Sunday, 5 October 2008

Micro-Level Trends - Paris Auto Show 2008 - The Green, Amber & Red issues of the Euro-Players.

Given the context of a severely YoY contracted European market, calls that the EU should follow the American lead in providing EC and National funding for the continent's automakers and the encroachment of Asian makers (old and new), investment-auto-motives thought it prudent to give a brief critique relative to the majority of manufacturers keen to demonstrate their Eco-credentials and product & company outlooks.

Brilliance Jinbei Auto -
The Sino vanguard into Europe aided by sunstantial state backing, BMW JV quality benchmarks and as located in Shenyang near N.Korean border could possibly utilise regionally low labour costs if today's initial Sino-N.Korean relations flourish. As some Chinese VMs look to Vietnam for a new realm of low cost l-v parts and assemblies, so N.Korea will probably open up further. Brilliance is obviously endeavouring to be a premium Chinese automaker, putting it eventually in middle ground against the likes of Ford & Opel - the everyman's Asian BMW.

X1, Mini 'Traveller' and 7-Hybrid demonstrate its dedication to unit margin maximisation in globally popular segments, aided by more simple yet highly intelligent design surfacing. Given BMW's recent poor earnings performance, now hit by the withdrawl of state-side auto-loans severely diminishing volume (BMW US now looking at margins not volume / down 10% for 08), BMW Munich will be focued on ensuring these Paris products are brought to market on schedule to maintain market momentum (esp BRIC) and demonstrate BMW's return to 8-9% operating margin.

FIAT Group -
The 'GreenLabel' eco-sub-brand is launched, following in the footsteps of a plethora of names from the Germans; from Ford's 'ECOnetic' to Skoda's 'GreenLine' to VW's 'Bluemotion' to Mercedes' 'Bluetech'. Applied to 500, Brava and Croma the basket of usual technical modifications are made, including lowered body, under-body aerodynamics control, longer gear ratios, low resistance tyres and 'start-stop'. Respective CO2 reductions of 4g/km (to 115g/km), 4g/km (to 115g/km) & 17g/km (to 140g/km)are apparently achieved giving an impressive >10% on the large car, but approx 3.5% on the small and compact cars. Although undoubtedly a directed effort the eventual sales mix for GreenLabel is yet to be seen; essentially created to keep FIAT perceptivelly on-par with others

Ford Motor Company -
Tellingly vis a vis FIAT's petrol-based achievements in the CO2 reduction race, Ford's new global Fiesta ECOnetic variant obtains 98g/km from a 1.6L diesel engine, demonstrating the industry's bias to hi-tech diesel for CO2 ambitions, and part of the global push for diesel (esp by VW)

New Ka, supports ONE FORD global small/compact car push and saliently created wisely as joint platform with FIAT. But Ka could have been a much needed (almost standalone) sub-brand given cult-like impact grown over 13 years, obviously a bone of contention in JV product planning meetings with FIAT obvioulsy in a stronger 'walk-away' position. Thus New Ka, could have been Ford's global 'Scion', the car the philosophical underpinnings of something exciting, innately linked with youth and counter-culture. Now FIAT's PR makes Topolino look like spiritual successor - a lost brand strategy opportunity, but much required pragmatic answer to creating a new city-car.

General Motors -
The Chevrolet Volt premiers in Europe. Given the technology hype, the real commercial and profitability story lies within the bounds of cost of production vs retail pricing. Ex-factory presently mooted at $35k. With Prius at $22K and new Honda Insight 2 below that (both Ni-MH not L-ion), $35K looks decidedly hefty and when including the possibility of diminishing oil prices given a global slow-down (stablising at $85 p/b?). The question is exactly how much of Capital Hill's $25bn will go towards subsidising Volt to make it a more realistic buy proposition? Especially when GM needs funding to re-orientate its 'tanker-like' operating structure.

The compact Cruze sedan is an understandable & credible attempt to compete in such important value-orientated sectors given these dour market times. As a counterpart, Orlando looks to be a good 'clean'' mini-SUV' offering, marketed as an underling to the not so well received Captiva.

