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Status *€“ quo, at the end of September 2009, Peter Arnell must cope with this situation:
sales have suffered a sharp decline of 19%; third consecutive year of losses, now
accumulating more than $ 1 million a month. Simonne Buis(EVP Europe)wants to reduce
costs, build scale and increase efficiency and wants that all country operations to achieve a
10/10/10 plan and the Top Four in Four; Dan Briggs(CEO)wants capital use reduction,
costs control, profitable growth post-recession products. The future of Clayton SpA, is in
Arnells hands. He fixes a manufacturing conference and a marketing conference. Three
options are highlighted: 1) Revitalizing the compressor chiller line, carrying on the Italian
operations and a marketing plan to expand market share outside Italy; 2) Funding a major
plant in Spain for producing absorption chillers; 3) Wait and watch approach. We will
analyze pros and cons for all of the options and we will end a conclusion.
Option 1). The estimate costs of doing it, is about $5 million mostly in the first 12 months.
This is completely not in line both with the CEOs direction of reducing the capital usage,
and with EVPs direction of slashing costs. At the first half of 2009, the company is losing
large sums of money, equal to the eye-popping $24.2 million; only Clayton SpA, -$6.7
million (Exhibit 2). This measure, given the already worryingly unstable financial
conditions, could deal the blow through, pushing the company to the brink of the precipice.
Namely into bankruptcy. A further consideration would suggest that, spending this money
for revitalizing the compressor chiller line, it seems an odd decision, since this is
something that should already have been done in the pasts. The more than $1 million
monthly losses are primarily attributable to the sharp increase of steel price (+ 27%): this
increase would still affect the company even if we invest money in the revitalization. In
fact, even with a particular new design or a new product line, we will still need steel.
Again, the steel costs could not be recouped due to foreign competitors aggressive pricing.
Also here, we would not be able to compete with the Asian low prices because of higher
manufacturing costs also considering the fact that *€“ following this option- we would
have invest $5 million and thus, for this reason, we would never be able to compete on
price, otherwise we would not being able to repay that sum if we fix price too low. An
