INTERNATIONAL BUSNIESS MANAGEMENT

International Business Management



International Business Management

Introduction

The global automotive market is heading toward a growth spurt, giving factors enormous opportunity to help fuel the growth of this country's single largest manufacturing employer. Pent up demand, consumer confidence and a shift towards fuel-efficient vehicles will spearhead this automotive Renaissance. Industry analyst Lindsay Chappell predicts, “The U.S. market is now fully capable of selling 15 million or more new autos a year. A year or two at 10 million sales suggests there are millions more of unrealized sales out there just waiting to happen.” This behemoth of an industry has come a long way in a short time (Leon, 2006, 67). The Recession caused it to come to a screeching halt in 2008 and 2009. But now, Toyota, Volkswagen, Kia and Audi are all opening plants, or expanding existing plants in the Southeastern U.S. along with several new plants in California. The Big Three American auto makers -- General Motors, Ford and Chrysler -- are also all showing signs of a promising turnaround:

GM reported after tax profits of $4.7 billion in 2010, making it its best year since 2004;

Ford surpassed GM, with after tax net profit of $6.56 billion,

And, Chrysler, the smallest of the Big Three, announced that even though it saw a net loss in 2010, it expects to see net profits of $200-500 million in 2011 (Drake, 2001, 56).

They all are betting that consumers will trade in a sizeable portion of the 250 million cars on the road today for more fuel efficient, technologically savvy models. All of these indicators show this is a promising market for factoring, but not one without risk issues. It is important that we, as financers, support this industry that is vital to the health of our economy. Here, how the factoring industry can effectively capitalize on this trend: Help suppliers meet demand with growth on the horizon, the suppliers to the automotive industry are ramping up production to keep up with the demand for new products and the increased interest in current models.

External Environment

It is important to understand the automotive supply chain when entering this market. There are three tiers of automotive manufacturing companies that will fuel this rebirth of the American auto industry. Each is defined by the end user of that company's product.

Generally, Tier One suppliers provide full design, assembly and engineering support. They sell finished components, such as transmissions, seats and instrument panels, directly to car companies, known in the industry as Original Equipment Manufacturers (OEMs). Tier one is comprised mostly of large companies such as Delphi or Johnson Controls. Tier Two companies generally sell products to Tier One (Gunasekaran, 2005, 423).

An example of a typical Tier Two company would be one that supplies component parts, such as transmission gears, electronics, speedometers and seat covers, to the Tier One suppliers. Tier Three suppliers typically provide smaller components and some tooling and dies to Tier Two companies. In practice, they sell to both Tier One and Tier ...