Credit Analysis for Auto Spare Parts Company

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Credit Analysis

Instructor: Dr. Hisham Tabsh

Credit Analysis by:

Mahmoud Abboud

Najib Awar

Fall 2008


SPIT is a Business family that was established 35 years ago by the father and now distributed among his 4 children. The company is Involved in the trade of auto parts: European, Korean, Japanese operating from a Headquarter of area 800m2 (offices & warehouses) in addition to another warehouse of 400m2. As per our interviews with “Zaim Company” & “Hussein Berro Company”, these companies helped us in our assessment of the SPIT managerial performance and for industry and market risk. Industry risk:

We begin first by assessing the industry risk as it has its pros and cons as every other industry. Pros:
• Auto spare parts are not of a perishable nature and can be stored under regular conditions • Different range of prices from the cheap non-original Chinese to the original parts • Different sources and countries to get the products

• It’s a necessity product if you own a car
• High profit margin in the retail sector and especially in the used spare parts • The presence of new models and new technology
• Customer loyalty is heavily present in this kind of business Cons:
• Shipping cost and different currencies
• Large number of dealers
• Requires huge warehouses
• Marketing and advertisement are not involved
• Word of mouth in Lebanon could highly affect a store’s reputation • Probability of outdated inventory because of the new coming car models Market risk:
Industry fragmentation:
The market is not dominated by single players or monopolist, but it’s highly shared by many suppliers for the time being. This division is due to the diversity of sources and countries that are involved in such kind of industry

This kind of industry is a bit cyclical where it rises in the summer especially with the incoming of the tourists where car rental experience a high boost during this period thus resulting in car accidents or malfunctioning of the cars. Its worth mentioning that this sector is elastic with the economy behavior. Competitors:

1. There’s no main competitor in this kind of business but some illegal small stores that doesn’t pay taxes or rents could act as competitors for the legal stores. 2. Suppliers that imports from china, turkey, Taiwan and other countries could beat the prices of the original European or Japanese spare parts. 3. Chinese products having very low prices at nearly the same quality and design competing with the original products. 4. The exclusive agencies are one of the most competitors especially for the new spare parts. Macroeconomic trends:

1. political circumstances highly affected the industry negatively by lowering the purchasing power of individuals 2. Since this kind of industry is highly involved in trade and import/export, currency fluctuation would affect it. 3. Interest rates could also affect borrowers by encouraging or discouraging them to import from abroad 4. Licensing allows only sole agents to deal with a specific trademark in one market. Company’s risk:

1) Pros:
a) The company is operating for more than 35 years allowing it to build strong relationships with many key suppliers and customers and strong foothold in the market b) Is engaged only in new and original products targeting middle/ high class social society c) The company has its loyal customers that feel comfortable and prefer dealing with it d) Entity has continuity where the sons inherited the business from their father e) Subject is a well organized company having two warehouses, a good number of staff and specialized managers. 2) Cons:

a) Highly indebted
b) The company isn’t involved in Chinese products that are invading the market and targeting mid and lower-class people. Evaluation of the management:

The Spare Parts Import & Trade co. management is...
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