Tuesday, 30 June 2009

Company Focus – Aston Martin Lagonda – Cygnet Signifies an Alternative Business Stream

The WSJ today reports that Aston Martin Lagonda and Toyota have agreed a platform/vehicle sharing arrangement with the iQ city car. 

To be known as the Cygnet under an AML marque, the strategic aim appears to enable both regulatory adherence regards CO2 emissionsf its V12 and V8 the DBS, DB9 and V8 Vantage & Volante supercars and provide reach into affluent yet congested and increasingly restricted global city-centres.

Of course initial reaction to the idea of a Aston badge adorning the front and rear of an iQ is “shock-horror”, but of course there will be far more rational and detail behind the initiative. As the economic slow-down bites into conventional business at Gaydon and capacity & revenue sharply, Ulrich Bez et al will deploy a plan of action designed to battle the historic norm of AML's generational demise as the supercar business-cycle sweeps into a trough.  

It is generally recognised that unlike the Aston brand, the revived Lagonda marque is not “set in stone” by the public's perception. (Indeed its periodic re-emergence has been a both svelte AM saloon body variants in the '80s and previously the then shocking 1970s Townsend designed angular vehicle. It's original 1920s and 30s guise is lost to most except marque connoisseurs). Hence it's re-invention can be made theoretically from a blank canvas, and that it exactly what AML did with the Lagonda concept X-over vehicle at Geneva 09.

That car was used to demonstrate a new forward looking era for the revived marque, one which rode the X-over trend by marrying the DNA of a Porsche Cayenne, Range Rover and Bentley, The remit to produce something alternative for the uber-luxury set of target clienteleee that span the globe and have outer-city homes; from contemporary weekend beach-side houses in The Hamptons to luxury weekend Khaymas (tents) in thdesert-landsds of the Arabic Gulf - in indeed both! This select latter group could well apply to the part-owners of AML: the Adeem investment consortium.

So whilst the Geneva car presented something of the alternative new Lagonda, the story appears not to end there. There was mention of a sedan vehicle, which given that the X-over is based on a Mercedes GL platform would suggest that a sedan would be evolved from an S-Class or E-Class base, cementing a Daimler inter-relationship which also offers new 'eco-tech' solutions (such as L-ion hybrids) and critically would also strengthen the inter-relationship of GCC SWF and PE funds given Adeem's AML interests and Abu Dhabi's $2.7bn Aabar Investment Fund buy-in to Daimler in March along with (and slightly diluting) the the Kuwait Investment Authority holding. 

As we see today, the reports of the AML-Toyota city car alliance alters partially 'given' perceptions that the other AML cars would be born from Daimler given Stuttgart's willingness to seek alliances. (ie suggested Daimler-BMW small car). However it seems that the the A-B class platform and Smart Car base were either not put on the table for debate - perhaps Daimler demanding retained sole usage - or the limited ability to alter the A-class and Smart's aesthetic to suit another brand's design cues with in the latter's case the added disadvantage of sub-optimal NVH (noise, vibration, harshness) driving characteristics.

So AML it seems needed another borrowed platform to provide credibility to inhabit the premium city-car segment. So providing an urban-focused radically different counterpoint product to the previously displayed X-over. One that not only fitted the luxury city-car genre, but also by establishing a second stake in the ground so far away from the original indicated the potential stretch & span (ie market segment coverage) of the Lagonda brand. 

Now the Lagonda Wings are truly stretched!

But investment-auto-motives suspects that AML has also taken on this 2nd strategic partner to enable dual access possibilities to eco-tech powertrains from Daimler & Lexus for fitment to next generation supercars such as the successor to the soon to arrive Aston Rapide and a probable sister Lagonda variant. And increasingly beyond the 30mph/50kph + speed limits of suburban roads and motorways / freeways / autobahns, Lagondas will have to operate inside city-centre LEV and ZEV environs (from London to Singapore) that will demand alternative propulsion solutions.

Lagonda has the task of creating an identity from scratch his purports that the Lagonda marque will offer an alternative driving and passenger experience. To do this it appears to be rightly looking across the spectrum and history of personal travel. Remember the word sedan in auto-terms originates from the sedan chair, of which there was even a Lagonda names version. 

However, crucially the marque's name is actually a transmogrification, derived from 17th century wealthy Venetian's calling for “La Gondolier” for canal-way carriage .

Furthermore, Lagonda was once synonymous with the forerunners of today's powerboats, the V12 car engines used for propulsion and that water-land connection promoted numerous wooden-body and boat-tailed vehicle creations. 

And the so choice of the Cygnet moniker conjures up the quiet British riverside, the near silent wafting of rowed and sailed leisure craft and connection to the brand's 'waterland' origins - a happy picture to 'paint' to influential - yet given these tough times - jittery investors.

