Tuesday, 28 July 2015

Industry Practice – Volume Manufacturing – Call for a Paradigm Shift...Usual Rhetoric or Prescient Timing? (Part 4) Conclusion

This four part web-log has sought to provide much insight into the question of economic value creation – and so investment returns – regards the global auto-industry.

The major global manufacturers are in the process of releasing their Q2/H1 results for this year, with majority of Triad manufacturers continuing to enjoy an ongoing – slower growth but bigger volume – buoyancy in homeland and regionally entrenched consumer markets; this seen as an off-set to EM constraints, awaiting (likewise) a less voracious yet larger 'next phase' across EM nations.

The Call for Paradigm Improvement... -

Nevertheless, FCA Group's desire to invoke greater commercial rationality across the higher cost western producers is a valid prompt, albeit one in which the the process of actually crystallising cost-savings gaining vital 'value added' is fraught with complication. Inevitably, the greater the ambition of 'mutualisation', the deeper the complexity of the innate strategic, tactical and practical matters involved. Having thus far successfully combined FIAT and Chrysler, Marchionne views the task as achievable once more.

Capital markets however well recognise that the FCA Group's origination came about at a specific point in economic history, with its commercial rationality much enabled by what were very obverse PESTEL conditions of a specific post crisis period. Today, however, with the force of American QE now very apparent in a revitalised in US and UK economies, and a similar though expectantly slower QE experience re-run across Europe. This 3-phased improvement in the consumer demand has returned the perspectives of auto-executives and markets analysts to a validated position of cautious optimism, and with it a sense of a return to 'business as usual'.

...Tho Hardly a Structural Paradigm Shift -

As illustrated in Parts 2 and 3 by the accompanying graphic, even this seemingly radical call for a new round of auto-sector consolidation is in itself only continuation of an evolutionary process. Although seen now as unwarranted by most western executives, back in a pitched battle for market share, volume and profitability, the need and likelihood of an AM-EM corporate consolidation (as and when truly feasible) should now be firmly lodged in the minds of truly globally attuned sector experts.

Critically, “Confessions of a Capital Junkie” is in itself a useful prompter for continued debate. An element of that discussion regards the very thesis presented, the validity and possible hollowness of some of its facts and figures (esp autos vs other sectors at this point of the economic cycle). But the more so the major aspect being the need for 'big picture' debate. Something beyond the usefulness of industrial consolidation: itself proven both powerful agent for good and bad (value creation vs value destruction) very specific times in auto-sector history.

So as seen, although investment banks, management consultants and theoreticians call for a radical shift in the conventional structure of the auto-industry – so as to improve its 'investability' – primarily toward what might be called 'democratised' “unbundling”of the broad value chain. This however, as an action of 'creative destruction', whilst opening up new opportunities for theoretically improved ROI in typically horizontally structured new ventures, also invariably has the potential to fundamentally destabilises an historically engrained and well understood automotive commercial template.

In doing so the ruling power of its best recognised and most influential participants would be very much eroded. The adjoining argument presumably being that such released monies from the sale of specific divestments (ie Tier 1 supplier interests to captive retail dealer groups) would release funds to be put to more productive use, as would the saved monies from what are regarded as other inefficient commercial agreements.

Even though many of these incumbent brands/marques are described by investment activists as providing little more than commoditised personal transport products – this largely the premis for any envisaged structural paradigm shift – the unavoidable fact is that as historical markers of social progress and dynamism, as the most prevalent 'big ticket' consumer item, automotive marques still have sizeable degrees of societal influence. That influence has undoubtedly decreased in the west as credit fuelled what may be described as relative 'status saturation', together with the changing aspirational belief modes of younger people projecting experiences over ownership. Yet unquestionably, most of today's automotive marques have a rich social heritage; that heritage itself deployed as a product and service persuasion device.

Yes consumers are increasingly price sensitive and brand promiscuous, but as even the wholly prosaic GM recognises through Opel's use of 'Adam' and 'Karl' nameplates, promoting brand heritage adds authenticity and so notionally adds perceived value.

Similarly, whilst the obvious marketing genealogy is not suited to all, the fact that many auto-makers hail from familial and community roots means that current family members (even when remote and “non-controlling” as shareholders) often view themselves as taking on a mantle for social improvement. Whether it be the Ford's to Porsche-Pieche's, Toyoda's, Honda's, Agnelli's or Quandts own descendants or their chosen senior executives, this sense of social responsibility has and will increasingly underpin the very persona of the 'commoditised' brands so as to make them an increasing part of the global social fabric.

Thus whilst it is very necessary to re-consider how one of the world's most prolific industrial sectors could be improved to provider better stakeholder returns; from investors to consumers to the statist desire for public good; it is perhaps overly optimistic to assert a theoretical, prescriptive recommendation for wholesale change as the optimum routeway to avoid 'graceless degredation'.

Instead the industry must fully recognise the multi-various PESTEL challenges presented by Maxton and Wormald in 2004, and create suitably optimised roads forward relative to their own specific conditions. Some may by a “copy+” of Maxton-Wormald concepts, others new in-house orientations on a then presented theme, its contemporary outcome and its future probable emergence.

That said however, given the potential for increased complexity by way of options and possibilities, it seems most likely that the major auto-makers will continue to seek to engage with possible external threats head-on so as to incorporate such trends under their distinct marques and corporate umbrella.

[NB This ranges from Peugeot's multi-choice 'mu' rental system to the presence of BMW and VW as fully fledged banking units in a reforms enhanced].

The conventional paradigm then appears unlikely to fundamentally shift, no matter how much external pressure is exerted, instead the paradigm has, and continues to, morph so as to become yet more entwined into the newly burgeoning further reaches of society

C21 Autos: Possible New Textures to the Social Fabric -

The automobile irrevocably altered the course of human existence soon after the turn of the twentieth century. Its affect upon society was profound and provided for the win-win of extended and convenient mobility for many, changing patterns of work, rest (domesticity) and play, and super-charging a nation's economic agenda with the building of various infrastructures (roads, express-ways, parking lots and fuelling stations), providing new downstream commercial opportunities as well as the very production of the vehicles themselves.

As is well recognised, with the influence of 'the internet of things', looking forward, the start of the twenty-first century promises what may be described as both a macro-economic and a micro-economic efficiency up-date, as the electronic inputs of many functional realms are fed into intelligent networks providing a 'cyber rationalised' output.

It is within this socio-economic context that the standard automobile will continue to evolve.

But just how conventionally, or radically, remains to be seen. There may be potential for both if AM and EM markets undertake very separate future roads to mobility, with the personal and logistics transportation natures of MegaCities as the conjoining, unifying influence.

