Jackson Automotive Systems Harvard Case Solution & Analysis

Jackson Automotive Systems Case Solution

Introduction

This case shed light on Jackson Automotive, a company established in 1961 and operating in Jackson, Michigan. The company is engaged in the manufacturing of various automotive systems including engine cooling, heating, and fuel injection and air conditioning systems. The company is considering increasing its current term loan by 2.4 million for the acquisition of a much-needed piece of equipment to enhance its current production conditions. Jackson Automotive is a small private company which sells its products to local customers located in Michigan. In the financial crises of 2008, the sales in the industry dropped, and in 2010 the company rebounded and returned to profitability in 2011. However, because of the slow economic growth and high prices of raw material, the company faced strong competition in the market. The company is dependent on its innovation and mechanistic production process to gain competitive advantage over its competitors to ensure its survival in the long-term. Moreover, the company is trying to maintain and sustaining its competitive edge by designing energy efficient automotive systems to increase its profitability while trying to increase its market share.

Jackson Loan Repayment

The potential reasons for its inability to repay its current outstanding loan could be that the company is in a state of insolvency where the company could have a significant amount of assets available but does not have the appropriate cash to pay off its debt because of cash flow mismanagement and inappropriate allocation of money.

The company’s need for new loan

After assessing and evaluating the case, it could be determined that in June the company was in serious trouble regarding its cash flow situation. Furthermore, the company had not been able to repay its existing outstanding loan that situation is very critical for the enterprise where it had to increase its credit facility just to run the day to day operation of the company. Hence, for this reason, it can be determined that the company is in urgent need of extension in the credit facility till September to run its operation in order to ensure its going concern and continue its business operations to compete in the already highly competitive market. Moreover, the company is also considering acquiring new equipment as the company had not invested in any enhancement and acquisition of any equipment for several, which caused certain machines in urgent need of part for their repair and maintenance so that any unnecessary disruption in the production does not occur which could potentially damage the company's profitability and brand image, which could also affect the company's reputation in the market adversely.Jackson automotive systems Case Solution

Repurchase of outstanding common shares

The potential reasons or causes for the repurchase of its share from the dissident shareholders could be that the company repurchased the share as an alternative for dividend or the company could also repurchase its share to reduce the number of shares held or traded by the public to reduce the float so that even if the profits of the company remained same. The earning per share would result in an increase. Furthermore, as the share represents the stake of a person in a company including the right to vote on choosing directors or on the company’s policies and financial decisions to decrease the influence of the dissident shareholders, the company could have brought back its shares. However, the company issues share to gain equity capital to fund expansions, but because of the weak economic growth, the company' management could think that holding on to those unused equity funds would be worthless hence,it could have decided to buy back its common shares........................

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