The
last portion of VM Q2 reports and assessment. Further to the previous
highlighting of respective Q1 positioning, below are the continued
summaries and associated analysis which will allow for the plotting
of Q2 based 'Coupled Ratios' analysis.
Provided
relative to the respective release schedule below:
Previously
-
Daimler:
23.07.2014
GM:
24.07.2014
Ford: 24.07.2014
Hyundai 24.07.2014
Herein
-
Honda 29.07.2014
Renault 29.07.2014
Peugeot 30.07.2014
FIAT-Chrysler
30.07.2014
To
Come -
Volkswagen 31.07.2014
BMW 05.08.2014
Toyota 05.08.2014
Details
of the remaining three follow.
Volkswagen
Group-
Unit
Sales:
Q2
2,645,000 (vs 2,498,000 Q2 '13) +5.9%
H1 5,207,000
(vs 4,873,000) +6.8%
Revenue:
Q2 €50.977bn
(vs €52.122bn) -2.2%
H1 €98.808bn
(vs €98.687) +0.1%
EBIT:
Q2 €3.33bn
(vs €3.437bn) -3.1%
H1 €6.186bn
(vs €5.78bn) +7% [exc €2.6bn China JV equity income]
%
of Rev:
Q2 6.5%
(vs 6.6%)
H1 6.3%
(vs 5.9%)
PbT:
Q2 €4.42bn
(vs €3.93bn) +12.4%
H1 €7.777bn
(vs €6.62bn) +17.5%
RoS:
H1 7.9%
(vs 6.7%)
Net
Income:
Q2 €3.249bn
(vs €2.847bn) +14.1%
H1 €5.716bn
(€4.793bn) +19.3%
EPS
(ord):
Q2 €
H1 €11.33
(vs €10.04)
Net
Liquidity
H1 €13.979bn
(vs €11.313bn) [vs €16.9bn YE2013]
Operating
C-F
Q2 €6.167bn
(vs €4.904bn) +25.2%
H1 €8.388bn
(vs €8.431bn) –0.5%
Free
Cash Flow
Q2 €2.97bn
(vs €1.645bn) +80%
H1 €2.92bn
(vs €1.23bn) + 238%
Headlines:
-
flat H1 YoY sales revenue because of negative € FX effects
-
Chinese JV income and 'other' assisted PbT and Net Profit
-
Scania share-hold acquisition..budget balanced by...
-
issuance of Pref Shares and Hybrid Note
-
worldwide deliveries surpass global TIV growth
-
face-lifted Jetta / Toureg / Golf 40th
-
S7 variant of A7 / Leon CUPRA / Cayman GTS, Boxster GTS
-
previews of new TT cross-over variant
-
preview of possible Bentley Mulsanne 'plug-in hybrid'
-
anti-trust probes (VW, BMW, Daimler, FCA)
By
Division:
Cars:
VW
Group H1 Deliveries vs TIV growth / unit sales by region -
North
America...-3.2% vs 4% / 422k (vs 450k previously)
South
America... -20.2% vs -11.2% / 368k (vs 485k)
Western
Europe...7.1% vs 5.5% / 1,695 (vs 1,586k)
Mid
and Eastern Europe...6.3% vs -3.3% / 344k (vs 326k)
Asia-Pacific...15.9%
vs 9.2% / 2,138k (vs 1,810)
Rest
of World...-5.5% vs -0.9% / 213k (vs 224k)
H1
Unit Sales / Revenue / EBIT by brand (vs H1 2013) -
VW...2,302k
(vs 2,376k) / €49.26bn (€50.36bn) / €1.01bn (vs €1.494bn)
Audi...750k
(vs 692k) / €26.69bn (vs €25.234bn) / €2.67bn (vs €2.644bn)
Skoda...426k
(vs 362k) / €5.974bn (vs €4.966bn) / €0.425bn (vs €0.243bn)
SEAT...258k
(vs 244k) / €3.95bn (vs €3.63bn) / €-0.037bn (vs €-0.040bn)
Porsche...89k
(vs 78k) / €8.162bn (vs €7.025bn) / €1.398bn (vs €1.294bn)
Bentley...6k
(vs 4k) / €0.887bn (vs €0.69bn) / €0.095bn (vs €0.058bn)
Bugatti...n/a
Commercial
Vehicles:
H1
Unit Sales / Revenue / EBIT by brand (vs H1 2013)-
VW...221k
(vs 220k) / €4.724bn (vs €4.777bn) / €0.280bn (vs €0.246bn)
Scania...38k
(vs 38k) / €5.067bn (vs €5.095bn) / €0.476bn (vs €0.464bn)
MAN...58k
(65k) / €6.7bn (vs €7.63bn) / €0.222bn (vs €-0.124bn)
