Monday, 17 December 2007

Company Focus - Where next for Bentley & VW?

Bentley Motors' Chairman & CEO Franz-Josef Paefgan states that the company's era of impressive growth (averaging 15%) will soon come to an end; as the trend for incremental expansion, via product range additions, has reached a natural plateau. So what does this mean for the future of the company, and for those inside VW seeking profit maximisation?

Today we view Bentley as being at a crucial point in its global growth path, here and now a pertinant time to assess the type of financial and operational stewardship required to set a new prosperous path into the future.

It is well recognised that the most important new product development activity of the recent past was the introduction of an all new 'baby Bentley' platform giving rise to the 'Continental' variants of: GT/Spur/GTC. These new-borns have in turn heavily influenced the styling philosophy of an ageing but heavily modified 'large car' range (inc Arnage saloon, Azure convertible and new Brooklands coupe). In short a well executed, cashflow astute route to margin optimisation and turnover.

VW Group rightly saw the opportunity within the challenge to revitalise a then lack-lustre prestige brand and has maintained budget, political and technical support throughout to critically grow unit volume, leverage platform & technology efficiencies (with Phaeton and Bugatti) to reach the goal of ultimately providing a more contemporary customer connection. A new company construct which underpins a far more robust and long-lasting, secure business model. VW injected the necessary capital and acumen to make Bentley great once again, under this renaissance plan Paegan managing to skillfully balance the introduction lower entry models alongsidea a re-strengthening old aristocratic/Bentley Boys values. These values showcased by merchandising enshewing a romanticised ideal of class, provinance and patronage.

So with the company turned-around and self proclaimed maturity reached, Piech and VW will be considering the next step options that will need to be undertaken to extract as much value from their halo marque as possible.

Whilst expanded merchandising can offer welcome additional revenues through clothing, model cars, wood & leather goods etc, the reality is that traction (generated primarily by western markets) is probably peaking, and with limited sizeable income available from special editions and bespoke versions of a static model mix, an accompanying market-expansion sales strategies should be the order of the day. Such a change in strategic direction also raises the question: "which ownership/guardian structure (with related operational competancies) would best secure a course for Bentley's stable growth?" Something that must be seriously considered whilst product (appeal) and plant (condition & amortization) are in their prime.

VW's new focus is on making itself more populist and accessable in mainstream markets through affordable and 'green' small & medium size cars/CUVs. Hence a luxury British company will sit less and less easily within a corporation seeking greater cross-brand synergies and considerable focus on Euros/Cents cost-savings. And given that Bentley sales of 10,000 are considered miniscule at a group level, the corporate cost-benefit of developing/adapting radical new emissions-reducing technology (such as full-hybrid if ultimately required) for such a niche is, at first sight, questionable. (The same theorum applies to an ever more philosophically and physically 'removed' Bugatti).

investment-auto-motives believes VW may have done all that it can given it's core competancies, a continued ownership possibly a creating a case of diminishing returns and inadvertant corporate drain? Piech and VW seniors must surely be tempted to quietly test the financial market's external waters to at least gain an idea of hot or cold reactions and Bentley Motors' valuation, beyond usual internal ratio analysis valuation exercises. [Bentley possibly sold in conjunction with Bugatti, the offering window-dressed to demonstrate the viability Bugatti branded model spin-offs].

Although global financing conditions are less than perfect the possibility of selling substantial stake(s) in such a highly esteemed brand to Middle Eastern and Asian investors (esp ravenous Sovereign Wealth Funds) should seriously be considered. These potential buyers have both proportionately greater liquidity and regional political might than any trade buyers (who's focus anyway is elsewhere) and the 'squeezed' notional Private Equity houses. And critically, beyond the question of capital, Middle-Eastern & Asian parties would have a far greater access to the critical distribution/sales networks of the BRIC+ nations that are key to maintaining future turnover.