MBA PROJECT

“The design of the propulsion systems for automobiles and other transportation products is going through a major evolution…perhaps one of the biggest changes since the early part of the 1900s (Strattan 2004).”





History
At turn of the last century, the automobile was born in Europe and adopted by America. The first propulsion systems were designed after the European internal combustion engine (ICE) to make machines that moved people. American entrepreneurs took the automobile from luxurious priveledge to ubiquity. By 1965, the American automobile industry grew to become the largest manufacturing operation in the world. In only two generations, the car came to define American life (Rae 1965).

It can be argued that American automobiles started a transportation revolution. But did cars start a gasoline and big oil revolution?

No, in 1900, Traister (1982) reported over 57 automobile plants in the US. 75% were manufacturing steam or electric vehicles (EV). Gasoline powered cars were considered primitive as noisy, smelly, shaky products that had to be hand-cranked. Historians are not sure why Henry Ford choose an ICE to lead the next evolution in the industry with his assembly line. By 1920 and the invention of the electric starter, Ford’s operations had wiped out the majority of steamers and electrics and the gasoline powered car monopolized transportation (Traister 1982).

One entrepreneurs choice had affected mankind for a century.

There were ? manufacturers including mom and pops that were making cars in garages all over the world. Tinkerers, scientist, entrepreneurs, businessmen and consumers were curiously fascinated with the replacement to the horse and carriage.

Today, over 700 million drive people around Earth. Okuda (2003) projects 1 billion by 2010. Of all the major manufacturers only 2 are left American.

Proposed MBA project title:

Drive the future: a feasibility analysis for a synergistic family of social ventures to grow a better world through the automotive industry: The Acheson Foundation (Foundation), Hybrid ISP (ISP), Hybrid Media Group (Media), Hybrid Motor Co. (Automaker), Hybrid Auto Group (Dealer), Advanced Real Estate (RE).

Feasibility analysis for

NOTE
Verbs from AOM journal
PAST
Indicated, noted, it has been well noted in literature, showed, it is worth reiterating, our findings suggest, we have suggested that, our results suggested,
FUTURE
Might instead explore

CONDUCTING THE FEASBILITY ANALYSIS

Industry Analysis (Which games are we going to play?)

Geopolitical: oil

US
America imports more than half of its oil demand. 34% comes from Latin America, 16% from Canada and 18% from Saudi Arabia.
CHINA
In the past three years demand for oil has increased 1.2 million barrels.
WORLDWIDE RESERVES
Conservative estimates run around 1,000 billion barrels of supply and 100 million in demand per day or 40 billion per year. That works out to about 25 years worth of oil. Whether we look at the conservative or optimistic projections, oil will run out by the end of the millennium.
IMPLICATIONS
In the auto industry, the implication is that every one of the 50 to a projected 100 million cars and light trucks on the planet will be replaced by a new technology (Simanaitis, 2004)

Fortunately the race has begun and the market segment that includes green vehicles is experiencing 100% growth spurred by oil price record highs reached in 2004.

Sociopolitical: grants

$4.1 Billion in Tax Incentives for Renewable Energy and Hybrid and Fuel-Cell Vehicles
The President has called for tax incentives totaling $4.1 billion through 2009 to spur the use of clean, renewable energy, and energy-efficient technologies, such as hybrid and fuel-cell vehicles, residential solar heating systems, renewable energy produced from landfill gas, wind, or biomass, and efficient combined heat and power systems.
http://www.whitehouse.gov/news/releases/2004/07/20040714-2.html

The White House: President George Bush
Fact Sheet: Key Bush Environmental Accomplishments


ROONEY
Local political level:
Rooney reported that automotive dealership are the most sought after businesses within city limits for tax revenues. Dealership contribute more than any other business in all other segments combined. Rooney reported a situation involved with a political battle that his dealership property that a competing dealership has rights for. Ford owns the land, Galpin has the rights, but Galpin won’t release the rights. Galpin can’t build a dealership there because of a non-compete TMA compliance within Sunrise’s area of 6 miles.

Democrats have not been kind to dealership, Rooney reported. Schwarzenegger took Grey’s triple tax back down. And Grey really pissed off the dealership during the budget crisis and HCE group is highly compensated and workman comp issues and the democrats have been unkind. It all lead to cutbacks for the dealerships.

Small dealership are going down but big dealership are doing great!

NOTES Expand on this with a interview



Demographics: baby boomers, 68M new drivers
Trends: hybrids

BATTERIES
HEVs have an additional battery that helps the vehicle down the road. American hybrids were 1st sold in 2001 and some have already worn out those battery packs. Simanaitis (2004) identified an un-served aftermarket segment replacing battery packs. He wrote that the secondary market outside of the manufactures value chain will offer reconditioned units at lower prices. On the other hand, he estimated that battery packs may exhibit the same durability of traditional power trains around 150,000 miles (Simanaitis 2004).


