As stated in the last item, Adam Opel's CEO has the unenviable position of having to metaphorically juggle the many balls of a growing number of corporate, financial and political stakeholders.
The recent episode of the dealer-base offering to prop-up the flailing GM division could well have been concocted behind closed doors between Opel seniors & the dependent dealers as a way of trying to force the Government's hand, recognising that the complexities and 'payback' of such an arrangement could only have worked with a complicit 'tax-payer backed' agreement from the the CDU (Christlich Demokratishe Union Deutschlands).
Angela Merkel, holding her ground, was having none of it, recognising the publicised initiative as simply a ruse within today's environment of 'Realpolitik'. But that and similar moves have played to the CDU's left-leaning co-alition partners – the SPD (Sozialdemokratishe Partei Deutschlands) - who given their prevalent socialist ideology are using such external efforts to leverage their own cause for re-election.
Given that the industrial heartlands of Germany are feeling economic pain, the mass populous Ruhr and Breman areas already SPD core areas are unfortunately (but understandably) becoming more and more persuaded the the party line of “social justice” - even if the debate regards the national budget accounting projections for such works are conveniently side-lined.
Part of that potentially ballooning budget deficit and GDP ratio is the issue of Adam Opel GmbH. With Lower Saxony's recently defended (19.9%) ' VW Law' re-setting a precedent, the Northern, Western & NorthWestern populous of comfortably-off factory workers, office staff and sections of management – the people who's prosperity soared thanks to fiscal conservatism and German productive efficiency – are waiting with baited breath for a similar deal for Opel.
This flawed “VW solution” has been prompted by apparent calls to do so from the SPD in the Bundestag chamber accompanied by the Labour Minister's (Olaf Scholz's) pronouncement in last weekend's national newspaper (Die) Bild – its tabloid content wrapped in a broadsheet format an unfortunate powerful conveyor of social influence.
The unsurprising retort from the CDU's Volker Kauder was that it would set a precedent for 'cross-the-board' sector and company bail-outs and must be resisted. Instead of the anti-market notions of Opel's partial (or even full) nationalisation, he repeated the line that Germany would be willing to provide state guarantees to Opel but it must first present a convincing turnaround plan. Whether that argument is real or yet another example of a tactic in 'Realpolitik' remains to be seen, given that GM HQ is pointedly seeking $4.5bn / €3.3bn in loan guarantees from European states, Germany financially the most heavily exposed given the size of Opel's innate car producing capacity and the associated 29,000 jobs.
Merkel's fractious relationship with her French peer Sarkozy has done nothing to assist her cause in recent weeks as he seeks to placate his public by having Renault re-shuffle / swap its production builds of Clio & Twingo between E.European and France; and by doing so thereby straining relations with Brussels given the 'spirit' of conditional EU financing.
Beyond the outward politics, the real problem emerging, as GM seeks to relinquish its stake in Adam Opel GmbH, is who would be willing to invest in the company? The government's distancing itself is understandable, probably less a result of business case dissuasion than it conveys and more a case of recognising that it would not be in the best interests of the public purse or ongoing economic transformation. But discounting one obvious candidate does not reveal an obvious other.
Unless a virtual protectorate of the state (France, Italy), the very basic tenants of traditional car-making have forced the industry to lower cost regions; the consequences of failing to do so now ever so evident in Detroit and across North America.
However, 'on paper' Opel could have a brighter future in a very different mould if it is given a level of free reign by GMHQ. Opel is a major contingent of GMNA's survival since it plays the role of medium car design developer (to S. Korea's GMDAT's small car division) as it presently provides the platforms and much of the technology know-how for small efficient powertrains that GMNA seek to re-balance its own domestic portfolio with. The Korean made small cars that have been shipped to the US with affixed Chevrolet badges have been poorly received given their engineering weaknesses, but the Saturn re-branded Opel derived cars, though small in number and incorrectly positioned, have won a modicum of favour.
The problem for any Opel investor seeking to profit from Opel's previous and current high-standing within the GM global empire is that, of course, much of the core design development capabilities could be transferred to GMNA leaving behind an operating enterprise that contains little beyond an empty shell. Potentially, whilst Opel flounders in Europe ill-equipped and short of capital, its operational DNA could be used to revive GMNA's engineering base that in turn pumps out small and medium cars from lower cost US, Canadian and vitally Mexican 'Maquiladora' factories.
This notion cannot be lost on Merkel or any 'white knight' investors, but of course as with any transaction the devil is in the detail of deal due diligence, sale contractual agreement and post-takeover due diligence.
But in the meantime, the German Government perhaps needs to undertake its own Opel Audit to better understand and assess how a very differently structured Opel could possibly enter a new age. That's what a number of international PE firms, Tier1s and 0,5s, the Chinese auto-sector and even GM (as a back-up plan) may well be doing at present.
Merkel should not be moved by public or GM/Opel pressures, but she and her cabinet would be wise to see how exactly Opel could be re-configured to suit different possible suitors with differing entry strategies.
Tuesday 24 March 2009
Wednesday 18 March 2009
Macro-Level Trends – Germany Autos GmbH – Opel's Need for a Miraculous Lightening Bolt from Above
As the G20 summit approaches there looks to be continued friction of ideology between the likes of the 'prime-pumping' Prime Minister Brown & President Sarkozy, and the altogether more 'spend-thrift' Chancellor Merkel. As stated in previous posts, Germany has had a hard 25 year journey to reach today's far more open market-orientated socio-political mentality, and weaning the public off of a German Nanny State has been worthwhile in terms of revolutionising its productive efficiency, commercial acumen and ultimately standing regards 'high-value' goods & services upon the world stage.
Though it is suffering, as all are today, with exports down and a deflated economy, Merkel recognises the dangers of returning her country to a less than globally competitive entity. So whilst the Chancellor and her cabinet have balked and succumbed to the desperation of state funding intervention, it is not on the proportionate scale of the likes of her European neighbours or the USA.
