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Business Case ReportCarsales LtdNovember 2020Word Count: 1475Executive SummaryCarsales Ltd. (Carsales), is an automotive and technologies company with a goal of maintaining an online marketplace to help facilitate the sale of different forms of transports in the automotive industry. When Carsales wa...

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Carsales Business Case Report 2020 |

Business Case Report Carsales.com Ltd

November 2020 Word Count: 1475

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Carsales Business Case Report 2020 |

Executive Summary Carsales.com Ltd. (Carsales), is an automotive and technologies company with a goal of maintaining an online marketplace to help facilitate the sale of different forms of transports in the automotive industry. When Carsales was founded in 1997 by Greg Roebuck (current non-executive chairman of Carsales) and Wal Pisciotta (former Chairman), the idealistic vision for the company was to drive sales and develop world leading technology through advertising solutions that allows for the organisation to drive business around the world. Since the early years of the 21st century, Carsales (since 2009 came to be known as Carsales.com.au after being listed on the ASX Stock Exchange) have made several acquisitions and investments as to further the company’s financial portfolio and organisational developments. However, a look at Carsales’ performance for 2020 has illustrated that internal performance was thoroughly affected by the pandemic.

COVID-19’s outbreak earlier this year has significantly affected the financial performance of multiple different organisations worldwide and has create a decline specifically for organisations that operate within the sales division. As so, this report aims to provide a prospective analysis of where Carsales.com Ltd currently stands in terms of operations and management. Different tools and forms of data will be utilised to identify a balance in terms of the company’s current weaknesses and strengths and as so, provide a projection of what actions may be undertaken for the organisation to bounce back from this pandemic. The main focus will be on Carsales’ performance within Australia and not any other countries, and projections will be in the form of recommendations as forecasting is an unstable and nonstationary process especially given the state of Australia as a nation currently.

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Consumers across the globe over the course of 2020 have faced severe health and financial concerns with mobility being somewhat still restricted in Australia. Many car dealerships have been forced to close down and the market of car buying continues to plummet. From a global perspective, places like China, the U.S. and Europe have plummeted in automotive sales by 71%, 47% and 80% respectively illustrating the pandemic’s effect on all forms of automotive sale on an international level (Furcher et al., 2020).However, a closer look at Carsales’ financials for the year ending September 2020 showed sales of 811,464 vehicles which in itself is a decline of only 21.8% in comparison to September 2019 (Carsales, 2020). As so, there is a positive outlook on the direction of Carsales post COVID with the company’s chief executive Tony Weber ensuring that they are able to handle the big issues through planning of different economic factors (Costello, 2020).

SWOT Analysis In modern times, problems faced by an organisation is resolved through strategic planning as planning is a method that demonstrate a company’s productivity and also its ability to set out goals for achieving purposes (Gürel & Tat, 2017). There are various frameworks that analyse a company’s strategic position with one of the most straightforward methods being the SWOT analysis. A SWOT analysis is very effective due to its ability to present an internal and external perspective of an organisation’s position, fitting the requirements needed to outline Carsales’ current operational and managerial performance (Hill & Westbrook, 1997). An accumulation of the company’s strengths, weaknesses, opportunities and threats allow for initiatives and strategies to be developed based on these foundations that assure the competitiveness and attractiveness of an organisation (Dyson, 2004). A SWOT analysis conducted on Carsales is outlined below:

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Porter’s Five Forces Being a centric tool to the heart of management and business strategy, the Porter’s Five Forces framework aims to simplify micro-economic theory into five major influences, with the centre of ‘competitive rivalry’ being a function of the other four forces (Grundy, 2006). This tool involves the continuous process of environment scanning and monitoring, and additionally acquiring forms of competitive intelligence over present and potential rivals to respond to volatile and disruptive movements in the market (Indiatsy et al., 2014). Why this tool will provide for a good analysis of the automotive market is through its ability to dictate perspective, which aids with the forecasting and projection required to provide the recommendations needed for Carsales.com Ltd. Through analysing current industry profitability and attractiveness from an outsider perspective, this will reduce the effects of perceptual biases that may arise if insider knowledge was prevalent in using Porter’s Five Forces (Dälken, 2014). 1. Threat of New Entrants Entry into the automotive industry requires huge investments with costs such as distribution networks, manufacturing facilities and hiring of qualified staff detaining companies from seeking entrance into this market. The automotive sales market will hence require even more of an established reputation because companies looking to enter this market will not only require enough money for the said investments but also a foundational partnership with different automotive companies, which is necessary to function the supply chain of any sales industry (Rezaei et al., 2018). Carsales.com Ltd has in the past been able to manage all of these challenges and have additionally been able to safeguard its competitive edge through implementing effective barriers as to do so. Hence, the threat of new entrants can be evaluated as: Weak 2. Bargaining Power of suppliers Carsales has been able to build a strong and efficient supply chain with multiple suppliers, as demonstrated through its reputation of being Australia’s number 1 car website and through the partnerships formulated with a multitude of car suppliers. The bargaining power of suppliers in the automotive industry have somewhat of an edge on car selling companies such as Carsales but it only reaches a certain extent. The suppliers of significant size hold 5|Page

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more power due to their brand reputation and ability to rely on other form of sales, illustrating the low difficulty level for them to change suppliers. These will include big brands like Toyota, Ford and BMW who have strong reputations. However, majority of the brands partnered with Carsales are quite small, lowering their negotiating power to extract higher prices from Carsales. The ratio of big to small automobile suppliers and their reputation indicates that the bargaining power of suppliers is: Relatively Weak

