BUS225_Project_One

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1 Project One: Executive Summary Dianna Sheely Southern New Hampshire University BUS 225: Critical Business Skills for Success Cynthia Daniel May 21, 2023

2 Project One: Executive Summary Problem Since engine sales are down in the automotive industry, we should consider diversifying into a broader engine market. Diversification will open the door to increasing sales by increasing our customer base in a new market instead of focusing on one industry. This executive summary will provide data for the automotive and leisure boating industries. The data shared will be a collection of both qualitative and quantitative analyses. We will look at quantitative historical and current data related to the industry performance and qualitative data that will help us define our target audience. This will help us make an educated decision on how to move forward. Automotive Manufacturing Industry According to a North American Industry Classification System (NAICS) report from April 18, 2023, U.S. automotive manufacturing was a 40.4 billion dollar industry as of January 2023. Engine and parts manufacturing revenue have fallen at a CAGR (compound annual growth rate) of 3.5% to $40.4 billion through the end of 2023, including a 0.7% drop in 2023 alone, when profit will reach 4.5%. (Pantalon, 2023) Covid-19 directly impacted revenue with supply chain disruptions limiting inventory and sales. According to NAICS, the industry outlook indicates that automobile engine and parts manufacturing revenue will grow by 2% to $44.7 billion over the next five years. (Pantalon, 2023) In Ohio, total car sales were $19 billion, with 598.7 thousand new cars. Six major car manufacturers employ workers and fuel our economy: BMW, Ford, General Motors, Honda, Stellantis, and Subaru of America. These companies account for 1.9 billion dollars in state revenue for Ohio, employing 198.6 thousand people with an annual labor income of $12.1 billion. Of the 6, Ford and Honda have engine manufacturing plants in the state and employ 1,600 people. Even with these challenges, Light trucks (SUVs, CUVs, vans, pickups) continue to be popular. In 2022 the light truck market share increased another 3.4% to 79.3% – breaking the previous year's record to be the highest in history. The upward trend in the popularity of light trucks over cars has been steady since 2013, when only 1.2% of the market share separated the two segments; by the end of 2022, the divide had grown to 59%. (Alliance for Automotive Innovation, 2023) This shift in desire for larger capacity vehicles has affected car sales. Car sales are down 24% between 2012 to 2022, capturing only 20.7% of the industry and reflecting a total vehicle sales decrease of 11% from 2021.

3 As the economy continues to recover, consumers are holding onto their vehicles longer, with a national average vehicle age of 12 years; putting more miles on them causes an increase in demand for repairs and replacements. As inflation continues to rise, our economic growth will slow, and access to credit at higher interest rates will place a ceiling on growth. Increasing environmental consciousness and rising fuel prices will also affect the sales of gasoline-powered engines as we see a shift in consumer preferences. Electric vehicles have and will continue to cut into the automotive industry. New Industry Pleasure craft, AKA Leisure Boats, are another product that uses engines built by the automotive industry. This industry sells new and used recreational boats such as canoes, sailboats, motorboats (except personal watercraft), boat parts, and accessories. This industry also provides repair and maintenance services; boat repairers may be employed by a boat dealer or as an independent shop. (Thomas, 2023) Over the past five years, industry revenue increased at a CAGR of 5.0% to $35.0 billion, including an increase of 2.3% in 2023. Unlike the decrease in automotive sales during the Covid- 19 pandemic, since boating was an activity that remained permitted, boat sales increased. As spending on boats and repairs during this time increased, profits increased. In 2023 profit measured as earnings before interest and taxes will account for 6.8% of revenue. (Thomas, 2023) The industry is projected to grow over the next five years at a CAGR of 1.4% to $37.5 billion since the market is not cooling. Of the $35.0 billion in revenue, only two major players are Marinemax holding 6.7%, and BPS Direct holding 2.8% of the market share. Diversifying into this market would bring another revenue stream as we target consumers’ desire for outdoor activities that were rebirthed during the pandemic lockdown. Since 2019 there has been a significant spike in fishing culture and water sports. The average age of the industry’s customers has also changed. What was once a sport for middle-aged hobbyists is now a family-friendly adventure. The average age of boating owners in 2023 is between 50-58 years, with younger boaters in their 20s and 30s opting for rental and ownership-sharing trends. Increased motor repairs. Boat engines regularly use ethanol-based fuel, comprised of 15% ethanol. Traditional boat engines do not handle fuel containing more than 10% ethanol. Boaters are enticed to purchase the higher ethanol, E15, because it is cheaper. As a result, motor repairs and replacements are on the increase. Some boaters are even moving away from the cheaper E15 fuel by replacing their motors with diesel engines as they continue to grow in popularity.