VW
China
(not
included in Group figures but calculated as equity method
contribution)
FAW
+ SAIC...1,847k (vs 1,517k) / revenues n/a / €2.622bn (vs €2.370bn)
Financial
Services:
H1
Revenue / EBIT
VW
FS...€10.423bn (vs €9.688bn) / €0.776bn (vs €0.696bn)
Group
Total
H1
Unit Sales / Revenue / EBIT (vs H1 2013) -
5,207k
(vs 4,873k) / €98.808bn (vs €98.687bn) / €6.186bn (vs
€5.780bn)
Outlook:
FY2014
Deliveries
expected +4.9% to 9.731m units
Revenues
expected +2.2% to €197bn
Operating
RoS expected -0.1% to 5.9%
“we
expect..
-
to moderately increase deliveries yoy in 2014 in a still challenging
market environment
-
2014 sales revenue...to move within a range of 3% around previous
year, depending on conditions
-
Op RoS between 5.5 - 6.5% (Cars division similar)
-
Op RoS for Commercial Vehicles + Power Engineering to moderately
exceed 2013
-
Op RoS for Financial Services between 8 - 9%
Analysis:
As
seen, the ideal for any global VM is to gain both from the rising
tide of growing regions so as to counter-act the negative headwinds
of any other contracting regions. This should but, does not always,
promise favourable revenue earnings in growth markets, especially so
if a firm's own competitive position 'on the ground' is not at or
near its own 'sweet spot'.
H1
for VW Group may be regarded as only semi-successful, given that the
4% market uplift in N. America did not directly feed into overall VW
Group sales. Instead VW N.A. seeing overall sales reduction, due to
much declined Golf / Beetle / CC, marginally reduced Jetta / Passat,
slippage of Tiguan / Toureg and end of life for the (Chrysler JV
assembled) Routan. Declines were also seen across the model board at
Audi in the USA for A4 / A5 / A6, though fortunately the introduction
of A3 provided much uplift as did the flat yoy trend for Q5 and 9%
rise in Q7 sales.
Nonetheless,
the perfect storm of: a) the buoyant but pressurised sales
environment (including sooner incoming new models from BMW and
Mercedes-Benz), b) VW's desire to maintain unit pricing on current
models so as not to undermine later new model launch and c) reduced
demand for 'personal' cars such as Beetle and Eos, took a toll on
overall sales performance.
Positive
market out-performance across the whole of Europe and Asia (China
specifically) did help counter-act US market headwinds, supporting
the overall +5.9% rise in Q2 world sales and the +6.8% for H1.
[NB
of the BRIC nations, Brazil 301k units (vs 370k) -18.7% , Russia 143k
(vs 156k) -8.4% , India 34k (vs 50k) -33%, China 1,814k (vs 1,544k) +
17.5%].
Unfortunately,
these increased unit sales, primarily in a still price-bound Europe
and price-sensitive Asia, did not translate directly into equivalent
revenue rises, as seen by the -2.2% yoy revenue intake in Q2 and the
virtually flat-lined +0.1% in H1. Nonetheless, the balancing of
additional CapExR+D against operational savings provided H1 operating
cash-flow of €8.4bn; primarily boosted in the Q2 period (worth
€6.16bn). CapEx as a % of Revenues for H1 was 4.1%.