So it seems AML, Dr Bez & Adeem are indeed, through the Cygnet initiative, following that change in social & business tidal flow - using high-quality, visionary external business partners exemplifed by Daimler and now Toyota. This exercise demonstrates their "(signet) ring of confidence", and will (intendendly) be the talk of the Henley Royal Regatta this weekend.

Monday, 22 June 2009

Industry Practice – Formula One – Competing for Pole Position in the F1 Business Model.

It was a very long time ago that motorsports were the amateur sport of choice for European gentlemen. Today, homage runs such as the Mille-Miglia is where the leisured money is directed , even if behind the scenes passionate classic car owners also consider the importance of Mille-Miglia vehicle valuations, keeping P&L and balance sheet accounts as an important “aside”.

As a raw commercial counterpoint to VSCC, RAC and other leisure-class racing, Grand Prix's post WW2 popularisation has grown exponentially, with it snowballed commercial rewards. Firstly from day & weekend gate receipts, from track advertising, then from vehicle/team sponsorship and of course in the last 30 years from global TV transmittance. As F1 popularity expanded so increasing multi-stream revenues were devised and implemented, the monies enabled the sport's participants to hone every dimension of their competitiveness, from R&D facilities that led to the paradigm-shift of carbon fibre to the use of telematics to the offered sizable salaries that drew top driver talent.

Unsurprisingly, as that ever expanding liquidity pot attracted business acumen, deals and contracts followed leading to what has essentially become the agenda- driven forces of power-broking parties.

The FIA regulates the sport - presided by Max Mosley - and prescribes the specification 'formula' to which the race-cars must accord. Whilst it was Bernie Ecclestone that created the modern template, as a past team owner of Brabham he saw the value of the sport's commercial rights potential back in the late 70s, In doing so set-up FOCA (Formula One Constructors Association) with Mosley, then as legal council, to fight the cause for commercial change which he/they won.

A finance vehicle was created called FOPA (Formula One Promotions & Administration) which split the income as: 47% to the Teams, 30% FIA and 23% to FOPA (ie Ecclestone). FOPA latterly morphed into FOM (Formula One Management) and FOA (Formula One Administration) under the Alpha Prema investment umbrella with latter-day CVC Capital Partner's; interest thereby taking on much of the operational responsibility and financial rewards of the sport.

Thus for nigh on 3 decades these 2 prime arbiters of F1 have orchestrated, with understandable periodic tensions; the Teams obliged to take their cut as prescripted. But Grand Prix's exponential popularisation based on national patriotism and auto-brand affiliation has both encouraged and demanded a ballooning of financial injection – F1 has been the veritable financial snowball. YoY F1 grew as the dynamic global advertising medium, Team inter-rivalry pushing R&D limits that required, and were met by, increasing corporate sponsorship spend; as was regional race-track infrastructure spend.

This means that where once the FIA garnered much of the income from motorsport, latterly split that growing pot from event operators and TV broadcasters to Ecclestone's FOM/FOA , the rise of 'Team Turnover' means that billions of US$ the sport has encouraged is being handled by the Teams. Unsurprisingly, they have argued for some years that the former 47% agreement - and the associated 5 Concorde Agreements – do not represent a fair/true representation of level of their contribution or share of the sport's profitability. As to the size of that 'contribution' to the sport, FormulaMoney's calculations and research estimates the top 8 Teams 2008 budgets to total $2.906bn, of which only $771 represents sponsorship contract fees, the remainder (>$2bn) made up of manufacturer's and constructor's monies.

[NB. Whilst the manufacturers undoubtedly have a case to set forward, those sponsorship numbers do appear low and may be a result of dramatically cut-back 2008 corporate marketing budgets, whilst the incurred Team costs presented could be taken from the more buoyant 2006/7 seasons, so generating such a wide 'manufacturer contribution' gap. Such figures as always must be drilled into to understand the underlying accounting sources and exceptions. Such self-regarding evidence will of course be expected from all 3 parties].

Today ironically, the cyclical wheel of progress becomes apparent once again.

Just as Ecclestone as an ex-team owner leveraged combined Team's muscle in the 70s, so now 35 years on, Flavio Briatore - ex Benetton owner and now Renault Team MD – is undertaking a similar move with FOTA (Formula One Team Association) with the acumen and influence of FOTA's founder Ferrari/FIAT's President, Luca Cordero di Montezemolo. [NB Cordero di Montezemolo's previous condemnation of FIA regulations regards the 2005 US GP's single tyre per race controversy].

