Beifang Chuang Ye Vehicle Group

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Beifang Chuang Ye Vehicle Group

• Philip Senyonga
• Nigel Duquette
• Xiaozhe Yan
• Yuying Du
• Shengjie Ding
• Siva Sivappiragasam
• Kevin Mahendran

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Agenda

• Company Background
• External Environment
• Internal Environment
• Dilemma and Problem
• Options
• Recommendations
• Conclusion

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Company Background

• Comprised of 14 companies, operated in Northern
  China
• Previously a crown corporation, now privatized
  with only 10 government holding
• Main business
• Three taxi service companies
• One car rental service company
• An automobile association
• An advertising company
• A vehicle importer
• Three automobile dealerships
• Automobile repair company
• The three dealerships were all 100 privately
  owner

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Dealership Division

• Beijing Munitions
• Largest dealership within the company
• 90 employees
• Sold and serviced four brands of vehicles
  manufactured in China
• Volkswagen, Citroen, Jeep, and Jin Bei
• North Zhi Xing Car Trade Company
• 20 employees
• Sold imported cars
• Volkswagens and Audis
• Qun Xing Car
• 70 employees
• Sold domestic vehicle brands from locations in
  the Changan area in the Northeast of China

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External Environment

• Economy
• Quite healthy and keeps jumping high in Beijing
  area
• Industry
• Backbone Industries auto industry, electronics
  and machine tools
• Government emphases reduce energy consumption,
  water consumption, and material consumption
• Growing Auto Competition
• Attract many other dealerships entering the auto
  market
• Chinas optimistic trend of entering WTO and the
  Price War
• Social/Cultural
• Increase in disposable personal income
• Increase in demand for personal cars
• Improved living standards have led to greater
  environmental concerns
• Beijing's air quality regularly ranking among the
  worst cities in the world

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External Environment Contd

• The New Regulation Hurts The Company
• On Jan 1, 1999, Municipal government of Beijing
  mandated a new vehicle emission control standard
  that all passenger vehicles sole to be equipped
  with a fuel injection system instead of old
  carburetor system
• Improved emission system, more precise, easier to
  adjust, and more consistent
• Better efficiency, gas mileage, engine
  responsiveness, and pollution control

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Internal Environment

• Ownership
• 100 is owned by private investors, mostly by
  Ming Zhous family.
• Structure
• More of Centralized
• Size
• Relative large in China
• Strategy
• Selling imported domestic vehicles
• System
• Compensation Plans

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Internal Environment Contd

• Compensation Plan
• Net profit was primary performance measure
  tracked within Beifang
• All of the dealerships were profitable, grew at
  20 or more annually
• Incentive compensation pool was created on the
  companys net profit performance
• Each companys general mangers earn about 2 of
  the companys total net profit, if the target is
  achieved

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Calculation of bonus pool

• 
  

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Dilemma

• Did not anticipate change in legislation and
  company was unprepared
• Government would not register any vehicles that
  did not meet the new emission standards
• Beifang had no vehicles that met the new
  standards
• Sales fell to zero in January and would not have
  any cars till March to sell

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Problem

• Problem Should Ming Zhou continue operations and
  if not what action be take to reduce impact
  towards employees.
• To Consider
• How can they cover losses?
• Should wages move down to government mandated 500
  yuan per month?
• Would have to pay unemployment rate of 300 yuan
  per month if layoff and possibility they would
  find alternate employment?
• Should external factors affect compensation of
  personnel?

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Severity of Problem

• Beifang should continue operations
• Very profitable, minimum 20 earnings growth
  annually
• Holding group can cover the losses
• Compensation plan new year bonuses can cover one
  month base salary

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Option 1

• Temporally layoff all the employees for 1 to 2
  months
• Pros
• The company will save money more than half
  million yuan in that period
• The company will be able to rehire only those
  employees it will need when operations resume
• Cons
• The Company will be required to have severance
  package of 300 yuan per month
• It will lose its most talented employees

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Evaluation of Courses of Action
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Option 2

• Keep employees, decrease salary to half for
  everyone at a period of 1 to 2 months
• Pros
• Employees would feel secure about their job
  positions and talented employees will be kept
• Employees get paid half of the salary with doing
  little work
• Cons
• The Company has to pay approximate 250 thousand
  yuan for salaries
• Some employees may not willing to bear the loss
  from uncontrollable factors

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Evaluation of Courses of Action
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Option 3

• Keep the employees at their base salary but no
  incentives until March
• Pros
• Employees are motivated
• Low possibility for employee turnover
• Cons
• No Revenue, no work but employees are paid

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Evaluation of Courses of Action
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Recommendation

• Decided to choose 3rd option
• Why?
• No employee turnover
• Employee satisfaction
• Retaining the human capital
• Factors above outweigh the cost factor
• Expecting other companies help to recover from
  the current turmoil
• Higher sales expected once sales begin from
  motivated employees

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Conclusion

• Since Beifang Chuang Ye was very profitable and
  reputed in car sales, they can easily recover
  from this unfavorable condition, we believe our
  recommendation will benefit the company greatest
  in the long run.

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• Questions?