Instead, she has been a key proponent of expanding the role of the IMF to assist the global financial challenge, a call latterly supported by the French President.
Where the 2 differ significantly is with regard to Keynesian economic theory that surges national indebtedness to support industry and the consumer in the fight to re-inflate the business, consumer and financial marketplaces. Though Germany was ultimately forced to save its highly exposed large financial enterprises, to keep the financial system from collapsing, has been trying to draw a line in the sand against the calls of the broader private business sector for assistance. Merkel caught between the conscientious righteousness of economic responsibility and the houndings of business leaders, strong unions and consumers.
Unlike the populist seeking Sarkozy, who appears to be re-introducing a manner of 'de Gaullism' Merkel is willing to wear public wrath. France's massive directly injected state support for its national auto-industry stands at $8.8bn as of Feb 09 (primarily split between Renault & PSA), whilst Germany has stated that it will alot $1.9bn, done so indirectly as a scrap-incentive scheme for cars over 9 years old.
Caught between a rock and hard place (its GM parent and a to date staunch political stance) perhaps the most high profile 'casualty' of the recession is Adam Opel AG. Although the prime business of GM Europe (and in global terms a generally/historically positive revenue earner) the effects of slow-to-thaw wholesale credit and massively loss of confidence in the consumer-base, means that even this historical 'solid performer' has stalled heavily.
And moreover, Carl-Peter Forster - the company's inveterately professional CEO – recognises that the longer Opel is caught in the intricacies of the political realm, the longer and greater the suffering within marketplace against its national and international peers; which with greater cash reserves, brand consumer relevance and product cache would like to see Europe's 20% or so overcapacity be cut through the loss of Opel. Non more so than VW Group, BMW Group and Daimler Group who will be happy to see the 'market discounting effect' Opel could be said to use to hold market-share eradicated; and so enable improved margin, RoS and ultimately RoI. And as 'role-playing' national participants of that painful German economic progression (which Merkel does not want to slip) they will have strong voices in Berlin against any form of 'favoured' assistance.
Merkel knows that she can't be seen to promote the double-standards of such favouritism, and also recognises that the national accounts cannot support the equal assistance given to Opel for all Germany's volume producers. And that even if it could, that little would change for the relative strength sector inhabitants in the medium term. Opel simply gaining a stay of execution for a finite period until either finally pulled under by its parent, marginalised in the market by far more competitive peers or at best acquired by a (probably) Chinese Auto-Firm in years to come for a 'low-ball' price intent on using the brand and dealer-base as part of its own global expansion ambition. Thus, if that is truly the most likely outcome for Opel, why inject so much government cash in the firm – updating plant and products - only to have such valuable assets sold off under par value?
In the meantime, after his discussion with Karl-Theodor zu Guttenberg (the German Economics Minister), the ever up-beat Rick Wagoner appears to be playing Merkel off against her public via the press, with quoted reports saying he thinks German politicians are “really getting into this” (ie the idea of state aid). Guttenburg's response was unsurprisingly rather less enthusiastic, stating that Berlin was looking to see exactly what GM was putting on the table first, and what the Opel corporate plan could viability deliver, before it cited political promises.
GM's need to divest responsibility and consider radical global re-structuring has been conveyed by its pronouncements that it would be happy to “cede control of GM Europe” (inc Vauxhall & SAAB) for $4.3bn, and it appears that it may be exploiting the the implicit threat of Opel following SAAB into bankruptcy proceedings; a very unpopular thought across Russelsheim & nearby Frankfurt.
Opel's November '08 call for a credit guarantee against parental GM failure was mutedly responded to, without credible confirmation from Berlin. And SolarWorld's speedy proposition – in response to that guarantee call - as a potential 'white knight' purchaser looks about as incredulous now as it did then given the credit-heavy terms of the bid and the aforementioned frozen wholesale finance markets. Slightly more realistically, last week the Opel dealer-base stated it would create a semi-private/semi-public holding company with government backing that would acquire Opel using a % cut of future car sales as a payment schedule. Better, but still not wholly tenable from a political perspective.
So as things stand Wagoner and Merkel metaphorically stand face to face, neither blinking...with Carl-Peter Forster forced to strategically and operationally juggle balls as best he can to keep Opel trading under harsh conditions in the short-term. But at least he has the dealers on side, and that demonstrates his acute strategic acumen as a retained leader if any new Opel enterprise is born from which ever eventual quarter.
Of course many will point to Lower Saxony's 19.9% hold in Volkswagen and the social democratic reasoning it was embedded and has since been defended (to Porsche's chagrin). A similar set-up for Opel may be the last bastion of political compromise Merkel may be willing to cede if all else fails. And at times such as these, ironically, that pressure may come from her own party recognising the political consequences of the zeitgeist.
But if Germany wishes to stay the spiritual leader for a globally competitive, inter-regionally trade-friendly EU, even that may be too high a price to pay as the likes of China, India & Russia eye up European car markets as part of their resurgence plans. Politically, German industry may have to be seen to be 'internationalist' for ameniable 'quid pro quo' relations; especially so given VW, BMW and Daimler's interests in the BRIC economies.
The longer-term international success of the German car industry at large depends on a successful outcome of that G20 meeting. The formal agenda highlights the role of the IMF in setting a global regulatory financial framework; but implicitly the newer G8+/G20 members will be looking at Germany as perhaps the central proponent of cross-border industrial markets goodwill....and just perhaps the fate of Opel as the examplar of 'deeds supporting words'.
Though it is suffering, as all are today, with exports down and a deflated economy, Merkel recognises the dangers of returning her country to a less than globally competitive entity. So whilst the Chancellor and her cabinet have balked and succumbed to the desperation of state funding intervention, it is not on the proportionate scale of the likes of her European neighbours or the USA.
Instead, she has been a key proponent of expanding the role of the IMF to assist the global financial challenge, a call latterly supported by the French President.
