Wednesday, 27 May 2009


NB: - There will be a web-blog interlude between 27th May - 12 June.
Many thanks to all clients & regular readers

Tuesday, 26 May 2009

Industry Structure - GM - Playing Value Chain 'Connect 4' with GME

GM's European division (GME) has understandably come under a lot of scrutiny over the last few months since Detroit's announcement that it would divest a major (60+%) portion of the entity. [investment-auto-motives welcomed this move given its previous impartial recommendation via this portal to do so].

Since then Sergio Marchionne was obviously the first to enter into negotiations, whilst later enquiries of interest directed to GME's lead "NomAd" (Commerzbank Dresdner Kleinwort) came from Magna International (with Plan B of GAZ alliance partner) and various 'fall-away' PE companies with only the most seriously positioned PE firm neing RHJ International. (RHJI a portfolio investment company understood to be one of Ripplewood's funds, with Timothy C Collins & the Rothschild family as key members). Post the deadline date was reported contact from a potential Chinese bidder, noted as Beijing Auto, whilst recent broad-brush employment/union concerns led FIAT SpA to mildly revise its offer in an attempt to alleviate German government concerns regards post-merger staff cuts.

Frederick Henderson et al at GM's HQ will be seeking the best buyer proposal which offers both short-term incentive (ie a cash offer to assist its woeful balance sheet) and longer-term attraction. This would be by way of a synergistic business relationship, that strategically aids GMNA operationally and regards cashflow, thus across: R&D, advanced components, outsourced production etc and secondly provide a demonstrably useful future share-capital increase & dividend yield. In short a welcome income stream from GM's retained shareholding in the new company.

For GM and the investment community at large, the inferance is that the rationality of value creation in whatever guise must prevail over any political pressures arising from preferences or bias from either Washington or Berlin quarters.... or indeed any short-termist attitudes regards size of the 'cases of immediate cash on the table' from more liquid bidders, no matter how enticing.

Thus given the number of apparent interested buyers, Henderson and his executive team will be busily evaluating/'playing' an industrial version of that children's logic-game 'Connect 4'; each of the bidders representing a play on the automotive value chain.

Case by case they reflect the 3 fundamental integration routes of the M&A game:

1. Horizontal Integration - FIAT Auto / [Beijing Auto]
2. Vertical Integration - Magna (Tier 0.5 "Short Vertical" ), RHJI (Tier 2+ "Long Vertical")
3. Diagonal Integration - Magna-GAZ ("Short Vertical" + "Horizontal")

With regard to FIAT Auto, Marchionne obviously sees the massive economies of scale (and future profits) to be had as he attempts to intertwine 3 companies hamstrung by individual overcapacity in presently saturated regional marketplaces. The appeal to create a leaner, more competitive 'super-group' industrial entity is undoubted. One that offers improved product pricing flexibility (due to reduced competition) and so unit margin improvement leverage plus inter-divisional distribution opportunities possibly boosted by the rebound of, primary EM markets if GMLA is also secured.
His marriage of efficiency and volume is of course CEO strategy 101, but GM's concern about passing on what are prime assets to a powerful foe - domestically & internationally - was always a prime issue regards FIAT Auto, all the more so if the divested package was forced by Washington to included GMLA.
Moreover, whilst Henderson recognises the US as GM's prime defensive home territory he also well understands the critical role GME has to play to assist the NA market rebound given its core competencies in compact and mid-size Delta, Gamma and Epsilon 2 platforms; the smallest of those ideally re-directed in future for comprehensive or heavily shared low-cost engineering in South America.

The second "Horizontal" play comes very tentatively from Beijing Auto Industry Corp (BAIC). Already a successful proponent of JVs with the likes of Hyundai, Mercedes and Chrysler it has become the No 5 Chinese automaker critically from alliance learning and technology transfer.
As to how real the enquiry is, is open to debate, since although Chinese automakers have indeed been successful at home, the domestic sector is undergoing a period of restructuring and consolidation so the big fish (like BAIC) chasing the smaller fish to grow market share, improve efficiencies and broaden product lines.
With so much important M&A action on its doorstep would BAIC really endeavour to stretch itself so so far with Opel? Probably not, even with what domestically appear large cash hoards. GME is of a very different scale and complexity and since that cash was hard earned it is unlikely that BAIC management would risk it in such a venture, even with nominal German Aid backing.
And more so than with the FIAT bid, German union voices would be aghast at (even the remote) possibility of a 'lift and shift' to China. Beyond that Chinese financial analysts have stated that BAIC is simply not in the position to seriously bid as it should recognise its own budgetary and management limitations.

Magna International represents the first case of possible "Vertical Integration". It above all others has become the modern-day examplar of a burgeoning new automaker; starting from its parts-maker roots to create a Contract-Builder business for some of the most hallowed names in the industry - Mercedes, BMW, Jeep, Chrysler etc. Buying up the assets of flailing operators like Steyr-Puch to provide outsourced assembly capacity for high margin niche products and simultaneously enlarging its 4WD engineering and production capabilities.
Thus its interest in GME is to effectively create a fully fledged Tier 0.5 business. The full exploitation of this business model has been on the minds of industry execs for 20 years, the ideal to allow today's typical car company to instead become effectively a Brand Broker between outsourced manufacturer and distributors/dealers.
Magna has been the major proponent to fit the jigsaw pieces of such an ideology together, recognising the size of the opportunity to become the No1 large scale contract assembler.
Thus if successful, the company's end-game could be to collate the best physical assets (plants, tooling, human resource etc), divest of the lesser productive items - possibly to China - and sell off the Opel Brand to a trade or PE buyer as part of a long-term supply agreement.
Its own ability to essentially re-invent the rules of automotive assembly, without the headwind of intrinsic legacy costs and the tailwind of more flexible labour, would regenerate the profitability of auto-manufacturing when given such freedom.
[NB Latest reports indicate that Stronach et al at Magna have convinced Russian Sberbank Rossi of its business model to finance a Magna-Sberbank JV for 55% of GME].

RHJ International represents a deeper level of "Vertical Integration" stretching to Tier 1 & 2, and so reflecting typical long-reach value-chain consolidation. RHJI is a holding company with interests stretching across Auto Parts, Electronics, Audio-Visual & Leisure Resorts.
Its Auto Parts companies include Asahi Tec Corp (60.18%), Honsel Int Tech (51%) and Niles Co [electrical switches] (77.3%). Beyond immediate auto-related companies the collection of audio/visual company & brands held could be said to offer indirect synergies given the level that media and entertainment has infiltrated the driving & passenger experience over the last decade of so.
But its prime capabilities are Asahi & Honsel which produce 'higher-end' lightweight core components such as aluminium, magnesium (and iron) extrusions, castings, machined and fabricated items for chassis (esp wheels), driveline & NVH (Noise, Vibration, Harshness) applications.
Moreover they have expertise in electrical and environmental engineering which has snowballed from Japanese government contracts. Thus RHJI seems to be promising the ability to re-engineer the typical car (and perhaps new vehicles) for a new era. (VW the proclaimer of 'das Auto' will be watching avidly). Reports indicate that it has been courting influential German Economics and Industrial Ministers to demonstrate the value-added it can bring to Deutsche Auto GmbH.

