Thursday, 29 January 2009

Macro-Level Trends – (Inter)National Industry Support – Default Position Policy-Making

Unquestionably, the world's once stable, secure and safe economic terrain for investors, enterprises, consumers and governments alike has disappeared. For exactly how long is open to debate. So conjecture and countenance is the diet of financial and mass-media as it reports what seems to be the the ever fracturing inter-relate between capital markets' & intermediary agents' 'disfunctionality' and global governments' (individual and collective) reaction.

Governments are obviously trying to fix the component parts of the broken mechanism, to create much needed conditions of calm. Whilst the depth of banking sector mailais still remains unclear due to a lack of system-opacity within the Derivatives sector, governments seek to limit economic and sociological damage via the application of theory and instruments from econometric history and it various multi-school tool-boxes.

Given their first exposure, and near collapse of their respective banking systems, the US and UK took the lead in endeavouring to stem the economic blood-loss and have effectively set the policy template that Europe and much of Asia have drawn from. Combating the spiralling negative forces of liquidity constraint has been the primary task given its importance in enabling a market-derived and market-confident natural 'price-floor' for all (ultimately inter-related) asset-classes and so end the domino-effect of value-destruction so evident over the last 18 months.

The effective underwriting of the financial-sector to in-turn prop-up ever weakening commercial and consumer sectors has become the uncomfortable new norm, but of course given the unprecedented nature of events, the ultimate long-term economic costs and consequences of forced decision-making are being questioned from Washington to London, from Zurich to Seoul. Although a global phenomena, the quickly emergent dominant trend toward self-defense of national interests during these crisis times comes as little surprise, as it tests the limits of the internationalist idealism that emerged during the golden years.

Interestingly, the country to greatest question the philosophy and true cost of such 'default position economic policy-making' has been Germany - well known for its defensiveness stance. From almost the start of the virally transmitted fiscal breakdown, it has been Angela Merkel & Co who have tried to counter possible over-reaction to the crisis.

Recognising that much of Germany's economic achievement to date has been based on the pragmatic conservative values central to the CDU, and the great cognitive distance gained through a hard fought battle to alter the once 'cosseted' mindsets of most Germans, the Chancellor has great cause for concern in following the lead of Bush/Obama, Brown, Sarkozy, Berlusconi et al. To her, their immediate recourse to liquidity pumping their banking systems through tax-payer expense and 'quantitative easing' without having yet ascertained the depth of the spiralling write-down problem seems an anathema.

Instead, to her mind, the banking sector must be forced to 'come clean' about the level of toxicity residing off-balance sheets intrinsically built into the system before undertaking proportionate redress. Having come so far to date via fiscal prudence; given today's fundamental similarity to the conditions that created the unfortunate German experience of the 1930s; and given the essential dichotomy for her party , it is no wonder she and the CDU stood so firm on the matter for so long.

This pragmatic perspective is echoed by ex-World Bank Chief Economist Joseph Stiglitz from this week's DAVOS Forum, and his critical comments on the innate structural weakness of the US economy before the announcement of the pre-Xmas $700bn TARP(+) and recent $819bn Stimulus Package. Germany clearly doesn't wish to slide down a similar slippery slope of fiscal profligacy.

But of course evolving real-world circumstances ultimately dictate action, even if within the constraints of idealised doctrine. And so recognising how the rapidly shifting sands of (inter)national economic policy-making - under-written by the public's blank cheque and with possible resultant (inter)national industrial-base consequences - could ultimately marginalise Germany's position, Merkel has given ground inch by inch via the notional underwriting of German enterprise and via the use of 3rd party proxies so as to simultaneously retain EU relations and not loose credibility.

Hence the announcements of the possible 1bn Euro underwriting of Opel (which sparked a less than credible M&A suggestion) and ongoing negotiations for requested aid to a debt-laden Schaeffler-Continental by Lower Saxony and Bavaria for another reported 1bn Euros. Both regions are bound to come under increased pressures given the recent doom-mongering by VW Chief Winterkorn, probable mootings from Munich's BMW and the parallel precedent of the 'UK Car Aid' initiative.

From the macro-economic perspective, Merkel's giving-ground should perhaps be regarded as a shame. Since this time of crisis could have brought out Merkel's and the Bundestag's strength of character, acting as a needed counter-force and demonstrating that not all political leaders automatically take on a role approximating Chicken Little's fear that “the sky is about to fall-in”. A much needed role given the fractures that have appeared within the structural walls of the EU, most notable between northern and southern regions experiencing different levels of economic contraction.

That fracture is possibly exacerbated by Sarkozy's effort to create a 'Mediterranean Club' which could feasibly divert inward investment and so constrain domestic prosperity within norther Europe. And so counterpart northern peers and traditionally German-associative countries (from Scandinavia to the Balkans to the accession seeking Turkey) may well feel worrisome that Germany's traditional role as the EU's stable economic-leader and economic engine is being eroded and so needs to be redressed before the political CofG moves to the Paris-Brussels corridor. The fear is that implicit political power is starting to subsume the explicit rationale of pure economics.

However, when one sets Europe's macro-economic ideology against Germany's current micro-economic perspective it appears that Merkel has little choice than to follow the pack in utilising the national accounts. The combined forces of the 'liquidity-evaporation' chain-effect and write-to-market accounting rules (destroying S-T & L-T asset valuations) have drastically undermined the commercial capabilities of what were fundamentally strong enterprises; affecting everything from their MktCaps to credit-ratings to debt-repayment schedules. That exposed Germany's traditionally self-defensive and collaborative domestic industry to the ravages of a poorly functioning capitalist system and so left 'wide-open' to hostile take-overs.

30 years ago observers would not have been surprised to witness the Chancellor of Western Germany espouse of the need to maintain support its automotive and engineering sectors with national funds. Countering US and British political orthodoxy, it would was expected given the cultivation of the country's 'sozialmarktshraft' policy attitude over the prior 25 years.
But the prevailing competitive forces of an ever-globalised, integrated world economy prompted by the powerful dual aspects of political change in planned economies & emergence of low cost economies demanded a radical shift in thinking and perspective for the Bundestag. The result was of course GDR & FDR Reunification and an evident sea-change towards the progressive market-directed economic model. A new model that sought to leverage the best of Western Germany's technical leadership allied to the new benefit of 'elastic labour' largely derived from Eastern German migration, provisioned through new flexible labour laws so as to create the 'German Advantage' on the world stage.

