Monday, 31 March 2008

Industry Structure – Prestige Thru’ Volume – Constructing New Business Models

The New Economy, and now Web2.0, has encouraged new approaches to designing business models. Organisational structures have been dominated by a traditional (and comparitively myopic) perspectives based on asset ownership and vertically integrated structures. The prevalent view was that ownership enhanced control and profit margins. However, more recently flexibility, co-operation and collaboration have become increasingly important for future success; often driven by the investment community.

‘New world’ business ethos (heralded by Dell) has motivated some of the largest corporations in the world towards a business model within which assets are managed rather than owned has led to significant changes not only in structure, but also in attitudes and managerial behaviour. As a result the “new business model” has five common attributes, the firm should: be cash flow driven; focus on return on investment; function with distributed (leveraged) assets or low capital intensity; done so with a single minded view on core assets and distinctive capabilities; and develop competitive advantage by relevant positioning within its industry value chain

investment-auto-motives, has used this criteria to project a new revenue possibilities for a crop of UK and German IPR ‘originator-deployers’, put to use on behalf of themselves and US / global Alliance Clients. Essentially creating a new co-operative business model, derived from the amalgamation of various forefront vehicle construction methods…to deliver a Tier 0.5 function that offers increases vehicle build volumes (efficiency) yet retains the necessary ‘variability’ to nurture a broadened spectrum of prestige marques.

Carmakers were traditionally, ever since the 1920s, ‘volume’ vs ‘niche’. The middle ground manufacturers, once small but grown, slowly gobbled up the big fish adding more names to their portfolios. And as the big fish swam they gobbled not just peer companies but diverse sections of the industry as seen with Ford and the design house Ghia. Thus by the 1970s the industry, from a western perspective, consisted of the very large old-guard (in the guise of Ford, GM, Chrysler, and their European counterparts) versus a numerous but individually very, very small group of ‘survivor’ entities such as Rolls-Royce, Bentley, Aston-Martin, AC, TVR, Morgan, Maserati; aswell as necessary alliances such as Jensen-Healey and Matra-Simca

[The new middle ground could be said to be the by then emergent Japanese whilst the American niche had been a saga of upstart boom and bust]

Thus large multi-nationals with powerful balance sheets were able to pick and choose the products, capabilities and names as they wished, often maintaining brand and trademark rights to many of the targets, and their own list of entitlements. But it was the upturn of the 1990s that saw venerable, independent but under-financed and dishevelled, marques such as Rolls-Royce, Bentley and Bugatti acquired by the impressively strong BMW and VW Groups, whilst Daimler resuscitated Maybach from its own stable. Such parents with funding, technology and resource might re-invented those lustrous marques, the outcomes of which with impressive profitability, is most obvious today.

But perhaps the most successfully evolved re-born brand is Aston-Martin; bought-up by, nurtured and divested in 2007 by Ford. That was perhaps the template that others (ie BMW and VW) sought to mimic.

To make these businesses viable and infact highly profitable, these ventures at Aston, Rolls and Bentley required that the boundaries of vehicle construction knowledge and techniques be expanded to enable the ‘required’ behind business case fundamentals. The ‘required’ is many-fold, but the 3 primary elements being:

a) Business Case fundamental of Cost to Manufacture (BoM and Labour)
b) Distinctive product performance to reflect brand values
c) Variability in the core constructional ‘architecture’ to provide variants and spin-off models.

Each automaker chose alternative, ‘best fit’ technology routes to achieve the aforementioned goals, each derived from specific product needs, relative company technical capabilities (gained from previous experience) and transferable components.
Aston - created its adaptable VH platform to enable various tracks, wheelbases & roof heights to provide a cost-effective model range. BMW created an adaptable all aluminium space frame for Phantom/Drophead/Coupe, much learned from the previous Z8 project; and VW & Daimler chose to stretch conventional BIW methods.

investment-auto-motives conjects that many aspects of the IPR behind these 4 unique and advanced vehicle construction projects, whilst owned individually, has the massive potential to be amalgamated to create a technology base that could serve both the originators (AML, BMW, VW & Daimler) aswell as a plethora of other potential clients; providing an opportunity for the re-invigoration of the niche vehicle segment aswell as a host of worldwide sportscars and limousines.

This concept could underpin a revival of a plethora of names, whether ‘dormant’, ‘under-played’ or ‘lost’…..

1. ‘Dormant’ – Britain’s Daimler, Lagonda,
2. ‘Under-Played’ – Britain’s Bristol and Morgan,
3. ‘Lost’ - France’s Facel Vega, Spain’s Pegaso or America’s Cord, Auburn, Duesenberg & Stutz, Italy’s Cisitalia

The central business idea is to create a new generation of niche, low volume build centres very much in the guise of the 1960s Italian carrozzeria that build highly regarded low volume specials. Latterly names such as Bertone, Pininfarina et al invested in higher-volume infrastructures to serve the build requirements of much higher volume coupe/cabrio mainstream car variants. Good revenue whilst it lasted but left exposed to downturns as we’ve seen with the sector’s divestment, contraction and M&As. This could be said to have left a vacuum for ‘advanced constructors’.

Indeed, the UK-German technology could be licensed to the Italian Carrozzeria names to rejuvenate the Italian sector. But....

....Why not develop an amalgamated ‘spin-off’ engineering and production base for the 4 possible alliance partners. Wouldn’t Ulrich Bez -Dave Richards-Investment DAR, Norbert Reithofer, Ferdinand Piech and Dieter Zetsche rather co-operate to create and spin-off something for themselves? Something that could generate greater revenue with associated client project share-interest and ultimately developing that could be sold off latterly in its own right?

For beyond the resuscitation of ‘Dormant’, ‘Under-Played’ and ‘Lost’ Euro-centric marques it could provide the philosophical and physical business underpinnings for a phoenix-like re-emergence of true US premium sports cars and limousines. Nurturing truly upscale special additions (NB not special editions) of Corvette, Shelby, Lincoln and Cadillac, so creating a new – and much needed - prestige dimension to the US industry.

[The US possibly creating its own ‘Turin’….taking the misappropriated essence of ‘Torino’ off an over bloated 70s Ford Coupe and building a true spiritual home, in Michigan or Down South, for the real All-American Sportscar].

Thus, we believe there is a definite need to properly assess the scientific envelope and synergistic potential of today’s advanced construction techniques, so as to devise advanced specific project and complete new organisational business cases for tomorrow.

Such sector business prospecting and modelling should be prompted by the automotive investment community if it wishes to construct new opportunities.