Lastly there is the "Diagonal Integration" of Magna-GAZ, which seems to offer the combined strengths of Magna's advantageous manufacturing position with opportunity for operational symbiosis with GAZ. This undoubtedly incentivised for Magna and the German government given the Russian government's agreement to fund strategically important stricken enterprises - aligning Berlin and Moscovite empathies.
Furthermore Oleg Deripaska's mighty influence is still apparent given his retained empire's financial restructuring, and so the leverage advantages of his Russian Machines enterprise and the massive commodity orientated conglomerate Basic Element which specialises in aluminium production via UC Rusal. Add together the sum of the parts of the empire and it could provide cost-effective (chaebol-like) internal purchasing agreements, to assist Magna-GAZ profitability. Basic intelligence suggests that (like FIAT) it is a 'no cash' offer instead offering the industrial leverage of Russian materials, labour, logistics, parts, production and distribution.

Ultimately beyond the bidders, GM, the German government and possible latterday large-scale institutional and private individual investors will question the philosophical focus of such restructuring. Crucially, whether the new GME should, from a value-chain perspective, be restructured 'laterally' (FIAT-GME-Chrysler) or 'vertically' (Magna or RHJI) or 'diagonally' (Magna-GAZ).

FIAT, Magna, RHJI & GAZ will have weighed up as best they can the innate detail and broad ROI of these 3 options. Done so to gain both the vendor's perspective and German governmental perspective; to get into the heads of these 2 co-dependent divestment arbiters, so as to create their own strategic arguments that places them in the best possible light.

Day by day press reports discuss the pros and cons of each bidder and the leading contender for the moment. Thus it was said that RHJI was increasingly in favour by Klaus Franz of Opel's works council, catching the leading Magna bid; thereby prompting Marchionne to revise his FIAT offer.

In the meantime the ever increasing likelihood of GM's soon entering Chapter 11 means that Opel will require governmental bridging financing which itself could induce the creation of an intermediate Trustee body as advised by the Economics Minister Karl-Theodor zu Guttenberg. To do so would provide much needed breathing space that would enable far better consideration of GME's future, and allow each bidder to round-out their own due diligence intelligence and strategy presentations.

This array of disperate bidders will either be seen to create a plethora complex issues, or judged against key criteria - ideally explicit, but in all probably more so implicit. If the former it suggests that the ongoing talks will stretch into June and possibly beyond given the added dimension of GMHQ's own Chapter 11 administration dealings. It will seek as large a slice of the new entity as possible as part of a contributive effort toward its own re-birth. If the latter, as seems to have been the case given the 28th deadline date, the present murky picture for the future of GME will clear.

Historically. the auto-industry has of course witnessed national industry re-alignment as regional economics have contracteda and what were once buoyant companies whither. GM's own US birth was from such a case of amalgamation, as was Germany's own 'pre-modern' Audi (born from the Auto Union conglomeration of Wanderer, Horsche, DKW and Audi) which itself was merged into VW.

And for GME/Opel, depending upon outcome, after 80 years of GM 'stewardship', it may now be given the kind of operational independence not seen since its automotive inception in 1899. That was 36 years after the company's own founding which produced sewing machines and bicycles, obtaining the license for French Darracq chassis technology on which it bolted Opel custom bodies.

It's logo is of course the electrical 'lightening bolt' and in our new age of burgeoning hybrid and electric vehicles, might the new stewards of Opel re-assess the viability of new licensing arrangement in order to add a strategic 'leap-frog' to its product line and business model? Inspired by Darracq, could a new Opel once again turn to France and Renault-Nissan to assist in the supply EV technology and architectures?

investment-auto-motives has pointedly highlighted Europe's less than favourable FX and trade positions compared to its global competitors, and so the need for impetus regards EU industrial policy. Germany is seen as a technical tour de force with revered 'eco' engineering. So the opportunity to showcase much needed EU vision and renewed integration through GME/Opel's re-orientation could be very compelling - politically and financially.

[NB. See previous investment-auto-motives' conjecture regards the EU to potentially plan an geographically prescient 'Eco-Rainbow' for automotive technology: an arc spanning (right to left)Germany, Scandinavia & the UK - using the notion of scaled-size and value-chain driven eco-tech collaboration].

Today, we hope that a 'lightening bolt' of directed creative reasoning has struck within the Ivory Towers of Berlin, Detroit and Washington, so that a grand-plan context can be set for Opel/GME in its own right and to act as the catalyst of change in EU autos.

In which case, if so, today's deductive 'game' of "Connect 4' rationality may act as a precurser to a far more powerful, holistic international EU exercise of 'Join the Dots' to form that persuasive collaborative Rainbow.

Friday, 22 May 2009

Macro-Level Trends - US Emissions Regulation - One Size Fits All.

As an echo of the the 1973-5 Oil Crisis, the "milestone" announcement that has been years in the making arrived. After years of debate and multi-various federal and state standards set, the coming of a single nationwide plan for US emission and mileage standards seems to have arrived.

Although not yet ratified by an Act of Congress, Obama's vision that the US should improve its energy security and advance its role regards emitted pollutants has been made clear. A country-wide CAFE (Corp Avg Fuel Efficiency) standard has now been aired for passenger cars and light trucks to be attained by 2016 - 4 years earlier than previous proposals.

Passenger cars must deliver 39mpg up from 27.5 today, and light trucks must reach 30mpg from 23mpg; giving a fleet average of 35,5mpg [NB these are of course average figures, and do not relate to specific models, simply the cross-fleet median, so as to allow for 'performance' and 'frugal' models and variants that sit above and below the benchmark].

The announced outcome of these measures is to save the equivalent of importing 1.8bn barrels of oil per annum (approximate the import capacity from Saudi Arabia) and saves 900m metric tonnes of greenhouse gases being emitted into the atmosphere which is paralleled to 177m cars being taken off the road. By current Washington estimates car-makers will need to average a betterment of 5% each year between 2012-2016 given todays capabilities.

For Detroit this of course sets provides a single template by which to engineer CO2 & NOx emissions for the country. It was previously claimed that the different regional standards made the Big 3's job hard, even though their foreign peer set such as the Japanese and Germans were able to engineer to an in-house standard by 'simply' bettering the most demanding state's requirements. But at least for Detroit it banishes the regulation chasm between 'progressive' California and the other states, even if the new standards are more aggressive than Californian demands.