Given the mass production and demand impetus of EM markets the car 'as is' looks likely to continue, since EM regions (whether defined as BRICs, MINTS or CIVETS) were themselves long ago raised upon and industrialised by the standard auto-sector model. Little change them likely there as tastes and expectations have already been deeply engrained.

As such, if the Triad regions ultimately reside in what some economists foresee as effective secular stagnation, then a marriage of lower cost foreign manufacture and free-flowing credit (enabled via devaluation) means the west would be the inescapable recipients of continued conventional vehicles. Under this scenario, even the expectation of ever greater electronic feature content may 'flat-line' as VM's main commercial focus upon EM consumers, including a phased IT content delivery approach to reach the already high level of Triad info-tainment provision.


There is a slim but arguably growing possibility that much increased PESTEL demands to meet eco-sustainability targets etc (as part of a regulatory and consumer-led economic agenda requiring fundamental change) that the very specifications and nature of vehicles themselves 'unbundle'.

That would mean that the specification of today's city-car alters to become not simply a small conventional car, but something far better suited to the urban city-scape.Japan's 'Kei-Car' segment is a useful parallel, as is France's Micro-Car segment, whilst Daimler has also led the way with Smart.

Even more compelling is a major rebalancing of functional capabilities, with reduced overall performance capabilities to suit city speed regulations, whilst size-wise and packaging-wise better suited to occupancy numbers and volume requirements, whilst possibly gaining as much improved external functionality as internal functionality.

Whilst there will always be a need for a number of broadly capable vehicles, there is an argument that under the totem of efficiency-seeking most vehicles could be better configured to suit their primary tasks, (much as a truck is dedicated to its role or an F1 race car the engineering result of FIA rules and circuit environment).

However, it must be noted that the very ideology of aspirational consumerism would need to be 'educated' regards this logic, and so re-directed from much of the consumer impulse for today's interpretation of status. Since there would be little room for the irrational vehicles such as road-bound SUVs or even more irrational large cross-over coupes, which make-up sections of today's premium (and not so premium) car market. It would be a case of reversing society's present mindset, towards consumerism based more upon intelligent substance, less upon marketed life-style.

However, this is not to say that vehicles become little more than future reflections of their yesteryear Eastern-Bloc counter-parts with 'type' classification numbers, and an absence of consumer compelled variation.

Thus it is here that the importance of better visions and relationships regards the research and development of advanced technologies should perhaps be better recognised.

Tentative beginnings regards the introduction of 'left of field' products, and associated business models have been underway for some time: here again mention of GMD's T-series as leading light. With this come possibilities for creating new commercial relationships reaching outward from the traditional auto-sector into other product and service spheres and segments; so new relationship dimensions up-stream and down-stream within an altered value-chain.

Whether this occurs via truly radical incursions into the sector by new entrants or via VM producers themselves so as to head-off any external threat (acting as 'integrators' or 'integrator-assemblers'), remains to be seen.

But essentially, in varous ways and to differing degrees, vehicles are both leading and following those inter-mingled trends which slowly alter the everyday fabric of society.

Ongoing Programmable Futures -

Ironically it will be the adoption of standardised electronic systems and mass volume production of “under the skin” eco-tech solutions that will enable this to grow yet further.
Thus far the 'black-box' electronic age for cars is about 40 years old, initially with relatively simple devices such as electronic ignition (replacing 'points'), the intelligent circuitry of vehicles has evolved enormously. It impacts virtually all vehicle systems: from early phase 'invisibles' such as EGR valves sensing acute emissions levels, to the (thus far) mid phase of the very 'visible' and safety critical, such as reactive power windows (for children's hands and dog's heads) and occupant weight sensors which inform internal air-bags of the correct inflation size.

These then specified by the manufacturer, yet for some years now, that low level 'artificial intelligence' has also been provided for the user. 'Memorised' power-seat positions and similar HVAC settings have been around for decades, so raising innovation expectations. Thus premium vehicles now have a basic buyer expectation of alternative “behavioural modes”, as selectable by the driver. The wizardry of 'mode engaged' gearboxes, drive-trains and suspension settings - once the preserve of top-end sports-cars and premium 4x4s - have, in the race for competitive advantage, begun to trickle-down into more mainstream products; into initially what was previously labelled the 'executive class', and expected to spread into lower segments as scale volumes decrease vehicle on-cost. Similarly automated convenience features – which have effectively merged into a 'service' function – now span a broad range of brands. BMW's offers the 'stand aside - garage self park' function on new 7-series, the car able to remotely drive into a tight space or garage on its own; and likewise self-starts and exits the space before the driver's entry. (This then partially mimicking the self-driving 7-series from the James Bond film 'Tomorrow Never Dies' from almost 20 years ago). Whilst at the in mainstream segment, Ford offers (a variant of, or option on) Focus with 'hands-off' reverse parallel 'self-parking', a manoeuvre which many people with less attuned spacial recognition abilities have found problematic. (This seemingly especially helpful to Northern European women*, who typically experience greater problems than more 'space aware' men, and to both sexes in in North America, where parallel parking - like roundabouts - is far less prevalent).

[NB * The exception being Paris, where historically a combination of small cars and hectic city parking meant parallel parking became second nature to many women. Similar urban environments previously across Southern European, Barcelona to Rome to Athens, created many skilled female drivers].

Likewise today, back in the 'invisible' realm, all these years after 'active EGR', other forms of 'machine intelligence' have become de-facto. These expectantly focused on emissions reduction, such as increasingly adopted 'Stop-Start' engines; in even small cars like FIAT's 500 (naming it a very notional “mild hybrid”. Whilst the large capacity engines of full-size pick-up trucks and luxury cars have adopted cylinder de-activation technologies, enabled in high-momentum conditions, such as highway cruising or down long declines.

Yet today in an eco-age, a time when citizens are 'nudged' to track their personal carbon-footprint, even that responsibility has itself long been turned into a small experiential joy. Toyota led the way with the digital energy-flow console of original Prius Hybrid, far more absorbing and less frustrating than the norm to date: the analogue fuel-efficiency needle as seen in 1980s German and Swedish cars. Toyota then merged the mentality of the user with the mentality of the vehicle, whereas previously driving in an efficient manner felt like a battle of wills, car vs driver. Prius then could be said to have likewise cognitively programmed the driver.

Since 1997, over the last decade and well into the smart-phone era, vehicle interfaces have become very sophisticated at both coaxing the user and fulfilling expectations, (having been through learning curves such as BMW's much berated old generation 'i-Drive').

What was once a 'master-slave' relationship between driver and vehicle, has transmuted into something far more symbiotic, thanks to the combination of advanced computing, semiotics appreciation, and increasingly brand attuned interface-function delivery.

