Burgundy Asset Management: The Wescast Investment Decision

1471 Words Oct 31st, 2014 6 Pages
Burgundy Asset Management: The Wescast Investment Decision
Question 1
1. Describe the investment process currently used by Burgundy, and identify the strengths and weaknesses of the methodology.
Burgundy Investment’s philosophy involved carefully evaluating the economics of individual companies and their managements. The firm stressed independent research and a long-term, “bottom-up” value approach to the assessment of individual companies. The firm’s approach was considered contrarian and opportunistic since Burgundy tended to invest in undervalued companies that were either temporarily out of favor because of some short-term negative event or had been overlooked by investors and, therefore, were improperly priced.
Strengths:
A. Burgundy
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Determine Wescast’s strengths and weaknesses relative to the industry key success factors.
Auto parts industry depends on trends of the economy and buyers propensity to purchase new auto mobiles. Auto parts industry is exclusively reliant upon the disposable income of buyers or their ability to spend money on cars. Other key factors are availability of financing option and the replacement cycle for the cars.
But the biggest key success factor was creating the supply chain, so called Original Equipment Manufacturer, tier-1 auto parts manufacturer and tier-2 auto parts manufacturer. The OEM represents big three US supplier and its main function is branding, design and assembly of the automobiles.
With tier-1 OEM is eliminating the additional cost of manufacturing the many different parts going into production and tier-1 individually becomes an expert in each component part and maximizes the efficiency and lowering costs through mass-production. Tier-2 auto parts supplier represents the smaller component manufacturers that supply their product to either directly to tier-1 of OEM for further assembly. It requires less sophisticated engineering products.
The key success also includes the OEM's substantial control over design, engineering and pricing. Also, OEM has power to strive for the lower prices because of high competition.
The sophisticated nature and engineering process makes very hard for new player to enter the market, which limits the competition.
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