All constituents from Congress to Detroit appear supportive of the plan, though given Detroit's current woes the "per vehicle on-cost" generated by additional R&D/Engineering spend, powertrain systems spend and dealer service/maintenance spend will be a much discussed item of the corporate agenda behind closed doors. Reports of that additional cost wildly differ from $600 by Automotive News and $1,300 by the WSJ.

But of course it will be a case of different technological solutions suiting differing applications (ie vehicle duty cycles); whether that be smaller capacity turbo-charged & lean-burn engines for lower cost compact & mid-size cars, hybrids and clean diesels for mid-size and large cars and clean diesels for SUVs and tradition diesels with tail-pipe tech for trucks. And of course the continued 'slow-burn' possibilities regards what are in reality specialist-case EVs. A case of "horses for courses" relative to consumer expectations and R&D/project budgets. But we suspect that given the markedly reduced 'contract' and 'spot' price of steel Detroit will only utilise aluminium and composit structures and sub-structures where the additional cost can either be absorbed in high sticker price luxury/niche cars or can be amortised by high volume cross-car standard part production.)

investment-auto-motives agrees with other commentary (eg Wachovia) that for the short and medium term this plan could in the short-term put Detroit and its traditional 'slow-progress' supplier-base at a distinct disadvantage given that its general product line and systems technology is "behind the curve" and so will require possibly billions of dollars of funding. However, there is of course Congress' Green Tech Fund that was announced by Bush prior to the later GM & Chrysler aid packages, which offered $25bn as a credit line as part of the 2008 Energy Bill.

Suppliers and external engineering consultancies have been eager to play their respective parts in forming the intelligence behind and conclusions to this debate; jossling as beneficiaries of the outcome.

One typical example is Ricardo Engineering has wisely endeavoured to best position itself - given its diesel combustion knowledge and competence build-up in electronic control systems for various hybrid system types and full EVs. As a savvy player it has endeavoured to mould the general dialogue as both a NHTSA contributor (helping to form government appreciation) and worked with the investment bank sector to mould technical and business case understanding.
From the supplier angle, it has been aired that the likes of American Axle, Lear, Magna could suffer due to their previous dependency on truck parts production, whilst the likes of BorgWarner could gain a metaphorical boost from its Turbo division.

Amongst Detroit it has been Ford that historically has tended to be the early advocate of efficiency-seeking design and engineering, today leading in the form of the Eco-Boost range of engines available as IL-4 & V-6, so GM's Ecotec and Chrysler will be seeking to chase Blue Oval's lead in advancing conventional ICE powertrain. This required impetus this raises the GM-Opel divestment issue, since GMNA will be keeping a strategic stake in the company and be seeking a synergistic relationship from GME's new owners given that Russelsheim has been the development home of small (B) compact(C) and medium(C/D) platforms - Gamma, Delta, Epsilon respectively.

However, beyond the reported cash-sale demand (vs FIAT's non cash offer) it must be assumed that GM's HQ will be seeking a technical advantage/routemap from the likes of Magna or RHJI International that can provide technical-transfer to GMNA for the renewed competitive positioning of both products and the 'new' North American company.

Prescient also that on the day of the Presidential announcement that Daimler should announce that it has taken nearly 10% of Tesla for an undisclosed sum "of a double digit millions sum". This cements the business relationship born from the battery supply arrangement for the Smart EV and provokes conjecture that Daimler will supply the C-E class architecture to enable a ready made production solution for the Model S. Yet much still remains unclear about the specifics of synergies Tesla offers Daimler, and about the eventual battery-tech functionality and business case given Daimler's own 49.1% interest in a JV named Deutsche Accumotive. In the end, it could simply be a blocking maneuver by Daimler to stop any of its competitors 'marrying' Tesla.

Interesting indeed given the recent increase in Daimler stakeholding from certain GCC investment companies. Much of their funding obviously originates from the region's pumped petro-dollars, and although the GCC is investing in clean-tech, it raises the possible prospect of Daimler at best setting forth internally competitive technology streams, and at worst conflicting big-picture ideologies.

On which note, now that oil has reached $55pb and its extraction & refining overhead has finally come down thanks to deflationary pressures, margins for oil-producers are set to grow and if sustainable for long enough attract further oil industry investment. So whilst there has been justified criticism regards Obama's apparent avoidance of a gas-tax - to reduce auto-use and assist the Treasury coffers - that could be ratched-up beyond the nominal 18c per gallon as Exxon et al improve their earnings and the economy slowly recovers over the next 4 years.

Whilst the US seeks global alignment in economic reform and the banking sector, so it should do so in due course for the auto-industry to generate harmonisation and improved value-creation. Achieved via both FDI alliances such as FIAT and a possible latter-day 'new GME' relationship, and also by re-aligning consumer desires. VW did it with Beetle & Golf in the 60s & 70s, Toyota did it with Corolla in the 70s & 80s, BMW did it with 3-series in the 80s & 90s and Toyota did it with Prius in the 2000s. VMs have been seeking the panacea of truly global vehicles for eons, today the US government can continue its 'time for change' efforts and assist that goal and in turn regain the heavily depressed investor sentiment in the sector.

However, as oil rounds out at $55pb, could it be an omen for the return of the 1970s style nation-wide 55mph limit? As an intermediate CO2 reduction-step which simultaneously maintains national oil inventory, might Obama use it as part of a new speed-limit delineation policy for various road systems?

The announcement may be the first step of a very different US autos roadmap – philosophically and literally.

Monday, 18 May 2009

Macro-Level Trends - Timing the US Upturn - Reading a New Market of Increased Complexity

As the events of the last 2 years have palpably demonstrated, the global economy is now critically inter-dependent thanks to the a congruence for capital driven enterprise, the information enablement of IT, and of course the median of massive intermediary financial markets. It is inter-woven to a degree of depth and speed unlike any other period in history, one which has surprised even the most insightful of supposed luminaries.

2 years into the global contraction and, as ever, the financial newswires and video talking-heads typically consist of Bull vs Bear sentiments, perhaps a consequence toward the endemic reality that in such times bulls tend to over-emphasize the impact of any immediate good-news reports whilst bears tend to view the longer-term macro-fundamentals of the system Thus we typically see a general underlying downward trend in most asset classes (but most prevalently stocks) with overlying volatility created by 'better than expected' released company results, released economic indicator figures or governmental announcements that produces short-run up-tick rallies.

Thus as ever, given that the market consists of a great number of participants each wielding very different levels of actionable power, the market is an intrinsic 'living oxymoron', the amalgam of contrasting viewpoints and sentiment.