These days those emotional engagement devices, such as the 'Engine Start' button and the start-up welcome message (Aston Martin's “Power, Beauty, Soul” best known) appear almost na├»ve.

The public at large, and perhaps new car drivers especially, have seemingly become almost as programmable as the product. No doubt this state of affairs will generate a counter-culture movement as some people create a backlash – a rage against the machine. Yet even this challenge has the seeds of opportunity depending upon exactly how innovation and commerce is able to mould relative to any prevailing 'e-culture-jamming'.

Mass Customisation From Standardised Bases -

The very concept of mass-customisation harks back to the mid 19th century factory-led beginnings of modern consumerism, with standardised items of pottery, furniture etc embellished variously according to price and taste. In automotive circles, although others had sought a similar approach on niche volumes, the first to extensively deploy this wholly rational approach was Ford's Model T; the legend about the colour black very much over-stated. Greater subtlety and so commercial leverage seen from the early 1930s when Alfred P Sloane's GM led the way in creating variously styled 'top hat' body structures to befit marque and model, and an assortment of what today is called 'plug and play' features for customers, then simply named 'add-ons'.

Yet it was not until electronics begat computing, and software programming begat the cyber-age, that consumers could be truly bedazzled by a veritable universe of predetermined and customisable options.

All provided by what are typically standardised electronics packages; be it laptop, tablet, smart-phone, watch or spectacles. Seemingly endless variety enabled through savagely cost reduced (ie commoditised) electronic and electro-mechanical hardware and critically, highly 'tunable' software.
Whilst IT engineering as known provided the operational backdrop, the leading actors with far greater commercialisation potential were the new realm of 'portals' (typically apps and 'enablers).

[NB twenty years ago the so called internet 'portals' were website home pages, accessed via a browsers web address bar, today's 'portals' increasingly the personally held cache of 'applications'].

The 'internet of things' is being heavily marketed to younger consumers ostensibly born into the internet age, most prevalently toward 16-35 year-olds, and within this broad span of people and places, specifically to those inner-city urbanites who have long been labelled 'Hipsters'. Though an unfortunate catch-all name for a group undoubtedly with specific 'culture layered' sub-sets, they do however appear to have the similarity of viewing themselves as social- creatives; no matter what their actual role: musicians to accountants. Heavily cyber-led in most of their activities and seeing themselves as the natural citizens of an 'augmented reality' tomorrow.

[NB investment-auto-motives (ie Turan Ahmed) labels this seemingly easily influenced, often herd-like and already much satirised group, as 'customemers'. In recognition of the now entrenched sound-bite meme ideologies across MacLuhan's global village].

“The internet of things” is still in its early stages, and presently typically over-hyped because of the plethora of relatively easily smart-phone linked, Hipster orientated, everyday item adaptions. These often marketed through youtube and elsewhere alongside other supposed modern innovations, which in reality are simply re-inventions or novelties; the bicycle and clothing arenas being prime targets because of their personal nature.

Nonetheless, the good, truly value-adding, concepts should rise to the top of a very crowded social media. And it will be these true life-enhancers – on a personal level and for the public good - that perpetuate further advances.

Herein, the old incumbents of the automotive industry have perhaps made greater strides forward than in many instances elsewhere. As they seek to re-raise the prized rational and emotional value of the car, and similarly the transport efficiency advantage (with likewise emotional overtones) of the van, pick-up truck and heavier commercial vehicles.

As Marchionne has re-highlighted, where feasible design, development and production cost-savings should be sought, and the deeper under a vehicle's skin, the greater the potential to achieve both an 'invisible' standardisation whilst concurrently engineering-in – through sophisticated systems programming and brand attuned man-machine interfaces – product differentiation and uniqueness.

Across the vehicle spectrum, such a move is justified. Closely coupled technical under-pinnings have been successfully deployed across mix and match approaches to platform / module utilsation, for BIW (body in white) structures, chassis items, power-train and electrical systems. Given expense and complexity, the latter as a 'high-value' system has proven ever more problematic. It is part of the reason that Renault Nissan's Infiniti division created a JV with Daimler, and likewise why Aston Martin Lagonda too has done likewise with Daimler's AMG division.

If such marriages regards electronic systems can be harmonized (ie standardised) within the supposed ivory towers of premium and luxury, then mainstream producers and their suppliers have an obligation to their investors to not absorb expense in the duplication of such electronic systems.

Just as new enhanced standards came to pass decades ago regards alternators over generators, or 12 volt circuits replacing the 6 volt, so a far better standardised 'computing platform' to suit 21st century demands (including probable 18V and 24V systems, with CANBUS reliance) and provide the necessary tailoring of brand experience, is ultimately unavoidable.

The Inevitable Obstacles -

The journey there will inevitably include challenges and opportunities.

Quite prescient then that after Marchionne's call, that FIAT Chrysler group should now face a recall of 1.2m – 1.4m vehicles which have been identified, through independent test exercises, as exposed to the threat of computer hacking of critical vehicle controls The fix will be applied in the form of a software update to the 'U-Connect' system, but the news reports of targeted test vehicles being prone to such attacks, will weigh heavily upon the owners of the vehicles, and will be of concern to those who drive other marques.

However, the vital facts are that the attacks were wholly orchestrated and only achievable through (to quote FCA group) “unique and extensive technical knowledge, prolonged physical access to the subject vehicle and extended periods of time to write the [necessary] code”.
Thus, whilst a concern in this seemingly wholly electronically controlled era, the likelihood of such a problem affecting more than a small number of vehicles, appears remote. And critically, FCA was quick to recognise, admit and react to the very marginal public problem.

If anything, the occurrence might actually serve the cause of greater standardisation and commonisation, since whilst specific problems would indeed affect more multi-brand vehicles, likewise an accordingly larger brigade of independent authorised hackers, should be better at identifying 'back-doors' in the systems which require improved security.

Such a scenario could be argued as better for manufacturers and consumers.

Automotive 'Version 3.5':

The previous web-log instalment demonstrated how – through logical demonstration - the authors of 'Time for a Model Change' (2004) envisaged how the auto-industry should be better re-structured by way of a “4th Revolution”; to avoid a decline of 'graceless degradation'.

[NB The 1st Revolution being Ford's deployment of 'Taylorism' for standardised volume production, the 2nd being Sloane's corporate creation of a “ladder of brands and models”, and the 3rd being Toyota's introduction of 'lean manufacture'].

But as also noted, these 'revolutions' were introduced from the 'inside' of the sector, critically from seeking competitive advantage. Whereas Maxton-Wormald's “4th Revolution” appears only practically feasible through enforced global level regulatory change; most unlikely given the importance of the conventional auto-sector to the USA and many EM countries.

