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.
Contents:
Macro-directed
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)
(Micro-directed)
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
(Recommendations)
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.