For the Bulls it is a case of the Bears being masters of their own doom, confidence being everything; and for the Bears the experiential acumen that statistics and rhetoric (whether company-specific, agency-specific or government-specific) must be treated with caution, recognising the possible bias of origination. It may be over-zealous to quote Disreali's "lies, damned lies and statistics", but such distrust of apparent exactitude has proven historically accurate in times of economic uncertainty and change.

In 'normal' times the market (analysts, traders & investors) must contend with looking at the 'surface' of the global economic framework, since when the economic machinery is purring, all that needs to be viewed and judged are the everyday trades of the market, whether Bonds or Stocks or FX or T-Bills/Gilts, or the more obscure Derivative Placements, or the more sophisticated calculations for Arbitrage. Thus in 'normal' times there is only a need to appreciate the 'Lateral' inter-connectivity.

But today the ongoing need is to better understand the 'Vertical' inter-connectivity, that is an understanding for the inner-workings of the global trading machine itself, given the nature of the systemic breakdown and the accordant diagnosis and prognosis from multi-constituent experts.

Simplistically, the Bears recognise the size and complexity of the problem, whilst the (speculating?) Bulls see the moments for opportunity in specific sectors or regions.
But if we look at the picture simplistically yet holistically there is still a large discontinuity between theory and optimism. The mention of 'green shoots' and up-beat growth sentiment still seems very premature given that the creation of solid economic foundations is still fundamentally lacking.

There's much talk of the growth momentum coming from 'Main St' and not Wall St given the more positive earnings reports of late, but that 'positivity' is undoubtedly a reflection of well-managed individual companies conserving cash and buoying balance sheets. These companies have had to maintain their momentum given either their inability to rely on banking credit and unwillingness to draw on any available credit-lines. Thus they individually may be seen to be weathering the storm, but that is a consequence of their own 'weather-protection' ability, and that should not be mistaken as reflective of the broader picture.

The fact is that the very heart of the global economic machine - the international banking system - is still very fragile due to the lack of confidence regards levels of individual and collective write-downs, and indeed the size of losses that need to be recognized and attributed. Until this faulty economic foundation-stone is properly unearthed and dealt with there can be no return to normality.

That of course is what governments the world over have been trying to do, both individually and acting together under the G20 umbrella. As ever policy fractures have emerged, the likes of the Obama administration using TARP and TALP to immediately re-capitalise the primary banks via directly injected public funding, versus the likes of Merkel's administration seeking a longer-term 20 year write-down of the present-day toxic assets - seeking a latter-day asset price rebound - so as not to burden public taxation.

As of today, though primary pricing indicators highlight a slight upturn in inflation (and so apparently growth) this anathema is really a result of general re-alignment of previous over-capacity across most sectors, from energy (eg oil price) to retail. But that is in reality a misleading phenomena as sectors re-adjusted inventory and trading levels.

Ultimately today, instead of the normative 2-D play between (consumptive & productive) society and the financial markets, there is a 5-D play between:

1. Society,
2. the Financial Markets
3. International Central Banks
4. International Government Agencies (ie G20)
5. Global Funding Agencies (esp IMF, World Bank);

This of course increases the complexity enormously, with macro-economic issues taking precedence, and importantly during this crisis, the latter of these groups - the new-world orchestrators - trying to re-mould themselves or create spin-off entities to undertake their remit to solve the global problem.

It has oft been mentioned that the over-credit driven, over-stretched, and some say effectively bankrupt West must look to the enormous savings levels of the East for effectively FDI and re-capitalisation at both retail & investment banking levels and importantly regards investment in Western industries. Although the West (US and UK particularly) have instigated large stimulus packages to boost domestic consumption, hoping to use the debatable 'accumulator' theorem, part of such a re-starter motor's expectancies would be to inspire confidence for FDI from the Middle East, Asia, and of course specifically China. [NB Jon Huntsman's nomination as Sino-US Ambassador].

But whilst commodity and industrial-based SWFs from the likes of the GCC, N. Korea and Singapore will look fervently for Western opportunities, the real issue of accessing Asia's massive savings base - tor re-set the global funds imbalance - presently looks quite remote.

For many Asian countries with agrarian roots still in the public psyche, combined with a lack of social safety-nets and the recent history of the 1997 'Tiger Crash', the desire to build and preserve savings is still very much apparent. Even for the Generation X's and Yer's, though they have spent throughout the good times, their parent's and grandparent's advice has still been heard. Thus with rising unemployment and a re-patriation for many back to their home towns, they will seek to utilise their funds personally and locally. This perhaps especially evident in China where a 'feast and famine' past has created a self-dependent, entrepreneurial spirit.

To this long-time socio-graphic principle we can now add the possible results of a recent important financial occurrence - Bank of America seeking to divest 30% of its current share-holding in China Construction Bank Corp (moving from 16.7% to 11% ownership). As a consequence of seeking the monies for its own re-capitalisation (as part of its recent government stress-test) could the Chinese authorities view the move as a retrograde, almost defensive step, inspired by Washington? Especially acute after the 'mutual collectivity' seen in London for the G20. Or indeed, is the divestment welcomed by Beijing to help de-couple a well positioned CCBC from a less than healthy BoA? But given CCBC's recent stock rally on the back of more upbeat China economy sentiment relative to its own stimulus package, it seems almost ironic that BoA must sell at what could be below-par to swap a strong long-term asset for short-term liquidity - but "USA Inc" needs it to do so.

As for "USA Inc" reports suggest that its banking sector has written down about two-thirds of the outstanding toxic assets that weigh on balance sheets, which compares against Europe's one-third to half; as we see with Germany's reticence. Both approaches obviously have arguable pros and cons, with the US wanting to clear out the garbage on Wall St to place it in a better position sooner.

Clearing the decks will obviously assist in due course, allowing the banking sector to both inspire and exploit the re-bound, but at present that re-bound still looks some way off; especially so without the level of Asian FDI assistance previously hoped for.

Domestically the WSJ reports that 52 economists expect the recession to officially end by Q309, but taking years for the economy to recover fully. As we see it, the prime economic catalysts of Main St, Wall St and the National Budget/PSBR are still very weak:

Main St -
- unemployment to reach 10.5% by year-end (not 9.7% of averaged forecasts)
- Q209 GDP contraction of 2.2% (not 1.6% of avg'd f'casts)
- large cross-sector industrial re-structuring leading to 'leaning' of ops and delayed job creation
- improved personal savings levels deferring esp big-ticket purchases
- the 'kinetic energy' of stimulus will take time to be felt given local budget planning time-frames.
- consumer reticence, especially given housing stock wind-down

Wall St -
- 2/3 toxic write-down needs broader confirmation
- bank stress-tests seen as not credible by academic quarters (esp Rubini)
- this creates greater latter-day discomfort - false foundations
- personal savings improve capitalisation ratios
- but still evidence of apparent 'good' (standalone) banks vs 'bad (gov't loan) banks

National Budget/PSBR -
- record budget deficit
- inability to pull levers now at 0% and QE measures
- TARP & TALP need to be seen to work
- stimulus plans must be managed to create the 'accumulator effect'.
- a general expectation that Congress will not be asked for funds again
- major changes to normal budget allocation (eg Defense spending criteria)
- could leave administration open to criticism if further homeland terrorism
- which would in turn demand unfortunately maintained heavy PSBR.