Importantly, whilst at the time of writing the book (around 2002) Europe did indeed embraced the beginnings of a 'block exemption' ideology - so as to free-up downstream sales, servicing and retail activities - the detail of the 2010 and 2013 rulings regards 'Vertical Block Exemption' was far from revolutionary, indeed arguably protective of in-situ value chains.

Thus too all intense purposes the historical auto-sector's innate commercial model remains in place.

Instead it seems that any approximation to a 4th Revolution should be actually termed 'Version 3.5'. This an enhancement of consumer targeted innovation made possible through the the process of a quickened electronics evolution.

A merging of micro and macro directed consumer electronics has inevitably set the backdrop to yet further deepened influence upon vehicle functionality, across convenience provision and performance improvement and convenience provision, via 'visble' and 'invisible' vehicle systems. The former for product and so consumer experience enhancement, the latter for (typically eco and safety) regulatory applications. Whilst the emergence of driving monitors / aids, often marketed through auto-insurance companies, bridge the previous chasm between private and public).

'Version 3.5' then is best explained as the continued, long since digitally enhanced advancement of the historical automotive Revolutions to date. However, just as there came tipping-points for the design and manufacturing of the product itself, via CAD and CAM from the early 1980s onwards, so recent years have witnessed a tipping-point regards the morphing of technology and user behaviour, given the former's cognitive – absorbing and habit forming – effect. As mentioned, the entrancing dashboard graphic of 1997 Prius was amongst the first 'smart-tech' devices to pull the “subject” (user) into the “object” (product). Ever since, the combination of the massive levels of info-tainment, absorbed through smart-phones and now smart-wearables means that people have obviously been long drawn ever deeper into the cyber-physical, into 'augmented reality', and thus into a new chapter of (perceived) reality.

This is of course recognised by most, to varying degrees, depending upon age, back-ground, objectivity etc.

But the critical issue for nearly all brands, and specifically e-enabled consumer products manufacturers and service providers, is the ability to judge to what degree a group type or indeed n individual consumer is happy to subsume him/herself.

Given personal background and experiences, each person will be slightly different, the business of 'big data' and 'data mining' companies to create personal profiles for (ideally) the global population by which their commercial clients can guide their own mass, niche and personal customer interactions.

Hence, the 'brand equity' and associated societal influence of auto-makers are at the forefront of medium to long range consumer interpretation; just as super-markets and FMCG firms intensely study the short view.

The breadth of the digital universe stretches from the seemingly very remote regards everyday consumer behaviour patterns, through to the preferred manner by which a driver (and passengers) interact with the car itself....typically from yesteryear's 'master-slave' to today and tomorrow's 'eco-equitable relationship' to the far horizon's possibility of (time-cost related) 'nudged mobility'.

In Conclusion -

This lengthy four part weblog has sought to provide improved understanding regards the real-world issues which exist behind calls from more idealistic investors, consultants and academics, for major commercial restructuring of the mainstream producers within the VM portion of the automotive sector.

Within institutional investment houses - amongst the rafts of all too formulae led administrative managers - there are those who (typically via self-education) maintain a close eye on the automotive sector, and are very aware of the traditional pros and cons. Likewise for the self-taught retail investor. They will recognise the immense drag of economic recessions and the cash burden of large CapEx projects, and the necessary balancing act during the worst of times, versus the endemic boost provided by returned broad economic spend, itself boosted by the efficiencies gained through well conceived and executed corporate 'turn-arounds'.

At the investment coal-face are the investment bank auto-sector analysts, the more 'sophisticated' realms of investment, such as hedge funds, and those very few specialist consultants who have a truly rounded appreciation. These economic agents keep a watchful eye on the quarterly performances of VM firms, recognising their respective positions relative to each other, and in comparison to broader capital market dynamics, such as vis a vis broad retail (white goods, holidays etc) and other B2C and B2B general industrials.

More critically these proactive agents are - within their own limits of individual expertise – able to recognise when perhaps a CEO has over-stretched the plausibility of an envisaged commercial strategy story, or whether a CFO has relied upon accounting ploys to either boost the bottom-line or indeed, as sometimes practised through volatile periods, to smooth-out otherwise 'choppy' quarter on quarter earnings, or indeed stated over-heavy 'extra-ordinaries' to intentionally reduce bottom-line profitability, so driving down a share price, before staging a seemingly remarkable return at a later date.

Thus although capitalism itself is a general force for good (when morally orchestrated) the fact is that the investment arena itself is a far more ethereal entity than (typically American) media commentators would have the public, and indeed 'silo'-located “investment professionals” believe.

Thankfully, especially so for institutionals with heft future obligations, unlike the market's highly reactionary behaviour – whether via the media-fuelling of high potential growth sectors or the heavy shorting of commodities - it is the maturity and relative commercial clarity and overall conservatism of the auto-motive sector that helps to provide a sense of security for pension funds etc. Autos represents a true economic cornerstone for many countries and regions, under-pinning international trade and helping to provide, for the increasingly globalised investment community, international economic off-sets and equilibriums; USA vs China the obvious present illustration

As this cornerstone, such nicely boring, yesteryear measures of investability are welcome.

Yet, quite rightly, within the broad automotive value-chain, as Maxton-Wormald indicate and promote, where at all feasible, those areas convincingly demonstrated as holding untapped investor potential should be explored and exploited.

Such areas will demonstrate a probability to:

1. Progress the critical 'inner-mechanics' of the leviathan sector (eg as did Budd or CAD/CAM)
2. Begin any wholly rational and feasible 'unbundling', at small scale level to evaluate.
3. Generate truly compelling new products, not simply (sometimes unjustified) model proliferation
4. Generate compelling new services – increasingly enabled through 'cyber-assistance'.
5. Advance personal mobility, mass mobility and logistics mobility solutions for society
6. Include high levels of technical standardisation (ie the lessons of history)
7. Innovate at a new venture business model level, creating in-house 'incubators' etc.
As what appear 'all-powerful' global entities, the major auto-makers are typically necessarily cautious, with an innate need to maintain broad control of the value-chain given their responsibilities to share-holders and as international economic giants.

Yet the best have also demonstrated a willingness to take big leaps forward to help create and gain from the future; from Daimler's lengthy 'under-writing' of its initial SmartCar project, to latterly BMW's radical i-series city-car, and in a very different revolutionary manner, Ford's new aluminium F-series full-size pick-up truck. And of course those previously typically incremental technical steps – particularly in powertrain – have become far more strident in ambition and achievement.

Applying that level of strategic thinking to the very industrial and commercial basis of the sector is what is required. It is a far cry from many of the “bluff” actions of the past where a VM was only seen to be attempting something new and provocative, without true intention.

All too ironically, the previous sector 'revolutions' came from within: by influential people who were astute observers, lateral thinkers and able exploiters etc, not from the all too theoretical external pressures of Wall St seeking 'creative destruction'.

