the strength of the Honda brand. Consumers recognize that Honda is producing reliable, dependable automobiles. They are willing to pay more for a Honda car because they know it will hold its value over time better than other cars. 56
  29. 29. Looking forward, given the political and economic uncertainty, fluctuations in oil and raw material prices, and fluctuations in currency exchange rates that we discussed earlier, we expect the operating environment to remain difficult. However, we’re continuing to invest in the future. Our R&D investment has grown in each of the last 5 years. We are going to continue to fund R&D to develop innovative new products. Our focus on innovation as well as engineering design excellence and strength of the Honda brand position us to continue to compete in this market in the future. 57
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