Berlin's recognition that fundamental industrial policy needed to markedly 'shift rightwards' so as to allow retention of its No1 position was a hard-fought battle within German politics and its successful prognosis proved vital to a 15 year growth period between 1992-2007.
Today, Angela Merkel & Co find themselves caught between the CDU's free-marketeering yet conservative stance (that underpinned Germany's growth) and the realities of a rapidly and vastly changed world-wide economic terrain.

However, by standing as firm as possible, and not resorting to 'default-position policy-making' it could set the leadership stance the EU desperately needs when the toxic-assets fear-factor finally wains, as many financial market luminaires believe it will over the next 6 months.

Wednesday, 28 January 2009

Industry Structure – UK Autos – The (Cross-Border) National Car Initiative

investment-auto-motives attended the House of Lord's announcement yesterday to hear Lord Mandelson describe the efforts being undertaken to bolster the UK car industry at this time of desperate need.

The package appears to consist primarily of the extension of the previously announced Loan Guarantee Scheme beyond the banking sector to encompass UK automotive with £1.3bn made available directly from the European Investment Bank and a further £1bn provided by the UK government to cover the amount “not covered by the EIB” - which seems to suggest that the full request package was refused by the EIB. These figures Lord Mandleson highlighted were also bolstered by an additional/separate £100m made available for education and training (up from £65m), £15m allocated as part of the Economic Challenge package made available, and a £250m incentive sum to aid the industry's (transformational) Ultra-Low Carbon R&D efforts – the onus of this last initiative put on the shoulders of Regional Development Agencies (such as the Midlands and South Wales) to formulate a compelling technical development strategy. Lastly and importantly, the critical question of 'assisted liquidity' to allow the automotive companies' financing arms to in turn provide consumer credit was an issue to be addressed by Mervyn Davies; has a dual reporting remit to both the Business Secretary & Foreign Secretary.

Given Lord Mandleson's previous incarnation as EU Trade Commissioner, and his present appointment as part of Labour's increasingly pro-EU stance, it should not be surprising that the majority of the aid package announced is coming from Brussels. That in turn gives credibility to the notion that EU financial assistance should and can only be provided as part of a holistic Pan-European action that necessitates that objective rationality is applied to Europe's massive and often overtly over-competitive auto-industry, which in turn creates deflated prices, margins and corporate profits.

With the sorry state of the European car market and the now heavily deflated regional TIV, there is just cause indeed to re-assess the basic economics of the sector and ensure that a re-shaping of the industry via attuned lending policies promotes a leaner EU automotive landscape – from suppliers through to dealers – in the post 2010 re-bound.

Back to the UK, and after the Secretary of State's address, the Conservative Peer Lord Hunt (whilst welcoming the assistance package) was keen to question to what degree the monies are correlated to a robust long-term strategy?

Tory concerns were that the spending should not be used simply to maintain today's status quo: protecting jobs within effectively declining companies which are founded on out-dated business models. The Labour Peer replied that the monies were indeed to be used to create a new Green industrial platform by which the UK could once again take a lead on the global stage.

From a very quick consideration of the UK scene, investment-auto-motives believes that elements of the said monies will be proportioned toward the outcome & recommendations of the ongoing UK Automotive Industry Review. Particularly we suspect, sizable batches will be alloted toward 3 main areas:

1. Jaguar Land-Rover given the TATA-owned company's lack of hybrid and electric propulsion-sets (woefully behind the likes of Lexus, Mercedes, BMW and even mainstream market Ford Fusion/Milan & next generation Hyundai Sonata)
2. UK transplant operations of Japanese VMs (Toyota, Honda, Nissan) so as to migrate Japan's leading edge hybrid technology to British shores and enable UK supplier core-competence.
3. Create the conditions to assist the creation of a new manufacturing template for EVs and other ZEVs and ULEVs.

Relative to the question of 'pumping' liquidity back into the auto-financing system so as to re-create consumer demand, that basic assumption implicitly holds the possibility for a dangerous outcome. Here and now as a consequence of the downturn the evident rationale of responsible consumers – those who actually are risk-worthy and ensure re-payments – are far less likely to purchase a new vehicle, no matter how great the deal terms given their own feeling of income insecurity. Thus any available credit made (via the banks or directly) would attract the less able and possibly less scrupulous consumer.

We've already seen the lowering of credit-score barriers in the US so as to get the system moving again, but the UK will probably take a more pragmatic stance which means that the credit made available could well be kept in limbo, untapped by the low-risk buyers and unattainable by the high-risk consumers. Of course the other high-possibility is that demands of commerce and enterprise survival means that official lending terms will be 'massaged' to shift the metal out of the showrooms and put straight back into the hands of the high-risk buyer, which prompts the probability of default and so the contagion migrates back through the credit system, putting the automotive world into the 'bad books' of the banking sector and government.
Ultimately, the announcement itself was typical for its lack of detail, but that is only to be expected given the yet to be released outcome of the domestic review and the yet to be released demands of Brussel's alignment of the EU auto-sector.

At the end of the day, we seem to be seeing a co-alescence of thought from the very different characters of Mandleson & Marchionne representing policy & production interests. Both singing off the same hymn sheet regards the future rationalisation of EU autos, and the need to utilise EU and national funds to provide the much needed Green step-change. To do otherwise could well put Europe at a disadvantage, lagging a technically advanced Japan, an 'Obama super-charged' US and an ambitious China with aspirations to undertake a major export drive toward Europe by its own new realm of eco-vehicle makers.

Wednesday, 21 January 2009

Industry Structure – Chrysler Fiat - “35% Down, Nothing to Pay & Maybe Even More Cash On the Way!”

There are some wonderfully sweet deals to be had from the car industry at the moment, a buyer's market no less. But perhaps none compare to the outline deal FIAT SpA has struck with Cerberus & Chrysler to take an initial 35% of the Detroit company (and a possible latter-day 55%). A successful resolution to the ongoing conversation throughout 2008.

That enthusiasm was demonstrated in the markets yesterday as FIAT's share-price rose 4.5% on the news. So the clink of champagne glasses was abound yesterday in Turin and Detroit, toasting Washington for Congress' $1.5bn assistance package to Chrysler (approved only a few days ago) as much as for the incoming President.

Given the level of American tax-payer assistance given to its auto-sector, European carmakers continue to forward their case for assistance during these depressed times and both national and EU levels. Marchionne's adroitness and charm have propelled him to as the voice of the EU auto-communitym and he has been most fervant in stating FIAT's and its peer-set's case for EU aid to the powers that be in Brussels.