As
the above figures demonstrate, the H1 top-line and EBIT income was
undermined by VW passenger car sales to the tune of €-1.1bn vs
previous year, this counteracted by the increased Asian popularity of
Audi drawing in an additional €1.46bn yoy.
Like
the Porsche 918 hybrid hypercar concept, the preview of the 'eco'
orientated plug-in Bentley Mulsanne hybrid concept highlights VW's
dedication to becoming recognised as a leading light in eco-luxury.
The subtle use of copper detailing as an aesthetic metaphor for the
conduit of electrical energy, a suitably understated differentiator.
Acquisition
of Scania truck shares expended €-6.5bn of liquidity, this
temporary loss of liquidity regained from: issuance of additional
preferred shares + issuance of Hybrid bond + equity capital increase
at VW Financial Services + transfer of MAN AG Financial Services
equity into the Group.
By
way of a subtle demonstration of slightly improved Q3 and H2 economic
and sales expectations, it was noted that Q1 and Q2 saw a small rise
in production numbers over sales numbers, so providing small surplus
added to dealer inventories of 9k units in Q1 and 4k units in Q2.
This of particular note compared to Q2 2013's overtly lean “one
out, one in” inventory replacement policy. Thus we see the
tentative yet erratic beginnings of a 'loading-up' process of dealer
inventory in anticipation of increasing demand for 'in-stock'
vehicles for quick delivery. The small surplus also presumably
highlighting Volkswagen's desire to tightly manage and maintain a
'price-floor' of per unit margins. This also seen through media
advertising on Golf, with the humorous “you get what you pay for”
campaign.
Creating
demand and supply inelasticity so as to support new model pricing and
used car residuals and thus a virtuous circle of valuations is
obvious positive for the medium and long terms. Yet, this deliberate
control of price policy has short-term drawbacks if the model mix is
not strong, as viewed in N. America, where VW seeks to not follow the
pack with sales incentives, as it has in the past to its detriment.
This denting sales and so impacted overall unit contributions. But,
positively, the major lift in Chinese demand (25%) provided the
anti-cyclical basis by which US and (later) European 'pricing floors'
can be implemented, so boosted tomorrow's unit margins and overall
RoS.
Thus
it appears VW has been willing to experience near-term pain (where
others have undoubted gained market-share) in order to gain longer
term value.
BMW
Group-
Unit
Sales
Revenue
Q2 €19.905bn
(vs €19.552bn) +1.8% yoy
H1 €38.140bn
(vs €37.098bn) +2.8% yoy
EBIT
Q2 €2.603bn
(vs €2.066bn) +26%
H1 €4.693bn
(vs €4.104bn) +14.4%
PbT
Q2 €2.660bn
(vs €2.032bn) +30.9% yoy
H1 €4.826bn
(vs €4.035bn) +19.6%
Net
Income
Q2 €1.771bn
(vs €1.392bn) +27.2% yoy
H1 €3.233bn
(vs €2.704bn) +19.6% yoy
EPS
(ord)
Q2 €2.69
(vs €2.11) +27.5%
H1 €4.91
(vs €4.10) +19.8%
Liquidity
Q2 n/a
H1
€10.62bn (vs €8.072bn)
Operating
C-F
Q2 n/a
H1 €1.896bn
(vs €2.253bn)
Free
Cash Flow
Q2 n/a
H1 €1.3bn
(vs €1.673bn)
Headlines:
-
H1 record for BMW and Rolss-Royce vehicle sales
-
significant rise in Group PbT
-
non-FX influenced revenue +5.2% (vs stated +1.8%)
-
Q2 Europe & US launch of advanced i3
-
H2 China launch of advanced i3 (after Euro,US, Japan)
-
Q1 launch of 2-series Active Tourer / 4 series convertible
-
Q2 launch of facelift X3, X4 and Mini
-
Q3 launch of M4 and Ghost II
-
plans to rebalance production and research...
-
...as per geographic sales (China, S.Korea, USA)
-
new in-car tech ventures (eg JustPark)
-
China anti-trust probes (VW, BMW, Daimler, FCA)
By
Division:
Cars:
Deliveries
Q2 / H1 by brand
BMW...