Where the 2 differ significantly is with regard to Keynesian economic theory that surges national indebtedness to support industry and the consumer in the fight to re-inflate the business, consumer and financial marketplaces. Though Germany was ultimately forced to save its highly exposed large financial enterprises, to keep the financial system from collapsing, has been trying to draw a line in the sand against the calls of the broader private business sector for assistance. Merkel caught between the conscientious righteousness of economic responsibility and the houndings of business leaders, strong unions and consumers.
Unlike the populist seeking Sarkozy, who appears to be re-introducing a manner of 'de Gaullism' Merkel is willing to wear public wrath. France's massive directly injected state support for its national auto-industry stands at $8.8bn as of Feb 09 (primarily split between Renault & PSA), whilst Germany has stated that it will alot $1.9bn, done so indirectly as a scrap-incentive scheme for cars over 9 years old.
Caught between a rock and hard place (its GM parent and a to date staunch political stance) perhaps the most high profile 'casualty' of the recession is Adam Opel AG. Although the prime business of GM Europe (and in global terms a generally/historically positive revenue earner) the effects of slow-to-thaw wholesale credit and massively loss of confidence in the consumer-base, means that even this historical 'solid performer' has stalled heavily.
And moreover, Carl-Peter Forster - the company's inveterately professional CEO – recognises that the longer Opel is caught in the intricacies of the political realm, the longer and greater the suffering within marketplace against its national and international peers; which with greater cash reserves, brand consumer relevance and product cache would like to see Europe's 20% or so overcapacity be cut through the loss of Opel. Non more so than VW Group, BMW Group and Daimler Group who will be happy to see the 'market discounting effect' Opel could be said to use to hold market-share eradicated; and so enable improved margin, RoS and ultimately RoI. And as 'role-playing' national participants of that painful German economic progression (which Merkel does not want to slip) they will have strong voices in Berlin against any form of 'favoured' assistance.
Merkel knows that she can't be seen to promote the double-standards of such favouritism, and also recognises that the national accounts cannot support the equal assistance given to Opel for all Germany's volume producers. And that even if it could, that little would change for the relative strength sector inhabitants in the medium term. Opel simply gaining a stay of execution for a finite period until either finally pulled under by its parent, marginalised in the market by far more competitive peers or at best acquired by a (probably) Chinese Auto-Firm in years to come for a 'low-ball' price intent on using the brand and dealer-base as part of its own global expansion ambition. Thus, if that is truly the most likely outcome for Opel, why inject so much government cash in the firm – updating plant and products - only to have such valuable assets sold off under par value?
In the meantime, after his discussion with Karl-Theodor zu Guttenberg (the German Economics Minister), the ever up-beat Rick Wagoner appears to be playing Merkel off against her public via the press, with quoted reports saying he thinks German politicians are “really getting into this” (ie the idea of state aid). Guttenburg's response was unsurprisingly rather less enthusiastic, stating that Berlin was looking to see exactly what GM was putting on the table first, and what the Opel corporate plan could viability deliver, before it cited political promises.
GM's need to divest responsibility and consider radical global re-structuring has been conveyed by its pronouncements that it would be happy to “cede control of GM Europe” (inc Vauxhall & SAAB) for $4.3bn, and it appears that it may be exploiting the the implicit threat of Opel following SAAB into bankruptcy proceedings; a very unpopular thought across Russelsheim & nearby Frankfurt.
Opel's November '08 call for a credit guarantee against parental GM failure was mutedly responded to, without credible confirmation from Berlin. And SolarWorld's speedy proposition – in response to that guarantee call - as a potential 'white knight' purchaser looks about as incredulous now as it did then given the credit-heavy terms of the bid and the aforementioned frozen wholesale finance markets. Slightly more realistically, last week the Opel dealer-base stated it would create a semi-private/semi-public holding company with government backing that would acquire Opel using a % cut of future car sales as a payment schedule. Better, but still not wholly tenable from a political perspective.
So as things stand Wagoner and Merkel metaphorically stand face to face, neither blinking...with Carl-Peter Forster forced to strategically and operationally juggle balls as best he can to keep Opel trading under harsh conditions in the short-term. But at least he has the dealers on side, and that demonstrates his acute strategic acumen as a retained leader if any new Opel enterprise is born from which ever eventual quarter.
Of course many will point to Lower Saxony's 19.9% hold in Volkswagen and the social democratic reasoning it was embedded and has since been defended (to Porsche's chagrin). A similar set-up for Opel may be the last bastion of political compromise Merkel may be willing to cede if all else fails. And at times such as these, ironically, that pressure may come from her own party recognising the political consequences of the zeitgeist.
But if Germany wishes to stay the spiritual leader for a globally competitive, inter-regionally trade-friendly EU, even that may be too high a price to pay as the likes of China, India & Russia eye up European car markets as part of their resurgence plans. Politically, German industry may have to be seen to be 'internationalist' for ameniable 'quid pro quo' relations; especially so given VW, BMW and Daimler's interests in the BRIC economies.
The longer-term international success of the German car industry at large depends on a successful outcome of that G20 meeting. The formal agenda highlights the role of the IMF in setting a global regulatory financial framework; but implicitly the newer G8+/G20 members will be looking at Germany as perhaps the central proponent of cross-border industrial markets goodwill....and just perhaps the fate of Opel as the examplar of 'deeds supporting words'.
Wednesday 11 March 2009
Business Opportunity - UK Public Transport – Object Lessons for teaching US Greyhounds to Chase the UK's National Rabbits
These recessionary times - predicated as "the Age of Turbulence by Alan Greenspan - creates the harsh conditions that not only gives rise to sector consolidation and renewal (as we see with Autos) but for a period creates distinctive winners and losers.
The collapse of the private vehicle market has obviously sent global rictures of pain felt by the auto-supplier, manufacturer and dealer sectors. Weakened disposable income through all levels of the social strata has affected the public en mass and so alter their mobility behavior. Investors and markets instinctively recognise that in such straitened times Porter's Five Forces play-out more fervently, and the Substitutional Effect takes hold. As the depth of pockets shrink so the consumer downgrades his/her normative (pseudo-luxury) habits, substituting with cheaper products and services.
