The much improved global TIV seen through-out 2009-10 appears to be somewhat undermined in the short-term by the fiscal contraction moves of China. Whilst long-term optimism is undiminished and large CapEx projects adding to (or indeed re-filling) global capacity continue, a planned slowing of Chinese growth has obvious consequences for not only the domestic demand - which had hitherto off-set the previous Western slowdown – but also commodity exporting EM regions own car-markets given that their economies rely so heavily on Beijing's economic decisions.
As such the growth trends of global TIV will slow and auto-companies must re-play (though to a far lesser degree) the corporate re-alignment exercise. An exercise which must re-balance: production capacity, factory & dealer inventory levels, the client-supply rate and residual pricing. The slackening of demand-pull then has a knock-on effect through the supply chain which must be orchestrated in an orderly manner so as to maintain revenue and earnings traction.
Whereas the Western economic rebound allowed manufacturers to 'ride the wave', boosted by the previoulsy heavy round of cost-cutting, the short-term requires greater 'nuance and fettle' both internally and externally; as opposed to the previous need for swathes of change to ensure previous survival and upturn reaction.
Every BoD well recognises that the enlarged pie of the marketplace will consequentially shrink, thus must either try to maintain market-share or seek bold expansion, and consequentially every BoD and their managers will be re-assessing and re-defining the core of their 'competitive spirit'.
Exactly how that translates is dependent upon the company's own cultural personality, highly influenced by that of its senior individuals. Yet the ever raised stakes of corporate success or failure typically sees a stretching of the moral-code of competitive action, this witnessed especially so in the arena of tactical initiatives intended to undermine a competitor large or small, and argued internally as on the 'supporting-fringe' of the overall corporate strategic ambition.
Hence today, with automakers facing still distressed consumers, a buyer's market in the fleet sector and cautiousness in new-car plans amongst company directors, both volume manufacturers, intermediate manufacturers (such as Jaguar and Aston Martin) and niche producers are having to rely ever more so on marketing and PR to do much of the 'heavy-lifting' required to maintain unit sales.
Marketing and PR are essentially about broadcasting messages, and more often than not a very singular message, to external audiences and various stake-holders. These messages cover a broad span of requirement and intent: from the filing of company activity reports to regulatory bodies or stock exchanges as legal obligation, to the construct of ethereal value-systems that underpin the brand, to the sphere of hard-hitting, contentious issue-based messages that seek to engender an emotional reaction.
Such messages rely upon a mix of pertinence and boldness, but can be separated by their ultimate intent: whether to positively bolster one's own company or to negatively undermine that of the prime competition.
The act of 'antagonism' seems to have been part of the conflict psyche since the dawn of time, part of the pre-human condition which in its more sophisticated form has unfortunately become an unfortunate staple of the modern society and so corporate world. This psychological tool honed by some from the school playground all the way through to the environs of middle-management, in a belief that corporate life reflects war-like conditions. The teachings of Sun-Tzu and other war-craft gurus become the prevailing attitude; dramatising the corporate arena that of a Roman arena.
Hence, the use of contrived antagonism should be considered deeply beforehand, since the underlying implicit messages sent to the competitor is that of creative bankruptcy and self-regarded weakness; let alone the less than virtuous moral and ethical stance.
Of course 'antagonism' per se comes in various forms, all of which sit at varying positions along a broad grey-scale spectrum, from the application of the light-hearted message to that of the dark-hearted.
The following provide four examples where antagonism – at varying points of that grey-scale - has been intentionally deployed to varying degrees of ultimate 'success':
- Audi's confrontational poster campaign versus BMW
- Jaguar's 'hostile-bid' launch of the new XF diesel
- Aston Martin's use of the 'JOTA' moniker
- VW Group's stated desire to acquire FIAT's Alfa Romeo
Audi -
In its least extreme guise antagonism is conveyed as light-hearted banter within peer-company advertising, local advertising standards panels the arbiter of advertising standards rules. A well known American example being the poster/ bill-board-battle between Audi and BMW previously located on Santa Monica Boulevard. Audi used a regular sized bill-board for its then new A4 campaign which posited “Your move BMW”.
Recognising the locational importance of the site, prime for stationary rush hour drivers, BMW 'replied' by temporarily installing a neighbouring bill-board five times the size of Audi's, answering with the strap-line “Checkmate”.
In reaction again, Audi stated “Chess? No thanks, I'd Rather be Driving”. A lacklustre and frankly embarrassing response.
The initial antagonistic strike therefor back-fired heavily.
Jaguar -
Since the provision of corporate life-support from TATA Motors in 2008 (with its £2.3bn acquisition of JLR & £1bn injection) Jaguar Cars has been under mounting pressure to demonstrate its mettle, especially so as the smaller sibling to Land-Rover but with larger potential market-share, and even more since the announcement that an annualised average of £1bn of investment will be ploughed-into JLR over the coming 5 years. JLR is touted to have been TATA's bread-winner in 2010, contributing £1.04bn to its FY2010 results. JLR margins were announced as comparable to that of the German trio – even that of Porsche - but of this, the major contributor was very probably Land Rover given its ASEAN sales success and level of amortised cost. Also, investment-auto-motives suspects that this level of turnaround would have been internally supported to boost JLR's net financial figures as a precursor to the notion of a 2012 IPO, as reported by India's 'Economic Times'.
Beyond Jaguar's restricted 3-car product range, which is far smaller than the segmentally broader & deeper German marques, it also faces the challenge of trying to rebuild its innate 'brand equity' to match its historic 'brand profile'. Jaguar then has no alternative but to be seen to fight hard, by both its paymasters TATA, and for realistic survival in very competitive premium car segments.
As part of this demonstration of worthiness is decided to 'press launch' its new face-lifted '2012' XF in BMW's hometown of Munich – a very considered and intentional display of antagonism. The car was driven wearing its 'camouflage coat' of black-and white, so as not to give-away exacting visual cues, which could, but that camouflage on German soil also conveying its 'war paint'. This idea for Jaguar to assert itself in the German 3's backyard will have been agreed by JLR's TATA supremo Carl-Peter Forster and the company's CEO Ralf Speth. Thus goading their previous employers.
Yet whilst an interesting stunt, generating press-coverage and buoying internal sentiment amongst, it is doubtful that BMW's Reithofer, Daimler's Zetsche or VW-Audi's Winterkorn will be distracted nor quaking at Jaguar's provocation.
However, the innate 'message' was primarily directed not toward the German 3, but toward the investment community and German car buyers. This then will provide 'split-returns'. Whilst the former may recognise the late sector-entry into IL4 cylinder diesel technology as advantageous for Jaguar by opening up an important new sub-segment, the latter will no doubt remain resolutely nationalistic in car-buying habits. This espousing a form of 'Germany unity' vis a vis the EU's Grecian crisis – thus presently seen as innately unpatriotic to buy a foreign brand of vehicle.
The provocative 'Munich Munch' then may provide a useful temporary PR story, but such stances of 'showing one's teeth' must be backed-up by the true ability to compete. And that relies upon a powerful, prurient and very visible translation of that £5bn investment plan.
A recent FT article quoted an Indian consultant as stating that Jaguar's “product range [was] designed by Ford”...”concern now would whether TATA could step up to the mark with the next generation of models”. It should be noted that Jaguar has always maintained an in-house design and development capability, it simply previously used FMC available design-hardware, FMC platforms / components and FMC production facilities to reduce cross the board costs. However, as the consultant rightly points out the onus is now on TATA to provide the technical strategy plan backing.
This investment-auto-motives believes will partly be derived from FIAT-Chrysler given Ratan TATA's close links with FIAT and the 'sporting platform' interplay between Jaguar-Maserati-Alfa Romeo, with Chrysler and a possibly re-emergent Daimler able to derive a 'comfort platform'. (See previous blog-posts conveying this vision in 2008-9). Another Italian-tie being the Jaguar b99 concept produced by Bertone.
The obvious question then is “if Jaguar has such faith in itself then why the constant – and seemingly age old – self-comparison to the Germans?” In nature, a Jaguar sits alone at the top of the predatory hierarchy, it knows its station and has no need to postulate.
Aston Martin Racing -
AMR is the factory racing team and special-edition model developer for Aston Martin; itself formed from AML's desire for race-win kudos and technical-supply capabilities of Prodrive. Since 2005 AMR has participated within the four GT classes (1,2,3,4) running coupe cars and the Le Mans Prototype (LMP1) through a Lola JV in 2009 & 2010. With varying successes AMR has become an increasingly high-profile particpant in European and US motorsport.
In 2010 it created an alliance with JOTA Sport, the race-team arm of the JOTA group of companies, itself only recently created from the race interests of its co-owners, one a well-known businessman with 'fast-track' amateur racing status, the other an AMR factory driver.
However, the JOTA name was not borne from a whim, though no doubt unstated, automotive connoisseurs will now that the name 'Jota' originally applied to a race-edition of Lamborghini's 1960s Muira, then latterly applied to a Diablo in 1995 and more recently in 2008 notionally applied as a moniker for the Murcielago replacement or possibly a Ferrari Enzo type halo-car.
Undoubtedly AML and AMR have been watching the impressive progress made at Lamborghini over the last 10 years, and well know that if the VW-owned Italian firm were to formally return to track racing with a factory-backed team, it would in all probability be called 'JOTA' given the pedigree.
Thus, investment-auto-motives believes that JOTA racing (and possibly the JOTA group of companies) was infact intentionally created as part of a preceding plan so as to take perceptional ownership of the 'JOTA' name (on the race track) and place it squarely into AMR's hands. This then helps to hinder both any plan VW-Lamborghini may have for factory-backed entry into 21st century motorsports, and furthermore hopes to reduce the sales potential of the 2012 'Enzo-type' product produced by the Sant' Agata Bolognese company.
An alternative 'take' on this is that JOTA Sport also seek to actually gain business from VW-Lamborghini, by offering an 'off-the-shelf' racing outfit which could manage its tentative racing affairs, effectively outsourcing the work, and thereby for AMR avoiding the potential of facing a VW-factory created race team, which would possibly piggy-back upon the experience of the Audi LMP team and the Porsche GT teams.
In short, AMR's alliance with JOTA is one of both obvious antagonism but also about 'damage limitation' regards its potential for future motorsports success. For JOTA, there is the possibility of a later-day sell-out to VW-Lamborghini if it can prove its performance as an 'outsourced-outfit'; one that AMR today knows very well.
An interesting case where the antagonism created is done so with the hope of a greater strategic pay-off. How this will be received by the Italians & Germans remains to be seen.
As such, investment-auto-motives believes that AML/AMR should have instead developed its own secondary supportive identity, the pre-planning of such perhaps incorporating another great name of the past from the broad stable of race identities which span man and machine. Just as Audi re-emphasises its Auto Union heritage with the Rosemeyer & Nuvolari names on concept cars, could that race team JV been alternatively creatively developed instead of targeting the jugular of Lamborghini. It may now recognise just how big a threat AML/AMR imagined it to be, and steer a new course head on.
[NB If this scenario plays-out positively - highly debatable – the JOTA outsourcing scenario could feasibly open-up a future strategic alliance between AML and VW-Lamborghini in a post 2016 era, this when the now renewed Ford technical agreement ends. This then adds potential for a 3rd party to join in technical offering to AML alongside Ford and a presently tabled alliance with Daimler. Though it should be noted that VW's interest would very probably only be crystalised as that of an active shareholder - to initially affect competition restrictions versus Porsche, Audi & Lamborghini and be part of an intricate plan of long-term synergies. This scenario still yet long-away].
VW Group -
The foundations of Germany's industrial success has typically been laid by generations of family businesses, few more revered than the Porsche and Piech families. Their members have from birth been moulded to undertake their roles and responsibilities to the company and the country itself.
This necessary attitude – depending upon personality type and standing - can however become overtly brusque, blunt and intentionally antagonistic toward competitors
Volkswagen's Chairman Ferdinand Piech holds high regard, and tends to be pragmatic in outlook and frank when communicating expectations.
So was the case when he claimed that FIAT's ultimate long-term survival and stability lay in liquidating the value of Alfa Romeo, these funds deployed to solidly construct FIAT-Chrysler. It is no secret that Piech has eyed Alfa Romeo for years and the statement was an implicit sell recommendation of Alfa Romeo to VW Group. FIAT's Sergio Marchionne's simple reply was that “it is not for sale” recognising the ploy for what it was, preferring to gain funding from the de-coupling of FIAT's Cars and Industrial divisions and the intended 2012 IPO of Chrysler.
Piech & Marchionne know all to well that the future of FIAT-Chrysler would be boosted enormously if Alfa Romeo could add product quality and corporate operational efficiency to its possession of strong styling and emotive brand – elements that Piech knows VW AG can offer. But Marchionne knows that Alfa is key to supporting the brand ladder, volume pyramid and group technical strategy, the crux of the matter is the need for Alfa to provide both consistent unit margins year-in year-out and stable-growth volume levels.
Piech's antagonistic 'press piece' antagonism was wholly intended to explicitly sway public and investor opinion, deride his competitor when under operating pressure and indeed to keep the notion of an Alfa sale on the theoretical table by always 'planting the seed'. It was a cheap shot but with very broad resonance and possible / eventual implications.
Whether such antics are 'part and parcel' of a successful chairman's method is debatable, but in this instance not unusual given Piech's style and ambition. And it was no doubt the case that the content of his words played well with his executive team, VW Group en mass, the national public pysche and politician's desire to further Germany's industrial reach and economic certainty.
Conclusion:
As seen, intentional antagonism appears in various ways, used for various ends. Its use is believed to be part and parcel of the 'corporate game' and seemingly accords to teachings of Sun-Tzu's 'Art of War' philosophy. It is used in connection with desire for either a specific issue conquest or as part of the long-game in supposedly wearing-away a competitor's resolve.
But unlike armies in the theatre of war, corporations exist in far more complex environments which can in-turn dilute the intended effect, create an unwanted reaction or in this age of corporate responsibility induce negative sentiments from the ever-widening stakeholder community; a community aided by IT and the media-sphere in which the once separate perceptions of investors, consumers and competitors are becoming more aligned and more concentric.
As the West needs to desperately re-build its economic foundations the opportunity for seizing the moment is indeed tempting, but a new era of informal, but well defined 'co-opetition' would be better to assist the prevailing fortunes of most companies, and as a consequence deliver greater stability bolstering corporate valuations, so improving the atmosphere for long-term investor commitment and the stable growth of bond and stock markets.
Now on the verge of a possible global slowdown that could put the West into another reverse gear, the leaders of Western companies should simultaneously try and move the economic gear-lever from 'PARK' to 'DRIVE'. Our mixed-market economies are of course at the behest of capital markets and the volatility still endemic and risk-premium demands means that resurgence will not be automatic. But setting the right ethical business tone will help to ensure it doesn't stall quite as easily as could be the case otherwise. At least in the short-term, such a refreshed positively attuned tactical attitude is one Chairman and CEOs could and should adopt.
Post Script:
In stark contrast to such 'antagonism' comes Ford's decision to retract advertising with the News of the World newspaper given its involvement in numerous phone-hacking cases.
Ford has be seen to have 'done the right thing', though it well recognises that its actions will play-out positively in the eyes of its middle-England customers by 'seizing the moral high-ground'.
Whether a case of good CSR, brand and reputational damage limitation or cynical opportunist PR is open to debate, but it does provide - at least on a surface level – an example of positive corporate leadership, and the very antithesis of being an antagonistic.
Furthermore, it also appears that Rupert Murdoch's closure of the NOTW paper should permit NewsCorp to 're-right' its slipped moral standing, ahead of its UK expansion aims. Aswell of course a re-structure of HR & IT resources within its media, print, web & TV channels.
However, at least the topic of commercial ethics is spotlighted.
Thursday, 7 July 2011
Friday, 1 July 2011
Macro Level Trends - China's Global Acclimatisation – Western Re-Orientation.
Today marks the 90th anniversary of the Communist Party of China, a landmark event reflected by Premier Wen Jaiboa's European visit.
China's previous export mentality of 'cheap and cheerful' low-order manufactured goods has been the heart of the country's growth dynamic over the last decade or so. Yet as is known, the lower cost-base foreign competition of surrounding Asian, ex-CIS & African EM+ countries forces those on China's eastern seaboard to climb the value-ladder, so as to offer better products, generate greater service-led industries, develop a broader more professional B2B framework and ultimately create an advanced internal economy.
That export-led growth has in turn delivered the 'consumption paradise' promised, the import of luxury and aspirational products eagerly snapped-up by the emergent entrepreneurial hoard which now constitutes the 'new millionaires club' aswell as their middle-class employees.
Complimenting the B2C sphere, the B2B arena has generated demand for additional commercial expertise, the rabid competitiveness between Chinese companies seeking Western and Japanese insight into gaining the competitive edge. Thus foreign professional services spanning from accountancy to strategic planning to advertising have been both bought-in and in certain cases absorbed; a typical model being that of Ricardo's creation of an special engineering outfit dedicated to the localised design development of Rover into Roewe, that UK-centric team providing a knowledge-base template for SAIC, its own engineers affiliated to the project-team and latterly the project-based company formally absorbed into SAIC and able to integrate the then MG acquisition from Nanjing Motor.
Since 1976, the end of China's decade-long 'Cultural Revolution' the country has been on a slow but steady course accepting capitalism - though it quite plainly does not view this ideology as mutually connected to the western idea / interpretation of democracy. That slow but steady attitude to fundamental economic and societal change is perhaps the most prevalent reflector of the PRC's desire to maximise its own benefit from the process by controlling the rate of change.
[NB A watershed was reached in 2010 when China overtook the USA in terms of number and value of IPO's launched. The China A share (only) numbering 345 deal value at $71,621m whilst USA had 170 deals valued at $44,487m. Note also that Hong Kong beat the US in value terms, though not number of deals].
In doing so the PRC leadership well recognise that it cannot 'miss a trick' that would either undermine its self-determination and gain. Thus China has known from well before 1976 that it must learn every dimension of modern capitalism's commercial model, from every angle and at every level, whilst also able to mimic for itself the cultural model into which the commercial model is entwined, indeed having taken the lead role of cultural creation for well over a century.
Much has undoubtedly been learnt since 1976, beyond obvious diplomatic fact-finding missions across the world, much was digested when China created its first automotive JVs with the western firms of Jeep, Volkswagen and Citroen. Thus 'global-world' lessons trickled-down from central government to state-run industries, later into the banking & finance arena and then into post-graduate homeland education.
However, it wasn't until the relaxation of student foreign study rules and later tourism freedoms that the ability to truly meaningfully absorb the world at large become a truly powerful route to Chinese learning.
Arguably, one much more advantageous than Japan's experience during its own export drive years since the outward-bound Chinese youth are far less insular than were their Japanese cousins, exposing themselves far more to external influences. In turn they have been veritable cultural and business method 'absorption sponges' of almost everything that comprises the West commercially and culturally - but critically inquisitive to know how those two spheres meet to form what is a hyper-consumeristic, hyper-differentiated and so hyper-sensitive socio-economic sphere.
To this end modern technology has aided enormously, the camera-phone and smart-phone acting as the primary enabling and storage devices to snap photos and video of the world at large. Those devices are now as much in-the-field research tools for Chinese visitors as they are pure communication tools for the average Briton.