458k
(+8.3%) / 886.3k (+10.2%)
Mini...
74k
(-10.4%) / 131.9k (-11.4%)
Rolls
Royce...
1.071k
(+28.6%) / 1.968k (+33.4%)
Total...
533.18k
(+5.3%) / 1,020k (+6.9%)
Deliveries
Q2 / H1 by region
Europe
232k (vs 229.5k) +1.1% / 446.19k (vs 436,71k) +2.2%
Americas
121.4k (vs 117.4k) +3.5% / 221.28k (vs 213.86k) +3.5%
Asia
164.36k (vs 142.72k) +15.2% / 322.94k (vs 272,94k) +18.3%
RoW
15.4K (vs 16.75k) -8% / 29.8k (vs 31k) -3.9%
Total
533.19k (vs 506.32k) +5.3% / 1,020.21k (vs 954.25k) +6.9%
Revenues
Q2 / H1
€18.504bn
(vs €18.201bn) +1.7% / €35.063bn (vs €34.108bn) +2.8%
EBIT
Q2 / H1
€2.161bn
(€1.755bn) +23.1% / €3.741bn (€3.335bn) +12.2%
Op
C-F Q2 / H1
€1.370bn
(vs €2.378bn*) -42.4% [first use *IFRS adjusted]
€3.502bn
(vs €4.349bn*) -19.5% [first use *IFRS adjusted]
FCF
Q2 / H1
n/a
/ €1.032bn
CapEx
H1
€2.58bn
(German plants) +8% rise yoy and a CapEx to Revenue 6.8%
EBIT
Margin Q2 / H1
11.7%
(vs 9.6%) / 10.7 (vs 9.8%)
RoS
Q2 / H1
12.2%
(vs 9.1%) / 11.1 (vs 9.3%)
Motorcycles:
Deliveries
Q2 / H1
42.26k
(+5.1%) / 70.98k (+9.3%)
Revenues
Q2 / H1
€0.528bn
(vs €0.475bn) 11.2% / €1.0bn (vs €0.911bn) 9.8%
EBIT
Q2 / H1
€0.055bn
(€0.046bn) 19.6% / €0.119bn (€0.097bn) +22.7%
Op
C-F Q2 / H1
n/a
/ €1.896bn
Free
Cash Flow Q2 / H1
n/a
CapEx
n/a
EBIT
Margin Q2 / H1
10.4%
(vs 9.7%) / 11.9% (vs 10.6%)
RoS
Q2 / H1
10.2%
(vs 9.5%) / 11.7% (vs 10.4%)
Financial
Services
Contracts
Q2 / H1
380,842
(vs 388,290) /
Revenue
Q2 / H1
€5.155bn
(vs €5.058bn) / €10.045bn (vs €9.888bn)
EBIT
Q2 / H1
€0.459bn
(vs €0.468) / €0.924bn (vs €0.918bn)
Op
C-F Q2 / H1
n/a
/ €-0.941bn (vs €-1.527bn)
Outlook:
Global
expectations of FY2014 are that the global economy grows at
approximately 2.9%. Of this:
China
7.4%, India 5.3%, USA 2.2% (higher probable), Japan 1.5%. Brazil
1.2%, Europe 1.1%.
Within
Europe the UK highest at 3.0%, Germany 2.0%, Spain 1.1%, France 0.9%,
Italy 0.4%. Russia falters at 0.4% given current affairs impact.
Automotive
markets' TIV expected as: Global 3.2% (+12.7m units). Of which USA
3.9% (reaching 16.2m), China 12% (18.3m), In Europe: Germany +1.6%
(reaching 3m), France 3.5% (reaching 1.8m), Italy 4.1% (1.4m), UK
6.1% (2.4m), Spain 15.4% (0.83m). Japan -8.9% (4.8m), Russian -4.7%
(2.5m), Brazil -10.3% (3.2m).
Motorcycle
markets simply described as showing revival in 500cc+ segments after
years of decline and stagnation.
