Lithia Motors SWOT Analysis / Matrix

Essays, Term Papers & Research Papers

SWOT analysis is a vital strategic planning tool that can be used by Lithia Motors managers to do a situational analysis of the organization . It is a useful technique to analyze the present Strengths (S), Weakness (W), Opportunities (O) & Threats (T) Lithia Motors is facing in its current business environment.

The Lithia Motors is one of the leading organizatations in its industry. Lithia Motors maintains its prominent position in market by carefully analyzing and reviewing the SWOT analysis. SWOT analysis a highly interactive process and requires effective coordination among various departments within the firm such as – marketing, finance, operations, management information systems and strategic planning.

The SWOT Analysis framework facilitates an organization to identify the internal strategic factors such as -strengths and weaknesses, & external strategic factors such as - opportunities and threats. It leads to a 2X2 matrix – also known as SWOT Matrix.

The Strengths-Weaknesses-Opportunities-Threats (SWOT) Analysis / Matrix enables the managers of the Lithia Motors to develop four types of strategies:

SO (strengths-opportunities) Strategies
WO (weaknesses-opportunities) Strategies
ST (strengths-threats) Strategies
WT (weaknesses-threats) Strategies

SWOT Matrix Strategies Objective

The core purpose of SWOT matrix is to identify the strategies that an organization can use to exploit external opportunities, counter threats, and build on & protect Lithia Motors strengths, and eradicate its weaknesses.

Step by Step Guide to Lithia Motors SWOT Analysis

Strengths of Lithia Motors – Internal Strategic Factors

As one of the leading firms in its industry, Lithia Motors has numerous strengths that enable it to thrive in the market place. These strengths not only help it to protect the market share in existing markets but also help in penetrating new markets. Based on Fern Fort University extensive research – some of the strengths of Lithia Motors are –

Strong Brand Portfolio – Over the years Lithia Motors has invested in building a strong brand portfolio. The SWOT analysis of Lithia Motors just underlines this fact. This brand portfolio can be extremely useful if the organization wants to expand into new product categories.
Good Returns on Capital Expenditure – Lithia Motors is relatively successful at execution of new projects and generated good returns on capital expenditure by building new revenue streams.
Strong Free Cash Flow – Lithia Motors has strong free cash flows that provide resources in the hand of the company to expand into new projects.
Reliable suppliers – It has a strong base of reliable supplier of raw material thus enabling the company to overcome any supply chain bottlenecks.
Highly skilled workforce through successful training and learning programs. Lithia Motors is investing huge resources in training and development of its employees resulting in a workforce that is not only highly skilled but also motivated to achieve more.
Automation of activities brought consistency of quality to Lithia Motors products and has enabled the company to scale up and scale down based on the demand conditions in the market.
Strong distribution network – Over the years Lithia Motors has built a reliable distribution network that can reach majority of its potential market.
Superb Performance in New Markets – Lithia Motors has built expertise at entering new markets and making success of them. The expansion has helped the organization to build new revenue stream and diversify the economic cycle risk in the markets it operates in.

Weakness of Lithia Motors – Internal Strategic Factors

Weakness are the areas where Lithia Motors can improve upon. Strategy is about making choices and weakness are the areas where a company can improve using SWOT analysis and build on its competitive advantage and strategic positioning.

The profitability ratio and Net Contribution % of Lithia Motors are below the industry average.
Organization structure is only compatible with present business model thus limiting expansion in adjacent product segments.
Need more investment in new technologies. Given the scale of expansion and different geographies the company is planning to expand into, Lithia Motors needs to put more money in technology to integrate the processes across the board. Right now the investment in technologies is not at par with the vision of the company.
There are gaps in the product range sold by the company. This lack of choice can give a new competitor a foothold in the market.
Financial planning is not done properly and efficiently. The current asset ratio and liquid asset ratios suggest that the company can use the cash more efficiently than what it is doing at present.
Not highly successful at integrating firms with different work culture. As mentioned earlier even though Lithia Motors is successful at integrating small companies it has its share of failure to merge firms that have different work culture.
Investment in Research and Development is below the fastest growing players in the industry. Even though Lithia Motors is spending above the industry average on Research and Development, it has not been able to compete with the leading players in the industry in terms of innovation. It has come across as a mature firm looking forward to bring out products based on tested features in the market.