As GM's re-birth illustrated there is a time for such 'creative destruction', but with the wounds of the financial crisis slowly healing and a much altered socio-economic landscape, proper and realistic consideration is needed as to what (primarily 'self-moulding') shape the next-generation auto-sector might ultimately become.

Sunday, 12 July 2015

Industry Practice – Volume Manufacturing – Call for a Paradigm Shift...Usual Rhetoric or Prescient Timing? (Part 3)

Re-Cap -

Previously, Part 1 offered a critique of 'Confessions of a Capital Junkie' by FCA Group's CEO.
It is his ongoing call for sector consolidation, given the what was described as the ongoing value destruction of today's structural template (relative to WACC) when compared to other industry and service sectors. Marchionne then exercising the believed size of envisaged savings to be gained from the mutualisation of 'invisible' common parts across modules and platforms. This seemingly very rational ploy has been the historical panacea to apparent industry woes during periods of sub-par profitability.

The critique proffered by investment-auto-motives sought to dig deeper – in a wholly unbiased manner – into that which appeared truly persuasive, aswell as highlighting how and why the presention was, in sections, also an overtly simplistic snapshot. Recognising also that since the 'corporate turnarounds' within the sector since 2008 and a new rising economic tide in the west, that each VM has variously experienced different rebound rates; well understood by auto-executives and sector analysts alike.

The intention of Part 2 – summarised by the accompanying graphic - was to inform of the broad intellectual debate surrounding the auto-sector; one which has been underway since the mid 1990s, seeking-out transformative formulae and new business cases for sector incumbents and possible new entrants alike.

It was shown how the sector presently appears when read through two dimensions of 'Technology' (Progress) and (Industry) 'Structure'. Effectively a 3x3 matrix, with each axis labelled 'Evolutionary', ('Intermediate') and 'Revolutionary'.

It highlighted how the major VM firms, led by Toyota, had by deploying their embedded conventional hard assets (production plants and R-D functions) to usefully advance the apparent technological norm, via ICE technology mated to more newly introduced hybrid power-train systems (aswell as the low volume consumer testing of pure EV models). Toyota then created a new middle-ground ambition with Prius, so prompting GM, Ford et al to instigate greater 'bolt-on' eco-tech (from capacity down-sizing to cylinder de-activation), and albeit far more slowly (given the USA's PESTEL norms) the availability of hybrid. Far more technologically ambitious and progressive has been BMW with its mould breaking 'i3', requiring a re-configuration of its supply chain and internal processing capabilities of carbon fibre, in order to present a true 'leap-frog' vehicle, yet able to be assembled in the conventional manner.

In the 'Intermediate' co-ordinate points for both Technology Progress and Industry Structure, was recognised the arena of 'Niche Manufacturing'. This typically consists of what may be regarded as the 'low-end' approach very much reliant upon reduced cost investment business cases. (The very opposite of the high-end approach seen with supercar* producers). The centrality of a high quotient of cheaply available labour (to avoid high CapEx), was evident from 1950s onwards across Europe and North America. However, high living costs and wage demands since the 1990s in many instances saw attempts to have production 'lifted and shifted' to cheaper foreign regions (eg Malta in the 1990s etc) and even in a bid to maintain local assembly, deploy the use of prison workforces (eg Shelby American in Las Vegas during the early 2000s).

[NB * although the term 'hypercar' is now widely publicly understood to indicate the most capable and highest priced sports-cars, within the industry itself very often the term 'hypercar' is associated with the lightweight eco-car specification ideals of ecologist Amory Lovins].

Critically this commercial template was recoined 'Micro Factory Retailing' in the 1990s and viewed by academia as re-deployable in those 'Pioneering' global regions (beyond MINTS and CIVETS) which sought indigenously created mobility to help propel their own economic development agendas. However, in yet another twist, simultaneously this 'MFR' template was re-imagined once again: as the optimal route by which to introduce all new, eco-oriented makers and brands into the Triad regions of NAFTA, Europe and Japan (and very possibly “Chindia”).

As also seen, far closer to the build methods and practices of Volume Manufacturers – though often with dedicated “short order” plant such as 'carousels' - is the realm of 'Contract Manufacturing'; firms that offer additional capacity and special variant build capabilities to major VM clients and others seeking to heavily modify part-built or complete ex-factory vehicles. (As an example, recent press reports state that Jaguar Land-Rover has agreed with Magna Steyr of Austria to outsource its excess production. However, the report is unconvincing since the stated “E-Pace” - a smaller sibling to new F-Pace – would actually be directed at a high volume market, thus Magna Steyr would not have the required capacity. Instead, more likely is that E-Pace is either a low volume Hybrid or EV version of F-Pace. This forming a JLR-Magna relationship with potential for future shared CapEx projects under-pinning high volume models and variants).

Quite obviously, the very notion of 'contract manufacturing' – like 'contract services' for engineering development – raises the theoretical possibility of external parties undertaking vehicle assembly on behalf of a present day VM. This done either completely or for a major portion of output. The term 0.5 Tier Supplier has emerged over the last 20 years or so to describe this scenario, and would most likely be offered by a Tier 1 Supplier seeking to extend higher up the value chain. (Magna International's purchase of the Graz, Austria plant from the previous Steyr-Daimler-Puch is seen as a step toward this possible ambition, itself enabled because the Graz plant typically handles higher margin 4WD vehicle variants. Graz's expertise in 4WD systems (from 'portal hubs' to FWD adaptations).

Critically this also highlights the idea of externalised 'contract services' for vehicle engineering development taken far further than seen to date. Thus far applied from specialist disciplines (eg military land systems) to commoditised 'bums on seats' (eg MSX International), but with the acquiescence of client VMs the potential to become a truly large (pre-market) automotive services sector, seen as the flip-side of the after-market realms. Provision of this service is termed (likewise Tier 0.5) 'Vehicle Integration'.

Such changed dynamics to the auto-sector's historic 'Command-Control' mentality would be monumental, and no doubt offer up a new world of investment potential to the capital markets.

However, many VMs recognise the many and great advantages of a 'secured' value chain: from Henry Ford's efforts at Fordlandia to the Japanese Keiretsu / S.Korea Chaebol systems to FCA Group's subsiduaries spanning basic castings to components to production systems and PSA's holding of Faurecia parts). That sense of self-determination is what enabled the creation of national auto-industries led by national champions, and so an historically induced reluctance to fragment.

That process of asset and activities fragmentation is generically termed 'Unbundling'; and has been applied to various sectors previously, with the rationale of “releasing internal captive value”.

This has happened previously in the auto-sector, unsurprisingly in the capital markets driven USA, when GM and Ford divested their respective internally created supplier divisions 'Delphi' and 'Visteon'. And more recently, after the 2008 crisis, with PSA's sale of 75% of its stake in Gefco.

