Investors and commerce maintain a fingers crossed stance regards the global economic slow-down. So far, although stock markets have sold-off recently, it appears somewhat tempered by periodic, tentative good news labour reports from the US, the sigh of relief that is China's 8.1% growth rate, the deep re-structuring of Japanese industry and an optimistic expectation that the recent productivity loss seen in the BRIC nations can be substituted by the new CIVETS constituents; themselves part of the “Next 11”.
Europe of course remains heavily subdued, still suffering from the entwined relationship between national sovereign debt and the balance-sheets of the EU's banking sector. The ECB acting as drug-prescribing doctor via the LTRO, itself surely with a long-term agenda of slowly weakening the Euro to eventually eradicate the European disadvantage. By way of ongoing phased QE and similar methods which will circulate EU liquidity; the German reluctance a manner by which to manage an orderly devaluation whilst Germany itself re-orders so as not to be highly exposed to the increase in materials import and input costs.
Car-makers perhaps most exposed and so presumably heeded by Brussels and each country's government.
VMs Seek 'Rational Product' Growth -
Upon this highly fractured world-wide playing field, global vehicle producers are having to sensitively balance investment markets expectations against a now much more heavily price competitive international vehicle market.
[NB Investors seeking the equity and bond 'safe-havens' by way of cash & asset-backed corporations on favourably historically low p/e's yet unfavourably muted dividends].
The now firmly entrenched 'new norm' contrasts markedly to the credit-fuelled boom seen in Western and top-tier BRIC consumerism, experienced prior to 2008. The economic contraction, which most affects the behavioral patterns of the squeezed western mass middle class, has re-molded and re-aligned the trends of consumer demand. From what was previously largely desire-driven consumption - arguably focused on increasing frippery - toward a greater needs-driven trend which values innate functionality and quality.
This in turn has closed the chasm which once existed between the distinctly separate psychological perspectives of consumers and corporations in 'post-industrial' and 'advancing industrial' regions.
In short, there has been an increasing meeting of minds over recent years, which re-emphisisies the importance of price and innate utility over the frivolity of fashion. So, behind the seemingly constant reports about mega-wealthy and newly wealthy spending habits amongst the top-tier of BRIC and Middle-Eastern populace, the true reflection of mass global consumption is that intra-national values have necessarily coalesced.
This is of course 'old news' to the DAVOS crowd.
The Dual-Approach Reaction -
For most companies, such intelligence purports that either or both of 2 strategies may be undertaken.
1. To target the 'shallow-pocketed' western middle-class, and simultaneously, the growing, increasingly 'deep-pocketed' EM middle-class.
2. To target the millions – indeed billions – of 'no-pocketed' who exist within the bottom tier, but which en mass, constitute large portions of any EM economy.
Targeting the Thrifty Western Consumer -
Understandably, companies will make strategic investment decisions that align to the squeezed environment, making best use of this understanding and extracting as much environmental and competitive knowledge as possible.
Yet the naturally concluded management recommendations applied internally and externally do not provide guaranteed results.
Companies are having to apply ever greater efforts in reviewing unit-price and overhead cost levels and so 'de-content' to 'de-cost' their products, constantly re-appraise administrative leanness, refine input costs via supplier rosters / price bargaining / delayed creditor payments, re-structure distribution and retail channels.
Yet of course by far the best way to ameliorate costs is to extend the life-span of current vehicle platforms and now with a strategic imperative to re-generate what were defunct 'last generation' technologies. As the profit margins of truck, bus and car-makers in yesteryear's “developing countries” through the 1960s-80s demonstrated, the re-utilisation of 'old' technology platforms – then bought from western firms – provides for healthy profitability when macro and micro market circumstances allow.
That 'recycling' of previous platforms, modules and components has been rediscovered by western VMs in the mid 2000s, to proffer a new type of affordable passenger car. The archetype that pioneered the way has of course been Renault's highly impressive fundamental re-invention of Dacia. Using re-deployed lower-cost parts to create a low-cost vehicle amenable to what were initially CEE growth economies, from homeland Romania up to Poland, then latterly in the MENA region with prime assembly hubs in Iran & Morocco, in Russia, India, Brazil & Colombia.
However, renewed sizable market demand for low-end affordable new cars in Western Europe, within the 'new norm' economic age, provided yet further sales expansion opportunity; a market gap which the Logan and its siblings have filled admirably.
Ironically, even though western consumers are forced to accept the 'new norm' on a rational level, because the private car buying process is such an emotive one, the VM must seek to massage the ego to demonstrate that the affordable product is not necessarily “second-best”. The consumer perception aspects that are customer pre-awareness and sales process persuasion are the all important.
Hence, any car company seeking to fulfil this market gap must have deeply assessed its own corporate position both prior to and after the 'new-norm' watershed, so that it may determine those strategic paths available which are vitally credible in the eyes of the squeezed consumer, with recognition of the ramifications – both +ve & -ve - such new product and probably brand actions may also create.
Re-Taught Lessons From EM Divisions -
The very concept of the 'low-cost' car is becoming increasingly engrained within the heart of all global VM's internal industrial systems. Core learning about low-cost design and manufacture has been seeming back into corporate headquarters from EM located plants, national sales companies and where evident regional engineering centres. This learning spanning all aspects of factory and tooling capex, R&D capital, base vehicle programme development capital, and variant project capital.
Whilst industry and press circles chatter about the 'low-cost' car as if a new phenomena, the fact is that this category was created long ago, when the tooling of superseded western vehicles was 'lifted and shifted' into 'colonial' and foreign markets where new low-cost business models could be created to feed local economic expansion and national agenda ambitions.
Long defunct BLMC produced localised. 'cheaper' original Land Rovers and Minis in Australia and South Africa as distant sub-economies of the UK. Volkswagen aided massively in the industrialisation of Mexico and Brazil with original Beetle, Van, Variant, Karmann Ghia and other domestic-only models like the Puma sports-car (not to be confused with Ford's much later Puma) aswell as the eponymous (Euro & South African linked) Gol. Likewise, FIAT sold its 1950s sedan models to India's Premier Motors (as did Britain's Morris to Hindustan) before developing Argentinian and Brazilian interests, starting with the 600 and small van imports and CKD, locally manufactured 147 variants in the 1970s-80s, leading up to Uno variants in the 1980s-90s, the latter Tipo and Palio variants & and recently the Brazilian developed Novo Uno. And Renault produced its own vehicles in Mexico and Brazil during the 1960s before its fateful amalgamation with America's AMC as part of a failed bid to corporately conjoin South, Mid and North America; its retrenchment back into Europe overcome in 2004 with Logan.
Of course it was the Detroit 3 during the 20th century, riding on the back of the American boom fed by materials from abroad, that were able to best demonstrate themselves as producers of localised vehicles, the fervency of Detroit's pathological obsession with new model years thus stylistically ageing cars quickly and – though usually based upon same mechanicals – GM, Ford and Chrysler were able to 'localise' visually older products elsewhere around the globe, able to wield both heavily amortised tooling and its strong (world reserve) US$.
Conversely, when applicable in regions with different cultural backgrounds and domestic national economic agenda ambitions, auto-makers have traditionally sought to provide either whole re-badged vehicles, sent complete vehicles in component parts as CKD kits, provided major sub-assembly components or set-up complete plants as part of a JV agreement.
The past saw Rootes Group undertake the technical feasibility and early development work for Turkey's Anadol national car in the 1960s, soon after also nurturing Iran's nascient car industry with Iran Khodro's Paykan. In the early 1980s Mitsubishi sold its Colt model rights to the newly born Proton Motor of Malaysia to create another national car. During the same period PSA allowed Egypt, Kenya and Argentina to produce the 504 and itself served as the linch-pin for the effective overhaul of Iran's auto-sector replacing the old Paykan with the far newer 406 based Samand.
As seen, 'platform recycling' has long been part and parcel of the international modus operandi of large multi-nationals for over half a century. It was simply a forgotten art over the last 30 years or so as the West lost its previous economic grip over 'developing' nations and so western VMs lost their secondary markets.
After the 1980s, that once integral practice grew ever less required as a consequence of Japan's transformative influence. It had manufactured vehicles that were of such comparative high quality, had such broad international sales reach, were consequentially given grey-import 'second-lives' in a host of then burgeoning EM countries. Toyota, Nissan, Mitsubishi and Honda had inadvertently but effectively banished the local market need for 're-cycled' western models.
Whilst those used, old but reliable Japanese vehicles had sufficed a previous need in many EM countries, rapid economic growth supporting a concordant rise in commercially linked fleet vehicles and private consumerism has meant that second-hand, no matter how durable, does not suffice.
Hence the desire for what at least appears modern and contemporary cars as seen in Berlin, Paris, London, Los Angeles and Tokyo, though with an expectation that they can traverse what are often still problematic roads in such EM regions.
Global Product Convergence -
EM consumer desire, and so the auto-industry requirement, to visually coalescence 'post-industrial' market cars with 'advancing industrial' market cars has come to the fore in recent years.
The trend allows corporations to seize a thus far denied yet massive engineering opportunity to merge NPD philosophies and so marry simplicity and volume growth by producing a close-knit set of structural sub-assemblies, mechanical components, electronic architectures, trim-based styling components etc.
That product alignment is of course good news for VMs if they can create compelling technical strategies to deliver investment and re-investment value.
Yet even though a now squeezed western middle-class, the car buyers across Europe, North America and Japan do not wish to feel as if they've been forced to accept a down-grading of their previous motoring expectations.
So it is imperative that VMs are able to create convincing and compelling product, brand and marketing messages to this somewhat schizophrenic western audience. An audience who still hold much of the prime purchasing power, even if more reluctant to spend as they build-up their own savings levels.
[NB Which in turn provides banking sector capital liquidity which when loaned as investment capital acts to provide the much needed 'productivity push' to boost their own purchasing patterns].
Every major VM seeks to explore and deliver by following in the same footsteps of Renault / Dacia. Especially so given the recent announcement by Renault-Nissan that the Datsun name will be re-introduced as Asia's interpretation of Dacia. (Very possibly badge-engineered Dacia's). The 'anti' raised again by Volkswagen Group's ruminations regards adding an new entry-level brand to compete against Dacia head-on; below Skoda.
The Economic 'Floor' of the 'Low Cost' Car -
The economic advantage gained by 'recycling' a last generation technology set (eg basic structural platform, powertrain, electronic architecture, sub-structure fittings etc) with whole vehicle assembly taking inside a lower tier CEE EU country, is proven by Renault's reported 6% margin to be very impressive.
[NB Those magic investment friendly ROI figures being 3% - 5% margin on mainstream cars (typically presently though <0% - 2%), 5% - 8% on commercial vehicles, a similar level on 21st century 'low-cost' cars, 10% - 12% on premium cars and 15% - 17% on super-cars]
Yet there is of course still the matter of the all important ultimate 'floor' pricing level.
Within the EU, this is estimated by investment-auto-motives to be approximately E4,500 for an A-segment sized car, E5,200 for a B-segment sized vehicle and E5,800 for a C-segment sized car; all consisting of very basic feature and specification.
Thus, as can be evidently recognised, even this much reduced ex-factory base price, such costs, even as break-even market-share chasing prices, would be far beyond the reach of the bottom-tier masses in the likes of India, China, Brazil and Russia.
Renault's previous JV with India's Mahindra and Mahindra managed to save 15% off of the ex-factory price via the use of local parts supply deals and cheaper Indian assembly labour. This then lowers a typical B-C segment car (as is the footprint of Logan) from an estimated E5,500 to E4,675 or INR 3,17,900 (Indian Rupees).
EM nations such as India have such large quantities of poor folk because of economic fundamentals, critically a surplus labour relative to the national productivity requirements. To such an extent that for those earning a basic and average living amongst the 'bottom-tier' mass – typified by the unskilled agricultural worker - even the ex-factory price of that M&M (Logan) sedan at INR 3,17,900 represents 30 years worth of earned income (supposing an above average rate of INR 70 per day and 150 days of work each year). This means that ownership of the archetype 'low-cost' car is nothing more than an unobtainable distant dream for most.
The Ideal of the 'Ultra Low Coat' Car -
This dilemma has prompted political and corporate leaders in EM countries to seek two alternative routes. To try and enable an extension of the 'low cost' car, aswell as (seemingly more prescient) the feasible invention of the 'ultra low cost' car. Solutions required to transform the lives of 'bottom-tier' people so enabling them to achieve mass private mobility in 4-wheeled comfort..
Those two alternative routes to social, commercial and economic change, range from the conventional & conservative to the radical & innovative.
Conservatively, the purchase of old technology from those advanced – and not so advanced - foreign VMs (for a cross-border 'lift & shift'), with of course the least advanced technologies providing the most affordable option.
Radically, to nurture domestic industrial creativity, providing for original, innovative 'homeland' NPD possibilities. Where hopefully the usually opposing forces of management science theory and application can be combined with the re-ordering of the traditional industrial process: as seen with TATA's ideal for the “1 Lakh” Nano
These opposing philosophical road-signs thus present a very contrasting paths for VMs own individual, and possibly multiple shared, technical strategies.
Whether 'thesis' and 'anti-thesis' can meet in the form of a ground-breaking new 'hypothesis' remains to be seen. Business models often can, like cars, with practical creativity be dissected and reconstructed to suit. Presently however, that possibility appears a distant possibility given the widespread reliance on a 'low cost' route, and the great intellectual flux of the 'ultra low cost' route.
To Follow – (Parts 2 & 3) -
Part 2 of this web-log will provide a general outline of those alternative routes.
As the most progressive yet most challenging of those alternatives, it will consider where the inspiration originated for the 'ultra low cost' car.
A potted history of those successful and less successful pioneers should serve as lessons learned but possibly forgotten, ranging from Ford's Model T through to Morgan & Reliant 3-wheelers through to TATA's Nano
It will include 'snapshot' views of today's players in EM regions who have sought through history and today to provide mass mobility private transport and consequentially sought to turn the auto-industry on its head, and the success achieved thus far.
Part 3 of this web-log will contrast and compare the notions of the 'ultra low cost' car as exemplified by Nano, with the 'low cost' car (as depicted by Logan). With the important recognition that these two ambitions, though seemingly on a linear cost savings scale actually represent very different viewpoints and very different commercial hurdles, pitting an adaption of business as usual against a radical re-think of the auto-business.
Given the 'low cost' car's greater affect and potential affect upon the global auto-industry, the piece returns to provide deeper contextual insight regards Renault's impressive achievement with Dacia, by both learning from VW's previous efforts in reviving Skoda, and confidently seeking even greater advantage from the rising economic tide that was EU expansion.
It poses the question as to whether any other western VMs can indeed copy the 'Renault EM Playbook', or whether it was the last example of the West's ability to do so?
Lastly, the natural final question is to ask which vehicle manufactures across 'advanced' and 'advancing' regions might be best placed to follow these wholly separate routes of 'low cost' car vs 'ultra low cost' car? And whether any of those global, regional and national players might possibly be strategically equipped and ambitious enough to explore both paths?
Thursday, 19 April 2012
Wednesday, 11 April 2012
Macro Level Trends – UK Investment (Part 3) – New Perspectives on Toll Roads - Future Models
The previous two web-logs highlighted the national paradox Britain faces, its desperate need for transport infrastructure renewal yet without the public monies to fund such a renaissance. As has been the case with other infrastructure works – namely airports and water – the funding made available over recent years and of today is of invariably in foreign hands, by way of SWF bodies and PE companies.
Western infrastructure projects thus increasingly rely upon the demands of others.
