Micro-Level Trends – The UK's Niche Vehicle “New Future” - Investor Acuity Required

  

The old adage conveys that “a fool and his money are soon parted”.  

That exemplified by the litany of niche vehicle companies that have come and gone over the decades.

As has been noted, Britain today sits in an economic schism; the erosion of the old middle-class has left a growing gulf between the small hyper-wealthy, the 'comfortably-off' viewed as the old upper-middle, the  remainder of the lower-middle, 'working poor' on 'living-wage' incomes and the truly desperate with no or very little state-provided income.

That structural disconnect in society has obviously generated the reactionary politics we see today, between the neo-Thatcherite right, singing the praises of free enterprise and trickle-down economics, and those who simply seek stable long-term employment, thus attracted to the idiom of re-Nationalised industries and sectors.

Whilst specific areas such as London's Kings Cross becomes the epicentre of a digital UK, and Milton Keynes operates as the geographic test-bed for autonomous 'pod' vehicles; and even with 'Motorsport Valley' operating at the cutting-edge of global race-car design and engineering, the fact is that de-industrialisation has eradicated jobs that many of today's large swathes of 'unemployable' non-skilled and low-skilled people could have done.

It may be unpopular to state, but much of Britain's 'New Nationalism' stemming from the far right is a reaction to decades of unemployment and under-employment across what was supposed to be new development areas. That attracted new service sector activities ranging from expansive retail malls to call-centres, to warehouse-logistics centres, to the new crop of services and support entities providing through-life product assistance, and socio related efforts such as charities and quangos

But, all too often the newly built business parks that were created as service-industry hubs remained under-occupied, and relied upon discounted terms to temporarily attract relocated divisions from government departments or the NHS back-office.

And yet still, large tracts of Britain in old industrial, rural and coastal areas remained nigh on destitute, since populations remained and grew where suitable employment opportunities had been lacking for decades.

Light engineering industry was once a vital part of the national economy, yet much for good commercial reasons was 'sent abroad' so that income squeezed companies themselves could slim work-forces and bolster unit margins and annual profits.

In the auto-industry, from the 1980s onward, it meant inevitable component supply problems for the once thriving crop of niche and not so niche vehicle makers, many of which relied upon quite erratic 'hit or miss' business models and over-optimistic owners and managers.

Whilst the bread and butter stuff such as utility body-building went on – often quite successfully - under the radar through the 1980s, the 'sexy' end of the UK niche vehicle sector that typically built sportscars, some luxury cars and conversions, from Jensen's 'last gasp' Interceptors and GTs, to Reliant's Scimitars and SS1,  to Bristol's Blenheims to Dakar's and Overfinch's 4x4s, all inevitably saw their own fortunes falter; Bristol today left operating on a lean servicing and repair orientated basis. 

In the late 1980s and 1990s, it was perhaps only TVR (thanks much to Peter Wheeler's oil-generated corporate funding and good business sense) that gained true commercial traction from apparently no-where, thanks to its unique styling based USP, and a new band of high-disposable income customers who sought something different, British and fantastical. 

The 1990s and early 2000s was the era when the best known marques (Aston Martin Lagonda, Rolls-Royce, Bentley) were taken under the wing of major manufacturers to provide the financial and engineering foundations to effectively rebuild the companies, whilst only few old names such as Morgan and Ginetta (surviving Marcos closing in 2007) and new names such as Ariel, Noble, Caparo, then BAC and others arriving into the frey with hardcore motorsport derived cars. Whilst, the once thriving Kit-Car sub-sector experienced its own domino-like collapse, promoted by the collapse of many of their underlying supplier companies, themselves forced to raise unit prices to unsustainable levels as their own order-book shrank.

With the shrinkage of sectors such as the caravan and static-home industry, the low-cost boat sector, and areas such as domestic furniture, much of UK light engineering lost both its gravitas and capabilities as its regional and national economic importance declined.

