Comm 101 – September 11
CLASS 2: MARKETING MEETS ACCOUNTING
Please go to the Comm101 library page* and pre‐read the following articles
1) Read: Detroit is still stuck in the 1950s
• “Too bad just about everything else about their products seems stuck in the 1950s, or
• Ford Model T (1908 and 1927) 25 miles a gallon
2004, average fuel economy of the Ford fleet (cars, light trucks- SUVs) was 23 miles a
• US, the first gasoline-powered car hit the road in 1893. More than a century later, basic
design remains unchanged. Internal-combustion engines are still the standard means
• Cars may be faster, safer and equipped with concert-hall sound systems, but
they're still a highly inefficient and highly polluting form of transportation.
• North American International Auto Show in Detroit, GM unveiled Sequel
o Powered by hydrogen fuel cells and batteries, water vapour is its only tailpipe
o First hydrogen car with the range (about 500km) and performance of a gasoline-
powered car. A version of it could be in production by 2010.
o Has the potential to "remove the automobile from the environmental debate."
o "It's doable, but not affordable," GM boss Rick Wagoner said. o Fuel cells cost as much as small houses. There is no hydrogen infrastructure
anywhere; of the 175,000 filling stations in the United States, only two dozen sell
o The truth is, the Sequel and its kin are more hype than reality.
• Almost every year, GM, the world's biggest auto maker, introduces alternative-fuel
o In late 1990s, it produced the EV-1, a battery-powered car that flopped because it
had a short range and took forever to recharge.
o Hydrogen cars, Autonomy and Hy-wire, each promised a transportation and
environmental revolution. Each vanished.
• Japanese virtually own the market for hybrid cars, which are powered by a combination
of batteries and a small gasoline engine and consume roughly half as much fuel as
o The Toyota Prius hybrid is so popular that Toyota cannot keep up with demand
• Biggest advances in design, engineering are the result of government edict, not
• US – needs: productivity, product quality and reliability to match Japanese, fuel efficient,
lower healthcare costs and employee pension, the will and imagination (innovation)
• Japanese – more innovative
o Honda Accord: sensible, reliable, fuel efficient
2) Read: Detroit seeks health‐care refit
• Consider: Why did healthcare costs soar?
• growing pool of retirees as their work forces shrink, soaring U.S. health-care costs
• reduce costs for auto makers – may lead to more production outside the US
• Ford paid $3.2-billion in health-care expenses for employees, retirees and dependants in
o An astonishing $2.2-billion of that went to retirees. • General Motors spent $4.8-billion in 2003 to cover 1.1 million people – more than
cost of steel
• DaimlerChrysler AG paid out $1.9-billion to 181,000 employees and retirees in 2003.
• Health care adds $1,400 to the cost of every vehicle it makes in the United States.
o Healthcare – 15% of the US GDP
• Toyota/Honda/Nissan -newer assembly plants, no retirees, substantially lower health
• Some other big industries (eg steel) eliminated costs by going under bankruptcy
protection, take over by new companies that pay no health-care benefits for retirees
Notes: Why did healthcare soar?
• Supply and demand
o Increased healthcare expenditure on aging baby bloomers, more retirees
o Overwhelming supply of physicians and hospital facilities
• Obesity – 1/3 of population, large number of hospital admissions
• Cost of technology, new specialty pharmacy drugs and medical devices
• Legacy costs – associated with “deals” that were made in previous years which create
a liability for the future
o Previous contract which included health care benefits
• This cost will not go away and it is enormous on a ‘per vehicle basis’
• Bankruptcy – government stepped in
3) Read: SWOT analysis
• Environmental factors internal to the firm – Strengths or Weaknesses
• External to the firm – Opportunities or Threats
• Analysis of the strategic environment – SWOT analysis o Info to help match firm’s resources and capabilities to the competitive
Strengths – develop a competitive Weaknesses – absence of certain
• Patents • Lack of patent protection
• strong brand names • weak brand name
• reputation • poor reputation
• cost advantages from proprietary • high cost structure
• lack of access to resources
• exclusive access to high grade
natural resources • lack access to key di