A re-appropriation of Dick Fuld's now infamous words - to " keep dancing whilst the music plays" - seems very apt for the savvy FIAT boss so keen to bolster the balance sheet, retain large-cap investor confidence and politically maintain European automotive leadership on the world stage. And who can blame him in non-ending search for maximised efficiencies and minimised cost of capital at both company and sector levels?

So at this watershed time, the unmistakably clear raison d'etre for Robert Nardelli and Sergio Marchionne to join forces is to capture the mutual ambitions for a synergistically enabled product and foot-print expansion.

Whilst there is industry talk of the normal high ideals to platform share, the very urgency for Chrysler to earn revenue as soon as possible means there is a very real possibility that it has to return to its yesteryear tactics of short-term badge-engineering to fill the vehicle line vacancies. Grande Punto and Bravo (& possibly Lancia Delta & Musa) grafted with Chrysler design elements such as the wing-adorned classic grille. Whilst Panda and Doblo (and possibly Qubo) spawning Dodge 'cross-hair' grilles to take the respective roles of 'baby-Nitro' and help broaden Dodge's commercial vehicle arm (ably assisted by the 'Professional' commercial vehicle division) beyond present badge-engineered Daimler/Mercedes Sprinter. [Multipla does not fit into the US migration equation given its unique styling and ageing platform, not initially package protected or easily adapted to fit US regulations. Instead it has been sold to the Chinese firm Zotye].

Looking from the opposite angle, Chrysler will undoubtedly endeavor to try and persuade its new partner to evaluate the potential for a return swap of its own vehicles. Main focus will be on mid-size and full-size trucks given the painful level of present manufacturing under-utilisation and the high margins available even at reduced ex-factory (transfer) prices. It will hope FIAT can add these heavily de-contented vehicles to its own successful South American & RoW operations. Although Obama's stimulus plan will undoubtedly encourage domestic pick-up sales from building sector, infrastructure, agriculture & mining fleet customers, the time lag involved until such demand appears demands that other options be sought. Chrysler long remembers the e 1980 when soon after its then government bail-out it had to rely on Defense Dept. spending on military 'light-green' 'COTS' truck orders. This may be the case again in the interim along with FIAT persuasion. And from a cars perspective, Chrysler may hope that FIAT decides to use an adapted version of the European ratified Sebring in the short term as a low cost replacement for its disappointing Lancia Thesis large car, before the joint development of a new large car platform.

For FIAT such a deal means a strong foundation for a credible 21st century re-entry into the world's largest single nation car market, and dramatically assists its fully fledged global ambitions. But whilst the industry cogitates about FIAT badged cars being exported and assembled by Chrysler plants, we imagine Marchionne will take a carefully planned step-by-step approach toward conquering the US. That means not flooding the market with FIATs (which themselves would too closely resemble Chrysler's new entrants) but instead using Maserati's powerful halo effect for Alfa Romeo to build a new presence geographically orientated around (though not in) Maserati's 45 dedicated 'solus' dealers and possibly its 9 multi-franchise dealers.
Marchionni recognises that to enter and stay in the US the Italian brands must build brand equity, both individually and as a coherent price-ladder family. That means a top down strategy from Maserati to Alfa Romeo to Abarth and eventually FIAT's high-volume range.

Also importantly for FIAT the new alliance provides stable and on-going access to a broad 4WD technology base from Jeep, one that encapsulates both progressed traditional 'hard-core' off-road systems from Wrangler, and at the other end of the 4WD spectrum, CUV/car aligned technology derived from Patriot & Compass. That is an important proprietary-enabler for FIAT and something it has been short of, having to badge-engineer a Suzuki vehicle as is own for the Euro-fashion mid-size 4WD market and fund its own drive-train for specialist Italian and UN military purposes. Quid pro quo, FIAT could re-badge Dodge's CUV's for its domestic and European markets.

So the product and market story convinces, but what of the operational integration of the 2 distinctly different entities?

The cultural affinity between both leaders, given their Italian roots, may have provided an implicit 'oiling of the negotiational mechanism'. However, the melding of 2 men's visions and mutual respect vs the complex convergence required to attain the big-picture commercial ideals is never easy to marry, no matter how well considered process execution looks on paper and how great the intention to avoid political friction. Merging very separate corporate tribes has always proved a problem and so individual cases demand individually tailored organisational solutions. But at least the experiences and lessons learned from both sides over the years should allow for the creation of a JV Board that can agree the details from budget allocation to distinct areas of management competance that should build a convincing unified roadmap - one that Congress will wish to view and probably oversee.

Chrysler's position of near bankruptcy and FIAT as recent capital markets darling would appear to put them at odds, but preceding FIAT's impressive resurgence it too was close to collapse. Thus FIAT should theoretically be more understanding than most, and be able to offer valuable 'turnaround' advice.

[With typical Marchionne strategising, FIAT looks to have positioned itself in a win-win position whether Chrysler recovers or not with a US bridge-head and the possibility to acquire its US partner's assets cheaply if liquidated].

But for now the apparent show of support in coming to Chrysler's aid and the reported future aspirations for a majority share-hold gives Chrysler confidence at this dark hour, and importantly it would be put back into the hands of a like-minded 'owner-operator', after the hamstrung period where Cerberus had to understandably take care of its own troubles engendered by its shrunken value holdings portfolio. So although back with a VM partner, one that on the surface appears more synergistic than the 'ex-bride' Daimler.

But of course, this is only very early days and much depends upon line by line contract agreements for all aspects of the new marriage: from R&D to Procurement to Assembly to Distribution. As ever, the devil will be in the detail, but hopefully the last 6 months and upcoming few months will have been used to provide clear and distinct lines of philosophical agreement that underpin mutual expectations via well-defined high-line strategic and supporting operational pathways with robust phase by phase measures. For it is only by using a very robust and open process, reciprocal roles and responsibilities can be considered, agreed and attained.

[NB although required to ensure the ultimate turnaround success of Chrysler there is a chance that FIAT's gateway process and accordant measures are set very high indeed so as to lessen its burden and possibly demonstrate Chrysler's lack of capability. If this is judged as so by the US partner and the newly appointed Car Czar believes it to be the case there could be further political turmoil futher down the road].