Here in the UK the most obvious battleground is in food retailing, the lower-end stores (Asda, Morrison, Aldi etc) stealing custom from the mainstream (Sainsburys, Tesco etc), but more subtle has been the shift in mobility purchase patterns. As new car sales sharply retract to record modern lows, so replacement buyers are either a) looking to better value used car purchases, b) not replacing at all if a 2nd family car (of lesser utility), c) replacing a commuter car with maybe a low-cost motorcycle, and lastly more amenably d) looking to public transport options.
Thus across the nation public transport has been the counter-point beneficiary to the shift in consumers' mobility needs (NB 'needs' replacing pseudo-luxury 'wants' or 'desires'.
The UK Government, as part of its drive towards reduced CO2 and the normative 'social-contract' has been proactive in PR and policy-spending, perhaps best regionally illustrated by the London example under the previous and current Mayors. For all their criticism of empty day-time running, London's swarm of European-made 'Bendy-Buses' added capacity and so mobility ease for the city's commuters at rush hour periods and weekend visitors.
That story of regional bus growth has been similar up and down the country, providing a greater business rationale for the bus (and rail) operating companies. Just as we see consolidation presently in Autos, during the Autos boom-time there was a period of rationalisation for that once plethora of bus operators.
Perhaps the greatest protagonist/activist was FirstGroup, an Aberdeen based FTSE 100 enterprise led by Sir Moir Lockhead, that grew rapidly in the days of operator-deregulation, abundant liquidity/leverage and ambition. After an original MBO and incarnations as GRT and FirstBus (after M&A with peer Badgerline), it became FirstGroup when it encompassed rail aswell after the privatisation and break-up of British Rail (including passenger & freight) and operates a 'light-rail' tram service in London. Today it is a sizable empire that spans the Western Hemisphere, across: the UK, Ireland, Sweden, Denmark, Germany, Canada and the USA (having sold-off its previous Hong-Kong interest).
With competitors such as StageCoach and Arriva, perhaps the greatest (bitter?) rivalry is with National Express, having been questionably banned from competing against for the East Anglia rail franchise.
Given the size, dynamicism and complexity of the UK public-service mobility market, FirstGroup will want to maintain as great a hold as possible given that massive revenue stream and theoretical relative stability of the city & regional UK market.
Changing social trends and shifting government social policy are growing opportunities in the public mobility sphere, perhaps the most high-profile currently being the growing propensity for longer-distance travelling school-children. For the UK, inter-school 'allied' teaching and the growth of extra-curriculum activities (eg sports events, educational excursions and increased school holiday trips) requires a greater capacity for 'student transit'. That once small but burgeoning market was previously fed by private companies, often private enterprise consisting of little more than a single-person operator or perhaps couple running a small fleet of 2-5 mini-buses. But that amateur style, convenient and lucrative at the time for small scale operators has passed, safety and responsibility issues arose, semi-piecemeal school transportation budgets altered and greater 'full-service' demands have arisen. A time of re-orientation, privateer retraction and sector consolidation.
To summarise, the model for UK student transit is presently undergoing continued transition toward a US style template, one that offers new opportunities for larger scale enterprises throughout its value-chain - from mini-bus manufacture (as described in the previous LDV item dated 25.02.09) to fleet operation for the very well placed FirstGroup.
As stated, First Group own US interests. Crucially these interests include perhaps the 2 most iconic brands in the US bus sector. And given the cultural influence the US has had on the world via TV & Hollywood, more importantly, both these brands are indelibly imprinted into the psyche of the US & UK public at large. These 'priceless' assets are of course:
1) Yellow School Bus (previously operated by Laidlaw under the FirstStudent division)
2) Greyhound Bus Lines (previously owned by Laidlaw
[NB Laidlaw acquired by FirstGroup on 07.02.07]
Infact, the UK has been adopting a US style 'school-bus' service for some time, as early as 2000 infact, with FirstStudent UK - a subdivision of FirstStudent, migrating the template from its US parent for Hampshire & Dorset schemes. As such, FirstGroup has been able to transfer and exploit the years of embedded operational learning endemic within FirstStudent USA and the Laidlaw Company - possibly including influence as a political lobbyist (an almost formal and de facto activity in the US). Instead of starting from scratch, FG has utilised its own large regional bus service infrastructures as the 'linch-pin' of the new service.
As of Q308, 185 UK full-size Yellow buses had been running in selective areas nationwide as part of an exploratory scheme that started 5 years previously. To paraphrase Nicola Shaw (MD of FirstBusUK) "FG's survey results from Yorkshire indicated that a high proportion (85%) of 1500 parents surveyed preferred the improved security of the SchoolBus idea". Various business models have been explored ranging from 100% LEA (Local Education Authority) financing through to wholly private payments by parents - estimated up to about a 5 Pounds. [However the exact criteria that gave rise to the 85% preference was not reported - did Yorkshire operate the no-fee model?] A Government Commission set up by David Blunkett in mid 2008 is due to report soon, but it seems almost inconceivable that the government will not expand the scheme given the massive funding now being appropriated to school-based social-policy infrastructure projects.
[ This is also the mentality of the UK van-maker LDV's Board, given it's recent niche marketing of yellow school mini-buses for the UK]
Juxtaposing FG's current full-size SchoolBus against LDV's small-size mini-bus highlights the shifting-sands of the school transportation sector. Those large buses are useful for high-mileage, high-capacity pick-up rural areas, but a very different product is needed for suburban and urban fleets ranging from midi-size (ie the Hoppa Bus) to small van based minibuses. Al the same, there's a lucrative and growing business model for respected and credible operators like FirstGroup which provides a non-cyclical and expanding element to its holdings; adding yet further 'defensive' properties to its already 'defensive' investment nature for lower-risk, long term investors.