So, today there are 3 in a bed within the GP kingdom, the latest of which FOTA – a body born from the frustration - continues to recoil against the FIA prescribed 2010 season team budget capping at $40m. This represents a fraction of modern team budgets and is what FOTA calls “resource restriction”. (Given the fact that today's pit-stop crew consists of 26 members each undertaking a specific task, and the size of other team HR 'service demands' such as trailer staff and complementary guest overhead the FIA will try to present a case for Team fiscal over-indulgence).

However, in the face of such growing criticism, FOTA threatens that to operate normally, at near today's cost levels, it will form a breakaway championship; thus carrying-away with it the big auto-names such as Ferrari, Renault, McLaren, BMW Sauber, Toyota, Brawn GP, Red Bull and Torro Rosso, threatening to leave F1 with only the commercially low-yielding Williams and Force India.

Thus today we witness a re-run of the historic schisms that have been part and parcel of any sport as differing power-players endeavour to maximise their 'take' relative to media spend – seen in UK football over the last 5-10 years and seen with Kerry Packer in Australian cricket back in the 1970s.

Thus, eventual outcome will be decided by the influence of the global TV audience, and critically their waking hours. For it is the ability to reach that expanding audience that forms the very foundations of a 21st century GP business model. Just as the sport expanded into EM regions from Istanbul to Shanghai, and so was forced to schedule night races – re-formated as a new dimension in F1 – to access western hemisphere audiences, so the 21st century business demands will also shape the GP business model.

Such a format - created by Briatore and Ecclestone - is already being laid-out under the GP2 Series banner; the feeder series for F1 which replaced F3000. The GP2 Series operates as GP2 and GP2 Asia, the remit of which is to create an Asian-based mirror to its western counterpart; incorporating an intended bias to Middle-Eastern and Asian drivers to whom EM audiences feel a greater connection. Ecclestone's FOM owns the TV rights and since the GP2 races are held a support events to F1 races, there appears strong evidence that it is being used as a template for an improved business model format for F1 itself.

However, the FIA although an income beneficiary well understands the FOM GP2 strategy to wrestle control, and so a year ago announced a countermeasure – a competing interest - via the return of F2 in 2009. Stock vehicle chassis and engines are supplied by MotorSportVision (MSV) with the vehicle designwork done by Williams – hence William's loyalty to F1's and the FIA's status quo. But MSV also acts as promoter of the race-series so with no doubt ambitions to emulate Ecclestone's FOM success.

Given GP2's “lead”, this of course begs the question, can F2 truly compete or will it be required to buy-out Ecclestone GP2 interests to gain commercial traction?

investment-auto-motives suspects it will, and in the process create F2 and F2 Asia: more formalised templates for a longer-term traditional F1 and a new F1 Asia.

FOTA, whose members are perhaps the prime players, well understands the global potential of the sport as both a massive income generator in its own right as well as the 'magic halo' for their own brands and road-vehicles – none more so than Ferrari, understandably the greatest protagonist.

Details as to whether FOTA has managed to persuade financial backers remains unclear, as would the championship's name/title, though the existence of A1GP – based on 'National Teams' does raise questions as to how that could be leveraged, by FOTA or indeed the FIA and FOM in F1.

[NB RAB Capital as 80% A1GP shareholder will be keen to 'turbocharge' its investment bought from A1GP founder His Highness Sheikh Maktoum Hasher Al Maktoum – probably partly by using GCC SWF monies to create a competing set of GCC Teams].

As the FIA endeavours to rationalise the engineering difference between F1 vehicles, laying out what FOTA detractors state as “generic basic skateboard chassis that reduces Team innovation”, could the real end-game be to effectively swap-over F1 participants? In essence promoting the possibilities for:

1. Shifting automakers into their own alternative field of conventional ICE technology.
2. Introducing Nation-based Teams using greater eco-tech powertrains :
This echoes the 1930s Auto-Union/Merc Silver Arrows era where national budgets were directed at GP – this time however it is the US Government who as owners of much of the US auto industry could display US.
3. Thereby creating a roadmap for latter-year 'demand-pull' for the automakers to buy back into F1 as representing National Champions :
It is suspected that the Briatore-Sarkozy and Cordero di Montezemolo – Berlesconi links are strong enough to complete this outcome in the years ahead.

For the moment the Mosley, Ecclestone, Briatore & Cordero di Montezemolo self-interested 'scripts' continue.

[NB As an aside MSV has its testing facilities in Bedfordshire UK, a county also houses Nissan's UK/European development centre known as NTEC and houses various motorsport R&D and production centres. Interestingly, the recent government review of the UK auto-industry calls for a new ideology called 'Test-Bed UK' which appears to focus on extolling the virtues of the region, with nearby Northamptonshire, and possibly make it an auto-sector clean-tech hub with trickle-down tech from F1, F2 etc into mainstream production cars].

