Chapter 13: Cost Planning for the Product-Life Cycle Allegro Automotive The auto

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Chapter 13: Cost Planning for the Product-Life Cycle Allegro Automotive The automotive industry has been beset with various challenges and Allegro Automotive(AA) headquartered in Italy was experiencing the same impact on its line of electric vehi with product development, cost efficiency, materials purchasing markets. In 2017, these problems caused the worst sales slump in decades and the luxury car maker lost money for the first time in history. Since then, AA has streamlined the core business, reduced parts and system complexity and established simultaneous engineering programs with suppliers. cles. AA struggled and problems in adapting to changing In their search for additional market share, new segments, and new niches, AA started developing a range of new products. New product introductions included a variety of vehicles, most of these being electric. Perhaps the largest and most radical of AA's new projects was the Correre. In 2017, AA announced that it would build its first passenger vehicle-manufacturing facility in the United States. The decision emphasized the company's globalization strategy and desire to move closer to its customers and markets. The United States recently enacted legislation which provided significant tax benefits for the development of alternative fuel vehicles as part of the Make America Great Again Tax Act of 2017 AA used function groups with representatives from every area of the company (marketing, development, engineering, purchasing, production and controlling) to design the vehicle and production systems. A modular construction process was used to product the Correre. First-tier suppliers provided systems rather than individual parts or components for production of approximately 65,000 vehicles annually The Correre Project Phases The Correre moved from concept to production in a relatively short period of time. The first phase, the concept phase was initiated in 2016. The concept phase resulted in a feasibility study that was approved by the board. Following board approval, the project realization phase began in 2017, with production commencing shortly after. Key elements of the various phases are described next. Concept Phase Team members compared the existing production line with various market segments to discover opportunities for new vehicle introductions. The analysis revealed opportunities in the rapidly expanding luxury sedan area that was dominated by Tesla, Lexus and Mercedes-Benz. Market research was conducted to estimate potential worldwide sales opportunities for a high-end sedan. A rough estimate was developed that included materials, labor, overhead and one-time development and project costs. Projected cash flows were analyzed over a 10-year period using net-present value (NPV) analysis to acquire project approval from the board of directors. The sensitivity of the NPV was analyzed

Explanation / Answer

Competitive enviornment faced by AA as it considers launching the correre

There were many issues in front of AA. Product development with cost efficiency, Purchase of materials and issue is adapting to changing markets worldwide were few of them. Apart from these, Project and manufacturing costs may differ from actual projection cost. Consumer may choose to buy another AA product instead of Correre and Monetary exchange rate fluctuations,

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