All over central London and other major UK cities the many 20-something Chinese who have come to study 'snap-away' at popular cultural artifacts, less so in museums and galleries, more so on the street and particularly in book stores, where the much of the contemporary western world is laid-out pictorially for easy visual & graphic capture. The likes of David Bailey and Lord Litchfield do indeed have 21st century proteges, but instead of creating a photo-montage culture that essentially created the swinging 1960s, today that culture is being viewed and deconstructed for homeland learning and use.
Moreover, whilst not at college many of the Chinese students appear to have day-time, evening and weekend jobs, some working almost daily, and typically in culture-orientated retail outlets such as Starbucks and the like, where not only can they earn, but critically able to informally learn about the methods for running such an enterprise.
[NB whilst no doubt many are wholly legal in mixing their 'learning with earning' ambitions, maintaining visa standards this is an arena which the UK government should inspect to ensure that the conditions of entry are being wholly respected by both student employee and employing corporation, and also investigate any UK citizen employees that act as 'go-betweens'in arranging the said employment, knowingly flouting UK law].
Of course such cultural and commercial absorption has been intrinsic to the growth of global free-trade over the centuries, and so is well recognised. The primary difference is that in today's technologically enabled world, what was once general, informal knowledge accumulation over years has become a knowledge transfer process which although notionally informal on the surface could be argued as far more formalised - albeit subtly so - than ever before.
Hence a very powerful 'Sino-absorption' of outside western and global cultures is being played-out, its three primary forces those of:
1. a highly motivated attitude toward 'extra-curriculae' cultural learning by Chinese-foreign students
2. the ability to collect and transfer the 'DNA' of western popular and commercial culture.
3. an ability to collate and relay that information through formal and informal educational realms in China.
[NB This is the very driven, directed, personal and national attitude to broad-spectrum education that reach well beyond the concept of education in the West. This pro-activity toward understanding 'the real world' stands in stark juxtaposition to the emerging negative attitude toward the UK government's announced university reform. The objectors to this reform posit that higher education's role is as much about personal learning in the philosophical and humanitarian sense, as opposes to the economic imperative that moulds a student for role in working life. This is understandable, but better 'directed learning' inside British academia which couples to the national need is undoubtedly pertinent so as to assist the UK's future.
Greece's present economic woes could indeed be laid at the feet of such idealistic yet also 'head in the sand' thinking. TV news reports show Grecian workers able to explain their plight with rhetorical and poetic prowess, yet that does not create the structural foundations the country's economy requires].
[See postscript for further observation].
The last post mentioned the BBC television programme 'Made in Britain', presented by Evan Davis, highlighting the UK vs China (ie notionally 'developed' vs 'emerging' economies). In the second episode he visited China's “Thames-Town”, a Walt Disney-esque recreation of a notional British town incorporating various styles of period architecture. It sits 30 kilometres outside of Shanghai, as one of 9 satellite New Towns designed to partially resist Shanghai's urban sprawl.
The towns are 'themed': 1 as traditional Chines, 1 as an Eco-town but it is the remaining seven that are of real interest since they are 'themed' (simularcra) of foreign countries: Britain, the USA, Germany, Holland, Sweden, Italian & Spanish. The towns are reportedly near empty, mirroring stage-sets and as such used for wedding-photo backdrops and events. But investment-auto-motives believes that the PRC's leadership's ideology was not to simply create a bigger and better versions of DisneyWorld's EPCOT Centre or a Las Vegas style ''mini-national' entertainment complex, the possibilities go far deeper. Nor do they simply reflect a re-working of Ebenezer Howard's late 19th century new Garden City ideals with internationalist twist.
The belief of investment-auto-motives is that they were planned and created to familiarise the Shanghai populace with the various differing inner-cultures of the West, and as such operate as subtle 'conditioning spaces' or national development 'landing-stages' for Chinese visitors and residents. The towns then are 'half-way' houses to assist the Chinese populace in the foreign cultural absorption necessary to effective business dealing with Americans and Europeans. Equally, no doubt in time these towns will become the preferred new 'homesteads' into which foreign corporations can install their employees.
These towns then become blurred boundaries between China and the Western world, areas in which international business relationships may flourish. The large Volkswagen factory sign that looks over Antig (the German town) infers much.
Furthermore each town has seemingly been planned to reflect a sectorial mini-economy. Just as the German-esque 'Antig' has been devised as an 'Auto-Town' with initial plans for a BMW factory and an F1 track, so the other towns have parallel micro-economy themes, the Spanish version centred around organic agricultural produce. Why import Spanish produce when it can be locally grown and sold to the Chinese consumer as the exact replicant? Moreover, Like Las Vegas and its Little-Venice, it means that these towns can also act as replica tourist destinations; just as an American feels he/she need not actually go to Venice because they've virtually experienced Venice under a roof set in a desert town in the middle of Nevada. The sumulacra becomes the real for the masses; thus the Chinese have indeed absorbed the post-modern thinking of Jean Baudrillard et el.
'Thames Town' was largely built but not connected via rail or substantial road links, though necessarily situated on a major river; very probably so that it can be brought on-stream with a later phase of infrastructure build relative to the progress of the broader national economy and state 5-year plan agenda.
Importantly, investment-auto-motives believes that this international township exercise is part of the Chinese ambition to eventually integrate into the managing and leadership of what are today's Western multi-nationals, but potentially tomorrow's Sino multi-nationals
These illustrations provide the prime examples of the innate psychological and sociological differences that exist between China and the West. What can effectively be phrased as the 'ambition factor'.
That massive 'onward marching' ambition will only serve to reduce; level and tilt the competitive playing-field in China's (and other EM nation's) favour. The historical industrial and economic advantages enjoyed by the west which provided such social and personal comforts and a far more liberal outlook, now shows itself as an innate disadvantage relative to the still very 'hungry' Chinese. The Grecian example today of an unrealistic social attitude toward the power of global competition, could very well if not checked, be the broader Western failure tomorrow, especially so with the danger of 'recession fatigue'.
Western observers may argue that the cost-base of EM regions, especially China has risen markedly over the last decade, diminishing its historic cost advantage and hence the need to climb the value chain - very true. But the primary threat to the West comes from the EM sovereign-states' ability to deploy surplus foreign currency reserves toward deep and rapid expansion of its education sector with very close ties to both old and new industrial and service sectors.
Evan Davis also highlighting the ambition of China's Li-Ning sportswear brand. The company with global ambition has obviously performed a 'copy+' brand strategy that mimicked the logos and retail environments of well-known western counterparts.
Having done that for its domestic market, so seen as the 'Sino-Nike' or similar. The programme was unable to mention the fact that it has created JVs with lesser known French and Italian sports brands, Li-Ning's production facilities used for less-costly manufacture; this then a typical JV arrangement. But what Li-Ning has the potential to do is create premium slots in the Chinese market for its JV partner brands, which having reached a mass-momentum and massive Chinese earnings, could then be used to 'capture' the western markets so dominated by the likes of Nike, Adidas, Puma, Reebok et al.
As one Chinese marketing student here in the UK stated: "all it takes is enough marketing money". Having viewed the western commercial model of media bombardment, that conclusion may be blunt but has a certain truth. The case-study of RedBull / ToroRosso a prime example. It's sponsorship of youth and sporting events providing major brand profile uplift and maintenance, even if advertising directors bemoan the fact that their sophisticated commercial artform developed over decades has been undermined.
However, even though such a simplistic approach may work for a company that pioneered the hi-energy drink to grow and defend its global market share, this approach cannot ensure success in most other fields that have greater maturity, competition and brand nuance.
And the PRC leadership is not so naive as to try and re-play 20th century 'American Cultural Imperialism' for itself, the world is a very different place today. It knows it has the budget muscle to massively integrate, but understanding psychological and cultural nuance allows that monetary force to be directed with greater aplomb, aiding ROCE, ROI and ROE.
China in the 21st century will leverage its fiscal muscle by continuing to domestically import foreign goods whilst simultaneously acquiring the West's weaker, or less well placed and defended national brands, thereby absorbing these foreign 'cultural hearts' and adapt as necessary for domestic fit (eg Roewe, MG, Volvo).
The real question is its ability to commercially and culturally 'retune' these enterprises and their inevitably Chinese made products so as to provide a compelling 'return' value proposition to its foreign export markets.
These examples pertinently relate to cars and thus other consumer goods. But as seen by the desire to absorb and export service sector know-how (eg infrastructure services (eg energy, large IT systems, hi-speed railways etc) the 'paint-by-numbers' type of picture-building is being formed, and the willingness to conquer the English language aswell as advances in language recognition technology means that the Western-Sino cultural divide will be smashed and so carving the way for higher-value professional services offerings in the nominal corporate outsourcing sphere, far beyond the typical call-centre work India amassed.
Whether believable or not at present, the fact is that we are still in the tentative early stages of this Sino ambition, and it may indeed still be decades away. China's future ambition is not of course wholly reliant on western markets as was the case in the past, it's domestic market holds decades of self-propelled growth alone, and a re-run of its western sea-board development within the interior - effectively using Chinese capabilities nigh-on alone - will undoubtedly power the economy.
Yet we plainly see by Premiere Wen Jiaboa's visit to the UK, Germany & Hungary that the Sino ambition is to maintain access to world-class technology, financial centres, commercial learning and to Europe's own CEE 'production platform', China seeing itself as a growing contributor and operator 'behind the scenes' of respected brands headed by the likes of Volkswagen & Siemens, but also playing a similar role for lesser publicly known companies that have leading sector competence and reputations.
[As has been highlighted by the FT, the disparity between the Sino-German trade agreement valued at $15bn and the Sino-British agreement valued at $2.2bn].
To conclude:
investment-auto-motives has laid out the basic aspects of the socio-economic challenge facing Western nations, one in which the innate difference between the cultural mindsets will become evident, the already entrenched 'ambition disparity' now growing due to 'recession fatigue'. Also presented in a very simple explanation is what investment-auto-motives sees as the future commercial 'Sino-strategum' and challenge generated by the global but subtle 'Sino-infusion' which will emerge in the years to come.
This then sets an unavoidable task of 'attitudinal-renewal' for western producers, service providers, governments and indeed private citizens. One that meets the much changed 'New Norm' head-on, and endeavours to maintain the West's advantage in targeted spheres across broad-ranging sectors, thus able to effectively compete in an ever expanding globalised free-trade world.
Here in London last Sunday, Premier Wen Jiaboa and entourage stepped-out of the Mandarin Oriental hotel in Knightsbridge; directly outside stood a an early production model of the as yet unreleased new red coloured Range Rover Evoque.
The intent was to cordially highlight JLR's Chinese production plans and to grow further entente-cordial, yet the Mandarin Oriental's massive facade dwarfed the small premium cross-over, a visual metaphor no doubt very much intended by the PRC.
Whilst the City of London will well be able to meet the challenges of New York and Frankfurt, the UK's regions - and indeed other Western nations - must now try and 'fast-follow' Germany's impressive lead in technological development and Sino commercial exploitation.
In this degree, Land-Rover will provide a strong additional beach-head for JLR and the UK auto-sector, its span from the 'basic bolted' Defender to the 'terrain intelligent' upscale models thus offering the PRC both an alternative to the previously refuted Hummer acquisition deal and access to IPR that will assist its own domestic-brand technical prowess in years to come.
Given the amount of camera phones held by the Premier's supporters, it may come as no surprise if an Evoque clone wearing a Chinese manufacturer's badge appears at the next major domestic show.
For TATA, JLR and those companies that comprise the UK auto-sector an undoubted case of entering a 'Brave New World'; one where an corresponding 'Alpha-Plus' mentality will be unconditionally required.
That starts with Chinese acclimatisation via Confucious, one of its society's roots.
He begins with the ideal of the 'Superior-Man'...whilst Nietzche ended with the 'Super-Man'.
This then philosophical foundation that may well underpin German & Chinese socio-economic strength and their impressive commercial mutuality.
*Post Script
The observation regard the primary differences between Sino and Western attitudes to personal education, and its ultimate effect on national productivity, should be a 'wake-up' call to the West.
Peoples of EM nation's unsurprisingly put great store in learning, an incessant behavior to improve their future personal opportunities; recognising all to well the 'have' and 'have-not' chasm that exists in most EM countries. This then implores them to become 'plugged-into' the needs of the populous typically through local trade etc, but preferably and more formally through educational route toward assisting their nation's economic needs. The critical aspect is that learning is a constant 24/7 imperative throughout all rungs of the social ladder at across the age range. Critically areas of formal learning typically in accounting, engineering, scientific and business management fields is supported by informal learning that contextualises, such as absorbing obtained MBA material from family and friends, this again is contextualised in the real-world by constant observation and discussion relative to current affairs, the financial press and importantly through philosophical economic deconstruction and appraisal of the social and commercial world around them.
This means that EM nation people's tend to be much more inquisitive because they have much more to gain, either through professional advancement inside a corporation if of that ilk, or ideally from their own entrepreneurial efforts that offer potentially far greater personal satisfaction and financial reward.
This then contrasts with the near attitude to learning most western students and indeed professionals hold, learning seen as overtly formally scheduled and related to specific ages. This outcome results from the western belief in a 'work/life' or 'study/life' “balance”, whereas many in the EM populous do not make such a distinction, spare-time devoted to additional study. Furthermore, historically western academia confines to a 'subject narrowness' that provides expertise in a singular discipline – as part of an eased division of labour concept – only the fortunate few who have the resources or personally make the sacrifice to broaden learning later in life.
As a 21 year old Indian, Brazilian or Chinese person well knows they may be studying corporate and business accounting at college, but their social dynamic of friends and family also allow them to absorb a far broader field of learning. Where learning is not a mutually exclusive 9-5 activity, but always part of a desire to see the big-picture and where the personal appetite for a myriad of multi-cultural foreign forms is ravenous.
To summise: in the advanced world education tends to be a formalised 'serial process' of restricted breadth but depth, whilst in EM regions there is a tendency for the formal (western) process to be supplemented by an informal 'layered process' with far greater contextual overlap.
China's previous export mentality of 'cheap and cheerful' low-order manufactured goods has been the heart of the country's growth dynamic over the last decade or so. Yet as is known, the lower cost-base foreign competition of surrounding Asian, ex-CIS & African EM+ countries forces those on China's eastern seaboard to climb the value-ladder, so as to offer better products, generate greater service-led industries, develop a broader more professional B2B framework and ultimately create an advanced internal economy.
That export-led growth has in turn delivered the 'consumption paradise' promised, the import of luxury and aspirational products eagerly snapped-up by the emergent entrepreneurial hoard which now constitutes the 'new millionaires club' aswell as their middle-class employees.
Complimenting the B2C sphere, the B2B arena has generated demand for additional commercial expertise, the rabid competitiveness between Chinese companies seeking Western and Japanese insight into gaining the competitive edge. Thus foreign professional services spanning from accountancy to strategic planning to advertising have been both bought-in and in certain cases absorbed; a typical model being that of Ricardo's creation of an special engineering outfit dedicated to the localised design development of Rover into Roewe, that UK-centric team providing a knowledge-base template for SAIC, its own engineers affiliated to the project-team and latterly the project-based company formally absorbed into SAIC and able to integrate the then MG acquisition from Nanjing Motor.
Since 1976, the end of China's decade-long 'Cultural Revolution' the country has been on a slow but steady course accepting capitalism - though it quite plainly does not view this ideology as mutually connected to the western idea / interpretation of democracy. That slow but steady attitude to fundamental economic and societal change is perhaps the most prevalent reflector of the PRC's desire to maximise its own benefit from the process by controlling the rate of change.
[NB A watershed was reached in 2010 when China overtook the USA in terms of number and value of IPO's launched. The China A share (only) numbering 345 deal value at $71,621m whilst USA had 170 deals valued at $44,487m. Note also that Hong Kong beat the US in value terms, though not number of deals].
In doing so the PRC leadership well recognise that it cannot 'miss a trick' that would either undermine its self-determination and gain. Thus China has known from well before 1976 that it must learn every dimension of modern capitalism's commercial model, from every angle and at every level, whilst also able to mimic for itself the cultural model into which the commercial model is entwined, indeed having taken the lead role of cultural creation for well over a century.
Much has undoubtedly been learnt since 1976, beyond obvious diplomatic fact-finding missions across the world, much was digested when China created its first automotive JVs with the western firms of Jeep, Volkswagen and Citroen. Thus 'global-world' lessons trickled-down from central government to state-run industries, later into the banking & finance arena and then into post-graduate homeland education.
However, it wasn't until the relaxation of student foreign study rules and later tourism freedoms that the ability to truly meaningfully absorb the world at large become a truly powerful route to Chinese learning.
Arguably, one much more advantageous than Japan's experience during its own export drive years since the outward-bound Chinese youth are far less insular than were their Japanese cousins, exposing themselves far more to external influences. In turn they have been veritable cultural and business method 'absorption sponges' of almost everything that comprises the West commercially and culturally - but critically inquisitive to know how those two spheres meet to form what is a hyper-consumeristic, hyper-differentiated and so hyper-sensitive socio-economic sphere.
To this end modern technology has aided enormously, the camera-phone and smart-phone acting as the primary enabling and storage devices to snap photos and video of the world at large. Those devices are now as much in-the-field research tools for Chinese visitors as they are pure communication tools for the average Briton.
All over central London and other major UK cities the many 20-something Chinese who have come to study 'snap-away' at popular cultural artifacts, less so in museums and galleries, more so on the street and particularly in book stores, where the much of the contemporary western world is laid-out pictorially for easy visual & graphic capture. The likes of David Bailey and Lord Litchfield do indeed have 21st century proteges, but instead of creating a photo-montage culture that essentially created the swinging 1960s, today that culture is being viewed and deconstructed for homeland learning and use.
Moreover, whilst not at college many of the Chinese students appear to have day-time, evening and weekend jobs, some working almost daily, and typically in culture-orientated retail outlets such as Starbucks and the like, where not only can they earn, but critically able to informally learn about the methods for running such an enterprise.
[NB whilst no doubt many are wholly legal in mixing their 'learning with earning' ambitions, maintaining visa standards this is an arena which the UK government should inspect to ensure that the conditions of entry are being wholly respected by both student employee and employing corporation, and also investigate any UK citizen employees that act as 'go-betweens'in arranging the said employment, knowingly flouting UK law].
Of course such cultural and commercial absorption has been intrinsic to the growth of global free-trade over the centuries, and so is well recognised. The primary difference is that in today's technologically enabled world, what was once general, informal knowledge accumulation over years has become a knowledge transfer process which although notionally informal on the surface could be argued as far more formalised - albeit subtly so - than ever before.
Hence a very powerful 'Sino-absorption' of outside western and global cultures is being played-out, its three primary forces those of:
1. a highly motivated attitude toward 'extra-curriculae' cultural learning by Chinese-foreign students
2. the ability to collect and transfer the 'DNA' of western popular and commercial culture.
3. an ability to collate and relay that information through formal and informal educational realms in China.