That investment mindset is all the prevalent given today's dour times, and so companies like FG will have to consider exactly how it might best perform under such conditions, maximising their 'take' from the on-going headwinds.
As such if the recession/depression becomes more 'long-U', 'W' or even 'long L' in character, stretching into the mid and long-term of 3-7 years, would it not prove beneficial for FirstGroup to exploit the Greyhound brand and, just as it has done with 'Yellow School Bus', bring that US icon to the UK. It would follow in the footsteps, or rather tire-tracks, of Airstream of recent years and help further cement US-UK business, social & political relations.
Greyhound Lines has a certain mix of both romanticism and affordability. Indeed part of its mystique (for foreigners at least) has been in the past the (only) transport of choice for those 'down at heel'; ranging from dust-bowl migrants in the 1930s, the Beatniks of the 1940s & 50s and even stylized 'down and outs' such as Dustin Hoffman's Rizzo in the 1969 film Midnight Cowboy heading for 'a better place' (ie Florida). In short Greyhound Lines is bound together in the fabric of Youth Culture and the American Dream.
That youth culture is being targeted under FirstGroup in the US, directing advertising toward 18-24 year olds and the large and burgeoning Hispanic community. And at long last, after years of 'out of character' updating, its livery is now being returned to reflect its glory-days of the 1950s using 'aluminium gray/grey' and accent blue and white along with accordant modernisation of bus-terminals and depots.
Add together the tightened travel budgets of the UK, the global 'perceptional reach' of the Greyhound brand and its revitalisation and there could well be an argument set forth for FG to introduce the Greyhound brand to the UK, relating to the modern young Beatniks who travel widely & frequently (as seen via EasyJet & Ryan Air) given their lack of responsibility aswell as elements of the lower-end over-60s 'Saga-set' who as Baby-Boomers well recognise the Greyhound allure. And beyond all those others who seek cheaper travel than short-haul air, expensive rail or indeed relatively expensive national UK coach-travel offers.
Could Greyhounds catch the ' Rabbit-ear' coaches of National Express? The 21st century equivalent to the early 20th century Charabang?
The UK public bus scene is set for a period of learning and possibly a 'day at the races'.
The collapse of the private vehicle market has obviously sent global rictures of pain felt by the auto-supplier, manufacturer and dealer sectors. Weakened disposable income through all levels of the social strata has affected the public en mass and so alter their mobility behavior. Investors and markets instinctively recognise that in such straitened times Porter's Five Forces play-out more fervently, and the Substitutional Effect takes hold. As the depth of pockets shrink so the consumer downgrades his/her normative (pseudo-luxury) habits, substituting with cheaper products and services.
Here in the UK the most obvious battleground is in food retailing, the lower-end stores (Asda, Morrison, Aldi etc) stealing custom from the mainstream (Sainsburys, Tesco etc), but more subtle has been the shift in mobility purchase patterns. As new car sales sharply retract to record modern lows, so replacement buyers are either a) looking to better value used car purchases, b) not replacing at all if a 2nd family car (of lesser utility), c) replacing a commuter car with maybe a low-cost motorcycle, and lastly more amenably d) looking to public transport options.
Thus across the nation public transport has been the counter-point beneficiary to the shift in consumers' mobility needs (NB 'needs' replacing pseudo-luxury 'wants' or 'desires'.
The UK Government, as part of its drive towards reduced CO2 and the normative 'social-contract' has been proactive in PR and policy-spending, perhaps best regionally illustrated by the London example under the previous and current Mayors. For all their criticism of empty day-time running, London's swarm of European-made 'Bendy-Buses' added capacity and so mobility ease for the city's commuters at rush hour periods and weekend visitors.
That story of regional bus growth has been similar up and down the country, providing a greater business rationale for the bus (and rail) operating companies. Just as we see consolidation presently in Autos, during the Autos boom-time there was a period of rationalisation for that once plethora of bus operators.
Perhaps the greatest protagonist/activist was FirstGroup, an Aberdeen based FTSE 100 enterprise led by Sir Moir Lockhead, that grew rapidly in the days of operator-deregulation, abundant liquidity/leverage and ambition. After an original MBO and incarnations as GRT and FirstBus (after M&A with peer Badgerline), it became FirstGroup when it encompassed rail aswell after the privatisation and break-up of British Rail (including passenger & freight) and operates a 'light-rail' tram service in London. Today it is a sizable empire that spans the Western Hemisphere, across: the UK, Ireland, Sweden, Denmark, Germany, Canada and the USA (having sold-off its previous Hong-Kong interest).
With competitors such as StageCoach and Arriva, perhaps the greatest (bitter?) rivalry is with National Express, having been questionably banned from competing against for the East Anglia rail franchise.
Given the size, dynamicism and complexity of the UK public-service mobility market, FirstGroup will want to maintain as great a hold as possible given that massive revenue stream and theoretical relative stability of the city & regional UK market.
Changing social trends and shifting government social policy are growing opportunities in the public mobility sphere, perhaps the most high-profile currently being the growing propensity for longer-distance travelling school-children. For the UK, inter-school 'allied' teaching and the growth of extra-curriculum activities (eg sports events, educational excursions and increased school holiday trips) requires a greater capacity for 'student transit'. That once small but burgeoning market was previously fed by private companies, often private enterprise consisting of little more than a single-person operator or perhaps couple running a small fleet of 2-5 mini-buses. But that amateur style, convenient and lucrative at the time for small scale operators has passed, safety and responsibility issues arose, semi-piecemeal school transportation budgets altered and greater 'full-service' demands have arisen. A time of re-orientation, privateer retraction and sector consolidation.
To summarise, the model for UK student transit is presently undergoing continued transition toward a US style template, one that offers new opportunities for larger scale enterprises throughout its value-chain - from mini-bus manufacture (as described in the previous LDV item dated 25.02.09) to fleet operation for the very well placed FirstGroup.
