Strategic Management – Please use 1½ line spacing with 12-point fonts. 1 – Case – Trader Joe’s: One page summary on Trader Joe’s unique positioning and business model in the market. 2 – Case – Waymo:

STUCK with your assignment? When is it due? Hire our professional essay experts who are available online 24/7 for an essay paper written to a high standard at a reasonable price.


Order a Similar Paper Order a Different Paper

Strategic Management – Please use 1½ line spacing with 12-point fonts.

1 – Case – Trader Joe’s:  One page summary on Trader Joe’s unique positioning and business model in the market.

2 – Case – Waymo: One page summary on  Waymo’s business model options and related risks

3 – Case – Cervus Equipment – Diversified Growth in Trucking: One page summary on Cervus Equipment profitable growth of their trucking division.

4 – Case – General Motors and the Electric Car Revolution – Boom or Bust? One page summary on General Motors current business model and the risks heading into the EV revolution.

Strategic Management – Please use 1½ line spacing with 12-point fonts. 1 – Case – Trader Joe’s: One page summary on Trader Joe’s unique positioning and business model in the market. 2 – Case – Waymo:
W16885 CERVUS EQUIPMENT CORPORATION: DIVERSIFIED GROWTH IN TRUCKING Daniel J. Doiron and Davis Schryer wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) [email protected]; www.iveycases.com. Copyright © 2016, Richard Ivey School of Business Foundation Version: 2016-12-23 “That was an interesting board discussion,” thought John Higgins as he quickly made his way to the airport to catch his overnight flight to Toronto. As vice president of transport for Cervus Equipment Corporation (Cervus), the major Canadian dealer group for Deere & Company (John Deere) and Peterbilt Motors Company (Peterbilt) equipment, he was pondering the board’s subdued reaction to what he believed was solid progress in the burgeoning transport division. Perhaps their optimism was somewhat tempered by the ongoing and significant challenges Cervus faced in the agriculture and construction segments of the business. The board understood the agriculture sector all too well, and this sector was in the midst of what many thought would be a prolonged downturn. In fact, John Deere’s prediction that agriculture equipment sales in North America would see a 25–30 per cent year-over-year drop in sales in 2015 was proving to be unsettlingly accurate.1 On the construction side, the board also knew that low crude oil prices of below CA$502 per barrel were laying waste to the Alberta construction industry, and a return to higher commodity pricing was not on the horizon. Additionally, the precipitous drop in Cervus’s share price through 2015 (from a high of $20.64 to $14.58), driven in part by declining shareholder confidence, was never far from their consciousness.3 Perhaps Higgins had been overly optimistic about the future growth prospects of the transport division. It was relatively young and faced uncertainty from the recent acquisition of Peterbilt Ontario, which had been the largest and perhaps most complex acquisition in the company’s short history. Regardless of any of these observations, Higgins knew one thing with certainty: both the short- and long- term prosperity of Cervus would depend on his ability to profitably grow the company’s transport business. CERVUS EQUIPMENT CORPORATION Cervus began as a partnership between Peter Lacey, Graham Drake, and other owners of John Deere dealerships in the 1990s. The creation and foundation of the company was based upon a simple notion: owners of John Deere farm equipment dealerships were nearing retirement and looking for viable succession opportunities. Second-generation owners had difficulty accessing the large amount of capital required to purchase and grow dealerships and/or were not able to provide the level of leadership and management necessary to run the growing operations. Given this, some dealerships were not performing at optimal levels. It became apparent that these owners were interested in divesting their dealerships, but not to just anyone. They cared about not only achieving a fair value for their businesses but also selling to a reputable operator who would continue to dutifully service and respect the rural communities where they lived with their customers and employees. These factors presented a real opportunity for Cervus to execute its business plan by establishing a reputation built on integrity and goodwill—the first of three primary factors in the company’s approach. When Lacey and Drake first formed their partnership, they had no intention of managing the dealerships from a central organization. Rather, they believed that entrepreneurs with material ownership in the stores were in the best position to operate and grow these businesses. Until 1999, the model had no integration challenges, as no integration was required. That year, the business partners pooled their remaining dealership assets into the company, took it public, and embarked on an aggressive consolidation-based growth strategy.4 The second important element of Cervus’s approach was the relationship with the original equipment manufacturer (OEM), John Deere. They knew the dealers usually treated OEMs as suppliers rather than as partners and that this could sometimes result in a contentious business relationship. Cervus recognized that a more positive partnership approach with OEMs would provide, among other things, opportunities to purchase dealerships with growth potential. After all, John Deere was knowledgeable about the relative market performance of all its dealers, was aware of opportunities for potential acquisitions, and had final approval of all ownership transactions within its dealer network. Finally, Lacey and Drake knew that they wanted to represent premium brands in the markets they served. John Deere was by far the premium, leading brand in the North American farm equipment industry, with industry-leading technology and over 35 per cent of the market share.5 Together, these three factors provided a great foundation for Cervus’s business and growth strategy. Over the next 15 years, the company amassed 75 equipment dealerships (either wholly or partially owned via partnerships) across 73 locations. Forty-two stores represented John Deere in the agricultural industry, and the remaining 33 represented other equipment brands: construction equipment brands Bobcat and JCB; material handling equipment OEMs Sellick, Clark, Nissan Forklift, and Doosan, which supplied forklifts, mulching equipment, and so on; and truck manufacturer PACCAR, which produced premium on-highway and vocational trucks, including Peterbilt trucks.6 Interestingly, Cervus was the only publicly traded company representing multiple stores in the John Deere dealer network. Careful attention to its principal business proposition allowed Cervus to grow its sales to $979.6 million by 2014.7 However, this pace of growth was starting to weigh down the organization; gross margins were relatively strong, but profitability lagged as the company was unable to realize the anticipated economies of scale associated with its new size and breadth. Some of this was by design, as the organization continued to strongly support a decentralized management model that kept key customer-related decisions as close to the clients as possible. But many cost saving opportunities were lost due to the enormity of consolidating so many acquisitions in such a short time while simultaneously establishing a large centralized corporate support structure. Cervus’s information technology systems were many, varied, and, in many respects, antiquated. Its human resource management department was new and experiencing growth pains. Compensation and reward systems varied across the organization. Many dealerships were lacking the core management and leadership skill sets needed to reach the desired growth, service, and profitability targets. Overall, the organization lacked the core business processes and maturity one would expect to find in a $1 billion company. Corporate culture also varied among regions and industry segments and was often not aligned with the Cervus set of principles. Cervus was focused on solving these challenges and confident in its ability to do so, but the investment community was less optimistic. In terms of future growth opportunities, further consolidating John Deere dealerships was proving to be difficult for a number of reasons. Firstly, manufacturers were historically uncomfortable having one organization amass a large amount of influence over the dealer network, as this afforded dealership owners too much bargaining power. For OEMs, the market risk of having too many of their dealerships in one basket was a legitimate concern because OEMs expected proper coverage of assigned trade areas, and bigger territory equated to higher risk. Secondly, Cervus had acquired the majority of the low-hanging fruit—the smaller, independently run dealerships. Remaining dealerships had already been consolidated into groups of five to nine stores; these savvier dealership groups would likely cost more to purchase. Finally, John Deere was not entertaining Cervus’s expansion in the U.S. market at this time. As a result, diversification became a key strategic plank in Cervus’s growth strategy. These factors precipitated the organization’s move into the transport industry with the purchase of four Peterbilt truck dealerships in Saskatchewan in March of 2012.8 The Peterbilt brand was owned by the large international firm PACCAR Inc., headquartered in Bellevue, Washington; it was a premium brand in the North American transport market. Interestingly, PACCAR also owned the Kenworth truck brand which, in many respects, was a competitor to Peterbilt. Cervus quickly learned that the transport industry was not like the agricultural industry and presented a significantly different business model with a unique set of challenges and opportunities. For example, Peterbilt maintained less than 14 per cent of the Canadian heavy-duty transport truck market in 2014.9 Until recently, it had been more focused on the niche market of independent or vocational truckers, who preferred higher quality trucks that could be customized to meet their individual tastes and desires. For this market, Peterbilt was, in effect, the Harley Davidson of the trucking industry. This proved to be a great product strategy in an industry that was highly fragmented and primarily represented by small trucking firms or independent truckers. Margins on customized Peterbilt trucks were well above the industry average, and it felt good to be the leader in this profitable market niche—until the industry began to consolidate. GROWTH IN TRANSPORT Buoyed by a strong relationship with Peterbilt Canada and facing limited North American growth opportunities with John Deere, Cervus elected to grow its transport business with the 2014 acquisition of Peterbilt Ontario. This brought into the fold 12 new Peterbilt dealerships with recent annual revenue ranging from $150 to $200 million.10 It also presented Cervus with an enormous set of new challenges. Peterbilt Ontario was not the leading player in the Ontario transport market; in fact, it was underperforming against Peterbilt’s North American market share of 15 per cent, with a 2013 regional market share of only 7.7 per cent.11 These dealerships were unprofitable at the time of the acquisition. Cervus also quickly learned that Ontario was not Saskatchewan. The Ontario transport industry was much more consolidated, with 60 per cent of the trucking purchases made by firms with more than 10 vehicles in their fleets.12 These firms were looking for fuel-efficient trucks and extraordinary service at multiple locations across their trucking corridors. Fleet customers represented the majority of the market and were growing quickly, with the top 100 operators in Canada owning 10,466 trucks in 2015, up a full 38 per cent from 2010.13 Cervus would need to work on and grow its value proposition for this group