Piaggio case 1 resumen

2010 LALS
Case: Piaggio
Summary: (Year 1996)
• Piaggio was best known in Italy and throughout the world for the creation, in 1946 of the Vespa Scooter. In 1956, the Vespa was the best-selling scooter in 114 countries and was built under license in Belgium, Brazil, Britain, France, Germany, India, and Spain.
• A lack of focus within Piaggio had placed it close to bankruptcy during the 1980s,when it had expanded into everything from robots to car mats. Competition from Japanese manufacturers intensified, and by 1993, Piaggio’s financial position was negative, with an annual loss of $60 million; however, under a new leadership, by Giovanni Alberto Agnelli a.(32 years), the company began to turn around into a gain of $11 million in 1995.
• By 1996, Piaggio was again the leadingscooter manufacturer in Europe, capturing 45% of the estimated $2.8 billion European scooter market and 32% of the European two-wheeled vehicle market. But it was fourth worldwide behind Japanese manufacturers (Honda,Yamaha, Suzuki).

In this highly competitive environment, Piaggio faced the decision of whether to invest in
a new engine plant. The plant would produce “green” engines designed to meetincreasingly stringent regulatory requirements. Although the plans for the new engine plant were in place, Piaggio managers continued to wonder if sales of the engine would bring a sufficient return for their time and investment.

Note a. The Agnelli family was the owner of Piaggio as well as FIAT.
Industry and Market Overview
Market:
• Product sector: Powered two-wheelers (PTWs) ,scooters, mopeds, ( an inexpensive alternative to automobiles) , light and large motorcycles.
• Demand:
o Size of the market worldwide in 1996 : 14 million vehicles per year (mopeds and motorcycles ).
 Europe : 12% (1,7 millon units)
• Asia : Asia 80% . (11 millon units). China : 30 % ( high potential growth market.) Japan: 10%. (1995)

• Forecast : By the year 2000, the world market wasexpected to grow to more than 18 million vehicles. This growth was expected to take place entirely in China and Southeast Asia, while European demand was expected to remain steady. 1996 was expected to be a year of strong growth for the European market .
• Trends :
o There were two main forces driving the resurgence of the scooter market. First, increased gridlock in many major cities madethese vehicles the first choice for many commuters. Second, classic scooter models held great fashion appeal. Mopeds and small motorcycles (including scooters up to 125cc) were targeted toward teenagers and urban commuters.
o The product life cycles in Europe have become very short. Fast-changing customer preferences, which mandated increasingly broad product ranges and faster productintroductions.
• Changing Market requirements: By the year 2000, the European Union was expected to implement new requirements that would include changes in the areas of pollution and emission standards. Industry experts agreed that the availability of an affordable green engine would shape competition in the next 10 years. Several manufacturers were making plans for the production of these engines.
•Production:
o EU firms were considered only moderately sized, compared with Japanese firms and could not have competitive costs due to structural overcapacity. Japanese firms have cost advantages and large-scale production in order to justify an automated engine plant. (Minimum requirement 400.000 units per year) .
o Most suppliers within the EU were small firms that did not have the productionefficiencies of larger firms; higher costs were transferred to end manufacturers, damaging their global competitiveness.
• Competitors:
Piaggio:
• Market (1996 ) :
o Market Share: 32% of the European two-wheeled vehicle market.
o Leading scooter manufacturer in Europe with 45%. With sales of $1.3 billon.
o Fourth worldwide behind Japanese manufacturers Honda, Suzuki, and Yamaha.
o High...