As stated, First Group own US interests. Crucially these interests include perhaps the 2 most iconic brands in the US bus sector. And given the cultural influence the US has had on the world via TV & Hollywood, more importantly, both these brands are indelibly imprinted into the psyche of the US & UK public at large. These 'priceless' assets are of course:
1) Yellow School Bus (previously operated by Laidlaw under the FirstStudent division)
2) Greyhound Bus Lines (previously owned by Laidlaw
[NB Laidlaw acquired by FirstGroup on 07.02.07]
Infact, the UK has been adopting a US style 'school-bus' service for some time, as early as 2000 infact, with FirstStudent UK - a subdivision of FirstStudent, migrating the template from its US parent for Hampshire & Dorset schemes. As such, FirstGroup has been able to transfer and exploit the years of embedded operational learning endemic within FirstStudent USA and the Laidlaw Company - possibly including influence as a political lobbyist (an almost formal and de facto activity in the US). Instead of starting from scratch, FG has utilised its own large regional bus service infrastructures as the 'linch-pin' of the new service.
As of Q308, 185 UK full-size Yellow buses had been running in selective areas nationwide as part of an exploratory scheme that started 5 years previously. To paraphrase Nicola Shaw (MD of FirstBusUK) "FG's survey results from Yorkshire indicated that a high proportion (85%) of 1500 parents surveyed preferred the improved security of the SchoolBus idea". Various business models have been explored ranging from 100% LEA (Local Education Authority) financing through to wholly private payments by parents - estimated up to about a 5 Pounds. [However the exact criteria that gave rise to the 85% preference was not reported - did Yorkshire operate the no-fee model?] A Government Commission set up by David Blunkett in mid 2008 is due to report soon, but it seems almost inconceivable that the government will not expand the scheme given the massive funding now being appropriated to school-based social-policy infrastructure projects.
[ This is also the mentality of the UK van-maker LDV's Board, given it's recent niche marketing of yellow school mini-buses for the UK]
Juxtaposing FG's current full-size SchoolBus against LDV's small-size mini-bus highlights the shifting-sands of the school transportation sector. Those large buses are useful for high-mileage, high-capacity pick-up rural areas, but a very different product is needed for suburban and urban fleets ranging from midi-size (ie the Hoppa Bus) to small van based minibuses. Al the same, there's a lucrative and growing business model for respected and credible operators like FirstGroup which provides a non-cyclical and expanding element to its holdings; adding yet further 'defensive' properties to its already 'defensive' investment nature for lower-risk, long term investors.
That investment mindset is all the prevalent given today's dour times, and so companies like FG will have to consider exactly how it might best perform under such conditions, maximising their 'take' from the on-going headwinds.
As such if the recession/depression becomes more 'long-U', 'W' or even 'long L' in character, stretching into the mid and long-term of 3-7 years, would it not prove beneficial for FirstGroup to exploit the Greyhound brand and, just as it has done with 'Yellow School Bus', bring that US icon to the UK. It would follow in the footsteps, or rather tire-tracks, of Airstream of recent years and help further cement US-UK business, social & political relations.
Greyhound Lines has a certain mix of both romanticism and affordability. Indeed part of its mystique (for foreigners at least) has been in the past the (only) transport of choice for those 'down at heel'; ranging from dust-bowl migrants in the 1930s, the Beatniks of the 1940s & 50s and even stylized 'down and outs' such as Dustin Hoffman's Rizzo in the 1969 film Midnight Cowboy heading for 'a better place' (ie Florida). In short Greyhound Lines is bound together in the fabric of Youth Culture and the American Dream.
That youth culture is being targeted under FirstGroup in the US, directing advertising toward 18-24 year olds and the large and burgeoning Hispanic community. And at long last, after years of 'out of character' updating, its livery is now being returned to reflect its glory-days of the 1950s using 'aluminium gray/grey' and accent blue and white along with accordant modernisation of bus-terminals and depots.
Add together the tightened travel budgets of the UK, the global 'perceptional reach' of the Greyhound brand and its revitalisation and there could well be an argument set forth for FG to introduce the Greyhound brand to the UK, relating to the modern young Beatniks who travel widely & frequently (as seen via EasyJet & Ryan Air) given their lack of responsibility aswell as elements of the lower-end over-60s 'Saga-set' who as Baby-Boomers well recognise the Greyhound allure. And beyond all those others who seek cheaper travel than short-haul air, expensive rail or indeed relatively expensive national UK coach-travel offers.
Could Greyhounds catch the ' Rabbit-ear' coaches of National Express? The 21st century equivalent to the early 20th century Charabang?
The UK public bus scene is set for a period of learning and possibly a 'day at the races'.
Thursday 5 March 2009
Macro-Level Trends – London Emissions Initiative – The 'E'-Car Rental Scheme
London, it can be argued, has been one of the vanguard cities in the global effort to combat climate change. The introduction of the Congestion Charge reportedly reduced not only city-centre traffic but as a consequence lowered CO2, particulate & pollutant-levels originating from tail-pipes. Policy-makers intend to spread the coverage of low CO2 areas up to the M25 motorway boundary area by the early part of the next decade, phasing-in truck and van prohibitions and dis-incentives.
The UK Government has of course instigated efforts directed toward the automotive arena as part of its CO2 reduction manifesto, perhaps best exemplified by the LowCVP – the Low Carbon Vehicle Partnership. Now in its 5th year it's chronological experience has been one of “2003/4 over-optimism”, “2005/6/7 Uncertainty & Review” and latterly “2008/9 New Market Requirements”. Encompassing cars, trucks and buses, perhaps its primary claim to fame thus far has been the facilitator of manufacturer voluntary Fuel Economy & CO2 vehicle labeling for the new car buying public; whilst other efforts relate to Vehicle-Tech, BioFuels and Driver Awareness campaigns.