of customers. Peterbilt Ontario historically had not served the fleet market effectively, and this showed in fleet sales that lagged behind those of its competitors. According to Dan Kaye, director of operations at Peterbilt Canada, “Peterbilt maintained much less than 15 per cent of the Ontario fleet market share, while fleet operators represented 90 per cent of the market.” He went on to point out that it maintained a 22 per cent share of the smaller independent truckers’ market, which was higher than Peterbilt’s national average, but unfortunately, these customers represented only 10 per cent of the market.14 Selling to fleet operators was a very different proposition than selling to independent truckers, and Cervus was only beginning to understand the challenges associated with this market dynamic. The upside of entering the Ontario market was the projection that its transport industry was expected to grow materially through 2020. Buoyed by low crude oil and related diesel fuel prices, along with a weak Canadian dollar, Ontario’s manufacturing sector was leading the country in economic growth.15 All of these products needed to get to market, and the transport industry was in the midst of a significant growth cycle. It couldn’t have come at a better time for Cervus. Whether by good planning or good luck, it had an opportunity to grow its Ontario trucking business as small trucking firms and large fleet operators were looking to grow their fleets in order to meet customers’ growing transport demands. According to GE Capital, heavy-duty truck orders grew 14.6 per cent year over year in the second quarter of 2015 alone.16 THE TRANSPORT INDUSTRY The North American transport industry was expected to grow marginally from 2015 to 2020, representing 200,000 new units.17 This was driven by a number of factors—primarily operators’ strong desires to improve fuel efficiency in their fleets, as diesel fuel represented 38 per cent of their costs in 2013.18 Replacing long-haul trucks before the end of their useful lives (usually 10 years or one million kilometres) was becoming commonplace due to the attractiveness of newer fuel-efficient vehicles and a lower total cost of ownership with newer vehicles.19 Regulation also played a key role in this projected trend. For example, U.S. regulators required all transport truck manufacturers to ensure that the average fuel consumption of all trucks sold—and related greenhouse gas (GHG) emissions—remained below a certain level. This was not necessarily good news for Peterbilt, which maintained a strong share of the highly customized truck market, where trucks were primarily positioned to meet user needs beyond fuel efficiency. In fact, these trucks were traditionally designed more for their looks and exceptional ride than for strong aerodynamics. According to Kaye, it wasn’t unusual for an independent trucker who preferred a Peterbilt truck to spend up to $30,000 on accessories. Larger consolidated fleets now represented the majority of the growth in truck sales. Over the last 10 years, trucks and tractors operated by the top private fleets in the United States had increased by over 50 per cent to 1.193 million units.20 These customers were mainly concerned with a full package consisting of national pricing, lower acquisition costs, strong service along trucking corridors, and a lower total cost of ownership. This drove manufacturers to build simpler trucks with improved aerodynamics and fuel efficiency. Manufacturers were also experimenting with new technology associated with autonomous or self-driving trucks, which included predictive cruise control systems and “platooning technology.” These enhancements allowed multiple trucks to wirelessly integrate their cruise control systems, which permitted them to draft closely yet safely together on the highway and realize better fuel efficiency. If this technology were to evolve to include actual self-driving or autonomous trucks, many believed the industry would change forever, as it would require fewer drivers. This would address one of the industry’s biggest challenges: a lack of qualified truck drivers;21 the U.S. trucking industry expected to require 21 per cent more truck drivers by 2020.22 While the impact of this technology would not materialize overnight, it was clearly happening quicker than most anticipated. Nevada had already passed legislation allowing autonomous trucks on its interstate highway systems, and more states were expected to quickly follow its lead. Manufacturers also continued to experiment with alternative fuel sources like liquefied natural gas (LNG), given the attractiveness of low LNG prices in North America. LNG-powered trucks represented up to a $70,000 upgrade cost for the buyer, who would see a payback in approximately three and a half years, based on estimated fuel savings of $20,000 per year.23 According to the United States Environmental Protection Agency, medium- and heavy-duty transport trucks represented 23 per cent of transportation sector GHG emissions in the United States, and a full 6.21 per cent of total U.S. GHG emissions. This raised the spectre of increased emissions regulations, including the potential for carbon-related taxes for operators. Opponents to LNG as a transport fuel suggested that LNG transport truck engines lacked the necessary torque performance of a diesel engine, thus affecting their performance and overall resale value. Other technologies designed to be attractive to fleet operators related to remote diagnostics. SmartLINQ telematics systems allowed firms to monitor and eventually control everything about a truck and its operation remotely, which supported more proactive maintenance services and minimized costly downtime for operators and fleet managers.24 A large part of trucking dealers’ profit was realized on service and parts: service represented 65 to 70 per cent of gross margins, while the sale of parts represented 28 to 30 per cent. New trucks were sold at a much smaller average gross margin of 3 per cent.25 Dealers were thus encouraged to grow to achieve larger fleets under their care and subsequently grow their parts and service businesses. Dealerships were themselves consolidating, driven by the natural economies of scale in their business model and the OEMs’ desires to deal with fewer, larger, and more professional dealer organizations. Heavy-duty or Class 8 trucks represented 67.5 per cent of U.S. truck sales in 2014, with the remaining 32.5 per cent made up by the smaller, medium-duty categories.26 Medium-duty trucks were used in more regional applications and included garbage trucks, dump trucks, specialized security trucks for the banking industry, and line-painting trucks. This category represented the fastest-growing market segment in North America, increasing from a low of 66,000 units in the United States in 2009 to 132,000 units in 2014.27 Growth of this segment followed a similar pattern in Canada (see Exhibit 1). Traditionally, these types of vehicles were owned by the public sector, but there was a recent trend to outsource these services to private companies. These trucks tended to have a replacement lifecycle of four years or 800,000 kilometres of non- highway driving.28 PACCAR AND PETERBILT CANADA PACCAR, a $19 billion global truck-manufacturing company, represented multiple brands in the market, including Kenworth and Peterbilt in North America and DAF in Europe.29 PACCAR was seeing tremendous growth in Asia, Brazil, and Australia, while North America represented a more mature market. PACCAR was positioned as a premium provider in the North American market and hoped to achieve a 30 per cent market share from its combined sales of Peterbilt and Kenworth trucks—15 per cent each.30 The company believed that reaching for a higher share of the market would ultimately lead to lower-quality production, placing it more directly in competition with multinationals like Volvo and International and negatively affecting PACCAR’s margins and profitability. PACCAR’s dealer network consisted of nearly 2,000 locations worldwide, most of which were independently owned and operated.31 These dealers provided sales and service to both independent truckers and fleet customers. In the United States, one large public company, Rush Enterprises, represented over 40 per cent of PACCAR’s sales via 100 locations across 21 states.32 Most OEMs preferred to optimize the concentration of control of any one dealer group. The size and scope of regional control of this company was likely a growing concern for PACCAR in terms of the bargaining power Rush Enterprises was able to exert over its product, sales, and marketing initiatives. This, in turn, was putting pressure on PACCAR’s margins in the United States, and the net result for its Canadian operations was simple: PACCAR would likely not replicate this situation in Canada. In Canada, PACCAR had 10 Peterbilt dealer groups representing 55 dealerships across the country.33 To put this in perspective, International had twice as many dealers across the country, placing it at a distinct advantage in the fleet market from a parts and service perspective.34 International’s dealerships gave it better coverage and made it better able to service its customers along the fleet trucking corridors. This service coverage requirement led some OEMs to authorize new independent service providers (ISPs)— small operations that provided parts and service only—in smaller centres across the country. Only three Peterbilt ISPs existed in Canada, as dealer groups were not fond of them due to their lower overall sales and profitability. However, to handle anticipated fleet requirements over the next five years, Peterbilt intended to build an additional five to six newer, smaller dealerships with a stronger focus on parts and service in locations that would fill existing gaps in the primary trucking corridors. Peterbilt’s goal for Canada would also see the current 10 dealer groups consolidated to four, while the number of dealerships and service centres across the country would grow.35 When Cervus acquired Peterbilt Ontario, it owned and operated all 12 of the Peterbilt dealerships in Ontario. Unfortunately, they were not performing to their potential. In fact, Peterbilt’s market share in Ontario for Class 8 trucks36 was just 6.5 per cent in 2014 (down from 7.5 per cent in 2013), significantly lower than market shares of 15.8 per cent in British Columbia, 21.7 per cent in Alberta, 22.9 per cent in Saskatchewan, and 13.2 per cent nationally.37 To a certain degree, the numbers reflected differences among these geographic markets; many more fleet customers were represented in Ontario. The good news for Cervus was that it was having an early positive impact: market share projections for 2015 looked stronger, and sales were expected to grow from $170 million in 2014, with a negative return on sales (ROS), to a forecasted $220 million in 2015, with a 1 per cent ROS.38 Peterbilt’s five-year target was to grow Ontario sales to more than $300 million with an 8 per cent ROS—a tall order indeed. PACCAR was being patient with Cervus by giving the company until early 2016 to “get their house in order” prior to looking for a number of significant new growth initiatives, including the building out of new dealerships and service locations.39 Building a new full-service dealership cost Cervus upwards of $20 million, while building a smaller ISP was much less costly (in the range of $3 to $5 million). The Ontario business was clearly not generating enough cash to fund this level of investment. INTERNAL CHALLENGES Cervus and its newly acquired transport division in Ontario faced many and varied internal challenges, which was typical for a divisional company tied to an acquisition-related growth strategy. For example, compensation plans for sales professionals did not include a compelling sales commission structure. Therefore, sales professionals were not highly motivated to sell. At the time of the acquisition, the majority of Peterbilt Ontario employees drove company cars; Cervus sequestered