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 ( 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.