Cars

Google car

Almost ten years ago, my prediction was, in next ten years neuro dynamic programming language will receive more adoption and become a common computer programming language. Variance in my prediction and actual result is significant. Recent announcement of unmanned car from google is very encouraging that my predication will become a reality one day.

In simple words, in machine learning field, there are two types of learning. Supervised learning and un-supervised learning. Unsupervised learning is a type of learning which  makes a  system to learn in dynamically changing  environment.  Neuro dynamic programming language concept is based on unsupervised learning type.  Whereas, supervised learning are widely used in voice recognition (in your voice phone directory at office), face recognition and etc. Techniques like neural network, Bayesian learning are used in supervised learning.

Q-Learning, Dynamical programming are some of the techniques available in unsupervised learning. It is a method used by humans  to learn and the framework is very simple. In a dynamic environment, the sequence of events are random and an action for the random events is taken. A feedback (reward) for the action is received and based on the immediate and long time reward of the action taken for the random event, a weight is assigned to the action. Based on the exploration and exploitation strategy of the system, weight assigned to the action in the past for the random event, the action is repeated if the same or similar random event happens.

In the current computation paradigm, programming logic is deterministic. In the future, deterministic logic is not sufficient in computation.  A car that uses set of techniques to drive itself will be used to learn about that specific car. At any given time, for a given VIN, all the necessary details about the car will be available. It applies to all entities including humans.

Captive Finance Stability Analysis – A simple model

 

As an IT strategist/Enterprise architect in a corporate America, understanding the cash position and cash flow prediction enables to align the IT strategy to support the over all business strategy. Generally, the business strategy, cash position and cash flow position are provided to IT from controlling or corporate finance or business strategy team.

I wondered, how difficult to study survivability, sustainability, stability of a captive finance and came up with a simple model. The model is broken into sub model and the attachment provides the details on the first sub model. The sub model provides the projection of available fund, accounts payable and accounts receivables.

Please click the excel to view the raw data of the model. Please go to “Results” tab to see the projection of the account’s portfolio.  The excel can also be downloaded from google doc. (Few columns were hidden just to ensure the better reporting)

In  scenario #1, the cash and fund flow of the captive company is shown.  If the general administration cost of the company is 1% of its accounts receivable, then company is not going to sustain in next 36 months for the given initial condition (accounts payable and recivable).  The payables are increasing, receivables are decreasing and fund reaches near equilibrium (steady state). This company will not survive in long run unless the G&A is reduced significantly.

In simple words, the company is spending too much of cash in administrating the loan portfolio. Company must quickly react and for a captial investment company, the company is not attractive unless investment company is an expert in reducing and managing G&A and use this projection as a good negogiation tactics for best bargain. 

In scenario #2, the operating loss of the company is 1% of accounts receivable. There is no HOPE for the captive finance company in scenario #2. The net loss of the company is increasing expoentially. Atleast in scenario #1, there was a hope. The company will incur losses only after 12 months and it can be turned around if the company quickly react to it.

Capital Investment company should not consider the company in scenario #2. The company already bought too many bad papers and it can not be reversed.  It is unmanagable risk unless the external factors like economical growth minimizes the credit losses and residual risk. A miracle need to happen for this company in scenario #2 to survive.

In scenario #3,  the company is paying the debts  aggressively. Company is not circulating the money to offer new loans. The company has a very strong balance sheet. If the company is planning to put themself for a sale, this approach given in the scenario #3 will attract more captial investment companies. For the captial investment companies, the company sits on high equity and steady fund flow. This is a good scenario if the company decideds to shut down (or run down) the business in next 36 months and make huge profit. If you are an employee and if you work for the company in scenario #3, better you float your resume since the company will close the doors after 36 months after making huge profit. There is no investment made in this scenario #3 for growth.

In scenario #4,  the company has very low operating losses, manageble operating expenses (G&A) and has a right mix of investment and payback strategy for both future and debt holders.  The company will be making profit for next 36 months and if the trend continues, the company will be in business for long time.  If you are employee working for this company, make more retirement investment with company’s option/plan. If you are captial investment company, buy this company to thrive. This scenario is a win-win scenario for all stakeholders, investors, management, employees, debt holders.