most of these, as its corporate policy did not provide for company-funded vehicles. There was no consistency in the information systems used across the dealerships, so fundamental reporting was haphazard. Perhaps most critically, dealership managers had not previously been given the authority to run their operations or manage profitability targets. These dealerships were traditionally “command and control” operations, with the owners making the majority of decisions on a day-to-day basis. This presented a significant skill gap for Cervus, which preferred dealership managers who were capable of the autonomy required to run their dealerships, focused on serving their customers, and able to meet growth and profitability targets. The culture within the Peterbilt Ontario organization was also very different, and Cervus viewed the cultural transition as the most critical factor in the acquisition integration process. It tasked a team of experienced employees with the responsibility for integration and cultural change—a process that would take 18 months to complete (see Exhibit 2). Cervus lacked strong centralized services around key functional areas such as information systems (IS), operational processes, human resource management, financial management and reporting, and marketing. This was not surprising, given that the company had been primarily focused on growing its business through acquisitions over the previous 15 years. However, now that it had reached close to $1 billion in sales and had over 1,700 employees, challenges in these areas were starting to rear their heads.40 One example was the frustration Ontario management experienced in paying suppliers on time. Power at some dealerships had been shut off due to non-payment after the accounts payable function was moved to corporate headquarters. Cervus’s IS group was fairly new as well, and its position in the business was illustrated by the absence of any consideration to IS integration in the acquisition playbook and the lack of a corporate operating budget for the group. The IS director suggested that a major system change initiative underway in 2015 would see one of Cervus’s core dealer management systems being moved from “30-year-old technology to 23-year-old technology.” The company clearly lacked broad competencies in this area, partly as a result of the dealer management systems mandated by its OEM partners, who lacked broad competencies in this area themselves. An absence of a common database infrastructure across multiple dealerships made it difficult to run the business. For example, it could take four to six weeks to build a customer list for a direct marketing campaign which, by that time, was not particularly responsive in a competitive environment.41 To be fair, Cervus was committed to fixing these many and varied internal challenges. However, shareholders and the investment community were growing impatient, as these investments were having a negative impact on earnings growth. This was particularly worrying to investors who were oriented to short-term gains. Income had slipped from a high of $23.3 million in 2013 to $18.5 million in 2014, and year-to-date, second-quarter 2015 operating income dipped to $6.5 million, down from $10.1 million in 2014.42 How could the company invest in building a solid foundation for future growth when shareholders were short sighted? This question was not unique to Cervus, as a publically traded company, but it was certainly hampering the company’s potential for growth and enhanced operational performance. OPERATIONAL PERFORMANCE The first half of 2015 was a trying period for Cervus. As of June 30, same-store sales were down 10 per cent, and earnings before interest, taxes, depreciation, and amortization (EBITDA) were down 25 per cent.43 This was partially the result of over-exuberant purchasing from customers from 2012 to 2014 and a global oversupply of core commodity agriculture products. The company’s construction division was even worse off because it relied on Alberta and its oil industry. Low crude oil prices had reduced or ended capital expenditures in the oil sands, resulting in a decreased need for machinery; machinery sales in the mining and oil and gas sector declined by 36 per cent over the first 10 months of 2015.44 Transport, while promising and growing, was really in its infancy within Cervus, and it was still far from achieving the desired levels of profitability; as of June 30, 2015, it showed only $116,000 in income on $151 million in sales for the year to date.45 All of this, combined with financial results and performance data for 2013–14 (see Exhibits 3 and 4), added up to a gloomy outlook for 2015. Cervus faced a number of difficult decisions as it attempted to shore up investor confidence, invest in fixing its many internal challenges, and grow its business and profitability. COMPETITIVE POSITIONING Peterbilt was recognized as a premium brand in the transportation market; it was compared to Harley Davidson and was a brand that truckers loved to drive. While this served Cervus well in markets dominated by independent truckers, like Saskatchewan, it contributed to less-than-optimal competitive positions in growth markets like Ontario, Quebec, and British Columbia, which were increasingly dominated by fleet customers. Over the last few years, this situation drove a number of corporate initiatives that were designed to reposition the brand in the market. First, Cervus intended to grow its dealer and service network, which required six new dealers in Ontario alone to meet the sales and service requirements of the prospective fleet customers.46 Second, it wanted to consolidate its Canadian dealerships under four ownership groups. Larger ownership groups would be better positioned to manage the cyclical nature of the industry and at the same time build out the necessary sales and service capabilities required by fleet customers. Ultimately, the company did not wish to make the same mistake as its U.S. counterparts by allowing any one dealership group to represent a large percentage of sales. Third, Peterbilt was not going to abandon its premium position in the market in order to grab market share.47 It believed the exceptional quality of a Peterbilt truck meant that its customers enjoyed a lower total cost of ownership than those of competitors, and it had always leveraged the key fact that drivers preferred driving Peterbilt trucks. Even as the company recognized its strengths and opportunities, it had a long way to go in Ontario, where its current year-to-date market share of Class 8 trucks at August 31, 2015, presented at just 6.6 per cent—a far cry from its 15 per cent target.48 THE NEXT PHASE OF GROWTH Higgins knew one thing for certain: the next phase of growth for Cervus’s transport division would make the last few years look easy. He was confident that the company’s relationship with Peterbilt Canada was strong and that this would be critical to their joint success. He also knew that the market and growth pressures would test this relationship beyond anything they had experienced to date. His senior leadership team in Ontario was exceptional. This was important because it was clearly going to be challenged in new and meaningful ways—both with ongoing integration efforts associated with the Peterbilt Ontario acquisition and with growth and profitability requirements in the Ontario market. Despite all efforts, outcomes could be affected by the reality that agricultural and construction sales, which had traditionally represented over 80 per cent of Cervus’s business, were under immense downward pressure due to what looked like longer-than-expected cyclical downturns in these industries.49 The bottom line: Cervus required its transport division to drive profitable growth in 2016 and beyond. EXHIBIT 1: TRANSPORTATION IN CANADA Source: Cervus Equipment Corporation, Investor Presentation—August 2015, 11, August 2015, accessed October 22, 2015, www.cervuscorp.com/documents/presentations/Cervus_Presentation_August_2015.pdf. EXHIBIT 2: ACQUISITION INTEGRATION MODEL AT CERVUS EQUIPMENT CORPORATION: ACQUISITION, INTEGRATION, STRATEGY, AND CULTURE BEST PRACTICE Note: SWOT = strengths, weaknesses, opportunities, and threats; KPI = key performance indicators Source: Company files. EXHIBIT 3: CERVUS EQUIPMENT CORPORATION FINANCIAL SUMMARY (IN CA$ THOUSAND, AS OF DECEMBER 31) Consolidated Statement of Financial Position 2013 2014 Assets Current Assets Cash & Equivalents 14,678 18,787 Accounts Receivable 45,584 58,462 Inventory 178,511 324,625 Other 3,681 8,340 Total Current Assets 242,454 410,214 Non-Current Assets Property & Equipment 101,896 148,948 Deferred Tax Asset 37,009 24,518 Intangible Assets 26,139 54,009 Goodwill 6,866 19,732 Other 11,866 11,882 Total Non-Current Assets 183,776 259,089 Total Assets 426,230 669,303 Liabilities Current Liabilities Trade & Other Accrued Liabilities 48,821 81,237 Floor Plan Payments 67,198 175,035 Other 13,251 34,566 Total Current Liabilities 129,270 290,838 Non-Current Liabilities Term Debt 46,002 96,843 Debenture & Notes Payable 31,265 32,598 Finance Lease Obligation 18,334 Deferred Income Tax Liability 1,273 1,199 Total Non-Current Liabilities 78,540 148,974 Total Liabilities 207,810 439,812 Equity Shareholder Capital 78,126 83,814 Other 11,741 14,184 Retained Earnings 124,982 130,036 Total Equity Attributable to Equity Holders 214,849 228,034 Non-Controlling Interest 3,571 1,457 Total Equity 218,420 229,491 Total Liabilities & Equity 426,230 669,303 EXHIBIT 3 (CONTINUED) Consolidated Statement of Comprehensive Income 2013 2014 Revenue Equipment Sales 673,123 741,072 Parts 117,261 150,682 Service 55,911 69,535 Rentals 14,843 18,320 Total Revenue 861,138 979,609 Cost of Sales (697,829) (792,936) Gross Profit 163,309 186,673 Other Income 3,885 3,715 SG&A Expense (132,796) (157,678) Results from Operating Activities 34,398 32,710 Net Financing Costs (6,203) (7,272) Share of Profit of Equity Accounted Investees 3,527 712 Income Tax Expense (8,396) (7,654) Profit for the Year 23,326 18,496 Foreign Currency Translation (82) 53 Total Comprehensive Income 23,244 18,549 Consolidated Statement of Cash Flows 2013 2014 Cash Flows from Operating Activities Profit for the Year 23,326 18,496 Depreciation 8,483 10,610 Amortization of Intangibles 4,825 5,833 Equity-Settled Share-Based Payment Transactions 1,428 1,526 Net Finance Costs 6,556 7,968 Income Tax Expense 8,396 7,654 Change in Non-Cash Working Capital (13,477) 23,202 Other (2,815) 1,438 36,722 76,727 Interest & Cash Taxes Paid (6,242) (7,633) Net Cash from Operating Activities 30,480 69,094 Cash Flows from Investing Activities Business Acquisitions (1,352) (84,379) Proceeds from Asset Held for Sale 4,931 3,775 Purchase of Property & Equipment (27,919) (24,777) Other 5,932 4,190 Net Cash Used in Investing Activities (18,408) (101,191) Cash Flows from Financing Activities Proceeds from (repayment of) Term Debt 6,904 50,910 Proceeds from Issue of Share Capital – 1,530 Dividends Paid (10,561) (11,358) Other (2,447) (5,022) Net Cash Used in Financing Activities (6,104) 36,060 Net Decrease in Cash & Cash Equivalents 5,968 3,963 Effect of Foreign Currency Translation on Cash 554 146 Cash & Cash Equivalents Beginning of Year 8,156 14,678 Cash & Cash Equivalents End of Year 14,678 18,787 Note: SG&A = sales, general, and administrative Source: Cervus Equipment Corporation, The Cervus Dealership Difference: 2014 Annual Report, March 2015, accessed April 22, 2015, www.cervuscorp.com/uploads/Cervus2014AR.pdf. EXHIBIT 4: SUMMARY FINANCIAL PERFORMANCE INFORMATION (2005–2014) Source: Cervus Equipment Corporation, Cervus Equipment Corporation Investor Presentation—April 2015, accessed April 22, 2015, www.cervuscorp.com/investor/investor-presentations.htm. ENDNOTES 1 “Dealers Expect an 11% Drop in 2015 Equipment Sales,” Farm Equipment, March 9, 2015, accessed November 3, 2015, www.farm-equipment.com/articles/11408-dealers-expect-an-11-drop-in-2015-equipment-sales. 2 All figures are in Canadian dollars; US$1 = CA$1.32 on August 31, 2015. 