There are two prime aspects to the investment agenda behind much of that liquidity: the desire for risk averse, long-horizon propositions and the ability to re-play the scheme again elsewhere geographically. (This done within the funder's own homeland as part of its own national economic agenda, and if possible in other similar infrastructure evolved countries).
Thus it could be said that the foreign SWF or PE fund of the 21st century views its investment decisions upon much the same philosophical lines as those 20th century American companies which created the iconic US shopping mall, then multiplied what became well understood, almost standardised models across the world.
As mentioned in Part 1, Britain's powerful past and its ability to combine mercantilism with industry meant that it played perhaps a pivotal role in the idea of transport and transport network infrastructure in formative modern times – from the creation of tarmac to invention of 'cat's eyes' – physically and metaphorically laying the foundations. Yet whilst the UK saw increased standards of living thus providing for mass vehicle ownership and seeming unending logistical demand of goods hauliers to feed consumerism, the country has also increasingly suffered road network congestion and resultant affects of loss of productivity, driver & social stress and area specific grid-lock pollution.
[NB However, the advances in modern internal combustion engine efficiency by the major VMs (including 'add-on' start-stop function) must be recognised and praised as the prime enablers of impressive pollution reduction. London's 'pea-soupers' are very much a past phenomenon].
Nevertheless, governments, green campaigners, institutional-type investors and indeed auto-manufacturers, all alike well understand the massive advantage that a truly intelligent 21st century road network – and indeed holistic transport network – would provide for Britain. Yet since its own pioneering advancement all those years ago, the country has arguably not even 'kept pace' with the advancements made elsewhere: from the relatively rudimentary payage system seen on France's motorways to the phased advancements seen in Singapore since the 1970s.
Britain's examples, described previously with the QE2 Dartford Bridge, the London Congestion Zone, the M6 Toll Expressway, the (failed) Manchester Congestion Zone, and the Greater London Emissions Zone, have all highlighted the manner in which semi-state and non-state funding seek commercial methods (obvious or invisible) to improve Britain's age-old transport network.
Different schemes in varying locales have been designed to suit local conditions, the socio-economics and indeed regional psycho-graphics.
Schemes such as Milan's original 'Eco-Zone' format have used the level of a vehicle's CO2 emissions (g/km) to either effectively prohibit, allow at no cost or allow with fee, various vehicles of age and size into the city's central area. This contrasts with other schemes but highlights the development of segmented usage.
Segmentation is hardly a new concept, simply a pseudo-modernist word for old world categorisation, the kind of categorisation which on British toll roads centuries ago charged different rates for different types of conveyance; from pedestrian through to heavy draft horse and wagon.
Today's we see renewed interpretations, but the very action of segmenting what had previously been regarded 'utility goods' has been a marked trend for the last few decades.
Utility Service Segmentation -
The most commercially visible case-study has perhaps been the market for drinking water. This very essence of life has evolved from merely its basic tap-water form (still the envy of millions) through to variously offered varieties in variously offered containers: from glass bottled premium branded 'spring' waters, to basic 'bottom-rung' non-tap waters in 5 litre sizes, to scientifically vitamin enriched health waters, to sports-science developed energy water and beyond. Thus, market-enabled adaption of a basic commodity to suit ever more nuanced, and critically different, customers' needs, wants and desires.
[NB investment-auto-motives conjects that in years to come segmentation may appear regards industry and household (domestic-use) consumption. Critically where varying levels of water purity can command a graduated pricing structure – from filtrated pure drinking water to (today's) standard drinking water to personal washing/bathing & white goods water to garden 'grey-water'. Thus mimicking the segmentation of household waste into: recyclable, green-matter & refuse].
However, a more meaningful parallels to road-pricing possibilities come from the general 'utility' service sector, in the provision of electricity, gas and telecoms.
In the UK these markets have long since been segmented, yet whilst consumer complaints have been made about the confusing tariff structures of electricity and gas – especially when combined - the most prescient example of well received segmentation is that of the telecoms sector.
Here the proliferation of services across land-line phone, mobile phone, internet and cable television has meant that consumers can buy ever more discretely separate offerings, or indeed the opposite of ever more 'bundled' offerings, to suit their lifestyle and functional needs. The telecoms experience then appears to offer good guidance as to how any seeming 'commoditized' utility may be creatively developed and differentiated for improved price modelling and ultimately latter-day re-investment. Though it must be recognised that – unlike the electricity or gas cases – it has been innovation has played a major role in enabling such segmentation.
Models To Date -
The traffic management toll-enforced initiatives to date - started at different times in different cities and with subtly different agendas - in effect create a matrix of usage and so pricing possibilities.
The 'pricing dimensions' seen thus far which allow such a flexible structure are:
1. Time of Travel (ie hour of day & accordant traffic level)
2. Environmental (CO2 Pollution) Affect (ie vehicle rating).
The relatively new access schemes seen thus far were introduced using a singular dimension, for ease of public acceptance, ease of administration and the ability to evolve ever more segmented future pricing structures. So these two seemingly separate elements will undoubtedly corss-fertilise in years to come, and thereafter various new additional 'price dimensions' could be applied – such as vehicle footprint size and passenger / load capacity-usage of vehicle (ie efficiency). To create an ever more 3-dimension or even 4-dimensional structures, so ever more pricing flexibility and thus 'intelligent pricing'.
[NB Though it is recognised that such additional initiatives could be seen as ever incremental stealth taxes upon road users where vehicles are not used at optimum levels].
This then reflects the thesis that has been well under-way in certain quarters of government and investment houses, which views the future of road travel as 'segmentable'. What was once a utility service, with accordant low public expectations, may offer a plethora of combinations and so pricing options.
This then a 'dicing and slicing' of the basic element in much the same way that many other previous 'commodity markets' were developed.
Planning 'C21' Britain: Four Basic Models -
Below are listed 4 basic but distinct road-pricing models. Each pertains to what may be regarded as the 4 basic locational and usage road types, and seeks to reflect logical reasoning as to how each may be segmented to provide fair graduated system.
The accompanying graphic provides visual depiction of what investment-auto-motives views as 'naturally evolved' road pricing models across the 4 discrete categories, with rates related to the predominance of either geographic locale and / or a specific user types.
The 4 types encompassed are:
1. Urban Roads
2. A & B Roads
3. Motorway Roads
4. Rural Roads
Urban Roads :
Historically, urbanisation trends are typically accompanied by raised living standards and so general raised levels of motorisation. The UK an obvious example in the latter half of the 20th century. Though suburbs and new towns grew to cater for that requirement, given its relatively small land mass, its long history of established habitation, and so a necessarily ad-hoc and constrained approach to infrastructure development, the UK is almost endemically 'network constrained'.
Unlike say the USA with greater land availability, so suburban stretch and indeed development of 'auto-cities' such as Los Angles - which fundamentally differ in plan from traditionally historically evolved European cities and towns - the UK has always had to try and efficiently operate the available space of its cities and towns, whether in the majority of old cities or the far fewer 'new towns' latterly built.
Any city-based toll scheme must reflective the real-world transport challenges faced within that specific city. Yet of course whilst cities differ geographically and regards specific problems and 'problem areas' and must function under various political and administrative leanings, the fact that urban roads may be viewed as 'network systems' - with levels of usage and flow predictability, even with supposedly autonomous users – means that variously developed models have come into being since Singapore's pioneering effort.
As such London's planners were able to take on board lessons learned from elsewhere when originally conceiving the London Congestion Charge, which itself will be used as the template for latter day roll-out of other UK city schemes. This meant exploring various 'simple to complex' pricing structures which had to be assessed for level of popular acceptance and implementation ability.
Though new tolls are inevitably unpopular, to lessen resistance, aid popular comprehension and so make introduction workable, the London scheme was brought into being using a simple flat-fee pricing structure.
However, its original guise saw a more complex scheme, like Milan, deploying CO2 emissions pricing bands within a maturing Vehicle Road Fund Licence (ie Road Tax) system. Thus proposing to align zone entry charges relative to vehicle type. This is partially employed with exemption of zero-emissions vehicles and the pricing difference between cars and trucks, yet the flat-fee system was used to “sugar the pill” Londoners and provincial commuters.
However, the Congestion Zone's future will inevitably be one where segmentation plays a greater role to good effect for the benefit of all road users and indeed public space users. Moreover, given the scale of the UK's national financial deficit, and the city's own (post-Olympic) economic growth ambitions, it seems that London's 'CC' scheme must be developed to provide the metropolitan and nation-wide income so desperately required to help the UK back into the black.
The accompanying graphic shows a chart titled 'Urban Centre' which displays exactly how the London scheme must be developed. It shows both Non Peak Hour and Peak Hour scenarios (as is the case today) with an additional price relative “Vehicle CO2-band” staircase within each scenario.
The fee structure shows exactly the same 'rate of climb' relative to the recognised CO2 bands, but rationally the base level for Peak Hour driving (ie the entry point price of “Y”) is higher than that of its Off Peak counterpart of “X”.
Unlike today, this then introduces a 'payage' across a full day's 24 hour period to enter the city centre.
A & B Roads :
This roadway classification has been the official and popularly recognised prefix naming convention for what may be termed 'senior' and 'junior' route-ways carrying differing weights of traffic. With the expansion of general network capacities over the years some lesser used old 'A' roads were demoted to 'B' road status. Whilst many view the archetype A road as a dual carriageway and the archetype B road as single lane, the fact is that both can consist of either single or double lanes, often combining both relative to local traffic needs.
Since A and B roads comprise the majority of prime suburban and inter-regional connections, and can be characterised by their respective 'directness' to whichever destination, it is envisioned that both types convey different levels of usage fee. Obviously the more senior reflecting a higher toll and the junior a lower toll. Unlike the city-centre scheme there would not initially be Peak Hour and Non Peak Hour rates, although such a system could be latterly introduced.
This is depicted in the relevant chart as a simple 2 tier pricing structure.
For such road rating purposes, investment-auto-motives believes that a new national road survey may be required to fundamentally assure that any levied toll would be commensurate with the level of roadway provision given.
Motorways :
These would mirror what the British see as the 'continental' motorway set-up, seen with the M6 Expressway and the similar examples in Toronto, Canada and elsewhere. Thus the typical introduction of 'toll plazas' providing the e-Tag system, automated coin collection and manned coin collection, and in course more sophisticated electronic vehicle identification and tracking methods.
The prime difference being that the roadway itself is philosophically and physically evolved to proffer 3 distinct products. Via greater application of electronic intelligence, the conventional 3 lanes of 'slow-lane', 'middle-lane' and 'fast-lane' are differentiated and re-established. Leveraging the public's basic perceptions of each type, the routeways are metaphysically divided into respectively: the 'eco-lane', the 'mass-lane' and the 'fast-track'.
The eco-lane would operate at speeds up to 60mph, the,mass-lane range between 60-80mph and the fast-track to offer drivers the ability to legally drive 'at speed' between 80-100mph, mimicking the model of the German Autobahn.
This then allows differing driver types and their relative vehicle types better “allocation”.
HGVs, motorhomes, towed caravans and typically smaller cars using the eco-lane, the slower speeds thus maximisng fuel efficiency and maintaining the natural 'safety zone' for different vehicle types seen today. The toll levied here would be minimal (see the relative chart's “X”) given the reduced impact on the environment, and the nature of the vehicles using this lane.
The mass-lane would consist of cars and lighter commercial vehicles (LCVs) whose drivers wish to drive in the conventional manner, but now with an enhanced speed limit of 80mph to aid traffic flow and assist in creating better vehicle separation so as to allow greater breaking distances, so aiding safety. The toll levied would be at “Y” at the medium point of the 3 level range, reflecting the mid-point utility of the road and possibly the greatest road-surface 'wear & tear' given the mass density of traffic.
The fast-track would critically offer a graduated toll relative to the speed travelled, as recognised by speed cameras or similar advanced technology. Thus the faster driven the greater the toll to be paid. This would then create a useful unhindered 'expressway' to be used by those who are “cash-rich & time-poor” under the greatest pressure to travel quickly; so including company executives, managers and travelling commercial staff, aswell offering a more efficient roadway to (car & LCV) based delivery companies – which are expected to grow in number as a result of continued postal deregulation and a re-emergent UK economy.
Of course vehicles would not be prohibited from lane-changing as necessary, and as is the norm today, but it might be envisaged that a specific (chargeable) lane is specified at entry to the toll plaza, with an allotment of say 5% travel time to be allowed for the required lane changing for natural over-taking of a vehicle in front.
Rural Roads :
City dwellers no doubt view these roads as costly on a per mile travelled basis, their sparse use highlighting them as under-utilised, whilst there necessary surface maintanance regime (because of exposure to wide ranging climatic conditions) means that the relative cost for each actual user is high. Thus on a purely measured and calculated basis, rural roads have about as much reason for 'not being' as those closed rural rail-lines under Dr Beeching in the 1960s.
However, this is to over-simplify the matter, since roads provide a far greater case as a social and economic life-line than the railway ever could, especially under the then weight of a rising UK car-parc. Rural roads, though possibly 'cut-off' in extreme conditions in certain regions, provide the transport back-bine for small towns and villages by way of private car, often shared car journey and of course public transport.
Furthermore, they are the literal routeway into what is often considered 'Real Britain', that countryside idyll, and an idyll which is today being re-awoken as the UK seeks to grow its domestic tourism sector.
To this end, the very distinct uses of country roads by distinct user types means than this category of road ought to be rated not simply upon a usage basis – as is the case elsewhere – but on a user basis.
Thus user differentiation provides for the Rural-Dweller, the Suburban Dweller and the Urban Dweller. These three types then typically have different uses of rural roads. Looking at the relative chart, the former Rural Dweller, being 'in-situ' and bound to rural roads would pay the lowest toll “X” so that he she can go about his/her daily lives. The Suburban Dweller with perhaps greater call or necessity to travel to and across what is classed as countryside - given geographic proximity – would pay “Y”. Whilst the Urban Dweller would pay the highest rate of “Z” given the more likely reason to use country roads as that of a tourist. Moreover, this high rate toll would be paid by those wealthier city-based people who are fortunate to also have a country home or weekend retreat, thus in effect utilised by government as a progressive tax.
[NB This then depicts four models relative to to four distinct roadways. Whilst the reasoning offered is considered sound, of course far greater exploration and analysis would be required before these specific models were to be recommended for eventual adoption].
It is then shows the complexity in theorising and installing a nationwide road-tolling scheme, whether in a peace-meal manner via private funding on a per project basis, or 'in extremis', if government were to fundamentally alter the structure of state-induced road pricing, away from the current vehicle road fund license and fuel duty toward something far more proactive.
As mentioned throughout the 3 web-log parts, it appears that private finance and new era PFI initiatives would take such a lead on a project by project basis, utilising advanced traffic management technologies to assist in monitoring road usage and pricing models to balance overall costs versus the income stream.
Traffic Recognition Technology Advancement -
As previously highlighted, to date traffic management technology has developed to become increasingly sophisticated over the decades. Its prime purpose to identify specific vehicles and their owners in order to levy any access fee. It consists primarily of 2 technologies, depending upon whether 'area-bound' relative to a congestion zone or 'pass-point' relative to bridge or motorway.
The technologies developed generally :
1. Camera based for visual recognition of vehicle number plate.
2. Micro-chip based “master and slave” electronic sensors.
However, ever more sophisticated sensing technology has emerged in recent years, one which originated inside the automotive industry with its need for efficient logistical planning and been latterly rolled-out amongst many kinds of B2B and B2C groups.