Thursday, 18 June 2009

Company Focus – VVC: the V Vehicle Co – Sweating the US Tax Dollar to Geographically & Structurally Re-Configure US Autos Inc.

At a time when the US Government's “Cash for Guzzlers” initiative is being criticised as yet more "good money thrown after bad" at the auto-sector, the supplier base is outwardly frustrated at its declined application for funds. Having seen GM and Chrysler given massive bridge-financing, now the retail-base is seemingly favoured to whittle away the hundreds of thousands of cars and trucks held by bloated dealer inventories.

Of course from an industry structure perspective, that decision to deny supplier-base financing will be seen to be the correct one in due course. At present the Obama Administration must content with:

1. the ongoing stresses in the banking sector (that could demand additional funds even after stress-testing given the write-down levels still to come and need for sector re-structuring).
2, the problems of state-level funding which at present sees a plethora of states already well into the red.
3. the momentus budget deficit that must be addressed.

But critically, the US supplier-base must be re-drafted as a new power-house that operates far further up the value curve, not for the most part the myriad of uncompetitive small to medium size enterprises born from Detroit's glory days and little changed in that time. Visteon and Delphi - the supposed advanced guard - have been destroying value for years, so what chance the less capable? The supplier base acts as the sector's corner-stone and must be transformed to meet the operational and market challenges of today and tomorrow.

As we know, there are various new enterprise start-ups looking to take advantage of the large scale macro-economic forces presently re-shaping industry. Such efforts range from Asian imported electric 3-wheelers, to nascient radical concept companies pushing the limits of consumer acceptance, to the likes of Fisker trying to re-create from farmed-out 3rd party systems, to the Buffet backed BYO that appears to have the remit of productionising in mass quantities automotive clean-tech.

Today, although working quietly behind the scenes for 3 years, comes San Diego's V-Vehicle Company (VVC), with an announcement that it seeks to re-open a former GM-Delphi production facility in Monroe, NE Louisiana with the intention of building “environmentally friendly vehicles”. Welcomed by Governor Bobby Jindall, the firm has secured $67m in direct state funding and a further $12m in workforce training given the employment opportunities for approximately 1,400 people. So at a time when questions are being asked about the ROI the taxpayer expects to see from GM and Chrysler, what is on offer from the V-Vehicle Co, given that the phrase “environmentally friendly vehicles” is very nebulous?

Perhaps the headline player is financier T Boone Pickens of Texas oil and now wind farm fame, as part of a consortium of investors. They include the Silicon Valley venture capitalists Ray Lane Managing Partner at PE Buy-Out firm Kleiner Perkins Caufield & Buyers (who as COO helped orchestrate stellar results at Oracle Corp between 1996-2000), John Doerr an IT 'deity' also of KPCB and Louisiana businessman James Davison, who owns the Monroe plant itself
2008 SEC filings (19.03.08) report the head of management team as Frank Varasano, Founder & CEO (also ex Oracle Corp and ex Booz Allen Hamilton Eng & Man'g division) whilst other Directorships include the names of: Druskin (Chairman) Deason, Blodgett, Krauss, Miller & Sullivan.

In a bid to add industry expertise and product development credibility, the newly appointed Head of Design is Tom Matano, formerly head of Mazda Design USA (renowned as the father of Miata/MX-5), ex Gm , ex BMW and latterly an academic stint as course head at the S.F. School of Industrial Design.

Reaction in the blogosphere (jalopnik.com etc) has ranged from the positive to the down-right cynical, but is clear is that if it wishes to succeed V-Vehicle Company must appear with a greater public credibility than it currently has. “Google” the firm's name and no company website appears, simply short press reports that highlight the calibre of investors and management and the Louisiana 'good news' story. 3 years on from founding and one would have hoped that V-Vehicle would have been running a story-board marketing campaign that highlights, from the beginning the phases of development the enterprise has gone through, so building good PR and credibility.

As it presently stands the firm is being seen by some as just another tax-money swallower with little real promise. Basic research suggests is seen as either:

a) promoting little toward technical innovation [ie e-cars or hybrids] in the 'clean car' game
b) lacks economies of to reduce product costs and so nurture manufacturing success.

The V-Vehicle Co must combat this negativity with its own communications strategy that moves beyond the inability to mention corporate or product range detail due to the competitive nature of the automotive start-up sector. Paranoia is typical in auto and investment circles but it must be balanced by a public discourse.

As for that level of technical progress on offer, perhaps the name “VVC” intrinsically portends to the technical reality to be ultimately served; since this acronym was officially born for lean-burn ICE engines bearing VVC-Variable Valve Control. The concept vehicle shown under wraps appears to be a mid-size SUV, displayed at a crucial point in time when the Gas Guzzler Scrappage comes into being, thereby hinting that V-Vehicle Co can allow the consumer to “have his [SUV] cake”.