Life cycle stage: mature
Barriers to entry: high
Technology: batteries, materials, networking, fuel cells
The Economist reported that the next generation of cars will be powered by electronics. This will allow cars to be connected among drivers and to the outside world. Modern cars have about 80 computer controlled devices. Some control braking, movies, radios, the car’s mechanical systems, steering, suspension and most recently airbags. Telematics connect cars to network the ability to monitor traffic and accidents for example. The economist reported analysts have forcasted Telematics in two of three vehicles within a few years up from one in 20 in 2000 including satellite navigation systems rising from 1M to 30M (Clean machine, 2004).



R&D expenditures: research
Profit margins: research
Primary research from distributors, suppliers, competitors, retailers: interviews

Market (What does the terrain look like?)

Size: 16-17 million vehicles/year
2003 = 43K hybrids and 2004 = 80K???

In a speech for Washington DC’s Chamber of Commerce, Toyota’s CEO, Okuda (2003) spoke of the automotive industry’s future. Although some view the industry as mature, he introduced his projections with increased competition and opportunity. Populations and markets are projected to continue growing including the US which Okuda (2003) projected as a 18-20 million unit market by 2010. Okuda (2003) added that Europe is on a similar path with an equivalent market size. Asia with half of unit sales coming from China is also projected to consume 20 million units (Okuda 2003).


Growth:
Hakim (2004) wrote that according to R.L. Polk, the No.1 American market segment for hybrids is Los Angeles. “Californians, who buy about 20 percent of the nation's automobiles, account for 28 percent of hybrid purchases nationwide.” Automakers have an incentive to sell hybrids in California and the Northeast, where stringent emissions regulations are due to be phased in. JD Power projected that the upper limit of the hybrid market segment at 3% while other more optimistic analysts forsee 10% (Hakim 2003).


the California market for hybrids could range from

Demographics
Customer profile: green
Competitors: Toyota, Honda, Ford
http://www.econetwork.net/
http://www.peaknet.org/
http://www.nedernet.net/
http://www.solarpoweredhost.com/
http://www.sustainablehost.com/

Primary research on the customer: interviews

Idea (Products and Services)

Features and benefits of products and services: green
Development tasks
IP: .coms, Passive Climate Control
Differentiation: green

Management Team

Values: green
Passion: save the planet
Experience: problem
Expertise: ok
Gaps: many

Finance

Start-up capital:
Foundation ISP Media Automaker Dealer RE
Assets
PP&E 10,000.00 10,000.00 1,000,000.00 2,100,000.00 3,000,000.00
Expenses
Wages 24,000.00 12,000.00 108,000.00 300,000.00 360,000.00 36,000.00
Sub-contractors 12,000.00 60,000.00 12,000.00
Rent 1,200.00 24,000.00 12,000.00 120,000.00 120,000.00
Fees 1,000.00 1,000.00 2,000.00 10,000.00 5,000.00 2,000.00

Total Start-up costs 26,200.00 59,000.00 192,000.00 1,430,000.00 2,585,000.00 3,050,000.00

Group Start-up costs 7,342,200.00

Working capital

Fixed cost requirements:
Break even analysis

Value Chain Analysis

Freeman (2004) wrote that strong demand for the Prius HEV has created a backlog in the value chain for the world’s best selling hybrid. In the U.S. alone, there were 22,000 orders taken by dealership with no physical inventory to supply them. Although Toyota has promised to double future production, there is not guarantee at the retail level that when or where consumers can buy a Prius. The results have been increased demand that has created a secondary market


Illustrate the chain
Distribution alternatives and target market segments
Innovation in the chain
The economist reported on the automotive industry’s value chain that when products change, the ways in which they’re made also change. The barriers of entry will come down along with the need for capital intensive factories. Start-ups could take away business from the big six in the form of hi tech firms, parts manufacturers turned assemblers and/or low-cost leaders like they have done in the airline industry. “The old car firms must reinvent themselves to seek profit, not just market share. Otherwise new, nimbler competitors will take advantage of technological change to do the job for them (Driving change, 2004).”





PRESENTING THE FEASIBILITY ANALYSIS

Executive Summary


Title Page

Names: The Acheson Foundation (Foundation), Hybrid ISP (ISP), Hybrid Media Group (Media), Hybrid Motor Co (Automaker), Hybrid Auto Group (Dealer), Advanced Real Estate (RE)

Founding Team Member Names: John Acheson, James Acheson, Daemeth Rooney, Troy Hautzenrader, Chris Sozzi, Olivier Lepord

Business Concept

Business
Customer
Value proposition
Delivery
Potential for growth and spinoffs

Industry Analysis

Industry and Target Market analysis
At $20K per unit times Okuda’s (2003) industry projections for 2010, the worldwide industry is valued at $1,200,000,000,000.00 while the US target market segments at $360-400 trillion. Using the US 2004 units sales figures of 17 million units shows a projected 18% increase in unit sales over the next six years. Although a mature domestic market, the size is massive, and the 3% annual growth rate is acceptable at current inflation rates.

