Supernova Automotive Manufacturer Performance Analysis

Marketing and strategy

Table of Contents
Introduction..........................................................................................................................................3
Company Performance.........................................................................................................................3
Round 1............................................................................................................................................3
Decisions..........................................................................................................................................3
Round 2............................................................................................................................................4
Decisions..........................................................................................................................................4
Round 3............................................................................................................................................5
Decisions..........................................................................................................................................5
Round 4............................................................................................................................................6
Decisions..........................................................................................................................................6
Forecast and Results........................................................................................................................6
Trend Analysis.................................................................................................................................7
Production...................................................................................................................................7
Learning..............................................................................................................................................10
Finance...........................................................................................................................................10
Marketing.......................................................................................................................................12
Operations......................................................................................................................................13
Human Resource Management......................................................................................................14

Introduction
Supernova is an automotive manufacturer whose London operations targets the European market
with a range of high quality, low emission, and low running cost cars. The overall objective of
Supernova was to become the market leaders in the small and medium city car market segment. The
goals and objectives of Supernova were to increase annual productivity levels by 7% over four
years, maintain costs at 1.5% below sales, raise annual sales by an average of 42%, gain brand
awareness, train employees, achieve 40% annual return on equity, and repay 250 million pound of
loans within two years.
Company Performance
Round 1
Decisions
The company sought to introduce two car models, the smaller Higgs model in 3 and 5 door models
targeted at the under 25 years age group and the Charm SUV with a small hybrid (petrol and
electric engine) targeted at the 25 to 40 age group; the Higgs model had 10 options while Charm
had five options. The company adopted a lean production strategy in order to minimize costs given
the company is at the entry level in the competitive European market. 77695 units of the Higgs
model were produced while for the Charm model, 24,700 units were produced. Pricing was a major
factor in deciding the cars to produce; the people aged between 25 and 40 have a higher purchasing
power but are more discerning- cost is not their main objective while for those under 25, cost is a
major deciding factor and this informed the decisions to produce more of the Higgs model and few
of the Charm SUV model with a hybrid engine. Being a new company, the strategies adopted
included having a wide distributorship network, competitive pricing, and use of lean methods for
demand forecasting. Apart from providing good cars at competitive prices, the management had a
strategy of keeping production costs low, through making quality cars that would have few warranty
issues, and keep investors happy through high returns.
Forecast and Results
Strategic forecasting and lean methods ensured that the amounts forecast is what was produced; a
total of 203, 559 cars were produced against a similar forecast and using a demand driven
forecasting approach, all produced vehicles were sold. Against a forecast sales target of £ 4366
million, the actual sales were also £4366 million. Being a new entrant, a significant budget was
allocated for promotion at £447 million, against a forecast of £448 million. The strategy resulted in
healthy gross margins of 45.4%, against a similar target; operating profits was £809 million against
a target of £814 million and the net profit margin achieved was 14.2%, against a target of 14.2%.

High efficiency production methods were adopted and this resulted in low warranty claims of 1.1%
apiece for both car models and the target of at least 40% ROE was obtained with 55.4% achieved
against a forecast of 55.3%. however, because of being in the entry level and wanting to attract the
best workers to push the company forward, average wages were 10% over the market average; the
company had expected this. Due to starting off and heavy investments in production and
manufacturing as well as labor, the cash flows were negative 481 million, slightly below a forecast
of 486 million. The strategy worked in the first period, with Higgs gaining a 1.48% market share
and Charm having 2.15% share. Using a demand pull forecasting system, 96,635 units against a
forecast of 96,635 units. The Charm model had 162,210 models produced against a forecast of 162,
210, while Bosson had 125, 260 models produced against a similar forecast.
Round 2
Decisions
The encouraging performance in year one led to offer customer variety by introducing a third 3/5
door vehicle model, the Bosson with fewer options to keep production costs low and have a lower
market entry price level, in addition to the Higgs and Charm models. The introduction of the new
model was to provide options and choice for customers in the small car segment at a lower entry
price level. The earlier strategies of a wide distribution network, increased employee productivity,
and rationalization of costs. The first year had seen encouraging performance despite being an entry
year and in the second year, the promotional budget as reduced by 40%; this was accompanied by
other efficiency measures and building on progress made in the previous year.
Forecast and Results
All Higgs and Charm models were sold, while Bosson had a stock balance of 1,000 units remaining
unsold. The gross margins achieved were as forecast (42.7% for Higgs, 45.7% for Charm, and
35.9% for Bosson). Overall, a gross margin of 42.2% was achieved, against a forecast of 42.1% .
naturally, warranty claims increased, but well below 2% while efficiency and cost cutting as well as
productivity improvement strategies resulted in an increase of return on equity to 59.4% against a
target of 59.3%. the returns on investments increased significantly to 57.0% (against a forecast of
39.4) and rising from 45.3% achieved in the previous year. The desired liquidity of 2.2 was not
achieved; instead a lower value of 1.2% was achieved as an additional £116 million was taken when
the Bosson model was introduced while the expectation had been to take zero loans. The long term
debt ratio was maintained at a low value of 4% (the target) while the total debt ratio declined
slightly to 33% from the previous years’ 34%. Days inventory outstanding rose to 1 from zero the
previous year while wages were 15% over market; this was due to the hiring of additional staff for
the introduction of the Bosson model. The cost cutting and operational efficiency strategies led to a