solve all

Exhibit 5 Breakdown of Imported Original Equipment Auto Parts by Country-of-Origin Volume, 2003 Volume, 2004 Percentage of Percentage of (US$ billion) (US$ billions) Total (2004) Growth from 2003 U.S. OE Parts Market 104.4 95.0 59.5 (9.0) Parts Imported from Canada 15.7 17.0 10.7 8.3 Mexico 15.8 17.6 11 11.4 Japan 11.4 13.0 8.1 14.0 China 1.7 2.4 1.5 41.1 All other countries 13.1 14.6 9.2 11.5 Source: Office of Aerospace and Automotive Industries, U.S. Department of Commerce, "U.S. Automotive Parts Industry Annual Assessment," March 2007, http://www.ita.doc.gov/td/auto/domestic/2007 Assessment.pdf, accessed January 2008 Using data from the Wanxiang case please calculate CAGR for the OEM segment in the United States from 2004 to 2006. (Hint: Use Exhibit 5 to get data). O 10.77% 13.59% 7.35% There is insufficient data in the case Using data from the Wanxiang case please calculate CAGR for the OEM segment in the United States from 2004 to 2006. (Hint: Instead of using Exhibit 5 as you did in the previous question please use data from page 5 of the case). -1.13% There is insufficient data in the case O 1.13% O 7.35% as accessories. OE parts accounted for about 70% of the production in the United States. In 2005, almost 75% of Wanxiang's business structure was dedicated to delivering OE auto parts.15 The size of sales in the global auto-parts aftermarket was estimated to be $504.9 billion in 2006, reflecting a compound annual growth rate (CAGR) of 2.2% during the five-year period spanning 2002-2006.16 While the auto industry in the United States was facing constant downward pressure due to higher costs of source materials, lower sales, and stiffer competition, the aftermarket business was able to maintain positive growth rates due to the consolidation in the market, which produced economies of scale, and the fact that people were holding on to cars longer and therefore demanding replacement parts.The U.S. accounted for 37.7% of the global market for aftermarket auto parts. (Exhibit 2 shows a breakdown by value of the global auto-parts aftermarket.) In 2005, Wanxiang, which expanded production beyond universal joints to include other parts such as suspension systems, shock absorbers, exhaust systems, brakes, hub units, and constant-velocity joints, had aftermarket sales that accounted for almost 25% of its business. 18 (Exhibit 3 details Wanxiang's product line). In 2006, the value of auto-parts exports from China had topped US$8 billion, with more than half of the product going to the United States.19 U.S. car manufacturers employed just-in-time (JIT) processes that carried zero inventory in their assembly lines. This business model not only allowed the manufacturers to put the inventory risk in the domain of the parts suppliers, but it also forced additional production risk on the suppliers when product specifications changed. Knowing that offshore suppliers were improving in their technical know-how, the Big Three encouraged their U.S. parts suppliers to shift their production overseas to achieve further cost savings. For example, Superior Industries International Inc., a manufacturer of aluminum wheels based in Van Nuys, California, was told by General Motors and Ford, which combined 85% of the company's $840 million annual sales, to lower its prices to match those offered by Chinese suppliers. The company's president, Steve Borick, recalled, "It's presented very simply. This is the price we (General Motor and Ford) are getting for this product. Close that gap no matter how"20otherwise they would source it directly from China or find a North American supplier who would do so. Eventually, Superior started making wheels in China to maintain its profit margin. The OE market in the U.S. amounted to $184 billion in 2006.21 Delphi, previously owned by General Motors, was the largest supplier in the North American market, generating over $16 billion revenues from the U.S., Canada, and Mexico. Visteon Corporation, a former subsidiary of Ford, was also a top supplier, whose 2005 annual revenues from North America reached $9.7 billion. (Exhibit 4 compares the Top 10 OE suppliers from North America.) Both Delphi and Visteon were facing great financial hardship amid high operating expenses caused by increasing fuel prices, production cuts from their customers due to overcapacity, and high interest rates. More importantly, the hourly wages for U.S. workers on assembly lines making components such as electric-wire cables, small motors, brakes, and suspension systems averaged $22.50, and made it difficult for the U.S. suppliers to compete with low-cost producers in places like China where a worker was paid around 90 cents.22 To make matters worse, U.S. suppliers also had to continue to pay wages to its laid-off staff. For example, Delphi paid 95% of the monthly base pay up to a maximum of $40,000 for almost 4,000 workers it had laid off.23 After losing $4.8 billion in 2004 and another $750 million in the first half of 2005, Delphi filed for bankruptcy in October 2005.24 Visteon, on the other hand, fared better when its former parent, Ford, arranged a $3 billion bailout plan. The company was able to transfer most of its hourly-wage and salaried employees to another company held by Ford. As a result, Visteon lowered its average hourly labor cost from $37 to $17, while its staff in Mexico became its primary production base with 56% of its global workforce.25 The Big Three were increasingly sourcing raw materials and components from offshore locations. In 2004, $64 billion (approximately 34% of total) of OE parts used in vehicle production in the U.S. were imported, representing a CAGR of 7.3% since 1997 (Exhibit 5 shows a breakdown of