Much will of course relate to strategic operational structure, and the ability to agree and execute recommendations to the benefit of both parties. So Chrysler and FIAT (and perhaps the Car Czar) must look to replicate those examples of best practice organisational models that have demonstrated worth and build true financial, intellectual and cultural value for both parties.

To date, Ghosn's Renault-Nissan collaborative structure appears to have generated the best results by creating a mirror-set of functions and executive seniority levels on both sides of the R-N hierarchical pyramid. Given the Daimler-Chrysler debacle, that would be a very necessary first step to encourage both parties that the agreement is indeed this time one of equals.

A first order of business should be the realistic reigning-in of Chrysler's near-term ambitions as a global player. Although previously seen as necessary so as to avoid reliance on the NA market, the company must return to its US focus so as to re-group and re-strengthen. Its products will naturally wain in many export markets in coming years as they age (many of which already 'old'), so to try and keep up the same level of external momentum would simply sap through fiscal bleed the good being done at home as a result of the FIAT alliance. However, although US earned revenue should be largely retained domestically to strengthen its position in the all important home-ground, China, Russia, India and Brazil campaigns and JVs should be given adequate support given their TIV market growth records and future potential.

In truth Chrysler must undertake a hard look at itself and its true potential in a very competitive global market that has a consumer bias many other brands, since 2 of the 3 of its brands retain little brand equity/power on the global stage beyond the US. Chrysler and Dodge have historically been less than credible bit-part players, ebb and tide enabled expansions provided only by a periodically buoyant global economic growth in which they have been able to temporarily obtain small national market shares via regional M&A or as those foreign buyers sought something 'different' to their homegrown vehicles or usual import offerings. The1960s Australian Valiant, 1970s European Chrysler Avenger, 1980s US/Australian Galant, 1990s Neon and 2000s PT Cruiser & 300C are all differing examples of the same story. Thus there has been an ongoing tidal-esque attempt at international expansion for nigh on 50 years, but serially unable to create the required, well plotted firm foundations a fully fledged credible global enterprise needs.

Looking back at its NA operations and Chrysler-Dodge-Jeep could utilise FIAT's new eco-marketing campaign called 'EcoDrive'. It is essentially a computer-based service product that utilises the data storage of a transferable USB stick (between car and home) to provide a personal portrait of one's driving style so as to encourage (with the aid of tutorials) improved eco-driving techniques and general behavior. It appears more of a dedicated educational device as opposed to marketing gimmick, so the European uptake and accordant customer feedback should be keenly monitored.

Concentrating on the eco impetus for new product development initiatives, and the alliance will greatly assist the R&D and productionisation costs of new hardware efforts towards an alternative propulsion technology future. To be candid, Chrysler's recent eco-window-dressing for Congress' – so as to access Energy Bill & TARP funding - could be considered as high in style but lacking in real substance. The 4 vehicle show consisted of:

1. An updated N(EV)-vehicle from its GEMcar division
2. A Dodge badged Lotus Europa with Tesla (EV)-powerpack (3rd party IPR application)
3. An adapted hybrid (EV) Jeep Wrangler with conceptual hub-drive (3rd party IPR application)
4. An adapted hybrid (EV) Town & Country Minivan

This overtly 'pragmatic' eco-range offering is in reality either far from production reality in the cases of Jeep and Minivan, already owned by other parties and of minimal real-world Co2 reduction impact or already part and parcel of Chrysler's business operations. However, marry FIAT's slow but sure 'proper' advances with 'micro-hybrid/stop-start' technology and the low volume adaption of small commercial vehicles to full electric drive and there is much potential for the leverage of technology transfer from Europe to North America, enabling Chrysler's efforts to really advance capabilities toward the eco-cause and give its ENVI green-tech division something substantial to work with.

[We foresee the use of Dodge badged small commercial vehicles taken from the FIAT Professional range as the base of EV taxis and small business EV vans as a rival to Ford's Transit Connect depicted as a New York cab. Perhaps Ford taking the East Coast whilst Chrysler take the West Coast?]

But how does Chrysler over-come its present-day calamitous cash problem?

That can only really be answered by the continued financial drip-feed from Washington. Undoubtedly Congress is heartened to see that their own 'American Patient' seems to have gained a major benefactor that will figure highly in the 'roadmap to recovery' plan due but March end. But still questions will be abound as to how long the requested bridge-loan must stay in place until the benefits of the JV become apparent, for that interim cash-burn dictates the ultimate size of the low cost loan.

Beyond the TARP+ funds, Congress made available a sizable amount now being allocated from the 2007/8 Energy Bill. FIAT will have no doubt had foreign-partner access to these monies in mind when it negotiated with Chrysler. That could feasibly underpin a Michigan based Chrysler-FIAT tech centre (refurbishing a present building or erecting something new) focused on the CO2 cause so close to Obama's heart and national developmental purse-strings. That in turn could as as the required impetus for FIAT to increase its latter-day investment.

Of course as of today, with an agreement in principal but no legal papers drafted, the auto-industry's typical politicking will have Chrysler reviewing its position going forward so that it does not end up 'over a barrel' to FIAT; the Italian firm either demanding increased transfer pricing for R&D, platforms and modules, or even go as far as to subtly starve Chrysler and take over its market share. Downside scenarios will have been considered and will no doubt be taken into account when contracts are drawn-up.

If all goes according to plan then both VM's will benefit substantially from the relationship, the competitive advantages gained ensuring the Detroit player's survival and the Turin player's long time ambition realised, the expected post 2010 rebound of the US car market the beginning of a renewed economic business and consumer confidence.

And as for the idea of a latter-day integrated 3rd alliance suitor, although progressed has slowed due to the dramatic Asian stock-market slow-down over the past year, don't forget that the Chinese FIAT-Chery engine manufacture JV continues to be successful, even if the Chrysler-Chery vehicle assembly JV had to be disbanded. But surely Nardelli and Marchionni will want to see the Hornet project revived to ensure that FIAT and Chrysler have access to a lowest cost small pipeline, product quality levels met with FIAT's China-made Linea and importantly re-seize more than a modicum of control over the best of China's evolving VM and OEM participants, given its loss of market momentum (relative to the dissolved SAIC-Nanjing deal).
Once the formalities are approved, both parties may well be seeking-out Chery once again to create a true triumvirate of global spanning, alliance-built strength.

With this important Chrysler-FIAT announcement, the academic and industrial interests of other industry heavyweights will become apparent.