It is of course the QR (Quick Response) graphic coding system, now deeply embedded within the public's own consciousness given the 'Aztec' style black and white blocks that have appeared across many spheres, and endemically linked to the smart-phone arena, in which the term 'flashgram' is often used.
Its origins lay within DENSO, the auto-parts manufacturing and supply sub-division of Toyota, yet interestingly Toyota preferred to let the technology become public domain as opposed to trying to commercialise itself. (Possibly given the fact that similar 'matrix code' exercises were being researched by others).
The graphic coding system has been adopted by the railway and airline sectors as part of their ticketing methods – both in printed and screen formats, and recognised by an official code-reader.
But appears not to have yet been adopted by any country's official vehicle registration bodies for full scale implementation; although the Polish Vehicle Registration Authority has apparently applied the graphic to its own registration documents so that auto insurance companies can avoid fraud by obtaining precise official records 'first hand', instead of relying upon what might be adulterated paperwork.
The UK vehicle registration system came into being in 1903, and has seen crucial modification as a result of increasing number of road vehicles in 1932, requiring greater alpha-numeric combinations, and since 2001 has had to address the influence of EU standardisation. To date standard UK mainland plates have been alpha-numeric, yet like EU counterparts may also carry a blue band on the left-hand edge which to date has been used for displaying a national flag and – at least in the UK – other symbols such as the logo of a favourite football team etc.
It looks to be the case that this blue-band margin then may be used to in future house other graphic signifiers which may be of use to either official governmental bodies or private toll-road operators, or indeed both.
Thus, it may well be the case that the QR matrix coding graphic could in time become a 'quick read' option for electronic eyes, and far beyond the limited capabilities of the established alpha-numeric system, could hold a broader raft of vehicle information within its matrix that would be of use to police and emergency services, such as owners name, vehicle crash history, etc, and perhaps allows for an immediate 'read' of the vehicle's recent whereabouts and last inspection condition by police, insurers, highways agency etc.
Thus, the inclusion of QR coding technology in combination with the creation of a truly intelligent road and transport network would propel the UK into the future.
Conclusion -
The very issue of road tolls and road pricing is understandably a contentious one; especially so in the UK where unlike other nations road travel has been notionally 'free'. Yet of course it is not free, it is a public and industry funded 'public good'.
Roadways (like canals and railways) have been the very foundations of national economic growth in the UK since Roman times, and have historically been seen as a core governmental responsibility to assist economic mobility and so the national wealth.
But as seen with even the Roman Empire, aswell as 17th century land and road and bridge owner-operators, toll collection became a requisite part of road creation and improvement funding. The development of smoother, safer and faster roads - along with concomitant improvements in horse-drawn carriage design and size – sped-up general mobility and saw a massive productivity boost. To such an extent that Victorian England's postal service had more daily collections as part of its general service than today.
Of course ethereal e-travel of information across internet has in many quarters superseded the capabilities for informational relay that can be done physically by road, rail or air. But much of the economic activity with the UK is vitally dependent upon the transport of people, goods and services.
And so still (thankfully) a long time away from the wholly e-connected distopia described in Graham Greene's 'The Machine Stops'...which ironically highlights a return to the natural and physical.
So whilst undoubtedly e-connection has brought many commercial and social advantages, the fact remains that old fashioned physical infrastructure remains vitally important for the good of the economy and individual and so national well being.
However, after over a century of notionally 'free' infrastructure use – paid for by the largely invisible public purse as opposed to the sensitive private purse – the ultimate true cost of vehicle travel is yet to be wholly recognised by the general public and enterprise alike.
This must change in due course.
As the topic of financing becomes more prescient for all at personal and state levels, the opaqueness – indeed invisibility - of the current system administered by the state and constantly criticised by the private motorist and haulage contractor alike, will need to evolve.
That evolution will require formulae that provides account of the cost-benefit equation, so that users can be better informed and so make more economically rational choices from sets of broader choices about their vehicle travel requirements.
And to so will require innovation, with a far greater proportion of R&D put into the hands of industry and enterprise, so that a new vitality can over-ride years of institutional state conformity by divesting R&D operations as spin-off in the Qinetiq mould. Such spin-off companies then given the freedom to interact with private construction companies and their SWF and PE infrastrcuture fund backers. And to in time set new worldwide roadway standards, eminating from the UK.
As regards toll roads thus far, there have undoubtedly been teething problems – as with the (not unexpected) under-capacity of the M6 Toll Motorway. But such experiences will obviously occur as the toll road system slowly develops from that of a very static, realistically uninformed and slow reacting, pricing system toward something far more trend and user sensitive.
It is an approach that has served well in other 'utility service' spheres, with the obvious example of the internet, telephone and tv channel providers providing highly segmented pricing structures to suit the varying needs of different parties. What the yesteryear GPO or 'old BT' could not possibly have achieved as state-run concerns, in terms of customer service and technological development, has been achieved by the many 'visioneering' private and public companies. The ownership de-regulation of the communications industry changed the face of society and assisted the development of the national economy immeasurably.
However, transforming the engrained public perception of roadways is a very hard task, especially when there appears little or no cohesive grand vision as to what that future may look like.
To this end, such possibilities should be explored, conceived and explained.
[ NB. In parallel there may be changes required made regards the executive responsibilities of roadways, at present seemingly a web of bodies which span-out from the 2 prime 'chairs' of the The Highways Agency and Local Authorities. investment-auto-motives is admittedly wholly unfamiliar with the bureaucratic format].
A singularity of purpose and responsibility appears key.
The difference between the implementation success of London's Congestion Charge toll system and the inability of local government to create a parallel initiative in Manchester seems in large part to result from the presence – and lack of - of a singular City Mayor.
The wide-reaching leadership, PR and legal powers held by such high office then appears to ensure that public and commercial reaction (and opposition) can be distinctly heard via the normal consultative process, but also ensures that what is inevitably an initially unpopular income raising scheme can be realised.
As Britain economically chugs forward very very slowly, symbolic initiatives such as the High Speed Rail 2 (HS2) and the creation of what may be considered a 4th London airport to the east in Southend promise themselves as precursors to a far more dynamic 'Great Britain'.
Yet the UK's road system today demonstrates itself on a daily basis to be both the thorn in the heel of commercial and social mobility, and hence the slowed circulation of national productivity.
As former Prime Minister, Lady Thatcher once remarked that...”you and I come by road or rail...but economists travel on infrastructure”.
The austerity era has induced the British population to start thinking like pragmatic economists on a personal and household level. Now it must do so on a national level. Part of that starts at the end of their individual driveways.. between 80-100mph, mimicking the model of the German Autobahn.
This then allows differing driver types and their relative vehicle types better between 80-100mph, mimicking the model of the German Autobahn.
This then allows differing driver types and their relative vehicle types better between 80-100mph, mimicking the model of the German Autobahn.
This then allows differing driver types and their relative vehicle types better between 80-100mph, mimicking the model of the German Autobahn.
This then allows differing driver types and their relative vehicle types better
Western infrastructure projects thus increasingly rely upon the demands of others.
There are two prime aspects to the investment agenda behind much of that liquidity: the desire for risk averse, long-horizon propositions and the ability to re-play the scheme again elsewhere geographically. (This done within the funder's own homeland as part of its own national economic agenda, and if possible in other similar infrastructure evolved countries).
Thus it could be said that the foreign SWF or PE fund of the 21st century views its investment decisions upon much the same philosophical lines as those 20th century American companies which created the iconic US shopping mall, then multiplied what became well understood, almost standardised models across the world.
As mentioned in Part 1, Britain's powerful past and its ability to combine mercantilism with industry meant that it played perhaps a pivotal role in the idea of transport and transport network infrastructure in formative modern times – from the creation of tarmac to invention of 'cat's eyes' – physically and metaphorically laying the foundations. Yet whilst the UK saw increased standards of living thus providing for mass vehicle ownership and seeming unending logistical demand of goods hauliers to feed consumerism, the country has also increasingly suffered road network congestion and resultant affects of loss of productivity, driver & social stress and area specific grid-lock pollution.
[NB However, the advances in modern internal combustion engine efficiency by the major VMs (including 'add-on' start-stop function) must be recognised and praised as the prime enablers of impressive pollution reduction. London's 'pea-soupers' are very much a past phenomenon].
Nevertheless, governments, green campaigners, institutional-type investors and indeed auto-manufacturers, all alike well understand the massive advantage that a truly intelligent 21st century road network – and indeed holistic transport network – would provide for Britain. Yet since its own pioneering advancement all those years ago, the country has arguably not even 'kept pace' with the advancements made elsewhere: from the relatively rudimentary payage system seen on France's motorways to the phased advancements seen in Singapore since the 1970s.
Britain's examples, described previously with the QE2 Dartford Bridge, the London Congestion Zone, the M6 Toll Expressway, the (failed) Manchester Congestion Zone, and the Greater London Emissions Zone, have all highlighted the manner in which semi-state and non-state funding seek commercial methods (obvious or invisible) to improve Britain's age-old transport network.
Different schemes in varying locales have been designed to suit local conditions, the socio-economics and indeed regional psycho-graphics.
Schemes such as Milan's original 'Eco-Zone' format have used the level of a vehicle's CO2 emissions (g/km) to either effectively prohibit, allow at no cost or allow with fee, various vehicles of age and size into the city's central area. This contrasts with other schemes but highlights the development of segmented usage.
Segmentation is hardly a new concept, simply a pseudo-modernist word for old world categorisation, the kind of categorisation which on British toll roads centuries ago charged different rates for different types of conveyance; from pedestrian through to heavy draft horse and wagon.
Today's we see renewed interpretations, but the very action of segmenting what had previously been regarded 'utility goods' has been a marked trend for the last few decades.
Utility Service Segmentation -
The most commercially visible case-study has perhaps been the market for drinking water. This very essence of life has evolved from merely its basic tap-water form (still the envy of millions) through to variously offered varieties in variously offered containers: from glass bottled premium branded 'spring' waters, to basic 'bottom-rung' non-tap waters in 5 litre sizes, to scientifically vitamin enriched health waters, to sports-science developed energy water and beyond. Thus, market-enabled adaption of a basic commodity to suit ever more nuanced, and critically different, customers' needs, wants and desires.
[NB investment-auto-motives conjects that in years to come segmentation may appear regards industry and household (domestic-use) consumption. Critically where varying levels of water purity can command a graduated pricing structure – from filtrated pure drinking water to (today's) standard drinking water to personal washing/bathing & white goods water to garden 'grey-water'. Thus mimicking the segmentation of household waste into: recyclable, green-matter & refuse].
However, a more meaningful parallels to road-pricing possibilities come from the general 'utility' service sector, in the provision of electricity, gas and telecoms.
In the UK these markets have long since been segmented, yet whilst consumer complaints have been made about the confusing tariff structures of electricity and gas – especially when combined - the most prescient example of well received segmentation is that of the telecoms sector.
Here the proliferation of services across land-line phone, mobile phone, internet and cable television has meant that consumers can buy ever more discretely separate offerings, or indeed the opposite of ever more 'bundled' offerings, to suit their lifestyle and functional needs. The telecoms experience then appears to offer good guidance as to how any seeming 'commoditized' utility may be creatively developed and differentiated for improved price modelling and ultimately latter-day re-investment. Though it must be recognised that – unlike the electricity or gas cases – it has been innovation has played a major role in enabling such segmentation.
Models To Date -
The traffic management toll-enforced initiatives to date - started at different times in different cities and with subtly different agendas - in effect create a matrix of usage and so pricing possibilities.
The 'pricing dimensions' seen thus far which allow such a flexible structure are:
1. Time of Travel (ie hour of day & accordant traffic level)
2. Environmental (CO2 Pollution) Affect (ie vehicle rating).
The relatively new access schemes seen thus far were introduced using a singular dimension, for ease of public acceptance, ease of administration and the ability to evolve ever more segmented future pricing structures. So these two seemingly separate elements will undoubtedly corss-fertilise in years to come, and thereafter various new additional 'price dimensions' could be applied – such as vehicle footprint size and passenger / load capacity-usage of vehicle (ie efficiency). To create an ever more 3-dimension or even 4-dimensional structures, so ever more pricing flexibility and thus 'intelligent pricing'.
[NB Though it is recognised that such additional initiatives could be seen as ever incremental stealth taxes upon road users where vehicles are not used at optimum levels].
This then reflects the thesis that has been well under-way in certain quarters of government and investment houses, which views the future of road travel as 'segmentable'. What was once a utility service, with accordant low public expectations, may offer a plethora of combinations and so pricing options.
This then a 'dicing and slicing' of the basic element in much the same way that many other previous 'commodity markets' were developed.
Planning 'C21' Britain: Four Basic Models -
Below are listed 4 basic but distinct road-pricing models. Each pertains to what may be regarded as the 4 basic locational and usage road types, and seeks to reflect logical reasoning as to how each may be segmented to provide fair graduated system.
The accompanying graphic provides visual depiction of what investment-auto-motives views as 'naturally evolved' road pricing models across the 4 discrete categories, with rates related to the predominance of either geographic locale and / or a specific user types.
The 4 types encompassed are:
1. Urban Roads
2. A & B Roads
3. Motorway Roads
4. Rural Roads
Urban Roads :
Historically, urbanisation trends are typically accompanied by raised living standards and so general raised levels of motorisation. The UK an obvious example in the latter half of the 20th century. Though suburbs and new towns grew to cater for that requirement, given its relatively small land mass, its long history of established habitation, and so a necessarily ad-hoc and constrained approach to infrastructure development, the UK is almost endemically 'network constrained'.
Unlike say the USA with greater land availability, so suburban stretch and indeed development of 'auto-cities' such as Los Angles - which fundamentally differ in plan from traditionally historically evolved European cities and towns - the UK has always had to try and efficiently operate the available space of its cities and towns, whether in the majority of old cities or the far fewer 'new towns' latterly built.
Any city-based toll scheme must reflective the real-world transport challenges faced within that specific city. Yet of course whilst cities differ geographically and regards specific problems and 'problem areas' and must function under various political and administrative leanings, the fact that urban roads may be viewed as 'network systems' - with levels of usage and flow predictability, even with supposedly autonomous users – means that variously developed models have come into being since Singapore's pioneering effort.
As such London's planners were able to take on board lessons learned from elsewhere when originally conceiving the London Congestion Charge, which itself will be used as the template for latter day roll-out of other UK city schemes. This meant exploring various 'simple to complex' pricing structures which had to be assessed for level of popular acceptance and implementation ability.
Though new tolls are inevitably unpopular, to lessen resistance, aid popular comprehension and so make introduction workable, the London scheme was brought into being using a simple flat-fee pricing structure.
However, its original guise saw a more complex scheme, like Milan, deploying CO2 emissions pricing bands within a maturing Vehicle Road Fund Licence (ie Road Tax) system. Thus proposing to align zone entry charges relative to vehicle type. This is partially employed with exemption of zero-emissions vehicles and the pricing difference between cars and trucks, yet the flat-fee system was used to “sugar the pill” Londoners and provincial commuters.
However, the Congestion Zone's future will inevitably be one where segmentation plays a greater role to good effect for the benefit of all road users and indeed public space users. Moreover, given the scale of the UK's national financial deficit, and the city's own (post-Olympic) economic growth ambitions, it seems that London's 'CC' scheme must be developed to provide the metropolitan and nation-wide income so desperately required to help the UK back into the black.
The accompanying graphic shows a chart titled 'Urban Centre' which displays exactly how the London scheme must be developed. It shows both Non Peak Hour and Peak Hour scenarios (as is the case today) with an additional price relative “Vehicle CO2-band” staircase within each scenario.