This Part 3 conveys in greater detail why certain quarters – primarily capital markets, sector consultants and academia – have long call for a radical change in the structure and manner of the traditional auto-industry. These voices essentially inferring that the sector, whilst buoyant and healthy at its western mid 20th century peak, has become over-bloated, inefficient and ultimately (over the economic cycle) value destroying.

“Unbundling”: The Call for “All Change” -

The attached derived graphic (from Part 2) illustrates the theoretical shift required if across the board sector “unbundling” is to occur.

By far the most vocal proponents for such a wholesale re-orientation have been Graeme Maxton and John Wormald, the authors of 'Time for a Model Change' (sub-titled: Re-Engineering the Global Automotive Industry').

As a follow-up to 'Driving Over a Cliff' of 1995, 'Time for a Model Change' was published by Cambridge University Press in 2004. Both books seek to act as more than Devil's Advocate regards the question 'investability' in the overtly historically engrained auto-sector at the end of the 20th century and at the beginning of the 21st century.

Having described in detail the macro and micro picture over the previious half-century, the previous decade and at the turn of the century, the 2004 book purports (on p201)...”the need for counter-veiling forces to emerge – the is the whole thrust of this book”.

The research-work behind the treatise is substantial, and thus a compelling big picture presented for fundamental change, given the evidence of western vehicle market saturation, the ensuing general stagnation and inevitable decline, along with sourced observations of concern from outside experts and provision of the authors' accrued absorbed learning.

Presented Thesis -

“Time for a Model Change” begins with the following thesis:

.The automotive industry ranks among the most significant business phenomena of the 20th century and remains vitally important today, accounting for almost 11% of the GDP of North America, Europe and Japan and one in nine jobs. In economic and social terms alike, its products have had a fundamental impact on modern society - for better and worse. Yet the industry has found it hard to adjust to recent challenges and is no longer much valued by the capital markets. It is riven with internal contradictions that inhibit reform, and faces a stark choice between years of strife or radical change. This book is a wake-up call for those who work in the automotive business. It highlights the challenges and opportunities that exist for managers, legislators, financial institutions and potential industry entrants. Most of all, it gives us all cause to reflect on the value of our mobility, today and tomorrow.


1. From automania to maturity – in the main markets at least
2. The problems that can be fixed (emissions, accidents, congestion)
3. The global resource challenges (energy, global warming)

4. A global industry and the changing international order.
5. The supplier industry – the catalyst for the profound changes to come?
6. The downstream sales and service sector.

(The Investment Case)
7. When the numbers do not add up.

(Degradation vs Reorientation)
8. Choosing a future for the automotive industry

9. Time for a model change...”the 4th automotive revolution”

Herein, the major points and verbatim and para-phrased passages – set out in Chapter 7 - which are pertinent to the crux of the Maxton/Wormald argument, are provided.

Chapter 7:
When the Numbers Do Not Add Up

(By 2003) the authors had “painted a picture of an industry which had been filled with mounting troubles for a decade” (problematic by the mid 1990s).

- Unnoticed by most because the “progressive sickness” was slow (harder to diagnose).
- A period of economic boom in property, IT stocks, (+ general services and credit provision)
- Boom fed by media, uninterested in possible flailing of remaining smokestack sectors were
- Not in the public interest to scare-monger.

But the financial sector was cognisant

- Some wrote warning papers about the auto-sector's inherent problems
- Deutsche Bank, Citibank, Goldman Sachs and Bloomberg leading protagonists
- Banks / Institutions / Private Equity had long reduced portfolio exposure to Autos
- This relative to new opportunities across other sectors, geographies and asset classes
- Autos reduced economic importance in value creation (re: MktCap 2002 vs 1990)
- Academia (CAR, Michigan) echoes the 'big investment, small return' perspective
- (2002) USA, Autos = 10% GDP, but its MktCap less than 5% of that figure

“It is becoming a sunset industry, a has been in financial terms – a flagrant contrast with its continuing social role, its share of employment and political influence”...however... “the conventional view about the industry is through the lens of the manufacturers”. Thus for many [though not all] Detroit's historical obsession with: production volumes, market share and sales persists across the mainstream players.

Thereafter bar charts are shown illustrating the mixed business mentality dichotomy (in volumes, sales, profits and market capitalisations) between, at the extremes, GM, Ford, Chrysler vs BMW and Porsche; with in-between the host of other global manufacturers. [The exception at the time was Wall Street's view of Toyota, seen as the sin qua non mainstream player].

Of particular note were two charts sourced respectively from Deutsche Bank and Goldman Sachs. The first titled as 'not firing on all cylinders' depicted each auto-maker positioned within a Volumes vs MarketCap framework and noted them as either 'strong', 'mediocre' or 'weak'; each firms position reflecting the intuitive business strength understanding of independent industry experts, with (again) the Americans weakest and Japanese and Germans strongest. The second (and more complexly calculated) chart used the dimensions of: ROIC-WACC vs EV/IC to provide yet greater clarification of 'investability'. Once again divided into three sections for 'over-valued', relatively under-valued' and 'under-valued', wiith the ROIC-WACC axis showing a delineation between 'value creation' and 'value destruction'. This perspective (in 2002) demonstrated that even the doyen BMW, whilst under-valued was also (at this point in time) was slightly value-destroying (which itself is anti-intuitive), whilst all Japanese players were balanced in valuations, and (unsurprisingly) Porsche well placed, and with PSA showing greatest potential (at the time).

“Too man of them are in the value destruction business...that is why the capital markets are punishing them”.

The example of the then Daimler-Chrysler provided yet further demonstration of this fact, as the highly ill-suited marriage [recognised by many at the time] took place during the merger and acquisition craze of the mid to late 1990s.

However, conversely, the strong and happy marriage of Renault and Nissan, demonstrated how with the correct and truly complementary merging of well aligned businesses, run by those with real market and sector insight and a proper eye on profitability – and not sales for sales sake – the outcome could be value creation. Carlos Ghosn was heralded by the authors as being exactly the right mould of CEO, neither the “petrol-head” nor “bean-counter” variety which has tended alternately dominate through the variously good times and bad. Instead a balanced attitude to truly setting out a powerful and workable ('alliance') strategy, and combining the best attributes of what were previously two very different French and Japanese businesses to improve French quality and add to Japanese product appeal.

Nonetheless, Renault-Nissan appears the odd man out, amongst its rivals.
Expansion was divided as either – simplistically but importantly - good or bad.