Auto finance is almost a trilion dollar industry. I believe the companies will be interested to buy a software to study the company status in long run given current situation and various scenarios.

Please post your suggestion on developing a software for this purpose will have scope in auto finance industry market..

iPod of the car industry

Few years ago, when I saw iPod for the first time, like many, I was stunned for its design, simplicity and quality. I had at least 5-6 different cell phones in my life and each of the cell phone manual was around 150 pages and when I got the iPod few years ago, the manual for that iPod was 2 pages. When I brought up this to my close friends during my Sunday chat sessions, some of them argued with me that iPod  and cell phone functionalities are different and hence the significance in the manual size. Those friends were speech less when Apple came up with iPhone.

I was wondering, why Sony did not come up with something similar like iPod. They dominate this market for so long and why they were not the first one to come up with something similar to iPod.

After some study, as I understand, most of the Japanese companies use the Japanese management style in all strategic and operational management. The key approach, as I understand, Japanese management style is more on consensus building. If there are 5 members in a team, all of them HAS to agree on the direction, approach, next steps before an action is taken. It makes a fundamental assumptions that all the 5 members are subject matter expert and kind of have an idea of the future prediction through approximation.

Obviously this management style is to limit the agility, innovation and time consuming. Statistically, this style proven to produce better quality products. In other hand, quick to market approach management style is proven to be more innovative but lack quality.

In Walter Chrysler biography, Chrysler stated one of main reason for his success and innovation was: make quick decision ,observe the results and adapt instead of taking long time to make a decision and realize it was not the right decision. Historically Chrysler company proven to produce most innovative car product in the car industry. Walter Chrysler management style is other spectrum of Japanese management style.

It appears, based on the recent JD power survey and consumer reports, American cars quality have been improving a lot but long way to go. They are on the right track. Particularly, Ford has been producing high quality product with best fuel mileage in last year. Like Ford, if the other American car companies figure out a way to drastically improve the quality of their product AND keep the innovation which has been in their roots they are going to produce the iPod of the car industry.

I wonder, the Japanese car companies are making any adjustment to their management style to be more innovative to achieve what Sony failed to do so.

Captive Financial Business cloud

Let us say a company FinCo is to provide captive financial business services (BPO – Business Process Outsourcing) to smaller banks or credit unions, the implementation of the service delivery can be hosted in the cloud and can be sold as a business cloud or implemented in the cloud depends on the FinCo’s business model.

The various captive financial business services that can be provided as the business cloud:

  • Captive financial business process management – Develop a standard business life cycle and design & implement the business processes in the cloud. The standard captive financial business processes can be extended for the customized business processes for each bank or credit union customers or even a captive financial
  • Score card development – The major pieces are FICO score (almost 350+ attributes) and internal credit model
  • Base Residual Risk model for the collateral (car)
  • Base Pricing Model – Based on the company’s score card , residual risk of the collateral (car) and marketing strategy
  • Loan origination – (From customer inquiry to discounting/booking the loan in the portfolio system)
  • Floor planning – (whole sale inventory management, insurance, consignment, electronic fund transfer and etc)
  • Remarketing (after market life cycle)
  • Asset based securitization

Note: This page is used for google’s page rank emprical analysis. The links will be created based on the random graph created.  This is node #6 which has the key word:  xysivabodzinyx , xysivabodzinxy . As per the graph, it links to page 5

Bright Future for Auto-Industry

Simplifying a complex problem by breaking into small solvable parts and using knowledge learned in a driving school during a fatal accident are simplification and abstraction techniques widely used in a practical  world. Have you ever noticed the behavior of a person during  a fatal accident? During an accident, provided the person is not seriously injured and able to think to their capacity, the capacity (volume) and capability (strength) of the person is fully utilized to face and over come the situation. The capacity, capability and the effective utilization of it during the crisis or fatal accident increases exponentially.  If some one deeply think about why most of the people become effective during the crisis is due to extreme focus the brain forces itself to get over the situation. That is ultimatum for some of existing meditation techniques and the same reason why some of the adventures sports like rock climbing are very attractive. It is a kind of enforcement mind brings to mind itself. But at the same time, mind does not perform the strategic analysis  to its best during the crisis mode and that is the same reason why the best supreme court lawyer hires another lawyer when they face a crisis.