Autos
CapEx for FY2014 expected to exceed previous >7% guidence, but
below 8.8% of FY2013
“We
expect that the high levels of expenditure on future technologies,
intense competition and higher personnel expenses will again have an
adverse impact....Nonetheless BMW Group forecasts another successful
year with PbT signifacntly up on previous year's €7.913bn
Analysis:
Whilst
top-line income grew very moderately as expected, it has been the
major jump in in Q2 EBIT of 26%, boosting the yoy H1 revenue rise to
14%, that will have surprised many. That translated to PbT increase
of near 31% for Q2 and near 20% for the half year, and into
respective 27% and 20% rises for Net Proft.
These
figures demonstrate how BMW has gained momentum on two fronts.
Firstly, as a relative late entrant into Asia / China compared to
Audi and Mercedes-Benz, it could be argued to hold a slightly greater
degree of comparable attraction to these important markets (though
sales growths remain comparible). Secondly, throughout the western
down-turn BMW set itself the task of “coming out of the stalls”
strongly. This gained not only from the strong open taps of new US
demand, but exploited well with perceptively different new vehicle
portfolio, with both new series identification system, which
highlights the separateness of coupes and convertibles so providing
pricing elasticity, and thus allows for a wider range of variant
possibilities within more mainstream model series.
This
act has essentially re-cast BMW for future opportunity.
From
an historical perspective, unlike the more disparate vehicle
divisions of Daimler and VW, BMW has been adroitly positioned since
the beginning of the modern global economic boom; starting in
early1980s America, spreading to Europe by the late 1980s, into
Eastern Europe by the mid 1990s and onto BRIC and other EM regions
since.
Though
a partial cliché in the west (so assisting Audi and Mercedes sales),
its performance engineering prowess and now entrenched legacy means
that it remains a powerful staple symbol of the aspirational
lifestyle, upper level models such X6 and 'halo' M-series variants as
acting as the BMW brand's ambassadors regards the mass-premium of
3-series and below.
Thus
as a (perhaps 'the') reference-point symbol of an ever growing, ever
wealthier world – though temporarily impacted by the 2008
financial crisis and its global repercussions – the core BMW
division continues to thrive.
The
acquisition and deployment of both Mini and Rolls-Royce provided for
broad client demographic coverage, the seemingly ever expanding model
ranges of all three marques providing for captive and migratory buyer
choices within the group. The creation of eco-centric iBMW with small
i3 citycar and large i8 GT coupe does likewise.
Hence
BMW group continues to evolve its business base simply but very
effectively.
Though
its innate 'brand equity' is primarily drawn from the ethos of “the
ultimate driving machine” - as applied to rear-wheel drive cars
with unadulterated front steering - the social cache of the badge has
become so powerful in its own right it is now viewed as able to ( and
at last, to necessarily) deploy front-wheel technology; for more
recent consumer interest in more spacious smaller cars.
Hence
new 2-series Active Tourer (a full 20 years after BMW first started
exploring the idea via FWD Rover Cars, and given adoptive credence
via Mini stable-mate and Mini platform technology).
Though
unstated, this fringe re-formatting of the still instrinsically
dedicated BMW technical package was required to :
a)
enter the monospace sub-segment with 2-series Active Tourer
b)
compete with Mercedes A and B class at premium end
c)
beat Audi's expectantly matured bigger A2 / gain conquest sales from
high-trim VWs
d)
allow BMW to possibly partner in future with other manufacturers in
this sub-segment
e)
expectantly gain from worldwide (esp EM) demand for roomier small
cars
Thus,
though presently possibly viewed as an oddity by BMW purists, now
that the badge has become far more than the literal sum of its
technical parts, the departure into 2-series is as market relevant as
the previous 1999 departure into X5.
And
the fact that 2-series Active Tourer appears within the same time-frame as more
radical i3 and i8 is no doubt wholly strategic so as to highlight
its relative conventionality compared to the truly different
/advanced.