Honda Motor -
Insight 2 moves the hybrid game on immeasurably as lower proced counterpart to Prius 2. Although later to mass-market, Honda PR states a strong Hybrid product pipeline to follow in the form of New Civic Sedan (variant?), Jazz city car (a real coup if a plausable proper hybrid - battery pack replacing mid-mounted fuel tank + relocated small tank - and not just mild 'stop-start') and CRZ sportscar.

These together with global F1 'Earth Dreams' campaign, much TV coverage and the previously signed JV with could springboard Honda beyond Toyota as 'the' eco-automaker.

Hyundai Kia Group -
New is the i20 (replacing Getz), the i55 SUV, and 'Genesis' large car & coupe that we believe could be eventually extended into a premium flagship brand in its own right to compete with Infiniti, Acura etc latterly destined for the USA and Asia, though not Europe.
Kia is pushing the youth dimension of the compact and boxy 'Soul' that made a splash in its 3 variant guises at Geneva. This car is an important stepping stone in the development of Kia as a credible automaker, establishing its own identity and confidence as a worldclass producer and no-longer over-shadowed by Big Brother Hyundai.

At last both brands are developing characters beyond the previous 'entry-level' segments into mainstream and young / 'young at hearts'. A much needed ploy given the strategies of mainstream producers to introduce their own 'entry' brands (from Chevrolet to Dacia to Lada in due course). As such Hyundai Kia looks to maintain its global momentum, spread its offerings, and mature as a well positioned 21st century corporation. However, it must move beyond the old globalisation model set by the likes of Toyota and Honda, and should lean on S. Korea's advanced IT industries to provide competitive advantage over the old guard players whose IT value-chain is more disparate and fragmented.

Jaguar - Land Rover (TATA Group) -
Situated next to the Volvo & opposite Ford stands illustrates a prescient metaphor regards the operational inter-relationship between TATA and Ford.

Besides the 'stop-start' facility integrated into all diesel manual Freelanders, as part of the brand's vital CO2 reduction efforts, nothing of real import from Land Rover, with memories of the LRX concept still an imagined bridge to future profitability.

Jaguar equally has little to show at the moment, the press highlighting the supposed 'skunk-works' XK-RR to add additional performance kudos and endeavour to stretch Jaguar's price ladder up to, eventually, the £100,000 mark. Critical to that is the next generation XK in various guises; including the role of Daimler - if it has much brand potency left in reality. How viable that ambition is given the present contraction of premium markets and the rebound brand power of the Germans (inc more affordable Rolls-Royce, Maybach and possibly a 3rd Bentley line) remains to be seen. Ratan Tata's seat on FIAT's board (illustrating the kinship of both industrial royal families) obviously points to a Maserati & Jaguar JV as the base for contending the Germans in the future using advanced structural engineering and the leverage of the TATA conglomerate throughout the product's associated design and production process value chain.

At a time of deplorable European & US sales, the results of operational rightsizing are apparent with the lack of XF's in London and UK regional showrooms. And equally the XF's presence on central and suburban London roads isn't very noticable, when it should be. Dealer staff state there is no supply-demand problem but one element of that equation, from our perspective, looks out of kilter right now which could well be negatively affecting revenues and cashflow.

Amongst the glitter of the Hypnos and RC, Citroen's C3 Picasso & latter-day Peugeot 3008 fight in prime territories, adding MPV and X-over dimensions to the small and mid-size segments. The C3 will aiding company's C02 fleet balance whilst the 3008 would be dimensionally/package plausible for clean-energy technologies - obviously critical at home given eco-taxation structure and corporate domestic sales bias.

PSA will obviously continue to focus its Pan-European marketing on its worthiness as a low CO2 producer, much to its credit and Christian Streiff's demands as he continues to balance operational cost-cutting without undermining the potency of his company's positive market position.

Renault-Nissan -
The re-reveal of Logan, although already in market, demonstrates Dacia's core role in Renault's very important 1.4 & 1.6 'practical motoring' fight, especially on home turf. The Sandero's new 1.5 diesel engine will give the brand slightly more style and improved emissions, so endeavouring to halt the march of PSA's small cars. In effect larger car offerings for small car money. Not serious cannabalisation threat to Renault brand, which has, we think, has near & mid term sales headwinds of its own.