3 “Cervus Equipment Corporation, Company Summary,” Google Finance, accessed October 22, 2015, www.google.ca/finance?cid=695337. 4 As of 1999, Cervus Equipment traded on the Toronto Stock Exchange under the ticker symbol CVL. 5 IBIS World, Tractors & Agricultural Machinery Manufacturing in the U.S.: Market Research Report, NAICS 33311, October 2014, 28, accessed October 4, 2016, www.ibisworld.com/industry/home.aspx. 6 Cervus Equipment Corporation, Acquire, Integrate, Operate [Cervus Overview August 2015], 2, August 2015, accessed October 22, 2015, www.cervuscorp.com/documents/presentations/Cervus_Overview_August_2015.pdf. 7 Cervus Equipment Corporation, Investor Presentation—August 2015, 14, August 2015, accessed October 22, 2015, www.cervuscorp.com/documents/presentations/Cervus_Presentation_August_2015.pdf. 8 Cervus Equipment Corporation, Cervus Equipment Corp. Completes Acquisition of Frontier Peterbilt Sales Ltd., Frontier Collision Center Ltd. and Frontier Developments Ltd., March 19, 2012, accessed October 22, 2015, www.cervuscorp.com/uploads/FrontieracquisitionclosingMarch2012.pdf. 9 “Truck Sales Class 7 YTD, 2014,” Today’s Trucking, accessed November 3, 2015, www.todaystrucking.com/stats/2014/ytd?class=7; “Truck Sales Class 8 YTD, 2014,” Today’s Trucking, accessed November 3, 2015, www.todaystrucking.com/stats/2014/ytd?class=8. 10 Cervus Equipment Corporation, Cervus Equipment Corporation Announces Definitive Agreement to Acquire Peterbilt of Ontario Inc., press release, July 2, 2014, accessed October 22, 2015, www.cervuscorp.com/uploads/CVLPOIAcquisitionJuly2014FINAL.pdf. 11 “Truck Sales Class 7 YTD, 2013,” Today’s Trucking, accessed November 3, 2015, www.todaystrucking.com/stats/2013/ytd?class=7; “Truck Sales Class 8 YTD, 2013,” accessed November 3, 2015, www.todaystrucking.com/stats/2013/ytd?class=8. 12 Cervus Equipment Corporation, Investor Presentation—August 2015, op. cit., 11. 13 Ibid. 14 Dan Kaye, Director of Canadian Operations, Peterbilt of Canada, interview with case author, June 4, 2015. 15 Diesel retail prices in the United States were down more than a dollar year over year as of July 20, 2015; William B. Cassidy, “US Shippers, Truck Companies Reap Low Fuel Price Benefits,” The Journal of Commerce, accessed October 22, 2015, www.joc.com/trucking-logistics/truckload-freight/jb-hunt-transport-services/fuel-prices-propel-first-half-trucking- trends_20150728.html. 16 GE Capital, Industry Research Monitor: Canada Truck Transport, 3, accessed November 3, 2015, www.gecapital.ca/GECA_Document/Trucking_Industry_Monitor_3Q15.pdf. 17 PACCAR Inc., 110 Years PACCAR Inc., July 2015, 26, accessed October 22, 2015, http://www.paccar.com/media/2552/q3-2016-investor-presentation.pdf. 18 W. Ford Torrey, IV, and Dan Murray, An Analysis of the Operational Costs of Trucking: 2014 Update, (Arlington, VA: American Transportation Research Institute, 2014), 13, accessed October 22, 2015, www.atri-online.org/wp- content/uploads/2014/09/ATRI-Operational-Costs-of-Trucking-2014-FINAL.pdf. 19 Dan Kaye, op. cit. 20 Jim Mele, “The 2014 Fleet Owner 500,” FleetOwner, February 12, 2014, accessed November 3, 2015, http://fleetowner.com/truck-stats/2014-fleet-owner-500. 21 “Lack of Qualified Drivers Squeezing Capacity,” Ontario Trucking Association, January 7, 2015, accessed November 3, 2015, http://ontruck.org/lack-of-qualified-drivers-squeezing-capacity/. 22 Scot Santens, “Self-Driving Trucks Are Going to Hit Us Like a Human-Driven Truck,” Medium, May 14, 2015, accessed November 3, 2015, https://medium.com/basic-income/self-driving-trucks-are-going-to-hit-us-like-a-human-driven-truck- b8507d9c5961. 23 Brian Gambill and Blair Veenema, “Natural Gas Fuel for Class 8 Trucks,” Oil + Gas Monitor, October 22, 2012, accessed November 2, 2015, www.oilgasmonitor.com/natural-gas-fuel-class-8-trucks/3137/. 24 Peterbilt, SMARTLINQ, accessed June 7, 2016, www.peterbilt.com/technology/smartlinq/. 25 Dan Kaye, op. cit. 26 Statista, “Class 3-8 Truck Sales in the United States from 2001 to 2014,” accessed November 3, 2015, www.statista.com/statistics/261416/class-3-8-truck-sales-in-the-united-states/. 27 Ibid. 28 Gara Hay, General Manager, Transportation, Cervus Equipment Corporation, interview with case author, June 4, 2015. 29 PACCAR Inc., PACCAR 2014 Annual Report, 1, accessed October 22, 2015, www.PACCAR.com/media/2332/PACCAR- ar_2014.pdf. 30 PACCAR Inc., 110 Years PACCAR Inc., op. cit. 19. 31 PACCAR Inc., Get to Know PACCAR, accessed October 22, 2105, www.PACCAR.com/about-us/get-to-know-PACCAR/. 32 Rush Enterprises, Investor Presentation, April 26, 2016, 6, accessed June 7, 2016, http://files.shareholder.com/downloads/RUSH/2202789330x0x110728/1E0B9616-65A7-4391-9F69- A9F49999C728/InvestorPresentation.pdf. 33 Dan Kaye, op. cit. 34 Navistar Inc., “Whatever the Job, There’s an International Truck that’s Built for It,” International Trucks, accessed June 7, 2016, http://ca.internationaltrucks.com/trucks/?noredirect=1. 35 Dan Kaye, op. cit. 36 The Class 8 truck gross vehicle weight rating (GVWR) is anything above 33,000 pounds (14,969 kilograms). 37 “Truck Sales Class 8, August 2015,” Today’s Trucking, accessed October 22, 2015, www.todaystrucking.com/stats/2015/8?class=8. 38 Gara Hay, op. cit. 39 Ibid. 40 Cervus Equipment Corporation, Cervus Equipment Named to Alberta Venture Magazine’s ‘Fast Growth 50’ List, January 12, 2015, accessed June 7, 2016, www.cervusequipment.com/news-2015-01-12.php. 41 Gara Hay, op. cit. 42 Cervus Equipment Corporation, Consolidated Financial Statements of Cervus Equipment Corporation for the Years Ended December 31, 2014 and 2013, March 10, 2015, 4, accessed November 3, 2015, www.cervuscorp.com/uploads/Cervus2014AR-Financials.pdf. 43 Cervus Equipment Corporation, Cervus Equipment Corp. Announces Second Quarter 2015 Results, August 12, 2015, 3, accessed November 3, 2015, www.cervuscorp.com/uploads/CervusEquipment-2015Q2PressRelease.pdf. 44 Alberta Government, How Are Low Prices Affecting Alberta’s Manufacturing Industry? January 18, 2016, 3, accessed June 7, 2016, www.albertacanada.com/files/albertacanada/SP-Commentary_01-18-16.pdf. 45 Cervus Equipment Corporation, Unaudited Condensed Interim Consolidated Financial Statements of Cervus Equipment Corporation for the Three and Six Month Periods Ended June 30, 2015 and 2014, 17, accessed November 3, 2015, http://www.cervuscorp.com/uploads/CervusQ22015FS_Final.pdf. 46 Dan Kaye, op. cit. 47 Fifteen per cent was their stated target share. 48 “Truck Sales Class 8 YTD, 2015,” Today’s Trucking, accessed November 3, 2015, www.todaystrucking.com/stats/2015/ytd?class=8. 49 Cervus Equipment Corporation, The Cervus Dealership Difference. 2014 Annual Report, 39, accessed November 3, 2015, www.cervuscorp.com/uploads/Cervus2014AR.pdf. Cervus Equipment Corporation has grown its business substantially over the past 10 years through regional acquisitions and strong organic growth. The company was founded to manage and consolidate farm equipment dealerships in western Canada but, in partnership with original equipment manufacturers, has branched into the construction equipment and long haul trucking manufacturing industries and has moved into New Zealand and Australia. The board of directors is now looking for the new chief executive officer (CEO) to chart an innovative growth strategy that will see the company triple in size over the next five years. The market fundamentals to support this growth are quite strong and realistic; however, the growth opportunities in the company’s traditional Canadian markets are not sufficient and its customers’ requirements are being driven to new levels of complexity due to a technology revolution happening within the industry. At the same time, its experience overseas has ultimately provided an opportunity to develop a greater understanding of the differences in international markets and new cultures. The CEO needs to come up with a growth plan that puts Cervus Equipment into non-traditional markets or new industries while addressing the changes happening in the industry.
Strategic Management – Please use 1½ line spacing with 12-point fonts. 1 – Case – Trader Joe’s: One page summary on Trader Joe’s unique positioning and business model in the market. 2 – Case – Waymo:
W19254 GENERAL MOTORS AND THE ELECTRIC CAR REVOLUTION: BOOM OR BUST?1 Daniel Doiron and John Higgins wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) [email protected]; www.iveycases.com. Our goal is to publish materials of the highest quality; submit any errata to [email protected] Copyright © 2019, Ivey Business School Foundation Version: 2019-06-07 In February 2019, Mary Barra, the chief executive officer (CEO) of General Motors Company (GM), confirmed yet again her commitment to an aggressive “all-electric future” for the US automaker. This decision could potentially position GM as a leader in the new era of automobile manufacturing. 2 The announcement came soon after Barra’s November 2017 announcement of 20 new models of electric vehicles by 2023. 3 Under Barra’s leadership, GM was changing at a fast pace. In an industry that was historically characterized by slow, steady, and conservative growth, change represented a major risk factor for the company. Internal combustion engine (ICE) vehicles had not changed considerably in almost a century, and neither had the nature of the competition. It was true that cars had become much more advanced than they were in the first half of the 20th century, when GM president and visionary Alfred Sloan released the steel body design of the basic automobile. However, automobiles were still fundamentally based on the same, standardized overall design. Structurally, electric cars were a radical change in automobile design. More importantly, these vehicles would fundamentally change the business and profit models for all automakers. The competitive nature of the industry was expected to shift drastically with mass introduction of electric cars and trucks. In addition, many new North American niche competitors were entering a market that—other than Tesla, Inc. (Tesla), with its 2010 initial public offering—no company had managed to successfully enter since the founding of Chrysler in 1925.4 Electric cars would be much simpler to design, build, sell, and maintain. Economies of scale would be easier to achieve, given the simple nature of these vehicles. Outsourced manufacturing was available through large global parts manufacturers. More significantly, original equipment manufacturer (OEM) components would make up an increasingly smaller percentage of the overall parts required in these new electric vehicles.5 These factors, coupled with the minimal maintenance requirements of electric cars, were creating an exhilarating but daunting new environment for traditional manufacturers like GM. Electric vehicles would change the nature of almost everything associated with how profit would be made in the automobile industry. Most service-related businesses would become obsolete, changing forever the dealership profit model. Change was coming and moving faster than most experts had anticipated. Recent research conducted by UBS Global Research on electric vehicle production had predicted dramatic growth of 500 per cent over the previous year’s forecast. The industry was truly entering the steeper part of the adoption curve.6 GM was posed to either flourish or fail in this new world. GM’s struggles in the 2008–09 Great Recession had highlighted the precarious nature of its profit model, with many of the underlying components of that model still evident in 2018. Barra’s assertion that GM’s electric vehicles would not make money until “early next decade” was indicative of the challenges that large traditional automakers faced in this new world. 