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4 Another trend on the rise is the boating rental business. This market is expanding as more individuals who cannot afford to own a personal watercraft or do not have the facilities to store them decide to rent boats as needed for fishing and other kinds of watersports. Innovations in technology and design have led to increased demand for recreational boats, and a growing interest in eco-friendly options has also contributed to the market’s growth. (Software, 2023) Porter’s Five Forces Analysis of the New and Automotive Industry New Industry Automotive Manufacturing Industry Rivalry among existing competitors Many players in the market keep concentration low. The two major players are Marinemax and BPS (Bass Pro Shop). Marinemax holds 6.7%, and BPS Direct has 2.8% of the market share. The rest of the market is highly fragmented by many small players catering to local consumers. Market share has been on the rise over the past five years. Marinemax and BPS increasingly acquire smaller dealerships to expand their national presence and market share. Marinemax is the most significant lifestyle retailer of recreational boats and yachts. (MarineMax, 2023) They also offer yacht concierge and superyacht services. They also include marina management and operate luxury yachting, sports fishing, and pleasure destinations globally. BPS Direct is a private company with an estimated 40,000 There are thirteen companies in the Automobile Engine & Parts Manufacturing in the US industry, including Ford Motor Co, Honda Motor Co Ltd, Toyota Motor Corp, General Motors Company and Magna International Inc. (Pantalon, 2023) Market share for these major players is broken down as follows: Ford Motor Co. 37.1%, Honda Motor Co. 16.2%, Toyota Motor 9.9%, GM 9.0%, Magna International 7.6%, and 20.1% divided among the remaining smaller companies. Competition is medium between these companies but is increasing. Since engines are the primary functioning component of automobiles, the differentiation between them is essential to succeeding in the automobile sector. (Pantalon, 2023) With long standing industry leaders, competition for consumer loyalty is high.

5 employees. In the US, the company has a significant market share in at least four industries: Boat Dealership and Repair, Sporting Goods Stores, Online Sporting Goods Sales, Online Gun & Ammunition Sales, and Online Gun & Ammunition Sales. (Thomas, 2023) These two companies are very competitive as they continue to try to acquire the little guys and expand their concentration in the market. 9 automakers have tried their hands at making boats. Lexus, Aston Martin, Maserati, Mercedes, Jaguar, and Ferrari all produce high-end luxury boats. Some more humble makers are GM, Toyota, and Skoda. The only two automotive manufacturers with engine plants in Ohio are Honda and Ford, neither producing marine engines. The only US automaker that has been making boat engines is GM through their GM Motors’ aquatic arm, GM Marine. They even debuted an electric pontoon boat at the Miami International Boat Show in 2019. (Molnar, 2020) Technology in this industry remains consistent as the GM electric motor will only carry a charge for 10 hours. Boaters find themselves continuing to purchase traditional gas and diesel motors.

6 Threats of new entrants to the market The level of competition in this industry is currently High and Steady, with Boat Dealership and Repair industry high, particularly in populous regions with nearby boating hubs, like Florida. Operators compete primarily based on price, product quality, and brand offerings but also compete based on warranty, credit offerings, and sales staff knowledge. Quality of customer service in the parts and repair business is a significant point of competition within a franchise dealer's network; poor customer service can drive customers toward other dealerships within the franchise to service the boats without violating manufacturer warranties. Customer service quality will become a more important basis of competition as parts and repair services grow as a share of total revenue. Dealerships that offer a comprehensive range of services, from sales to repairs, have a competitive advantage over sales- only dealers. The industry's dealers have continuously grown market share over independent dealerships. Dealer groups can operate on lower margins because of cost savings from marketing expenses, improved credit terms, and inventory management. (Thomas, 2023) Boat dealers must obtain and renew franchise and state licensing The start-up costs in this industry are massive with weak profits. There aren't many legal barriers to entry in this industry, although entrants must comply with Corporate Average Fuel Economy (CAFE) and Occupational Safety and Health Administration (OSHA) standards. Companies also need to posed so that they can shift to meet these standards as they shift. To be successful in this industry, manufacturers must produce high- quality and efficient engines for the lowest cost possible. Which takes substantial research and development costs. There is a huge shift right now within the industry to produce more hybrid and electric (EV) motored vehicles. Most of these engines that are produced are produced by companies making gas engines as well, meaning the allocation of resources between different segments is considered external competition. The portion of funds allocated to EVs will likely continue to increase as the government continues to financially support manufacturers which focus on electric engines. (Pantalon, 2023)

