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Tenneco Automotive (TEN) |
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WIKI ANALYSIS
Company Overview
Tenneco Inc. is a leading auto parts supplier to leading auto manufacturers such as Ford, General Motors, Volkswagen, Chrysler, and many other companies. Tenneco also serves the aftermarket, selling to over 500 different customers to sell on the aftermarket. Most of their products fall into two different categories, emission control and ride control. Tenneco is a global company with a true worldwide presence with over 80 manufacturing plants worldwide. In 2009 Tenneco Inc. celebrated its tenth year as a standalone company.
Business Segments
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OEM
[1] - Tenneco’s major business segment is the OEM market where they sell to almost every car manufacturing company. Demand for products in the OEM market is dependent on the number of vehicles produced by these automotive companies. In the OEM market many of the vehicles produced may contain some of Tenneco’s products and Tenneco’s goal is to add to that number of products in each vehicle. Tenneco produces OEM products for a category of vehicles called light vehicles. The light vehicles segment includes cars, SUV’s, CUV’s, van, and light truck. The light vehicles segment is growing at a steady pace but Tenneco is optimistic about increases of growth in emerging markets. Forecasted sales in 2011 for light vehicles are up 5% compared to the 2010 sales. Emerging markets have seen some drastic sales increases over the past few years. In the Asia Pacific region Tenneco has seen overall sales increase 28.5% from 2008-2010. With income levels and populations increasing in these areas auto sales should continue to increase to record setting levels benefitting sales of Tenneco’s automotive products. Sales of Tenneco’s OEM products constitute just over 80% of total revenues while the aftermarket products make up the rest of the revenues. With many OEM companies following a green initiative Tenneco is strategically placed to provide these companies with their Emission Control products. These Emission Control products are offered to 41 of the top car manufacturers and are in use in seven of the top ten light truck models used in North America.
Porters 5 Forces
Threat of New Entry
Low: While many companies compete in this industry, very few hold most of the market share. Entering into the auto parts industry is difficult for many different reasons. Startup companies have very little credibility with the auto manufactures as they look for larger, better know companies to do business with. They look to these larger companies partially to relay to customers that they are using quality products. Another hurdle startup companies must clear is federal regulations on car parts. Getting these licenses can be a tedious process, and by the time they may get their licenses their technology may already be outdated.
Bargaining Power of Consumers
Moderate: The main consumers of the auto parts industry are the large car manufactures of the world. During many of these companies recent financial struggles these companies started to look for ways to cut costs. Renegotiating with auto parts manufactures seeking lower prices on products was a way for them to cuts costs. Auto parts manufactures are in a strong position also. Few companies control most of the market and they produce a vast array of products to fit different vehicles. The car companies could go to smaller manufactures for auto parts, but they have long standing relationships with the larger parts manufactures and do not want to strain these relationships.
Threat of Substitute Products
High: The auto parts industry is highly competitive and many of the large companies produce many of the same products. These products can easily be exchanged for another brand without much change in quality or price. Another recent trend mostly in the aftermarket segment are counterfeit products in emerging products. In a 2007 study produced by Ford they estimated that counterfeit products cost auto parts suppliers 1 billion dollars annually.[2]
Bargaining Power of Suppliers
Moderate: The auto parts industry supplies products to many different auto manufactures. These manufactures may have long standing contracts with the auto parts suppliers keeping prices and quantities of auto parts at a consistent level for the length of the contract. The auto parts companies can negotiate contracts for themselves but they run the risk of being underbid by another company selling a similar product.
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That hits the target dead cnteer! Great answer!
lol Form 10-K, Income Statement]</ref> [3] Tenneco’s financial strength also comes from their returns on assets and equity. They have a relatively moderate ROA of 6.37% in 2010, but their ROE is an unbelievable 193.85% in 2010. With their financial looking strong, Tenneco looks hopes to have greater growth through penetration of new markets.[4]
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