To: Big Drive Auto Executives
From: Team B
Subject: The Future of Big Drive Auto
Preparation for different economic realities has a large impact on short and long term survival or potential growth within a business. Although the current economic situation appears to be extremely challenging, the following recommendations for Big Drive Auto will prove to be a valuable asset in keeping the company doing what it does best- profiting in the automobile industry.
Big Drive is in a market situation in which a small number of selling firms control the market supply of a good or service and are therefore able to control the market price. In other words, Big Drive can be classified as an oligopoly. Every company in an oligopoly is aware of its own market share of the total market for the product or services it produces. Changes in price or market share by one company can be and in most cases, is reflected in the sales of its competition. There is a tendency that these companies have a high degree of interdependence. (Oligopoly, n.d.) Another impact on companies classified as an oligopoly is non price competition, such as advertising, packaging, and service offerings. (Oligopoly ,n.d.)
After understanding the market base and some ways to differentiate the company, one must analyze Big Drive Auto??™s historical data and predict trends. Based on trends derived from the past ten years of Big Drive Auto??™s performance as an automotive dealer, the data appears to suggest pinpointing the company??™s efforts toward service rather than sales. For example, a table posted below shows that Big Drive Auto recorded significant revenue growth in the area of service activities ranging from 1998-2007 (Big Drive, 2010).
Service Revenue, shown above, is on the rise.
Vehicle sales is fluctuating.
Oil, coolant and tires fluctuated as well.
The above chart paints a clearer picture of the overall trend of rising service revenue and fluctuating revenue from its other operating areas.
Since a well informed decision has been made to shift towards servicing, economic scenarios in the next five years has to be contemplated. Industry conditions should be analyzed and business plans drawn up to lead the company to success in various economic scenarios following data of the past and continuing into the expected future.
For current economic trends in the industry, one must look to the automobile data available. The recent data has varied. In January, for example, orders for motor vehicles fell by 2.2% (Nutting, 2010). That followed a gain of 3.6% in December and 0.2% in November (Nutting, 2009). Economic indicators such as these, during the current recession, reflect how orders and sales fluctuate and how companies and industries must adapt accordingly.
As mentioned earlier, in an oligopoly, non price competition is an important ingredient to success. Creative marketing in conjunction with environmental conscious business decisions allows Big Drive Auto to saturate into indirect markets; Thus enabling eco-conscious consumers to stay environmentally conscious throughout their purchasing decisions from food, homes, and automobiles. Big Drive Auto should actively target eco-friendly consumers with the suggested rebates, dealer incentives, and innovative financing to ensure customer satisfaction; resulting in improved sales and profits during any economic scenario.
Multiple economic scenarios may exist in the near future. Getting caught unprepared is not an option in this ever-changing auto industry. Three economic scenarios will be discussed with applicable recommendations to structure business plans accordingly.
In a prosperous economic climate, where sales and service revenues are steadily trending higher, Big Drive Auto??™s general pricing strategy will shift slightly higher to accommodate more risk-taking. Reinvestment within the company will take place in this instance such as growing human capital with education and training as well as expansion of jobs and locations.
In a recessionary type atmosphere, Big Drive Auto??™s pricing strategy for vehicles will continue to be generally lower than its??™ competitor??™s prices, but checks will be set in place to ensure that prices will be raised to accommodate more consumers willing to pay a higher price for services offered. Historically, when an economy battles through a recession, the number vehicle purchases tend to slump while the numbers of individuals who maintain their vehicles tend to climb, which fits well into our business model.
The perilous scenario consists of an industry that has reached a contraction phase and places the business and industry in economic danger and imposes a strict demand for the company to either close its doors or completely slash its prices. Given that situation, Big Drive Auto intends to stay competitive and slash its prices to allow for its very survival. Additionally, Big Drive Auto wants to reach out to the community to help build trust with its patrons by offering outreach programs to assist customers, who face more challenging financial issues, such as layoffs or temporary work reduction.
In addition, how Big Drive Auto reacts to unpredictable credit market fluctuations will also determine how successful it will perform in the next five years. In case of financial distress, Big Drive must assure customers that its loans will have maximum insurance protections, in case the auto dealership climate has been battered by an economic storm.
Considering changing economic futures, Big Drive Auto will adjust its pricing strategies, market positioning, and improvement initiatives to benefit its clients (Auto Consulting, 2010). In spite of economic downturns and upswings, consumers should be able to retain their purchasing power. Understanding the economic swings, and the wants and needs of its customers will allow Big Drive Auto to remain a competitive force within the automobile industry for the months, years and decades to come.
Auto Consulting, (2010). Retrieved from http://www.autoconsulting.com/autotrade.htm on March 30, 2010
Nutting, R. (February 25, 2010). Durable goods orders surge 3% on airplanes. Market Watch. Retrieved from http://www.marketwatch.com.
Nutting, R. (January 28, 2010). Durable goods orders rise 0.3% in December. Marker Watch.
Retrieved from http://www.marketwatch.com.
Nutting, R. (December 24, 2009). Capital equipment orders strengthen in November. Market
Watch. Retrieved from http://www.marketwatch.com.
(n.d.). Oligopoly. Retrieved March 13, 2010 from http://www.answers.com/topic/oligopoly