Toyota
-
(Q1
2015 – Apr to June 2014)
Unit
Sales
2.241m
units (vs 2.232m previous year) +9k units
Revenue
¥
6,390.6bn (vs ¥ 6,255.3bn) +2.2%
EBIT
¥
692.7bn (vs ¥ 663.3bn) +4.4%
Net
Income
¥
587.7bn (vs ¥ 562.1bn) +4.6%
EPS
(ord)
¥
185.43 (vs ¥ 177.32) + ¥8.02
Net
Liquidity
n/a
Operating
C-F
¥
692.7bn (vs ¥ 663.3bn) + ¥ 29.3bn
Free
Cash Flow
n/a
Margin
on Net Income
9.2%
(vs 9.0%)
Headlines:
-
After effects of 'Abenomics' still evident but much weakened
-
especially so upon home turf, still +ve elsewhere
-
positive FX effects of weaker Yen vs $ and €
-
FX + cost-savings + finance instruments off-set...
-...poorer
volume / model mix and higher labour and research costs
-
By
Division:
Cars
-
by
region
Unit
Sales / Op Inc Margin %
Revenue
/EBIT
Japan
506k
(vs 526k) -20k / 11.1% (vs 13.2%)
¥
3,296.5bn (vs ¥ 3,456.1bn) /
¥ 365.9bn (vs ¥
456bn)
North
America
710k
(vs 689k) +21k / 6.6% (vs 4.9%)
¥
2,259.1bn (vs ¥ 2,105,2bn) / ¥149.7bn
(vs ¥ 103.5bn)
Europe
207k
(vs 193k) +14k / 1.7% (vs 0.9%)
¥
650.6bn (vs ¥ 596bn) / ¥ 10.8bn (vs ¥ 5.3bn)
Asia
385k
(vs 394k) -9k / 9.2% (vs 8.6%)
¥
1,197.4bn (vs 1,218bn) / ¥ 110.3bn (vs ¥
104.1bn) +¥ 6.2bn /
RoW
(Central
+ S. America, Oceana, Africa and Mid East)
433k
(vs 430k) +3k / 5.8% (vs 7%)
¥
591.9bn (vs ¥ 608.9bn / ¥34bn
(vs ¥42.5bn) -¥ 8.5bn /
Revenue
¥
5,914.6bn (vs ¥ 5,817bn)
+1.7%
EBIT
¥
586.7bn (vs ¥ 608.4bn) – 3.6%
Financial
Services -
Revenue
¥
377.4bn (vs ¥ 339.9) +11%
EBIT
¥
98.2bn (vs ¥ 51.3bn) +91.6%
Affiliated
Companies -
EBIT
¥
105.3bn (vs ¥89.9bn) + ¥15.4bn
of
which
Japan
¥ 68.7bn (vs ¥65.2bn) + ¥3.5bn
China
¥ 27.9bn (vs ¥16.4bn) +
¥11.5bn [sales of 228k vs 185k]
Other
¥ 8.6bn (vs ¥8.1bn) + ¥0.5bn
Outlook:
Toyota's
updated FY2015 global forecast expects to see a total of 9.1m units
sold; similar to previous stated expectations. Of these the company
expects to experience stagnant demand in flat-line Japan (2.21m), a
+90k unit improvement in N. America (to 2.71m), a +10k unit growth in
Europe (0.860m), Asia to see a loss 0f -50k units (to 1.58m) and RoW
similar -50k loss (to 1.74m)
Correspondingly,
line item forecast remain constant. Net Revenues at ¥
25,700bn (flat) , Operating Income (EBIT) at ¥
2,300bn (+0.3%), Net Income of ¥
1,780bn (-2.8%), Net Margin at 6.9%. These figure very close to the
FY2014 results. Likewise R+D and CapEx both remain constant,
respectively at ¥ 960bn and ¥ 1,020bn, illustrating an upward
rebound rise since 2011.
Analysis:
Compared
to the initial massive boost effect of a very much weakened Yen and
last year's +14% revenue boost and +88% EbIT boost, the present Q1
2015 growth of 2.2% and 4.4% respectively appears very pedestrian.