How this is relevant to current auto industry?

Well, GM and Chrysler both have had faced a separate fatal accidents.  Both are utilizing their capacity, capability and utilizing it effectively. When it comes to survival, as Maslow theory in the management suggests, your basic needs becomes top most priority and enlightenment are out of focus.  The decisions and execution made in last few weeks generally would have taken decades in their corporate culture. Executive management totally understand how to move forward. With assistance with auto task forces, concessions with unions, agreement with debtors ,reduction in  dealer network, dropping a brand, focus on fuel efficiency and quality  are good signs for a great recovery.

Why a great recovery waiting for them?

Four years ago, US market sold 17.5 Million units per year. This year, industry is struggling to sell 10 Million units. The average car age in America today is 9 years old.  Car purchase is the second biggest purchase a consumer would make after the American dream of owning a house.  Consumer confidence is the key and it is and it will continue to gain slowly for next 9 months and rapidly after that.  The credit market is far better than it was 6 months ago with enough capital infusion to credit market. Introducing better credit standards, oversight and governance, the credit market is stabilizing. The moment a person believes their jobs are safe, the consumer confidence in stock market, retail purchase, credit market will raise and the consumer is going to donate their 10 years old car to charity and buy the fuel efficient (Hybrid, Diesel, Electric) car. Both GM, Chrysler are making tough choices now and getting  ready to meet the huge market demand in 18 months.

Until then, sit tight and be part of the touch choices and move Detroit to new 2011++ future.

Yes I hear you.., I have not written a blog for almost a month.. that is mainly due to my last few weeks focus on completing  the graduate course on Linear Algebra. I had my finals yesterday and thinking about, should I take Dynamical Systems and Choas theory in summer. It will definetely help to model the current economical situation!!!

Big 3’s Product & Pricing Strategy for Cross over

Last Friday, I had a fatal accident. Miraculously no body was seriously injured. I was waiting (moving slowly 10-15 mph speed) in the traffic on the freeway and a pick truck  rear ended me at the speed of  75-80 mph.  This is the second time (first time, a deer came infront when I was on the freeway)  I had a serious accident and this time also He sent help along with the accident. Immediately (within less than 2 mins) after the accident, a medical doctor,a fire fighter and a moral supporter (he works for GM) were knocking my car’s door and made sure I was fine. They were travelling 2 -3 cars behind me and they noticed the accident live in their naked eye.  All of them were surprised I was alive after the accident.  My cross over and his pick up truck were totaled.  I thought none of our air bag went off. But, when I got the accident report from state police, his air bag went off.  I’m back in the market to buy a replacement car.

I utilized this opportunities to study the big 3‘s brand,product and  pricing  strategy. Generally, I try to reverse engineer a company’s strategy by observing and studying their product line, pricing, people, customer services and etc. I would say, my success in the reverse engineering the company’s strategy is Trader’s Joe.  If you are strategy person, you can easily paint their company’s strategy by looking into their unique product line, people in their store and their key differentiators.  I tried to reverse engineer the big 3 product and pricing strategy for the cross over product and compared it with other major automotive.

When I did this study, I had my consumer hat with strategist eye, architect’s view and  project manager’s approach.  My entire findings very well could become a  M.B.A (Corporate Strategy) capstone project. I summarize it in the blog a high level executive version.

Requirements:
Cross over – 6 or 7 seater with high safety rating, leather seat, dvd navigation, iPod integration, 40 gb Hard disk, Phone,  and decent mileage around 20 mpg in high way.

General Motors:

GM has following major division operated in North America:

and Luxurious product

(I’m ignoring their product line like Holden in Australia , Daewoo in South Korea, Opel in Europe, Vauxhall in UK)

Surprisingly all of their division except Hummer has a cross over product.  I made an assumption, that I decided to buy a GM cross over and explored how GM  product line is helping me (motivated and committed consumer)to make my choice. By going over their cross over product from buick, chevy, gmc product web site, I could find one major differences between all these products. Their product names are different. Other than that, I could not identify any other difference in their features offering. There is no differentiators among these products.  I was so confused. I wanted to compare their pricing

GM Cross Over Pricing:
All of these product pricing are in the same price range. A fully loaded Buick is same as Cadillac. Saab, Saturn price spill over to each other. There are too many choices to the buyer with no differentiators.