[NB This is the very driven, directed, personal and national attitude to broad-spectrum education that reach well beyond the concept of education in the West. This pro-activity toward understanding 'the real world' stands in stark juxtaposition to the emerging negative attitude toward the UK government's announced university reform. The objectors to this reform posit that higher education's role is as much about personal learning in the philosophical and humanitarian sense, as opposes to the economic imperative that moulds a student for role in working life. This is understandable, but better 'directed learning' inside British academia which couples to the national need is undoubtedly pertinent so as to assist the UK's future.
Greece's present economic woes could indeed be laid at the feet of such idealistic yet also 'head in the sand' thinking. TV news reports show Grecian workers able to explain their plight with rhetorical and poetic prowess, yet that does not create the structural foundations the country's economy requires].
[See postscript for further observation].
The last post mentioned the BBC television programme 'Made in Britain', presented by Evan Davis, highlighting the UK vs China (ie notionally 'developed' vs 'emerging' economies). In the second episode he visited China's “Thames-Town”, a Walt Disney-esque recreation of a notional British town incorporating various styles of period architecture. It sits 30 kilometres outside of Shanghai, as one of 9 satellite New Towns designed to partially resist Shanghai's urban sprawl.
The towns are 'themed': 1 as traditional Chines, 1 as an Eco-town but it is the remaining seven that are of real interest since they are 'themed' (simularcra) of foreign countries: Britain, the USA, Germany, Holland, Sweden, Italian & Spanish. The towns are reportedly near empty, mirroring stage-sets and as such used for wedding-photo backdrops and events. But investment-auto-motives believes that the PRC's leadership's ideology was not to simply create a bigger and better versions of DisneyWorld's EPCOT Centre or a Las Vegas style ''mini-national' entertainment complex, the possibilities go far deeper. Nor do they simply reflect a re-working of Ebenezer Howard's late 19th century new Garden City ideals with internationalist twist.
The belief of investment-auto-motives is that they were planned and created to familiarise the Shanghai populace with the various differing inner-cultures of the West, and as such operate as subtle 'conditioning spaces' or national development 'landing-stages' for Chinese visitors and residents. The towns then are 'half-way' houses to assist the Chinese populace in the foreign cultural absorption necessary to effective business dealing with Americans and Europeans. Equally, no doubt in time these towns will become the preferred new 'homesteads' into which foreign corporations can install their employees.
These towns then become blurred boundaries between China and the Western world, areas in which international business relationships may flourish. The large Volkswagen factory sign that looks over Antig (the German town) infers much.
Furthermore each town has seemingly been planned to reflect a sectorial mini-economy. Just as the German-esque 'Antig' has been devised as an 'Auto-Town' with initial plans for a BMW factory and an F1 track, so the other towns have parallel micro-economy themes, the Spanish version centred around organic agricultural produce. Why import Spanish produce when it can be locally grown and sold to the Chinese consumer as the exact replicant? Moreover, Like Las Vegas and its Little-Venice, it means that these towns can also act as replica tourist destinations; just as an American feels he/she need not actually go to Venice because they've virtually experienced Venice under a roof set in a desert town in the middle of Nevada. The sumulacra becomes the real for the masses; thus the Chinese have indeed absorbed the post-modern thinking of Jean Baudrillard et el.
'Thames Town' was largely built but not connected via rail or substantial road links, though necessarily situated on a major river; very probably so that it can be brought on-stream with a later phase of infrastructure build relative to the progress of the broader national economy and state 5-year plan agenda.
Importantly, investment-auto-motives believes that this international township exercise is part of the Chinese ambition to eventually integrate into the managing and leadership of what are today's Western multi-nationals, but potentially tomorrow's Sino multi-nationals
These illustrations provide the prime examples of the innate psychological and sociological differences that exist between China and the West. What can effectively be phrased as the 'ambition factor'.
That massive 'onward marching' ambition will only serve to reduce; level and tilt the competitive playing-field in China's (and other EM nation's) favour. The historical industrial and economic advantages enjoyed by the west which provided such social and personal comforts and a far more liberal outlook, now shows itself as an innate disadvantage relative to the still very 'hungry' Chinese. The Grecian example today of an unrealistic social attitude toward the power of global competition, could very well if not checked, be the broader Western failure tomorrow, especially so with the danger of 'recession fatigue'.
Western observers may argue that the cost-base of EM regions, especially China has risen markedly over the last decade, diminishing its historic cost advantage and hence the need to climb the value chain - very true. But the primary threat to the West comes from the EM sovereign-states' ability to deploy surplus foreign currency reserves toward deep and rapid expansion of its education sector with very close ties to both old and new industrial and service sectors.
Evan Davis also highlighting the ambition of China's Li-Ning sportswear brand. The company with global ambition has obviously performed a 'copy+' brand strategy that mimicked the logos and retail environments of well-known western counterparts.
Having done that for its domestic market, so seen as the 'Sino-Nike' or similar. The programme was unable to mention the fact that it has created JVs with lesser known French and Italian sports brands, Li-Ning's production facilities used for less-costly manufacture; this then a typical JV arrangement. But what Li-Ning has the potential to do is create premium slots in the Chinese market for its JV partner brands, which having reached a mass-momentum and massive Chinese earnings, could then be used to 'capture' the western markets so dominated by the likes of Nike, Adidas, Puma, Reebok et al.
As one Chinese marketing student here in the UK stated: "all it takes is enough marketing money". Having viewed the western commercial model of media bombardment, that conclusion may be blunt but has a certain truth. The case-study of RedBull / ToroRosso a prime example. It's sponsorship of youth and sporting events providing major brand profile uplift and maintenance, even if advertising directors bemoan the fact that their sophisticated commercial artform developed over decades has been undermined.
However, even though such a simplistic approach may work for a company that pioneered the hi-energy drink to grow and defend its global market share, this approach cannot ensure success in most other fields that have greater maturity, competition and brand nuance.
And the PRC leadership is not so naive as to try and re-play 20th century 'American Cultural Imperialism' for itself, the world is a very different place today. It knows it has the budget muscle to massively integrate, but understanding psychological and cultural nuance allows that monetary force to be directed with greater aplomb, aiding ROCE, ROI and ROE.
China in the 21st century will leverage its fiscal muscle by continuing to domestically import foreign goods whilst simultaneously acquiring the West's weaker, or less well placed and defended national brands, thereby absorbing these foreign 'cultural hearts' and adapt as necessary for domestic fit (eg Roewe, MG, Volvo).
The real question is its ability to commercially and culturally 'retune' these enterprises and their inevitably Chinese made products so as to provide a compelling 'return' value proposition to its foreign export markets.
These examples pertinently relate to cars and thus other consumer goods. But as seen by the desire to absorb and export service sector know-how (eg infrastructure services (eg energy, large IT systems, hi-speed railways etc) the 'paint-by-numbers' type of picture-building is being formed, and the willingness to conquer the English language aswell as advances in language recognition technology means that the Western-Sino cultural divide will be smashed and so carving the way for higher-value professional services offerings in the nominal corporate outsourcing sphere, far beyond the typical call-centre work India amassed.
Whether believable or not at present, the fact is that we are still in the tentative early stages of this Sino ambition, and it may indeed still be decades away. China's future ambition is not of course wholly reliant on western markets as was the case in the past, it's domestic market holds decades of self-propelled growth alone, and a re-run of its western sea-board development within the interior - effectively using Chinese capabilities nigh-on alone - will undoubtedly power the economy.
Yet we plainly see by Premiere Wen Jiaboa's visit to the UK, Germany & Hungary that the Sino ambition is to maintain access to world-class technology, financial centres, commercial learning and to Europe's own CEE 'production platform', China seeing itself as a growing contributor and operator 'behind the scenes' of respected brands headed by the likes of Volkswagen & Siemens, but also playing a similar role for lesser publicly known companies that have leading sector competence and reputations.
[As has been highlighted by the FT, the disparity between the Sino-German trade agreement valued at $15bn and the Sino-British agreement valued at $2.2bn].
To conclude:
investment-auto-motives has laid out the basic aspects of the socio-economic challenge facing Western nations, one in which the innate difference between the cultural mindsets will become evident, the already entrenched 'ambition disparity' now growing due to 'recession fatigue'. Also presented in a very simple explanation is what investment-auto-motives sees as the future commercial 'Sino-strategum' and challenge generated by the global but subtle 'Sino-infusion' which will emerge in the years to come.
This then sets an unavoidable task of 'attitudinal-renewal' for western producers, service providers, governments and indeed private citizens. One that meets the much changed 'New Norm' head-on, and endeavours to maintain the West's advantage in targeted spheres across broad-ranging sectors, thus able to effectively compete in an ever expanding globalised free-trade world.
Here in London last Sunday, Premier Wen Jiaboa and entourage stepped-out of the Mandarin Oriental hotel in Knightsbridge; directly outside stood a an early production model of the as yet unreleased new red coloured Range Rover Evoque.
The intent was to cordially highlight JLR's Chinese production plans and to grow further entente-cordial, yet the Mandarin Oriental's massive facade dwarfed the small premium cross-over, a visual metaphor no doubt very much intended by the PRC.
Whilst the City of London will well be able to meet the challenges of New York and Frankfurt, the UK's regions - and indeed other Western nations - must now try and 'fast-follow' Germany's impressive lead in technological development and Sino commercial exploitation.
In this degree, Land-Rover will provide a strong additional beach-head for JLR and the UK auto-sector, its span from the 'basic bolted' Defender to the 'terrain intelligent' upscale models thus offering the PRC both an alternative to the previously refuted Hummer acquisition deal and access to IPR that will assist its own domestic-brand technical prowess in years to come.
Given the amount of camera phones held by the Premier's supporters, it may come as no surprise if an Evoque clone wearing a Chinese manufacturer's badge appears at the next major domestic show.
For TATA, JLR and those companies that comprise the UK auto-sector an undoubted case of entering a 'Brave New World'; one where an corresponding 'Alpha-Plus' mentality will be unconditionally required.
That starts with Chinese acclimatisation via Confucious, one of its society's roots.
He begins with the ideal of the 'Superior-Man'...whilst Nietzche ended with the 'Super-Man'.
This then philosophical foundation that may well underpin German & Chinese socio-economic strength and their impressive commercial mutuality.
*Post Script
The observation regard the primary differences between Sino and Western attitudes to personal education, and its ultimate effect on national productivity, should be a 'wake-up' call to the West.
Peoples of EM nation's unsurprisingly put great store in learning, an incessant behavior to improve their future personal opportunities; recognising all to well the 'have' and 'have-not' chasm that exists in most EM countries. This then implores them to become 'plugged-into' the needs of the populous typically through local trade etc, but preferably and more formally through educational route toward assisting their nation's economic needs. The critical aspect is that learning is a constant 24/7 imperative throughout all rungs of the social ladder at across the age range. Critically areas of formal learning typically in accounting, engineering, scientific and business management fields is supported by informal learning that contextualises, such as absorbing obtained MBA material from family and friends, this again is contextualised in the real-world by constant observation and discussion relative to current affairs, the financial press and importantly through philosophical economic deconstruction and appraisal of the social and commercial world around them.
This means that EM nation people's tend to be much more inquisitive because they have much more to gain, either through professional advancement inside a corporation if of that ilk, or ideally from their own entrepreneurial efforts that offer potentially far greater personal satisfaction and financial reward.
This then contrasts with the near attitude to learning most western students and indeed professionals hold, learning seen as overtly formally scheduled and related to specific ages. This outcome results from the western belief in a 'work/life' or 'study/life' “balance”, whereas many in the EM populous do not make such a distinction, spare-time devoted to additional study. Furthermore, historically western academia confines to a 'subject narrowness' that provides expertise in a singular discipline – as part of an eased division of labour concept – only the fortunate few who have the resources or personally make the sacrifice to broaden learning later in life.
As a 21 year old Indian, Brazilian or Chinese person well knows they may be studying corporate and business accounting at college, but their social dynamic of friends and family also allow them to absorb a far broader field of learning. Where learning is not a mutually exclusive 9-5 activity, but always part of a desire to see the big-picture and where the personal appetite for a myriad of multi-cultural foreign forms is ravenous.
To summise: in the advanced world education tends to be a formalised 'serial process' of restricted breadth but depth, whilst in EM regions there is a tendency for the formal (western) process to be supplemented by an informal 'layered process' with far greater contextual overlap.
Friday, 24 June 2011
Macro Level Trends - UK Auto-Industry - Government Assistance: Granting Pertinent Patronage.
As has been well publicised and recognised, the UK is moving through perhaps an unprecedented period in its economic history. It is one - as the national agenda rhetoric highlights - in which the country must quite literally 're-produce' itself, a re-orientation of national productivity that increasingly counter-balances sectors such as financial, retail and services, toward that which has greater industrial content.
The coalition government now seeks to address this issue, but must also do so relative to the character and dynamics of the UK's capital markets, those crucially 'systemic' arenas that prove themselves to be such boosters or barriers to industrial innovation; though in practice it is the sentiment and actions of the intermediary banking sector, institutional investors, hedge-funds and indeed stakeholder company directors that are the ultimate arbiters of success or failure, depending upon their incentives and indeed executive and managerial capabilities.
The fundamentals of economic theory dictates that capital is automatically drawn to those companies which best perform for the stock-holder, and withdrawn from those that do not perform. Yet reality and theory have been proven time and again to be out-of-kilter.
At the micro-level an example might be the ability to 'window-dress' effectively for an IPO launch guided by an influential NomAd might bring-in an oversubscribed book-run so able to either pitch a higher listing price or sell a greater number of shares. Whilst at the macro-level the ramifications of (typically geo-political) 'Black Swans' massively affect market bearishness, and so the ability to finance or re-finance.
Whilst capital markets are re-energised and corporates view stock-buy backs as best use of their cash-piles, the after-effects of the massive volatility created by the 'Great Recession' is still undoubtedly with us, and has created sub-surface ripples that have in turn created economic, social and cross-border political fractures. The national government interventionism of 2008/9 that saw administrations 'step-into and save'' to varying degrees systemically important national sectors across the US, UK & Europe. That action in turn led to a markets focus toward the exposure and sustainability of sovereign debt levels, which in turn highlighted the need for varying degrees of national economic re-structuring across the West.
Hence, in physiological terms, we have seen the immediate need and availability of 'financial plasma' (liquidity), superseded by a bandaging of what are essentially open-wound problems, the Grecian case thankfully both the worst and smallest example (relative to national productivity measures, typically GDP).
The notional Western world now ostensibly demonstrates itself as akin to region of 4 very different economic areas, the US, 'core' EU, 'periphery' EU and the 'integrational' EU (the recently joined member countries). The European financial implosion means that the previous economic ties created in the 1990s and 2000s are today being politically tested, Germany of course acting as the EU guardian.
Set within this western context, there may be yet another dichotomy growing, possibly creating yet another area of interest conflict.
It involves the increasingly global (ie EM) outlook of the corporate profit agenda set against the structural timeline necessary for many western countries to 're-inflate' themselves. This time around, those countries cannot necessarily rely on the previously expected 're-buoying' of their economies by the multi-national corporates.
[NB An example is GM, global-reach in nature but in a cyclical sector and so cannot escape the global headwind, thus for the last 3 months slipping 10% below its IPO launch price and so undermining short-term stock purchase and thus now negating the idea of a powerful 'productivity push'].
This then puts greater onus on national-centric SME's and governmental ability to orchestrate economic re-inflation.
Whilst the liquidity for SMEs has improved their typically right conservative mindset means that business are running intentionally as self-funding enterprises, arguably limiting their growth potential but also importantly limiting their exposure to business risk during this slow-growth period. The drip-fed liquidity passing through the banking sector at the behest of government toward SMEs appears to be being proactively worked by investment banking to push M&A activity in the SME realm, a greater opportunity for faster growth - on paper at least - through mergers and acquisitions.
However, even with the M&A upturn, such a picture of slow growth across much of the West typically generates calls for further governmental economic expansion efforts.
The UK's industrial base is undoubtedly back in the spot-light, the BBC tasked to 'educate, inform and entertain' giving us a nation-trotting Evan Davis to demonstrate that our apparent post-industrial age still has gleaming examples of world-class manufacture. Cited examples: BAe, GKN, McLaren, Land Rover and Brompton bicycles.
The programme titled 'Made in Britain' then is a blatant and very necessary exercise to re-generate national self-belief.
But equally it should not unintendedly and accidentally deceive, as may have been the case with the illustration of 'superior brazing' technique on Brompton's bicycle frames. Brazing whilst a craft of sorts is in real terms a world-wide, low-value, labour intensive applicational activity; something that can be seen from the street repair shops of India to the factories of China. What may be described as a 'premium quality' lost craft in the West is anything but in the rest of the world – a staple of everyday manufacture and repair.
The first episode was however peppered with further contradictions of its broader argument. Including the fact that high-value manufacturing employs less workers, so is not an automatic answer for the unskilled jobless and unskilled. And that the housing boom swallowed much of the lost industrial heartland via property development, when that boom actually gave a new lease of life for what were defunct character buildings; a sizable proportion of the New Labour funded 'new business' schemes using such properties flailing as white elephants as a result of poor business acumen / execution].
'Made in Britain' was not of course tasked to provide a truly reflective assessment of each company within regional & global competitive contexts, (ie to demonstrate UK manufacturing within the detailed global scheme of things).
This is however, industry's & government's role.
As such Whitehall mandarins will find themselves posited between those optimistic (television & factory tour) demonstrations of UK technical prowess and advantage, whilst simultaneously pressured for "vital" financial and general assistance. Companies doing so will subtly and knowingly convey themselves as 'regional heros' and even 'nation-savers'.
When it was necessary the UK government stepped into the fray to support the economy and important manufacturing sectors. Monies have historically been directed to support both 'supply-side' and 'demand-side' aspects, the most obvious being incentive 'green-field' and 'brown-field' developments' for large VMs such as Nissan, Honda & BMW Mini, whilst latterly the vehicle scrappage scheme which spurred the automotive retail sector.
Government assistance then is most visibly directed at large scale business, attracting and keeping multi-nationals that play a major part in the national economy by virtue of their export value, and in the regional economy by virtue of the trickle-down of workers' earnings into housing, shopping and leisure activities in the region.
At the polar opposite government rightly directs funds toward R&D aimed at true and directly applicable 'breakthrough' learning and technologies which can provide the UK with the potential for international competitive advantage.
What government should not be called to do is to act in the role of a business support device for those medium-sized companies that operate in the broad middle-ground, yet over the years have failed to prove themselves as truly capable by virtue of comparison against their international peer group. Such companies will have probably been established for decades to reach such operational maturity, yet have not created the firm foundations required from which soundly judged expansion can proceed. Such companies typically outwardly espouse a specialist capability that differentiates itself from competitors, yet their histories may show multiple expansions and contractions in that middle ground, which have proven unsustainable, to the detriment of not only the growth prospects of the firm, but to the stability of employees at all levels, and as such probably not served as the economic cornerstone to its region, and the broader economy
Such firms will have instead been through multiple 're-generations', the financing made available very probably based upon the historic goodwill, and / or initial achievements, of the brand. But in contrast to a well orchestrated and proven rise to superiority over its competitors (through technical & operational competence) such firms have proven themselves to time after time failed to deliver their rhetoric.
