Industry Simulation Debrief - Dec 7th, 2010

1. Simulation Debrief December 7th 2010

2. Executive Team President:Clay Bridges VP Sales:MiuGoto VP Marketing:Casie Huffman VP Production:Robb Harper VP Finance:Wes Knight

3. Industry Environment • Industry comprised of 6 major players • 6.8 billion dollars in sales • 161,214 units sold

4. Porter’s Five Forces

5. Atyfi Motors • Overall cost leadership • Average features on all vehicle classes • Sold their vehicles on the high end of the scale • Invested on the high end of advertising • Invested very little on research and development • Low profit margins on all vehicle classes • Operational Cost Reduction & Gross Profit %: • Economy – $600, 31.83% • Sedan – $600, 29.21% • Truck – $1500, 24.61% • Luxury - $600, 27.12%

6. Avery Motors • Overall cost leadership • Low end features on all vehicle classes • Invested very little in advertising • Invested very little on research and development • Low profit margins on all vehicle classes • Operational Cost Reduction & Gross Profit %: • Economy – $300, 30.58% • Sedan – $300, 30.59% • Truck – $300, 31.98% • Luxury - $300, 35.37%

7. Central Motors • Differentiation by technology; higher priced • Average to low end on features offered • Average number of vehicles sold to the market • Invested a moderate to high amount on advertising • Above average R&D investment; 3rd highest in the industry • Better than average profit margins; 2nd only to Broncho • Operational Cost Reduction & Gross Profit %: • Economy – $5100, 45.77% • Sedan – $5400, 41.6% • Truck – $5400, 40.34% • Luxury - $5400, 48.23%

8. Komiyama Automobiles • Differentiation by high price • Average on features • Average volume of vehicles sold to market • Invested a moderate to high amount on advertising • Invested very little on research and development • Low profit margins on all vehicle classes • Operational Cost Reduction & Gross Profit %: • Economy – $2700, 37.83% • Sedan – $2700, 36.83% • Truck – $2700, 36.45% • Luxury - $2700, 39.89%

9. Valur • Differentiation by features offered • Overall market share leader • Average volume of vehicles sold to market • Invested on the high end of advertising • Above average R&D investment; 2nd only to Broncho • Better than average profit margins; 3rd best in the industry • Operational Cost Reduction & Gross Profit %: • Economy – $6600, 50.98% • Sedan – $6600, 37.84% • Truck – $4200, 32.52% • Luxury - $6600, 42.25%

10. Industry Environment Opportunities • High growth which leads to opportunity for increase in market share • Price differentiation

11. Industry EnvironmentThreats • Changing customer expectations • Technology breakthrough of competitors

12. Internal Environment

13. Corporate Level Strategy Differentiation

14. Strategy • Heavy R&D investment to drive down costs • Keep customer expectations in mind for each car and grow each attribute year after year for every car • Sell cars at high end of price range to maximize profits

15. Strategy • 40% minimum gross margin profit in each vehicle class • Invest in new plants only when economically feasible compared to sales • Strong advertising – close to the top expectation range or over

16. Strategy • Long term goal • Create the highest margins in every class investing heavily in cost reduction • Net profits

17. Sales VP Sales MiuGoto

18. Sales • Sales Strategy • Improve each characteristic in every vehicle class • Fuel Economy • Engine Power • Safety Features • Luxury Features • Reliability • Increase prices each year • Sell every unit

19. Characteristics

20. Characteristics

21. Characteristics

22. Characteristics

23. Characteristics

24. Characteristics

25. Characteristics

26. Characteristics

27. Sales - Growth • Sales grew at consistent rates annually • Economy – 25% • Sedan – 30% • Truck – 20% • Luxury – 35%

28. Marketing VP Marketing Casie Huffman

29. Marketing

30. Marketing - Price • High end of customer range • Increased every year • With an exception for economy class in year 2

31. Marketing - Product

32. Marketing - Place

33. Marketing - Promotion • Advertising Slogan

34. Marketing - Promotion • Advertising Strategy • Spend on the high end of scale • Spend as much or more than competitors

35. Marketing • Promotion • Target Market • Average income increase 3.5% yearly

36. Marketing • Promotion • Advertising Media

37. Marketing • Promotion • Advertising Media Year 6

38. Production VP Production Robb Harper

39. Production • Strategy • Sales forecast & production • Holding inventory • Cost of not selling

40. Production Strategy 1. Build to make money • Determine if profits on new capacity allowed for cost of building new plant 2. Avoid unnecessary capacity

41. Production Strategy • Year 3 • Market – 3,075 units of luxury • Current capacity – 3,000 • Cost to build 75 units • Direct Cost - $1,767,375 • New plant cost - $10,000,000 • Sales for 75 units - $3,675,000 • Profit for 75 units – ($8,092,375) • Decided to not spend $10,000,000 to build a plant • Break even was 394 units

42. Inventory Held • Produce what will sell, do not hold inventory • Sold every unit produced in years 2-6 • Year 1 sales shortage • Economy • 139 units • $1.6m in cost • Truck • 156 units • $3.3m in cost

43. Cost of Not Selling Units • Retain cash to cover units not sold

44. Get more aggressive? • Scanned the external environment • Year 2: Broncho, Atyfi • Year 3: Broncho, Avery, Valur • Year 4: Broncho, Komiyama, Valur • Year 5: Broncho, Komiyama, Atyfi, Central • Year 6: Broncho, Atyfi

45. Unit Production

46. New Plants In 6 years we spent $270 million on new plants

47. Research & Development • Strategy • Development areas • Cost of improvements • Benefit of improvements

48. R&D Strategy • Heavy emphasis on R&D investing • Competitive advantage • Reduce costs • Labor cost • Material cost • Increase gross profit %

49. Areas of R&D

50. Research & Development • $320,000,000 total spending Year 6 – Operational Cost Reduction Per Unit