7 GM had to find a way to survive in the face of fundamental changes coming to the automotive industry. THE AUTOMOBILE MANUFACTURING INDUSTRY: A STANDARDIZED MODEL OF COMPETING The rise of automobile manufacturing in North America began in the early 20th century, with the introduction of the Model T by The Ford Motor Company (Ford), which made the automobile affordable for the masses, among other achievements. However, it was GM’s Sloan who was credited with growing the auto industry in significant and innovative ways. Sloan introduced different car models for various classes of customers, effectively segmenting the market. He also created consumer credit, allowing consumers to purchase, over time, their Chevrolet or Pontiac, which they could otherwise not afford. Sloan also accelerated the product introduction cycles to launch a new model of each brand annually, which substantially grew the automobile replacement market. Notably, Sloan and GM led the industry through a consolidation phase, driven by a period of market saturation and technological stagnation, during the 1920s and 1930s. The fundamental elements of the standard automobile were all in place by the 1930s. These features included a closed all-steel body, a high compression engine, hydraulic brakes, synchromesh transmission (with automatic transmission soon to follow), a self-starter, low-pressure balloon tires, and a drop-frame construction. This standardization ultimately saw the industry go from a peak of 253 automobile manufacturers in 1908 to 44 in 1929, where approximately 80 per cent of the industry’s output came from Ford, GM, and Chrysler. The remaining independent automakers failed through the Great Depression, with several companies surviving through World War II only to collapse (or be purchased) in the early post-war period. Like most mature industries, the North American automobile industry consolidated around a standardized product, with subsequent innovation energies focused on incremental product change and significant manufacturing process improvements.8 In the United States, automakers and their suppliers represented the largest manufacturing sector, responsible for 3.0 to 3.5 per cent of America’s gross domestic product. This sector generated the most jobs of any other sector in the country to become the largest exporter of goods and services. The automobile industry purchased hundreds of billions of dollars in parts and services each year, representing the third- largest global investor in research and development (R&D). Ford, GM, and Chrysler (later becoming Fiat Chrysler Automobiles) were known as “the big three,” employing two out of three US autoworkers and operating 60 per cent of US auto assembly plants. According to the American Automotive Policy Council, in 2016, these three companies produced 6.6 million vehicles in the United States and employed over 245,000 employees at more than 220 assembly plants, manufacturing facilities, research labs, and distribution centres across 32 states. More important for the US economy, each auto assembly job supported an estimated seven other jobs at suppliers and in surrounding communities. Each ICE vehicle contained 8,000 to 12,000 different components provided by more than 5,600 suppliers in the United States, who employed more than 871,000 workers.9 These automobile manufacturers also had more than 10,150 dealerships, which employed 609,000 additional US workers. In 2016, 17.5 million vehicles were sold through these US dealerships.10 This was a vital industry for the country’s economy, which explains why former US President Barack Obama and his government invested US$49.511 billion to save GM during the Great Recession of 2009.12 Obama’s statement in March of 2009 exemplified the importance of this industry to the United States: We cannot, and must not, and we will not let our auto industry simply vanish. This industry is like no other—it’s an emblem of the American spirit; a once and future symbol of America’s success. It’s what helped build the middle class and sustained it throughout the 20th century. It’s a source of deep pride for the generations of American workers whose hard work and imagination led to some of the finest cars the world has ever known. It’s a pillar of our economy that has held up the dreams of millions of our people.13 Mature industries such as the US automobile manufacturing industry, with only a few large competitors of relatively equal size and breadth, tended to be very competitive. Globalization contributed to an acceleration in the intensity of competition. Gross margins averaged 12.65 per cent over the period 2009–2016. Net margins were also much lower than expected, with an average of 4.87 per cent.14 These low margins, tied to competitively driven R&D and capital investment requirements, forced companies to use an economy of scale model to survive in that industry. Economies of scale significantly influenced revenue measures in respect to reducing unit costs, building marketing clout, and extending distribution reach. This shift created substantial entry and exit barriers, making it difficult for a new manufacturer to enter the market. In fact, American Motors Corporation was the last large independent ICE-based US automobile manufacturer to exist outside of the big three, until it was purchased by Chrysler Corporation for $1.5 billion in 1987.15 The competitive business model was simple in concept, yet complex in its implementation. The first phase required OEMs to build scale in manufacturing and distribution to fund the R&D, marketing, regulatory processes, and capital requirements of the business. OEMs needed a complex global supply chain that effectively outsourced much of the parts production (and increasingly, R&D) with attention to cost efficiency. OEMs were only responsible for 20 per cent of a car’s content, with 68 per cent coming from tier 1 suppliers.16 The distribution costs and related risks were then pushed out to a large number of franchised dealerships, who relied heavily on service, parts, and body shop sales as a source of their gross profit margins. In fact, despite only accounting for 12.1 per cent of a typical dealership’s sales, parts and service amounted to 49 per cent of its total gross profit margins in 2017.17 And this was during a time when annual new vehicle sales per dealership reached an all-time high of 928.18 This revenue realization was not surprising, given reports of a 57 per cent gross margin for service and parts for the Penske Automotive Group in 2012, which operated 326 dealerships in the United States and the United Kingdom. In comparison, gross margins on new vehicle sales were only 8 per cent.19 Automobile manufacturers also relied on financing cars and light trucks to consumers through company owned finance divisions, whose profit per car was up to three times that of vehicle manufacturing. Finally, OEMs created and cultivated a market for after-sale parts and accessories as a key profit driver, even though they increasingly manufactured a small percentage of the parts that went into their vehicles. In January 2017, GM boasted that it expected profits from parts and from two of the company’s divisions, OnStar Corporation and GM Financial, to grow by about $2 billion from 2015 to 2019.20 All of these sources managed to produce net profit margins of only 1–4 per cent annually. 21 Automobile manufacturing was clearly a risky and precarious business, given the competitive pressures evident in the market. Significant changes to any of the core elements that drove profitability represented a potentially fatal blow to many of these manufacturers. GM’S COLLAPSE IN 2009 On June 1, 2009, GM filed for Chapter 11 in the US Federal Bankruptcy Court in Manhattan. Until 2008, GM was the world’s largest automaker, producing over 9 million cars and trucks each year in 34 different countries. It owned 463 subsidiary companies that supplied production around the world and employed 234,500 workers, of which 91,000 were in North America. By 2009, GM had dropped from a 44 per cent market share in North America to just over 20 per cent.22 Was the company downfall caused by its size? Was GM too big and too slow to change and adapt to new competitive pressures? Was its cost structure out of control? After the bankruptcy threat was overcome, various fundamental reasons for GM’s failures started to surface. Retired Employees At the time of the bankruptcy, GM was supporting 493,000 retired employees in North America. These employees enjoyed generous pension and health benefits, which had been negotiated with the United Auto Workers Union in much better and less competitive times. 23 These liabilities had placed tremendous pressure on GM to generate cash though increased sales volumes. Discount Incentives In the early 2000s, GM was starting to change the pricing game in North America. The first big move was to offer consumers no interest (0 per cent) financing on vehicle loans up to five years. When that incentive began to lose traction, the company started offering $3,000 rebates on the purchase of a car. When the competition began offering rebates of their own, GM raised the rebate stakes to $6,000 and $8,000, with even longer financing terms. What GM failed to realize was that the need to keep vehicle prices high to support the rebates created a consumer perception of a more expensive product, relative to the competition. This resulted in many consumers not considering GM in their buying decisions due to its high price reputation. GM’s marketing and pricing strategy emphasized price and incentives, rather than product quality. According to Jesse Toprak, founder and CEO of CarHub, “If you’re constantly advertising the deal, and the car is in the background, that’s not a viable strategy.”24 Reliance of Pickup Trucks and Sport Utility Vehicles When gasoline (gas) prices were low, GM and other North American automakers relied heavily on selling high-margin pickup trucks and sport utility vehicles (SUV). As US gas prices rose steadily to over $4 per gallon ($1 per litre) in 2008, and as the Great Recession was beginning, GM’s “reliance on pickups and SUVs turned deadly.”25 North American light vehicle sales fell by 21 per cent in 2009,26 with GM taking the brunt of that decline. The Economist summarized the escalating problems in a June 2009 article titled “A giant falls”: With a gallon costing $4, demand for the big pickups and SUVs that provided most of Detroit’s profits evaporated. In the scramble to swap gas-guzzlers for smaller vehicles, residual values collapsed, leaving GM’s finance arm with huge losses on cars returned after lease. After Lehman failed, car markets were clobbered around the world, but America’s was hardest hit. Sales of cars and light trucks in December 2008 were 35.5 percent lower than the year before. After four years of restructuring efforts during which it had lost more than $80 billion, GM was too enfeebled to stagger on.27 Even more recently, GM continued to rely heavily on SUV and truck sales in North America. In 2017, cars only represented 23.6 per cent of vehicle sales (see Exhibit 1). Pickup trucks continued to be protected by a 25 per cent so-called “chicken tariff,” which was instituted in 1963 in retaliation to European imported chicken tariffs.28 Killing the EV1 Electric Car Program Former GM CEO Rick Wagoner admitted that his biggest mistake was killing the 1990s EV1, the company’s first electric vehicle program. 