Carlos Ghosn, who created the formational template will undoubtedly be watching closely to see how the new and revived network evolves, and Ratan Tata - a Marchionne peer on the FIAT Board - who has a raft of his own cross-division integration issues will be assessing the emergence of new associated portfolio leverage ideas - including Land Rover-Jeep possibilities in addition to the previous Jaguar-Maserati conjecture.

But for the moment, before the world of unbounded conjectural possibility can be realised, the main space to watch will be the Nardelli-Marchionne performance due at Capitol Hill. For at that point, given the 3-way stock hold in Chrysler between Cerberus, Daimler and FIAT and the possible equity and oversight demands of a vested federal government with its Car Czar, the 'shape' and autonomy of a previously independent Chrysler could be radically changed.

Friday, 16 January 2009

Company Focus – Harley Davidson – Backing Off the Gas, Checking the Motor & Attracting a Racy Italian to Ride Pillion

As NAIAS progresses at Cobo Hall and US automakers are forced to stoically face the industrial consequences of a deep recession, westwards from Wayne along the western shore of Lake Michigan lies Milwaukee Wisconsin and another legendary American automotive company – Harley Davidson.

Although the deep downturn will ultimately take its toll on revenue and earnings, (FY08 results due next week on Jan 23rd) the company will argue it is better positioned than much of conventional US Auto - able to more effectively temporarily shrink, rationalise operations, seek new synergies and 'ride-out' what for most is a dire retail marketplace.

The Harley Davidson Motor Company presently consists of 5 divisions; though soon to add another with a recent acquisition. As of today, they are: the Group's primary H-D Motorcycle division leading: Parts & Accessories, General Merchandise, another motorcycle Product line named Buell (little known outside the US) and Defence Products. [NB the use of the word 'Motor' as opposed to 'Motorcycle' in its official title, an undoubtedly considered action to provide a broader realm of strategic and operational possibilities].

The H-D Motorcycle division's almost exponential YoY top-line growth has itself been the stuff of legend between 1986 and 2006. The figures below are depicted in an accompanying graph, set against stock-price trend of last 5 years:
1986 $ 216,392
1987 $ 268,821
1988 $ 327,124
1989 $ 409,847
1990 $ 485,255
1991 $ 548,145
1992 $ 662,489
1993 $ 729,183
1994 $ 890,578
1995 $1,038,335
1996 $1,199,163
1997 $1,382,809
1998 $1,595,415
1999 $1,890,932
2000 $2,280,929 (ROIC >20%)
2001 $2,671,314 (ROIC >20%)
2002 $3,161,046 (ROIC >20%)
2003 $3,621,488 (ROIC >20%)
2004 $3,928,232 (ROIC >20%)
2005 $4,183,515 (ROIC >20%)
2006 $4,553,561 (ROIC >20%)
2007 $4,446,637 (ROIC of 26.3%)
2008 $4,055,333 (investment-auto-motives' est)

As we see 2007 posted declined group income, (net revenue -1.3% and declined group net income -10.5%) and so even though running understandably lower, what has been a relatively decent showing for Q1-3 2008 is bound to be hit hard by Q4 figures as consumer confidence continues to falter.

The 20 year growth was impressive indeed, displaying a high acumen to leverage the power of the brand by 'mainstreaming' the HOG cult (during a 20 year period of domestic and international expansion) to create consumer resurgence of the 105 year old brand. (It has since become a text-book case study in industry and academia). The company's historical share-price, even after multiple splits, highlights its general commercial success; even with the 2004 alleged dealership over-shipping and stock price manipulation claims by institutionals regards the ex-CEO's 'timely' stock sale actions

But the previous $40 lows of 2004 look favourable compared to the 33% drop over 2007 and the very heavy 'cliff-drop' since July '08, created as a consequence of the devastating effects of the credit and banking melt-down has affected many consumer focused industrials. Recent prices illustrate the impact of both general industrial investor malaise and specific investor concerns regards what are perceived as the most highly exposed sectors and companies, typically those fashion and credit dependent.

There was some stock-price hold towards the latter part of 2008 as it was presumed that the Asian consumer with possible US-Asian economic de-coupling, would support US exports such as Harley. But it has become evident that (primarily) China's economic contraction aligned with the past 6 month's of strengthening for the US$ has extinguished that previous positive presumption.

Thus the general perception is that of gloom – luxury and leisure goods taking perhaps the hardest hit.

Long recognising that H-D's almost magical commercial formula could be prone to economic and bike fashion trends the company's management have taken steps to allow for the need for product and brand diversification to hedge against a single-dimensional persona. That thinking brought about the aforementioned use of the word 'Motor' in its official name and in 2003 the full acquisition of Buell Motorcycles – a rare US sports-bike maker that uses innovation as a USP – the complete opposite to H-D's classic and unchanged architectures. [Buell is located nearby in Troy Wisconsin originally founded in 1993 by an ex-Harley engineer (Erik Buell) as a Harley-Buell JV (49%:51% respectively].

Thus H-D obtained a (theoretically) strategically important foothold in the complementary (and importantly) globally massive, Sports-bike segment that is effectively owned by the Japanese, so as to philosophically balance and 'hedge' its No.1 ranking in traditional 'Choppers'. That 'hedge' is wise, but after 30 years of Japanese dominance the segment will be hard to conquer. And though Buell was born on the US national track, the likes of Suzuki, Honda and Kawasaki are the undisputed global masters of sports-bike racing for a perceived eternity.

The only real emergence (or rather re-emergence) as opposition has been Ducati in the late 1990s and early 2000s. With PE funding to re-create its engineering ability which gave rise to international competitive success, Ducati became considered the Ferrari of bikes, an Italian inspired, high-minded, deep-pocketed counter-cultural revolt against both the antiquated technology and blue-collar 'HOG' association of Choppers, the boring 'old-man' conventionality of typical Touring bikes like BMWs, and the social stereo-typing of Japanese sports-bike riders as dangerous unthinking adrenalin junkies. Merging yesteryear prestige and modern technology Ducati was born again.

And in its strategic drive for both portfolio diversification and synergy seeking, H-D appears to want to replicate the Ducati 'road to victory' with the $109m acquisition of the essentially lost but not forgotten Italian firm of MV Agusta. Looking to re-capture the long ago but not forgotten glory days of yesteryear.