Focusing on the hybrid market segment findings was much more exciting. Using the Prius as a barometer, and unit projection at 80m in the US for 2004 and 43K the year before, a growth rate is still 96% only three years after the introductory rate of 276%.

The numbers are elusive because supply cannot keep up with demand and tens of thousands of consumers have already put deposit up to buy 20-30,000 hybrid vehicles.

Niche
Based on Hakim’s (2004) reported data and Okuda (2003) projections, the overall US market for hybrids is projected at 600,000 to 2,000,000 units within the next five years. At an assumed 25% at $20,000 each, the CA market segment could spend over $3-10 trillion on new hybrids by 2010. That translates into another $3-10 billion in parts and services for new vehicles alone.

There’s no doubt about explosive growth but the size is still a niche market of a projected 100,000 units or $2 trillion at $20K per unit. A larger market exists in the cumulative hybrid vehicles on the road that require service. This suggests that remanufacturing and servicing the cumulative aging fleet is a larger market experiencing a slower growth rate. Even so, the competitors are fragmented mom and pop shops and virtually no aftermarket manufacturers. Batteries or other components that wear out may be another market segement to investigate.



Competitor analysis
Customer
Distribution channels
Entry strategies
Just like JetBlue boomed during United’s bankruptcy with TVs in every leather seat combined with cheap tickets sold on the internet, Green Motors plans to combine hi tech with low cost assembly while delivering over the internet.


http://www.economist.com/printedition/displayStory.cfm?Story_id=3127206

Team

Qualifications
How critical tasks will be handled
Gap analysis

Product/Service

Descriptions
Current status
Tasks and timeline
IP owned and to be acquired
Plan for prototype

NOTE
The project proposes a current market segment serving 100,000 hybrid vehicles with aftermarket parts and services after they have left dealer lots.


Financial Plan

Summary of key points
Assumptions
Resource needs assessment
Pro-forma financial statements
Break even analysis

Timeline to Launch (use operations analysis)

Task
Order

Bibliography

Allen, K. R. 2003. Launching new ventures. Boston: Houghton Mifflin Company.

Clean machine (2004, September 4). Economist, Vol. 372, Issue 8391. Retrieved September 27, 2004, from EBSCOhost database, Accession No. 14350564.

Driving change (2004, September 2). Economist. Retrieved September 27, 2004, from http://www.economist.com/printedition/displayStory.cfm?Story_id=3127206

Simanaitis, D. 2004. Fill’er up… but whatever with? And wherever from? Road & Track, Volume 56, Number 2: pg 144.

Hakim, D. 2004. Hybrid Vehicles Hit the Heartland...Barely. The New York Times June 19, 2004 Saturday
Late Edition – Final
Retrieved on 9-17-2004 at http://0-web.lexis-nexis.com.opac.sfsu.edu/universe/document?_m=c450fb7234187d3952d93a7dbd7d1e80&_docnum=8&wchp=dGLbVlz-zSkVA&_md5=1850351add749fd3ce4e2a34461c9fb0

Hubbard, G. 2004. Business leaders building a better world: the 12th annual net impact conference. Columbia Entrepreneurship Update. Summer 2004: pg. 2.

Okuda, H. 2003. Speeches. North American Press Room. Remarks. Washington, D.C. U.S. Chamber of Commerce
http://pressroom.toyota.com/photo_library/display_release.html?id=sp20030910
Retrieved 9/14/2004 printed on 09/10/2003

Rae, J. B. 1965. The American automobile: a brief history. Chicago: The University of Chicago Press.

Rooney, D. J. 2004, Interviewing

Traister, R. J. 1982. All about electric & hybrid cars. Blue Ridge Summit: TAB Books, Inc.

Pg. 109, “TABLE 5.2: Feasibility Analysis”
Pg. 112, “TABLE 5.3: Feasbility Analysis Outline”

Appendix

Glossary
Social entrepreneurship: pursuing “double-bottom line venturing opportunities;” focused but not limited to the following industries: “energy, the environment, economic and community development, education, arts, and health (Columbia, 2004);” measuring social impact and social return on investment


Questionnaires
Maps
Forms
Resumes
Marc Ekert
Daemeth Rooney
James Acheson
John Acheson
Troy Hautzenrader