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Acquisition of Kia Motors

Essay by   •  May 26, 2013  •  Research Paper  •  3,750 Words (15 Pages)  •  829 Views

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Abstract

The purpose is to determine whether General Motors should go through with an acquisition of KIA Motors. Some of the methods that are used are Porters 5 forces for the industry analysis and analyzing financial data to determine the profitability of the acquisition. Based on the methods used, KIA Motors would be a worthy complement to the GM business goals and will bring further profitability to GM and KIA. This acquisition would change the dynamic of the auto industry and since KIA is owned by Hyundai, a Korean company, this would shift a prominent demand to an American company. This will help bring not only profitability to GM but also will create more jobs that the US is seeking to create.

Company Introduction

General Motors was founded in 1908 by William "Billy" Durant in Flint, Michigan. General Motors originally started by acquiring the Buick Company, But within years, more than 20 companies were acquired, Oldsmobile, Cadillac, and Pontiac which was previously known as Oakland.

Sometime between 1910 and 1929, General Motors acquired Chevrolet to pursue diversification. It was during this time that factories outside the United States were opened. The company had been so successful up until after the war that when the smaller imports were starting to emerge into the United States economy, General Motors had a hard time changing direction easily. The United States dominance for General Motors has begun to erode.

The management team has always tried to stay in the forefront of technology and develop new innovations in the car industry.

In June of 2009, General Motors filed for bankruptcy in the United States. With the help of the United States Treasury a new General Motors Corporation emerged in July of 2010. More than 70 percent of General Motors sales are now produced from the countries of China, the United States, Brazil, the United Kingdom, and Germany.

Target Company Introduction

The company Kia motors, is a South Korea based company, formed in 1944 it first manufacturer bicycles and industrial products, and then later on become a manufacturer of trucks and automobiles. Kia gets its name from the Chinese characters Ki, meaning to "arise or come up out of" and a, referring to Asia. So when put together, Kia means to "arise or come up out of Asia" However, Kia Motors has emerged as the driving force behind the Korean motor vehicle for the last six decades, laying this has been the country's first automobile as well as Korea's first automobile export. Nevertheless, it was the second largest automobiles in Korea until couple years after they had decided to enter into the U.S. automobile market in 1992 with the formation of subsidiary Kia Motors America, then later on Kia merges with Hyundai in 1998. Now that Hyundai KIA Group is the fourth largest car company in the world. It also has plans to grow the network to support the increasing demand.

In today's economy consumers along with Kia who has high expectations than ever before. Which makes Kia's goal much more, now that Kia would like to become one of the top 5 car brand in the world now they would have to put out a lot, by using their core identities which are vibrant, distinctive, and reliable. In order to achieve this status they must increase their market share, both fleet and retail, and in order to make this happen a break through into the corporate fleet needs to happen and they would have to sell over 100,000 cars a year.

In recent years, Kia has aggressively participated in strategic adds on

acquisitions to complement the firm's investments in the automobile world. Through the combination of investments in four nationally recognized companies, primarily through management buyouts to fulfill platform and strategic add on acquisitions for the firm formed with other company. With Kia being acquire by GM would be such a winner on both sides. This will send stock price through the roof especially for Kia

Industry Analysis

Threat of New Entry

In this time and age, it is very easy for new businesses to enter an industry's market and try to compete with a company that has already been renowned. The auto industry is not an exception. It faces an even more intense competition as newer and more forceful strategies are being developed. There are, however, key factors that give the old timers a definite gain over the new entrants.

1. Economies of scale

Being one of the leading motor vehicle manufacturers in Korea, Kia has achieved a large economies-of-scale that gives it a distinct advantage over new businesses in its industry. General Motors has been around since 1908 and is now the world's leading automaker. Both companies are backed by performance and activity experience, which means that they have already discovered and perfected the best ways to produce cars at the lowest costs. Together, these two automakers will have a huge advantage over new comers. New entrants will undoubtedly have higher production costs because they have a smaller economies-of-scale. Economies of scale, according to the OECD Glossary of Statistical Terms, refers to the phenomenon where the average costs per unit of output decrease with the increase in the scale or magnitude of the output being produced by a firm.

2. Product Differentiation

Kia manufactures and sells a wide range of automobiles from commercial vehicles to passenger cars to recreational vehicles. It also develops various new technologies that it expects to use in the manufacture of eco-friendly cars such as the hybrid-electric vehicles (HEVs). In 2011, the Morning (Picanto) and the Pride (Rio) both won in the 2012 red dot design competition. Kia has six research and development centers and three operation hubs. That is a huge advantage over new entrants therefore the threat is low.

3. Capital Requirements

New entrants are confronted with a large capital investment requirement. The overhead costs such as rent, payroll, etc., in developing an auto company are substantial. Probably one of the most important and most expensive capital investments for the new entrants is the cost of research and development. Angel investors are still available but with all the established car companies such as General Motors and Kia Motors, the angel investors may become hesitant in giving up a sizable amount of money into a venture that is yet to show a viable product. Once the product is created, the new entity has to buy parts and

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