The fee structure shows exactly the same 'rate of climb' relative to the recognised CO2 bands, but rationally the base level for Peak Hour driving (ie the entry point price of “Y”) is higher than that of its Off Peak counterpart of “X”.
Unlike today, this then introduces a 'payage' across a full day's 24 hour period to enter the city centre.
A & B Roads :
This roadway classification has been the official and popularly recognised prefix naming convention for what may be termed 'senior' and 'junior' route-ways carrying differing weights of traffic. With the expansion of general network capacities over the years some lesser used old 'A' roads were demoted to 'B' road status. Whilst many view the archetype A road as a dual carriageway and the archetype B road as single lane, the fact is that both can consist of either single or double lanes, often combining both relative to local traffic needs.
Since A and B roads comprise the majority of prime suburban and inter-regional connections, and can be characterised by their respective 'directness' to whichever destination, it is envisioned that both types convey different levels of usage fee. Obviously the more senior reflecting a higher toll and the junior a lower toll. Unlike the city-centre scheme there would not initially be Peak Hour and Non Peak Hour rates, although such a system could be latterly introduced.
This is depicted in the relevant chart as a simple 2 tier pricing structure.
For such road rating purposes, investment-auto-motives believes that a new national road survey may be required to fundamentally assure that any levied toll would be commensurate with the level of roadway provision given.
Motorways :
These would mirror what the British see as the 'continental' motorway set-up, seen with the M6 Expressway and the similar examples in Toronto, Canada and elsewhere. Thus the typical introduction of 'toll plazas' providing the e-Tag system, automated coin collection and manned coin collection, and in course more sophisticated electronic vehicle identification and tracking methods.
The prime difference being that the roadway itself is philosophically and physically evolved to proffer 3 distinct products. Via greater application of electronic intelligence, the conventional 3 lanes of 'slow-lane', 'middle-lane' and 'fast-lane' are differentiated and re-established. Leveraging the public's basic perceptions of each type, the routeways are metaphysically divided into respectively: the 'eco-lane', the 'mass-lane' and the 'fast-track'.
The eco-lane would operate at speeds up to 60mph, the,mass-lane range between 60-80mph and the fast-track to offer drivers the ability to legally drive 'at speed' between 80-100mph, mimicking the model of the German Autobahn.
This then allows differing driver types and their relative vehicle types better “allocation”.
HGVs, motorhomes, towed caravans and typically smaller cars using the eco-lane, the slower speeds thus maximisng fuel efficiency and maintaining the natural 'safety zone' for different vehicle types seen today. The toll levied here would be minimal (see the relative chart's “X”) given the reduced impact on the environment, and the nature of the vehicles using this lane.
The mass-lane would consist of cars and lighter commercial vehicles (LCVs) whose drivers wish to drive in the conventional manner, but now with an enhanced speed limit of 80mph to aid traffic flow and assist in creating better vehicle separation so as to allow greater breaking distances, so aiding safety. The toll levied would be at “Y” at the medium point of the 3 level range, reflecting the mid-point utility of the road and possibly the greatest road-surface 'wear & tear' given the mass density of traffic.
The fast-track would critically offer a graduated toll relative to the speed travelled, as recognised by speed cameras or similar advanced technology. Thus the faster driven the greater the toll to be paid. This would then create a useful unhindered 'expressway' to be used by those who are “cash-rich & time-poor” under the greatest pressure to travel quickly; so including company executives, managers and travelling commercial staff, aswell offering a more efficient roadway to (car & LCV) based delivery companies – which are expected to grow in number as a result of continued postal deregulation and a re-emergent UK economy.
Of course vehicles would not be prohibited from lane-changing as necessary, and as is the norm today, but it might be envisaged that a specific (chargeable) lane is specified at entry to the toll plaza, with an allotment of say 5% travel time to be allowed for the required lane changing for natural over-taking of a vehicle in front.
Rural Roads :
City dwellers no doubt view these roads as costly on a per mile travelled basis, their sparse use highlighting them as under-utilised, whilst there necessary surface maintanance regime (because of exposure to wide ranging climatic conditions) means that the relative cost for each actual user is high. Thus on a purely measured and calculated basis, rural roads have about as much reason for 'not being' as those closed rural rail-lines under Dr Beeching in the 1960s.
However, this is to over-simplify the matter, since roads provide a far greater case as a social and economic life-line than the railway ever could, especially under the then weight of a rising UK car-parc. Rural roads, though possibly 'cut-off' in extreme conditions in certain regions, provide the transport back-bine for small towns and villages by way of private car, often shared car journey and of course public transport.
Furthermore, they are the literal routeway into what is often considered 'Real Britain', that countryside idyll, and an idyll which is today being re-awoken as the UK seeks to grow its domestic tourism sector.
To this end, the very distinct uses of country roads by distinct user types means than this category of road ought to be rated not simply upon a usage basis – as is the case elsewhere – but on a user basis.
Thus user differentiation provides for the Rural-Dweller, the Suburban Dweller and the Urban Dweller. These three types then typically have different uses of rural roads. Looking at the relative chart, the former Rural Dweller, being 'in-situ' and bound to rural roads would pay the lowest toll “X” so that he she can go about his/her daily lives. The Suburban Dweller with perhaps greater call or necessity to travel to and across what is classed as countryside - given geographic proximity – would pay “Y”. Whilst the Urban Dweller would pay the highest rate of “Z” given the more likely reason to use country roads as that of a tourist. Moreover, this high rate toll would be paid by those wealthier city-based people who are fortunate to also have a country home or weekend retreat, thus in effect utilised by government as a progressive tax.
[NB This then depicts four models relative to to four distinct roadways. Whilst the reasoning offered is considered sound, of course far greater exploration and analysis would be required before these specific models were to be recommended for eventual adoption].
It is then shows the complexity in theorising and installing a nationwide road-tolling scheme, whether in a peace-meal manner via private funding on a per project basis, or 'in extremis', if government were to fundamentally alter the structure of state-induced road pricing, away from the current vehicle road fund license and fuel duty toward something far more proactive.
As mentioned throughout the 3 web-log parts, it appears that private finance and new era PFI initiatives would take such a lead on a project by project basis, utilising advanced traffic management technologies to assist in monitoring road usage and pricing models to balance overall costs versus the income stream.
Traffic Recognition Technology Advancement -
As previously highlighted, to date traffic management technology has developed to become increasingly sophisticated over the decades. Its prime purpose to identify specific vehicles and their owners in order to levy any access fee. It consists primarily of 2 technologies, depending upon whether 'area-bound' relative to a congestion zone or 'pass-point' relative to bridge or motorway.
The technologies developed generally :
1. Camera based for visual recognition of vehicle number plate.
2. Micro-chip based “master and slave” electronic sensors.
However, ever more sophisticated sensing technology has emerged in recent years, one which originated inside the automotive industry with its need for efficient logistical planning and been latterly rolled-out amongst many kinds of B2B and B2C groups.
It is of course the QR (Quick Response) graphic coding system, now deeply embedded within the public's own consciousness given the 'Aztec' style black and white blocks that have appeared across many spheres, and endemically linked to the smart-phone arena, in which the term 'flashgram' is often used.
Its origins lay within DENSO, the auto-parts manufacturing and supply sub-division of Toyota, yet interestingly Toyota preferred to let the technology become public domain as opposed to trying to commercialise itself. (Possibly given the fact that similar 'matrix code' exercises were being researched by others).
The graphic coding system has been adopted by the railway and airline sectors as part of their ticketing methods – both in printed and screen formats, and recognised by an official code-reader.
But appears not to have yet been adopted by any country's official vehicle registration bodies for full scale implementation; although the Polish Vehicle Registration Authority has apparently applied the graphic to its own registration documents so that auto insurance companies can avoid fraud by obtaining precise official records 'first hand', instead of relying upon what might be adulterated paperwork.
The UK vehicle registration system came into being in 1903, and has seen crucial modification as a result of increasing number of road vehicles in 1932, requiring greater alpha-numeric combinations, and since 2001 has had to address the influence of EU standardisation. To date standard UK mainland plates have been alpha-numeric, yet like EU counterparts may also carry a blue band on the left-hand edge which to date has been used for displaying a national flag and – at least in the UK – other symbols such as the logo of a favourite football team etc.
It looks to be the case that this blue-band margin then may be used to in future house other graphic signifiers which may be of use to either official governmental bodies or private toll-road operators, or indeed both.
Thus, it may well be the case that the QR matrix coding graphic could in time become a 'quick read' option for electronic eyes, and far beyond the limited capabilities of the established alpha-numeric system, could hold a broader raft of vehicle information within its matrix that would be of use to police and emergency services, such as owners name, vehicle crash history, etc, and perhaps allows for an immediate 'read' of the vehicle's recent whereabouts and last inspection condition by police, insurers, highways agency etc.
Thus, the inclusion of QR coding technology in combination with the creation of a truly intelligent road and transport network would propel the UK into the future.
Conclusion -
The very issue of road tolls and road pricing is understandably a contentious one; especially so in the UK where unlike other nations road travel has been notionally 'free'. Yet of course it is not free, it is a public and industry funded 'public good'.
Roadways (like canals and railways) have been the very foundations of national economic growth in the UK since Roman times, and have historically been seen as a core governmental responsibility to assist economic mobility and so the national wealth.
But as seen with even the Roman Empire, aswell as 17th century land and road and bridge owner-operators, toll collection became a requisite part of road creation and improvement funding. The development of smoother, safer and faster roads - along with concomitant improvements in horse-drawn carriage design and size – sped-up general mobility and saw a massive productivity boost. To such an extent that Victorian England's postal service had more daily collections as part of its general service than today.
Of course ethereal e-travel of information across internet has in many quarters superseded the capabilities for informational relay that can be done physically by road, rail or air. But much of the economic activity with the UK is vitally dependent upon the transport of people, goods and services.
And so still (thankfully) a long time away from the wholly e-connected distopia described in Graham Greene's 'The Machine Stops'...which ironically highlights a return to the natural and physical.
So whilst undoubtedly e-connection has brought many commercial and social advantages, the fact remains that old fashioned physical infrastructure remains vitally important for the good of the economy and individual and so national well being.
However, after over a century of notionally 'free' infrastructure use – paid for by the largely invisible public purse as opposed to the sensitive private purse – the ultimate true cost of vehicle travel is yet to be wholly recognised by the general public and enterprise alike.
This must change in due course.
As the topic of financing becomes more prescient for all at personal and state levels, the opaqueness – indeed invisibility - of the current system administered by the state and constantly criticised by the private motorist and haulage contractor alike, will need to evolve.
That evolution will require formulae that provides account of the cost-benefit equation, so that users can be better informed and so make more economically rational choices from sets of broader choices about their vehicle travel requirements.
And to so will require innovation, with a far greater proportion of R&D put into the hands of industry and enterprise, so that a new vitality can over-ride years of institutional state conformity by divesting R&D operations as spin-off in the Qinetiq mould. Such spin-off companies then given the freedom to interact with private construction companies and their SWF and PE infrastrcuture fund backers. And to in time set new worldwide roadway standards, eminating from the UK.
As regards toll roads thus far, there have undoubtedly been teething problems – as with the (not unexpected) under-capacity of the M6 Toll Motorway. But such experiences will obviously occur as the toll road system slowly develops from that of a very static, realistically uninformed and slow reacting, pricing system toward something far more trend and user sensitive.
It is an approach that has served well in other 'utility service' spheres, with the obvious example of the internet, telephone and tv channel providers providing highly segmented pricing structures to suit the varying needs of different parties. What the yesteryear GPO or 'old BT' could not possibly have achieved as state-run concerns, in terms of customer service and technological development, has been achieved by the many 'visioneering' private and public companies. The ownership de-regulation of the communications industry changed the face of society and assisted the development of the national economy immeasurably.
However, transforming the engrained public perception of roadways is a very hard task, especially when there appears little or no cohesive grand vision as to what that future may look like.
To this end, such possibilities should be explored, conceived and explained.
[ NB. In parallel there may be changes required made regards the executive responsibilities of roadways, at present seemingly a web of bodies which span-out from the 2 prime 'chairs' of the The Highways Agency and Local Authorities. investment-auto-motives is admittedly wholly unfamiliar with the bureaucratic format].
A singularity of purpose and responsibility appears key.
The difference between the implementation success of London's Congestion Charge toll system and the inability of local government to create a parallel initiative in Manchester seems in large part to result from the presence – and lack of - of a singular City Mayor.
The wide-reaching leadership, PR and legal powers held by such high office then appears to ensure that public and commercial reaction (and opposition) can be distinctly heard via the normal consultative process, but also ensures that what is inevitably an initially unpopular income raising scheme can be realised.
As Britain economically chugs forward very very slowly, symbolic initiatives such as the High Speed Rail 2 (HS2) and the creation of what may be considered a 4th London airport to the east in Southend promise themselves as precursors to a far more dynamic 'Great Britain'.
Yet the UK's road system today demonstrates itself on a daily basis to be both the thorn in the heel of commercial and social mobility, and hence the slowed circulation of national productivity.
As former Prime Minister, Lady Thatcher once remarked that...”you and I come by road or rail...but economists travel on infrastructure”.
The austerity era has induced the British population to start thinking like pragmatic economists on a personal and household level. Now it must do so on a national level. Part of that starts at the end of their individual driveways.. between 80-100mph, mimicking the model of the German Autobahn.
This then allows differing driver types and their relative vehicle types better between 80-100mph, mimicking the model of the German Autobahn.
This then allows differing driver types and their relative vehicle types better between 80-100mph, mimicking the model of the German Autobahn.
This then allows differing driver types and their relative vehicle types better between 80-100mph, mimicking the model of the German Autobahn.
This then allows differing driver types and their relative vehicle types better
Wednesday, 4 April 2012
Macro Level Trends – UK Investment (Part 2) – New Perspectives on Toll Roads...Examples to Date.
The previous web-log provided a very basic overview of why the UK should continue to review the broad topic of 'road pricing'. Given the present (and indeed long-term) dire state of public finances it is a subject that must be addressed with both clear investment rational yet public sensitivity.
New infrastructure spending programmes will need to span and weave many multi-party stakeholder requirements and ideals, demonstrating much improved national road-network productivity and general satisfaction of multiple user types, Central to such infrastructure re-invention the topic of R&D enabling highly visible 'cost-benefit' advances, which in turn may underpin a convincing business investment template. This now required by a more demanding clique of infrastructure backers, exemplified by the increasing number of global and regional infrastructure funds seeking out new 'value extraction' template formulae, and either behind them or independently alongside, those cash-rich, non-UK foreign investment houses in both SWF and PE forms.
Background -
The pattern of Britain's 21st century physical transport demands will undoubtedly alter when compared to the pattern seen last century, as a natural consequence of an e-connected world, social trend changes and what may be argued as a 'post-peak' slowing of economic growth activity as part of the 'new norm'.
However, national and regional infrastructure - in all its guises: from internet connection 'richness' to the 're-commandeering' of the canal network - will still obviously remain as the primary social and commercial enabling support device by which individuals, commercial enterprises and the state will undertake their respective functions.
However, in what is today a seen as a highly integrated - notionally singular – global economy, the now ageing general infrastructure of the west, largely created in the post WW2 boom years, is undoubtedly loosing its previous capability lead versus the more recent advances made in newer emergent economies such as S.Korea, China and elsewhere, with those country-specific advances expected to be replicated across the remainder of Asia, S.America, India, the CIS and Africa in time.