Unfortunately, many quarters of the City (& Wall St et al) tend to have an overtly warm-hearted attitude toward the fringes of the auto-sector, especially those that operate in the 'sexy' arena of motorsports, sportscars and luxury cars; unsurprising given that such expensive products and event past-times hold such personal appeal to a coterie of bankers or private equity executives etc. Becoming involved in this sphere where real items of social interest are designed, assembled and driven seems a world away from the 'dryness' of corporate accounts, IRR & ROE rates and the like for say a paper manufacturer or the plethora of service-based companies.
Hence historically a desire to be part of the sector, thus an influential individual or team at that, has often created an air of overt-enthusiasm about the SME auto-company, one in which management can relay overtly optimistic business plans that come under lesser scrutiny than might otherwise be so. Indeed investment professionals can be drawn into believing a company's planned future sales forecasts, these based upon the seeming enormous current or trended sales in a specific sportscar or luxury segment or segments set by the major VMs, accompanied by the legendary phrase "we only need a tiny percentage of that segment".
The fact is that the business plans created by niche manufacturers in the UK have tended to be optimistic so as to make the project and business numbers work. Thus the numerous failings over the years which have both undermined the sector, regional economic confidence and from a Whitehall perspective national economic confidence.
Instead, the better long-term path to 'glory brand' niche vehicle growth has been stewardship by a powerful VM parent. But even this simple formula does not provide automatic success, much depends upon the innate capabilities and (internal political) interests of that parent. Hence we saw Aston-Martin strengthen impressively under Ford's previous ownership, and we witness Rolls-Royce and Bentley grown and now protected by BMW and VW respectively,
In unfortunate stark contrast we see that Lotus Cars has made little true progress (even with its co-company Lotus Engineering as a supposed aid) under Malaysia's largely state-owned Proton. The initial mutual expectancy of Malaysian-UK FDI propelling both the VM's development capabilities to become a global player and the NM's path to Ferrari-like success proving wholly empty over the last 15 years. (Note that F1's Team Lotus and Group Lotus, the holding company of 'Cars and Engineering', are not commercially linked).
Additionally, the success story that was Noble Cars lost its originator in a board-room tussle, whilst the previously 'lost' Ginetta Cars has been reborn thanks the patronage and funds of an entrepreneur who made his wealth in the retirement-home sector. And as a sad recent story has been the fall into administration of that venerable marque Bristol Cars in March this year, now bought by Swiss-based KamKorp, formed as a holding company seeking to mix and match automotive brands and technologies (including Frazer-Nash and ICE & EV, then reportedly sold to China's Xinjiang No1 Tractor Company, a state-owned enterprise).
Two shining examples however appear in the form of McLaren Cars and Morgan Motors, the former demonstrating the ability to commercialise F1 race-track success and the latter ever the demure steward of heyday yesteryear British motoring, though it too offers advanced engineering solutions wrapped in retrospective tailoring.
The automotive sphere is then for the external investor complex indeed, very often ironically the smaller the firm the more complexity, often borne from a mix of unrealistic ambitions mixed and personal/management egos which influence intra-company political infighting and hinder both the strategic and operational. Furthermore, increasing cross-border ownership may also create a frictional effect between owners aswell as owners and managers, though this is not always the case when partial foreign ownership resides with 'hands-off' owners as seen with McLaren and Aston Martin and their Middle-Eastern PE and SWF owners.
It is into this world that government officials and the civil service at large - carrying the promise or intent of assistance - must tread both open eyed and carefully.
The recent call from Lotus Cars for an assistance package highlights the caution required. The Norfolk company was unsuccessful in its 'first-round' application from the £1.4bn Regional Growth Fund. Monies were however provided for JLR, Bentley and Nissan. A 'second-round' application is available to those who were unsuccessful, Lotus now submitted an application for £10m funding as a tiny fraction of a stated £500m business expansion plan. This finance requirement is apparently split as £120m from parent Proton, and £270m of which comes from a conglomerate of Asian banks.
However, add the government's £10m to the seemingly 'assured' pot and it only reaches £400m, thus £100m short. Presumably this would be raised either by seeking notes or debentures from the City, selling additional company shares privately or even by offering a partial IPO. If this is the case it makes no sense for the firm to be legally & no doubt obligation bound to the government for such a small sum. If the business case for a major vehicle portfolio expansion is compelling, so requiring the necessary infrastructure build, then Proton, the Asian banks and the City would be happy to offer the funds more easily than a cash-strapped government, albeit at a higher cost of capital. Equally given the scale of the necessary investment the threat to otherwise 'off-shore' additional assembly jobs (to Magna Steyr in Austria or Valmat in Finland) appears odd.
This then would follow in the footsteps of Jaguar Land Rover's recent £1bn bond offer (@8% yield), and also that of Aston Martin's latter £304m bond offer (@ approx 9% yield). This demonstrates the present buoyancy in the City for backing soundly prepared business cases.
Additionally regards production outsourcing: both Magna Steyr and Valmat would undoubtedly seek to take a greater slice of unit-margin profits recognising they can do in-lieu of a client's CapEx savings. This also goes against the rational that sees Aston Martin relocate its Rapide production from Graz to Gaydon, and Porsche's decision to return its fringe production from Finland to Germany so as to make use of ironically lower cost homeland capacity and production schedules.
Industrial policy-making and any grants that accompany it must of course be both informed, balanced and be critically truly assistant in nature, providing a valuable fiscal resource for both the strategic prospects of the firm in question, and providing an assured trickle-down to other co-related commercial third parties also working in a pioneering field, or able to offer a 'multiplier-effect' through a company's employees to boost the local economy. Ideally both. Thus any single grant provided must make contextual sense, 'inwardly' relative to a truly convincing business rational presented by a firm's executive, and 'outwardly' relative to its socio-economic impact.
The groundwork must be under-taken thoroughly by government departments such as the Business Innovation & Skills (BIS) and its sub-divisional Regional Growth Funds (RGF), acting with the same due-diligence that any professional investor would undertake when parting with large sums.
The required slimming of government staffing to redress the budget deficit should not be used as an excuse when delivering what are now critically valuable public funds into the hands of private industry.
The past has seen a flood of public monies wasted on companies and projects that would have been seen as undeserving by private investment eyes, the then Regional Development Agencies (RDA) whose remit it was to nurture new commerce, but seemingly more adroit at forwarding funds toward enterprises and enterprise ideas which had little in the way of truly critiqued business plans so little hope of survival. The evident moral hazard for public funds channeled via state resources is that the process drives the outcome, when of course the reverse should be the case.
The other danger is that once funds are signed-off and provided, any delay in the work and progress made due to unforeseen occurrences beyond a firm's control (often relating to the actions of 3rd parties) means an ultimate drain of initial cash without agreed delivery. Here, governments can find themselves caught in a situation were they are induced to throw good money after bad to ensure the promised outcome.
Alternatively, having initially been convinced and 'bought-into' a scheme, the very act may well tempt additional private finance which sees government involvement as providing a security blanket of sorts even if not explicitly offered. This only adds to the moral hazard, and can give the incentive to a less than honest firm to stretch-out the work at hand – a well recognised theme that runs from small firm R&D projects to major PPI contracts for IT or construction.
Therefor it seems only sensible that in this age of public funding constraint, the rule-book be re-assessed with a possible tighten of grant provision terms and conditions.
It is stated that investment-auto-motives is unfamiliar with this arena, and has no deep knowledge of the present system, but addenda and possibly even new rules may need to be drafted and inserted into such agreements to ensure that funds are indeed used wisely and have accountability.
Any new rules should have powers that are concomitant to the level of funding sought, and the type of project and company to which they are to be directed. If not already in place, a stepped or tiered governance system providing increasing transparency as the in sum in question rises should be the ethos reflected in the provision structure. The level of oversight should also be tied to the likelihood of enterprise failure, higher propensities to do so more typical relative to start-up and early-phase companies, such as incubator-type efforts or those with typical VC type characteristics.
This is not the place to provide a detailed description of such an improved and more accountable system...but if not already in practice, a very basic yet powerful element should be that any company seeking a grant (or indeed loan or other financial instrument) should be willing to open its books: both submitted accounts [P&L, Balance Sheet & Cash Book) and its management accounts. For standard analysis, and if deemed necessary, forensic-type accounting examination, for the period spanning the former 5 years, or if younger since inception. It should also provide a full description of any sub-divisional companies with agreement that these accounts be also made available for inspection. Equally, the credibility of the BoD and company officers should be reviewed, from both the perspectives of previous general conduct (ie having no 'strikes' against them relative to previous failed businesses, especially questionable collapse) and that a majority percentage of the BoD (possibly 70% or near) have professional track-records that relate directly to the sector the business operates within.
This would be important yet simple matters to review, but ideally the BIS and RGFs would create a due-diligence template based on the prime principles that investment banks and private equity use, with a level of accordant leeway as deemed necessary, thus able to ensure that near best practice or adapted benchmark practice is deployed.
The issue of government grants is a broad and deep issue, but as perhaps an important socio-economic enabler, depending on the business type, the provision of grants might also be connected to the corporate provision of allied new housing schemes in areas of either high-priced housing or of inadequate housing (capacity & standard) within the area. So re-emphasising the kind of yesteryear CSR that has been absent for decades, the loss of that ideal bemoaned when Kraft bought Cadbury given its Bournville village history.
[NB Though this 'social hook' has in recent years been integrated into the planning permission consent requirement relative to major supermarkets' development sites].
The future of the UK's prosperity undoubtedly rests on its ability to reduce its manufacturing cost-base, both for domestic and export demand maximisation and to re-invigorate company accounts so aiding the long-term investment story.
Thus today at a time when government is struggling to pay-down the deficit and maintain public contentment, the provision of government grants to industry should have not only better targeting, oversight and outcome analysis, but critically – as and when feasible - have a social dimension that aids the country's social and economic cohesiveness.
The coalition government now seeks to address this issue, but must also do so relative to the character and dynamics of the UK's capital markets, those crucially 'systemic' arenas that prove themselves to be such boosters or barriers to industrial innovation; though in practice it is the sentiment and actions of the intermediary banking sector, institutional investors, hedge-funds and indeed stakeholder company directors that are the ultimate arbiters of success or failure, depending upon their incentives and indeed executive and managerial capabilities.
The fundamentals of economic theory dictates that capital is automatically drawn to those companies which best perform for the stock-holder, and withdrawn from those that do not perform. Yet reality and theory have been proven time and again to be out-of-kilter.
At the micro-level an example might be the ability to 'window-dress' effectively for an IPO launch guided by an influential NomAd might bring-in an oversubscribed book-run so able to either pitch a higher listing price or sell a greater number of shares. Whilst at the macro-level the ramifications of (typically geo-political) 'Black Swans' massively affect market bearishness, and so the ability to finance or re-finance.
Whilst capital markets are re-energised and corporates view stock-buy backs as best use of their cash-piles, the after-effects of the massive volatility created by the 'Great Recession' is still undoubtedly with us, and has created sub-surface ripples that have in turn created economic, social and cross-border political fractures. The national government interventionism of 2008/9 that saw administrations 'step-into and save'' to varying degrees systemically important national sectors across the US, UK & Europe. That action in turn led to a markets focus toward the exposure and sustainability of sovereign debt levels, which in turn highlighted the need for varying degrees of national economic re-structuring across the West.
Hence, in physiological terms, we have seen the immediate need and availability of 'financial plasma' (liquidity), superseded by a bandaging of what are essentially open-wound problems, the Grecian case thankfully both the worst and smallest example (relative to national productivity measures, typically GDP).
The notional Western world now ostensibly demonstrates itself as akin to region of 4 very different economic areas, the US, 'core' EU, 'periphery' EU and the 'integrational' EU (the recently joined member countries). The European financial implosion means that the previous economic ties created in the 1990s and 2000s are today being politically tested, Germany of course acting as the EU guardian.
Set within this western context, there may be yet another dichotomy growing, possibly creating yet another area of interest conflict.
It involves the increasingly global (ie EM) outlook of the corporate profit agenda set against the structural timeline necessary for many western countries to 're-inflate' themselves. This time around, those countries cannot necessarily rely on the previously expected 're-buoying' of their economies by the multi-national corporates.
[NB An example is GM, global-reach in nature but in a cyclical sector and so cannot escape the global headwind, thus for the last 3 months slipping 10% below its IPO launch price and so undermining short-term stock purchase and thus now negating the idea of a powerful 'productivity push'].
This then puts greater onus on national-centric SME's and governmental ability to orchestrate economic re-inflation.
Whilst the liquidity for SMEs has improved their typically right conservative mindset means that business are running intentionally as self-funding enterprises, arguably limiting their growth potential but also importantly limiting their exposure to business risk during this slow-growth period. The drip-fed liquidity passing through the banking sector at the behest of government toward SMEs appears to be being proactively worked by investment banking to push M&A activity in the SME realm, a greater opportunity for faster growth - on paper at least - through mergers and acquisitions.
However, even with the M&A upturn, such a picture of slow growth across much of the West typically generates calls for further governmental economic expansion efforts.
The UK's industrial base is undoubtedly back in the spot-light, the BBC tasked to 'educate, inform and entertain' giving us a nation-trotting Evan Davis to demonstrate that our apparent post-industrial age still has gleaming examples of world-class manufacture. Cited examples: BAe, GKN, McLaren, Land Rover and Brompton bicycles.
The programme titled 'Made in Britain' then is a blatant and very necessary exercise to re-generate national self-belief.
But equally it should not unintendedly and accidentally deceive, as may have been the case with the illustration of 'superior brazing' technique on Brompton's bicycle frames. Brazing whilst a craft of sorts is in real terms a world-wide, low-value, labour intensive applicational activity; something that can be seen from the street repair shops of India to the factories of China. What may be described as a 'premium quality' lost craft in the West is anything but in the rest of the world – a staple of everyday manufacture and repair.
The first episode was however peppered with further contradictions of its broader argument. Including the fact that high-value manufacturing employs less workers, so is not an automatic answer for the unskilled jobless and unskilled. And that the housing boom swallowed much of the lost industrial heartland via property development, when that boom actually gave a new lease of life for what were defunct character buildings; a sizable proportion of the New Labour funded 'new business' schemes using such properties flailing as white elephants as a result of poor business acumen / execution].
'Made in Britain' was not of course tasked to provide a truly reflective assessment of each company within regional & global competitive contexts, (ie to demonstrate UK manufacturing within the detailed global scheme of things).
This is however, industry's & government's role.
As such Whitehall mandarins will find themselves posited between those optimistic (television & factory tour) demonstrations of UK technical prowess and advantage, whilst simultaneously pressured for "vital" financial and general assistance. Companies doing so will subtly and knowingly convey themselves as 'regional heros' and even 'nation-savers'.
When it was necessary the UK government stepped into the fray to support the economy and important manufacturing sectors. Monies have historically been directed to support both 'supply-side' and 'demand-side' aspects, the most obvious being incentive 'green-field' and 'brown-field' developments' for large VMs such as Nissan, Honda & BMW Mini, whilst latterly the vehicle scrappage scheme which spurred the automotive retail sector.
Government assistance then is most visibly directed at large scale business, attracting and keeping multi-nationals that play a major part in the national economy by virtue of their export value, and in the regional economy by virtue of the trickle-down of workers' earnings into housing, shopping and leisure activities in the region.
At the polar opposite government rightly directs funds toward R&D aimed at true and directly applicable 'breakthrough' learning and technologies which can provide the UK with the potential for international competitive advantage.
What government should not be called to do is to act in the role of a business support device for those medium-sized companies that operate in the broad middle-ground, yet over the years have failed to prove themselves as truly capable by virtue of comparison against their international peer group. Such companies will have probably been established for decades to reach such operational maturity, yet have not created the firm foundations required from which soundly judged expansion can proceed. Such companies typically outwardly espouse a specialist capability that differentiates itself from competitors, yet their histories may show multiple expansions and contractions in that middle ground, which have proven unsustainable, to the detriment of not only the growth prospects of the firm, but to the stability of employees at all levels, and as such probably not served as the economic cornerstone to its region, and the broader economy
Such firms will have instead been through multiple 're-generations', the financing made available very probably based upon the historic goodwill, and / or initial achievements, of the brand. But in contrast to a well orchestrated and proven rise to superiority over its competitors (through technical & operational competence) such firms have proven themselves to time after time failed to deliver their rhetoric.
Unfortunately, many quarters of the City (& Wall St et al) tend to have an overtly warm-hearted attitude toward the fringes of the auto-sector, especially those that operate in the 'sexy' arena of motorsports, sportscars and luxury cars; unsurprising given that such expensive products and event past-times hold such personal appeal to a coterie of bankers or private equity executives etc. Becoming involved in this sphere where real items of social interest are designed, assembled and driven seems a world away from the 'dryness' of corporate accounts, IRR & ROE rates and the like for say a paper manufacturer or the plethora of service-based companies.
Hence historically a desire to be part of the sector, thus an influential individual or team at that, has often created an air of overt-enthusiasm about the SME auto-company, one in which management can relay overtly optimistic business plans that come under lesser scrutiny than might otherwise be so. Indeed investment professionals can be drawn into believing a company's planned future sales forecasts, these based upon the seeming enormous current or trended sales in a specific sportscar or luxury segment or segments set by the major VMs, accompanied by the legendary phrase "we only need a tiny percentage of that segment".
The fact is that the business plans created by niche manufacturers in the UK have tended to be optimistic so as to make the project and business numbers work. Thus the numerous failings over the years which have both undermined the sector, regional economic confidence and from a Whitehall perspective national economic confidence.
Instead, the better long-term path to 'glory brand' niche vehicle growth has been stewardship by a powerful VM parent. But even this simple formula does not provide automatic success, much depends upon the innate capabilities and (internal political) interests of that parent. Hence we saw Aston-Martin strengthen impressively under Ford's previous ownership, and we witness Rolls-Royce and Bentley grown and now protected by BMW and VW respectively,
In unfortunate stark contrast we see that Lotus Cars has made little true progress (even with its co-company Lotus Engineering as a supposed aid) under Malaysia's largely state-owned Proton. The initial mutual expectancy of Malaysian-UK FDI propelling both the VM's development capabilities to become a global player and the NM's path to Ferrari-like success proving wholly empty over the last 15 years. (Note that F1's Team Lotus and Group Lotus, the holding company of 'Cars and Engineering', are not commercially linked).
Additionally, the success story that was Noble Cars lost its originator in a board-room tussle, whilst the previously 'lost' Ginetta Cars has been reborn thanks the patronage and funds of an entrepreneur who made his wealth in the retirement-home sector. And as a sad recent story has been the fall into administration of that venerable marque Bristol Cars in March this year, now bought by Swiss-based KamKorp, formed as a holding company seeking to mix and match automotive brands and technologies (including Frazer-Nash and ICE & EV, then reportedly sold to China's Xinjiang No1 Tractor Company, a state-owned enterprise).
Two shining examples however appear in the form of McLaren Cars and Morgan Motors, the former demonstrating the ability to commercialise F1 race-track success and the latter ever the demure steward of heyday yesteryear British motoring, though it too offers advanced engineering solutions wrapped in retrospective tailoring.