29 In 2002, GM had to repossess and destroy all EV1s, which became a controversial move and a major embarrassment for the company, ultimately causing its exit from the hybrid and electric vehicle market.30 Toyota seized the opportunity to assume control of the electric vehicle market and subsequently surpassed GM in design and performance with its Prius and Corolla hybrid models. Tough Competition Driving Low Margins GM was plagued with low margins across its car fleet, primarily due to competitive pressures from Asian- based competitors such as Hyundai Motor Company (Hyundai), which built good quality cars at very low prices. Hyundai grew its US sales in 2009 by 9 per cent to 675,000 vehicles, while GM and the rest of the industry saw their sales shrink by 21 per cent. 31 At that time, Hyundai boasted gross margins of 22.3 per cent,32 compared to GM’s average gross margins of 12 per cent.33 GM’s leadership and culture had become too comfortable in its success and failed to react to industry changes and threats.34 Along with many misguided decisions, poor product strategy, failed pricing strategies, and poorly executed growth plans, GM seemed to have developed a growing culture of failure. THE ELECTRIC VEHICLE Battery electric vehicles (BEV), were widely viewed as a major saviour to the world’s current climate change challenges. BEVs produced less than half of the global warming emissions of comparable ICE vehicles, when all factors were taken into consideration.35 Most countries across the globe understood this relationship and continued to build and execute policy to limit emissions and support the growth of the electric car industry.36 Two main challenges delayed the mass introduction of BEVs. The first was related to the batteries required to power these vehicles. Lithium ion batteries, the electric vehicle batteries of choice, were heavy, costly to manufacture, and had limited storage capacity. This contributed to pricier cars with driving ranges per charge of 60–370 miles (100–600 kilometres).37 Most consumers had been trained to expect a car to travel at least 300 miles (500 kilometres) on a tank of fuel, and expected BEVs to support this same range on a single battery charge.38 In a BEV, this distance could only be accomplished with a 95–100 kilowatt-hour (kWh) battery pack. With an average battery cost of $227 per kWh in 2016, down from approximately $1,000 per kWh in 2010, 39 the cost to produce these battery packs made the price of electric vehicles prohibitive to most consumers. In fact, Tesla’s high-end sports BEV, the Roadster, entered the market priced at around $110,000.40 This affordability problem had to be solved before BEV adoption could grow substantially, and there was some promise of progress in this area. In November 2017, Tesla implied that 2019 battery pack pricing would range $75–$90 per kWh 41 for its soon-to-be-released BEV semi-truck. This prediction supported most estimates, which suggested that the cost to produce lithium-ion batteries had to be less than $100 per kWh to bring the overall cost of electric cars on par with their ICE competitors.42 The second inhibiting factor to the growth of the electric car market was the absence of charging stations or networks. Drivers of ICE vehicles came to enjoy the fact that filling stations were always nearby, with over 156,000 gas stations scattered across the United States.43 Tesla took matters into its own hands by building a network of 1,000 supercharger stations, with a total of 6,934 supercharger stalls worldwide, 44 which were free to use for Tesla owners. This was part of an industry and nation-wide government effort to install 45,000 charging outlets and 16,000 electric stations for electric vehicle owners.45 Led in part by Tesla, the electric car industry began to build a foundation for tremendous growth. In a 2017 groundbreaking study, UBS Global Research estimated that BEVs would represent 30 per cent of the European market, 15 per cent of the Chinese market, and 5 per cent of the North American market by 2025.46 Between 2020 and 2025, electric vehicle sales would see a compounded annual growth rate of an astounding 46 per cent to reach 14 million units annually.47 This was a 500 per cent increase over predictions from the previous year.48 The market was finally entering the steep part of the BEV adoption curve. Many countries and companies were jumping on board. China announced its new Made in China 2025 policy that it would provide a $15,000 subsidy per BEV purchased, among other incentives.49 China already had 171,000 charging stations in place and planned to invest ¥25 billion ($3.98 billion)50 by 2020 to expand this network. The industry boomed in response to these measures. BEV and hybrid vehicle sales in China were up 53 per cent in 2016 to 507,000, which represented 45 per cent of all such vehicles sold worldwide. Importantly, more than 200 companies announced intentions to produce and sell BEVs in China, most of which were new to the industry. In fact, France and Britain announced that they would ban traditional ICE vehicles by 2040, while Germany called for a ban by 2030.51 Traditional automobile manufacturers were also following suit as the market heated up. Volvo, a Chinese- owned Swedish automaker, announced that its entire vehicle line would be electric by 2019, with five all- electric models set to roll out from 2019 to 2021.52 GM announced its plans to phase out ICE vehicles for an “all-electric future,” including efforts to have 20 all-electric vehicles on a new modular BEV production platform by 2023 that would be flexible enough to accommodate nine different body styles in multiple sizes, segments, and brands. GM also planned to cut the cost of lithium-ion batteries to under $100 per kWh by 2021, from the current cost of $145. As such, GM expected these efforts to drive BEV vehicle sales to over 1 million units per year by 2026, representing 10 per cent of the company’s global vehicle sales.53 BEVs represented many other interesting, and possibly fatal, changes to traditional stalwarts in the automobile industry. For example, BEV powertrains only had 35 moving and wearable parts, whereas an equivalent ICE powertrain hosted 167 moving and wearable parts.54 This would ultimately make BEVs less expensive to manufacture and maintain. The electric motor itself was less complex, with only three moving parts that were brushless, and thus virtually maintenance-free.55 UBS Global Research estimated the maintenance cost for GM’s current BEV model, the Chevrolet Bolt EV (the Chevrolet BEV), at $255 per year, compared to $610 for an equivalent ICE model, such as the Volkswagen Golf. The Chevrolet BEV was almost maintenance free, with significantly fewer parts to replace over the car’s life. It did not require a regular change of fluids such as engine oil, because it had none. With the exception of rotating tires and changing the cabin filter, the Chevrolet BEV required little to no maintenance for the first 150,000 miles (240,000 kilometres). 56 This efficiency translated to an after-sales revenue expense for the consumer of approximately $400 per year, 60 per cent less than an equivalent ICE vehicle. 57 Also, the Chevrolet BEV was a relatively unsophisticated electric vehicle, compared to a Tesla, Jaguar, or future envisioned models, which suggested that maintenance costs (and associated dealership revenue) would only continue to decline.58 For the first time since 1925, new, qualified competitors were entering the market, and this trend would begin to accelerate as niche-marketing opportunities emerged. For example, Workhorse Group Incorporated (Workhorse), a relatively young company that provided BEVs for the package delivery industry, had built an important and growing relationship with the parcel courier United Parcel Service. Workhorse also announced the launch of an electric pickup truck (with extended range), targeted directly at the construction industry. This truck, dubbed the W-15, came equipped with an external 7.2-kilowatt power outlet that provided up to 30 amps directly from the vehicle battery pack, which could remotely power arc welders and other tools59 (see Exhibit 2). New BEV models emerged with a skateboard-like powertrain and chassis, such as the new Jaguar I-Pace concept car, which essentially consisted of a massive battery pack with two electric motors at each end 60 (see Exhibit 3). At the same time, manufacturing costs began to rapidly decrease, ultimately making production for BEVs far less costly than for ICE vehicles. The combination of numerous new upstart competitors sporting a simplified vehicle design began to prove challenging for the business model of traditional automobile manufacturers, driving down both sales and margins.61 In 2017, the average sale price for a new ICE vehicle was $33,464.62 The average cost to produce the vehicle was $29,175 (based on a gross margin of 12.65 per cent), but was expected to continue to drop closer to the $20,000 range, thanks to a relatively simple design, lower battery costs, and growing competition. This trend would undoubtedly lower gross margins for ICE manufacturers even below the current 12.65 per cent,63 and GM’s gross margins were directly tied to a cost structure that was supported by higher volumes and higher margins (see Exhibits 1 and 4). This new scenario implied a new threat for GM that could prove more serious than the company’s bankruptcy protection situation in 2009. ELECTRIC VEHICLE BUSINESS MODEL Independent electric vehicle OEMs had yet to build a profitable business model, although they were emerging everywhere based on a promising future.64 Profitability was hampered by the high cost of producing batteries and developing economy of scale in manufacturing, as well as the requirement to invest in and develop charging networks, showrooms, and a service capacity. OEMs, however, had defined their business model fairly succinctly and were busy attempting to address any impediments to future profitability. Tesla represented one of these emerging business models. Its business model started with the unique value proposition of a safe, eco-friendly, high-end vehicle that just happened to be electric, accompanied with a membership scheme that provided the owner with access to cheap battery charges at over 11,000 supercharging connectors worldwide.65 Tesla had four consumer car models: the Model S sedan, the Model X SUV, the Model 3 midsize car (more affordably priced), and the revitalized Roadster supercar.66 Tesla sold most of its vehicles online, supported by a relatively small number of company owned stores and service locations, which acted mainly as small showrooms. Interestingly, many US states had protectionist laws that limited or banned auto manufacturers from selling directly to consumers, which required Tesla to open these small sales outlets. By the end of the third quarter of 2018, Tesla had 351 stores and service locations around the world. Service was provided through service locations and a unique mobile service fleet that expanded the number of service locations to 373.67 Notably, 80 per cent of a Tesla vehicle’s servicing could be performed without lifting the vehicle, making remote servicing through a mobile service fleet very productive.68 Battery production was supported through the Tesla Gigafactory in Nevada. By mid-2018 the factory reached an annualized battery production capacity of 20 gigawatt-hours, making it the highest-volume battery plant in the world. It was considered the world’s largest building, with 4.9 million square feet (456,000 square metres) of operational space.69 Tesla’s multibillion-dollar investment in this battery factory was primarily focused on reducing the costs of battery cells through economies of scale and related R&D investments.70 Tesla operated one of the world’s most advanced automotive manufacturing facilities in Fremont, California, a former GM and Toyota facility. The Fremont site offered 5.3 million square feet (500,000 square metres) of manufacturing and office space for Tesla, where the company made all Tesla models in one factory, focused on refining advanced automated manufacturing systems. 