Where once the UK was perhaps the “sine qua non” of modern infrastructure development, conjoining the best of American and European planning methods and technology, Britain well recognises the heavy public cost burden now apparent in simply maintaining what is ostensibly 'yesteryear infrastructure'.
Entrenched long-term national debt together with meagre near and mid-term economic growth conditions inevitably prohibit any further sizable public expenditure; as both debt-GDP measures and PSBR levels require taming. This leaves little alternative but for the UK to rely upon private and foreign funding relative to infrastructure re-furbishment and renewal.
This in turn necessitates greater appreciation and focus upon commercial 'value-creation' and so creates an arena where the social good and commercialism must entwine, perhaps the very philosophical essence of CSR, and possibly eventually a return to Britain's Victorian past when the masses recognised that “the corporation” stood as a privately held but publicly orientated hybrid entity.
Consequentially, it is inevitable that a greater commercial bearing will be placed upon publicly used infrastructure, with roadways being perhaps the prime topic for business and physical development, and so increasing deployment of the toll road, albeit in electronic pay format compared to the hal'-penny and penny coinage format of centuries ago.
The UK Picture -
There have been five primary British examples to date, which have thus far resulted in three of the four schemes becoming generally accepted. Those road-toll schemes, in order of appearance, are:
1. The Queen Elizabeth II Bridge (over the River Thames).
2. The Central London Congestion Charge
3. The Greater Manchester Congestion Charge
4. The M6 Motorway “Toll Road”.
5. The Greater London Low Emission Zone
As is evident today, these initiatives span both 'proactive' privately funded and privately collected tolls regards new infrastructure build (QE2 Bridge and M6 Toll) and 'retrospective' pricing of state infrastructure assets (London & Manchester “CC” schemes & London Low Emission Zone).
The QEII Bridge came into being as part of a government Private Finance Inititive (PFI) in 1988 and completed in 1991, to enable greater traffic flow efficiency across the Dartford-Thurrock river crossing; a capacity expansion programme to support the over-burdened Blackwall Tunnels.
[NB Critically, the river crossing of both northbound (tunnel) & southbound (bridge) routes utilises instant recognition/instant payment technology to enable a pre-paid usage facility for regular crossing users; known as “DART-tag”].
A generally successful toll implemention took place within Central London via the 'Congestion Charge' scheme, introduced as part of the then new London Mayoral city transport reform agenda; effectively managed by TfL. It came into being in 2003 pertaining to central and inner London and was extended westward in 2007 – the extension retracted in 2011. As part of expected revenue raising efforts, its simple initial flat-fee and exemption pricing structure appears to be progressing toward a more nuanced methodology relative to vehicle and user types.
A similar 2008 initiative became a flailed effort in Manchester when government sought to create 2 'inner' and 'outer' ringed areas across the city under the wide-span programme previously known as the Greater Manchester Transport Innovation Fund. Questionnaire polling conducted amongst the public at the time found typical initial “Yes but No but” public reaction, appreciating the positive infrastructure improvements of the proposed scheme but preferring not have to incur the costs. The issue went to the voting polls amongst Manchester's 10 constituent boroughs and was voted against by a massive majority, so terminating the scheme in the near and mid-term.
[NB The GMTIF a local sub-element of the broader national Transport Innovation Fund which delineated local/regional (Congestion TIF) and national (Productivity TIF) infrastructure monies and planning. The TIF has now been superseded by the Urban Challenge Fund].
The M6 Motorway Toll Road (otherwise known as the Birmingham North Relief Road) was conceived in 1980 with one of the five proposed routes settles upon in 1989, created to alleviate M6 slow / start-stop / grid-lock of the M6.
It was an early example of a contemporary Public-Private Partnership project in which the tender winner (Midland Expressway Ltd) was given a 53 year tenure to construct the highway within 3 years, operate it using 'toll plazas' and the like for 50 years, at the end of which the road would be passed onto the state. Opened in 2003, unusually, toll rates are left flexible and set by the operator (reviewed every 6 months) with no upper limit pre-ordained by government. Thus it operates as a wholly insular highway. There are four modes of payment collection: automatic coin bins, cash booths with attendants, automated credit/debit card method or by the pre-paid electronic 'M6 tag' (as with the Dartford Crossing). The proposed extension route known as the M6 Expressway was abandoned in 2007 due to cost and construction difficulties.
[NB Midland Expressway Limited (MEL) is owned by Macquarie Infrastructure Group; see previous post].
Very basic research indicates that capacity levels on the M6 Toll have been less than anticipated, the early years showing “disappointing” usage levels, 2005 showing about a 66% capacity rate (50,000 vehicles versus an expected 74,000) and declined in 2008 to about 50% capacity, that rate still the case as of December 2011.
This demonstrates the obvious tendency for drivers to avoid what is considered an overtly high fee, when alternative route(s) are available. However, what is interesting is the manner in which the toll roads owners, Midland Expressway & Macquarie have chosen to run their business model, offering the road effectively as the premium-priced alternative, as opposed to dropping toll prices to attract greater custom. This the inevitable result of a dual choice 'M6 offering' as is the present case, and would not presumably be the case – given its monopolistic bias – if there were no alternative.
The Greater London Emissions Zone may be viewed as a toll zone by virtue of the fact that it imposes a hefty fee upon what are classified as high-carbon emitting vehicles. However, it of course operates essentially as a deterrent and so catalyst for behavioural change to heavily prompt those truck and fleet operators who wish to transport through greater and inner London to use newer, cleaner vehicles.
The International Picture -
Having shown various UK examples, the following provides a very basic view of the other prime international cases:
Singapore:
The small but wealthy island recognised in the early 1970s the mismatch between the city-state's economic boom with the inevitable rise in materialistic consumption patterns including passenger vehicles. It pioneered the use of a toll fee to enter down-town (CBD) Singapore in 1975 called the Singaporean Area Licensing Scheme, which has operated in conjunction with other 'deterrent' policies which make car ownership costly. This scheme was replaced by an Electronic Road Pricing Scheme in 1998, operating via overhead detection gantries which collect vehicle identification information from licenced and unlicenced vehicles. An electronic chip held within a windscreen mounted 'pass' is linked to a pre-paid credit account and the vehicle's annual (re)registration process. Unsurprisingly this sophisticated level of vehicle tracking with an ability to effectively monitor and so price individual journeys – becoming increasingly 'real time' - demonstrates Singapore as the most advanced 'intelligent' road pricing case-study. Advantageously, as with 'top-up' mobile phones etc, the scheme provides for substantial amounts of credit-based income accrued ahead of client usage, thus assisting the state's own public finances – which includes its prime SWF: 'GIC' (Government of Singapore Investment Corporation).
Toronto, Canada:
Like Singapore this uses 'open road' automatic road-price billing and has been implemented on the 407 Express Toll Route (ETR), in a system which is able to either photograph a vehicle license plate for non-registered users or identify the I.D. of an in-car transponder and so bill the owner. The system has been criticised for a number of technical failings which have incurred erroneous costs and so unjustified debt-collection demands from drivers.
Stockholm, Sweden:
After trialling the Stockholm Congestion Charge was permanently introduced in 2007., with income collected dedicated to Stockholm's road improvement programmes and general regional environmental concerns. The system identifies a vehicle's entry and exit from the controlled zone which itself is price regulated based upon time of day and traffic flow demand. Sweden's intrinsic eco-concerns have ensured that electric vehicles are amongst the officially vehicle exempt list (inc: diplomatic cars, military vehicles etc). As with other systems the technology consists of number plate recognition and ID transponder.
Milan, Italy:
Started in 2008 as a trial, the scheme was titled 'eco-pass' and affects the central Cerchia dei Bastioni area of Milan. An extension in 2009 ran through to 2011. In early 2012 the initiative was re-titled 'Area C' and recognised as a conventional congestion charge exercise. Importantly, this initiative differed from others by actually utilising from the very beginning – as central to its ideology - defined (vehicle emitting) CO2 categories.
[NB This in contrast to the flat-fee structure in London, Toronto and to the daytime-rates which are applied to Singapore and Stockholm].
San Francisco, USA:
Proposals were forwarded to the San Francisco Board of Supervisors in 2008 and 2010, seeking a trial programme to be instigated by 2015.
New York, USA
As part of Mayor Bloomberg's 'PlaNYC2030' a proposal was submitted in 2008 to instigate a 3 year trial programme. After a protracted city-wide debate and an effectively 'strung' outcome, the federal monies intended for the New York trial were transferred to Chicago for public transport needs.
Building Future Pricing Formats -
These cases highlight the manner in which the character and capabilities of 'congestion charging' has evolved over the years, each demonstrating a specific locally-tailored mix of policy-ideology, budget availability and technical solution.
Yet the most important aspect to developing a successful, long-term road-pricing model is the ability to introduce the scheme in an attractive manner, possibly having to 'sugar the pill' for the public. Thereafter continually manage the prevailing income stream to deliver the near, mid and far-horizon ROI expectations relative to initial capex costs and through-life maintenance costs.
As noted, to date there have been 3 pricing dimensions applied:
1. Flat-Fee
2. Graduated Daytime-Rate
3. Graduated CO2 Emissions Band Rate
Thus, the applied pricing structure will very much depending upon specific local conditions, especially regards scheme introduction.
But it looks very much the case that the most progressive of schemes will seek to merge various criteria so as to make any future scheme more sensitive to social and economic needs and allow for a rational and acceptable road-pricing framework.
Part 3 -
In the next web-log investment-auto-motives seeks to provide brief (and very incomplete) analysis as to how the future of Britain's road infrastructure could evolve relative to 'market segmentation' theory so as to generate alternative income streams and thus attract new 'deep-pocket' rounds of investment monies from foreign sources.
That income to be necessarily utilised to provide for the much needed 'leap-frog' of infrastructure productivity capabilities and of course to similarly improve by a marked degree the 'public good'.
New infrastructure spending programmes will need to span and weave many multi-party stakeholder requirements and ideals, demonstrating much improved national road-network productivity and general satisfaction of multiple user types, Central to such infrastructure re-invention the topic of R&D enabling highly visible 'cost-benefit' advances, which in turn may underpin a convincing business investment template. This now required by a more demanding clique of infrastructure backers, exemplified by the increasing number of global and regional infrastructure funds seeking out new 'value extraction' template formulae, and either behind them or independently alongside, those cash-rich, non-UK foreign investment houses in both SWF and PE forms.
Background -
The pattern of Britain's 21st century physical transport demands will undoubtedly alter when compared to the pattern seen last century, as a natural consequence of an e-connected world, social trend changes and what may be argued as a 'post-peak' slowing of economic growth activity as part of the 'new norm'.
However, national and regional infrastructure - in all its guises: from internet connection 'richness' to the 're-commandeering' of the canal network - will still obviously remain as the primary social and commercial enabling support device by which individuals, commercial enterprises and the state will undertake their respective functions.
However, in what is today a seen as a highly integrated - notionally singular – global economy, the now ageing general infrastructure of the west, largely created in the post WW2 boom years, is undoubtedly loosing its previous capability lead versus the more recent advances made in newer emergent economies such as S.Korea, China and elsewhere, with those country-specific advances expected to be replicated across the remainder of Asia, S.America, India, the CIS and Africa in time.
Where once the UK was perhaps the “sine qua non” of modern infrastructure development, conjoining the best of American and European planning methods and technology, Britain well recognises the heavy public cost burden now apparent in simply maintaining what is ostensibly 'yesteryear infrastructure'.
Entrenched long-term national debt together with meagre near and mid-term economic growth conditions inevitably prohibit any further sizable public expenditure; as both debt-GDP measures and PSBR levels require taming. This leaves little alternative but for the UK to rely upon private and foreign funding relative to infrastructure re-furbishment and renewal.
This in turn necessitates greater appreciation and focus upon commercial 'value-creation' and so creates an arena where the social good and commercialism must entwine, perhaps the very philosophical essence of CSR, and possibly eventually a return to Britain's Victorian past when the masses recognised that “the corporation” stood as a privately held but publicly orientated hybrid entity.
Consequentially, it is inevitable that a greater commercial bearing will be placed upon publicly used infrastructure, with roadways being perhaps the prime topic for business and physical development, and so increasing deployment of the toll road, albeit in electronic pay format compared to the hal'-penny and penny coinage format of centuries ago.
The UK Picture -
There have been five primary British examples to date, which have thus far resulted in three of the four schemes becoming generally accepted. Those road-toll schemes, in order of appearance, are:
1. The Queen Elizabeth II Bridge (over the River Thames).
2. The Central London Congestion Charge
3. The Greater Manchester Congestion Charge
4. The M6 Motorway “Toll Road”.
5. The Greater London Low Emission Zone
As is evident today, these initiatives span both 'proactive' privately funded and privately collected tolls regards new infrastructure build (QE2 Bridge and M6 Toll) and 'retrospective' pricing of state infrastructure assets (London & Manchester “CC” schemes & London Low Emission Zone).
The QEII Bridge came into being as part of a government Private Finance Inititive (PFI) in 1988 and completed in 1991, to enable greater traffic flow efficiency across the Dartford-Thurrock river crossing; a capacity expansion programme to support the over-burdened Blackwall Tunnels.
[NB Critically, the river crossing of both northbound (tunnel) & southbound (bridge) routes utilises instant recognition/instant payment technology to enable a pre-paid usage facility for regular crossing users; known as “DART-tag”].
A generally successful toll implemention took place within Central London via the 'Congestion Charge' scheme, introduced as part of the then new London Mayoral city transport reform agenda; effectively managed by TfL. It came into being in 2003 pertaining to central and inner London and was extended westward in 2007 – the extension retracted in 2011. As part of expected revenue raising efforts, its simple initial flat-fee and exemption pricing structure appears to be progressing toward a more nuanced methodology relative to vehicle and user types.
A similar 2008 initiative became a flailed effort in Manchester when government sought to create 2 'inner' and 'outer' ringed areas across the city under the wide-span programme previously known as the Greater Manchester Transport Innovation Fund. Questionnaire polling conducted amongst the public at the time found typical initial “Yes but No but” public reaction, appreciating the positive infrastructure improvements of the proposed scheme but preferring not have to incur the costs. The issue went to the voting polls amongst Manchester's 10 constituent boroughs and was voted against by a massive majority, so terminating the scheme in the near and mid-term.
[NB The GMTIF a local sub-element of the broader national Transport Innovation Fund which delineated local/regional (Congestion TIF) and national (Productivity TIF) infrastructure monies and planning. The TIF has now been superseded by the Urban Challenge Fund].
The M6 Motorway Toll Road (otherwise known as the Birmingham North Relief Road) was conceived in 1980 with one of the five proposed routes settles upon in 1989, created to alleviate M6 slow / start-stop / grid-lock of the M6.
It was an early example of a contemporary Public-Private Partnership project in which the tender winner (Midland Expressway Ltd) was given a 53 year tenure to construct the highway within 3 years, operate it using 'toll plazas' and the like for 50 years, at the end of which the road would be passed onto the state. Opened in 2003, unusually, toll rates are left flexible and set by the operator (reviewed every 6 months) with no upper limit pre-ordained by government. Thus it operates as a wholly insular highway. There are four modes of payment collection: automatic coin bins, cash booths with attendants, automated credit/debit card method or by the pre-paid electronic 'M6 tag' (as with the Dartford Crossing). The proposed extension route known as the M6 Expressway was abandoned in 2007 due to cost and construction difficulties.
[NB Midland Expressway Limited (MEL) is owned by Macquarie Infrastructure Group; see previous post].
