Cameron auto case study

Cameron Auto Parts was founded in 1965 to take advantage of opportunities created by the Auto Pact (APTA) of 1965 between the United States and Canada. The APTA allowed for tariff-free trade between the Big Three American automakers and parts suppliers and factories in both countries provided that the companies maintained assembly facilities on both sides of the border. Cameron Auto Parts focus was primarily on small engine parts and auto accessories such as oil and air filters, fan belts and wiper blades manufactured as original equipment parts (OEM) based upon design specs created by the Auto manufacturers and then sold these parts to the auto makers.

Alex Cameron took over the business in 2001 and was immediately met with a financial crisis. Sales in 2000 had dropped to $48M from $60M in 1999 and were only $18 million for the first six months of 2001. Losses were recorded in 2000 and 2001. This profit loss was primarily due to declining auto sales of American cars and trucks and the increased presence of Japanese automakers. Cameron’s only defined “strategy” before Alex was just making whatever parts the Big Three told them to make. This is not a strategy, this is just following orders. There were no processes in place for new product diversification and Alex decided that the company needed to change the company strategy to include product diversification if they were to regain the success they once had. Alex Cameron felt that expansion into product design was essential for the long-term survival of the firm. In mid-2001, Cameron took the steps necessary to design and develop its own parts line. Alex then hired four design engineers (on his own) and, even though his management team considered them unsuccessful, he then hired a way a key engineer from a Canadian firm to head up the design team. By 2003 the team came up with a flexible coupling idea that would entice international buyers and not just the Big Three automakers.

The couplings seemed like a good fit as there was a market for them that was not being sufficiently met and the couplings had a high market price with little in the way of customer service leaving the door wide open for Cameron. However, Cameron was faced with the dilemma of how to market and sell the product. Projected sales of the new product in 2004 were between $35 and $40M but there were concerns with capacity. The decision had to be made if it was better to expand current facilities, buy/ build a new facility, or license the fabrication of the product to outside companies. Alex went to check in on a local customer, McTaggart Supplies, Ltd, who convinced him that the flexible coupling product was in high demand in the U.K. and that more production was necessary to keep up with the demand. Alex decided at that meeting that Cameron would exclusively license the production of the flexible coupling to McTaggart in order to gain a stronger foothold in the U.K. for relatively little up-front investment. Following Hambrick’s “Diamond Model” we can see that Alex’s Arenas were automotive, flexible couplings and foreign markets.

We can also see that Alex used the vehicle of licensing to accomplish his diversification and his differentiators were quality, speed of delivery and service. However, Alex failed to finish his strategy and did not outline the staging or economic logic sections of the model. I believe that several conclusions can be made from Alex’s decisions. A few problems arose from the final decisions Alex made with regards to expanding the market into Europe. Firstly, Alex did not involve any of his managers in his discussions or in the final decision. A discussion amongst his managers and design team would likely have been very beneficial in coming up with a complete strategy and given his personnel a larger sense of worth. It could be said that there was minimal risk due to the contract being only 5 years in length and no upfront costs but 5 years is a long time to live with something if you’ve really made a mess of it. Secondly, Alex himself admitted he had no idea what a reasonable royalty fee should be and should have investigated this before entering into discussions with McTaggart. The equivalent royalty to reach export profits (16.67%) would have been (100/176) * 0.1667 * 100% = 9.47%, far above the agreed upon rate but possibly unrealistic. I do not know that answer any more than Alex did because I haven’t investigated it either.

Alex was trying too hard to be the boss and didn’t rely on other people who would have the knowledge of the system and one week of “investigation” does not show very good leadership. Even if he did get a reasonable deal with McTaggart he likely damaged his reputation with his management team by not utilizing them in the decision making process. Other possibilities existed that were not investigated include a joint venture/wholly-owned subsidiary, selling through an agent, selling through a different distributor or at the very least investigating what deals could be had with other distributorships with regards to licensing. I believe Alex was on the right path but he tried to take on to much himself and did not have a clear path towards his goal. My personal opinion is that he just got lucky but most risked profit potential by his arrangement with McTaggart by not investigating other alternatives.