business finance car

business finance car

The Impact of Business Finance on the Car Industry

1. Introduction to Business Finance in the Car Industry

The data that are presented to illustrate the points about business finance in the car industry are taken from the corporate histories of leading German and United Kingdom companies. These histories have been chosen as company study subjects because, in part, the companies did not fail completely. Their histories are good, and they exhibit a number of goals and purposes related to business finance and management. The business philosophy, the company strategy, and objectives, the interrelationships among the company, its owners, and its company structure are not one-dimensional. Many people have a variety of reasons for holding equities in the car industry.

The introduction has outlined the curriculum to be covered. The content of the paper that follows will result only from the text and diagrams. The paper says nothing about methodology, econometric models, or hypotheses to be tested. The technical tools are not available to make the paper a testing exercise.

The car industry, whether financed by local or foreign entrepreneurs, successfully produced cars that could be sold at high prices. These sales represented substantial value and permitted the money borrowed for car production to be repaid. It is curious, therefore, that so many car companies have suffered from financial difficulties. What this paper is about is the relationship between business finance and the car industry. What are the factors that have determined the successful or troubled business operations?

Businesses are managed through effort and funds. The use of the money in a business does not stop with the acquiring of the assets needed for production. Investments are determined by the expected income that they will bring in the future. The process of financing investments, therefore, is related to income expectations. The level of income generated from the assets has to cover not only depreciation but also interest payments.

2. Key Financial Concepts and Strategies in the Car Sector

This chapter provides a practical overview of the main spending – or capital allocation – decisions taken by car manufacturers and a theoretical review that critically assesses common corporate finance tools and strategies for several different stakeholders in a variety of circumstances. Companies have essentially three main spending decisions to make: Intensify production of existing products, invest in new products, or reduce operating costs. These three possibilities provide the funds that support the company’s business model, moderate overhead, moderate capital expenditures, and allow the company to grow and create stakeholder value.

This chapter provides an overview of the main spending – or capital allocation – decisions taken by car manufacturers. It is written from the viewpoint of the company and not from an investor’s perspective. It gives a practical insight into the main concerns of the company’s management. Section 3 looks behind the numbers to debate corporate finance theory and its application, whilst Section 4 applies key financial concepts to strategic issues concerning mergers and international investment. Section 5 assesses the relative financial performance of car companies at the national level on the basis of Tobin’s q, and then at the company level using the main value driver model variables. Finally, Section 6 reviews the chapter and explains how understanding corporate finance can help not only executives, but also policy makers, analysts, and other stakeholders.

3. Case Studies: Successful Financial Management in Car Companies

The experience of a second French company clarifies the crucial role of available finance in the assertion of multinational independence in the car business. The absorption of Citroen by Peugeot has made financial control and marketing concentration of the independent, post-war Citroen company almost unobtainable today, given the competitive position of the principal EEC competitors on which Citroen depended in its efforts to reduce over-exposure to France itself. And this dependence had become dangerous because a big part of the company’s share capital was tied up in the result of its acquisition of an important share interest in Maserati. At a time when Renault is bristling with success and has just broken the mold with its propulsion of the Alpine filiation in the world of Formula 1 racing, it is fascinating that such an irreversible commitment rung treason to itself. However chauvinistic the business leaders of America’s BFGoodrich might be accused of having been in the company’s disastrous acquisition and later disposal of a much-enlarged European business, such a situation could not personally worry finance and industry journalist Rohin Antia of Business Week, who remained vigilant in warning the community at large and the board itself that “l’operaton vente morte for BFG represents no small coup in salvaging $10 of value from what seemed like a sure loss. (Except for size, the deal is indeed closely paralleled by Rio Tinto’s averted disposal of its alumina operations, while developing BHP and Pasminco’s respective alumina interests; and as such, it has been difficult for shareholders themselves to argue that BFG’s board might not have preferred to write off their relative shame; that the disposal left a depleted enterprise constitutionally unable to replicate the total roll-up strategy earlier conceived by Mr. Richard Makepeace, former chairman of Town and Industrial, which had seen the compilation of an apparently disjointed group in the metal-bashing industry into a $300m copper division; that the capital being recycled might have been better left as deferred tax; or alternatively rolled up with BFG’s existing pharmaceuticals and containers and packaging interests to take advantage of other competing corporate sans citoyen statements emphasizing the value of broad-based synergistic diversification as a material protection against profit instability).

Renault appears to be one of the few car companies that has done a good job of safeguarding the wealth-producing function by retaining a strong degree of multinational control over an essentially independent network of marketing operations. When compared with financial institutions in general, Renault’s average degree of debt-equity and interest-cover may stand out as modest. As this study has shown, these statistics can reflect less-than-optimal financial management. Another point of note about Renault is its consequent high rate of return on shareholders’ funds and an ever-solidifying basic balance sheet position. In this era of fever-pitched competition, it is remarkable that these strengths should be felt to derive from the retention of extensive and diversified financial resources devoted to activities that nourish the product life cycle by ensuring the potential for the production and successful marketing of keenly priced products that hold their own internationally.

4. Innovative Financial Technologies in the Car Industry

When people talk about innovation in the car industry, we usually remember autonomous cars, connected tools, electric vehicles, and mobility. They all rely on technologies that drive the advent of strong computational, data, and communications capabilities. But the car industry not only concerns products, car services also involve a complex plan and set of models concerning costs, revenues, and profits. Also, the car industry’s solid structure relies on financial and credit systems for final consumers’ purchasing capability. Currently, we perceive a growing blended way of financial and technologies acting in the car business. The earlier investigations on this association showed an important relationship between car industry entrepreneurial profitability depending on their characteristics of leverage, growth, car output, innovation, prospects of business, and bank credit. This core relationship has evolved as financial systems and financial service characteristics have developed by the evolution of customers and credit negotiation preferences.

In recent years, various financial technologies have slowly but surely accompanied and affected the car industry. Credit scoring and decision-making is one specific field where finance and the car business are really blending. With cost and time efficiency in mind, car industries are programmed using big data applications to really modulate the scoring system. The coming age of digital cars can foresee the real-time generation of data for analytics. Technology facilitates remote management of cars and also leads to the emergence of new distributor banks, as current car retailers can know all the credit data and consumer behavior in real time. New technologies act as a bridge between the traditional financial sector and the emergence of credit contracts with certain information, bringing these contracts closer to the classic loan versus the automobile itself.

5. Future Trends and Opportunities in Car Business Finance

The challenges facing the motor industry in the first decade of the 21st century will determine whether these trends continue in forthcoming years. The rise of globalization has increased pressure to meet customer expectations and requirements and has led to the development of new technologies, a diversified world market, and increased risk. Furthermore, globalization, vehicle loans, personal contract plans, rental solutions for motor cars, innovative designer technology, brand image, and future feasibility are new, extraordinary, and influential business trends and opportunities for motor industry business finance.

The global motor industry is one of the most profitable industries in business history with recent developments in technology and finance. In the motor industry, business finance has an impact on the production, each of the processes involved in production, the retailing, and after-sales services for motor car dealerships. It is closely associated with economic science and has evolved throughout the history of business.