[MV itself could be regarded as a foster child, previously heavily indebted it was previously sold to Proton (the Malaysian car company) for 70m Euros in December 2004, but by December 2005 Proton sold it back to the Italians for 1 Euro excluding debts, going to the PE firm GEVI SpA. GEVI 're-financed' MV holding 65% share capital, essentially offering basic working capital and gaining from the valuable subsidiary sale of Husqvana to BMW for undisclosed amount. MV still holds Cagiva as subsidiary (which itself has old links to H-D), and interestingly Cagiva as a previous holding company also owned Ducati between 1985-1996 but sold that to the PE firm Texas Pacific Group, which underpinned its aforementioned revival. The twists and turns of the industry!]

But it seems that rather than develop MV Agusta & Cagiva brands itself, possibly readying the company for an LBO/MBO, GEVI SpA preferred to sell outright to Harley-Davidson. Probably done so recognising the 'turning tide' of the premium sports-bike sector, little own portfolio synergy leverage and a timely profit maximising exit from the investment.

From the buyer's perspective, the MV Agusta/Cagiva acquisition provides H-D the benefits of:

1. Additional brands with different European/Italian heritage, cache & leverage (a la Ducati)
2. Abilities to economically synergise Buell with MV-Cagiva (R&D, tech, production, distribution)
3. Ability to, if FX costs prove necessary, assemble Buell bikes in MV-Cagiva plants.
4. Access to a new globally massive bike-market segments - small capacity engines
Of these commercial drivers, items 2 & 4 deserve more attention:

Thus relative to item 2, today H-D's brands and products span a broad spectrum of motorcycle segments from [simplistically] Classic H-D 'big-pot' and 'mid-pot' Choppers & Dressers to Cagiva's 'small-pot' (125cc) / Buell's 'mid-pot' (500cc) / H-D's 'large-pot' 'Naked' – 'Street-fighter' - 'Muscle' upright bikes to Cagiva's & MV's technically conventional yet emotionally connected 'small-pot' and 'mid-pot' sports-bikes to Buell's technically avante garde sports-bike. And most interestingly as of 2009 H-D has introduced a 3-wheeler trike into the range which reflects perhaps the possibility for broader 'motor-vehicle' portfolio ambitions in the mid and longer term time horizon.

H-D could well be creating the foundations and building blocks that provide a fully fledged platform and production strategy akin to the automobile industry, perhaps best illustrated over the last decade by VW's use of sensitively adapted platforms for Skoda, SEAT, VW and Audi. What H-D cannot afford to do is simply badge-engineer a plethora of me-too products as GM has done for decades and so suffered by. H-D management will need to sensitively handle the balance of scale economies vs product integrity.

And relative to item 4, the decision to enter the small capacity engine market opens up literally a new world of opportunity given the millions of 125cc (& <125cc>125cc variants siblings) sold throughout Asia (esp China, India) and growing trends in the rest of the world in a bid amongst bikers and previous non-bikers to combat increasingly high mobility costs and inconvenience, whether that be conventional cars gridlocked in cities or on highways or indeed increasingly expensive and unreliable public transport if infact available.

Moving into the premium end of the 125cc segment with plausible brands and product architectures provides opportunity to create a complete portfolio of 125cc variants and in due course the possibility to procure other OEM engines in the 100cc-250cc range to extend product/brand appeal.

There are a plethora of Asian manufacturers in this sector with nationally indigenous and export popularity, but none have the cache of the racy Italians or racy American. And, although it has been a painful process negotiating with the Indian authorities regards H-D's import and domestic assembly intentions – in all probability due to what the Indian's see as a threat to their own motorcycle industry, from a Bajaj 125 to a Royal Enfield Classic - there must be a way of both the US and Indian industries benefiting mutually from eachother, as previously proven by the Indian-Japanese Bike JV's of Hero-Honda and TVS-Suzuki (which now appear to be seperating and so leaving a possible IPR vacuum for the Indians), and as witnessed with India's automotive JV's.

Finally, looking as far out as the 4 wheeled car world, investment-auto-motives believes that H-D, if it hasn't already, should undertake an exercise to see how it could enter and exploit the quickly changing small car market by naturally 'walking up' beyond its present (to be honest rather poor) trike offering by re-conceptualising that and using that base to consider a fully fledge lightweight 4-wheeler...after all HOG's do have 4 legs!
Add to the business mix H-D's desire to maintain a well-cultivated eco-reputation (ie efforts to expel old ground-contamination from an assembly plant) aligned to the need to consider the emergence and role of eco-technologies (ie electric motors and even hybrid motors), and the strategic possibilities for the company appear endless.

To be candid, investment-auto-motives suspects that Harley Davidson Motor Company considers the in-roads made to date with Buell as somewhat disappointing, realising the pain of organic growth of what in industry terms is a new start-up. So given the size of the global sports-bike market and so has decided to understandably add another string to its bow with MV.

The trick will be to expediantly execute the innate potential (visible and invisible) that resides as a result of the M&A. Reading between the lines of H-D's actions, ambitious but achievable plans appear to have been drafted; ones that use the strategic technology, production and retail foundations logically created by the MV Agusta acquisition.

H-D has been here before back in the 1970s having to alter its traditional business model to befit chnaged times. investment-auto-motives hopes it learned the lessons of the past to enable a return to strong global growth using the new 'dual path' commercial ideology that has emerged once the enforced hiatus of the present economic watershed has expectantly passed in 2010 or so.

Monday, 12 January 2009

Industry Structure – China – Formulae for the New Economic 'China Syndrome'

The booming double-digit growth years of the Chinese car market (the world’s second largest) have for the immediate future come to an end, given the exponential character of growth. CAAM (China Association of Automobile Manufacturers) reported that by year end 2008 saw car sales rise to only an averaged 7.3%

This shouldn't be a surprise, given the macro-effects of sharply declined Shanghai and Shenzhen stock markets that took the shine off the economic stampede, resultant hesitant investment in CapEx, demise of wage-push inflation as labour markets eased and so a concomitant slowing in the 'gold-rush' mentality that continued to deflate house purchases & building. The Olympic Games effectively signalled the end of the party, and the Chinese consumer saw it coming.

With so much rivalry in China's domestic auto scene, it was the innate climate of negotiational flexibility that kept the car market heated previously and was the driver behind that maintained credible 7.3%. The full auto value-chain, from tier 2 suppliers to manufacturers to dealers have been locked in their own highly competitive intra-sector struggles to be the winners of the what everyone knows is a period of winners and losers - of consolidation....of strategy formulation and execution....of ultimately, jostling for position and future fortune.