Ford's efforts under Jacques Nasser to move further downstream into the higher margin after-sales realms to capture value, fell very much short. Its limited diversification efforts with the UK's Kwik Fit and some local USA dealerships was too little. This a function of the limited expansion strategy cash available (and no doubt the unwillingness for downstream owners to sell at less than inflated prices) vs the embedded attitude of controlled accounting and management.

“The heedless rush to acquire in this industry is also matched by an often considerable reluctance to dispose of, and a pronounced one, not to shut down”.

[NB This the reason why the very over-bloated 'Old GM' was forced into Chapter 11 bankruptcy].

“Killing the geese that lay the golden eggs” is used to describe how, many auto-makers tended to generate almost adversarial relationships with associated stakeholders, including: customers, workforce, distributors, other service providers, Tier 1 and 2 suppliers, and government. Detroit lambasted as worst.

[Although perhaps this outcome because Detroit is itself caught between Wall Street's' desire for profitability vs the per vehicle cost of legacy commitments and the previously endemic product quality gap with foreign rivals].

Unsurprisingly the manner in which Japanese firms generally conduct their external relationships – recognising the importance of togetherness – was highlighted by the authors, with the very real gain s to be had from commercial (and otherwise) mutuality and harmony.

The provision of automakers as consumer finance lenders is highlighted as critical “dangerous dependency” and “potential future conflict”. It was recognised that the US auto-makers particularly had themselves become hooked on providing captive credit via dedicated finance arms, since that credit in turn boosted sales volumes and kept factories running at their high capacity break-even point. Critically, to reduce the affect of massive CapEx costs on a per vehicle basis, more and more vehicles had to be assembled, and so the need to stimulate the marketplace demand, achieved through ever better financing terms and availability to those with little (and indeed 'sub-prime') credit ratings.

“Ford and GM were not terribly good banks. They lent mostly on assets they themselves sold and had to discount, which in turn, affected the residual values of the products upon which the loans were secured” (The same story for Chrysler, though with no figures made available from Daimler-Chrysler at the time). In short, the credit divisions became slave to sales targets, these slave to production targets. “Ford and GM were forced to cut back on lease finance, precisely because they had created such a destructive downward spiral”.

This spiral created by widening gap between the ever increasing cost of wholesale finance sold to the 'Big 3' (given their own decreased credit ratings) and the need to heavily discount cars and trucks, so reducing residuals further, with the additional need to offer good consumer credit deals. Lengthened lease terms (to 5 years) in a bid to yet again drive down consumer costs added yet more problems. Additionally, a substantial increase in the level of 'sub-prime' loans unpaid (“gone bad”) - and indeed even non 'sub-prime' – necessitated a massive increase in set aside 'bad loan' provisions in Detroit's accounting, even if not always stated in quarterly reports.

Thus a perfect storm creating that downward spiral.

Once again a comparison with Toyota was made to show how the Japanese firm, with better products and so residual values, could ironically offer attractive consumer financing on a per month basis.

A sub-heading of “A Fractured Industry – fault lines and the financial exposures” explains Deutsche Bank's 2002 belief that the mature dynamics of the auto-sector, its heavy capital expenditure requirements, intense inter-firm competition and 'commoditised' products create conditions for poor ROCE and, on average, an inability to cover WACC....only strong premium players offering the likelihood of generating economic value over the full cycle. A long way from reaching equilibrium of demand and supply...which would require structural shift in automakers' mentality, to reduce CapEx, down-size businesses and release cash to share-holders. Probably a long way off from such a shift in attitude.

To these problematic issues, Maxton and Wormald also add: product proliferation and the misuse of branding. To go further and re-cap previous chapter headlines:

- there is no significant growth remaining in mature (Triad) markets
- EM regions already breeding new competition.
- need for accelerated investment to progress new technologies (PESTEL trends)
- sector's competitive structure is not yet fully rational.
- far too many platforms, models, derivatives and major components
- excessive associated costs are typically absorbed by supply-chain firms
- fewer would still provide adequate market choice
- the downstream sector is unnecessarily complicated (providers, services bundling etc)
- auto sector's poor relationship with capital markets

Detroit's earnings structure at the turn of the new century is analysed by gauging the contribution by way of vehicle type (small car to SUV, pick-up to luxury car). This done on a chart comparing capacity utilisation vs operating margin. With the Big 3's average (reported) margin at about 5% and utilisation rate of typically 85%, a clearer picture emerged. It illustrated the exact level of losses experienced across: small cars, lower mid cars, sports cars, large vans, small pick-ups, upper mid and even large cars. These major losses were off-set partially by luxury cars (themselves still under par utilisation wise), but critically off-set by the major profitability gained from: minivans, mid-size SUVs, large pick-up trucks and the cash-cows of large/luxury SUVs. Chrysler the greatest beneficiary of this market dynamic.

[NB this general picture was understood by most in the industry at the time, yet the diagram provides very useful enhanced appreciation].

This, the authors state, begs the question as to why major producers facing such a reality do not instead only target the most profitable segments and leave those that drain cash? The answer provided is that every major VM is still obsessed with providing a full range product and price ladder up which a loyal customer can climb as s/he grows older, with greater spending power. Yet yesteryear's level of loyalty has almost totally disappeared.

This market duplication, along with respective duplication in structures, engine families, chassis parts etc, along with distribution and service elements, creates massive amounts of internal sector redundancies. But “why make engineering and production 'lean', but undermined by over-proliferated product lines?”...”because that would mean challenging the current economics of the mad house'.

Toward the end of this chapter, the issue of theoretical cost-savings – and so improved profitability – is presented through the use of a table which compares (the then) current 'proliferated' costs per average vehicle in Euros vs the envisaged 'deproliferated' costs. This done throughout the value chain, from project engineering and general overhead, through procurement, manufacturing, plant depreciation, distribution and onto the retail point of sale.

'Deproliferation' involves the following assumptions:

- Notional average vehicle selling price reduced from €19,000 to €17,100, thus adding €1,900 per vehicle (exc incentives) which would provide an industry gain of €29bn. On an averaged basis a VM would see a 15% drop in its overall absorbed cost structure.

- - Notional transportations costs remain the same given unaltered volume of vehicles, whilst warranty costs much reduced. A 50% reduction in the new product introduction rate so the vehicle lives twice as long in market as before. The introduction of a truly independent wholesale layer to aid European market demand vs supply dynamics.

- Large national and international retail chains emerge, which integrate wholesale aswell, across all (mainstream) vehicle brands. The influence of these large wholesale buyers and retailers would promote the 'deproliferation' process, exercising influence at the product planning stage. They would also undertake the major bulk of advertising so reducing VM marketing activity and so internal VM overhead.

- Notional 5% price reduction of a VM's procured parts, when in reality a 50% deproliferation would provide 15-20% gain.