As such this is a poignant example of policy-setting instigating idealised public good in environmental and economic realms through the encouragement of private enterprise in untapped / dormant geographical regions.

As investment-auto-motives noted through the previous 'Auto-Antenna' reports in 2006, the sub-text of the film 'CARS' was to highlight to the American public the shift in the C of G of the American auto-sector manufacturing from the north to the south.
Initially through foreign transplants by the likes of BMW in Spartanberg South Carolina, Daimler in Tuscaloosa County Alabama and Hyundai-Kia in Montgomery County Alabama; and more recently via new enterprises under the 'clean-tech' banner. Louisiana is obviously fighting back for its competitive position in the state vs state war for tomorrow's lean and profitable US auto-industry given its role in propagating regional economic growth.

Thus V-Vehicle Company may not be the most auto-sector's most technically transformative initiative, but it may well be that apparent core of creative conservatism that provides the firm foundations for commercial success. Past quotes from Ray Lane indicate that the exercise is more about the reconstruction of the structure of a typical car company to enhance profitability than radical product focus. As a successful exercise is doing so would add much value regards the future restructuring of the sector itself, both downstream and upstream of the value-chain.

Of course, that is still a long way off, much depending on the product and service to be proposed, the manufacturing quality at launch and beyond and of course the ability to run what is a niche vehicle company in what will still be very testing times as cautious consumers sway toward better known, established brands.

However, investment-auto-motives suspects that the real exit strategy of the “New American Motors” could well be to sell-on the concern - primarily its low cost production asset-base – to other US market focused players, thereby providing a good consulting revenue for KPCB and ROI for the investor consortium.

The enterprise's smaller size and scale perhaps best suited to a new entry Asian player, or a current southern state operator seeking additional niche vehicle manufacturing capacity or an ambitious global expander such as FIAT-Chrysler, seeking the ideal of new markets, new segments and much improved structural profitability within those geographic and product-place locations.

In this industrial matching of Silicon Valley's finance, San Diego's entrepreneurialism and Monroe's regional support, there is undoubtedly a sense that rationality pervades, and that with liquidity still so so precious "none like it hot"*

* referencing the (Marilyn) Monroe movie set in Coronado, San Diego County.

Sunday, 14 June 2009

Micro-Level Trends - Swedish Swag-ger - Koenigsegg Automotive & SAAB AB

investment-auto-motives continues to be encouraged by GM's divestment and structural reform process. The divestment of regional divisions and lacklustre brands a much overdue necessity, though of course there emerges a broader sector-related philosophical tension regards the handling of the $42m outstanding debt to 3 Illinois pension funds. That set a dangerous precedent that undermines the confidence of high-tier bond-holders across 'smoke-stack' America.

As recommended some time ago by ourselves, this unprecedented massive unbundling of America Inc means that GME's (effectively national-based) fragmentation has at last come to light - a very neccessary step on the path forward.

And as such, the opportunity arises for an effective springboard toward re-newed regional automotive policy-setting given the greatly shifting macro-context that sees the very notion of personal and mass mobility altering; from car usage patterns to the concept of the car itself, through to the very make-up of a global industry at large. In short societal change is requiring industry to undergoing a slow but powerful alteration in the search of new era economics and profitability.

However, as press commentary conveys - most prevalent being the FT's Paul Betts - a snap-shot of sector's present phase of re-structuring could be said to indicate a sense of 'de-consolidation' as the likes of Hummer, GMC, Pontiac, Saturn and arguably Jaguar & Land-Rover set adrift from their previous parents temporarily undermine the conventional "economies of scale" understanding; toward effectual "dis-economies" in the short-term. But instead, what we are rather perhaps witnessing is only a very necessary momentary fracturing before full and proper re-calibration on a global scale takes place. Such occurrences were perhaps not so evident previously given the trend for regional-centric consolidation, but now a critical juncture given Indian, Chinese & SWF involvement (ie their much needed liquidity) and of course the effectual re-structuring of the capital and money markets.

Thus we are in very very different days of far greater complexity, with more 'players' with different pressures and obligations having to reference much changed consumer, economic and funding terrain [NB the corporate bond issuance trend in lieu of normal credit-lines along with the consolidation of PE such as BlackRock-Barclays GI].
Thus it must be noted that Wall St & City investment banks, regional state funders such as the EIB and globally-linked lenders such as the IMF along with national governments are seeking to maximise the world-wide asset allocation of the sector to underpin long-term growth and enable global trade at sector and capital market levels.