imported Exhibit 5 Breakdown of Imported Original Equipment Auto Parts by Country-of-Origin Volume, 2003 Volume, 2004 Percentage of Percentage of (US$ billion) (US$ billions) Total (2004) Growth from 2003 U.S. OE Parts Market 104.4 95.0 59.5 (9.0) Parts Imported from Canada 15.7 17.0 10.7 8.3 Mexico 15.8 17.6 11 11.4 Japan 11.4 13.0 8.1 14.0 China 1.7 2.4 1.5 41.1 All other countries 13.1 14.6 9.2 11.5 Source: Office of Aerospace and Automotive Industries, U.S. Department of Commerce, "U.S. Automotive Parts Industry Annual Assessment," March 2007, http://www.ita.doc.gov/td/auto/domestic/2007 Assessment.pdf, accessed January 2008 Using data from the Wanxiang case please calculate CAGR for the OEM segment in the United States from 2004 to 2006. (Hint: Use Exhibit 5 to get data). O 10.77% 13.59% 7.35% There is insufficient data in the case Using data from the Wanxiang case please calculate CAGR for the OEM segment in the United States from 2004 to 2006. (Hint: Instead of using Exhibit 5 as you did in the previous question please use data from page 5 of the case). -1.13% There is insufficient data in the case O 1.13% O 7.35% as accessories. OE parts accounted for about 70% of the production in the United States. In 2005, almost 75% of Wanxiang's business structure was dedicated to delivering OE auto parts.15 The size of sales in the global auto-parts aftermarket was estimated to be $504.9 billion in 2006, reflecting a compound annual growth rate (CAGR) of 2.2% during the five-year period spanning 2002-2006.16 While the auto industry in the United States was facing constant downward pressure due to higher costs of source materials, lower sales, and stiffer competition, the aftermarket business was able to maintain positive growth rates due to the consolidation in the market, which produced economies of scale, and the fact that people were holding on to cars longer and therefore demanding replacement parts.The U.S. accounted for 37.7% of the global market for aftermarket auto parts. (Exhibit 2 shows a breakdown by value of the global auto-parts aftermarket.) In 2005, Wanxiang, which expanded production beyond universal joints to include other parts such as suspension systems, shock absorbers, exhaust systems, brakes, hub units, and constant-velocity joints, had aftermarket sales that accounted for almost 25% of its business. 18 (Exhibit 3 details Wanxiang's product line). In 2006, the value of auto-parts exports from China had topped US$8 billion, with more than half of the product going to the United States.19 U.S. car manufacturers employed just-in-time (JIT) processes that carried zero inventory in their assembly lines. This business model not only allowed the manufacturers to put the inventory risk in the domain of the parts suppliers, but it also forced additional production risk on the suppliers when product specifications changed. Knowing that offshore suppliers were improving in their technical know-how, the Big Three encouraged their U.S. parts suppliers to shift their production overseas to achieve further cost savings. For example, Superior Industries International Inc., a manufacturer of aluminum wheels based in Van Nuys, California, was told by General Motors and Ford, which combined 85% of the company's $840 million annual sales, to lower its prices to match those offered by Chinese suppliers. The company's president, Steve Borick, recalled, "It's presented very simply. This is the price we (General Motor and Ford) are getting for this product. Close that gap no matter how"20otherwise they would source it directly from China or find a North American supplier who would do so. Eventually, Superior started making wheels in China to maintain its profit margin. The OE market in the U.S. amounted to $184 billion in 2006.21 Delphi, previously owned by General Motors, was the largest supplier in the North American market, generating over $16 billion revenues from the U.S., Canada, and Mexico. Visteon Corporation, a former subsidiary of Ford, was also a top supplier, whose 2005 annual revenues from North America reached $9.7 billion. (Exhibit 4 compares the Top 10 OE suppliers from North America.) Both Delphi and Visteon were facing great financial hardship amid high operating expenses caused by increasing fuel prices, production cuts from their customers due to overcapacity, and high interest rates. More importantly, the hourly wages for U.S. workers on assembly lines making components such as electric-wire cables, small motors, brakes, and suspension systems averaged $22.50, and made it difficult for the U.S. suppliers to compete with low-cost producers in places like China where a worker was paid around 90 cents.22 To make matters worse, U.S. suppliers also had to continue to pay wages to its laid-off staff. For example, Delphi paid 95% of the monthly base pay up to a maximum of $40,000 for almost 4,000 workers it had laid off.23 After losing $4.8 billion in 2004 and another $750 million in the first half of 2005, Delphi filed for bankruptcy in October 2005.24 Visteon, on the other hand, fared better when its former parent, Ford, arranged a $3 billion bailout plan. The company was able to transfer most of its hourly-wage and salaried employees to another company held by Ford. As a result, Visteon lowered its average hourly labor cost from $37 to $17, while its staff in Mexico became its primary production base with 56% of its global workforce.25 The Big Three were increasingly sourcing raw materials and components from offshore locations. In 2004, $64 billion (approximately 34% of total) of OE parts used in vehicle production in the U.S. were imported, representing a CAGR of 7.3% since 1997 (Exhibit 5 shows a breakdown of imported