- Saves the VM 5% and restores 10% or more of margin to the supply chain firms, which would aid research and development at Tier 1 and 2 levels. VM firms save €6bn, Tier 1 and 2's €12bn.

- Manufacturing labour costs estimated to reduce by 10% given reduced in-plant complexity.

- VM internal production costs fall by 10%

- Estimated €1000 per vehicle directed toward research and development, this split 60:40 between base platform engineering and upper structure 'top hat' base to suit model.

- Outcome is a tripling of VM firm's EBIT per vehicle, despite 10% fall in price to the consumer. Annual gain to the sector is €17bn, enough to restore deficient profits and allow massive investment in new technology.

- With service de-coupled from sales (as part of 'unbundling') and ousting 'monopolistic' dealer-bases, charge-out rates for service technicians could drop by 25%. All part of a unified after-market with true competition.

“This is the new Eldorado of an 'unbundled' and reconstituted industry, with production in the right places and the right relationships with strong independent suppliers and equally strong independent distributors. The reason this does not exist today is VM 'control mentality' of resource allocation, with control beyond their normal boundaries....

“We believe that many of the conventional historical constraints can be loosened (via unbundling) and re-aggregates into more economically viable units working together on an equitable basis...

“In the absence of external monitoring and control, this has become sub-optimal, with strong predilection for preserving the status quo...

“The bundling and conglomeration have made it difficult for capital markets to play their role in stimulating the re-allocation of funds from mature to growing sectors in the auto-industry, and from unsuccessful to successful businesses...

“There is a desperate lack of sector internal transparency about the industrial, commercial and consequentially financial justification for inter-corporate transactions...just as bad for large projects. More salutary if astute outside analysts pored over better availed commercial intelligence and internal recommendations...

“We believe the industry is at a historic turning point between two alternative futures....firstly to try and continue the historically engrained 'Command-Control' method, which has led to increasing problems with the finance community...the second to face-up to restructuring and openness”.

Interpretation of the 'Unbundling' Ambition
With Over a Decade of Hindsight -

Besides the failure to predict the truly massive impact of the BRIC's economic on the demand for vehicles from 2003 onward, and the rewards this brought manufcaturers, Maxton and Wormald have shown themselves to be important observers and critics regards the general condition of the auto-sector in the Triad regions.

With the now present slow-down of EM regions, with very importantly China's continued 'modicum growth' at 6% or so, and its the need to stimulate internal demand yet further (across the South and Inland cities), and the returned but seemingly limited growth envelope for vehicles in the Triad, it seems that today is the point at which such intrinsic questions about the all too vital auto-industry, must be asked...and hopefully prompt reaction across all stakeholders.

These verbatim, paraphrased and summarised descriptions then highlight what Maxton and Wormald view as the need for a “4th Revolution” within the auto-industry; after the paradigm shifts that were: Fordism's standardisation, the creation of the aspirational brand/product ladder by GM and the introduction of 'lean production' by Toyota.

However, the major difference being of course that all three of these revolutions were created from inside the industry to provide competitive advantage, whilst the idea of the '4th revolution' runs (essentially self admittedly) counter to the 'command and control' theology of the industry's giants.

Thus any such re-orientation of the auto-sector - all too realistically - lays in the hands of either industry regulators or the slow progress of those new sector entrants (necessarily with massive liquidity), able to defy the previously insurmountable barriers to entry.

The likelihood is that, as seen, given the immense size of the sector in notionally advanced regions and those of now well developed BRIC+ nations, regulators well recognise the need for maintained stability throughout the conventional value chain; so that the economic beast itself remains at least mostly intact.

There may be room at the margins in the West, but embedded manufacturers recognise the threat of the new, and so embrace aspects so as not to become 'out of phase' with social trends. BMW's experimentation with a 'owner-lender' rental scheme (to defray the cost of ownership) demonstrates.
Such moves seek to create an even greater stranglehold on downstream consumption habits, little or no willingness to see down-stream activities fragmented when so much is at stake, especially so in the West.

Likewise, EM nations – and their typically conglomerate corporate structures – will try to emulate the golden years of the auto-sector once again, for their own gain. And that means effectively re-running the previous industrial and commercial template.

The opportunity for possible drastic change came with the demise of 'old GM', but in Washington's rush to resurrect an automotive phoenix, upon which so many people relied, America's biggest producer was invariably recreated as a renewed shrunken entity, effectively in the old image. Almost expectantly, new GM's return to its heavily engrained behaviour, relying upon discounting and incentives to 'shift metal' to re-boost revenues and seemingly accounting ploys to grow its bottom line during its early return phase. Similarly, the re-booted Chrysler soon re-adopted the sub-prime financing to boost sales, persuaded by the 'new beginnings' of the American economic cycle.

As regards the possibility of sector re-orientation from external quarters, the seeming likeliest candidate Tesla has instead chosen to deploy the standard industrial structure (albeit with advanced technology) as its seeks volume growth. If it remains 'plugged into' this template, it seems likely that it too will likely mimic the very same 'command and control' commercial mentality over the up-stream and down-stream aspects of its business.

Similarly, other efforts to re-create the sector model have come from start-ups such as Local Motors, Oscar etc, obviously undertaken in a very small manner. But these have only done so thus far by exploiting general economic inconsistencies; such as unpaid open-source design-work and the innate challenges of the 'real-world's' local labour rates, the problems of volume 'ramp-up', overly ambitious desires for a broader product range. In effect progress through artificial solutions.
The only firm to have seemingly conquered this thus far – at the very low volumes to date and a more convincing master-plan - is the UK's GMD.

So inevitably new entrants will want and need as much 'holistic control' as possible, so as to drive the commercial vision and any associated spirit of the brand. This so even with attuned stakeholder partners, who invariably act in the role of 'soft venture capitalists' or 'vision enablers and gainers'.

Consequentially, in 2015+, having now absorbed the auto-industry boost that was the 'EM leap', this is indeed the right time to table questions, observations, comments and recommendations about the modus operandi of the global auto-sector's players.

Yet even in what could be a momentary period of TIV stagnation as AM regional growth off-sets EM contraction, it would be overly optimistic, if not fool-hardy, to expect the true beginnings of the “4th Revolution”.

Instead, something more likely of an evolutionary 'Version 3.5': as conventional value-adding solutions (such as JVs) are re-played to reduce costs, aspects of the foible that is product proliferation are addressed 'in-house', a new focus on brand differentiation to combat 'commoditised products', contained CapEx when contract manufacturing can be sourced elsewhere, and most progressively, the tentative steps taken to exploit the possibilities of new (prompted) lifestyle choices enabled by the slowly emerging 'internet of things'.

If not a complete structural revolution over the next decade, then at least a much quickened path of evolutionary learning and adaption, undertaken with necessarily improved business rationality.