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7 agreements annually in any state they operate. The same holds for boat engine manufacturers. The cost for a start-up in the industry is relatively high because of the investment that must be made in inventory and the high price of boats. Bargaining power of suppliers There are currently 12 Key Manufacturers Operating in the Global Market in engine part supplies: 1.Caterpillar (U.S.) 2.Cummins (U.S.) 3.Hyundai Heavy Industries (South Korea) 4.Man Energy Solution (Germany) 5.Mitsubishi Heavy Industries (Japan) 6.Honda Motors Co. Ltd. (U.S.) 7.Wartsila (Finland) 8.Kongsberg (Norway) 9.Mahindra Powerol (India) 10.General Motors (U.S.) 11.Yanmar Holdings Co. Ltd. (Japan) 12.Doosan Infracore (South Korea) (Fortune Business Insights, 2023) As inflation rises, the cost of goods sold to manufacturers has increased since the spring of 2020. The automobile industry is one of the largest consumers of the world's raw materials such as aluminum, glass and the iron ore to make steel, as well as petroleum products used to make plastics, rubber and special fibers. There are many suppliers from around the world that take part in supplying this industry. Since this industry is one of the world's largest consumers of these raw materials, they are able to bargain with suppliers to find he best price globally. Driving down the price of raw materials. By obtaining the best price on supplies and ease of obtaining the materials they are able to produce automobiles cost effectively, keeping prices down.

8 As seen in previous information, there is not a significant reduction in boat costs caused by competition. Still, competition creates more dealers to diversify within the water sports industry to capture a broader customer base. With dealers reporting that they are still low on inventory vs. demand since the pandemic, this sets the manufacturing industry up for success as they continue to produce. Since the industry is so diversified, there is room for more competition. Threat of substitute products Since leisure boating is a niche industry, there are no current trends that create a threat. The boating market and industry have seen significant growth in recent years, expected to continue in 2023. Innovations in technology and design have led to increased demand for recreational boats, and a growing interest in eco-friendly options has also contributed to the market's growth. (Marine Industry, 2023) There are other products emerging in the automotive industry that will compete with the existing gas fueled engines such as Electrical Vehicles (EV) and Hybrid engines. However, these products are currently have high government standards and requirements to meet and are very costly to produce. Making the cost to the consumer very high. Due to continued tax incentives and rising fuel costs, industry revenue is expected to expand. New government incentives and infrastructure funding have increased the accessibility of electric and hybrid vehicles domestically. Industry-wide revenue has increased at an annualized 29.6% to $88.8 billion over the past five years, including a 24.7% rise in 2023 alone. (Al Bari, 2023) EVs will continue to cut into the fuel

9 powered engine market within the automotive industry as consumer demand increases, tax incentives and fuel cost rise. Bargaining power of buyers The boating industry’s customers base is diverse. The average age of boating owners in 2023 is between 50-58 years, with younger boaters in their 20s and 30s opting for rental and ownership-sharing trends. Families are also looking to water sports to take advantage of enjoyment found in outdoor watersports. Companies like Marinemax, Bass Pro Shops, and a multitude of independent boat dealers are still seeing positive sales and the need for inventory. The need for production of boat engines and parts for repairs is forcast to grow. Boat dealers' and repair shops' revenue will increase at a CAGR of 1.4%, reaching $37.5 billion over the next five years, when profit will reach 6.9%. (Thomas, 2023) Coming out of the pandemic when Covid-19 restrictions created a shortage in vehicles for sale, the consumer has very little power to negotiate prices on automobiles. Comparison of the Industries When comparing the two industries, Automotive and Leisure Boats, we see that both industries are highly competitive and have a few major players that rival to grasp the majority of the market. They are a threat to new entrants into the market simply because they are established and already have a financial place in their respective industry as both require high capital to break into the market. Bargaining power is high for both as the automotive market is a major user of raw materials and source both in and outside of the United States. But, the Leisure Boat industry is so diversified into smaller suppliers that there are more choices to purchase from in the US.