Opportunities for Lithia Motors – External Strategic Factors

Opening up of new markets because of government agreement – the adoption of new technology standard and government free trade agreement has provided Lithia Motors an opportunity to enter a new emerging market.
Stable free cash flow provides opportunities to invest in adjacent product segments. With more cash in bank the company can invest in new technologies as well as in new products segments. This should open a window of opportunity for Lithia Motors in other product categories.
New environmental policies – The new opportunities will create a level playing field for all the players in the industry. It represent a great opportunity for Lithia Motors to drive home its advantage in new technology and gain market share in the new product category.
Government green drive also opens an opportunity for procurement of Lithia Motors products by the state as well as federal government contractors.
New customers from online channel – Over the past few years the company has invested vast sum of money into the online platform. This investment has opened new sales channel for Lithia Motors. In the next few years the company can leverage this opportunity by knowing its customer better and serving their needs using big data analytics.
Decreasing cost of transportation because of lower shipping prices can also bring down the cost of Lithia Motors’s products thus providing an opportunity to the company - either to boost its profitability or pass on the benefits to the customers to gain market share.
The market development will lead to dilution of competitor’s advantage and enable Lithia Motors to increase its competitiveness compare to the other competitors.
Lower inflation rate – The low inflation rate bring more stability in the market, enable credit at lower interest rate to the customers of Lithia Motors.

Threats Lithia Motors Facing - External Strategic Factors

The demand of the highly profitable products is seasonal in nature and any unlikely event during the peak season may impact the profitability of the company in short to medium term.
Shortage of skilled workforce in certain global market represents a threat to steady growth of profits for Lithia Motors in those markets.
New technologies developed by the competitor or market disruptor could be a serious threat to the industry in medium to long term future.
Liability laws in different countries are different and Lithia Motors may be exposed to various liability claims given change in policies in those markets.
Rising raw material can pose a threat to the Lithia Motors profitability.
Growing strengths of local distributors also presents a threat in some markets as the competition is paying higher margins to the local distributors.
As the company is operating in numerous countries it is exposed to currency fluctuations especially given the volatile political climate in number of markets across the world.
Rising pay level especially movements such as $15 an hour and increasing prices in the China can lead to serious pressure on profitability of Lithia Motors

Limitations of SWOT Analysis for Lithia Motors

Although the SWOT analysis is widely used as a strategic planning tool, the analysis does have its share of limitations.

Certain capabilities or factors of an organization can be both a strength and weakness at the same time. This is one of the major limitations of SWOT analysis . For example changing environmental regulations can be both a threat to company it can also be an opportunity in a sense that it will enable the company to be on a level playing field or at advantage to competitors if it able to develop the products faster than the competitors.
SWOT does not show how to achieve a competitive advantage, so it must not be an end in itself.
The matrix is only a starting point for a discussion on how proposed strategies could be implemented. It provided an evaluation window but not an implementation plan based on strategic competitiveness of Lithia Motors
SWOT is a static assessment - analysis of status quo with few prospective changes. As circumstances, capabilities, threats, and strategies change, the dynamics of a competitive environment may not be revealed in a single matrix.
SWOT analysis may lead the firm to overemphasize a single internal or external factor in formulating strategies. There are interrelationships among the key internal and external factors that SWOT does not reveal that may be important in devising strategies.

Weighted SWOT Analysis of Lithia Motors

In light of the above mentioned limitations of the SWOT analysis / matrix, corporate managers decided to provide weightage to each internal strength and weakness of the firm. Organizations also assess the likelihood of events taking place in the coming future and how strong their impact could be on company's performance.

This method is called Weighted SWOT analysis. It is better than doing simplistic SWOT analysis because with Weighted SWOT Analysis Lithia Motors managers can focus on the most critical factors and discount the non-important one. It also solves the long list problem where organizations ends up making a long list but none of the factors deemed too critical.

Limitation of Weighted SWOT analysis of Lithia Motors

This approach also suffers from one major drawback - it focus on individual importance of factor rather than how they are collectively important and impact the business holistically.

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Example of Weighted SWOT Analysis

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SWOT Worksheet & Template

If you like to do your own SWOT analysis or want to make your own Weighted SWOT SWOT matrix then feel free to download Fern Fort University SWOT Analysis Template.

References / Citations & Bibliography

M. E. Porter, Competitive Strategy(New York: Free Press, 1980)
A. D. Chandler, Strategy and Structure (Cambridge, Mass.: MIT Press, 1962)
O. E. Williamson, Markets and Hierarchies(New York: Free Press, 1975);
L. Wrigley, Divisional Autonomy and Diversification (PhD, Harvard Business School, 1970)
R. E. White, Generic Business Strategies, Organizational Context and Performance: An Empirical Investigation, Strategic Management Journal7 (1986)