Thus the economic fundamentals demonstrate that there is a 'new norm' for the US almost starting afresh regards value creation, and it will be one that is set to unfurl slowly at first then moving more quickly for quite possibly much of the decade to come. investment-auto-motives doesn't enjoy being so bearish but has to agree with the likes of Gary Shilling, that we are entering a new period.

[That sentiment seemingly paralleled by Berkshire Hathaway's long-term plays on 251 "underpriced" monoline insurance company derivative instruments, suggesting/expecting a far improved default environment 15-20 years down the road].

It is one which, as we've said before, must be build from scratch and from a re-casting of the country's industrial base in order to create new productivity and innate value. The economy must re-inflate itself based on sound fundamentals and solid business principles, not from the historic credit-pull that created the consumer and financial markets misplaced euphoria that ultimately ended in a bubble and so gave rise to today's unwelcome diaspora.

Times of fundamental transition by their very nature demand structural change across all sectors, and that of course means M&A opportunities for Advisory, Underwriting and event-driven equity trading. So whilst the markets themselves may be smaller in the number of participants given the disfavour of the general public (and so reduce what have often been over-indulged CapEx values), it does mean that a smaller number of professional participants (as active 'protagonists' and passive 'riders') be able to pick-over the bones and lean-meat of global companies.

But before even that step of the economic re-build story can happen, the very working of Wall St need to be re-cast, tested as sound and utilised as the M&A orchestrator and multi-sector business model arbiter. We are still some way from that point, as the structure of banking itself undergoes its gradual but hopefully powerful transformation.

That process includes, as a first step, the re-moulding of 'Core Role National Agencies' that overlook banking standards and regulation; including the structure of: National Treasury Departments, National Central Banks (esp The Fed & BoE), regulatory bodies (eg the SEC and FSA) and at a higher plane the IMF and World Bank.

All are presently prescribing new-era financial framework templates and guaging their own executive roles. Although simultaneous to Wall Street's re-invention, this must lead slightly ahead to provide cohesive, globally inter-related direction. So it is in itself a lengthy process that may take time, time which will affect US and global industries and society. But it must be done soundly to effect robust, long-term change.

Now more than ever the criticality of economic inter-relationships is key, and whilst 'tormented' investors presently feel frustration from the lack of market traction, better to overhaul the global financial transmission system than experience unwieldy self-destructive 'kangaroo-hops' from fundamentally broken financial machinery.

And by that score, the serendipity of General Motors plays-out as a useful metaphor.

Wednesday, 13 May 2009

Company Focus - Ford Motor Company - 'Stock' Car Company Racing

As the economic woes slow the NASCAR business model (inducing a possible re-think) the investment community keeps a watchful eye on an alternative leader-board that involves not stock cars, but car company stocks. The Autos element of the Dow Jones Industrial section of the NYSE is becoming increasingly dynamic as observers seek to seperate the winners from the loosers amongst listed VMs and Suppliers.

As GM heads closer toward the Washington-set Chapter 11 deadline, so questions over its Market Capitalisation value have become apparent which in turn has driven down the stock by a third over the last few business days from $1.60 to $1.16 as of close of play on Tuesday 12.05.09. [see previous 'predictive' posting 08.05.09].

With that aforesight Ford's Mulally and company bankers seem acumenical enough to utilise the stock-price distance/incongruance that has emerged over the last year. To in turn use that market confidence to the company's advantage and literally capitalise upon it.

Thus, FMC's statement on Monday 11.05.09, 3 days ahead of its AGM, that it would offer a 300m new share issuance to the market. [NB 347m including the book-runner's underwriting uptake option for Citi, JP Morgan, Morgan Stanley & Goldman Sachs]. As the stated SEC 8-K announces, much of that raised funding will be allocated to fund the outstanding contributions required for the UAW VEBA.

Ford was wise enough to take out its securitized "home improvement loan" some years ago to fund the R&D and CapEx required for a new product development rationale and relatively lean product pipe-line with global reach (esp 'Global' Focus). By doing so it was able to refrain from reliance upon Washington funding and its implicit and explicit associated 'covenant' terms and conditions.

Doing so of course took a toll on debt levels and so balance sheet liabilities, and given the securitization element and generally depreciating asset-prices of the present time, sanctioned much the company's asset-base from further use.

Thus beyond the need for a "very liquid" working capital cushion, Ford does indeed need to fund the VEBA and by doing so be seen to be good corporate citizens for doing so when all its Detroit counterparts can do is offer questionable equity swaps. But more so Mulally will have been keeping a close eye over the Administration's reported/alleged bias toward the UAW - given its importance to the Democratic Party's recent support, Obama's election and the need for present-day public support during these tough times. Hence there is a possibility that Mulally et al saw an emergent trend, given the Administration's actions, that could envoke even Ford to provide for the VEBA via a debt for equity swap.

Given FMC's undoubted hard work to maintain traction over the last few years woth efforts like ONE Ford, and a concomitant investor confidence, such a politically enforced action would have been problematic indeed - partially lumping FMC in with its 'bad-egg' Detroit counterparts. Such an eventuality had to be avoided, hence the very rare event of a Ford issuance of new stock.

There has been commentary that able to metaphorically 'lurk in the shadows' vis a vis GM and Chrysler that Ford is not as unincumbered as first seems given its obligations. But even so, it does appear to be, for the moment at least, along with Toyota, VW (and the smaller Hyundai), one of the global Big Players with maintained momentum as the ongoing headwinds continue to buffett.

Ford's bankers, themselves in a mixed bag of fortunes, recognise that fact and equally wish to generate welcome commisions which will contributes to their own income streams and so given the recent stress tests improve their capital ratios, to in turn provide the liquidity for cross-sector industrial lending. And so a strong uptake for these FMC shares will benefit the company's supply chain across Delphi, other Tier 1s & 2s, the dealer-base and of course Ford Credit.