Very basic research indicates that capacity levels on the M6 Toll have been less than anticipated, the early years showing “disappointing” usage levels, 2005 showing about a 66% capacity rate (50,000 vehicles versus an expected 74,000) and declined in 2008 to about 50% capacity, that rate still the case as of December 2011.
This demonstrates the obvious tendency for drivers to avoid what is considered an overtly high fee, when alternative route(s) are available. However, what is interesting is the manner in which the toll roads owners, Midland Expressway & Macquarie have chosen to run their business model, offering the road effectively as the premium-priced alternative, as opposed to dropping toll prices to attract greater custom. This the inevitable result of a dual choice 'M6 offering' as is the present case, and would not presumably be the case – given its monopolistic bias – if there were no alternative.
The Greater London Emissions Zone may be viewed as a toll zone by virtue of the fact that it imposes a hefty fee upon what are classified as high-carbon emitting vehicles. However, it of course operates essentially as a deterrent and so catalyst for behavioural change to heavily prompt those truck and fleet operators who wish to transport through greater and inner London to use newer, cleaner vehicles.
The International Picture -
Having shown various UK examples, the following provides a very basic view of the other prime international cases:
Singapore:
The small but wealthy island recognised in the early 1970s the mismatch between the city-state's economic boom with the inevitable rise in materialistic consumption patterns including passenger vehicles. It pioneered the use of a toll fee to enter down-town (CBD) Singapore in 1975 called the Singaporean Area Licensing Scheme, which has operated in conjunction with other 'deterrent' policies which make car ownership costly. This scheme was replaced by an Electronic Road Pricing Scheme in 1998, operating via overhead detection gantries which collect vehicle identification information from licenced and unlicenced vehicles. An electronic chip held within a windscreen mounted 'pass' is linked to a pre-paid credit account and the vehicle's annual (re)registration process. Unsurprisingly this sophisticated level of vehicle tracking with an ability to effectively monitor and so price individual journeys – becoming increasingly 'real time' - demonstrates Singapore as the most advanced 'intelligent' road pricing case-study. Advantageously, as with 'top-up' mobile phones etc, the scheme provides for substantial amounts of credit-based income accrued ahead of client usage, thus assisting the state's own public finances – which includes its prime SWF: 'GIC' (Government of Singapore Investment Corporation).
Toronto, Canada:
Like Singapore this uses 'open road' automatic road-price billing and has been implemented on the 407 Express Toll Route (ETR), in a system which is able to either photograph a vehicle license plate for non-registered users or identify the I.D. of an in-car transponder and so bill the owner. The system has been criticised for a number of technical failings which have incurred erroneous costs and so unjustified debt-collection demands from drivers.
Stockholm, Sweden:
After trialling the Stockholm Congestion Charge was permanently introduced in 2007., with income collected dedicated to Stockholm's road improvement programmes and general regional environmental concerns. The system identifies a vehicle's entry and exit from the controlled zone which itself is price regulated based upon time of day and traffic flow demand. Sweden's intrinsic eco-concerns have ensured that electric vehicles are amongst the officially vehicle exempt list (inc: diplomatic cars, military vehicles etc). As with other systems the technology consists of number plate recognition and ID transponder.
Milan, Italy:
Started in 2008 as a trial, the scheme was titled 'eco-pass' and affects the central Cerchia dei Bastioni area of Milan. An extension in 2009 ran through to 2011. In early 2012 the initiative was re-titled 'Area C' and recognised as a conventional congestion charge exercise. Importantly, this initiative differed from others by actually utilising from the very beginning – as central to its ideology - defined (vehicle emitting) CO2 categories.
[NB This in contrast to the flat-fee structure in London, Toronto and to the daytime-rates which are applied to Singapore and Stockholm].
San Francisco, USA:
Proposals were forwarded to the San Francisco Board of Supervisors in 2008 and 2010, seeking a trial programme to be instigated by 2015.
New York, USA
As part of Mayor Bloomberg's 'PlaNYC2030' a proposal was submitted in 2008 to instigate a 3 year trial programme. After a protracted city-wide debate and an effectively 'strung' outcome, the federal monies intended for the New York trial were transferred to Chicago for public transport needs.
Building Future Pricing Formats -
These cases highlight the manner in which the character and capabilities of 'congestion charging' has evolved over the years, each demonstrating a specific locally-tailored mix of policy-ideology, budget availability and technical solution.
Yet the most important aspect to developing a successful, long-term road-pricing model is the ability to introduce the scheme in an attractive manner, possibly having to 'sugar the pill' for the public. Thereafter continually manage the prevailing income stream to deliver the near, mid and far-horizon ROI expectations relative to initial capex costs and through-life maintenance costs.
As noted, to date there have been 3 pricing dimensions applied:
1. Flat-Fee
2. Graduated Daytime-Rate
3. Graduated CO2 Emissions Band Rate
Thus, the applied pricing structure will very much depending upon specific local conditions, especially regards scheme introduction.
But it looks very much the case that the most progressive of schemes will seek to merge various criteria so as to make any future scheme more sensitive to social and economic needs and allow for a rational and acceptable road-pricing framework.
Part 3 -
In the next web-log investment-auto-motives seeks to provide brief (and very incomplete) analysis as to how the future of Britain's road infrastructure could evolve relative to 'market segmentation' theory so as to generate alternative income streams and thus attract new 'deep-pocket' rounds of investment monies from foreign sources.
That income to be necessarily utilised to provide for the much needed 'leap-frog' of infrastructure productivity capabilities and of course to similarly improve by a marked degree the 'public good'.
Wednesday, 28 March 2012
Macro Level Trends - UK Investment - New Perspectives on the Well Worn Topic of Road Tolls
It has become a given fact that recession and depression periods are revitalised via the initiation of socio-economically positive infrastructure projects.
History Foretells -
Through the ages spanning 16th, 17th, 18th, 19th & 20th centuries, concentration on the private and public development of roadways, canals, railways, radio & tv air-waves, airports and of course the physical & ethereal route-ways of the internet's 'information superhighway', have when instigated singularly and combined have created new economic platform(s) from which commercial, industrial, service and leisure activities have benefited.
Such engrained and 'default-position' policy practice, offering short-term build and re-build fiscal opportunity, combined with the long-term economic facilitation, have consistently delivered new eras for national, continental and worldwide enhancement. From Britain's 17th century ward and county toll-roads, the UK and colonial India's steam-powered railways, the inter-state road networks of pre & post-WW2 America & Europe, the revolutionary 'bullet trains' of 1980s Japan. With most prominently the explosion of scale-enabled Chinese socio-economic growth, thanks to the snowball inter-connectivity effect of various aforementioned solutions within 21st century China.
[NB China simply re-playing the American 19th & 20th century 'play-book' of marrying foreign innovation with domestic scale. (The US having used German, French & British sourced technologies to make is economic leap)].
Such historical precedence is etched into the consciousness of economic advisors, politicians and international financing agencies such as the IMF, EBRD et al.
The UK's Present Paradox -
However, the great majority of such infrastructure projects undertaken in Britain over the last 100 years or so have either been state initiated, state generated or exploitation of previously state-owned infrastructure. This ranging from amalgamation of the once separate London omnibus & underground companies, the creation of a standardised national electrical grid, the first official motorway (the M1 & later tributary motorways) to private interest leverage of the old GPO telephone network under BT stewardship to roll-out the world-wide-web.
But today the state that is now being retitled 'Great Britain' is caught in similar fiscal straits to those of the 18th and early 19th century'. Then having 'over-stretched' in the financing of international expansion, paving the way for privateers such as the East India Company. Today the akin situation arguably even worse. This the result of parallel military over-stretch (especially over the last 2 decades) but additionally weighted down by the 'economic baggage' of being the wrong-side of an ever-widening 'global competition gap' across intermediate value manufacturing and services plus the hefty and seemingly growing cost of the nation's social security bill, itself the consequence of a ageing population and a near 'lost' young generation. Themselves sat midway between the debt-fear of higher education and its 'real-world' merits, versus similarly or even better educated foreign students who have gained either free or low cost education.
These innate headwinds centred around a record national debt, empty government coffers, squeezed notional middle-class, sense of the 'broken-promise' handed to the Facebook generation, and to add further pain, a sense of real caution by western corporations and institutional investors about investing in a much deflated Britain.
[NB Please see Post Script for investment-auto-motive's more optimistic viewpoint of the much criticised 100 year gilt offering].
The current headwinds leave the UK in a truly paradoxical situation.
Never has such a major revitalisation effort been as badly needed as today, yet equally never has there been such an enormous state funding vacuum. Whilst the UK's sovereign debt standing still enjoys an investment grade AAA standing thanks to unavoidable 'austerity measures' – itself put on 'negative outlook' by the Ratings Agencies – which compared to EU country grades is strong, the fact remains that the required 'deep-pocket' UK infrastructure spending is seen with unease by many traditional institutional investors; especially so western pension funds (corporate and private) which must address reducing their immediate and mid-term exposure to greying population bases.
Looking Abroad -
There appears little option than for the UK to court 'deep pocket' foreign funds, with no doubt leanings to the SWF monies that have been accrued by China by way of its foreign reserve holdings, the Middle East's petro-dollars, Singapore's trading income and perhaps even to the newer SWF operators from Latin America and even perhaps Africa.
The ongoing central investment philosophy typical of most – albeit as part of a broader risk-return portfolio - is to provide liquidity for multi-decade, low risk, 'utility' type programmes. Programmes which also typically provide value-chain synergies with their own country's economic platform and ambitions.
A typical (though simplified) scenario would be that the SWF country offering the funding is itself able to provide the 'up-stream' raw materials for the project in question, whilst also able to gain valuable 'downstream' learning about the implemented programme for later domestic adoption
[NB Hence the interests of Australia's Macquarie Group directed interests in a CO2 sensitive and cost conscious Europe, for latter stage implementation across the states of New South Wales and Victoria, this future programme offering such a benchmark example afterward to progressive SE Asian countries].
The Foreign Precedents -
Of course, as with the ownership issue raised by Congress in the USA regards Chinese acquisition approaches of its Port Authorities, there is the political and nationalistic dimension to foreign funding, involvement and ultimately ownership.
However, whilst the US may e viewed as jingoistic the rebuffel of China obviously came at a time when foreign policy sensitivity was at an all time high, in the midst of Iraq & Afghanistan. Perhaps then justifiable because of the very scale of US Port traffic, its life-line to the US economy, aswell as of course the potential for increased terrorist threat in addition to usual contraband and illegal shipment concerns.
However, a more laissez faire UK and Europe should have less concern over projects which are physically internal – as opposed coastal – and pose no or little potential for national defence or social threat.
And indeed, that very viewpoint has enabled foreign owners to take an interest in UK infrastructure; providing it does not oppose what seems an expected graduated risk aversion policy..
Spain's Ferrovial Group acquired 56% of BAA plc and reverted the company back to Limited company status, sharing ownership with Canada's 'Caisse-Quebec' and Singapore's GIC soveriegn wealth fund. Whilst more recently, China's own SWF, the China Investment Corporation (CIC) bought nearly 9% of Thames Water, itself a sub-divisional holding of Australian Macquarie Group's 'European Infrastructure' Fund.
[NB investment-auto-motives has previously commented on the possible exploratory potential of adapting 'air-side' traffic management systems (which orchestrates road vehicles and planes) to use on public and private highways].
A Progressive, Not Copy-Book, UK Programme -
Infrastructure planning - especially so of roads - has rarely ever been a 'blank sheet' 'blue-sky' exercise. Whilst the olde-worlde 'advanced' countries learnt from each other, understandably more recently economically emerged nations have typically deployed a 'copy-book exercise' reflective of endemic American influence and style. Such acutely referential planning schemes and signage graphics intended to promote the country's perception of 'advanced' and '1st world' image. This aspirational conveyance engrained as similar other projects such as national skyscrapers and city shopping malls. Moreover, it may indeed be 'dis-functional' not to do so, since many past EM countries have emerged as a consequence of direct US influence and as such sought to utilise proven practice and demonstrate cultural kinship as part of its own economic growth path.
But an olde-worlde economy obviously does not have the luxury of planning from a 'clean sheet'. It must heavily adapt as opposed to simplistically adopt; seeking to marry early and mid 20th century roadways with 21st century technological advancement. Satellite enabled GPS technology may have 'over-laid' the simulacra of an electronic map over old roads, and been used to good effect even with glitches, but the task of inter-connecting and organising both the old physical and new ethereal worlds into a unified, intelligent entity appears to still be in its gestation phase.
As such, the overall shape of a contemporary road infrastructure programme, seeking to efficiently manage nationwide traffic-flow and generate additional income streams, is very different to that of a copy-book EM nation exercise.
Its ambitions and challenges far greater, its programme activity chain more complex encompassing more stakeholders and the infrastructure investment formula more informed and nuanced. Hence convincing the proposed financier of project credibility, time-cost-quality attainability and return on investment assurance becomes a far greater challenge – but also indeed opportunity - than is the case with ground-up development in an EM region.
Given the innate scale of that challenge, it perhaps then makes sense to set the ultimate goal sought even higher; to create 'leap-frog' infrastructure advancement. So that ultimately the overall cost and delivery pains undergone provides for a truly long-lasting and critically income earning transport solution. This requires the deployment of ever more sophisticated risk management approaches to macro and micro manage the overall programme and its separate individual projects.
If necessary, and not already the case, such ambitions may require the re-modelling of infrastructure planning approaches. Planners and financiers should then perhaps create a three-tier approach, reflecting the typical business modelling 'staircase' of high / medium / low ambitions set against like-wise costings schedules.
This enables the flexibility for some of those inevitably failed high ambitions to become naturally absorbed into the lower tier solution. Naturally contingencies would be put in place to ensure the planners and builders do not immediately 'default' to the lowest and easiest deliverable position, and instead under an incentive and pressure to perform, would need to work more closely between themselves and critically with new R&D integrating third parties, instead of what appears the typical manner of 'throwing the plans over the wall to be built'.
It is only such a modified infrastructure planning and delivery approach, centred around 'new perspective' possibilities that will deliver a wholly evolved new road infrastructure.
A New Perspective -
This then a holistic re-vision of the component parts that constitute 21st century road infrastructure.
Undertaken to improve all aspects of transportation usage and so policy-setting direction: spanning road safety, network efficiency and CO2 impact. Instigation of a fundamental 'wide-aperture' review which explores every dimension of road infrastructure; ranging from the very basics of material-types and construction methods used in building various 'road architectures' through to understanding how individual journey requirements and the overall capacity of the traffic network might benefit from the emergence of 'cloud computing'.
Thus spanning across re-assessment of 'age-old' conventions to exploration of the 'new-age' possibilities.
One area ripe for a new era of in-depth research and development – in parallel with the myriad of arenas - is that of road surfaces.
Evolving the Road -
Road materials science, development and implementation over the last 100 years appears (to the layman) to be ironically almost snail-like in its progress. No doubt because of real-world constraint aspects such as the traditional (and so well understood) cost-quality-durability equation and of course the apparent need for road surface standardisation .
Yet even so, the development of modern 'tarmac' (tarmacadam), tarvia and asphalt concrete might be argued as 'arrested development' by an advanced guard of progressive civil engineers, road safety campaigners and indeed the automotive industry itself.
