the company specializes in engines and transmission parts

Scenario:
Problem-Based Learning (PBL) Scenario:
AutoEdge
AutoEdge is a leading national automotive supply
company located in Detroit, Michigan. Founded by Jonathan McAlister in 1976,
the company specializes in engines and transmission parts and has been
supplying products to the three largest U.S.-based automakers for over 30
years. AutoEdge’s name is known by customers and leaders in the automotive
industry for quality, dependability, and reliable products. In fact, despite
the extra cost that is added to the automobiles, consumers appreciate the
AutoEdge brand name and often make purchases because of it.
In 2005, AutoEdge’s board of directors decided
that the company needed to make some drastic changes because of the high cost
of labor, rigid American regulations, and increased competition from other
engine and transmission part suppliers. Their solution was to gradually close
all manufacturing operations in Detroit and begin outsourcing to a well-known
factory in South Korea. The board reasoned that this change would allow the
company to compete with the growing industry, meet the automotive manufacturing
demands, and increase company profits. Some board members were skeptical about
the move, however, because AutoEdge had built a reputation for high-quality,
detailed craftsmanship, and they feared that transitioning the manufacturing
operations overseas would cause quality to diminish.
For the next 5 years, this strategy proved
successful. The company showed signs of financial growth and company profit.
However, in 2010, the company was found guilty of
supplying products that failed quality tests. As a result, millions of
automobiles had to be recalled. The recall was highly publicized, and the issue
of poor quality products impacted negatively on American automotive companies.
AutoEdge’s $51 per-share stock has fallen to $4 per share, and brand acceptance
has come under scrutiny among even its most loyal customers. Although some
economists blame these negative effects on the products, others believe that it
had to do with the termination of AutoEdge’s Chief Executive Officer, Fred
McFadden.
Lester Scholl, Chairman of the Board of Directors,
has called an emergency meeting to discuss AutoEdge’s short-term and long-term
strategies. Among other things, they need to discuss the possibility of
continuing production overseas or returning it to the United States. Lester and
others on the board are well-known for being financially conservative and
risk-averse. Because the American economy is experiencing high unemployment,
low interest rates, low GDP, and low inflation, it might be sensible to make
the change. To some extent, they believe that these macroeconomic factors can
be used to their advantage. They realize the immediate challenges such as the
brand damage, the growing competition, and the financial challenges the company
is facing require immediate action. A new strategy must be formulated quickly
to save the company from bankruptcy.
You have been hired by AutoEdge’s board of
directors as a research analyst. Primarily, your job is to list and describe
some of the legal, cultural, financial, and economic factors that AutoEdge
needs to consider when deciding to either stay in South Korea or return to the
United States. Because Fred McFadden was recently terminated, you will work
directly with the board until a new CEO is named.