The FMC announcement generated a relatively heavy stock sell-off (from $6.25 to $5.01) in a day and a half as inevitable concerns regards stock dilution grew. Mulally et al will be seeking to re-envigourate the markets tomorrow at the AGM, hoping to see a quick 'V' pull-back to a higher price and so action an 'LSD effect' within the 'Detroit Differential' ; the key to its own traction.

Serendipitous indeed that Ford took 3 of the top 4 places at the recent Darlington round of the NASCAR series. And it was Matt Kenseth running a CitiFinancial sponsored Ford Fusion that won. Serendipity and Fusion indeed!

Friday, 8 May 2009

Company Focus - GM - Stock Pricing: Time for Independent Price Discovery

At long last a financial press commentator has highlighted what appears a schism between GM's stock price and its real-world valuation. The rationally based 'dis-illusionment' that was recognised by the professionals eons ago seems to be filtering through to the public at large. The dynamic GM environment, buffetted by the government, bond-holders and the UAW means that the normative general market consensus for price discovery has been fragmented.

We seem to have reached a time for greater independent price discovery using diverse methods dependent on the inter-acting party; whether Institutional, PE, Hedge Fund or amateur investor.

The FT's Spencer Jakeb highlighted on 07.05.09 that at approx $1.70 the market was effectively valuing the company at over $100bn. [$1.70 x 610,502,000 shares outstanding = $103,785,400]Since that comment, bid offers have dropped to $1.60 at the NYSE close, giving a re-price of $97,680,200; therefore wiping-off $6,105,200.

It is known that much of the GM shareholder-base are 'mom & pop' private investors who have always seen the company as an American economic pillar and bellweather. But more recently it is reported that Hedge Funds and Day-Trade speculators were attracted by the levels of volitility given the present insecure conditions - with short-term 'long' and 'short' plays after the influence of the temporary up-tick rule (to bolster markets) dissipated.

Of course corporate valuations when boiled down, like much in life, depend upon philosophical deconstruction and resultant stance. Thus different parties with different interests from 'strip & flip' to portfolio synergies will be looking at the whole of GM, its divisions (eg GMNA, GME, GM-DAT etc) and the 'cost' of Government intervention and allocate self-perceived reasoned values.

That is a process has even been hard for the now semi-government, semi-UAW and semi-private owned Chrysler, which given the fewer constituent parties - compared to GM's public listing - is theoretically "plainer sailing" to re-organise. Entering Chapter 11 should assist. As investment-auto-motives highlighted on the 'just-auto' blog:

"Whilst the Private Equity houses of Perella-Weinberg, Oppenheimer and Stairway Capital Mgmt are taking the flack for Chrysler being driven to Chapter 11, it should provide a final arbiter that will give greater credence to the debt-holders than they previously mustered from Washington For the US auto-sector to re-strengthen financial markets' confidence (in asset values & balance sheet structures)must be re-built, and be seen to be re-built. Perhaps that is the intrinsic lesson of Chapter 11 and garnering the new from the old at this crucial point in history".

[But even here, under the auspices of Judge Arthur Gonzalez, there is reported feeling that the 'dissident creditors' are not being heard. That could lead to a latterday call to Appeal and a re-hearing which obviously extends the case and the time-span for Chrysler's ressurection].

The greater complexity of GM, both operationally and in its ownership structure (and claims), means that any attempt for a quick fix at governmental level which is possibly legally tenuous would be contested. Thus the GM Chapter 11 turnaround could theoretically take far longer than a protracted Chrysler example.

GM's CFO states, the mere speculation of entering Chapter 11 is presently damaging the industrial giant's sales volume, as already low consumer confidence in its sub-brands is further undermined. (Q109 sales revenue at approx 50% of Q108).

At present the shareprice is down 90% YoY which given circumstances isn't surprising, What is surprising, is the faith that 'maam and pop' still seem to have in 'The General'. That must surely be as a consequence popular consciousness, having been here before decade after decade with latter day business and stock bounce-backs.

Hedge Funds however will have obviously been more prosaic in their determinations and will be assessing the current and potential value of the BRIC+ divisions. At present investment-auto-motives assumes that the Government funding is being (proportionately) applied across GM's worldwide divisions and not just GMNA, therefor producing a nominal drag on each's performance. [This could be the case for SAAB and Adam Opel and the call for Swedish and German government aid]. But in truth that US Aid should be factored only into GMNA since North America is the primary operational dead-weight.

Of course what is ultimately required is an independent marked-to-market audit of GMNA's full asset-base vs its liabilities for fixed-income and equity investors. Only when this is undertaken will conjectural distortion be dissapated and the reality of the scene emerge. It could be only then that the majority of non-professional stock-market participants are finally 'dis-illusioned'.

Even if this is not quickly forthcoming, the calls by the US Government to radically alter equity re-distribution (via debt swaps for itself and the UAW) should be ringing 'equity dillution' alarm bells - press reports hailing that the 'free-float' would be reduced to a truly measly size. If those bells are heard, so the markets will finally shake their government fuelled GM optimism, and a spiralling price decline should emerge.

As its MarketCap falls and the chasm between the level of $ prime-pumping and actual worth widens so GM will have to do something radical.

Some time ago investment-auto-motives prompted that the conglomerate should divest its divisions, maintaining strategic holds but freeing RoW from GMNA. Such an outcome might be the result of a long-winded Chapter 11 process, but even that would pit the Judge's idea of longer-term interest against 'immediate retrievers' seeking short-term liquidity; as we see with Chrysler at present.

As GM stock starts the day at $1.60, investors need to ask themselves exactly how that price is made-up. Is it presently more than the sum of its parts? And if not who is the arbiter to allocate the BRIC+ hopes and calculated asset value? GM itself or a Judge?

As Pontiac (wrongly) awaits its extinction (GTO & 'The Judge' nameplate with it), it is ironic indeed that it may be an external Judge that ultimately assists GM management inspite itself.

But s/he must remember that the investor's interests come first, for without investor confidence the corporation, whether GM [in whatever guise(s)] or any other, has no future.

Wednesday, 6 May 2009

Macro Level Trends – Parisian Urban Planning – A Time for CARchitecture?

The question of personal mobility and its impetus and consequences on society has been with national Government from the invention of the motor car. From the UK's 'Red Flag' Bill in Victoria's reign that required horseless carriages to be led by a warning signalman to the creation of Brasilia as a new Brazilian capital, the question of automotive regulation and integration within the very fabric of society has been a major aspect of 19th, 20th and now 21st centuries.

Thus urban planning has both been reactive and proactive to the car, from the adaption of 'carriageways' to the creation of 'motorways' whether the German Autobahns or North American Freeways; an so the car and its relative infrastructure has been a concomitant part of designing the future.