As the economic slowdown takes effect (created by a downward spiral of deteriorated exports to and so reduced domestic consumption – the 'New China Syndrome') it is the psychological lull that PRC officials must combat to stave off the chance of truly recessionary times. But the impetus, and specifically socio-economic results, of the $589bn stimulus package will take time to feed through, and importantly this very initiative could possibly induce the national psyche into a far more somber mood; recognising wealth creation comes from the public purse and not productivity gain. This will create a PR challenge for 'The Chairman' Hu Jintao since the necessary stimulus action has overtones of yesteryear's planned economy, with a concern that the 'party machine behind the economy' might slip-back into 'command-control' mode; even if not obviously apparent.

And that question of exactly how much governmental intervention may be forthcoming will be of great concern to Chinese car-makers, suppliers, dealers and just as importantly to the plethora of smaller independent garage operators that service the nation's appetite. For many know the ideology set out for the future of the industry to reach the international benchmark as soon as viable, with 2012 being the end of the current industry re-orientation phase

Whilst the sector's structure is being discussed and massaged into shape behind closed doors, more evident has been Beijing's announcement of measures to buoy consumer demand such as further across the board short-term new vehicle purchase tax cuts carefully balanced against needed endemic policy changes such as support more energy-efficient vehicles - a new purchase and annual taxation threshold put in place on 01.09.08 for vehicles with engines of more than 3 litres cubic capacity.

Early '09 new year official media reports indicate that Beijing has set a target of 10 per cent growth in the Chinese car market in 2009 and would announce yet more measures to stimulate private and corporate / agancy sales. Smaller sedans (the mainstay passenger market variant) and 1.0-1.5T (Isuzu derived) generic Chinese pick-ups are in the frame as logical beneficiaries.

Although many VMs will have been analysing the road ahead, the respective product pushes by a 'new-hand' domestic VM and 'old-hand' JV-domestic automaker, illustrate the zeitgeist; electing to focus on these core markets.

Great Wall Motor Company has extended its forage into passenger cars, moving beyond its highly profitable original and ongoing truck and SUV origins and passed a more recent confrontation regards 'copy-cat-car' accusations alleged by FIAT. It has created its own compact sedan 'China Car' initially produced in comparatively minuscule numbers of 10,000 units or so. This cash-rich company has re-invested the liquidity hoard provided by its trucks to step-toe its way into a volume market, even if initially at small scale.

At the opposite end of the spectrum is SAIC-VW with its newly introduced Livida, a (Jetta-sized) China only car that marries the best of: a) ammortised engineering from the eponymous Golf IV platform to reduce BoM costs, b) Chinese cultural spin in its 'design DNA' as part of its marketing campaign and c) product association with its bigger (iconic) Santana and New Passat 'bigger brothers' - all contrived to ultimately maximise margins. Livida will undoubtedly set the standard all others (foreign and national) will have to meet, and in the process build upon VW's massive Chinese market brand strength in sedans as the relatively newly arrived Japanese continue to march over slipping Euro & US counterparts.

Thus, as of today, it will be those automakers who can now appeal to the emergent 'flight-to-safety' mentality of the private consumer, corporate fleet buyer and public-agency procurement department should prevail, and the core strengths of the aforementioned duo will come to the fore.

The resultant China Syndrome trend of 2009/10 is the creation of the 2 automotive gravity pulls stated:
1) shallow consumer pockets seeking 'safe-haven' brands and cars,
2) deep public purses seeking sizable domestic utility vehicle acquisitions

The capital expenditure programmes of those enterprises throughout the value-chain that foresaw the slow-down appearing over the horizon and acted early in 2007 will have been well expedited. And these new fractures will ultimately reform China's ever evolving auto-sector into a newer, leaner, clear-cut and more industry and consumer apparent 'shape' come the 2012 review. The chaos and the clutter is being cleared and 2009 will be a watershed period in doing so.

Friday, 9 January 2009

Industry Structure – United Kingdom – Are the Industry's Credit Calls Credible?

Further to the pre-Christmas murmurs and meetings, large sections of the UK Auto Industry are calling for the government's assistance to ensure that liquidity-easing policies and measures are enacted. Done so to obviously generate a liquidity trickle-down through B2B & B2C streams which theoretically should re-attract deserting car-buyers.

The SMMT's 2008 new UK registrations show a sharp decline down over 11% YoY to 2.13m units, and now predicts that the 2009 total will be the worst on record for 16 years, since the 1992 recession. Unfortunately, the roots of that recession weren't as deep or engrained as the circumstances seen today, and with jobless figures mounting to levels unseen for 4 generations, the real consumer demand is very very very hard to quantify.

Paul Evirett, the SMMT's CEO, states that “Further action to ease access to finance and credit across the economy is essential if long-term damage to valuable industrial capability is to be avoided”, duty-bound to make such an appeal on behalf of his members and the automotive sector at large.

But, as we see with the commercial and public housing mortgage market, much of the made-available liquidity is being drip-fed into the market by the banks, who are essentially obliged to both buoy their own balance sheets in these very uncertain times and focus lending around low-risk parties.

And of course that is the nub of the problem that faces the UK's car market, largely dependent on consumer whimsy since cars have, for the most part, been fashion and status symbols as opposed to purely rational mobility devices.

Like the US, though not quite as bad, the UK's car market was inflated through the use of more and more lax credit terms, many of the deals being offered being essentially value-destructive in the long term, as we see today, based upon then short-term 'on-paper' gains.

Today's credit climate has 'about-turned' that lending attitude 180 degrees. As now witnessed in the UK mortgage banking sector, lenders are rightly judiciously delineating and segmenting the market as a consequence of their own risk-management. Today setting out their stalls through altered practice in their Terms & Conditions and tiering their SVR and Fixed mortgage rates relative to the level of risk-exposure - preferential lending offers given to those with hefty down-payments and flawless credit histories.

By rights, the same lending philosophy should be applied to all consumer durables including cars and have a parallel assertion to vehicles used in the commercial realm, spanning everything from a firm's functional vehicle assets such as vans, trucks and sales fleet vehicles through to management's car-park automotive heir achy.

Lending is generally seen as core to economic revival, and a willingness to at least appear to do so decisively won Gordon Brown pundit applaud in December 07. But as the Conservatives point out, economic priming through lending assisted by other initiatives such as 'quantitative easing” (printing money) must be taken with great caution. Inappropriate, over-reactive stimulation (partly attributed to being seen doing something) could well exacerbate the problem, its apparent assistance doing little more than creating a false economic bottom that will create greater future economic flux/volatility instead of allowing free-market forces to bring about a true and sound economic bottom from which long-term value creation can be garnered.