Megane is launched but we harbour concerns that the Pelata vs Le Quement friction endemic in 2005/6 has over-dulled the new car, and like Laguna, the 'flight from design risk' has unfortunately also undermined Renault's central consumer demand theme, its style USP, and so will affect projected volumes. Hence Megane will be the 3rd dissapointing new product after Twingo 2 and Laguna. Ghosn should have backed Le Quement to maintain the style flair that Renault had so wisely build-up as part of its, now lost, DNA.

Infiniti's long awaited European launch will test the elasticity of premium market, under-cutting peer Lexus models, as it previously did vs the German dominants. The service dimension, already worked upon as standalone with previous dedicated Japanese and Russian pilot sites aims to seperate the brand from architype dealer experiences, more boutique hotel than showroom, and this will indeed be a theoretical key element to the Infiniti offering, where service levels and commtiment in the sector are crucial.

Toyota - Lexus -
Toyota leads with 3 new products: the landmark iQ city car, Urban Cruiser and new Avensis.
The first endeavours to demonstrate that city cars can be intelligent and upscale, package & functionality being the prime marketing elements. Urban Cruiser, derived from Yaris, points to a X-over & Scion-esque product that we believe is paving the way to orientate European mindsets to the latterday introduction of Scion as a global brand. And new Avensis has morphed into a sharp-suited product that mimicks the Lexus IS range, so adding prestige to the model-line that previously lost its way.

Lexus unveils the IS250C, a quietly introduced vehicle that could be a major landmark. Competing in the 'personal car' US segment it has the timely potential to steal from the German pack, suffering so badly stateside.And within Europe and RoW, its a perfect stablemate to shore-up and enhance the IS small car range. Only the 2nd convertable, after the much lauded SC430, it will undoubtedly prove truly popular and a real revenue earner around the world for Toyota.

Volkswagen AG -
Beyond the Eco push VW's core message is the introduction of Golf VI, and will want to maintain its stranglehold has Europe's best selling car aswell as dramatically raise unit volumes in the USA and other prime RoW regions. Replacing the old Rabbit, which still has psuedo-cult status in the US, with a market attuned Golf VI & VII, would dramatically improve the automaker's margins thanks to volume and productivity gains and recapture it's somewhat lost Golf gold-standard reputation. It will be the core aspect of VW's charge on Toyota. As such the car is conservative and visually clean and price-wise starts with an entry level car on par with the C segment middle-ground, the strategy to enhance low-priced models' margins with sizable features list, aswell as creating a raft of variants that provide a price ladder from 16K Euros to 26.4K Euros.

As part and parcel of VW's product spread strategy SEAT introduces the Exeo as a value-orientated competitor in the C/D segment vs Mondeo, Insignia, 407/8 etc. This car tries to copy Skoda's fortune with the Superb by walking up a segment and giving more gravitas to the brand aswell as allowing greater VW parts commonality and linked volume efficiencies. Loss of what has been the debatable SEAT Scalop in the front and door flanks of the rest of the range is a plus making it visually sit better within the upmarket associative VW family.

However, Spain's current severe economic contraction will probably undermine the domestic volume forecasts, and the more value orientated VWs, the renewed sense of ability from Ford and Opel in the D segment aswell as Skoda's inroads with Superb's many guises including sporty & 4x4 will demand that SEAT presents itself as the cut-price Alfa Romeo alternative, as it was initially supposed to, but failed.

This car has similar Alfa surfacing elements - unsurprising since Walter de Silva - ex Alfa Design Chief leads VW & SEAT Design - so much will depend upon performance, pricing and importantly a coherent marketing platform that evolves 'auto-emocion'. Presently, if the UK is reflective, regional national sales companies are creating their own advertising, as the UK did with the new Leon, in a bid to raise profile or impact. As SEAT's family of cars visually fragment (see Leon vs Exeo) an even stronger Pan-European core brand message is needed, not yet another layer of brand fragmentation leading to consumer dis-orientation.

Volvo Cars -
Introduction of the 'DRIVe' eco sub-brand, using familiar CO2 reduction techniques that propel the C30, S40 & V50 to emit less than 120g/km, very good achievements given the size of the vehicles and demonstrate Volvo's commitment to be seen as a Green automaker. Ironically, we believe Volvo shouldn't have introduced a parallel sub-brand to all its peers, instead simply allow Volvo to capture the halo-effect, rather than deflect it to a specialist moniker.