In that 5 year period, the UK has also witnessed political orientation of the local/regional governance model toward City Mayors, given the authority with making change happen and following the footsteps of New York's Giuliano & Bloomberg. For London, it's first Mayor Ken Livingstone introduced the Congestion Charge, as described, with today's current incumbent Boris Johnson ensuring that policy is expanded and supported with other initiatives. Perhaps most high-profile is the re-introduction of an updated vehicle successor to the iconic London (Routemaster) Bus of yesteryear. Something to capture the hearts and minds of Londoners and 2012 Olympic tourists - this exercise itself mimicking the previous re-modelling of the Classic London Black Taxi.
Such public transport efforts are laudable, and recognised as only one side of the CO2 coin, the more complex and problematic is that of changing the private behavior of car-buyers and the public's driving habits and expectations en mass; a hard task given the 60 years + of automotive freedom enjoyed by the masses.
Electric cars have been a small but rising contingent of London's street-scapes over the last 5 years. The qualitative PR spin witnessing Captains of Industry visiting the IoD, or the odd MP entering Westminster Palace's gates has been quantitatively backed-up by a 'band-of-brothers' of every-day users from the more progressive creative sectors (ie media, arts, design etc). Trying to spread that 'early-adopter' behavior, Boris Johnson and his No2 Kulveer Ranger mid last year set-out the criterion for an expanded use of electric vehicles under the Electric Working Group for London title; primarily focused on developing infrastructure (eg charging points). A sub-committee is the Electric Vehicles Partnership created to work as a facilitator with the auto-industry. To re-quote Ranger at the London Motor Show : “We don’t want green cars to be seen as a lifestyle choice for eco warriors. We want them to be an attractive option for everyone”.
9 months on, earlier this week, The Evening Standard proclaimed that EVs were coming, reporting that Boris is adopting a Parisian style public-private vehicle-rental 'business model' which embraces the use of both bicycles and EVs as zero-carbon personal mobility solutions.
As perhaps the first and more widely available EV, the G-Wiz sold by GoingGreen has realistically had the stranglehold on the City, the Indian manufactured vehicle appearing to be 9 out of every 10 private EVs. The YoY growth in EV sales drew in other entrants, the most notable being the NICE Car Company; which from start-up, faltered, went into receivership and was bought-over by a supplier.
NICE's attractively broad product range targeting private and commercial buyers alike, was highly undermined by very aggressive product pricing and tenuous supply arrangements & agreements aggravated credit-crunch. To illustrate, the Z-eo (an A-segment car made by China's Jiayuan) cost £14,000 and the 'toy-car' proportioned MyCar cost £8,000. NICE's commercial range was possibly even more aggressive pricing with a £44,000 electric version of FIAT's Doblo small van and other products only given a TBA regards their pricing; TBA eponymous with a lack of business model credibility and supplier 'tie-down' and possibly even product design fundamentals. An illustration of that is was the 'promise' of the electric FIAT 500-e adapted by Micro-vett. Given FIAT's global reach focus investment-auto-motives suspects that the EV concept was promoted, indeed touted, by FIAT SpA to perceptually 'keep-up' BMW's Mini-e, which at great internal cost is being rolled out. FIAT itself has showcased a 2-cylinder hybrid 500, something technically feasible vs the technical barriers to engineer a full 4 seat 500 EV (The Mini had to use the rear passenger space for the battery stack). The only truly tenable car was the Mega-City manufactured by Aixam Mega - the French 'Quadricycle' auto-maker.
investment-auto-motives long-believed that the NICE Car Company was knowingly or unknowingly viewed as a strategic 'lead-in' foot-hold by its far more powerful suppliers. This has indeed been the case, with NICE's over-ambitious plans and capital 'over-reach' leading to its demise and put into administration last November. January saw its asset acquired by Aixam-Mega Ltd (the French company's UK sub-division).
Just as G-wiz had the effective monopoly to date, so Aixam view potential for the Mega-Cit y to become the new de-riguer EV for private buyers, luring new Ev buyers and stealing re-newel customers from G-Wiz who want something designed aesthetically closer to a conventional modern car – something the G-wiz's awkward boxiness and effectively 2 seat limitations could never really do.
More-over, Aixam-Mega has gained footholds within regional local authorities such as those on the South Coast, showing their capabilities (and limitations) in the public-services domain. Thus we expect that such experiences will have been shared from county/city council to county/city council...none perhaps more interested than London Boroughs, TfL (Transport for London) and the Mayor's Office.
Thus investment-auto-motive's expects that Aixam-Mega is primely positioned to benefit from the Electric Car rental scheme now proposed. Especially so now it has the asset of the 're-born' NICE Car Company's Ladbrook Grove location in West London which can act as a regional administration and service base. It is thought that TfL itself would not want to administer the scheme, unless it has a mandate to create further departments in these high unemployment times. Better still to farm the project out to private enterprise, as councils have done with so many public-sector services; old (such as sports centres) and new (such as e-car rental).
Doing so would Allow Aixam-Mega to transpose the direct/in-direct learning gained from the Parisian Velib bike hire scheme.
In the meantime, the London Mayor will be trying to persuade the UK's Transport Secretary, Geoff Hoon, that London deserves "sizable chunk" of the £250m government money put in place to support electric initiatives. Johnson wants to see at least half the 8,000 vehicle fleet owned by the Greater London Authority replaced by electric vehicles as soon as possible.
Aixam-Mega, may not be as desperate as LDV Vans (see previous post) for the UK governmental goodwill regards electric vehicles, but Aixam-Mega will undoubtedly utilise the Mayor's initiative to maintain its UK position against its French peers of: Ligiers, MicroCar, JDM & Chatanet.
The UK Government has of course instigated efforts directed toward the automotive arena as part of its CO2 reduction manifesto, perhaps best exemplified by the LowCVP – the Low Carbon Vehicle Partnership. Now in its 5th year it's chronological experience has been one of “2003/4 over-optimism”, “2005/6/7 Uncertainty & Review” and latterly “2008/9 New Market Requirements”. Encompassing cars, trucks and buses, perhaps its primary claim to fame thus far has been the facilitator of manufacturer voluntary Fuel Economy & CO2 vehicle labeling for the new car buying public; whilst other efforts relate to Vehicle-Tech, BioFuels and Driver Awareness campaigns.
