Industry luminaries, observers, CEOs & CFOs have for many years sought to alter the dwindling fundamentals of the matured western industry. A maturity hallmarked by intense competition, the nature of which is laid bare in recessionary times as demands retracts and the stronger absorb the weak; or the latter fall by the way-side.
Thus typically and historically the normal modus operandi has been the striving toward (economies of) scale-building in production and resource management. “Reduce unit costs”...” improve margins”... “exert market leverage”... and critically “re-build stronger”... have all been part of the mantra in order to better compete against new-entry players often better competitively positioned from RoW regions that have fundamental macro-economics. The opposition enjoys everything from everything from low-cost labour to deep pools of governmental financial backing. Thus the western auto-industry has been the 'sine qua non' of that innate industrial (almost military-eque) mentality to scale-up efficiency, incur ever increasing capital & resource intensive expenditure, all defrayed by ever-growing market-share of ever-growing regional automotive markets.
That indeed was the very business model origin of General Motors between 1908 and 2002's acquisition of Daewoo – the original 'buy & hold' strategy of William Durant almost endemic in the corporation and serving to partially off-set eroding NA market share with broader global sales up until 2009. Thus it achieved its centenary but historically savvy investors will rightly say its ROI heyday was many decades ago. However, until its recent heavy divestment undertakings – an action previously recommended by investment-auto-motives – GM had been the effective 'playbook' for all growing automakers.
Obtaining volume scale, new market reach and new segment reach via competitor acquisition at below-par historic values is still as valid today as it ever was for those companies well positioned to do so. The TATA-Jaguar-Land Rover deal, the FIAT-Chrysler deal, the Penske-Saturn deal and Koningsegg-SAAB deal the M&A's of the recent past.
This then is the normative behavior of the western auto-industry, today being relayed across S.Korea, India, China and other areas of SE Asia, the recent bankruptcy of Ssangyong yet another example of Shumpeter's 'creative destruction' as Ssangyong plant and assets are put up for offers and duly taken by either its parent's (SAIC) subsidiaries or competitor companies.
Thus Asia is 'enjoying' the early period of its 'hey-days' - the equivalent of the US industry's 1920s.
But there have been seen to be natural limits to the big is better model, the process itself incurring baggage and costs as a corporation inevitably takes on 'social baggage' (eg pensions, healthcare, etc) and by doing so increasingly must carry a hefty financial drag which in turn inadvertently generates a loss of its commercial & industrial momentum.
We have witnessed this in what was the heavily over-burdened 'Old GM' as it slowly approached its centenary year, requiring a shedding of its wholly 'legacy costs', the divestment of lesser performing divisions with re-focus on North America, China, Asia & Latin America.
This re-orientation marks a visible watershed period of western & Triad region industry, the mature sector understanding its relative position and seeking alternative ways forward with new structures, business models and products. ”New ways for new days” so as to meet the (inter)-national PESTEL challenges of tomorrow.
Unsurprisingly, they primarily include: energy reliance and security and energy cost, with the result - as some political commentators believe - to improve Triad commercial leverage with OPEC, Russia and other oil exporting regions by demonstrating oil's lesser hold on Triad economies.
Beyond the politics, it theoretically allows them to lead the world in eco-tech and latterly sell-on such physical product or licensed IPR advancement to the rest of the world.
So new automotive industrial structures are being formed in the midst of the present sector reformation, some obvious – typically new product types or marketing hype being on the everyday radar-screen of the popular and business press - others less so, effectively below the radar but far more powerful, such as the slow build theoretical formation of new era hypothetical business-models and so value-creation.
To do so enterprise innovators have and are looking to 'best practice' models, cases and benchmarks from external sectors so as to re-shape the very perception of what constitutes 'automotive' per se, and moreover, what constitutes the basis (and accordant perceptions) of personal & family mobility 'reality'. By shifting understanding and perception of the innate 'value' of mobility it so shifts the 'reality of mobility'. By doing so there can be an according re-appropriation of mobility methods, models and pricing structures.
Thus a fundamental shift from the historical/normative viewpoint of “cost-driven pricing” (ie. production cost + retail margin = price), toward “value-driven pricing” (ie mobility value = price). In essence, a deconstruction and reconstruction of mobility from both business profitability and consumer usage dimensions.