This sits in stark contrast to the hard-pressed consumer-led and regulatory-led advances made in vehicle engineering. Undoubtedly, as part of its own advancement the car became ever more capable primarily because of inter-product competition and the sales and income reward available to progressive manufacturers. The car necessarily had to adapt to the roadway; from the invention of the pneumatic tyre to that of ever more survivable crash structures to that of Anti-Lock Braking Systems, which themselves are used for Traction Control Systems - which must arguably compensate for unfavourable road conditions.
Moreover, whilst vehicle capabilities have improved by leaps and bounds, the regulatory environment and thus the road infrastructure is still stuck somewhere in 1959.This was the year that Britain's M1 motorway was opened and the national speed limit of 70mph (10mph above the A-road) was established when nearly all the cars on the road, exempting sports-cars, struggled to reach that limit, trundling along at 50mph and 60mph given their mechanical capabilities. Today , and for many years since, even a notional 'city-car' easily surpasses that boundary-point, with greater bhp, more gears and higher gearing and can stop far more easily given the inventions previously described.
Thus even with today's inherently un-evolved road limitations cars and drivers are perhaps more restrained – given inbuilt capabilities - than their counterparts half a century ago.
An answer to one part of the infrastructure jigsaw then perhaps requires a true meeting of minds between what have typically been very conservative infrastructure builders (using 'age-old' proven materials for known durability performance and cost) and the necessarily far more exploratory nature of car manufacturers and their supplier networks.
Primarily to improve – via scientific exploration and R&D – the dynamic properties of the road surface and tyre relationship – ie mutually evolving tyre composition and advanced surface materials, which ideally provide for reduced constant speed and increasing speed friction whilst also providing greater grip characteristics for braking.
This the most obvious avenue of exploration that could improve general safety, reduce driver fatigue, improve behaviour etc.
And at its futuristic extreme, there perhaps could be a day when a privately constructed and operated road offered a 'scaletrix' type electrical feed built into the centre-line of the road to pass electrical current to the under-body “road-brushes” of a petrol-electric or diesel-electric hybrid vehicle, so one-day overcoming the distance limitation inherent in electric vehicles' given limited battery charge storage and the inconvenience of overnight or plug-in charging. Under such a scenario, the driver would simply pay for the electricity used on the journey, and could indeed lead to the idea of group managed 'car-trains' that offer massive efficiency savings as depicted 50 years ago by GM's Futurama exhibitions and been 'prototyped' (via cruise-control sensing) ever since.
Whilst a distant view perhaps 30+ years away, such road planning could make roads 'future-proofed' just as cars are 'package-protected' today in their engineering development.
'Unbundling' the Department for Transport -
The UK's Department for Transport has a plethora of past and present scientific research and development projects, with no doubt efforts for cross-pollination of results to gain additional learning. Yet to the average 'put-upon' UK motorist there seems little evident advanced thinking and implementation, beyond the usual traffic management practices of speed camaras, ill considered generically implemented safety measures and reduced parking capacity – all or none of which may be related to the DfT's R&D work.
Whilst the DfT's internal R&D work, along with that of R&D at the 7 Research Councils, has undoubtedly been useful and beneficial to society. Yet whilst the costs may be understood by the senior few, it seems likely that the actual value of the work itself – theorised, in testing phase or implemented - is hard to ultimately socially and commercially value. Those costs borne by the UK public are absorbed by the UK motorist and broader population, yet the average – critically uninformed - motorist is not prive to the socio-economic good achieved.
The socio-economic importance of this this 'invisible' work should be given greater profile, as should a transparent ability for the private sector and commercial world to understand its cost structure; no doubt also surely a concern for the Treasury seeking to make spending reductions by out-sourcing non-confidential operations.
If the Ministry of Defence was able to divest a DERA function by way of QinetiQ in 2001, and the likes of Cobham plc along with many others are able to operate both privately and efficiently in areas of state interest, then it appears a natural consequence that the DfT should seek to divest major portions of its costly in-house activities regards road R&D and infrastructure.
Promoting Competitive Commercial Interests -
As part of the UK's own road infrastructure renaissance, now to be expectantly paid for by foreign concerns and respective income seeking agenda, it may be argued that a similar 'spirit of progressive competition' should be fostered. Indeed must be fostered.
It is only by doing so that the presently disparate yet increasing number of stakeholder sectors involved in road infrastructure might be better coalesced into a far more powerful, transformative force – to the good of the UK's entrepreneurial health, that of the economy and that of the public good to society in general.
It should be remembered that the invention of the legendary safety device the “cat's eye” was conceived outside of officialdom by the singularly minded Percy Shaw in 1933, who then patented the invention, developed it and manufactured the item via 'Reflecting Roadstuds Ltd' from 1935 onward. Today seen the world over and having saved countless lives.
Such private party 'visioneering' should be nurtured.
Nurturing The New Perspective -
Whilst vehicle evolution will continue to benefit buyers, drivers, passengers and society in general, the prime question posed by this web-log is...
...“how the roadway itself – in physical and network form – can better evolve to suit modern-day vehicles of all types and various user requirements, whilst offering potential for additional ROI / income streams?”
Such a question opens-up the issue beyond traditional practice and the conventional envelope 'norm' which presently sees what appears a massive unintentional gulf between various stakeholders: government policy-setting, road & environment planning bodies, civil engineering construction sector, vehicle producers & autos supply chain, road-side commercial interests reflected by the retail and hospitality sectors and critically the core interests of large-fund investor types such as SWFs (singular and combined) and the increasingly cautious institutional investor base.
Infrastructure Programme 'Bundling' -
Relative to the broader road infrastructure picture, there looks to be a good possibility of 're-grouping' (ie operational bundling) in the infrastructure sector, seeking to create new 21st century delivery mechanisms consisting of a closely linked corroborative 'vertical' value-chain. So seeking to consolidate the traditional loosely-linked or short-linked vertical value chain, aswell as posing a new operational challenge to those players which primarily operate on a 'horizontal' 'business consolidation' basis. (Though undoubtedly they to will grow in their fashion given the global opportunity to do so).
[NB No doubt this a critical part of the intention of those infrastructure funds that have been formed to date].
Conclusion -
Compared to step-change examples of yesteryear, infrastructure planning in Britain's over the last 60 years has been a shadow of its former self. Partly a result of the car having come into its own as transport king by the 1960s, seen in the re-moulding of town-scapes, the building of the motorway network and creation of the near hallowed town and village by-pass.
But today, Britain 'cracks and creeks' visibly and audibly. Visibly from the weight of network over-capacity across the motorways, A-roads, B-roads and elsewhere, with accordant loss of logistical efficiency. Audibly from the frustrated private motorist, company motorist and corporate fleet operator, all of whom are unable to understand the opaque cost-benefit equation of the scaled road fund licence and hefty fuel tax, and would be better served by an evidently clear road pricing mechanism with inherently clear investment impetus and advantages.
Thus a radical overhaul of the UK's road infrastructure is required and the vision that is painted by government must be one of clear advantage to all from the motorist to R&D scientists, to vehicle producers to civil engineering companies to network operators to the SWFs offering funds for what must be very well constructed infrastructure business cases.
Post Script -
Though there has been heavy criticism of the Treasury's 100 year gilt offering given its lacklustre coupon by historical standards and the exposure to inflation and interest rate volatility, investment-auto-motives suspects that recipient buyers will do so for mixed reasons – politic reasons for Eastern buyers and cultural reasons for Western buyers.
Politically 'BRIC' and 'Next 11' corporations – themselves 'backed by national SWFs' - would presumably gain good favour so promoting a 'quid quo pro' approach when seeking FDI 'incentivisation'.
Conversely, in an increasingly marginalised West, the 'olde-worlde' powers of the UK, Europe, America and even Japan would seek to help safeguard each-other's long-term interests by participating in intra-national and intra-regional debt purchase programmes. The near parity value of Sterling and Euro assisted by the ECB liquidity initiative and the UK's still far stronger rating by Fitch, Moody's and S&P creates a good basis for such mutuality. Whilst the US Dollar could feasibly re-strengthen over the long-term to ultimately meet Sterling and Euro valuation. This 'united west' scenario even more plausible if the growing national and regional protectionist mindset that has been seen becomes very much a part of the 'new norm'].
History Foretells -
Through the ages spanning 16th, 17th, 18th, 19th & 20th centuries, concentration on the private and public development of roadways, canals, railways, radio & tv air-waves, airports and of course the physical & ethereal route-ways of the internet's 'information superhighway', have when instigated singularly and combined have created new economic platform(s) from which commercial, industrial, service and leisure activities have benefited.
Such engrained and 'default-position' policy practice, offering short-term build and re-build fiscal opportunity, combined with the long-term economic facilitation, have consistently delivered new eras for national, continental and worldwide enhancement. From Britain's 17th century ward and county toll-roads, the UK and colonial India's steam-powered railways, the inter-state road networks of pre & post-WW2 America & Europe, the revolutionary 'bullet trains' of 1980s Japan. With most prominently the explosion of scale-enabled Chinese socio-economic growth, thanks to the snowball inter-connectivity effect of various aforementioned solutions within 21st century China.
[NB China simply re-playing the American 19th & 20th century 'play-book' of marrying foreign innovation with domestic scale. (The US having used German, French & British sourced technologies to make is economic leap)].
Such historical precedence is etched into the consciousness of economic advisors, politicians and international financing agencies such as the IMF, EBRD et al.
The UK's Present Paradox -
However, the great majority of such infrastructure projects undertaken in Britain over the last 100 years or so have either been state initiated, state generated or exploitation of previously state-owned infrastructure. This ranging from amalgamation of the once separate London omnibus & underground companies, the creation of a standardised national electrical grid, the first official motorway (the M1 & later tributary motorways) to private interest leverage of the old GPO telephone network under BT stewardship to roll-out the world-wide-web.
But today the state that is now being retitled 'Great Britain' is caught in similar fiscal straits to those of the 18th and early 19th century'. Then having 'over-stretched' in the financing of international expansion, paving the way for privateers such as the East India Company. Today the akin situation arguably even worse. This the result of parallel military over-stretch (especially over the last 2 decades) but additionally weighted down by the 'economic baggage' of being the wrong-side of an ever-widening 'global competition gap' across intermediate value manufacturing and services plus the hefty and seemingly growing cost of the nation's social security bill, itself the consequence of a ageing population and a near 'lost' young generation. Themselves sat midway between the debt-fear of higher education and its 'real-world' merits, versus similarly or even better educated foreign students who have gained either free or low cost education.
These innate headwinds centred around a record national debt, empty government coffers, squeezed notional middle-class, sense of the 'broken-promise' handed to the Facebook generation, and to add further pain, a sense of real caution by western corporations and institutional investors about investing in a much deflated Britain.
[NB Please see Post Script for investment-auto-motive's more optimistic viewpoint of the much criticised 100 year gilt offering].
The current headwinds leave the UK in a truly paradoxical situation.
Never has such a major revitalisation effort been as badly needed as today, yet equally never has there been such an enormous state funding vacuum. Whilst the UK's sovereign debt standing still enjoys an investment grade AAA standing thanks to unavoidable 'austerity measures' – itself put on 'negative outlook' by the Ratings Agencies – which compared to EU country grades is strong, the fact remains that the required 'deep-pocket' UK infrastructure spending is seen with unease by many traditional institutional investors; especially so western pension funds (corporate and private) which must address reducing their immediate and mid-term exposure to greying population bases.
Looking Abroad -
There appears little option than for the UK to court 'deep pocket' foreign funds, with no doubt leanings to the SWF monies that have been accrued by China by way of its foreign reserve holdings, the Middle East's petro-dollars, Singapore's trading income and perhaps even to the newer SWF operators from Latin America and even perhaps Africa.
The ongoing central investment philosophy typical of most – albeit as part of a broader risk-return portfolio - is to provide liquidity for multi-decade, low risk, 'utility' type programmes. Programmes which also typically provide value-chain synergies with their own country's economic platform and ambitions.
A typical (though simplified) scenario would be that the SWF country offering the funding is itself able to provide the 'up-stream' raw materials for the project in question, whilst also able to gain valuable 'downstream' learning about the implemented programme for later domestic adoption
[NB Hence the interests of Australia's Macquarie Group directed interests in a CO2 sensitive and cost conscious Europe, for latter stage implementation across the states of New South Wales and Victoria, this future programme offering such a benchmark example afterward to progressive SE Asian countries].
The Foreign Precedents -
Of course, as with the ownership issue raised by Congress in the USA regards Chinese acquisition approaches of its Port Authorities, there is the political and nationalistic dimension to foreign funding, involvement and ultimately ownership.
However, whilst the US may e viewed as jingoistic the rebuffel of China obviously came at a time when foreign policy sensitivity was at an all time high, in the midst of Iraq & Afghanistan. Perhaps then justifiable because of the very scale of US Port traffic, its life-line to the US economy, aswell as of course the potential for increased terrorist threat in addition to usual contraband and illegal shipment concerns.
However, a more laissez faire UK and Europe should have less concern over projects which are physically internal – as opposed coastal – and pose no or little potential for national defence or social threat.
And indeed, that very viewpoint has enabled foreign owners to take an interest in UK infrastructure; providing it does not oppose what seems an expected graduated risk aversion policy..
Spain's Ferrovial Group acquired 56% of BAA plc and reverted the company back to Limited company status, sharing ownership with Canada's 'Caisse-Quebec' and Singapore's GIC soveriegn wealth fund. Whilst more recently, China's own SWF, the China Investment Corporation (CIC) bought nearly 9% of Thames Water, itself a sub-divisional holding of Australian Macquarie Group's 'European Infrastructure' Fund.
[NB investment-auto-motives has previously commented on the possible exploratory potential of adapting 'air-side' traffic management systems (which orchestrates road vehicles and planes) to use on public and private highways].
A Progressive, Not Copy-Book, UK Programme -
Infrastructure planning - especially so of roads - has rarely ever been a 'blank sheet' 'blue-sky' exercise. Whilst the olde-worlde 'advanced' countries learnt from each other, understandably more recently economically emerged nations have typically deployed a 'copy-book exercise' reflective of endemic American influence and style. Such acutely referential planning schemes and signage graphics intended to promote the country's perception of 'advanced' and '1st world' image. This aspirational conveyance engrained as similar other projects such as national skyscrapers and city shopping malls. Moreover, it may indeed be 'dis-functional' not to do so, since many past EM countries have emerged as a consequence of direct US influence and as such sought to utilise proven practice and demonstrate cultural kinship as part of its own economic growth path.
But an olde-worlde economy obviously does not have the luxury of planning from a 'clean sheet'. It must heavily adapt as opposed to simplistically adopt; seeking to marry early and mid 20th century roadways with 21st century technological advancement. Satellite enabled GPS technology may have 'over-laid' the simulacra of an electronic map over old roads, and been used to good effect even with glitches, but the task of inter-connecting and organising both the old physical and new ethereal worlds into a unified, intelligent entity appears to still be in its gestation phase.
As such, the overall shape of a contemporary road infrastructure programme, seeking to efficiently manage nationwide traffic-flow and generate additional income streams, is very different to that of a copy-book EM nation exercise.
Its ambitions and challenges far greater, its programme activity chain more complex encompassing more stakeholders and the infrastructure investment formula more informed and nuanced. Hence convincing the proposed financier of project credibility, time-cost-quality attainability and return on investment assurance becomes a far greater challenge – but also indeed opportunity - than is the case with ground-up development in an EM region.
Given the innate scale of that challenge, it perhaps then makes sense to set the ultimate goal sought even higher; to create 'leap-frog' infrastructure advancement. So that ultimately the overall cost and delivery pains undergone provides for a truly long-lasting and critically income earning transport solution. This requires the deployment of ever more sophisticated risk management approaches to macro and micro manage the overall programme and its separate individual projects.
