Honda Atlas Cars (Pakistan) Ltd.

Auto Giants Seek To Reap Growing Market (A)

By:Abdullah Azhar, Annum Javaid Khokhar, Aleena Waqar, Bushra Iqbal Rao, Hena Ghazanfar Kiani, Mahmud-ul Hassan Nuri, Sarah Rafi, Syeda Rida Rizvii Submission Date: May 25, 2011 Discipline: Strategy Length: 17p

Around the year 2004, the Pakistani automobile industry underwent favorable market dynamics which led to a significant demand pull, enticing all manufacturers to consider investing in capacity expansion projects. HACPL too, being one of the big three players of Pakistani automobile sector was enjoying a steady growth in sales contributed by a blend of factors ranging from customer friendly auto loan rates to a boost in the country economy, and that of buying power of customers. The future of the automobile industry seemed promising, with an anticipated surge in the demand for passenger cars in the years to come.

Learning Objectives To highlight the importance of performing industry analysis before decision making. Analyze how an effective positioning strategy can create perceived differentiation. Discuss the impact of exogenous factors on companys choices. Subjects Covered Porters five forces industry analysis, Strategy, Business models interactions, Competitive environment, Positioning, Brand Perception, Company vision (i.e. how company intends to win by making choices),Value loops, Analysis of Financial Statements and Financial performance Analysis. Setting Geographic: Pakistan Industry: Automobile industry (Passenger car segment) Company employee count: 625 (as of 2004) Company revenues: Rs. 9,358,369,000 (as of 2004) Event year begin: 2004 Event year end: 2010
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Supplements of Case (A)

Honda Atlas Cars (Pakistan) Ltd. 2005-06 (B)
Length: 3p

Honda Atlas Cars (Pakistan) Ltd. Fall of Expectations (C)

Length: 9p

Honda Atlas Cars (Pakistan) Ltd. Would Honda Need To De-Yuppify Itself To Survive? (D)
Length: 5p

Case Questions
Case A
Q1. Discuss the industry attractiveness using Porters 5F model? Calculate the average Return on Investment in the Industry. Q2. Compare and comment on the Vision statements of IMC and HACPL. What do these statements reveal about the overall focus of the companies. Q3. Should Mr. Sherazi go ahead with the PKR 3 Billion expansion plan based on the factors discussed in the case? Q4. Calculate the amount of lease payments that an auto finance company will charge you, assuming that the price of a Civic is PKR 870,000 in 2004, and the financing rate is 10.50%, insurance rate is 3.99%, Processing charges are PKR 2000. Assume the following procedure: Total Installment includes the installment plus the insurance Minimum Down payment 20% Total Down payment includes 20%(Car Price) + insurance of 1st year to be paid in advance + processing fee Factor Rate for installments is calculated by dividing the rate by 12, and then by 36 (for 3 year financing) In the 1st year, insurance paid is 90% of the original insurance. In 2nd year it is 85% and so on. In the last year there is no insurance as it is being paid in advance.

Compare this to the lease payments, if the price of the car was PKR 700,000, and the rate of financing was 19%. What do the results show? Q5. Create a value loop for HACPL Q6. Compare and contrast Honda and Toyotas Marketing Strategy

Case B
Q1. Analyze Mr. Sherzis decision of purchasing 39 acres of new land for PKR 366 million.

Case C
Q1. Discuss the importance of exogenous factors in determining the profitability of a company. Q2. Calculate and compare the Operational Breakeven level of Honda and Toyota. Q3. Compare the positions of Honda with Toyota. Why are they different, given same industry dynamics, similar external forces acting and same beginning time periods. Q4. Comment on the statement, Brand Image, High quality and Cutting Edge technology means little if the financials are weak. Q5. Compare the lease payments in 2009 with that of 2004, assuming new Civic prices. Assume insurance rate as 3.99%, Processing charges are PKR 2000. Assume the following procedure:
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Total Installment includes the installment plus the insurance Minimum Down payment 20% Total Down payment includes 20%(Car Price) + insurance of 1st year to be paid in advance + processing fee Factor Rate for installments is calculated by dividing the rate by 12, and then by 36 (for 3 year financing) In the 1st year, insurance paid is 90% of the original insurance. In 2nd year it is 85% and so on. In the last year there is no insurance as it is being paid in advance.

Case D
Q1. What in your view is the best way for Honda to deal with this situation? Would you advise Honda to alter its brand image and positioning, change its policy of global car, adapt to local needs with region specific models, or do none? Q2. Will Honda compromise its focus of advances technology, greater fuel efficiency and maintaining "Quality" against the strategy of Toyota?

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