So, the political communities and M&A book-runners within investment banks and advisory are seeking to best align under-performing assets with alternative new owners. That means seeing past the normative 'Horizontal Value-Chain Integration' (though still valid as with FIAT-Chrysler) to seek greater long-term sector stability and of course value creation potential to be had from "Vertical Integration" & "Diagonal Integration". Whether that be at industry level through either typical conglomerate leverage of major EM corporations (eg TATA), or at fund level via the synergy-seeking of investment holding companies within a portfolio (eg RHJ International).

Interestingly the case of Koenigsegg's interest in SAAB appears to play-out a mixture of both.
Although at first glance reminiscent of the 'David & Goliath' actions of Shaeffler on Continental and Porsche on Volkswagen, this latest minnow-swallows-giant deal could potentially offer a more cohesive rationale. The prime elements of the 'deal menu' being: capability integration (at management and technical levels) and a more stable, conventional financing framework given the mix of Swedish Government/European Investment Bank backing to the value of a reported $1bn, together with what appears reputable, industrial savvy privateer funding.

investment-auto-motives highlighted the potential for the Nordic marques of SAAB & Volvo some time ago. Given their prime positions as globally recognised 'national champions' set within a low-key but prevalent 'eco' and 'progressive' industrial economic agenda.

Thus, today we see Sweden taking-up the 'national cause' - no doubt with political persuasion from Stockholm - via Koenigsegg's interest in SAAB; the deal reportedly taking an "unconventional" shape. Though a world away in terms of present business size, production capacity & turnover, the potential for ideological and operational alignment seems apparent.

Even so, much depends upon:

a) SAAB being properly operationally re-structured via present court supervision.
b) The Riksdag being brave enough to weather the 'social storm' of further redundancy
c) Koenigsegg being able to quickly organically expand its operations so as to strategically service and philosophically lead its larger business twin.

This will be the entry strategy for the consortium of PE parties that include: Christian Koenigsegg, Baard Eker (an industrialist who owns Eker Group Holdings which in turn owns 49% of SAAB & is backer of the new Koenigsegg stake), possibly Dag Alexander Hoeili (an original part-backer of Koenigsegg Automotive) and the Swedish nation itself - a nation that embraces the idea of independence and self-determination both industrially and economically.

And to do so obviously means nurturing value creation by suppressing all dimensions of the cost base, building a strong 2-way 'parent-daughter' relationship, re-casting SAAB as a true premium marque and broadening the horizons for Koenigsegg Cars (as seen with the 2009 Quant concept).

Identifying the 'value gap' appears to have been the forte of Christian Erland Harald von Koenigsegg - the founder of the Sportscar Company. The progenee of an aristocratic Germanic-Swedish family, he used the capital gained from Alpraaz AB - the successful fish wholeseller & trading company - to initially fund Koenigsegg Automotive AB. (The company's logo and car's badge is derivative of the family's coat-of-arms).

The company's factory is based at Angelholm Airport within 2 aircraft hangers that previously housed fighter jets, so the spiritual link to SAAB given its links with the aero industry (ie SAAB Viggen aircraft) is very apparant. The factory move to the airport can be seen as either serendipitous or a very well orchestrated credibility building exercise.

Sweden's politicians have a strong voice in promoting industrial capability and growth, and appear to act as catalysts for inter-corporate co-operation for the good of the country. Thus Volvo previously assisted Koenigsegg in the mid-90s with wind tunnel testing, crash testing and powertrain sourcing from its parent Ford. Thus it is seen that the Riksdag well-recognises the need to develop a niche 'high-value' advanced auto-sector that can act as both deliverer and beneficiary of inter-sector technical transfer. Thus Koenigsegg is nurtured as the crown of Sweden's niche car sector; a vital component part of national industrial agenda to serve technology, components and sportcar trade across B2B and B2C markets domestically and globally.

investment-auto-motives therefore believes Stockholm is seizing the present opportunity to re-mould the country's core asset-base. (Just as so many other nations are, perhaps the most high-profile being China's Chinalco endeavour with the Australian assets of Rio Tinto).
The SAAB deal was announced on June 11th by Koenigsegg, is set to close by early July, demonstrating the urgency to get deals settled before competitors and general market sentiment can alter the deal-landscape.

So whilst the above provides the context, what is the core M&A rationale?

Observed as the unloved cousin in the GM stable, SAAB has supposedly been loss-making since its purchase from the Wallenburgs in the late 90s (as a reaction to Ford's creation of the previous PAG). But there is a distinct possibility that GM loaded SAAB with GME and GMNA development and purchasing costs to lighten their own financial burden, that in turn possibly exerted greater pressure on SAAB management which in turn annually set forth ever greater volume forecasts/goals to absorb overhead. Furthermore being a low-volume, low priority element of Detroit's globally dictated product/platform development schedule, meant that their was little autonomy regards product management (specification, variants and development & launch timing). Such restrictions lead to the current 9-5 (SAAB's core product) becoming 12 years old in a very competitive segment, thus detracting from consumer appeal. Additionally forced JV projects seeking synergies - such as Subaru SW & Cadillac X-over - whilst providing a nominal contract design & production income vitally constrained what would have otherwise been independent management decisions and accordantly improved income planning.

