Friday, 4 January 2008

Micro-Level Trends - Alliance Partnering as the Pre-Cursor to Paradigm Change?

The prominance of the strategic alliance has come back to the fore, given the comparitive higher-risk M&A failure in what are now conservative times and the associated defensive strategic nature of many automotive Boards.

PSA Group's ownership structure and conservative nature has long been recognised as perhaps the master of alliance deals for many years now, recognising the advantage of strategic technology and production partnerships to maintain all important bouyant cash-flows for a highly prized, fast-reacting independent status.

The opportunity offered by M&As, for western VMs at least, have wained, out-weighed by the operational realism that a myriad of often ultimately uncontrollable elements must be in place to generate success, not just a few key synergistic fundamentals, and that capital markets are more than ever are deeply scrutinizing corporate intentions - ideally looking for sound growth from business fundamentals, the promise of high value from M&A 'extraction' models appearing a little too shaky for mature VMs facing more immediate concerns.

But look East and the value of M&A to burgeoning emergent automakers looks promising indeed - across many fronts including: premium brand acquisition, technology capture, overseas dealer networks in advanced markets etc etc...the promise is obvious.

Marry that M&A 'promise' with yet more sizeable cost-benefits of additional partnership alliance gains and we might be looking at the golden formulae for automotive investment.Unsurprisingly TATA is the name in the frame and the application of Jaguar Land Rover, not simply as a assets in their own right, but the remarkable opportunity to utilise their USPs as core technology providers to other automakers seeking to 'engineer their brands' at least cost to provide product lift. The technical and operational synergies between what are realistically similarly finance-restricted Jaguar and Alfa Romeo have been obvious to many for years, waiting for the day that the two could support eachother to take the fight to BMW, Mercedes, Audi and Lexus. Timely to do so now before Infiniti and others go global.

This week's announcement of the possibility of an alliance tie-up between TATA and FIAT must surely be welcomed by shareholders and the prestige marque devotees alike. Possibly at long-last, the ability to 'unbundle' the inherently inflexible structures of 'old automakers'. These being vertical 'ladder' type brand & product heirachies that demand differing R&D, brand, platform, specification/features, marketing solutions, so expensive to differentiate and always at risk of demeaning genericism.Breaking the orthodoxy means creating a new paradigm of a horizontal 'shelf' type of industry structure that can utilise the most appropriate technology and provide the freedom for the better moulding of dedicated products assisted by more flexible 'attunable' business cases.

investment-auto-motives (amongst others, ie autopolis consulting) have long supported the ultimate need to re-direct VM & Tier 0.5 strategies away from the historic norm that over-stretches operational focus and resource, to the preferred multi-storey 'shelf' model in which a specific VM can hold core competance in a segment-specific type of vehicle and produce for other alliance partners (or other clients) with greater efficiency via transfer pricing.

TATA has rapidly come to the fore as not just ambitious per se, but with what looks like the prize business model for the profitable, long-stay automaker of tomorrow - taking not one 'shelf' but two or three if you accompany prestige Jaguar, 4x4 Land Rover with the new very low cost city vehicle (the 1 Lakh car).

Indeed could this be the start of a global 'multi-shelf' conglomerate partnership if we factor in the other associative alliance partners Chery and Chrysler:

Premium Cars - TATA Jaguar 'core' producer (Alfa-Romeo/Maserati/Lancia)
SUVs & Utility - TATA Land Rover 'core' producer (Jeep/Dodge/TATA)
Large & Mid-Size Cars - Chrysler 'core' producer (TATA,Fiat & Chery)
Compact & Sub-Compact - Fiat & Chery 'core' producers (TATA,Chrysler/Jaguar/Alfa/Lancia)
Small Cars - TATA & Chery 'core' producers (Fiat/Chrysler)
City Cars - TATA 1 lakh car 'core' (Fiat/Chery)

For now such a scenario may be over-ambitious, but indicative of ever-increasing prominance of alliance partnership power and big-picture theorums.