The automotive sphere is then for the external investor complex indeed, very often ironically the smaller the firm the more complexity, often borne from a mix of unrealistic ambitions mixed and personal/management egos which influence intra-company political infighting and hinder both the strategic and operational. Furthermore, increasing cross-border ownership may also create a frictional effect between owners aswell as owners and managers, though this is not always the case when partial foreign ownership resides with 'hands-off' owners as seen with McLaren and Aston Martin and their Middle-Eastern PE and SWF owners.
It is into this world that government officials and the civil service at large - carrying the promise or intent of assistance - must tread both open eyed and carefully.
The recent call from Lotus Cars for an assistance package highlights the caution required. The Norfolk company was unsuccessful in its 'first-round' application from the £1.4bn Regional Growth Fund. Monies were however provided for JLR, Bentley and Nissan. A 'second-round' application is available to those who were unsuccessful, Lotus now submitted an application for £10m funding as a tiny fraction of a stated £500m business expansion plan. This finance requirement is apparently split as £120m from parent Proton, and £270m of which comes from a conglomerate of Asian banks.
However, add the government's £10m to the seemingly 'assured' pot and it only reaches £400m, thus £100m short. Presumably this would be raised either by seeking notes or debentures from the City, selling additional company shares privately or even by offering a partial IPO. If this is the case it makes no sense for the firm to be legally & no doubt obligation bound to the government for such a small sum. If the business case for a major vehicle portfolio expansion is compelling, so requiring the necessary infrastructure build, then Proton, the Asian banks and the City would be happy to offer the funds more easily than a cash-strapped government, albeit at a higher cost of capital. Equally given the scale of the necessary investment the threat to otherwise 'off-shore' additional assembly jobs (to Magna Steyr in Austria or Valmat in Finland) appears odd.
This then would follow in the footsteps of Jaguar Land Rover's recent £1bn bond offer (@8% yield), and also that of Aston Martin's latter £304m bond offer (@ approx 9% yield). This demonstrates the present buoyancy in the City for backing soundly prepared business cases.
Additionally regards production outsourcing: both Magna Steyr and Valmat would undoubtedly seek to take a greater slice of unit-margin profits recognising they can do in-lieu of a client's CapEx savings. This also goes against the rational that sees Aston Martin relocate its Rapide production from Graz to Gaydon, and Porsche's decision to return its fringe production from Finland to Germany so as to make use of ironically lower cost homeland capacity and production schedules.
Industrial policy-making and any grants that accompany it must of course be both informed, balanced and be critically truly assistant in nature, providing a valuable fiscal resource for both the strategic prospects of the firm in question, and providing an assured trickle-down to other co-related commercial third parties also working in a pioneering field, or able to offer a 'multiplier-effect' through a company's employees to boost the local economy. Ideally both. Thus any single grant provided must make contextual sense, 'inwardly' relative to a truly convincing business rational presented by a firm's executive, and 'outwardly' relative to its socio-economic impact.
The groundwork must be under-taken thoroughly by government departments such as the Business Innovation & Skills (BIS) and its sub-divisional Regional Growth Funds (RGF), acting with the same due-diligence that any professional investor would undertake when parting with large sums.
The required slimming of government staffing to redress the budget deficit should not be used as an excuse when delivering what are now critically valuable public funds into the hands of private industry.
The past has seen a flood of public monies wasted on companies and projects that would have been seen as undeserving by private investment eyes, the then Regional Development Agencies (RDA) whose remit it was to nurture new commerce, but seemingly more adroit at forwarding funds toward enterprises and enterprise ideas which had little in the way of truly critiqued business plans so little hope of survival. The evident moral hazard for public funds channeled via state resources is that the process drives the outcome, when of course the reverse should be the case.
The other danger is that once funds are signed-off and provided, any delay in the work and progress made due to unforeseen occurrences beyond a firm's control (often relating to the actions of 3rd parties) means an ultimate drain of initial cash without agreed delivery. Here, governments can find themselves caught in a situation were they are induced to throw good money after bad to ensure the promised outcome.
Alternatively, having initially been convinced and 'bought-into' a scheme, the very act may well tempt additional private finance which sees government involvement as providing a security blanket of sorts even if not explicitly offered. This only adds to the moral hazard, and can give the incentive to a less than honest firm to stretch-out the work at hand – a well recognised theme that runs from small firm R&D projects to major PPI contracts for IT or construction.
Therefor it seems only sensible that in this age of public funding constraint, the rule-book be re-assessed with a possible tighten of grant provision terms and conditions.
It is stated that investment-auto-motives is unfamiliar with this arena, and has no deep knowledge of the present system, but addenda and possibly even new rules may need to be drafted and inserted into such agreements to ensure that funds are indeed used wisely and have accountability.
Any new rules should have powers that are concomitant to the level of funding sought, and the type of project and company to which they are to be directed. If not already in place, a stepped or tiered governance system providing increasing transparency as the in sum in question rises should be the ethos reflected in the provision structure. The level of oversight should also be tied to the likelihood of enterprise failure, higher propensities to do so more typical relative to start-up and early-phase companies, such as incubator-type efforts or those with typical VC type characteristics.
This is not the place to provide a detailed description of such an improved and more accountable system...but if not already in practice, a very basic yet powerful element should be that any company seeking a grant (or indeed loan or other financial instrument) should be willing to open its books: both submitted accounts [P&L, Balance Sheet & Cash Book) and its management accounts. For standard analysis, and if deemed necessary, forensic-type accounting examination, for the period spanning the former 5 years, or if younger since inception. It should also provide a full description of any sub-divisional companies with agreement that these accounts be also made available for inspection. Equally, the credibility of the BoD and company officers should be reviewed, from both the perspectives of previous general conduct (ie having no 'strikes' against them relative to previous failed businesses, especially questionable collapse) and that a majority percentage of the BoD (possibly 70% or near) have professional track-records that relate directly to the sector the business operates within.
This would be important yet simple matters to review, but ideally the BIS and RGFs would create a due-diligence template based on the prime principles that investment banks and private equity use, with a level of accordant leeway as deemed necessary, thus able to ensure that near best practice or adapted benchmark practice is deployed.
The issue of government grants is a broad and deep issue, but as perhaps an important socio-economic enabler, depending on the business type, the provision of grants might also be connected to the corporate provision of allied new housing schemes in areas of either high-priced housing or of inadequate housing (capacity & standard) within the area. So re-emphasising the kind of yesteryear CSR that has been absent for decades, the loss of that ideal bemoaned when Kraft bought Cadbury given its Bournville village history.
[NB Though this 'social hook' has in recent years been integrated into the planning permission consent requirement relative to major supermarkets' development sites].
The future of the UK's prosperity undoubtedly rests on its ability to reduce its manufacturing cost-base, both for domestic and export demand maximisation and to re-invigorate company accounts so aiding the long-term investment story.
Thus today at a time when government is struggling to pay-down the deficit and maintain public contentment, the provision of government grants to industry should have not only better targeting, oversight and outcome analysis, but critically – as and when feasible - have a social dimension that aids the country's social and economic cohesiveness.
Saturday, 18 June 2011
Company Focus - Torotrak - 'Gearless Wonder' or 'Toothless Wonder'?
The early phase plausibility of the divergent fiscal policies between UK and US administrations will be tested in 6 to 12 months time. The real economy of both countries - not simply the 'paper-based' capital markets variety of the City & Wall St - would expect to see green, albeit small, stable economic shoots.
But for the moment the here and now still sits in the realms of Monetarist versus Keynesian theory.
The UK's decision has been to pull-back hard on the reins of national spending...to bite the bullet of harsh but necessary economic retraction...to expectantly deliver a fundamental restructuring of national production & service provision (the reform of NHS & Education most prevalent)...and to avoid Europe's heavy regulatory demands. It is a formula that has worked before under Conservative rule, previous cabinets successively championing the economic growth power of a lassez-faire attitude towards capital and labour markets flexibility.
Similarly the US also holds its breath in this period, but its expansionist view under-pinning its fiscal planning has created a very different situation for itself, and as such is now beyond the cusp of a truly new era. The interconnection of a deepened national budget deficit and the provision of 'free money' (via QE & QE2 prime-pumping exercises) has expectantly buoyed Wall St and so corporate America. That should then support a productivity-push that builds employment and so drives consumer spending. Yet that 'free money' has also contributed to creating a global commodities boom which has stoked input-cost inflation and consequentially reduced already restricted consumer-power.
The run-out of the second of QE exercise is imminent, but Wall St has predictably reacted negatively over recent weeks and given that stock bourses are the de facto economic indicators, by virtue US (and more widespread) economic health has been called into question. This of course noted by Congress and Ben Bernanke alike, no doubt predicted by both. And so this issue has become the prime Washington backdrop, discussion regards the pro's and con's of an extension of the national debt ceiling creating major cracks between ideological left and right. Unsurprisingly, Republican's feel that a metaphorical gun has been put to their heads, whilst Democrats maintain an almost evangelical belief in the ever-extended Keynesian solution. That stance now hardened by the rhetoric of a 'future lost decade' by Larry Summers, whilst Ben Bernanke counters by airing the possibility of QE3, (real or not) intended to muster a new rally in trader sentiment and so avoid an equities slip or even plunge.
These 2 massively divergent pictures then convey the 'slow but steady' UK attitude to new growth versus the more optimistic (naïve yet bombastic) 'Atlantic City' attitude of the US. It is a schism that many UK based yet export orientated medium sized enterprises must factor into their strategic planning. Having to decide the timescale & expansion rates of these two regions relative to their own sector, an increasingly important consideration given the contraction of growth prospects in the well established EM regions.
Torotrak plc is such a company: operating in the arena of mechanical power transmission, it is an IPR innovator, developer and partner-producer of alternative' gearbox systems directed at a range of customers spanning: VMs & Tier 1s of the automotive sector, Off-Highway vehicles such as the construction & agricultural fields, and specialist vehicle applications, such as leisure and functional small vehicles, including off-road buggies, ATVs and ride-on lawn-mowers.
The company's primary UK - US link is evident within its shareholder register, and includes a large US Tier 1 'traditional' gearbox manufacturer, a large UK bank and a number of Nominee companies which legally represent (though some say ''mask') other unknown interests.
It stands in what could be described as the unconventional, notionally 'advanced' realms of mechanical engineering, though base principles offered were developed in the former half of the 20th century - though little deployed given the dominance of standardised principles and systems and parts that came to pass, this primarily driven by the cost-benefit rationality of vehicle planners and the close tie that formed between VMs and their Tier 1s. These 'alternative' gearboxes have been widely used in specialist vehicles from tanks to snowmobiles, had relative success with HGVs, and perhaps had its most memorable car application by DAF (1960s/70s) thereafter used by Volvo on its 360 small car. They have been periodically used by major vehicle manufacturers, though historically done so to either increase in-house learning and experience of CVTs, or to create intentional competitive threat to incumbent suppliers, so as to both gain pricing reductions on standard technologies, to progress their own nominated supplier's R&D, aswell as to demonstrate eco-tech efforts to governments so as to attract financial contribution toward plant build or obtain easement of financial burden.
Torotrak was effectively born in 1988 as a spin-off from the British Technology Group (BTG), a body created to create the conditions for commercial leverage of those patents and IPR that was inside stagnant or declining UK firms - in this case Leyland Trucks
Torotrak describes itself as "the world’s foremost developer of full-toroidal traction drive technology. The company conducts research and develops applications in the field of variable drive transmissions. Torotrak’s continuously variable transmissions (CVT), infinitely variable transmissions (IVT) and variable ratio drive units reduce energy consumption and harmful emissions, whilst also delivering outstanding levels of control, functionality and performance".
Thus, it was established to align intellectual capabilities with the ever necessary VM corporate need for fuel-efficient, CO2 reducing solutions, able to benefit from the eco-engineering challenge that the late 20th and early 21st century posed. An era of corporate-fleet CAFE measurement and reduction in personal carbon footprints, and of notional expensive 'peak-oil' and 'oil-spikes'.
[NB Though the former belief counters the formation of EM's national oil companies, the untapped reserves of Arctic beds and other regions, and the latter typically driven by short-run speculation].
However, nonetheless there is no doubt that 'on-paper' its eco-technological focus, re-emphasising and developing fringe technologies, places Torotrak in a favourable position, to both help save the world and by virtue to offer investor confidence and returns.
To initially create an investor-friendly high profile and so interest, Torotrak was publicly listed in 1998 with an initial capital of £50m. Considering its size it appears as a sardine amongst the whales in its elected sector within the FT's FTSE pink pages, sat as it is amongst leviathans such as VW, Ford, Toyota and GKN Yet it sits most intendedly within 'Autos & Parts', when it could have listed (or swapped) under 'Industrial Engineering', 'Industrial General' or indeed under 'Technology Hardware' had it wanted to experience/play either 'defensiveness' or 'risk-on' sentiment. 'Auto & Parts' avoids these market-shifting vagaries and allows it to stand-out in 'preferred company' – no doubt seeking to gain from the perception of an operational parallel to GKN and its 'ownership' of power-transmitting CV joints, and providing a ranked name-place designed to intentionally reside between GKN & Toyota, the Torotrak name with obvious visual & phonetic similarities to the Japanese corporate name .
As is self-evident, the rational of the initial listing was to inject a core valuation which reflecting the potential of an IPR/Developer -centric company, trying to evoke similar investor attitude as was the case at the time toward Silicon Valley's IT sector.
Undoubtedly, the listing initiative was to trace a valuation growth path so as to become a desirable target. Its final sale valuation to have ideally reflected a combine of both basic company value (assets, IPR value, order book, inventory etc) and gain of an additional price premium effectively auctioned from the competing VM giants, each with historically sizable acquisition pots.
At 'worst', without a trade sale, the company to be sold to Private Equity, and to be used as a bolt-on for broader automotive sector ambitions, or possibly to use it as a 'centrifugal hub' around which could be build (with other bolt-ons) a compelling IPR-leading industrial conglomerate.
However, the commercial reality which underpins an ultimate enterprise value and the investment theory which its accords unfortunately rarely mesh seamlessly; as is seen so often in the eco-tech sphere, given the real-world variables that impact upon investors' final analysis.
In 2000 Toyota retracted from a licensing agreement, GM doing likewise 2 years later. By 2003, the initial business strategy of targeting premium car and SUV sectors had flailed. A new management team was installed, including Dick Elsy (ex original FreeLander Project Director at Land Rover and later at Jaguar Cars)as CEO.
So from this appointment it seems the original and supposedly ended ambition was still secretly on the table, executives and management still hoping for a breakthrough high value contract, whilst presenting itself as broadening the client appeal of its systems by targeting other vehicle segments and sectors.
This necessitating a form of 'reverse-engineering' to try and achieve large design and production cost savings which would be necessary to befit a BOM (Bill of Materials) budget suited to smaller vehicles (at piece cost) and to demonstrate cost effectiveness for use on smaller volume niche vehicles such as in the AG-CON sector and elsewhere.
In 2005 a licence was agreed with Carraro SpA in Italy for application in tractor transmissions. Later that year an agreement was formed with MTD Holding Inc. in Ohio, manufacturers of powered equipment for lawns and gardens, the agreement to form a JV company named Infinitrak LLC for the technologies use on a specific power band of products.
With these wins under its belt Torotrak went back to the capital markets in 2007 to obtain £6.7m via a new equity placement, used to buoy the balance sheet and illustrate the company's sound financial standing to prospective clients. Late 2007 saw a broad, non-exclusive licence agreement formed with India's TATA Motor, the technology notionally ascribed to 4 segments: passenger cars, light goods vehicles, medium & heavy commercial vehicles and construction equipment.
But without a direct vehicle application, or worked into a model development programme, investment-auto-motives considered the apparent 'deal' at the time as little more than a mutually beneficial 'good news' PR story. One that helped to give both companies apparent long-term 'investment legs' at a critical time of liquidity squeeze just before the financial crisis hit. The fact that the CVT-IVT technology has only been notionally ascribed to the 2011 (Nano-like) Pixel concept car (seen at Geneva in March) appears to support the assumption that the TATA relationship has been used as a carrot for investors. Thus it appears that no real-world TATA product using the system has been marketed to date since the 2007 agreement.
In March 2009 an £8.44m licensing agreement was struck with the US company Allison Transmission Inc, simultaneously taking a prime 10% (approx) sharehold at £2.4m (valuing Torotrak at approximately £24m at the time) to develop applications for small & medium-size trucks & buses and taking a non-exclusive arrangement for future large truck applications. Torotrak to receive the monies split over the 2009 & 2010 FY accounting periods. Importantly the deal gave Allison an option to secure worldwide exclusivity across the commercial vehicle arena, excluding previously agreed licences (ie TATA).
Given the TATA and Allison agreements, the outcome appears to be that effective application ownership is realistically split between TATA in India & SE Asia and Allison across the US and RoW. This allows Allison to then able to operationally block any threat from TATA regards the US truck market using the tech as its USP, and provides a counter to Daimler's eco-tech efforts integrated into its own broad European market and its filtration into its American truck brand portfolio. This of assistance to boosting its own IPO hopes reported in late February.
There will of course be payment terms included in the agreements, presumably based on the norm of either an annual royalty or number of CVT-IVT units produced. Given that licensee's typically decline a fixed royalty agreement given the inflexibility of such a fixed cost, although undisclosed outside the company, it is expected that production-linked agreements were formed.
If as expected, this then means that Torotrack is dependent upon TATA and Allison deploying the technology if it is to see an income boost and provide annually income stability.
Herein is the rub.
TATA and Allison have build massive production and sales empires based upon conventional technology gearboxes, each effectively a 'sun' empire around which thousands of privately owned small, medium and large 'satellite' businesses operate in the sphere of gearbox service, repair and re-conditioning. Whilst Europe and Japan consumers and fleet operators have more open views about transmission technologies (given typical dealership attachment - though still largely conservative), the USA and India are effectively entrenched in the 'old world' by virtue of greater distances traveled, and conditions met by cars and trucks and so a need for a broad continental network of relatively local, capable and low-priced repairers knowledgeable of conventional gearbox technology.
On the surface CVT-IVT would be best suited to 'self-contained' and in-house serviced truck fleets and bus fleets, better able to relate and cater to the 'alternative gearbox', but of course such fleets are eventually replaced and sold-off, and residual prices of the vehicles attained are critical to typically cash-strapped fleet managers, and their accountants, the booked heavy depreciation rates usually of little importance to their type of business models.
Thus investment-auto-motives must highlight the real-world potential for mainstream adoption of truck and car CVT-IVT, and thus has a concern about the ultimate value such production-linked payments will bring to Torotrak's investors.
Torotrak has had undeniable success targeting its system at the vehicle fringe, specifically the Outdoor Power Equipment (OPE) market for ride-on lawn mowers via the JV 'piggy-backing' with America's MTD Products. But whilst the created LLC's US location was necessary its physical and managerial remoteness was always a concern, giving the locational advantage to MTD and an ability to make greater visible and invisible operational demands.