It was this inadvertent vicious circle of encumbered Detroit top-down decision-making that led to year on year under-performing growth (vis a vis its Volvo peer) and eventual sales demise. The years of GM antipathy meant that SAAB was swimming naked as the (credit) tide retracted.

However SAAB Bidders (including Ira Leon Rennert's Renco Group PE firm, Merbanco group of Wyoming investors and a previously rumoured FIAT) see the brand and company as the unpolished diamond, with potential to re-obtain its former glory typified historically by the original Sasson concept, the 60s & 70s rally wins, the 99 Turbo, the iconic Cabrio and vitally as the "understated thinking (wo)man's" brand.

Undoubtedly for Sweden it is the ability to bring back SAAB into the national fold, hence the willingness to back the enterprise. That back-stop financing provides a sizable level of risk-aversion for Eker and Koenigsegg on which they can build their own risk-reward business modelling. And given the current favourable political and consumer climate toward 'eco-engineering' and clean-tech the SAAB (& Volvo) brands given their Scandanavian roots perhaps hold a special place in the 'consumer psycho-space' and the zeitgeist - Premium Eco. These 2 marques are arguably set apart and positively positioned as the Sporty (SAAB) and Functional (Volvo) dimensions of that high-value product arena.

The deal allows Koenigsegg to capture what GM reckons to be $500m worth of plant and liquidity in addition to the $150m cash and cash convertibles on the present balance sheet. As to whether GM will retain a strategic sharehold (of 105 or under) is yet to be understood but it would make for a far better operational relationship in the short-medium term given that there will be platform licensing and general service agreements in place to ensure technical support for the re-born company.

So what of the SAAB & Koenigsegg similarities? And how has SAAB CEO Jan-Ake Jonsson been presenting the company's natural alignment and untapped potential?

SAAB originated from Sasson's original concept as being Aero and Weight focused regards its engineering ethos; progressive & sporty in direct contrast to Volvo's conventional boxy functionalism. Koenigsegg is obviously Aero & Materials focused given its supercar remit. Thus their theoretically exists a white-space for SAAB to return to its purist design roots, the new advanced engineering parent acting as the enabler. R&D work to date by both parties demonstrates interests in bio-fuel & flex-fuel powertrain solutions, the CCXR mooted as the 1st 'green' supercar in 2007. [NB whilst E85 orientated, realistically high-grade bio-ethanol production is still limited especially since the retraction in bio-fuel investment; and though many point to Brazil/Mexico's infrastructure as 'the possibility' they tend to use lower quality grade fuel compared to NA or Euro). As stated, a new concept called Quant was recently shown at Geneve 2009, conceptually a solar-electric 4dr supercar; supposedly created for an unspecified customer, but in reality probably to try and create a market demand 'pull' and critically gain credibility for the SAAB bid.

Importantly it is expected that Koenigsegg will seek to leverage use of its in-house eco-tech IPR for application in SAAB's niche and follow-up mainstream powertrains. This to provide welcome cross-company income streams from engineering development, perhaps sale of full IPR to SAAB or on a per unit royalties basis regards eventual mass production. Furthermore such internal sales allow for more flexible transfer pricing as and when necessary to boost or reduce either party's turnover or cost-base.

Business Strategy
This approach appears to indicate that Koenigsegg apparently wishes to raise profile by:
1. Becoming 'the' prominent player of advanced engineering applied to volume production.
2. Use its core competencies as the catalyst of metamorphosis at SAAB
3. Use SAAB to access off-the-shelf, lower cost front-engined architectures (Epsilon 2 to broaden own product range - (vs Merc CLS, Maserati Quattroporte, Porsche Panamera, Aston Martin Rapide, Tesla Bluestar/Whitestar, Fisker[Quantum] Karma) -and use Delta platform for smaller footprint vehicles.
4. The creation of a fully fledged Engineering Consulting division for external client work
5. Providing opportunity for Koenigsegg to access Opel-Magna given technical origins
6. The opportunity for Koenigsegg's eco-developed GM-SAAB platforms to be offered for contract manufacturing purposes to 3rd party '21C' car companies that focus on brand and outsource all manufacturing and build. (see below)

Importantly, NB the link between the Koenigsegg Quant name and the Fisker-Quantum JV. This could be coincidence, but also possibly suggests that Koenigsegg wishes to associate with Quantum for access to its PHEV technology. This could in turn lead to SAAB platforms being used for smaller future Fisker cars so providing contract manufacturing income.