However,
the situation may be read as the remit of Abenomics being to put
Japanese firms simply 'back on course' having been previously hit by
an unsurpassed multiplicity of challenges, from the 2008 western
collapse to the natural disasters which shut-down both domestic and
prime Asian operations aswell as the China Sea island tensions. Given
the scale of headwinds Abenomics was seen by Japanese executives as
simply “re-levelling the global playing field”.
Hence,
with such “Q1 2015” results (as per Q2 2014), Toyota could be
viewed as having returned to an approximate of normality, with 1.7%
increase in turnover, even if EBIT reduced by -3.6% because of
overhead increases.
Given
the generally improving but still fragile mainstream auto markets, as
for all auto-makers, that return to a much desired 'normality' is an
unusually lengthy and volatile a process.
Japan
sales decline with buyers seeking lower value models hurt local EBIT.
N. American sales growth coupled with cost-saving exercises boosted
local EBIT. European proporitionately small sales growth together
with cost-savings more than doubled local EBIT. Asia sales decline
more than off-set by combination of Yen positive FX effects and cost
savings. RoW saw flat-line sales yoy, yet EBIT contracted notably,
the result of reduced local production and weakened local currencies;
(Toyota seemingly seeking to post-pone local demand until negative FX
effects shift).
Regards
Financial Services, it was actually the 'fair value' recorded
valuation gains of interest rate swaps amongst Toyota's sales
financing subsidiaries that gave the large EBIT boost. So although
revenues increased 11%, profitability buoyancy did not derive
directly from increased lending balance (“loan book”) or simply
the translational effects of generally stronger foreign currencies.
Thus whilst 'fair' so as to mark-to-market, also an accounting ploy
to revitalise the division and counter loss of consumer and business
finance momentum in Japan.
As
for products, the company obviously still deploys its reputation for
styling conventionality alongside its eco-credentials as the biggest
hybrid vehicle producer; the landmark series of Prius models, which
enabled volume scaling of batteries and energy management systems,
now wholly cross-pollinated with most of the mainstream models as
standard or option depending on market: Camry, (not Avensis), (not
Verso), Civic, Auris and Yaris, with the smaller, lighter Aygo and iQ
deemed presently in no need of hybrid drive given standard higher
fuel efficiency and obvious package constrained system installation
issues, instead suited to pure EV.
So
as to avoid the Toyota brand becoming perceived as overtly 'eco'
(with inherent dangers of hybrid vehicle commoditisation) the company
has been in recent years seeking to recapture its previous RWD
performance spirit of the 1980s (TA22 Celica GT, AE86 Corolla, MR2
and Supra). Hence the previous release of the affordable RWD GT86 and
the latter FT-1 concept as larger coupe; possibility envisaged in
possible production as a curvaceous competitor to the more brutal
Nissan GT-R.
As
per new 'youth orientated' 'X-face' Aygo, investment-auto-motives
suspects that given a similar 'X-face' PR “teaser” images from
Volkswagen's SEAT division, that either:
a)
SEAT seeking to gain conquest sales from the Toyota, or more
possibly...
b)
VW and Toyota possibly in secret talks to create a youth orientated
JV business model.
This
is pure conjecture, but such a scheme might be a cost-effective,
shared risk approach to gaining the custom of what is a harder to
reach and convince, reduced driving generation. The precedence for
Toyota is that of the previous and present PSA JV for Aygo / C1 /
108, an alliance which has fulfilled its strategic intent as has the
Suburu JV on GT86 / Scion FRS / BRZ. Thus search for a new or
additional European partner to offer a 'Euro-Scion' type of car or
range appears within the bounds of possibility.
For
VW, doing so would bolster the improving but problematic SEAT.
Resulting in both companies attracting the 17-30 aged 'cyber-youth'
(17-30) with X-face, whilst and separately attracting the older
'young at heart' groups with a dynamic value for money offering with
evolved 'razor' styling. Combining dual personas across both brands
to reduce individual cormpany's CapeX and boost sales volumes.