It is clear that each division within GM is competing with other divisions within GM. I don’t know when these strategy worked successfully. In this web 2.0 and 3G world, even the enemies in the battle field collaborate on common problems.  I don’t know competing internally really is a good strategy. Wasting their energy fighting internal. Instead focus that energy to fight your real external competition.

Conclusion:

  • GM’s individual brand strategy does not appear to be aligned to the over all GM’s corporate strategy
  • GM Cross over product strategy – Neither it is too cumbersome  to reverse engineer it nor there was no cross over product strategy from GM company stand point
  • GM Pricing Strategy – No differentiators among their products. Their pricing spill over between their products. 
  • Confuses the consumer who decided to buy a GM product.

Ford

After Ford’s recent sale of Jaguar and Landrover division to Tata motors, Ford product line is not as complicated as GM. It has the following division.

  • Ford
  • Mercury
  • Volvo

Luxurious product division:

  • Lincoln

Ford division itself has following cross overs.

  • Flex
  • Edge
  • Taurus X

Mercury & Volvo also have cross overs products.  Volvo is utilizing the web 2.0 for the product marketing. They use youtube, twitter, flicker, for their cross over product to create a user community and make them feel good that they own the volvo product and allow the owners to freely collaborate.  It provides insight to Ford/Volvo that what are the problems being faced by the current owners and can be taken into the future models. It also helps Volvo on the preemptive    by closely monitoring the problems faced by current Volvo owners. Great Concept.

Conclusion:

  • Ford’s brand strategy is better and it will become best if they could find a buyer for Volvo.
  • Ford’s Cross over product strategy – It is not straight forward to reverse engineer it. It appears they have cross over product strategy from Ford company stand point. There is a differentiators  in the style, product feature and appearance. There are lot of room for improvement. They still need to make tough choices to streamline the cross over product within the company. Over all in each product line, there should be only three products. Low end, middle ground and high end. They are not there but close.
  • Ford’s cross over product Pricing Strategy – All the cross over products in Ford is in the same price range.
    • Fully loaded Taurus X price is same as the low end Lincoln. There is a price spill over between products.

 

Chrysler

There are three brands under Chrysler.

Since Chrysler announced that they are stopping Pacifica, Durango and Aspen I’m not taking those products into consideration. It means, there is no cross over product Chrysler Brand within the Chrysler LLC company. Pacificais the piooner in the cross over product space and it is unfortunate it will not be continued. I believe the key reason for pacifica not be successful in the market is due to the initial pricing was too high and product/pricing strategist were targeting agains Lexus. It must be a tough decision for Chrysler to stop the great product. I, personally love Pacifica and when I drew it for couple of years in 2004/5 and I made my own sticker and had it at the back of the car. “Pacifica is great and we love it”

Dodge Journey is the only cross over product in the Chrysler product portfolio. Jeep, Grand Cherokee is close to a cross over but it is a SUV.  Fully loaded Dodge Journey comes around $35K.

Conclusion:

  • Chrysler’s cross over product strategy is the best among big 3.
  • Need differentiator (like fuel efficiency or unique style, uconnect is not enough to differentiate )
  • Chrysler’s cross over product Pricing Strategy needs re visitation.  The base price is in correct range.   The fully loaded Dodge Journey price is high.

When I compared the big3’s product,brand and pricing strategy with Honda’s strategy. It is easy to draw a conclusion. If I decide to buy Honda cross over product, as a consumer, I have three choices with clear differentiator. It has CRV, Pilot and Acura’s luxurious RDX & MDX.  There is slit spill over in the price range between Pilot and Acura. It is easy to pick a product from their line if someone decides to buy Honda.

Performing all this study, I bought the same vechicle I had before and this is the thrid time I’m leasing the same vechicle but this time it is clean diesel bluetec technology.