And this is the quandary that the UK government and its economic and industrial advisors must attend to, the sooner the better. And of course within that intra-national quandary is the question of how best to deal with and leverage the short, mid and horizon issues the UK automotive industry faces.

As Nissan retrenches 1,200 jobs in Tyne and Wear, Honda extends temporary factory closures and cancels renewal of outsourcing contracts and Jaguar-Land Rover's parent TATA is forced to appeal to the Indian public for needed cash injection, it must be recognised that the problems facing the UK auto-industry, and many auto-sectors in the 'advanced nations', it is a hard pill to swallow that immediate woes will not be solved by simply by opening the flood-gates to re-circulate credit.

Given that easy credit was the lifeline the industry survived upon for the last decade it is an easy assumption to make, but to do so would be irresponsible, giving 'life-support' to antiquated business models. At worst it could lead to yet another credit derived catastrophe in the not too distant future, or at best create the type of minimal growth, 'virtually suspended', economy seen in Japan over the last 15 years.

Yes, credit is a vital part of the economy, but as is now painfully recognised, it must be used with great acumen and foresight at a time when the economic engine (the powerhouse of wealth) and economic gearbox (the relayer of wealth) are effectively being 'reconditioned'. It must be carefully apportioned, given to those stable and sound enterprises which offer real long-term development, wealth generation and wealth dispersion prospects.

For the likes of Brown, Mandleson, the Treasury, BoE and 'devil's advocate' Conservatives, the onus perhaps more than ever since WW2 is upon responsible structuring and fiscal support of the inter-dependent banking-industrial-consumer economies. Since, for far too long the cart (of credit) was put put before the horse (of reason).

Sunday, 4 January 2009

Macro-Level Trends - Economic Outlook – Seeking Solace in Gloomy Times: The Tipping Point for Capitalism's Re-Formation

The start of the year is always accompanied by commentary of the economic outlook from well regarded government, banking, institutional and trade body economists.

Given the events of the past 18 months, it is no surprise that this year sees perhaps the worst of expectations, many believing the US, UK, Europe and RoW are just about entering the bottom of the trough for regional and global economic cycles – the length of that 'bottom dredging' disputed, from anywhere between a 6-month lull with quick 'U-shaped' pull-back to worries over a multi-year 'L-shaped' drag: a mini version of Japan's stationary experience.

Of perhaps greatest concern has been the tendency for governments to either underestimate or over-pep the reality of the situation, typically exemplified by the UK Treasury's presumption that mid 2009 would see the beginning of a 'climb out the bath-tub'. That expectation now looks overtly optimistic given that it was undoubtedly based on best-outcome scenarios for the US 'bounce-back' and Asia's slowed but strong demand growth propelling the West. Both those catalysts now look to be respectively absent and scarce.

The on-going economic stumbling of the US has been unfortunately maintained by an effective hiatus created by financial markets 'fire-fighting' (blazes rearing unexpectedly hither and tither), a Presidential change that has allowed a vacuum of leadership and the details of TARP definition & funding allocation being seemingly eternally negotiated – as we saw with the Autos Bail-Out action. Thus the effects of the ever-spreading, viral-like fiscal break-down that affects the full spectrum of the economy (B2B, B2C & C2C in the case of housing) has been exacerbated by a testing of, and partial failure of, sound economic knowledge knowledge and its direct practical application.

[The various micro and macro-economic theories of Smith, Malthus, Ricardo, Keynes and various 'Schools' have all been debated in the effort to find an all encompassing solution. But of course, as any academic economist will state, it is the very unfolding of ongoing commercial history that evolves capital markets' shape, two crisis never exactly replicable thanks to such evolution, and so giving rise to a never-ending compilation of economic learning, intelligence and modeling. Academic absorption is presently cold comfort to politicians and their public].

As for Asia's previously considered 'decoupling' coming to the aid of the West, Chinese and Indian recent experience highlights the critical importance of inter-dependent globalised capital markets as the life-blood of global trade and the propensity of aware and reactive Eastern consumers to retract their own previously optimistic economic behavior to protect themselves. The workings behind the theory of marginal utility has never been so apparent.

The rapid shrinkage of export demand has set BRIC national governments into action with economic stimulus packages to help off-set growth deflation, but equally and importantly, the relatively new consumer markets within China and India are built upon very very rational social cultures which less than 2 generations ago were largely subsistence-based and family-support-centric. This means that the majority of new consumers that have helped create the economic miracles psychologically are ultimately 'defensive' economic players. Hence the effective exodus from House, Stocks and Vehicle purchases. The boom-bust of housing and stocks burnt many late-comer fingers, now weary to quickly return, and the previous good deals available in the auto-sector thanks to market saturation have dissipated and those that are available can be viewed but ignored when as the employment concerns of industrial re-structuring becomes an increasing concern to the populous.

The outcome for both West and East has been a level of government intervention beyond historic precedence - the US' $700+bn & China's $586bn to respectively re-inflate and maintain buoyancy of the world's largest economies. Both infrastructure and industry-progressive based initiatives inspired by the Keynesian-esque turnarounds of the past. This notionally agreed mutually supportive, dualistic, 'pincer' approach of the US and China reflects the newly emerged term 'Global Deal'; as coined by the likes of Lord Stern and Sir Howard Davies of the LSE. This very phrase broadens the very realm and definitions of nationally 'paralleled' global economic activity, far beyond historic norms; and is evidently witnessed by the need for the world's central banks to react to the financial crisis in the co-operative, mutually assured, almost unified manner. Hence the words 'Global Deal', whether used euphemistically or as the ideology behind new structural economic thinking, reflects the global economic reality of today.

So, given the massive scale of the global financial melt-down and the need to re-construct an improved framework for global capital markets to serve the global good of international free-trade, the task for economists, politicians and industrialists alike in 2009 is to consider and re-consider the very tenants that make-up a revived and improved capitalist model. Moving beyond to take the best of 'old-world' Anglo-American capitalism and adding new PESTEL dimensions that reflect the needs of today's and tomorrow's individuals, societies and commercial constructs.

To evolve a form of philosophically sound and socially accepted global capitalism which can critically delivers a sustainable prosperity for the remaining majority of the 21st century and beyond.