Although without question part of our everyday lives the role of the car has come to take a pre-eminent position as 'domestic-societal intermediary', serving as (in crude terms) a 'Personal Space Mobility Pod' that creates not just physical mobility but psychological connectivity between home and 'the world' – the car is largely a home on wheels.

The question of the physical and psychological role of the automobile has been with philosophers, designers, urban planners and architects for nigh on a century. In the city the horse gave way to the internal combustion engine and as seen so evidently with London's Regency Grand Houses, the Mews terraces behind such houses were converted from stables and coach-houses to garages (which in turn of course became their own dwellings with incorporated garages)

But, as we know, the turn of the 20th century promoted the high idealism of a new era, promoting forms of 'futurism' whether in art, architecture, automotive design or the ultimate amalgamation of the creative sciences toward social engineering via urban planning. The the World War 1 hiatus of this new age re-envigourated visionaries whose previous efforts had been disrupted, but the post-war 'New Europe' rebuild idealism gave 'sociological space' to creating a better tomorrow.

Most prevalent in its idealism and markedness was Modernism originating from the 'Staatlich Bauhaus' in Weimer and creating a scholastic template that strongly survives to this day. Born from a time of (health &) efficiency seeking, the notion was that human behavior and physiology was reductive so that all designed objects from desks to houses to cars could be created from the basis of sound ergonomics. The need to rebuild and create consumer goods on a massive scale also meant that ergonomics was correlated to economics – 'born from' or 'resulting in' depending on political viewpoint.

Walter Gropius was the school's prophetic father and imagineer of a standardised, modular small housing study (inc the project's financing scheme) stemming from the 1910 Berlin Planning Exhibition. However, it was Charles-Édouard Jeanneret-Gris, better known as 'Le Corbusier', whom although Swiss-French and not German was provided with the opportunity to become the most effectual and so important visionary of that period. His maturation of the Modernist philosophy and accordant design values and rules transformed the landscape from the 'grande pavillions' built as domestic showcases for nouveau-riche industrialists (their scions re-created to this day) to the 'idealised' community housing project in Marseilles called 'Unite d'Habitation' that spawned derivative versions around the world in the 1950s, 60s & 70s.

But Le Corbusier wished to have an effect beyond the limits of limited Architecture and related furniture design, thus he created a prototype of the then Modern Automobile. Unable to find financial backing he instead allied with Gabriel Voisin who also greatly incorporated a 'form follows function' ethic for the mutual cross-marketing of their simple yet sophisticated creations.
But in reality Le Corbusier wanted to see his cars in his city-scape, and that was to be a radically re-planned Paris (to eradicate the slums) in his schema 'Ville Contemporaine'.

History shows that Corbusier's far futurist concept of cruciform shaped sky-scrapers set amongst an overtly rigidly planned transport network was (rightly) too shocking for a Paris who's identity was born from the Neo-Classical, the Baroque and crucially Baron Haussmann's elegant boulevards.

Fast-forward 87 years to 2009 and it appears that a re-making of Paris is once again on the cards, under the ambitious auspices of President Sarkozy – nick-named by some quarters of the public as 'Napoleon Bonaparte Deux'.

The Greater Paris Plan appears a massive undertaking involving the eradication of the 'invisible wall' that separates the romantic core and the less than savoury inner suburbs, the generation of commercial and cultural activities right across the city and grow the Il-de-France region's economic prowess by sensitively leveraging the 12m inhabitants of the region to move beyond its 30% of France's GDP productivity rate.

Transport networks are an expected primary early beneficiary (and geographical promoter) of the Plan, with $47m worth of public transport upgrading. Additionally extended rail-lines and a new rail-Peripherique mimics the overly congested roadway to help circulate people around the suburbs.

Beyond infrastructure, leading world architects (eg Richard Rogers, Poala Vigano, Jean Nouvel et al) propose eco-skyscrapers that offer 'hanging gardens' and biomass flora cladding (as exemplified in a few Paris spots already), commentators believing this is more than an updated nod to Le Corbusier's ill-fated scheme. Moreover, eco-development of the Seine's disused banks and a neighbouring forest to Charles de Gaulle airport to off-set aviation CO2, are also included.

The City's group of multi-municipality Transport and Planning Directors are scratching their heads as to how this can happen given the limited present local funds available and the possible birth and elevation of a Sarkozy authorised Greater Paris Authority to provide central planning.
No matter whether such a GPA emerges or not, petty politics and famed French bureaucracy should not prohibit the progress of a well planned and sensitively progressed 'Vision to Reality'.

But it must be highlighted that an essential part of that appears missing from the Paris Plan. That is the role and integration of the car. Public transport will of course assist mass-transit, but equal consideration must be given to personal mobility beyond cycle lanes and pavements. Today offers the rare opportunity to efficiently plan the interaction of vehicle users, their domestic and work arrangements and create better inter-secting synergies at space-planning and energy-planning levels.

As the West down-sizes the size of the cars it uses and France's leading compact (eco) automakers appear well positioned it is inconceivable that the Paris Plan does not incorporate their social advantage. Peugeot, Citroen and Renault (inc Nissan and its 660cc & sub-1.0L Kei Car capability) plus the myriad of swelling Quadricycle manufacturers (from Aixam-Mega to Ligiers to MicroCar to JDM to Chatanet represented by their official EU agency EQUAL) are primely positioned to demonstrate how passenger vehicles need philosophical integration into town planning beyond the obvious issue of e-charging for EVs and PHEVS.

Le Corbusier and others have long sought to amalgamate and assimilate car and home to be more than simply a 'living box' and an attached 'parking box'. His ideology was that the house was a “machine for living in” and as vehicles become e-PODs in their own right – and will continue to do so – shouldn't the electrical and behavioral/physical 'connectivity' between home and vehicle be explored so as to synergise the two as far as possible where possible? None better than with grand scheme opportunities like the Paris Plan, especially so given the advantage their automakers enjoy [Much as a consequence of France's 1980s L6e and L7e vehicle class regulation which are effectively a precurser to international eco-vehicle regulations].

People always have and will obviously continue to use vehicles, whether ICE powered, e-powered or otherwise. Thus heavy-handed political ideology toward gradual prohibition of cars from cities must be counter-balanced by an ideology for the improved integration of suitable vehicles - for the sake of the 'every(wo)man' and the economy at large.

The new era must include the notion of “CARchitecture”, just as luminaries like Walter Gropius, Le Corbusier and Gabriel Voisin dreamed and worked towards 80 years ago. France once again has the opportunity once again show that Ergonomics and Economics must work inter-dependently, and perhaps by doing so set example to the EM nations of socially positively aligned vehicle use and manufacture.

It will of course be many years before we see the outcome of Sarkozy's political promise. Whether that powerful holistic vision is ultimately created or whether it fragments and distorts over time, perhaps never so prosaic is the age old legend of “the Judgement of Paris”, itself demonstrating why good sense must prevail over human frailty.