That implies re-evaluation - indeed recreation - of the mobility value-chain to ideally gain multiple value-streams and so potential revenue-streams. The process has been termed as “unbundling”; a cutesy phrase less threatening than 'reformation', 'reconstitution' or 'reconstruction'.
The closest example to date in telecommunications - that of the communications device (the mobile phone), the usage methods (ie service package options) and the transmission network itself. In short – the device (basic to complex), the usage (level & type) and the infrastructure.
[NB investment-auto-motive's previously published item “iPODs, Barbie Dolls & Airfix Kits” to demonstrate through analogy and example 3 of the prominent consumer and production trends forging the ability for lowered cost mass customisation, which will in time directly effect the re-strengthening of value-creation, affecting industry structure and so the evolution of public and sector and private sector vehicles]
The basics of an overtly (overly?) broad vision is slowly, step by step being sought, involving new product technology, service options and the implementation of telematics. Hybrids and EVs, new leasing arrangements and the inter-connectivity of 'intelligent transport systems' (ITS) and electrical charge points/grids.
Thus it is around this 3-Dimensional 'Mobility Order' (Product – Service – Network) that investment, commerce and industry is trying to orientate. Developing a plethora of commercial initiatives from mature, developing and embryonic enterprises and sectors.
But although each arena has developed independently since there appears to be no publicised over-riding master-plan or route-map. Whilst academic hypothesis may have been developed behind closed doors, the massive clean-tech and infrastructure spending from inter-national stimulus packages must be adequately planned and governed if the present global economic hiatus is to be used to change the face of mobility.
However, even without the issue of a formally publicised plan, commercial enterprises of all shapes and sizes are driving the agenda, both independently, via official industry bodies and via cross-sector formal and informal forums 'from DAVOS down'.
The investment community and commerce is talking, but is it at the level of detail required? Given this apparent fact, (yet recognising that outline plans will be periodically hypothesised), investment-auto-motives proposes highlights the importance of 'scenario plotting' to trace-out the 3-link business partnerships that best re-shape sector for a latter-day / additional 21st century auto-industry.
Ultimately amongst the plethora of clean-tech vehicle Researchers, Producers, Retailers, Service & Applications Providers, Charging Providers and Energy Companies – and the multiple combinations thereof - the investment community will need to improve its ability to identify the potential winners from the probable losers.
Auto industry history is littered with the lost finances of both professional and optimistic, enthused, naïve amateur investors, seeking to get in on the ground floor of 'future-tech' cars. Where there is chatter, there is interest, and where's there's interest there is the real possibility for the age old 'confidence-trickster'; same scam of 'creaming' over-enthused and irrational investors. The fabled story-line of 'The Producers' or the many historical examples of off-plan real estate projects well illustrate the process from hyped marketing to basic business set-up, business stalling, re-capitalised and re-stalling with the pile of investor funds 'lost' in the process.
And today, such funds carry with them the very heart and weight of investor confidence – at a level perhaps not seen for over 150 years given the micro-macro complexity and depth of today's unprecedented experience.
investment-auto-motives believes that the current optimism in capital markets is misplaced given the overt exuberance toward the “less than very bad” economic indicator news and the better than expected H1 results. [NB See previous post “False Prophets of a False Dawn”]. 'Toxic assets' still haunt the western banking sector - looking something like a case of 'pass the parcel' – and so they still have not been properly identified, re-packaged and confidently sold-off. That means that bank balance sheets are still precarious even if many for the moment appears far stronger than previously. In short, the fundamental concerns that created the financial debacle have not disappeared, even if it appears like normality is re-emerging.
Thus today we see the ongoing, and possibly increasing, pressure on the availability and cost of capital.
Thus the major issue for the investment community keen to re-orientate the overtly matured Western/Triad auto-sector is the manner in which that can be achieved.
Thus presently, the rewards of tomorrow's '3-part Mobility Model' seems a very compelling, but the road to that scenario still appears hazy and the question of how exactly to appropriate the scarce 'propulsion fuel' - the capital markets' liquidity relative to different approaches and enterprises – is being ever more critically debated.