solution of US auto Case study, by Manpreet Singh Digital

1. Revenue Streams
Cost Structure
Industry Structure
& its Evolution
Customer service
& Differentiation
Govt. Regulations &
Franchise
Agreements
U.S. Automotive Retailing
(1995-2002)
Drivers of
Consolidation
New vehicles gives
50-60% i.e
$ 410 bn (7-8% profit
margin
Used vehicle, $379 bn
11-13% profit margin
Service & parts
$ 118 bn, 45-55% profit
margin
Insurance & finance
$93 bn, 100 margin, per unit
Low cost
Variable cost
(62%)
Fixed (38 %)
Compensation expenses are
Largest about 47%
Floor Plan interest
cost critical success
factor for large player
Advertising led to 125%
increase in unit sold
Std OverHead in-
cluding leasing were
accounted
Primary factor
of differentiation
is location and
Brand
NACA rated auto
Ind. As no.1
source of custom-
er complaints.
Limited scope for
price based differen-
tiation (low margin)
Geographical constraints to
protect rights of dealers.
Mandatory uniform pricing by
manufactures.
Restrictions to no.of franchise
owned by single person
Uniform pricing
Across all
Dealers.
No other dealer in
same geographic
region, protecting
rights.
Automobile dealer-
ship sole channel of
sales.
22131 dealerships,$1 trn industry
38.5 million unit sold(2001)
Employed 6.6 mn people(4.5% of
US total workforce)
Franchise decreased by
approx. 20% from 1980 to
2001. Industry is extremely
fragmented.
Public dealer-
ship Consolida-
tion
Republic indus-
tries went to grow
as Auto nation
Sonic group
highest sales
Many players
goes public
Low margin
business
Poor consumer
Experience
Dealers were
strong and could
have leveraged
acquisition
SG&A expens-
es, Inventory,
Efficiency
It accounts for high percent-
age of sales bottom out to
$1-1.5bn in annual sales
Lithia experienced
diminishing returns and
UA, AN struggles for
+ve economic returns .
Industry does not support
consolidation, if SG&A ex-
penses exceeds $1.0-1.5 Bn
Inference
US Automobile Retailing Case Study Mind Map by Sarang Banubakde & Manpreet Singh Group 4