Friday, 1 May 2009

Company Focus – Chrysler – FIAT – A Visionary March(ionne) Uphill.

The Government set deadline of May 1st has arrived and major metaphorical shifts are underway between the tectonic plates of the North American and European auto-industries.

As a consequence of an (ill-termed)group of 'dissident' investors holding their position (and client's interests), Chrysler has entered Chapter 11 and simultaneously merged with FIAT SpA.
Vaulted as the sector's 'Superman' Marchionne now has the job of integrating the two culturally diverse Groups, and re-running the turnaround feat undertaken at FIAT in the early part of the decade for Chrysler. [Their he cleared the $8.8bn debt and slimmed over-swollen management ranks].

The recent benchmark model template in the industry's circles is widely seen as that of Renault-Nissan which sought to maintain a level of independence for each partner. And it worked on the basis of mutual respect for each-other and critically divisional self-control and responsibility. But Chrysler has been here before with Daimler and it was clear that the effective, efficient Germans couldn't instigate the level of change required even with Zetsche as Chrysler's direct CEO – Stuttgart calling into question the level of American professionalism & defensive politicking that maintained disparity and inefficiencies.

However, given the very different circumstances of the then yesteryear compared to today, the reportedly brusque but effective Marchionne may not seek (or indeed need) to overly-placate. By backing the Chrysler-FIAT deal President Obama and his economic team are looking to the Italian as the Maestro to leads and harmonise the 2 orchestras. And that can perhaps be better done under Chapter 11 as supposedly due process clears the deck with the aid of a wholly independent judge acting as the arbiter between the 3 constituent parties – Chrysler LLC, the UAW and the much aggrieved debt-owners.

[As for that latter group, there is a possibility that the 'dissident' investors - primarily consisting of the Private Equity Houses of Oppenheimer Funds, Perella-Weinberg & Stairway Capital – were infact acting equally on behalf of the more sensitively positioned Morgan Stanley, JP Morgan, Goldman Sachs and Citi. investment-auto-motives suspects given these investment bank's more sensitive political positions that the smaller creditors agreed to 'take the public flack' for Chapter 11].

Whilst this move is undoubtedly raises short-medium term concerns amongst the UAW members, it must be recognised that they should at least be satisfied as the new majority owners of the company, and with greater Board representation able to question and co-create (realistically under Marchionne) the future direction of Chrysler. [NB The new accord gives 1 seat to UAW and 3 to FIAT].

Of course the Washington Administration (Rattner, Bloom et al) will have continued oversight given the level of its 'investment' and its very position begs the issue of conflicting interests. The argument that a government set on major green/clean-tech reform and a typical full-employment agenda cannot also be commercially truly objective; so undermining the very premis of an enterprise. Indeed, with the UAW as the major owner, the government even with its 'hard stance' might need to, or be tempted to for populist gain, recede on unpopular hard decisions that provide short-term resuscitation and long-term health.

Cogniscent of this reality, that is why the well placed FIAT has been supported by Capital Hill as the guiding light for Detroit's No3 automaker, and Nardelli is to resign once Chapter 11 has been fully entered.

The strategic advantages to both companies are clear, well suited on paper regards technology and platform adoption, global geographic coverage and dealer-network synergies. Chrysler obviously gains access to modern small and compact cars, fuel efficient engines and gearboxes and access to broader international markets, especially so in EM regions. FIAT manages to piggy-back it's way back into the US with a much needed new credibility which would vitally serve FIAT, Abarth and Alfa Romeo branded vehicles that could be made domestically, in Mexico or shipped to the US from Europe under less stringent trade conditions (given the continued possibility of subtle protectionism).

But FIAT Group & Marchionne undoubtedly have a far greater vision than simply assisting Chrysler, gaining cash and equity income from its rebound in coming years and re-entering Italian marques. FIAT Group is of course a conglomerate, consisting of multi-various related and complimentary divisions. The Chrysler deal also means order book growth for:

1. Magnetti Marelli producing various vehicle modules and parts
2. FPT – FIAT Power Train producing engine and gearbox units and parts
2. Teksid producing various castings for FPT
3. Comau producing manufacturing tooling and manufacturing systems

Thus Marchionne is viewing the world of possibility for FIAT Group and its habitation of the automotive value-chain, not just an opportunity distinct to the Auto division. Moreover, growing this conglomerate platform with US accessed volume - simultaneously leveraging its inter-business ties with lower cost TATA – should result in gaining US B2B and B2C market industrial credibility. This in turn allows Marchionne to strengthen the North American operation of

5. C-NH – Case-New Holland producing Agricultural and Construction machinery

And to, with C-NH and FIAT Auto as associate marketing channels, tentatively introduce

6. Iveco Trucks producing a broad range of small to large class trucks (class 1-7)

Thus Marchionne undoubtedly is not looking to simply the Chrysler-FIAT medium term, he is viewing this highly important juncture in the US auto-industry's history to lay out ambitious plans that allows FIAT Group access the US market. The big-picture scenario created by Marchionne hopes to place FIAT as beneficiaries of Congresses TARP and TALF induced economic outcomes. Construction and Agriculture are to be major items on the national agenda as 'new-age infrastructure' and 'affordable housing' projects gain traction alongside the prescience of 'food security and affordability'.

Thus we suspect the Chrysler deal serves as the starter-motor for a far larger commercial vehicle.

The successful re-organisation and resolution of Chrysler should set at least partial turnaround criteria for GM's restructuring. Together with Ford's involvement, the new 'Detroit Reality' is being born, one that in turn sets out the requirements from the Supplier base, which itself is still going through major upheaval, consolidation (thanks to the likes of Wilbur Ross and Frank Stronach) and efficiency seeking – with the likelihood of greater Tier0.5 application.

This successful end-game still seems some way off as Chrysler (and GM) turnaround plans have been seemingly continuously submitted and re-drafted having been cited as over-optimistic regards future NA sales TIV. (It seems that overtly optimistic 3rd party conjecture - such as Grant Thornton estimating a return to 12-14m units pa as early as Q1 2010– have not painted a realistic picture. But at least Detroit knew to eventually base operating break-even plans on a far more conservative 10-10.5m units).

But Marchionne knows that the only way forward is to project credibly conservative volume expectations from a diminished market and lost Chrysler market share, so a robust business plan can be drafted that demands much of self-governed corporate efficiency from itself and FIAT-in-house and external suppliers.

“Plan for the worst and hope for the best” will be his underlying mentality to ensure that robust margins can be attained throughout the FIAT empire.

Indeed, a “Visionary March(ionne) Uphill”.... but worthwhile to a very important self-determined destination.