However, given that most things automotive, especially the glamorous end, has such an emotive pull on the heartstrings, examples of a renaissance are seen time and again. This when either the owner-sponsor has enough wealth and business 'nounce' to create a strong commercial entity, or when the product hits a market sweet-spot.  

This seen with the expansion of Ginetta under Lawrence Tomlinson (using funds gained from his successful care-home business), effectively replaying the Peter Wheeler mantle for the Leeds-based marque.  

Whilst BAC appears to be re-expanding with presumable efforts to reach further into export markets and evolve and evolve beyond its core single-seater (ie 'monoposto') product.

But recently the two new and revived names to appear are Ineos Automotive and TVR Automotive.

The Ineos 4x4 is the well publicised start-up by the oil and chemicals industrialist (and apparently Britain's richest man) Jim Ratcliffe. Having crafted his commercial skills in private equity and successfully integrated a plethora of smaller operational sites within refining and petro-chemicals, he know wishes to create a robust 4x4 utility vehicle in the idiom of the Land Rover Defender – known as Project Grenadier - as 'the original' itself moves onto a new generation using (like JLR siblings and Ford's F-series) an aluminium platform and associated  sub-structures.

[This suggests that to provide the original's 'modularity', that the concept from Ineos Automotive may well be a composite clad body upon steel ladder chassis platform to provide for a 're-balance' of mass, BoM cost, build cost and on/off-road  performance (aided by lower c of g). This was infact the exploratory avenue Land Rover itself prototyped for feasibility research in the mid 1990s at Gaydon's GDEC , various replacement options considered almost every year for decades].

As would be expected, Jim Ratcliffe has been scoping out the availability of government grants for his venture – to make the business model work - and so a portion of Ford;s Bridgend plant in South Wales has been identified as an optimum location for the factory site.

Exactly how the venture pans-out will have to be seen, but it will be intersting to see given the likelihood of competition from EM countries to replicate the original Jeep/Land Rover/LandCruiser vehicle construct in their own and local regional markets.. And of course the size and role expansion of utility side-by-side quad machines and their own plethora of attachment tools, that replicate the ideal of the original Wilks Bros vehicle sketched in the sand at Anglesey.

[NB It may be likely that Ratcliffe seeks to obtain Land Rover Defender name licensing rights if and when the vehicle is built; whether as direct copy of Defender or as to meet any exacting new Land Rover build standards derived from that 1990s 'plastic prototype'].

Whatever the exact details of the business model, the parent companies £4.2bn underlying profit will help reduce its remaining debt pile and help substantially fund Project Grenadier.

At the opposite end of the spectrum is the rebirth of TVR. This led since 2013 by Les Edgar, who himself gained his wealth in the video entertainment industry through various enterprises and most notably Bullfrog Productions.

As a keen motorsport participant – racing Aston Martins as a privateer – he purchased the remains (not ongoing concern) of TVR from the Russian Nikolai Smolenski. The fact that the transition 'back to the UK' was so “straightforward” indicates that Smolenski had done little besides sit in the name for years hoping for a higher price when sold than when purchased, awaiting the economic up-turn.

The deal done, Edgar likewise sought out a Welsh factory site for the ideal of a regional development grant from the Welsh Assembly. His idea being inland in Ebbw Vale on the edge of the Breacon Beacons national park, which itself requires new employment opportunities. (Obviously the TVR old-guard would prefer Blackpool, which itself has an enormous 'army' of unemployed).

That deal was done a year ago with the  Welsh government providing a £0.5m payment for for 3% of the company - so a value then of £16.666m -  and a further 2m loan. However, the funding is drawn from EU sources which required a pan-EH tender process for the new factory site, so complicating matters; and delaying the completion of the plant and so schedule for SoP. The earliest possibility being likely for 2020.