That came to pass with a disagreement raised about the level of profit margin. As apparent small investor blogger and Torotrak shareholder Micheal Walters comments “Given that MTD was selling complete ride-on mowers, the actual cost of the transmission could be a relatively small part of the whole package. Torotrak needed to make a decent margin on transmissions, whereas MTD could make profits at other stages in mower production”. This would appear theoretically true, but a notional cost-breakdown of a ride-on mower highlights the relatively high cost of the powertrain units, this only increased from using a new system. Thus the financial crisis's hit on the DIY garden products and professional maintenance services sectors was hard, given that it is a leisure pursuit, thus circumstances demanding cost-down requirement and leading to possible pricing games played by MTD with its suppliers.
In January it was reported that Torotrak & MTD have agreed to restructure their arrangements to include royalty payments instead of direct margin receipts, with the UK partner taking back £1.6m in cash. Beyond partnering with MTD Torotrak is now free to court other competitor manufacturers in the field, including Toro which itself outsources the manufacture of its lower range of products to MTD group. Thus the near namesake Torotrak should, if successful, be able to capture greater ultimate reward from Toro and others.
[NB Both Torotrak and Toro well recognise their brand-powers as having etymological relation to the Latin/Spanish/Portugese for Bull with its referance to 'the land', and no doubt see the growth of Latin America's middle class and its future demand for US style homes and gardens. The 'lifestyle' aspect including the additional accompanying growth of both 'amateurised' & 'professionalised' lawn leisure and sports (inc golf, soccer, baseball, tennis, etc) needing course and field maintenance, and the expected growth of municipal parks: - trends that under-pin their OPE ambitions beyond the USA and Canada].
But of real practical value and USP advantage in this sector is Torotrak's ability to provide a transmission solution that allows a lawn-mowing tractor vehicle to undertake a near 180 degree about turn between 'strip-runs'. A clever trick that was seen on the TATA Pixel concept movie, but of greater practical application for large lawn gardeners.
Back to the here and now, and Torotrak is exploring other avenues closer to its spiritual automotive home.
These include:
- a flywheel-based mechanical-hybrid KERS powertrain system with Volvo Cars.
- a supercharger development programme as part of an alliance with Rotrex
Whilst these 2 projects look impressive as a bridge to the eco-tech future, the immediate concern for investors is conversion to income.
The KERS (Kenetic Energy Recovery System) project is a self-developed marriage of CVT & KERS, its basic premis attractive to Volvo Cars for exploration as part of its 'DRIVe toward Zero' (emissions) strategy. Yet a majority, if not all, of the project's funding comes not from Volvo but from the Swedish Energy Agency, which provided SKr 6.57m (Swedish Kroner). The system reportedly uses a 20cm carbon-fibre flywheel housed in a vacuum and uses electro-magnetic forces (between stator and housing) as the 'gear'- transfer device. The system no doubt works in laboratory/workshop conditions, in similar clean environments, or via a 'controlled condition' demonstrator vehicle, but investment-auto-motives believes that the sophistication and sensitivity of the device is unsuited to the life-span durability and longevity of the average car.
The programme thus being used by Torotrak to earn intermediate income so as to off-set overhead costs and used by Volvo management as an R&D promoter to its Chinese masters at Geely, themselves ideally seeking an alternative affordable technology to Japan's very successful electro-hybrid technology.
As for practical, applicable outcome and a consequential long-lived income stream for Torotrak, it appears doubtful, unless the Chinese can be persuaded to take over the mid and long-term funding of such an 'elastic' R&D programme.
A 50-50 JV alliance was formed with Denmark's Rotrex in May 2010. Called 'Rotrak' it aims to combine the core competences of the 2 firms, marrying a variable speed traction drive to supercharging technology in a bid to find a viable solution for adding power to downsized vehicle engines. To re-quote a portion of the official announcement:
“A conventional turbocharger struggles at low speed, particularly in these smaller engines. Better low-speed boost can be achieved but it is complex and costly, the firms note. Supercharging is the main alternative, but the fixed ratio between engine and supercharger speeds means that if boost is optimized for low-end response, then energy is wasted at higher engine revs”. And to re-quote Dick Elsy's words: “Adding Torotrak’s scalable variable speed traction drive to Rotrex’s technology will overcome many of the compromises that affect current pressure-charging systems.”.
In contrast to other previous unconvincing efforts, this project has the fundamentals of creating a much needed new leap forward for the stabalisation and constant & proportional air-feed dynamics for the internal combustion engine. The fundamentals appear sound, so the question investors must ask is about the deliverability of the project to meet VM and Tier 1 demands, specifically that of cost and life-span durability, a reduced parts count for the item made in high-tolerance yet affordable manufacturing conditions undoubtedly key.
The official project announcement stated that “independent analysts estimate that the market for pressure-charged gasoline engines will grow from the current global level of 2.5 million units per year (in 2009) to 12 million by 2016. The more established market for diesel pressure-charging is predicted to grow from 10.5 million to 16.1 million units in the same period”.
These figures are probably over-egged, with a level of 8 million petrol engines and 14m diesel engines more likely given the recent global economic contraction. So the project's business model assumptions should include conservative cautiousness when forecasting not only segment demand rates, but also the pricing elasticity and NPV & IRR rates deemed tenable to attract and keep targeted clients that have prime interest in such an elegant solution. Ideally they would be able to create a brand-relative technology story around the supercharger to enable their own pricing premium and thus maintain the Rotrak commercial connection for the long term.
This project then bodes well as an important 'bread and butter' income provider, the details of the arrangement obviously critical, but the 15% stake taken in Rotrex provides a base of mutual confidence.
This small note of optimism relative to an incremental step in engine technology must however be balanced by the reality of pragmatism that pervades throughout the auto-industry. That is the reticence to replace the tried and tested principles and components with 'revolutionary' replacement solutions. And this appears the case for gearboxes, as exemplified by VMs preference to use ever increasing gear ratios: the once standard 3 replaced by 4 replaced by 5, then 6 and even 7 enabled by similarly evolutionary clutch technology – Audi's DSG gearbox a good indicator.
The innate truth that has emerged is that (unsurprisingly) the large western VMs prefer to develop in-house or as a direct JV project with a Tier 1 supplier, so as to maintain direct control of IPR and are not 'put under the heel' of dependence on a single supplier, typically strategically combining IPR ownership with the agreed contract for manufacture. Such 'self-destiny' has been seen with past CVT efforts of Fuji-Subaru, Ford-FIAT, Nissan, Honda, VW-Audi and BMW, even though some of those names have willingly undertaken projects with Torotrak.
[NB. the BMW Mini CVT has attracted heavy criticism in N. America from customer complaints and a National Sales Company that has little/no direct ability to solve the problem].
[NB. In contrast to these CVT offerings, Toyota's 'Synergy Drive' system used on its Hybrid models is not defined as CVT since it transmits 2 power inputs – engine & electric motor – to drive-shaft outputs].
[NB. Ford displayed the Torotrak CVT-based 'B-Max' concept at Geneva in March, but as with TATA's Pixel, the technology may well be being used as part of Ford's
desire to demonstrate a future-forward attitude, FMC also seperately stating it is reviewing CVT for 'secondary-power' uses].
Like western VMs and Tier 1's, a similar 'self-reliant' attitude prevails within China, here though its domestic manufacturers typically utilise proven and cheap previous generation technologies that have been adopted and adapted from joint venture partnerships with western VMs. This enables them to effectively buy and control dated but still usable and critically scalable 'technology platforms'. This attitude directly aimed at power-train and electronics, but less so toward the local abilities in chassis systems (though not necessarily advanced control) and in exterior and interior trim & hardware which affect the customer 'look & feel'.
Though Geely may well hope for a positive outcome from Volvo's 'Flybrid' R&D work, it will no doubt focus its primary work and technology stratgey on replicating the incremental improvements that have been seen in the US and Europe in the past, more attendant at exploiting these phased-in and cost-reduced advances for domestic brand applications.
Thus for the present, if one were to plot a 'probability versus impact' chart for Torotrak's mid-term ventures, a greater chance of success lays with maintaining a strong continued focus on the OPE sector having already had a direct impact and grown its profile therein, and the potential of engine ancillary systems – though by no means assured given the potential for VM's or Tier 1s to develop their own supercharge induction control systems, whether mechanically or electronically controlled.
The TATA Pixel concept (as shown including smart-phone operated doors and its Torotrak-enabled pivot-turn park & drive feature) also bodes potential, especially since the FIAT 'twin-air' 500 has set a precedent for downsized city car engines, and the fact that FIAT & TATA collaborate closely at Board level, thus projecting the possibility of FIAT & TATA variants of a future small car platform mating the 'twin-air' engine and a CVT-IVT gearbox. Torotrak must then maintain close contact with both firms to promote the progression of such a project, giving a truly credible European market 'A' segment vehicle, spun-off from the basic Nano architecture.
In the meantime, Torotrak should identify mid-ground possibilities that are positioned between the reality of the OPE market of ride-on lawn-tractors and the conceptual reach of city-cars. In terms of GVW (ie passenger capacity + added load + full fuel) and product complexity & business model detail, that appears to point back into the varying forms of ATV in both leisure and military guises – the latter of course adding greater commercial credibility, and offering the necessary budget flexibility for proof of performance.
This is something the BoD surely know to be the only feasible path forward, the requirement of course – as has been the bugbear for so long – is delivery of the strategy.
In the 13 years since market listing the company's valuation has ridden the general cyclical highs and lows of the Auto & Parts sector. In recent years the sector was of course heavily depressed by the consumer consequences of the financial crisis, then boosted by western & Chinese governments' small car purchase incentive schemes. Torotrak's share price however is more volatile than the large American, German and Japanese VMs or indeed GKN, since it is less frequently traded at lower volumes, heavily affected by both sentiment of the general market, but perhaps more so by the influence of director's dealings, short-term profit maximisers and indeed the inducement of both these combined factors (as noted in general shareholder discussion boards).
A need for a renewed confidence in Torotrak's operation was recognised as long over-due, hence the internal 'top-down' shake-up that has slimmed the BoD numbers to reduce overhead costs, seen Directors take a 10% pay cut, seen the appointment of the well connected John Weston as Chairman (as of 1st June) and no doubt recognises a need to re-assess its methods regards client prospecting and capture.
Yet the company is still effectively strategically led by the 'Two Muscateers' of Dick Elsy and Nick Barter - highly knowledgeable and well respected veterans of Ford, Rover Group & JLR. This though indicates that Torotrak is still hunting for the 'Big Game' catches available from high-volume premium cars and SUVs. This no doubt subtly done in quiet corners whilst it more publicly hunts out the lesser prey in the meantime.
Hence we come full circle to the experiences of 1998 and 2003, with the idea that the CVT-IVT application for automatic large cars is inevitable. History has proven that assumption, with Nissan specifically develop a produced and proven CVT for it Japan's old model Gloria, USA Murano, Altima (ie 3.5L+ engines), and Toyota creating high-torque/high-power 'partial CVT' for its Lexus models GS 450h and LS600h.
This then obviously sets a premis that Nissan could additionally deploy this CVT on its Infiniti range, and potentially licence it to others including Jaguar. Thus setting (in this case) Torotrak & Nissan as potential opponents or collaborators.
Elsy and Barter no doubt holds a similar broad view to investment-auto-motives, in that Japanese & German technology re-appropriation will continue to be fundamental to the UK auto sector, so replaying in a more arms length, commercialised manner, the sort of technology trickle-down that came to pass when BMW bought Rolls Royce and VW bought Bentley. But whereas their architectures are set in Germany, it is TATA that acts as the parent and technology strategy intermediary on behalf of Jaguar & Land Rover, and as long as they do so Torotrak no doubt suspects it has a chance of 'Bagging the Jaguar'.
Jaguar's powertrain R&D over recent years has benefited from from a two-pronged perspective, with monies made available from the government's Technology Strategy Board (upon which Nick Barter sits). The most publicised have been those which had greatest political clout pertaining to EV and Range-Extended EV engineering related 'LimoGreen' project and its successor the REEVolution project. However, JLR was also able to investigate a more pragmatic ICE-based solution, Torotrak and others working as a consortium, using CVT to couple the cars' rear differential with 'Flybrid' (flywheel) technology.
This then theoretically allows Torotrak to integrate its CVT-IVT systems into the heart of UK premium vehicle manufacturing, but evaluation prototypes even if prove of theory on the test-bed, typically have a far harder time clearing the commercial hurdle that sees additional cost undoubtedly added to a full vehicle programme and to the unit cost (in components and labour-time) added to the factory vehicle.
A number of production vehicles could indeed be built as part of limited series for broader evaluation of the system's pros and cons, but that does not mean that 'Flybrid' will automatically become a standard-fit technology
The BoD has proven to have incredible patience and indeed staying power given that it took until 2009-10 to post a maiden profit of only £200,000. This appeared then a new phase of profitability.
But the Q1 2011 pre-tax loss result of £2.9m on revenues of £4.7m appeared expected, the share-price dipping to a new low of 20p by the end of February. This low attracted 'growth' stock-pickers and the price gained traction, a steady up-trend created by the Volvo 'Flybrid' story, sending the stock to 60.25p (reaching a 5 year high) by the Friday LSE close.
So investors are indeed re-energised with Torotrak. From here they must make a choice as to whether to ride the positive sentiment, or peer behind the eco-tech curtain to critically assess strategy, operations and corporate accounts.
The historic lacklustre performance of the company has only really rewarded those close stock watchers who have bought and sold their interests on the basis of expected volatility, and by nature in turn creating that volatility.
Torotrak must prove itself to be far more than than a trading-play for the cynical short-termist investor. For a company that initially listed 13 years ago at 300p, to now reach the 'heady heights' of 60p today is an unfortunate state of affairs, both for the company itself and the credibility of UK automotive eco-tech.
Its future fortunes – good, indifferent or poor - appears to be largely in the hands of Allison Transmission and those large 'invisible' investors who are very probably PE players looking to create industrial links for technology deployment, as seen with OPE. TATA has a role to play in shaping its fortunes but would be brave indeed to use effectively sector unproven technology as its launch pad into the Euro small car sector.
The 'Gearless Wonder' need not stay the 'Toothless Wonder' but there are heavy headwinds which continue to vie against its displaying itself as a hub of deployable British innovation and so obtaining meaningful value creation.
A dose or two of old fashioned British pragmatism – as opposed to Americanesque 'Atlantic City' optimism – would provide a powerful outlook from this renewed startpoint now that the MarketCap sits at this unprecedented level.
But for the moment the here and now still sits in the realms of Monetarist versus Keynesian theory.
The UK's decision has been to pull-back hard on the reins of national spending...to bite the bullet of harsh but necessary economic retraction...to expectantly deliver a fundamental restructuring of national production & service provision (the reform of NHS & Education most prevalent)...and to avoid Europe's heavy regulatory demands. It is a formula that has worked before under Conservative rule, previous cabinets successively championing the economic growth power of a lassez-faire attitude towards capital and labour markets flexibility.
Similarly the US also holds its breath in this period, but its expansionist view under-pinning its fiscal planning has created a very different situation for itself, and as such is now beyond the cusp of a truly new era. The interconnection of a deepened national budget deficit and the provision of 'free money' (via QE & QE2 prime-pumping exercises) has expectantly buoyed Wall St and so corporate America. That should then support a productivity-push that builds employment and so drives consumer spending. Yet that 'free money' has also contributed to creating a global commodities boom which has stoked input-cost inflation and consequentially reduced already restricted consumer-power.
The run-out of the second of QE exercise is imminent, but Wall St has predictably reacted negatively over recent weeks and given that stock bourses are the de facto economic indicators, by virtue US (and more widespread) economic health has been called into question. This of course noted by Congress and Ben Bernanke alike, no doubt predicted by both. And so this issue has become the prime Washington backdrop, discussion regards the pro's and con's of an extension of the national debt ceiling creating major cracks between ideological left and right. Unsurprisingly, Republican's feel that a metaphorical gun has been put to their heads, whilst Democrats maintain an almost evangelical belief in the ever-extended Keynesian solution. That stance now hardened by the rhetoric of a 'future lost decade' by Larry Summers, whilst Ben Bernanke counters by airing the possibility of QE3, (real or not) intended to muster a new rally in trader sentiment and so avoid an equities slip or even plunge.
These 2 massively divergent pictures then convey the 'slow but steady' UK attitude to new growth versus the more optimistic (naïve yet bombastic) 'Atlantic City' attitude of the US. It is a schism that many UK based yet export orientated medium sized enterprises must factor into their strategic planning. Having to decide the timescale & expansion rates of these two regions relative to their own sector, an increasingly important consideration given the contraction of growth prospects in the well established EM regions.
Torotrak plc is such a company: operating in the arena of mechanical power transmission, it is an IPR innovator, developer and partner-producer of alternative' gearbox systems directed at a range of customers spanning: VMs & Tier 1s of the automotive sector, Off-Highway vehicles such as the construction & agricultural fields, and specialist vehicle applications, such as leisure and functional small vehicles, including off-road buggies, ATVs and ride-on lawn-mowers.
The company's primary UK - US link is evident within its shareholder register, and includes a large US Tier 1 'traditional' gearbox manufacturer, a large UK bank and a number of Nominee companies which legally represent (though some say ''mask') other unknown interests.
It stands in what could be described as the unconventional, notionally 'advanced' realms of mechanical engineering, though base principles offered were developed in the former half of the 20th century - though little deployed given the dominance of standardised principles and systems and parts that came to pass, this primarily driven by the cost-benefit rationality of vehicle planners and the close tie that formed between VMs and their Tier 1s. These 'alternative' gearboxes have been widely used in specialist vehicles from tanks to snowmobiles, had relative success with HGVs, and perhaps had its most memorable car application by DAF (1960s/70s) thereafter used by Volvo on its 360 small car. They have been periodically used by major vehicle manufacturers, though historically done so to either increase in-house learning and experience of CVTs, or to create intentional competitive threat to incumbent suppliers, so as to both gain pricing reductions on standard technologies, to progress their own nominated supplier's R&D, aswell as to demonstrate eco-tech efforts to governments so as to attract financial contribution toward plant build or obtain easement of financial burden.
Torotrak was effectively born in 1988 as a spin-off from the British Technology Group (BTG), a body created to create the conditions for commercial leverage of those patents and IPR that was inside stagnant or declining UK firms - in this case Leyland Trucks
Torotrak describes itself as "the world’s foremost developer of full-toroidal traction drive technology. The company conducts research and develops applications in the field of variable drive transmissions. Torotrak’s continuously variable transmissions (CVT), infinitely variable transmissions (IVT) and variable ratio drive units reduce energy consumption and harmful emissions, whilst also delivering outstanding levels of control, functionality and performance".
Thus, it was established to align intellectual capabilities with the ever necessary VM corporate need for fuel-efficient, CO2 reducing solutions, able to benefit from the eco-engineering challenge that the late 20th and early 21st century posed. An era of corporate-fleet CAFE measurement and reduction in personal carbon footprints, and of notional expensive 'peak-oil' and 'oil-spikes'.
[NB Though the former belief counters the formation of EM's national oil companies, the untapped reserves of Arctic beds and other regions, and the latter typically driven by short-run speculation].
However, nonetheless there is no doubt that 'on-paper' its eco-technological focus, re-emphasising and developing fringe technologies, places Torotrak in a favourable position, to both help save the world and by virtue to offer investor confidence and returns.