In that 5 year period, the UK has also witnessed political orientation of the local/regional governance model toward City Mayors, given the authority with making change happen and following the footsteps of New York's Giuliano & Bloomberg. For London, it's first Mayor Ken Livingstone introduced the Congestion Charge, as described, with today's current incumbent Boris Johnson ensuring that policy is expanded and supported with other initiatives. Perhaps most high-profile is the re-introduction of an updated vehicle successor to the iconic London (Routemaster) Bus of yesteryear. Something to capture the hearts and minds of Londoners and 2012 Olympic tourists - this exercise itself mimicking the previous re-modelling of the Classic London Black Taxi.
Such public transport efforts are laudable, and recognised as only one side of the CO2 coin, the more complex and problematic is that of changing the private behavior of car-buyers and the public's driving habits and expectations en mass; a hard task given the 60 years + of automotive freedom enjoyed by the masses.
Electric cars have been a small but rising contingent of London's street-scapes over the last 5 years. The qualitative PR spin witnessing Captains of Industry visiting the IoD, or the odd MP entering Westminster Palace's gates has been quantitatively backed-up by a 'band-of-brothers' of every-day users from the more progressive creative sectors (ie media, arts, design etc). Trying to spread that 'early-adopter' behavior, Boris Johnson and his No2 Kulveer Ranger mid last year set-out the criterion for an expanded use of electric vehicles under the Electric Working Group for London title; primarily focused on developing infrastructure (eg charging points). A sub-committee is the Electric Vehicles Partnership created to work as a facilitator with the auto-industry. To re-quote Ranger at the London Motor Show : “We don’t want green cars to be seen as a lifestyle choice for eco warriors. We want them to be an attractive option for everyone”.
9 months on, earlier this week, The Evening Standard proclaimed that EVs were coming, reporting that Boris is adopting a Parisian style public-private vehicle-rental 'business model' which embraces the use of both bicycles and EVs as zero-carbon personal mobility solutions.
As perhaps the first and more widely available EV, the G-Wiz sold by GoingGreen has realistically had the stranglehold on the City, the Indian manufactured vehicle appearing to be 9 out of every 10 private EVs. The YoY growth in EV sales drew in other entrants, the most notable being the NICE Car Company; which from start-up, faltered, went into receivership and was bought-over by a supplier.
NICE's attractively broad product range targeting private and commercial buyers alike, was highly undermined by very aggressive product pricing and tenuous supply arrangements & agreements aggravated credit-crunch. To illustrate, the Z-eo (an A-segment car made by China's Jiayuan) cost £14,000 and the 'toy-car' proportioned MyCar cost £8,000. NICE's commercial range was possibly even more aggressive pricing with a £44,000 electric version of FIAT's Doblo small van and other products only given a TBA regards their pricing; TBA eponymous with a lack of business model credibility and supplier 'tie-down' and possibly even product design fundamentals. An illustration of that is was the 'promise' of the electric FIAT 500-e adapted by Micro-vett. Given FIAT's global reach focus investment-auto-motives suspects that the EV concept was promoted, indeed touted, by FIAT SpA to perceptually 'keep-up' BMW's Mini-e, which at great internal cost is being rolled out. FIAT itself has showcased a 2-cylinder hybrid 500, something technically feasible vs the technical barriers to engineer a full 4 seat 500 EV (The Mini had to use the rear passenger space for the battery stack). The only truly tenable car was the Mega-City manufactured by Aixam Mega - the French 'Quadricycle' auto-maker.
investment-auto-motives long-believed that the NICE Car Company was knowingly or unknowingly viewed as a strategic 'lead-in' foot-hold by its far more powerful suppliers. This has indeed been the case, with NICE's over-ambitious plans and capital 'over-reach' leading to its demise and put into administration last November. January saw its asset acquired by Aixam-Mega Ltd (the French company's UK sub-division).
Just as G-wiz had the effective monopoly to date, so Aixam view potential for the Mega-Cit y to become the new de-riguer EV for private buyers, luring new Ev buyers and stealing re-newel customers from G-Wiz who want something designed aesthetically closer to a conventional modern car – something the G-wiz's awkward boxiness and effectively 2 seat limitations could never really do.
More-over, Aixam-Mega has gained footholds within regional local authorities such as those on the South Coast, showing their capabilities (and limitations) in the public-services domain. Thus we expect that such experiences will have been shared from county/city council to county/city council...none perhaps more interested than London Boroughs, TfL (Transport for London) and the Mayor's Office.
Thus investment-auto-motive's expects that Aixam-Mega is primely positioned to benefit from the Electric Car rental scheme now proposed. Especially so now it has the asset of the 're-born' NICE Car Company's Ladbrook Grove location in West London which can act as a regional administration and service base. It is thought that TfL itself would not want to administer the scheme, unless it has a mandate to create further departments in these high unemployment times. Better still to farm the project out to private enterprise, as councils have done with so many public-sector services; old (such as sports centres) and new (such as e-car rental).
Doing so would Allow Aixam-Mega to transpose the direct/in-direct learning gained from the Parisian Velib bike hire scheme.
In the meantime, the London Mayor will be trying to persuade the UK's Transport Secretary, Geoff Hoon, that London deserves "sizable chunk" of the £250m government money put in place to support electric initiatives. Johnson wants to see at least half the 8,000 vehicle fleet owned by the Greater London Authority replaced by electric vehicles as soon as possible.
Aixam-Mega, may not be as desperate as LDV Vans (see previous post) for the UK governmental goodwill regards electric vehicles, but Aixam-Mega will undoubtedly utilise the Mayor's initiative to maintain its UK position against its French peers of: Ligiers, MicroCar, JDM & Chatanet.
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