Analyse the arguments for First Cars car club proposal. June 2010 AQA

Authors Avatar by marianoamoedo (student)

The arguments in favour of the car club include the forecast profitability of the new proposal. The ARR of 15% is above the rate set by the Directors and this will help First Cars become more profitable and cover the heavy investment of £8m that the proposal requires.  However this figure was based on forecasted cash flows which might be inaccurate because First Cars has never tried a car club scheme before.

The location is another advantage. A prestigious location in London will attract a different kind of clientele allowing the business to keep prices high and therefore receive higher revenue. This is completely the opposite to their original objectives with the car hire business which led to low prices and low profits.  However, can the business and the managers switch their approach to customer service as quickly as they plan to?

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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 ...

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