71 The typical BEV’s relatively simple powertrain design allowed for multiple vehicle production across several platforms in a single factory,72 unlike the single or duo, multi-factory model typically associated with ICE automobile manufacturing. Tesla was not yet at scale for profitability, and the company had plenty of problems to resolve. Although gross margins were a healthy 25.8 per cent in the third quarter of 2018, the company’s annual net income to date was a negative amount: –$1.12 billion. Service revenues represented only 10 per cent of sales, at slightly negative margins. Most cars were sold outright, with leasing representing less than 3 per cent of third quarter sales.73 Therefore, Tesla’s business model was based on profits mainly from margins on outright sales of the vehicles. Tesla’s results also included distribution and service revenues (and associated costs), unlike traditional automotive OEMs such as GM, who offloaded these revenues and related costs to their independent dealership network.74 AUTONOMOUS VEHICLES Autonomous vehicles represented an equally, or perhaps greater, revolutionary change for the automotive industry. OEMs like GM were lining up products to support this monumental market transformation. Autonomous vehicles were expected to have a considerable impact on related industries such as trucking, taxis, ride-share, and delivery companies. They were also expected to affect sales of all vehicles in general, including electric vehicles. GM agreed with experts who saw BEVs as the foundation of autonomous vehicles,75 representing a new multi-trillion-dollar addressable market for auto manufacturers that could potentially disrupt most related industries. In a groundbreaking 2016 study, management consulting firm A.T. Kearney predicted that the market for autonomous driving would grow to $560 billion by 2035, including pay-per-use services outperforming equipment revenues from 2025 onward.76 The study went on to note that “autonomous driving threatens the very existence of mid-level automakers as the market develops along three segments: premium, low- cost, and drones.” The global financial services firm KPMG issued a 2018 study titled Will This Be the End of Car Dealerships as We Know Them? The study predicted that all new car sales would be autonomous vehicles by 2033.77 Autonomous vehicles were expected to push the ride-share industry to tremendous growth. AlixPartners, a Southfield, Michigan-based consulting firm who had advised GM through its bankruptcy, estimated that car-share services had cost automakers 500,000 product sales since 2006. The firm went on to state: “Self- driving ‘autonomous’ cars will be the ‘killer app’ that enables car-sharing companies to blossom. By 2020, 4 million Americans will car-share, up from 1 million now.” AlixPartners also predicted that every vehicle sold into a car-sharing fleet would cost automakers 32 vehicle sales. 78 If the firm’s predictions were accurate, a serious threat to traditional automakers and their dealerships was quickly approaching. Fiat Chrysler CEO Sergio Marchionne, one of the longest serving CEOs in the automobile industry, stated at the 2018 North American International Auto Show in Detroit that “carmakers have less than a decade to reinvent themselves or risk being commoditized amid a seismic shift in how vehicles are powered, driven and purchased.” He went on to state that “auto companies need to quickly separate the stuff that will be swallowed by commodity from the brand stuff.”79 (Marchionne later died unexpectedly in July of that year.) A.T. Kearney also reflected that the value share of an automobile would “undergo a tectonic shift” with the autonomous vehicle. The value of an average automobile was 90 per cent hardware and 10 per cent software. In the autonomous vehicle world, the value share would shift to 40 per cent hardware, with its related profit pool shrinking. The real value, and margin, would come from the software (40 per cent) and the content (20 per cent). The margins and related profit in the industry would shift from traditional hardware manufactures like GM to software and content providers. GM and traditional OEMs would have to undergo a strategic transformation into these types of businesses to access the higher margin opportunities that the future presented.80 MAKING MONEY IN THIS NEW WORLD In November 2017, GM’s CEO Barra told investors that GM would launch a new family of electric vehicles that would cost less to produce than current models and that would be sold at a profit, 81 effectively positioning GM to challenge Tesla. Barra also told investors that GM was generating strong profits from selling trucks and SUVs in the United States, and reaffirmed her promise that GM’s core North American vehicle business would achieve 10 per cent pre-tax profit margins82 (see Exhibit 4). Currently, GM’s five-year average gross margins stood at 11.74 per cent, compared to an industry average of 12.49 percent.83 Given the financial issues of 2009 and GM’s cost structure, it was clear that the company was not well positioned to effectively compete on price against major global competitors. Barra did not address the evident significant threats to the company’s current business model and to its supplier and dealership networks. Many of GM’s dealerships showed little sign of remaining relevant—or even necessary—in a transformed industry dominated by electric vehicles. 84 The automobile industry was undoubtedly expected to become a much more competitive marketplace, with many new competitors entering the industry. How and who would make money in the world of electric vehicles? How would this change impact traditional business models for vehicle manufacturers, parts manufacturers, and dealer networks? How would the new entrants build and support new distribution models and make them profitable? The journey of transformation that Barra’s company was embarking on was unlike any other experienced in the past. Change had been a burden for a large company like GM. This scale of the industry’s revolution was expected to be far more massive than ever before. How would GM cope? EXHIBIT 1: GENERAL MOTORS COMPANY (GM) 2017 GLOBAL SALES (IN US$ THOUSAND) Year Ended December 31 2018 2017 North America Industry GM Market Share Industry GM Market Share United States Other Total Asia/Pacific, Middle East and Africa China Other Total South America Brazil 17,694 2,954 16.7% 17,567 3,002 17.1% 3,835 536 14.0% 3,981 574 14.4% 21,529 3,490 16.2% 21,548 3,576 16.6% 26,466 3,645 13.8% 28,250 4,041 14.3% 22,252 555 2.5% 21,067 629 3.0% 48,718 4,200 8.6% 49,317 4,670 9.5% 2,566 434 16.9% 2,239 394 17.6% Other 1,919 256 13.3% 1,927 275 14.3% Total Total in GM Markets Total in Europe Total Worldwide United States 4,485 690 15.4% 4,166 669 16.1% 74,732 8,380 11.2% 75,031 8,915 11.9% 19,045 4 0.0% 19,149 685 3.6% 93,777 8,384 8.9% 94,180 9,600 10.2% Cars 5,361 560 10.4% 6,145 709 11.5% Trucks Crossovers Total in United States China SGMS SGMW and FAW-GM 1,896 Total in China 5,361 1,360 25.4% 5,039 1,328 26.4% 6,972 1,034 14.8% 6,383 965 15.1% 17,694 2,954 16.7% 17,567 3,002 17.1% 1,749 26,466 3,645 13.8% 28,250 4,041 14.3% 1,906 2,135 Note: SGMS = SAIC General Motors Sales Co. (a joint venture between GM and SAIC Motor that manufactures and sells Chevrolet, Buick, and Cadillac automobiles in China); SGMW = SAIC-GM-Wuling Automobile (a joint venture between SAIC Motor, GM, and Liuzhou Wuling Motors Co Ltd., based in Liuzhou, Guangxi Zhuang Autonomous Region, in southwest China); FAW-GM = Light Duty Commercial Vehicle (a commercial vehicle manufacturing company headquartered in Changchun, China and a 50:50 joint venture between FAW Group and GM). Source: Created by the case authors with information from United States Securities and Exchange Commission, Form 10K, General Motors Company, December 31, 2017, accessed May 2, 2018, https://investor.gm.com/static-files/54070a3d-55d9- 4a0c-9913-7ba9b4d366de, 2. EXHIBIT 2: SAMPLE NEW ENTRANT IN THE US ELECTRIC VEHICLE MARKET Workhorse W15 Source: “W15 Electric Pickup Truck with Extended Range,” Workhorse, accessed May 2, 2018, http://workhorse.com/pickup; image used with permission. EXHIBIT 3: JAGUAR I-PACE BATTERY ELECTRIC VEHICLE DRIVETRAIN Source: Matt Burt, “New Jaguar I-Pace’s Battery Electric Vehicle Technology at a Glance,” Autocar, November 16, 2016, accessed May 2, 2018, www.autocar.co.uk/car-news/motor-shows-la-motor-show/new-jaguar-i-pace%E2%80%99s-battery- electric-vehicle-technology-glance; image used with permission. EXHIBIT 4: GENERAL MOTORS COMPANY (GM) FINANCIAL RESULTS, 2015–2018 (IN US$ MILLION) Annual Income Statement (Year Ended December 31) 2018 2017 2016 2015 Revenue 147,049 145,588 149,184 135,725 Cost of revenue 132,954 125,997 128,868 118,299 Gross profit 14,095 19,591 20,316 17,426 9.6% 13 .5% 13.6% 12.8% Operating expenses Sales, general, and administrative 9,650 9,575 10,354 11,888 Operating income 4,445 10,016 9,962 5,538 Additional income/expense 2,596 290 327 1,063 EBIT 9,204 12,438 12,571 8,794 Interest expense 655 575 563 423 Earnings before tax 8,549 11,863 12,008 8,371 Income tax 474 11,533 2,739 (1,219) Net income from continuing operations 8, 075 330 9,269 9,590 Net income 8,014 (3,864) 9, 427 9, 687 EBITDA 22,873 24,699 22,664 16,178 Statement of Cash Flow Net income 8,014 (3,864) 9, 427 9, 687 Cash flow—Operating activities Depreciation 13,669 12,261 9,819 7,487 Net income adjustments (3,434) 8, 230 (1, 781) (2, 889) Other operating activities (3,054) (3 ,483) (314) (1,578) Net cash flow—Operating activities 15,256 17,328 16,607 11,769 Cash flows—Investing activities Capital expenditures (8,761) (8 ,453) (8,384) (6,813) Investments (12,207) (1 5,756) (25,12 1) (18,48 3) Other investing activities 205 (3,363) (2 ,138) (2 ,414) Net cash flow—Investing (20,763) (2 7,572) (35,64 3) (27,71 0) Cash flows—Financing activities Sale and purchase of stock 2,672 (3,507) ( 2,500) (3 ,520) Net borrowings 11,664 18,455 21,027 18,017 Other financing activities (640) (1 31) 918 1,353 Net cash flow—Financing 11,454 12,584 17,077 13,608 Effect of exchange rates (299) 34 8 (21 3) (1,524) Net cash flow 5,648 2,688 (2,172) (3,857) EXHIBIT 4 (CONTINUED) Balance Sheet Current assets Cash and cash equivalents 20,844 15,512 12,574 15,238 Short-Term investments 5,966 8,313 11,841 8,163 Net receivables 33,399 28,685 24,827 26,388 Inventory 9,816 10,663 11,040 13,764 Other current assets 5,268 5,571 15,921 5,855 Total current assets 75,293 68,744 76,203 69,408 Long-Term assets Long-Term investments 34,298 30,281 25,997 27,701 Fixed assets 82,317 79,135 76,320 51,401 Intangible assets 5,579 5,849 6,149 5,947 Other assets 5,770 4,929 3,849 3,021 Deferred asset charges 24,082 23,544 33,172 36,860 Total assets 227,339 212,482 221,690 194,338 Current liabilities Accounts payable 50,346 49,925 49,226 51,655 Short-Term debt 31,891 26,965 23,797 19,562 Other current liabilities – – 12,158 – Total current liabilities 82,237 76,890 85,181 71,217 Long-Term debt 73,060 67,254 51,326 43,549 Other liabilities 29,265 32,138 41,108 39,249 Minority interest 3,917 1,199 239 452 Total liabilities 188,479 177,481 177,854 154,467 Stockholders’ equity Common stock 14 14 15 15 Capital surplus 25,563 25,371 26,983 27,607 Retained earnings 22,322 17,627 26,168 20,285 Other equity (9,039) (8 ,011) (9,330) (8,036) Total equity 38,860 35,001 43,836 39,871 Total liabilities and equity 227,339 212,482 221,690 194,338 Note: For brevity, less important financial components are not included in Statement of Cash Flow; summary amounts reflect GM’s results as reported on the Nasdaq Stock Exchange. Source: Created by the case authors with information from “GM Company Financials,” Nasdaq Stock Exchange, accessed February 8, 2019, www.nasdaq.com/symbol/gm/financials?query=cash-flow. ENDNOTES 1 This case has been written on the basis of published sources only. Consequently, the interpretation and perspectives presented in this case are not necessarily those of General Motors Company or any of its employees. 2 Robert Ferris, “GM is going ‘all-electric,’ but it doesn’t expect to make money off battery-powered cars until early next decade,” CNBC, February 6, 2019,” accessed February 7, 2019, www.cnbc.com/2019/02/06/gm-doesnt-expect-to-make-money-off- electric-cars-until-next-decade.html. 3 Tom Krisher, “GM says next-gen electric cars will cost less, go farther,” CTV News, November 15, 2017, accessed January 15, 2018, www.ctvnews.ca/autos/gm-says-next-gen-electric-cars-will-cost-less-go-farther-1.3679494. 4 Lawrence Burns, Autonomy: The Quest to Build the Driverless Car—and How It Will Reshape Our World, (London, UK: HarperCollins, 2018), 209. 5 Kit Rees, “Investors bet on components makers in electric car shift,” Reuters, March 7, 2018, accessed February 7, 2019, www.reuters.com/article/us-autos-ev-investors/investors-bet-on-component-makers-in-electric-car-shift-idUSKCN1GJ1IE. 6 UBS Global Research, UBS Evidence Lab Electric Car Teardown—Disruption Ahead?, accessed February 21, 2018, www.advantagelithium.com/_resources/pdf/UBS-Article.pdf, 4. 