Universal Auto is a large multinational corporation headquartered in the United States. For segment reporting purposes, the company is engaged in two businesses: production of motor vehicles and information processing services. The motor vehicle business is by far the larger of Universalâ€™s two segments. It consists mainly of domestic United States passenger car production, but it also includes small truck manufacturing operations in the United States and passenger car production in other countries. This segment of Universal has had weak operating results for the past several years, including a large loss in 2010. Although the company does not reveal the operating results of its domestic passenger car segments, that part of Universalâ€™s
business is generally believed to be primarily responsible for the weak performance of its motor vehicle segment. Idata, the information processing services segment of Universal, was started by Universal about 15 years ago. This business has shown strong, steady growth that has been entirely internal: No acquisitions have been made.
Â An excerpt from a research report on Universal prepared by Paul Adams, a CFA candidate, states: â€œBased on our assumption that Universal will be able to increase prices significantly on U.S. passenger cars in 2011, we project a multibillion dollar profit improvement . . .â€
Â a. Discuss the concept of an industrial life cycle by describing each of its four phases.
Â b. Identify where each of Universalâ€™s two primary businessesâ€”passenger cars and information processingâ€”is in such a cycle.
Â c. Discuss how product pricing should differ between Universalâ€™s two businesses, based on the location of each in the industrial life cycle.