Edgar contracted Gordon Murray Design to design the new (Ford Cosworth engined) 3^rd generation Griffith coupe (second bodystyle), no doubt to add credibility through association, and ensure a matured aesthetic; though with obvious cosmetic influences.

(Though the verbage about “ground effect” appears somewhat over-blown technical-marketing given its 'real-world' ride height, and so highly questionable, especially given the absence of ground-scraping front aero-dam and side-skirts to ensure cleanly channeled air with functional venturi vacuum. There is all-round aero treatment, but not architypical 'ground-effect' for carB this the very opposite of the term 'ground-effect' of very  low-level air-ride ekranoplans.)

The offering is as a “useable” sportscar with less exterior and interior novelty and ostentatiousness than the well loved Wheeler era cars, but with an aggressive audible character. Thus it seeks to deliberately espouse a schizophrenic aura, somewhat restrained bodyform with a big bang engine note; so positioned closer to that of a more aggressive enlarged Jaguar F-type. with respective AMG/McLaren and Corvette/Toyota front and rear overtones. Though obviously readily adaptable to aero add-on track modification.

But the construction method remains the same, as it has done for nigh on 60 years , even if labelled as (Murray's) iStream process with few carbon-fibre income between the braces.. A steel semi-space-frame clad with composite panels; it still remains the most cost-effective solution for the production of niche volume vehicles and so reduces repair and insurance costs to the owner-driver, compared to more exotic exterior materials.

Exactly how Edgar and 'new TVR' fares remains to be seen, but his route with a substantive PR push so early on in the business's existence, appears the obverse of Wheeler's approach previously, who set the old Blackpool factory straight first (personnel to procurement to powertrain) growing the brand slowly and organically from largely internal competence rather than bought-in consulting. But we arguably live in a different era, where 'loud is proud' from the get-go via social media, and God-like designer personas are immediate prospective clients attraction. And so Edgar's approach is only to be expected.

However, whilst as 'sexy' as it externally appears to many from prospective clients to prospective investors, the UK niche vehicle industry remains a harsh landscape to harvest profitably.

Old names like Lister have been revived for historical racing, whilst new names like (the retro-esque) Climax and David Brown sit in incubation stagnancy, and 'electric dreams' like the Lightening GT remain likewise.

[NB it appears that some entrepreneurs (such as possibly Lightening) have sought to simply occupy a specific market space for Sports EVs, to probably simply gain public recognition to boost the goodwill value quotient of their balance sheet, and seek an exit sale to a larger EV-related entity].

Furthermore, as re-iterated by Gillian Tett per the renaissance in American manufacturing; mucrh more focus is required per the after-market potential of increasingly expanded  Service and the concept creation potential of innovative Intellectual Property.

[NB herein we see the likes of Ricardo plc teaming with Roke regards automotive digital security with what seems an unstated but expected ambition beyond initial testing for robustness,. This to replicate Roll-Royce Aero's client support model of through-life service for its jet engines, herein regards cyber-functionality and 'digital resistence' to hacking].

The UK niche vehicle industry should offer a new horizon and opportunity to the poorer regions of the country, and regional development grants/loans look likely to continue to be given.

But (as ever) the possibility of some start-ups simply following the dot.com schema of 'incubation to quick exit sale' is always a hidden business possibility; typically seen where the substance of a small but truly robust operational business appears lacking.

Hence any investor, whether individual, consortium, institutional or even peer-to-peer crowd funding group must do its homework. Closely analysing the dynamics and history of niche vehicles, and take a good long hard look and the macro and micro-level issues, from the regional and global business climate, to the innards of the business, the financial structure,  the market space, competitors and offered product, and much more.

In short, very, very robust due dilligence.

Never be carried away by the dream, glamour or hype.

Henry, Peter and Charles Morgan knew all too well that although their ash-wood body-frames 'grew on trees', money did not; and it was that acuity that allowed Morgan Cars to survive the bad times and prosper in the good.

Automotive sector Investors should heed likewise.