The forecast fall in labour turnover is an important advantage too. This will help to reduce costs of training and recruitment. The lower labour turnover might be due to high salaries and decentralised decision making which lead to higher levels of motivation. However, I would argue that this is an unreliable piece of information as it is not possible to estimate labour turnover from workers who have not even been recruited yet.
The organisational structure that this proposal includes is another benefit. Using a decentralised structure will allow local managers to keep better control of their offices and allows the use of departmental budgets which could help to avoid over spending.
On the other hand the arguments against this proposal include the high fixed costs such as the large training budget (rising from £30000 to £400000). These higher fixed costs will lead to a high break-even point and means that the company will only start making a profit after a long period of time. As the company already has a weak financial position this could be a crucial disadvantage.
Staff salaries are also forecast to increase. Although these might lead to higher motivation it raises the labour costs of the business. First Cars might not be able to afford to employ all of the workers that they will need. This could lead to lower customer service than planned which will result in lower demand.
Finally, one of the biggest arguments against is the existence of one large competitor controlling 60% of the market for car clubs. This puts First Cars at a major disadvantage because if this competitor starts to lower prices to squeeze out the new rival, First Cars might have to reduce their prices too which will make the net cash flow forecasts inaccurate. This is the same problem as is occurring in the car hire market.
In conclusion, I think First Cars should take the risk. The evidence shows that the business has to take drastic action to stop further falls in profit. This strategy of market development (same product but new market) is not as risky as diversification but should be more profitable than trying to penetrate the car hire market further. Although First Cars may have to wait for several years before the proposal becomes profitable there is scope for a successful result, especially as the costs of running a car are forecast to increase which should raise demand for car clubs. The main factor which will influence success is whether the business, managers and workers can change their culture from a low price low customer service business into a high price and high customer service one. If they can do this then I think the car club will be successful and I recommend that First Cars goes ahead with it.