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10 The difference is seen in the threat of substitute products to each of the markets. With the increasing demand for EV and Hybrid automobiles, fuel powered engines sales will begin to decline as tax breaks, fuel price increases, and inflation continue. Whereas, in the Leisure Boating market, there is still a continued desire for consumers to enjoy water sports. And new avenues of making this attainable have opened with boat sharing and rental opportunities. Since the market is relatively diverse with only two major players, there is room in the market for additional boat engine suppliers. Another positive similarity is found in the bargaining power of the buyer. Since both industries were effected by the Covid-19 shut down, there is low bargaining power there but for different reasons. The leisure boating industry became more attractive as the shut down encouraged people to get outside and enjoy outdoor sports more. Water sports had a huge surge. Whereas, the low bargaining power in the automotive industry comes from the shortage of vehicles due to supply chain issues, and higher prices. Automotive dealers do not have to negotiate prices as they did prior to the pandemic. Summary of Findings I recommend diversifying into the watercraft/leisure boating engine industry. Our analyzed data shows many similarities that would make for a smoother transition into the industry. While the costs will still be high for entering the industry, the profit and revenue over time will outweigh the initial cost. Consumer demand is projected to remain positive in the marine engine industry well into 2028. Rising consumer confidence and total recreation expenditure will support revenue growth. (Marine Industry, 2023)

11 Porter’s Five Forces Analysis Chart—New Industry Threat of new entrants High - The industry's dealers have continuously grown market share over independent dealerships. Rivalry among existing competitors Medium/High - With two major market holders, and numerous smaller market holders, there is rivalry but room for expansion in the market. Bargaining power of buyers Low - Dealer groups can operate on lower margins because of cost savings from marketing expenses, improved credit terms, and inventory management. Bargaining power of suppliers High - With multiple suppliers industry, boat makers and dealers have many options of where they get their engine products. Threat of substitute products Low - This is a niche market that offers expansion opportunities as technology continues to develop.

12 Porter’s Five Forces Analysis Chart—Automotive Manufacturing Industry Threat of new entrants High because of the costs involved in startup, research and development and labor. Bargaining power of buyers Low - With demand for new vehicles high and the market still recovering from the Covid- 19 Pandemic, bargaining power for consumers in low. Bargaining power of suppliers High - since this is an industry that consumes a large amount of raw materials, they have bargaining power to reduce the cost of these materials. Threat of substitute products Medium - EVs are increasing in demand but the current cost of production creates a higher price. Rivalry among existing competitors High because the 79.9% of the market share is owned by 5 very competitive major players.

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13 References Al Bari, S. (2023, January). Southern New Hampshire University . Hybrid & Electric Vehicle Manufacturing in the US. https://my-ibisworld-com.ezproxy.snhu.edu/us/en/industry- specialized/od4516/industry-at-a-glance#key-statistics-snapshot Alliance for Automotive Innovation. (2023). Driving the U.S. economy . Driving US Economy and Innovation | Alliance For Automotive Innovation. https://www.autosinnovate.org/initiatives/the-industry Marine Engine Market to Grow Worth USD 14.51 Billion by 2027 | Fortune Businesses Insights. (2023, February 10). Plus Company Updates , NA. https://link-gale- com.ezproxy.snhu.edu/apps/doc/A737107475/GBIB? u=nhc_main&sid=ebsco&xid=ddf2ce1e Marine Industry. (2023, February 3). BOATING MARKET & INDUSTRY TRENDS 2023 . Boating Market & Industry Trends 2023. https://www.dockmaster.com/blog/boating-market- industry-trends-2023/#:~:text=The%20boating%20market%20and %20industry,contributed%20to%20the%20market’s%20growth. MarineMax.com. (2023). Investor relations . MarineMax. https://investor.marinemax.com/overview/default.aspx Molnar, C. (2020, March 27). 9 automakers who tried their hands at Boats | Driving . www.driving.ca. https://driving.ca/features/feature-story/9-automakers-who-tried- their-hands-at-boats

14 Pantalon, M. (2023, April 18). Automobile Engine & Parts Manufacturing in the US . IBISWorld.com. https://my-ibisworld-com.ezproxy.snhu.edu/ Software, D. (2023, February 3). Boating market & industry trends 2023 - dockmaster . DockMaster Marine Software. https://www.dockmaster.com/blog/boating-market- industry-trends-2023/ Thomas, Brigette. (2023, January). Southern New Hampshire University . Boat Dealership and Repair in the US . https://my-ibisworld-com.ezproxy.snhu.edu/

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