3. Bargaining Power of Buyers Generally in the automotive sales market, buyers are made up of small, one-off individuals that buy single vehicles. As so, such car buyers are in a position to bargain for lower prices as they have high market power that allows for push prices downwards, with the easily available option to switch to another supplier (Slater and Olson, 2002). This power can put pressure onto Carsales’ profitability in the long-run through the customer base’s ability to seek increasing discounts and offers. The bargaining power of buyers is therefore: Strong

4. Threat of Substitutes Competitors are significant forms of benchmarking enabling management to always be on their toes to increase efficiency and effectiveness of service (Indiatsy et al., 2014). The threat of a substitute product or service is relatively high if there is a value proposition that is uniquely different from the present offerings in said industry. However, in the automotive industry, there are not really any other forms of unique services to be provided. And the consideration of other substitute methods of transport available whether it be buses, trains or even taxis do not offer the accessibility and convenience that comes with owning an automobile. Daily commuters may find it cheaper and easier to use these forms of alternative transportation but majority of citizens in Australia are car owners with Finder.com stating that 92.5% of households own a car (Figure 1).

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Hence, the threat of substitutes is: Weak

Figure 1: Finder.com statistics on Cars in Australia

5. Competitive Rivalry in the industry Carsales operates in a very competitive software and services industry as the customer base is very bound to car buyers and existing players such as Carsguide and DoneDeal aiming to attract as many customers from each other as possible through unique services and products. Additionally, all companies will have suffered in profitability as a result of COVID19 illustrating their drive to improve profitability in the upcoming year. All forms of improvement and aggressive investing will become prevalent in these firms whether it be more research and development, marketing or overall customer experience, as to grow sales and the customer base. As so, the competitive rivalry in the industry is: Strong

Both concepts from Porter’s forces demonstrate capacity to drive Carsales’ profitability in the opposite direction post-COVID. Hence, it is crucial to tackle these issues through recommending actions the organisation can take to deprive potential setbacks.

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Recommendation 1: Integrate actions to tackle Buyer Power Carsales can approach strong buyer power through: -

Constructing a large customer base which will reduce customer’s potential bargaining power as well as streamline the sales and production process for Carsales. Customers often seek discounts which only come from their ability to leverage competitors and other options available.

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Formulation of new partnerships and introducing new cars from current partners will also limit buyer power due to an increased competitive edge on other car dealerships. New products and partnerships demonstrate Carsales’ initiative to invest in its customer base even after a profitability decline.

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Based on one of the strengths demonstrated by Carsales, they should continue to offer their plethora of services to tailor to their customer’s needs from the dealerships they currently have open.

Recommendation 2: Integrate actions to tackle Industry Rivalry Carsales can approach strong industry rivalry through: -

Strong product differentiation. This is already demonstrated through the scale of products available from Carsales but post-COVID the organisation should look to research into upcoming automobiles that customers are looking to invest in.

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Potential collaborations with other competitors in the automotive industry. Collaborations may not be an ideal initiative but it will subdue the rivalry that exists in such a small market. It demonstrates that Carsales would rather increase the market size than compete in the small market.

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Continue with public announcements from management about company performance and direction to reinsure Carsales’ customers and suppliers. This gives an edge on competitors as their reputation is not big enough for them to project announcements regarding financial position.

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Conclusion The pandemic has affected Carsales’ revenue and profitability negatively in Australia. However, the organisation has room to flourish post-COVID if Carsales tackles the issues they may arise from external environments. Its customers and competitors are able to leverage the profitability decline publicly known about Carsales. Hence, the company should look to follow the recommendations outlined in this report to foster a strong customer base and also manage the rivalry between other car suppliers in the industry.

References Costello, M. (2020). Q&A with Tony Weber, CEO of the FCAI peak car-industry body. CarExpert. Retrieved from: https://www.carexpert.com.au/car-news/qa-with-tony-weberceo-of-the-fcai-peak-car-industry-body Dälken, F. (2014). Are Porter’s five competitive forces still applicable? A critical examination concerning the relevance for today’s business (Bachelor's thesis, University of Twente). Dyson, R. G. (2004). Strategic development and SWOT analysis at the University of Warwick. European journal of operational research, 152(3), 631-640. Furcher, T., Grühn, B., Huber, G. (2020). How consumers’ behaviour in car buying and mobility is changing amid COVID-19. Mckinsey. Retrieved from: https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/howconsumers-behavior-in-car-buying-and-mobility-changes-amid-covid-19 Grundy, T. (2006). Rethinking and reinventing Michael Porter's five forces model. Strategic Change, 15(5), 213-229. Gürel, E., & Tat, M. (2017). SWOT analysis: a theoretical review. Journal of International Social Research, 10(51).

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Hill, T., & Westbrook, R. (1997). SWOT analysis: it's time for a product recall. Long range planning, 30(1), 46-52. Indiatsy, C. M., Mucheru, S. M., Mandere, E. N., Bichanga, J. M., & Gongera, E. G. (2014). The application of Porter’s five forces model on organization performance: A case of cooperative bank of Kenya Ltd. Rezaei, J., Ortt, R., & Trott, P. (2018). Supply chain drivers, partnerships and performance of high-tech SMEs. International Journal of Productivity and Performance Management. September VFACTS: COVID-19 continues to plague the market (2020, October 5). Carsales. Retrieved from: https://www.carsales.com.au/editorial/details/september-vfacts-covid-19continues-to-plague-market-126610/ Slater, S. F., & Olson, E. M. (2002). A fresh look at industry and market analysis. Business Horizons, 45(1), 15-22.

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