To initially create an investor-friendly high profile and so interest, Torotrak was publicly listed in 1998 with an initial capital of £50m. Considering its size it appears as a sardine amongst the whales in its elected sector within the FT's FTSE pink pages, sat as it is amongst leviathans such as VW, Ford, Toyota and GKN Yet it sits most intendedly within 'Autos & Parts', when it could have listed (or swapped) under 'Industrial Engineering', 'Industrial General' or indeed under 'Technology Hardware' had it wanted to experience/play either 'defensiveness' or 'risk-on' sentiment. 'Auto & Parts' avoids these market-shifting vagaries and allows it to stand-out in 'preferred company' – no doubt seeking to gain from the perception of an operational parallel to GKN and its 'ownership' of power-transmitting CV joints, and providing a ranked name-place designed to intentionally reside between GKN & Toyota, the Torotrak name with obvious visual & phonetic similarities to the Japanese corporate name .
As is self-evident, the rational of the initial listing was to inject a core valuation which reflecting the potential of an IPR/Developer -centric company, trying to evoke similar investor attitude as was the case at the time toward Silicon Valley's IT sector.
Undoubtedly, the listing initiative was to trace a valuation growth path so as to become a desirable target. Its final sale valuation to have ideally reflected a combine of both basic company value (assets, IPR value, order book, inventory etc) and gain of an additional price premium effectively auctioned from the competing VM giants, each with historically sizable acquisition pots.
At 'worst', without a trade sale, the company to be sold to Private Equity, and to be used as a bolt-on for broader automotive sector ambitions, or possibly to use it as a 'centrifugal hub' around which could be build (with other bolt-ons) a compelling IPR-leading industrial conglomerate.
However, the commercial reality which underpins an ultimate enterprise value and the investment theory which its accords unfortunately rarely mesh seamlessly; as is seen so often in the eco-tech sphere, given the real-world variables that impact upon investors' final analysis.
In 2000 Toyota retracted from a licensing agreement, GM doing likewise 2 years later. By 2003, the initial business strategy of targeting premium car and SUV sectors had flailed. A new management team was installed, including Dick Elsy (ex original FreeLander Project Director at Land Rover and later at Jaguar Cars)as CEO.
So from this appointment it seems the original and supposedly ended ambition was still secretly on the table, executives and management still hoping for a breakthrough high value contract, whilst presenting itself as broadening the client appeal of its systems by targeting other vehicle segments and sectors.
This necessitating a form of 'reverse-engineering' to try and achieve large design and production cost savings which would be necessary to befit a BOM (Bill of Materials) budget suited to smaller vehicles (at piece cost) and to demonstrate cost effectiveness for use on smaller volume niche vehicles such as in the AG-CON sector and elsewhere.
In 2005 a licence was agreed with Carraro SpA in Italy for application in tractor transmissions. Later that year an agreement was formed with MTD Holding Inc. in Ohio, manufacturers of powered equipment for lawns and gardens, the agreement to form a JV company named Infinitrak LLC for the technologies use on a specific power band of products.
With these wins under its belt Torotrak went back to the capital markets in 2007 to obtain £6.7m via a new equity placement, used to buoy the balance sheet and illustrate the company's sound financial standing to prospective clients. Late 2007 saw a broad, non-exclusive licence agreement formed with India's TATA Motor, the technology notionally ascribed to 4 segments: passenger cars, light goods vehicles, medium & heavy commercial vehicles and construction equipment.
But without a direct vehicle application, or worked into a model development programme, investment-auto-motives considered the apparent 'deal' at the time as little more than a mutually beneficial 'good news' PR story. One that helped to give both companies apparent long-term 'investment legs' at a critical time of liquidity squeeze just before the financial crisis hit. The fact that the CVT-IVT technology has only been notionally ascribed to the 2011 (Nano-like) Pixel concept car (seen at Geneva in March) appears to support the assumption that the TATA relationship has been used as a carrot for investors. Thus it appears that no real-world TATA product using the system has been marketed to date since the 2007 agreement.
In March 2009 an £8.44m licensing agreement was struck with the US company Allison Transmission Inc, simultaneously taking a prime 10% (approx) sharehold at £2.4m (valuing Torotrak at approximately £24m at the time) to develop applications for small & medium-size trucks & buses and taking a non-exclusive arrangement for future large truck applications. Torotrak to receive the monies split over the 2009 & 2010 FY accounting periods. Importantly the deal gave Allison an option to secure worldwide exclusivity across the commercial vehicle arena, excluding previously agreed licences (ie TATA).
Given the TATA and Allison agreements, the outcome appears to be that effective application ownership is realistically split between TATA in India & SE Asia and Allison across the US and RoW. This allows Allison to then able to operationally block any threat from TATA regards the US truck market using the tech as its USP, and provides a counter to Daimler's eco-tech efforts integrated into its own broad European market and its filtration into its American truck brand portfolio. This of assistance to boosting its own IPO hopes reported in late February.
There will of course be payment terms included in the agreements, presumably based on the norm of either an annual royalty or number of CVT-IVT units produced. Given that licensee's typically decline a fixed royalty agreement given the inflexibility of such a fixed cost, although undisclosed outside the company, it is expected that production-linked agreements were formed.
If as expected, this then means that Torotrack is dependent upon TATA and Allison deploying the technology if it is to see an income boost and provide annually income stability.
Herein is the rub.
TATA and Allison have build massive production and sales empires based upon conventional technology gearboxes, each effectively a 'sun' empire around which thousands of privately owned small, medium and large 'satellite' businesses operate in the sphere of gearbox service, repair and re-conditioning. Whilst Europe and Japan consumers and fleet operators have more open views about transmission technologies (given typical dealership attachment - though still largely conservative), the USA and India are effectively entrenched in the 'old world' by virtue of greater distances traveled, and conditions met by cars and trucks and so a need for a broad continental network of relatively local, capable and low-priced repairers knowledgeable of conventional gearbox technology.
On the surface CVT-IVT would be best suited to 'self-contained' and in-house serviced truck fleets and bus fleets, better able to relate and cater to the 'alternative gearbox', but of course such fleets are eventually replaced and sold-off, and residual prices of the vehicles attained are critical to typically cash-strapped fleet managers, and their accountants, the booked heavy depreciation rates usually of little importance to their type of business models.
Thus investment-auto-motives must highlight the real-world potential for mainstream adoption of truck and car CVT-IVT, and thus has a concern about the ultimate value such production-linked payments will bring to Torotrak's investors.
Torotrak has had undeniable success targeting its system at the vehicle fringe, specifically the Outdoor Power Equipment (OPE) market for ride-on lawn mowers via the JV 'piggy-backing' with America's MTD Products. But whilst the created LLC's US location was necessary its physical and managerial remoteness was always a concern, giving the locational advantage to MTD and an ability to make greater visible and invisible operational demands.
That came to pass with a disagreement raised about the level of profit margin. As apparent small investor blogger and Torotrak shareholder Micheal Walters comments “Given that MTD was selling complete ride-on mowers, the actual cost of the transmission could be a relatively small part of the whole package. Torotrak needed to make a decent margin on transmissions, whereas MTD could make profits at other stages in mower production”. This would appear theoretically true, but a notional cost-breakdown of a ride-on mower highlights the relatively high cost of the powertrain units, this only increased from using a new system. Thus the financial crisis's hit on the DIY garden products and professional maintenance services sectors was hard, given that it is a leisure pursuit, thus circumstances demanding cost-down requirement and leading to possible pricing games played by MTD with its suppliers.
In January it was reported that Torotrak & MTD have agreed to restructure their arrangements to include royalty payments instead of direct margin receipts, with the UK partner taking back £1.6m in cash. Beyond partnering with MTD Torotrak is now free to court other competitor manufacturers in the field, including Toro which itself outsources the manufacture of its lower range of products to MTD group. Thus the near namesake Torotrak should, if successful, be able to capture greater ultimate reward from Toro and others.
[NB Both Torotrak and Toro well recognise their brand-powers as having etymological relation to the Latin/Spanish/Portugese for Bull with its referance to 'the land', and no doubt see the growth of Latin America's middle class and its future demand for US style homes and gardens. The 'lifestyle' aspect including the additional accompanying growth of both 'amateurised' & 'professionalised' lawn leisure and sports (inc golf, soccer, baseball, tennis, etc) needing course and field maintenance, and the expected growth of municipal parks: - trends that under-pin their OPE ambitions beyond the USA and Canada].
But of real practical value and USP advantage in this sector is Torotrak's ability to provide a transmission solution that allows a lawn-mowing tractor vehicle to undertake a near 180 degree about turn between 'strip-runs'. A clever trick that was seen on the TATA Pixel concept movie, but of greater practical application for large lawn gardeners.
Back to the here and now, and Torotrak is exploring other avenues closer to its spiritual automotive home.
These include:
- a flywheel-based mechanical-hybrid KERS powertrain system with Volvo Cars.
- a supercharger development programme as part of an alliance with Rotrex
Whilst these 2 projects look impressive as a bridge to the eco-tech future, the immediate concern for investors is conversion to income.
The KERS (Kenetic Energy Recovery System) project is a self-developed marriage of CVT & KERS, its basic premis attractive to Volvo Cars for exploration as part of its 'DRIVe toward Zero' (emissions) strategy. Yet a majority, if not all, of the project's funding comes not from Volvo but from the Swedish Energy Agency, which provided SKr 6.57m (Swedish Kroner). The system reportedly uses a 20cm carbon-fibre flywheel housed in a vacuum and uses electro-magnetic forces (between stator and housing) as the 'gear'- transfer device. The system no doubt works in laboratory/workshop conditions, in similar clean environments, or via a 'controlled condition' demonstrator vehicle, but investment-auto-motives believes that the sophistication and sensitivity of the device is unsuited to the life-span durability and longevity of the average car.
The programme thus being used by Torotrak to earn intermediate income so as to off-set overhead costs and used by Volvo management as an R&D promoter to its Chinese masters at Geely, themselves ideally seeking an alternative affordable technology to Japan's very successful electro-hybrid technology.
As for practical, applicable outcome and a consequential long-lived income stream for Torotrak, it appears doubtful, unless the Chinese can be persuaded to take over the mid and long-term funding of such an 'elastic' R&D programme.
A 50-50 JV alliance was formed with Denmark's Rotrex in May 2010. Called 'Rotrak' it aims to combine the core competences of the 2 firms, marrying a variable speed traction drive to supercharging technology in a bid to find a viable solution for adding power to downsized vehicle engines. To re-quote a portion of the official announcement:
“A conventional turbocharger struggles at low speed, particularly in these smaller engines. Better low-speed boost can be achieved but it is complex and costly, the firms note. Supercharging is the main alternative, but the fixed ratio between engine and supercharger speeds means that if boost is optimized for low-end response, then energy is wasted at higher engine revs”. And to re-quote Dick Elsy's words: “Adding Torotrak’s scalable variable speed traction drive to Rotrex’s technology will overcome many of the compromises that affect current pressure-charging systems.”.
In contrast to other previous unconvincing efforts, this project has the fundamentals of creating a much needed new leap forward for the stabalisation and constant & proportional air-feed dynamics for the internal combustion engine. The fundamentals appear sound, so the question investors must ask is about the deliverability of the project to meet VM and Tier 1 demands, specifically that of cost and life-span durability, a reduced parts count for the item made in high-tolerance yet affordable manufacturing conditions undoubtedly key.
The official project announcement stated that “independent analysts estimate that the market for pressure-charged gasoline engines will grow from the current global level of 2.5 million units per year (in 2009) to 12 million by 2016. The more established market for diesel pressure-charging is predicted to grow from 10.5 million to 16.1 million units in the same period”.
These figures are probably over-egged, with a level of 8 million petrol engines and 14m diesel engines more likely given the recent global economic contraction. So the project's business model assumptions should include conservative cautiousness when forecasting not only segment demand rates, but also the pricing elasticity and NPV & IRR rates deemed tenable to attract and keep targeted clients that have prime interest in such an elegant solution. Ideally they would be able to create a brand-relative technology story around the supercharger to enable their own pricing premium and thus maintain the Rotrak commercial connection for the long term.
This project then bodes well as an important 'bread and butter' income provider, the details of the arrangement obviously critical, but the 15% stake taken in Rotrex provides a base of mutual confidence.
This small note of optimism relative to an incremental step in engine technology must however be balanced by the reality of pragmatism that pervades throughout the auto-industry. That is the reticence to replace the tried and tested principles and components with 'revolutionary' replacement solutions. And this appears the case for gearboxes, as exemplified by VMs preference to use ever increasing gear ratios: the once standard 3 replaced by 4 replaced by 5, then 6 and even 7 enabled by similarly evolutionary clutch technology – Audi's DSG gearbox a good indicator.
The innate truth that has emerged is that (unsurprisingly) the large western VMs prefer to develop in-house or as a direct JV project with a Tier 1 supplier, so as to maintain direct control of IPR and are not 'put under the heel' of dependence on a single supplier, typically strategically combining IPR ownership with the agreed contract for manufacture. Such 'self-destiny' has been seen with past CVT efforts of Fuji-Subaru, Ford-FIAT, Nissan, Honda, VW-Audi and BMW, even though some of those names have willingly undertaken projects with Torotrak.
[NB. the BMW Mini CVT has attracted heavy criticism in N. America from customer complaints and a National Sales Company that has little/no direct ability to solve the problem].
[NB. In contrast to these CVT offerings, Toyota's 'Synergy Drive' system used on its Hybrid models is not defined as CVT since it transmits 2 power inputs – engine & electric motor – to drive-shaft outputs].
[NB. Ford displayed the Torotrak CVT-based 'B-Max' concept at Geneva in March, but as with TATA's Pixel, the technology may well be being used as part of Ford's
desire to demonstrate a future-forward attitude, FMC also seperately stating it is reviewing CVT for 'secondary-power' uses].
Like western VMs and Tier 1's, a similar 'self-reliant' attitude prevails within China, here though its domestic manufacturers typically utilise proven and cheap previous generation technologies that have been adopted and adapted from joint venture partnerships with western VMs. This enables them to effectively buy and control dated but still usable and critically scalable 'technology platforms'. This attitude directly aimed at power-train and electronics, but less so toward the local abilities in chassis systems (though not necessarily advanced control) and in exterior and interior trim & hardware which affect the customer 'look & feel'.
Though Geely may well hope for a positive outcome from Volvo's 'Flybrid' R&D work, it will no doubt focus its primary work and technology stratgey on replicating the incremental improvements that have been seen in the US and Europe in the past, more attendant at exploiting these phased-in and cost-reduced advances for domestic brand applications.
Thus for the present, if one were to plot a 'probability versus impact' chart for Torotrak's mid-term ventures, a greater chance of success lays with maintaining a strong continued focus on the OPE sector having already had a direct impact and grown its profile therein, and the potential of engine ancillary systems – though by no means assured given the potential for VM's or Tier 1s to develop their own supercharge induction control systems, whether mechanically or electronically controlled.
The TATA Pixel concept (as shown including smart-phone operated doors and its Torotrak-enabled pivot-turn park & drive feature) also bodes potential, especially since the FIAT 'twin-air' 500 has set a precedent for downsized city car engines, and the fact that FIAT & TATA collaborate closely at Board level, thus projecting the possibility of FIAT & TATA variants of a future small car platform mating the 'twin-air' engine and a CVT-IVT gearbox. Torotrak must then maintain close contact with both firms to promote the progression of such a project, giving a truly credible European market 'A' segment vehicle, spun-off from the basic Nano architecture.
In the meantime, Torotrak should identify mid-ground possibilities that are positioned between the reality of the OPE market of ride-on lawn-tractors and the conceptual reach of city-cars. In terms of GVW (ie passenger capacity + added load + full fuel) and product complexity & business model detail, that appears to point back into the varying forms of ATV in both leisure and military guises – the latter of course adding greater commercial credibility, and offering the necessary budget flexibility for proof of performance.
This is something the BoD surely know to be the only feasible path forward, the requirement of course – as has been the bugbear for so long – is delivery of the strategy.
In the 13 years since market listing the company's valuation has ridden the general cyclical highs and lows of the Auto & Parts sector. In recent years the sector was of course heavily depressed by the consumer consequences of the financial crisis, then boosted by western & Chinese governments' small car purchase incentive schemes. Torotrak's share price however is more volatile than the large American, German and Japanese VMs or indeed GKN, since it is less frequently traded at lower volumes, heavily affected by both sentiment of the general market, but perhaps more so by the influence of director's dealings, short-term profit maximisers and indeed the inducement of both these combined factors (as noted in general shareholder discussion boards).
A need for a renewed confidence in Torotrak's operation was recognised as long over-due, hence the internal 'top-down' shake-up that has slimmed the BoD numbers to reduce overhead costs, seen Directors take a 10% pay cut, seen the appointment of the well connected John Weston as Chairman (as of 1st June) and no doubt recognises a need to re-assess its methods regards client prospecting and capture.
Yet the company is still effectively strategically led by the 'Two Muscateers' of Dick Elsy and Nick Barter - highly knowledgeable and well respected veterans of Ford, Rover Group & JLR. This though indicates that Torotrak is still hunting for the 'Big Game' catches available from high-volume premium cars and SUVs. This no doubt subtly done in quiet corners whilst it more publicly hunts out the lesser prey in the meantime.
Hence we come full circle to the experiences of 1998 and 2003, with the idea that the CVT-IVT application for automatic large cars is inevitable. History has proven that assumption, with Nissan specifically develop a produced and proven CVT for it Japan's old model Gloria, USA Murano, Altima (ie 3.5L+ engines), and Toyota creating high-torque/high-power 'partial CVT' for its Lexus models GS 450h and LS600h.
This then obviously sets a premis that Nissan could additionally deploy this CVT on its Infiniti range, and potentially licence it to others including Jaguar. Thus setting (in this case) Torotrak & Nissan as potential opponents or collaborators.
Elsy and Barter no doubt holds a similar broad view to investment-auto-motives, in that Japanese & German technology re-appropriation will continue to be fundamental to the UK auto sector, so replaying in a more arms length, commercialised manner, the sort of technology trickle-down that came to pass when BMW bought Rolls Royce and VW bought Bentley. But whereas their architectures are set in Germany, it is TATA that acts as the parent and technology strategy intermediary on behalf of Jaguar & Land Rover, and as long as they do so Torotrak no doubt suspects it has a chance of 'Bagging the Jaguar'.
Jaguar's powertrain R&D over recent years has benefited from from a two-pronged perspective, with monies made available from the government's Technology Strategy Board (upon which Nick Barter sits). The most publicised have been those which had greatest political clout pertaining to EV and Range-Extended EV engineering related 'LimoGreen' project and its successor the REEVolution project. However, JLR was also able to investigate a more pragmatic ICE-based solution, Torotrak and others working as a consortium, using CVT to couple the cars' rear differential with 'Flybrid' (flywheel) technology.
This then theoretically allows Torotrak to integrate its CVT-IVT systems into the heart of UK premium vehicle manufacturing, but evaluation prototypes even if prove of theory on the test-bed, typically have a far harder time clearing the commercial hurdle that sees additional cost undoubtedly added to a full vehicle programme and to the unit cost (in components and labour-time) added to the factory vehicle.