Product Strategy -
To critically take-control of product planning and implementation using adapted Epsilon2 platform (9-5), adapted Delta platform (9-3), thus able to focus on high-value systems improvement (eg powertrain, drivetrain, chassis, electrical) since low-value capital intensive BIW (Body) system already in place.
The marriage of small and large operations that are respectively advanced and conventional offers a new spectrum of possibilities:
1. The opportunity to leverage a supercar name for SAAB via cross-over branding ties.
2. Thus create a new premium/performance division for SAAB similar to Mercedes AMG, BMW M-Sport, FIAT Abarth et al
3. Possible 3 tier product orientations of: Base > Viggen (sport) / Griffen (lux) > Koenigsegg
4. This would theoretically enable stretch beyond the current credibility constrained price ladder so reaching into BMW, Audi and Merc buyer territory.

Engineering Strategy -
The deal suggests the possibility of the formation of a 'technology bridge' between niche & mass.
1 As stated focus on systems differentiation to build the brand(s)
2. To migrate advanced materials from niche to mainstream use.
2. So growing volumes and gaining efficiencies of scale.
3. Thereby providing innate product performance (speed and mpg) differentiation.
4. Being seen to apply Koenigsegg's engineering ethos & build quality principles into SAAB.

Design Strategy -
1. To gain greater cross-range aesthetic cohesion which has been lost.
2. Presently the SAAB styling cue palette is overlayed onto less than optimal body dimensions, proportions and forms).
3. Maximise the opportunity to regain the conceptual purity of Sixten Sason's design language sympathetic to aero and modernist functionality.
4. (As re-layed by the reference-point created by the 'Aero X' concept).
5. 'this will be a prime element of SAAB's rebound and so the upcoming vehicles (9-5, 9-3, 9-4X etc) together espouse a 'clean cohesiveness'.

[NB 'stretched' & 'lost' product identities have arisen given merging of segment distinctions, constant aesthetic meddling and constraints of multi-marque platforms].

Manufacturing Strategy -
Need to wholly rationalise plant operations:
1. Maximise capacity utilisation in Trollhatten to improve unit margins (ideally >100%=120K +)
2. End contract manufacture agreements (eg Magna build of Cabrio)
3. Reduce parts count and logistics costs using high % common parts (undoubtedly an objective of Aero-X.
4. Possibly set-up SVO (Special Vehicle Operations division) for niche series projects prospecting and delivery (though ideally using main-line build process for manufacture).

Brand / Marketing Strategy -
1. Major opportunity to create the 1st credible eco-performance orientated premium car brand
2. Need to re-invent SAAB in consumer's eyes and mid-space
3. Need for new approach to avoid being lost in marketing comms 'white noise'
3. The possibility to open up the world of global Motorsport to SAAB via itself & Koenigsegg
3. To recapture Rally heritage and run at Le Mans (LMP1, GT1)
4. Ultimately create a new market space SAAB and Koenigsegg can 'own'.

Thus SAAB enters a new era with a possible new parent, but what of the long-term distant business view, that of investment collection. The ideal exit strategy may well be already formulated or could be a more distant, fluid expectation.

Business Exit Strategy -
A. To possibly sell SAAB to either an Asian Trade buyer with global ambitions, maintaining a strategic stake for continued dividend and capital earnings and business links.
B. To possibly sell to a PE firm, latter-day Hedge Fund (as that sector pulls-back) or SWF. Indeed would the Wallenberg's be interested in re-purchasing their former stake to GM?
C. If / when SAAB has excess sizable liquidity after paying-off state debts, the possibility to sell Koenigsegg to SAAB in a reverse take-over, thereby providing what should be impressive ROI for Eker & Koenigsegg.

Whilst far from a completed deal, with what seems an intricate level of mass detail regards the deal structure itself and confirmation of funding sources, the marriage of 2 such entities could create conditions for a successful re-birth of SAAB and the mutual reciprocation of far greater credibility for the rapidly expanding supercar manufacturer with what seem - by reading between the lines - ambitious plans for itself and Sweden.

investment-auto-motives highlighted the opportunity to be had from GM and GME fracturing / divestment, and proposed and prompted the idea of a Northern European 'eco-tech rainbow' centred on the Scandinavian, Germanic and UK automotive value-chain.

As with our participation in Australia's auto-industry re-orientation, we are proud to have played the subtle role of debate catalyst for Northern Europe; recommending with broad-brush direction how the industrial asset-base(s) of the region should be re-comprised to create value through a new eco-roadmap.