A
mutually arranged sharing of 'X-face' would need to be explored
properly, not only regards production, but also possibly singular or
complementary on-line marketing channels, and indeed possibly as
shared sub-brand and with dedicated secular JV commercial entity.
(Having first learned the lessons of GM's Saturn and Scion USA
itself).
This
is presently pure conjecture from investment-auto-motives, and
requires major research, but appears a plausible strategic avenue for
mutual exploration by both companies.
Post
Script –
As
press reports intimate, China's recent announcement of anti-trust
investigations into foreign multi-national companies – with
car-makers' alleged price-fixing of parts – does indeed appear to
be yet another episode of less than subtle industrial policy.
Initial
reaction is to see the move as a providing advantage to China's
home-grown brands, as part of a wider rebalancing of cross-sector
market-shares, so as to aid domestic firms as part of a 'great
rejuvenation'.
However,
in real terms closing the pricing-gap (between typically better
quality foreign badged cars vs lesser quality domestic badged
products) only serves to increase pressure on Geely, BYD, Great Wall
et al, since the rational to buy domestic diminishes.
investment-auto-motives
believes that the intended impact is not in fact simply to scold the
foreign interests of Sino-foreign enterprises, but to drive a one or
two-fold gain.
1.
price deflation
2.
option of expanded consumer tax
Firstly,
forced price reductions obviously creates internal price deflation
across the auto-sector, affecting initially those foreign brands, but
latterly domestic brands as they seek to maintain the price gap which
for them beholds a value offering. So price-cuts pushed down to Tier
2 suppliers, all to advantage of the end consumer.
Secondly,
to aid national or state-wide budgeting, the resultant price
reductions in each sector could be partially or wholly absorbed by
additional consumption taxation. Thus, the public gains with either a
slightly price reduction, or at worst a “price-stabilised”
product, whilst the government gains income and public favour.
So,
under the banner of Chinese nationalism, either singularly or
combined, points 1 and 2 “rejuvenate” domestic momentum.
The
anti-trust moves seen thus far have been set against the likes of
BMW, Daimler and Jaguar Land-Rover, marques that essentially operate
in a luxury class of their own, so any price reductions would
ironically be to the gain of China's wealthy, who themselves have
seen their own apparent progress slow as the economy cooled. Cheaper
luxury cars would off-set any possible loss of motivation.
Lowering
the cost of component input prices (Daimler posits -15%) obviously
lowers the BOM (bill of materials) and thus provides for greater
ex-factory pricing elasticity. This in turn enables pricing
flexibility down-stream, amongst distributors / dealers, their own
intermediate-level purchase costs determined by scale economy
reductions. Those per unit savings either wholly or proportionately
passed onto the end buyer.
Previous
press reports highlighted China's continued over-production and so
over-supply of input materials - especially so in steel. It was
envisaged by investment-auto-motives, and mentioned in this web-log
at the time, that this had been sanctioned so as to create a
lower-cost materials input base, by which Sino industry could flex
its own intermediate and consumer prices to expectantly generate
additional household demand as income and savings were re-directed
away from the property bubble and to high and mid-price consumer
durables.
With
the PRC's approval, even with current general over-capacity, the
Sino-foreign joint ventures continue their capacity expansion
projects largely located in Western and Southern China. And so
obviously require pseudo-massaged distributor, dealer and consumer
demand. Official demands for orchestrating reduced input prices
allows for this; and so promotes aspirational consumerism to the gain
of both JV partners.
[NB
It should be remembered that foreign car-makers receive their
quarterly income not as cash earnings, but either as dividends or as
equity revaluation, both typically determined by the Chinese
partner].
The
country's leadership well recognises that it must delicately manage
the present ' economic tight-rope' period given contraction in Asian
and EM directed exports, and restrictions in state administration
spending given the municipal credit bubble.
Ultimately,
such state imbued 'invisible' transfer-pricing directly into the
marketplace is simply part of the overall economic rebalancing. This,
as well recognised by all, toward greater internal private demand vs
previous overt reliance on now slowed infrastructure expenditure and
previous dependence upon low low-value / low margin exported goods
(the export rebound seeking to create higher value)