7 Robert Ferris, op. cit. 8 “Automobile History,” History Television Network, accessed February 21, 2018, www.history.com/topics/automobiles. 9 Center for Automotive Research, Contribution of the Automotive Industry to the Economies of All Fifty States and the United States, January 2015, accessed February 21, 2018, www.cargroup.org/wp-content/uploads/2017/02/Contribution-of-the- Automotive-Industry-to-the-Economies-of-All-Fifty-States-and-the-United-States2015.pdf. 10 American Automotive Policy Council, State of the US Automotive Industry, 2017, accessed February 21, 2018, www.americanautocouncil.org/sites/aapc2016/files/2017%20Economic%20Contribution%20Report.pdf, 6. 11 All currency amounts are in US$ unless otherwise specified. 12 Sam Frizell, “General Motors Bailout Cost Taxpayers $11.2 Billion,” Time, April 30, 2014, accessed May 2, 2018, http://time.com/82953/general-motors-bailout-cost-taxpayers-11-2-billion. 13 “Obama’s Announcement on the Auto Industry,” New York Times, March 30, 2009, accessed May 2, 2018, www.nytimes.com/2009/03/30/us/politics/30obama-text.html?pagewanted=all. 14 “Auto & Truck Manufacturers Industry Profitability,” CSIMarket Company, accessed February 21, 2018, https://csimarket.com/Industry/industry_Profitability_Ratios.php?ind=404&hist=3. 15 John Holusha, “Chrysler Is Buying American Motors; Cost Is $1.5 Billion,” New York Times, March 10, 1987, accessed February 7, 2019, www.nytimes.com/1987/03/10/business/chrysler-is-buying-american-motors-cost-is-1.5-billion.html. 16 UBS Global Research, op. cit., 52. 17 “Dealership Financial Profiles,” National Automobile Dealers Association, accessed December 4, 2018 www.nada.org/WorkArea/DownloadAsset.aspx?id=21474853825. 18 Jamie LaReau, “Dealers Relying More on Fixed Ops,” Automotive News, April 17, 2017, accessed February 21, 2018, www.autonews.com/article/20170417/RETAIL06/304179922/dealers-relying-more-on-fixed-ops. 19 Rob Wile, “The Surprising Source of Car Dealers’ Profits,” Business Insider, March 1, 2012, accessed February 21, 2018, www.businessinsider.com/the-surprising-source-of-car-dealers-profits-2012-2. 20 Melissa Burden, “Parts and accessories boost Ford, FCA, GM revenue,” The Detroit News, March 23, 2017, accessed February 21, 2018, www.detroitnews.com/story/business/autos/general-motors/2017/03/23/parts-accessories-boost-ford-fca- gm-revenue/99562692. 21 “Auto & Truck Manufacturers Industry Profitability,” op. cit. 22 “A giant falls,” The EconomistJune 4, 2009, accessed February 21, 2018, www.economist.com/node/13782942. 23 Ibid. 24 Sharon Silke Carty, “7 Reasons GM Is Headed to Bankruptcy, USA Today, May 31, 2009, accessed May 27, 2019, https://usatoday30.usatoday.com/money/autos/2009-05-31-gm-mistakes-bankruptcy_N.htm. 25 Daniel Gross, “The Auto Industry Wants to Bring Back the SUV Era,” Slate, March 6, 2017, accessed February 21, 2018, www.slate.com/articles/business/the_juice/2017/03/the_automobile_industry_may_get_the_weaker_epa_regulations_it_wants.html. 26 “Light Vehicle Retail Sales in the United States from 1977 to 2017 (in 1,000 Units),” Statista, accessed February 21, 2018, www.statista.com/statistics/199983/us-vehicle-sales-since-1951. 27 “A Giant Falls,” op. cit. 28 Doron Levon, “Want to Sink Detroit Automakers? Make a Trade Deal that Weakens US Tariff Protecting Pickups,” Forbes, March 27, 2018, accessed December 4, 2018 www.forbes.com/sites/doronlevin/2018/03/27/want-to-sink-detroit-automakers- make-a-trade-deal-that-weakens-tariff-protecting-pickups/#678c9a641cf2. 29 Dan Neil, “Wagoner’s mileage at GM,” Los Angeles Times, March 31, 2009, accessed February 21, 2018, http://articles.latimes.com/2009/mar/31/business/fi-gm-cars31. 30 Oliver Staley, “The General Motors CEO who killed the original electric car is now in the electric car business,” Quartz, April 7, 2017, accessed February 7, 2019, https://qz.com/952951/the-general-motors-gm-ceo-who-killed-the-ev1-electric-car-rick- wagoner-is-now-in-the-electric-car-business. 31 John Daly and Mitch Moxley, “How Hyundai became the auto industry’s pacesetter,” March 16, 2017, The Globe and Mail, accessed May 2, 2018, www.theglobeandmail.com/report-on-business/rob-magazine/how-hyundai-became-the-auto- industrys-pacesetter/article4324173. 32 “Hyundai Motor Company DR,” Morningstar, accessed May 2, 2018, http://financials.morningstar.com/ratios/r.html?t=HYUO. 33 “General Motors Company GM,” Morningstar, accessed May 2, 2018, http://financials.morningstar.com/ratios/r.html?t=GM. 34 Tim Kuppler, “GM Culture Crisis Case Study—A Tragedy and Missed Opportunity,” Human Synergistics, June 24, 2014, accessed February 7, 2019, www.humansynergistics.com/blog/culture-university/details/culture-university/2014/06/24/gm- culture-crisis-case-study—a-tragedy-and-missed-opportunity. 35 Rachael Nealer, “Gasoline vs Electric—Who Wins on Lifetime Global Warming Emissions? We Found Out,” Union of Concerned Scientists, November 12, 2015, accessed February 21, 2018, https://blog.ucsusa.org/rachael-nealer/gasoline-vs- electric-global-warming-emissions-953. 36 Sarwant Singh, “Global Electric Vehicle Market Looks to Power Up in 2018,” Forbes, April 3, 2018, February 7, 2019, www.forbes.com/sites/sarwantsingh/2018/04/03/global-electric-vehicle-market-looks-to-fire-on-all-motors-in-2018/#46624b4a2927. 37 Eric Schmidt, “2017 Battery Electric Cars Reported Range Comparison,” Fleetcarma, July 10, 2017, accessed February 21, 2018, www.fleetcarma.com/2017-battery-electric-cars-reported-range-comparison. 38 UBS Global Research, op. cit., 17. 39 Bradley Berman, “How Far (Literally) Can the Electric Car Go?” Popular Mechanics, February 8, 2016, accessed February 21, 2018, www.popularmechanics.com/cars/hybrid-electric/a19331/how-far-literally-can-the-electric-car-go. 40 Aaron Brown, “Here’s a look back at the Tesla car that started it all,” Business Insider, March 30, 2016, accessed February 21, 2018, www.businessinsider.com/tesla-roadster-history-2016-3. 41 Dr. Maximilian Holland, “Timeline for Electric Vehicle Revolution,” Clean Technica, December 25, 2017, accessed May 2, 2018, https://cleantechnica.com/2017/12/25/timeline-electric-vehicle-revolution-via-lower-battery-prices-supercharging-lower-battery-prices. 42 Paul Lienert and Nick Carey, “GM challenges Tesla with promise of profitable electric cars,” Reuters, November 15, 2017, accessed February 21, 2018, www.reuters.com/article/us-gm-ceo/gm-challenges-tesla-with-promise-of-profitable-electric- cars-idUSKBN1DF272. 43 “The US Petroleum Industry: Statistics, Definitions,” Association For Convenience & Fuel Retailing, accessed February 21, 2018, www.convenience.org/Topics/Fuels/The-US-Petroleum-Industry-Statistics-Definitions. 44 Fred Lambert, “Tesla Supercharger network reaches 1,000 stations worldwide and ~7,000 chargers,” Electrek, October 3, 2017, accessed February 21, 2018, https://electrek.co/2017/10/03/tesla-supercharger-network-1000-stations. 45 Charles Clover, “Subsidies help China sell the most electric cars,” Financial Times, October 23, 2017, accessed January 17, 2018, www.ft.com/content/18afe28e-a1d2-11e7-8d56-98a09be71849. 46 UBS Global Research, op. cit., 11. 47 UBS Global Research, op. cit., 12. 48 UBS Global Research, op. cit., 4. 49 Charles Clover, op. cit. 50 ¥ = renminbi = Chinese Yuan; US$1 = ¥6.75 on February 1, 2019. 51 Charles Clover, op. cit. 52 Kelly Pleskot, “Every Volvo Introduced from 2019 Will Have an Electric Motor,” Motor Trend, July 5, 2017, accessed January 17, 2018, www.motortrend.com/news/every-volvo-will-electric-motor-2019. 53 Krisher, op. cit. 54 UBS Global Research, op. cit., 5. 55 UBS Global Research, op. cit., 27. 56 UBS Global Research, op. cit., 54. 57 UBS Global Research, op. cit., 7. 58 Brendan O’Brien, “Will Car Dealerships Survive the EV Revolution?” Aria Systems, accessed February 7, 2019, www.ariasystems.com/blog/do-evs-mean-the-end-of-the-road-for-car-dealers. 59 “W-15 Electric Pickup Truck with Extended Range,” Workhorse, accessed March 27, 2018, http://workhorse.com/pickup. 60 Matt Burt, “New Jaguar I-Paces battery electric vehicle technology at a glance, Autocar, November 15, 2016, accessed December 1, 2017, www.autocar.co.uk/car-news/motor-shows-la-motor-show/new-jaguar-i-pace%E2%80%99s-battery- electric-vehicle-technology-glance. 61 Jonathan Shieber, “Upstarts emerge to chase Tesla’s lead in electric vehicles,” TechCrunch, accessed February 7, 2019, https://techcrunch.com/2018/05/23/upstarts-emerge-to-chase-teslas-lead-in-electric-vehicles. 62 Steve Merti, “Average price of new car rose again last year, but at slower pace,” Automotive News Canada, February 8, 2018, accessed May 10, 2018, http://canada.autonews.com/article/20180208/CANADA/180209785/average-price-of-new- car-rose-again-last-year-but-at-slower-pace. 63 “Auto & Truck Manufacturers Industry Profitability,” op. cit. 64 Jonathan Shieber, op. cit. 65 “Tesla Third Quarter 2018 Update,” Tesla, accessed December 4, 2018, http://ir.tesla.com/static-files/725970e6-eda5-47ab- 96e1-422d4045f799. 66 “Electric Cars, Solar Panels & Clean Energy Storage,” Tesla, accessed March 27, 2018, www.tesla.com. 67 “Tesla Third Quarter 2018 Update,” op. cit. 68 Dee-Ann Durbin, “Tesla adding 100 service centers, 1,000 technicians as Model 3 goes on sale,USA Today, July 11, 2017, accessed May 2, 2018, www.usatoday.com/story/money/cars/2017/07/11/tesla-adding-100-service-centers-1-000- technicians-model-3-goes-sale/467423001. 69 “Tesla Gigafactory,” Tesla, accessed March 27, 2018, www.tesla.com/gigafactory. 70 Phil LeBeau, “A look inside Tesla’s Gigafactory: The key to the automakers’ success,” CNBC, November 13, 2018, accessed February 7, 2019, www.cnbc.com/2018/11/13/a-look-inside-teslas-gigafactory-the-key-to-the-automakers-success.html. 71 “Tesla Factory,” Tesla, accessed March 27, 2018, www.tesla.com/factory. 72 Mauro Erriquez, Thomas Morel, Pierre-Yves Moulière, and Philip Schäfer, “Trends in Electric-Vehicle Design,” McKinsey & Company, October 2017, accessed February 7, 2019, www.mckinsey.com/industries/automotive-and-assembly/our- insights/trends-in-electric-vehicle-design. 73 “Tesla Third Quarter 2018 Update,” op. cit. 74 Eric Kosak, “Tesla on the Verge of Costs & Revenues Breaking Even,” CleanTechnica, June 7, 2018, accessed February 7, 2019, https://cleantechnica.com/2018/06/07/tesla-on-the-verge-of-costs-revenues-breaking-even. 75 Barclays Global Automotive Conference, Mary Barra CEO, November 18, 2015, accessed January 24, 2018, www.gm.com/content/dam/gm/en_us/english/Group4/InvestorsPDFDocuments/11-15-17_Barclays_VFc.pdf, 19. 76 ATKearney, How Automakers Can Survive the Self-Driving Era, accessed January 17, 2018 from, www.atkearney.com/documents/10192/8591837/How+Automakers+Can+Survive+the+Self- Driving+Era+%282%29.pdf/1674f48b-9da0-45e8-a970-0dfbd744cc2f, 1. 77 KPMG, Will this be the end of car dealerships as we know them?, 2018, accessed December 4, 2018 https://assets.kpmg.com/content/dam/kpmg/br/pdf/2018/10/the-end-of-car-dealerships.pdf, 9. 78 Jeff Green and Keith Naughton, “Urbanization, Mobility, Gridlock and Predictions of ‘Peak Car,’” Insurance Journal, February 24, 2014, accessed May 2, 2018, www.insurancejournal.com/news/national/2014/02/24/321305.htm. 79 Thomas Ebhardt, “Fiat Chrysler’s Marchionne: The Future of Cars Will Be Electric and Commoditized,” Bloomberg, January 15, 2018, accessed January 15, 2018, www.bloomberg.com/news/features/2018-01-15/fiat-chrysler-s-marchionne-the-future- of-cars-will-be-electric-and-commoditized. 80 ATKearney, op. cit., 14. 81 Barclays Global Automotive Conference, op. cit., 9–17. 82 Ibid, 5. 83 “General Motors Profitability Comparisons,” CSIMarket.com Company, accessed March 27, 2018, https://csimarket.com/stocks/Profitability.php?code=GM. 84 Brendan O’Brien, op. cit.

Writerbay.net

Everyone needs a little help with academic work from time to time. Hire the best essay writing professionals working for us today!

Get a 15% discount for your first order


Order a Similar Paper Order a Different Paper