A number of production vehicles could indeed be built as part of limited series for broader evaluation of the system's pros and cons, but that does not mean that 'Flybrid' will automatically become a standard-fit technology
The BoD has proven to have incredible patience and indeed staying power given that it took until 2009-10 to post a maiden profit of only £200,000. This appeared then a new phase of profitability.
But the Q1 2011 pre-tax loss result of £2.9m on revenues of £4.7m appeared expected, the share-price dipping to a new low of 20p by the end of February. This low attracted 'growth' stock-pickers and the price gained traction, a steady up-trend created by the Volvo 'Flybrid' story, sending the stock to 60.25p (reaching a 5 year high) by the Friday LSE close.
So investors are indeed re-energised with Torotrak. From here they must make a choice as to whether to ride the positive sentiment, or peer behind the eco-tech curtain to critically assess strategy, operations and corporate accounts.
The historic lacklustre performance of the company has only really rewarded those close stock watchers who have bought and sold their interests on the basis of expected volatility, and by nature in turn creating that volatility.
Torotrak must prove itself to be far more than than a trading-play for the cynical short-termist investor. For a company that initially listed 13 years ago at 300p, to now reach the 'heady heights' of 60p today is an unfortunate state of affairs, both for the company itself and the credibility of UK automotive eco-tech.
Its future fortunes – good, indifferent or poor - appears to be largely in the hands of Allison Transmission and those large 'invisible' investors who are very probably PE players looking to create industrial links for technology deployment, as seen with OPE. TATA has a role to play in shaping its fortunes but would be brave indeed to use effectively sector unproven technology as its launch pad into the Euro small car sector.
The 'Gearless Wonder' need not stay the 'Toothless Wonder' but there are heavy headwinds which continue to vie against its displaying itself as a hub of deployable British innovation and so obtaining meaningful value creation.
A dose or two of old fashioned British pragmatism – as opposed to Americanesque 'Atlantic City' optimism – would provide a powerful outlook from this renewed startpoint now that the MarketCap sits at this unprecedented level.
Wednesday, 8 June 2011
Macro Level Trends - Bahrain Grand Prix - Maintaining National Policy Steering & Traction
Since the initial uprising in Tunisia, followed by Egypt, most prevalent in Libya, the idealised potential outcome of the 'Arab Spring' as a force for change has been the centre-stage issue across the GCC and MENA.
How the actions of each country ultimately play-out toward a political and leadership end remains to be seen. The apparent popular opinion is that the absence or disposion of the ruling elite and their parliamentary powers will be replaced by a consensual, truly representation model.
Yet the true ideological spectrum between opposites of 'autocratic aristocracy' and apparent 'socialist democracy' is vast and complex. Regime change outcomes rarely the result of harmonious agreement, but realised through social leverage & rhetoric, in short playing to the crowd with promises easily made but ultimately far harder to keep, even if indeed the promise be genuine.
History is witness to the battles of regime change and indeed its failures. From a short-lived Cromwellian 'Protectorate' England of 1653-59, the French 'Terreur' period of 1793-4, post-WW1 German Socialism, and more recently the failings of Ukranian 'democracy' which reportedly has done little for the people en mass. Power and wealth instead switches to the hands of a different, new self-styled, often ego-centric, leadership.
Thus we have yet to retro-spectively witness whether the 'Arab Spring' brings about a new era of speedily injected positivism, or one of factional political infighting. History typically suggests the latter, which should be a warning to both incumbent 'leaderships' and the apparent 'freedom fighters'.
But of course, the reality is far more complex than portrayed.
As past examples have shown, leadership struggles inevitably create internal disruption and in turn economic disruption, so creating failing conditions across all of society, from the everyday workings of the public-sector to the strategic decision-making of the private sector. The reality of economic stability suffers at the hands of social idealism.
This appears the case in Bahrain.
Debate continues about the hosting of the Bahrain Grand Prix.
The original event date of 13th March was post-poned under the mounting pressure of social demonstration, the GP Asia series already abandoned. Bernie Ecclestone's FOM (Formula One Management) consulted the FIA, participant race teams and Bahraini officials and a new consensual date was reset for 30th October.
However new reports state that even that re-instated date is likely to been canceled.
This it appears is due to the race teams reticence to participate, this reticence no doubt generated by their corporate sponsors' understandable unwillingness to perceptually afflict their brands with the stain of metaphorical blood. It is after all a sensitive issue for all involved, and at this point in time, with stock markets stuttering, corporations are having to act defensively on the PR front. Thus the reticence of the F1 teams is equally understandable given their reliance on sponsorship.
However, without wanting to appear deliberately controversial, investment-auto-motives believes that the race should be run in an alternative format, for the long-term economic and social sake of Bahrain. A middle-way should be sought.
One that demonstrates to the people why F1 should be viewed not as a glamorous and frivolous 'western' event but critical as an economic hub, a wealth generator and of strategic industrial-policy importance for the population at large.
The cancellation of the F1 event would be a time-tabling inconvenience to FIA, and a re-scheduling inconvenience and cost to the teams. But to be candid they see it as little more than a track destination, focus instead realistically limited to their near-term goal of driver and constructor championships, technical attention directed at the track layout and facilities with commercial attention directed at maintaining sponsorship good-will.
Thus the sport itself is little effected by a Bahraini cancellation, the reported £24m loss for FOM hard to swallow but nevertheless able to do so given the global demand for hosting F1. Other EM nations offer welcoming open arms, themselves hoping to re-play the Bahraini/GCC F1 model backed by growing petro-dollar SWF pots.
But to Bahrain, the F1 event serves not only as a great national day of motor-sport which gathers a car-crazy population, nor does it simply spot-light Bahrain on the world-map as an emergent powerhouse or as a tourist destination. The F1 event demonstrates an economic growth path for the country itself. As the pinnacle of motorsport adeptly aligned to aerospace materials and science it serves as a technology platform demonstrator, its advanced technology aligned to many spheres from eco-power engineering & generation to creation of private light aircraft design and assembly, these but only 2 derivative applications that have been seen to assist ambitious EM nations.
Beyond of course it also represents a retail opportunity through merchandising for the events held at the track/stadia, merchandise which can be manufactured or assembled in Bahrain.
But critically, the F1 race highlights the infrastructural investment put in place to serve not only F1, nor only motor-sports, but the very nub of leisure-based industries that will help the cross-cultural integration of Bahraini's whatever their Islamic interpretation or their ancestral homeland.
In short, it gives a focus to the nation from which many social, economic and technical advantages have already been derived, and must continue to be derived. On the surface it may look like a vanity project for the Bahraini Royals and their guests, but the multiplier effect is proven, and appears to have much potential remaining therein.
The loss of a Grand Prix event cannot be conceivably compared to the loss of human life seen in the demonstrations. But if well managed a resumed Bahrain GP could act as to portray an optimistic future for the country, instead of the fractious one presently being transmitted to the world.
That means finding a solution that is amenable to all stake-holders.
To this end, investment-auto-motives believes that the race should take place on 30th October as re-scheduled, in a sensitive manner.
But that it may have to do so with the basic 'rules' the event re-written. As for the hosting itself by the Al-Khalifa Royal family, less ostentatious glamour - thus in keeping with Islamic tradition - and greater explanation of F1's strategic role for the national good. If social unrest continues with likelihood that the race attract demonstration, it should be run as a televised yet 'closed' event, this not simply as an order by the ruling elite directed at the public, but themselves displaying their similar abstention / deprival ; the race still run to demonstrate the Bahraini promise and contribution to Grand Prix as part of its 'international economic pact'
The race teams should agree with their sponsors as a uniform understanding that corporate sponsorship decals will not be displayed, thus cars run 'naked' in the spirit of both social understanding and the teams and drivers implored to drive as true gentlemen, reflecting their heroic forebears and demonstrating an ethical standard which itself could be more broadly influential.
The easy ploy for all concerned is to abandon the Bahrain GP Race, but this would simply demonstrate to the world that major advances made by the Gulf nations are being internally eroded - so replaying the age-old negative Arab stereotype.
The more difficult but historically significant ploy is to re-interpret the challenge as an opportunity, all stakeholders - Crown Prince Salman Al-Khalifa, Bernie Ecclestone, Team Bosses & Sponsors - intent on demonstrating to Bahraini's and the world alike that a sensitive 'one-off' an alternative formula can be attained.
One that is able to display the true nature of F1 as both social glue (without typical propaganda) and as serving as a (well communicated) foundation-stone to technological comprehension and self-competence and so as critical economic pillar.
How the actions of each country ultimately play-out toward a political and leadership end remains to be seen. The apparent popular opinion is that the absence or disposion of the ruling elite and their parliamentary powers will be replaced by a consensual, truly representation model.
Yet the true ideological spectrum between opposites of 'autocratic aristocracy' and apparent 'socialist democracy' is vast and complex. Regime change outcomes rarely the result of harmonious agreement, but realised through social leverage & rhetoric, in short playing to the crowd with promises easily made but ultimately far harder to keep, even if indeed the promise be genuine.
History is witness to the battles of regime change and indeed its failures. From a short-lived Cromwellian 'Protectorate' England of 1653-59, the French 'Terreur' period of 1793-4, post-WW1 German Socialism, and more recently the failings of Ukranian 'democracy' which reportedly has done little for the people en mass. Power and wealth instead switches to the hands of a different, new self-styled, often ego-centric, leadership.
Thus we have yet to retro-spectively witness whether the 'Arab Spring' brings about a new era of speedily injected positivism, or one of factional political infighting. History typically suggests the latter, which should be a warning to both incumbent 'leaderships' and the apparent 'freedom fighters'.
But of course, the reality is far more complex than portrayed.
As past examples have shown, leadership struggles inevitably create internal disruption and in turn economic disruption, so creating failing conditions across all of society, from the everyday workings of the public-sector to the strategic decision-making of the private sector. The reality of economic stability suffers at the hands of social idealism.
This appears the case in Bahrain.
Debate continues about the hosting of the Bahrain Grand Prix.
The original event date of 13th March was post-poned under the mounting pressure of social demonstration, the GP Asia series already abandoned. Bernie Ecclestone's FOM (Formula One Management) consulted the FIA, participant race teams and Bahraini officials and a new consensual date was reset for 30th October.
However new reports state that even that re-instated date is likely to been canceled.
This it appears is due to the race teams reticence to participate, this reticence no doubt generated by their corporate sponsors' understandable unwillingness to perceptually afflict their brands with the stain of metaphorical blood. It is after all a sensitive issue for all involved, and at this point in time, with stock markets stuttering, corporations are having to act defensively on the PR front. Thus the reticence of the F1 teams is equally understandable given their reliance on sponsorship.
However, without wanting to appear deliberately controversial, investment-auto-motives believes that the race should be run in an alternative format, for the long-term economic and social sake of Bahrain. A middle-way should be sought.
One that demonstrates to the people why F1 should be viewed not as a glamorous and frivolous 'western' event but critical as an economic hub, a wealth generator and of strategic industrial-policy importance for the population at large.
The cancellation of the F1 event would be a time-tabling inconvenience to FIA, and a re-scheduling inconvenience and cost to the teams. But to be candid they see it as little more than a track destination, focus instead realistically limited to their near-term goal of driver and constructor championships, technical attention directed at the track layout and facilities with commercial attention directed at maintaining sponsorship good-will.
Thus the sport itself is little effected by a Bahraini cancellation, the reported £24m loss for FOM hard to swallow but nevertheless able to do so given the global demand for hosting F1. Other EM nations offer welcoming open arms, themselves hoping to re-play the Bahraini/GCC F1 model backed by growing petro-dollar SWF pots.
But to Bahrain, the F1 event serves not only as a great national day of motor-sport which gathers a car-crazy population, nor does it simply spot-light Bahrain on the world-map as an emergent powerhouse or as a tourist destination. The F1 event demonstrates an economic growth path for the country itself. As the pinnacle of motorsport adeptly aligned to aerospace materials and science it serves as a technology platform demonstrator, its advanced technology aligned to many spheres from eco-power engineering & generation to creation of private light aircraft design and assembly, these but only 2 derivative applications that have been seen to assist ambitious EM nations.
Beyond of course it also represents a retail opportunity through merchandising for the events held at the track/stadia, merchandise which can be manufactured or assembled in Bahrain.
But critically, the F1 race highlights the infrastructural investment put in place to serve not only F1, nor only motor-sports, but the very nub of leisure-based industries that will help the cross-cultural integration of Bahraini's whatever their Islamic interpretation or their ancestral homeland.
In short, it gives a focus to the nation from which many social, economic and technical advantages have already been derived, and must continue to be derived. On the surface it may look like a vanity project for the Bahraini Royals and their guests, but the multiplier effect is proven, and appears to have much potential remaining therein.
The loss of a Grand Prix event cannot be conceivably compared to the loss of human life seen in the demonstrations. But if well managed a resumed Bahrain GP could act as to portray an optimistic future for the country, instead of the fractious one presently being transmitted to the world.
That means finding a solution that is amenable to all stake-holders.
To this end, investment-auto-motives believes that the race should take place on 30th October as re-scheduled, in a sensitive manner.
But that it may have to do so with the basic 'rules' the event re-written. As for the hosting itself by the Al-Khalifa Royal family, less ostentatious glamour - thus in keeping with Islamic tradition - and greater explanation of F1's strategic role for the national good. If social unrest continues with likelihood that the race attract demonstration, it should be run as a televised yet 'closed' event, this not simply as an order by the ruling elite directed at the public, but themselves displaying their similar abstention / deprival ; the race still run to demonstrate the Bahraini promise and contribution to Grand Prix as part of its 'international economic pact'
The race teams should agree with their sponsors as a uniform understanding that corporate sponsorship decals will not be displayed, thus cars run 'naked' in the spirit of both social understanding and the teams and drivers implored to drive as true gentlemen, reflecting their heroic forebears and demonstrating an ethical standard which itself could be more broadly influential.
The easy ploy for all concerned is to abandon the Bahrain GP Race, but this would simply demonstrate to the world that major advances made by the Gulf nations are being internally eroded - so replaying the age-old negative Arab stereotype.
The more difficult but historically significant ploy is to re-interpret the challenge as an opportunity, all stakeholders - Crown Prince Salman Al-Khalifa, Bernie Ecclestone, Team Bosses & Sponsors - intent on demonstrating to Bahraini's and the world alike that a sensitive 'one-off' an alternative formula can be attained.
One that is able to display the true nature of F1 as both social glue (without typical propaganda) and as serving as a (well communicated) foundation-stone to technological comprehension and self-competence and so as critical economic pillar.
Wednesday, 1 June 2011
Extraordinary Note – “Going for a Ride” on the (PR) "Magic Bus"?
As a PPS in the last essay, a good luck message was offered to those responsible for the prototype testing of the New Bus for London project. - known as NB4L or Routemaster II.
This was put in as an addendum to the essay the following day, after a radio announcement stated that vehicle would undergo testing at Millbrook Testing Ground.
However, in an extra-ordinary posting, investment-auto-motives further questions the project.
From basic desk research, it now appears that the 'prototype-test' could well have been used as a photo-opportunity for the project, the Mayor taking the driver's seat and driving in an understandably gingerly manner – with a short 22 second video posted on youtube.
Unfortunately the clip leaves a less than convincing impression.
The bus itself seen driven looks more akin to a powered mock-up as opposed to the types of test-vehicles which would fully utilise Millbrook's facilities. These would be either an 'undressed mule' for chassis and power-train testing of new components, or a fully fledged production prototype, which as the name infers would be tested to production specification (as part of the shake-down process typically related to trim and hardware items).
However, this does not appear the case with NB4L. Look closely at the supposed prototype and a one's eye can see the same light-brown coloured internal surfaces on the wind-screen lower and driver's partition (either in hand-laid fibre-glass or MDF/fibre-board) as is apparent on the mock-up vehicle.
This then is at best confusing, and suggests that a mock-up is being touted as a prototype, when the two are normally constructed in very different ways for very different objectives – purely aesthetic conveyance versus robust engineering prove-out. Should it not instead be termed a 'demonstrator', in which case it should not even be at Millbrook.
To alleviate any misunderstanding (and to generate mass interest prior to launch) TfL and should provide a dedicated project website with videos, project schedule, engineering milestones & methods – including the types of pre-production buses built - and count-down to the launch day itself.
The £11m worth of monies that have been accorded so far are in reality supposed to be an investment in the city's infrastructure, and not at best a vanity project as suggested, or at worst, a far more costly red & 'white elephant'; to which additional funds must be directed after the official launch. There should be no 'catch-22' here.
A web-site of this nature would provide as much 'transparency' as the windows of the bus itself, and demonstrates that ultimately a worthy vehicle will be delivered to London.
And in doing so, would provide a magazine platform for the science, technology & engineering 'engagement' that the UK so desperately needs from its crop of youngsters.
Put them in the cold and it is yet another generation that will not return, focused instead on far more financially rewarding arenas. Such a mistake was made years ago, and now the UK is having to pay an excruciatingly heavy price.
This was put in as an addendum to the essay the following day, after a radio announcement stated that vehicle would undergo testing at Millbrook Testing Ground.
However, in an extra-ordinary posting, investment-auto-motives further questions the project.
From basic desk research, it now appears that the 'prototype-test' could well have been used as a photo-opportunity for the project, the Mayor taking the driver's seat and driving in an understandably gingerly manner – with a short 22 second video posted on youtube.
Unfortunately the clip leaves a less than convincing impression.
The bus itself seen driven looks more akin to a powered mock-up as opposed to the types of test-vehicles which would fully utilise Millbrook's facilities. These would be either an 'undressed mule' for chassis and power-train testing of new components, or a fully fledged production prototype, which as the name infers would be tested to production specification (as part of the shake-down process typically related to trim and hardware items).
However, this does not appear the case with NB4L. Look closely at the supposed prototype and a one's eye can see the same light-brown coloured internal surfaces on the wind-screen lower and driver's partition (either in hand-laid fibre-glass or MDF/fibre-board) as is apparent on the mock-up vehicle.
This then is at best confusing, and suggests that a mock-up is being touted as a prototype, when the two are normally constructed in very different ways for very different objectives – purely aesthetic conveyance versus robust engineering prove-out. Should it not instead be termed a 'demonstrator', in which case it should not even be at Millbrook.
To alleviate any misunderstanding (and to generate mass interest prior to launch) TfL and should provide a dedicated project website with videos, project schedule, engineering milestones & methods – including the types of pre-production buses built - and count-down to the launch day itself.
The £11m worth of monies that have been accorded so far are in reality supposed to be an investment in the city's infrastructure, and not at best a vanity project as suggested, or at worst, a far more costly red & 'white elephant'; to which additional funds must be directed after the official launch. There should be no 'catch-22' here.
A web-site of this nature would provide as much 'transparency' as the windows of the bus itself, and demonstrates that ultimately a worthy vehicle will be delivered to London.
And in doing so, would provide a magazine platform for the science, technology & engineering 'engagement' that the UK so desperately needs from its crop of youngsters.
Put them in the cold and it is yet another generation that will not return, focused instead on far more financially rewarding arenas. Such a mistake was made years ago, and now the UK is having to pay an excruciatingly heavy price.
Subscribe to:
Posts (Atom)