If necessary, and not already the case, such ambitions may require the re-modelling of infrastructure planning approaches. Planners and financiers should then perhaps create a three-tier approach, reflecting the typical business modelling 'staircase' of high / medium / low ambitions set against like-wise costings schedules.
This enables the flexibility for some of those inevitably failed high ambitions to become naturally absorbed into the lower tier solution. Naturally contingencies would be put in place to ensure the planners and builders do not immediately 'default' to the lowest and easiest deliverable position, and instead under an incentive and pressure to perform, would need to work more closely between themselves and critically with new R&D integrating third parties, instead of what appears the typical manner of 'throwing the plans over the wall to be built'.
It is only such a modified infrastructure planning and delivery approach, centred around 'new perspective' possibilities that will deliver a wholly evolved new road infrastructure.
A New Perspective -
This then a holistic re-vision of the component parts that constitute 21st century road infrastructure.
Undertaken to improve all aspects of transportation usage and so policy-setting direction: spanning road safety, network efficiency and CO2 impact. Instigation of a fundamental 'wide-aperture' review which explores every dimension of road infrastructure; ranging from the very basics of material-types and construction methods used in building various 'road architectures' through to understanding how individual journey requirements and the overall capacity of the traffic network might benefit from the emergence of 'cloud computing'.
Thus spanning across re-assessment of 'age-old' conventions to exploration of the 'new-age' possibilities.
One area ripe for a new era of in-depth research and development – in parallel with the myriad of arenas - is that of road surfaces.
Evolving the Road -
Road materials science, development and implementation over the last 100 years appears (to the layman) to be ironically almost snail-like in its progress. No doubt because of real-world constraint aspects such as the traditional (and so well understood) cost-quality-durability equation and of course the apparent need for road surface standardisation .
Yet even so, the development of modern 'tarmac' (tarmacadam), tarvia and asphalt concrete might be argued as 'arrested development' by an advanced guard of progressive civil engineers, road safety campaigners and indeed the automotive industry itself.
This sits in stark contrast to the hard-pressed consumer-led and regulatory-led advances made in vehicle engineering. Undoubtedly, as part of its own advancement the car became ever more capable primarily because of inter-product competition and the sales and income reward available to progressive manufacturers. The car necessarily had to adapt to the roadway; from the invention of the pneumatic tyre to that of ever more survivable crash structures to that of Anti-Lock Braking Systems, which themselves are used for Traction Control Systems - which must arguably compensate for unfavourable road conditions.
Moreover, whilst vehicle capabilities have improved by leaps and bounds, the regulatory environment and thus the road infrastructure is still stuck somewhere in 1959.This was the year that Britain's M1 motorway was opened and the national speed limit of 70mph (10mph above the A-road) was established when nearly all the cars on the road, exempting sports-cars, struggled to reach that limit, trundling along at 50mph and 60mph given their mechanical capabilities. Today , and for many years since, even a notional 'city-car' easily surpasses that boundary-point, with greater bhp, more gears and higher gearing and can stop far more easily given the inventions previously described.
Thus even with today's inherently un-evolved road limitations cars and drivers are perhaps more restrained – given inbuilt capabilities - than their counterparts half a century ago.
An answer to one part of the infrastructure jigsaw then perhaps requires a true meeting of minds between what have typically been very conservative infrastructure builders (using 'age-old' proven materials for known durability performance and cost) and the necessarily far more exploratory nature of car manufacturers and their supplier networks.
Primarily to improve – via scientific exploration and R&D – the dynamic properties of the road surface and tyre relationship – ie mutually evolving tyre composition and advanced surface materials, which ideally provide for reduced constant speed and increasing speed friction whilst also providing greater grip characteristics for braking.
This the most obvious avenue of exploration that could improve general safety, reduce driver fatigue, improve behaviour etc.
And at its futuristic extreme, there perhaps could be a day when a privately constructed and operated road offered a 'scaletrix' type electrical feed built into the centre-line of the road to pass electrical current to the under-body “road-brushes” of a petrol-electric or diesel-electric hybrid vehicle, so one-day overcoming the distance limitation inherent in electric vehicles' given limited battery charge storage and the inconvenience of overnight or plug-in charging. Under such a scenario, the driver would simply pay for the electricity used on the journey, and could indeed lead to the idea of group managed 'car-trains' that offer massive efficiency savings as depicted 50 years ago by GM's Futurama exhibitions and been 'prototyped' (via cruise-control sensing) ever since.
Whilst a distant view perhaps 30+ years away, such road planning could make roads 'future-proofed' just as cars are 'package-protected' today in their engineering development.
'Unbundling' the Department for Transport -
The UK's Department for Transport has a plethora of past and present scientific research and development projects, with no doubt efforts for cross-pollination of results to gain additional learning. Yet to the average 'put-upon' UK motorist there seems little evident advanced thinking and implementation, beyond the usual traffic management practices of speed camaras, ill considered generically implemented safety measures and reduced parking capacity – all or none of which may be related to the DfT's R&D work.
Whilst the DfT's internal R&D work, along with that of R&D at the 7 Research Councils, has undoubtedly been useful and beneficial to society. Yet whilst the costs may be understood by the senior few, it seems likely that the actual value of the work itself – theorised, in testing phase or implemented - is hard to ultimately socially and commercially value. Those costs borne by the UK public are absorbed by the UK motorist and broader population, yet the average – critically uninformed - motorist is not prive to the socio-economic good achieved.
The socio-economic importance of this this 'invisible' work should be given greater profile, as should a transparent ability for the private sector and commercial world to understand its cost structure; no doubt also surely a concern for the Treasury seeking to make spending reductions by out-sourcing non-confidential operations.
If the Ministry of Defence was able to divest a DERA function by way of QinetiQ in 2001, and the likes of Cobham plc along with many others are able to operate both privately and efficiently in areas of state interest, then it appears a natural consequence that the DfT should seek to divest major portions of its costly in-house activities regards road R&D and infrastructure.
Promoting Competitive Commercial Interests -
As part of the UK's own road infrastructure renaissance, now to be expectantly paid for by foreign concerns and respective income seeking agenda, it may be argued that a similar 'spirit of progressive competition' should be fostered. Indeed must be fostered.
It is only by doing so that the presently disparate yet increasing number of stakeholder sectors involved in road infrastructure might be better coalesced into a far more powerful, transformative force – to the good of the UK's entrepreneurial health, that of the economy and that of the public good to society in general.
It should be remembered that the invention of the legendary safety device the “cat's eye” was conceived outside of officialdom by the singularly minded Percy Shaw in 1933, who then patented the invention, developed it and manufactured the item via 'Reflecting Roadstuds Ltd' from 1935 onward. Today seen the world over and having saved countless lives.
Such private party 'visioneering' should be nurtured.
Nurturing The New Perspective -
Whilst vehicle evolution will continue to benefit buyers, drivers, passengers and society in general, the prime question posed by this web-log is...
...“how the roadway itself – in physical and network form – can better evolve to suit modern-day vehicles of all types and various user requirements, whilst offering potential for additional ROI / income streams?”
Such a question opens-up the issue beyond traditional practice and the conventional envelope 'norm' which presently sees what appears a massive unintentional gulf between various stakeholders: government policy-setting, road & environment planning bodies, civil engineering construction sector, vehicle producers & autos supply chain, road-side commercial interests reflected by the retail and hospitality sectors and critically the core interests of large-fund investor types such as SWFs (singular and combined) and the increasingly cautious institutional investor base.
Infrastructure Programme 'Bundling' -
Relative to the broader road infrastructure picture, there looks to be a good possibility of 're-grouping' (ie operational bundling) in the infrastructure sector, seeking to create new 21st century delivery mechanisms consisting of a closely linked corroborative 'vertical' value-chain. So seeking to consolidate the traditional loosely-linked or short-linked vertical value chain, aswell as posing a new operational challenge to those players which primarily operate on a 'horizontal' 'business consolidation' basis. (Though undoubtedly they to will grow in their fashion given the global opportunity to do so).
[NB No doubt this a critical part of the intention of those infrastructure funds that have been formed to date].
Conclusion -
Compared to step-change examples of yesteryear, infrastructure planning in Britain's over the last 60 years has been a shadow of its former self. Partly a result of the car having come into its own as transport king by the 1960s, seen in the re-moulding of town-scapes, the building of the motorway network and creation of the near hallowed town and village by-pass.
But today, Britain 'cracks and creeks' visibly and audibly. Visibly from the weight of network over-capacity across the motorways, A-roads, B-roads and elsewhere, with accordant loss of logistical efficiency. Audibly from the frustrated private motorist, company motorist and corporate fleet operator, all of whom are unable to understand the opaque cost-benefit equation of the scaled road fund licence and hefty fuel tax, and would be better served by an evidently clear road pricing mechanism with inherently clear investment impetus and advantages.
Thus a radical overhaul of the UK's road infrastructure is required and the vision that is painted by government must be one of clear advantage to all from the motorist to R&D scientists, to vehicle producers to civil engineering companies to network operators to the SWFs offering funds for what must be very well constructed infrastructure business cases.
Post Script -
Though there has been heavy criticism of the Treasury's 100 year gilt offering given its lacklustre coupon by historical standards and the exposure to inflation and interest rate volatility, investment-auto-motives suspects that recipient buyers will do so for mixed reasons – politic reasons for Eastern buyers and cultural reasons for Western buyers.
Politically 'BRIC' and 'Next 11' corporations – themselves 'backed by national SWFs' - would presumably gain good favour so promoting a 'quid quo pro' approach when seeking FDI 'incentivisation'.
Conversely, in an increasingly marginalised West, the 'olde-worlde' powers of the UK, Europe, America and even Japan would seek to help safeguard each-other's long-term interests by participating in intra-national and intra-regional debt purchase programmes. The near parity value of Sterling and Euro assisted by the ECB liquidity initiative and the UK's still far stronger rating by Fitch, Moody's and S&P creates a good basis for such mutuality. Whilst the US Dollar could feasibly re-strengthen over the long-term to ultimately meet Sterling and Euro valuation. This 'united west' scenario even more plausible if the growing national and regional protectionist mindset that has been seen becomes very much a part of the 'new norm'].
Tuesday, 20 March 2012
Micro Level Trends – European Auto Stocks – German “Growth Picks” Contrast Gallic “Value Picks”.
As European economic disarray appears to slowly subside (even in the face of Greek & Spanish intransigence) observers of European auto stocks will have noted the major divergence that has appeared between the well positioned premium biased German producers, and the flailing mainstream French and Italian manufacturers.
[NB American owned GM Europe and Ford of Europe, dragging down their respective homeland good news stories].
The broad picture forming is that auto-sector equities investors presently sit within what could be described as "Act 2 of 3".
Having witnessed successful corporations both feed and become swept up by the voracious bull market that has run since October 2011, the investment community now looks to those by-passed and unloved entities which themselves are in the doldrums and look ripe for orchestrated funding and strategic nurturing.
The following provides outline of the forces that have, and continue, to support the German auto industry – which itself assists massively in financially the re-floating the EU ambition - whilst also highlighting the major market challenges yet investment opportunities for French and Italian companies at VM, Niche Manufacturer and Supply Chain Level.
The Present Picture -
North America shows the signs of maintaining a slow tentative structural recovery. China has confidently managed its passage through a successful 'soft-landing' via internally directed fiscal & monetary measures, so arguably demonstrating its ability regards self-containment and self-sufficiency. Japan continues to deploy a strong Yen (relative to the international FX basket) to serve internal infrastructure re-build programmes and overseas M&A ambitions. Brazil begins what appears a pseudo-protectionist stance over its currency and its prime manufacturing base so as to stabilise its own Mercosur fortunes given its global exportation slowdown. The Middle-East experiences the social and political pains of a new pro-Arabic yet 'centralist' transition period which seeks to economically integrate the vast MENA region so as to provide “regional balance” vis a vis Western, Latin, American, Asian and Chinese power-houses.
Europe -
Throughout this very unsettling period of new-era globalisation, European leaders recognised the need to band together to overcome the resulting frictions from the regional sovereign debt crisis; recognising that a truly 'broken Europe' would relegate the majority of EU members into a 21st century 'dark age'. The channelling of largely German liquidity through ESFS & ESFM vehicles has undoubtedly helped to quell intra-national and markets' fears, whilst the long-haul recovery of Greece will ultimately set the re-structuring benchmark – in terms of depth and timetable - for the more reticent Spanish and Portugese.
To the possible wry delight of slightly shaken but mostly unstirred EM nations, the real consequence of the western originated 'global financial crisis' was most evidently seen in the US and across Europe; the former arguably through the turmoil whilst the EU remains effectively a 3-speed destination for investors.
The German Powerhouse -
The financial problems of the European debt crisis were effectively laid at the feet of German politicians, the Bundesbank, the EcB and critically the German populace; by way of its high productivity rate & personal savings levels. Whilst the political and central bankers were able to formulate 'loans for austerity measures' toward the 'PIIGS' countries, the real concern through 2009-11 was whether Germany itself would be over-burdened by its neighbours.
As a result of the disenchantment with all things Greek, Italian, Spanish, Portugese and Irish, the German consumer became increasingly patriotic regards personal expenditure. To such an extent that the domestic economy 'powered through' the fragile period, as seen by the sale of cars increasing by 9% in 2011; a marked contrast to all other contracting EU car markets.
This then has created a condition wherein Germany once again stands as continent's prime economic engine, with France in reality offering little assistance as it battles its own banking sector woes and confines itself for the most part to its own national economic agenda.
Thus, until the EU 'de-coupled' UK finds certain economic traction, Germany sits effectively alone as the sole bright light within the fractured EU region.
Yet it has provided the indigenous German trio of VW, BMW & Daimler (aswell as to a lesser degree Opel and Ford) with a very welcome, somewhat 'inelastic', demand floor.
Fractured Europe / Fractured World -
Thus, as described initially the physically separate continents and their associated indigenous trading blocs within the world are perhaps far more fractured today than at any time over the last two decades; Europe's own dis-unity serving to underline the 'new norm' that re-orientates corporate, political and social agendas.
The Corporate Challenge -
As a result the plethora of multi-national corporations – ranging from investment banks to foodstuff providers – have effectively de-centralised so as to better morph regional divisions and operations to better suit the specific micro-climate. Then more adeptly positioned to acutely manage a portfolio of enterprises that must best evolve within that exacting micro-climate yet within the corporate realm: ranging from the immediacy of locally sourced financing availability and its associated costs, to the far-horizon of 'visioneering' process of how the regional market will develop, all the while necessarily maintaining the cohesion standard operating practice, as delineated by HQ. So a very testing time for regional executives, whether those of GE in Asia or TATA in Europe, and perhaps more so for the Board of Directors who must maintain corporate integration whilst maximising regional opportunities and minimising regional risks.
Europe's Entrenched Auto Players -
Europe's mainstream VMs have, for the most part, long been participants in worldwide markets, though of course each with varying distant past and recent history success. However, many including PSA, Renault, FIAT and GME still have a legacy bias to their homeland and European markets, marques such as Citroen, Skoda, Dacia, Opel, Vauxhall and Lancia with respectively greater perceived social and industrial connection to the home market. Whilst they themselves were intrinsic to local positive economic history thus obtaining a once entrenched (ie captive) customer base of private, fleet or government sales, that grip has weakened as a result of de-regulation and open borders policy-making.
That story of gradually eroded market share only bucked by PSA's expansionary growth at Citroen (piggy-backing Peugeot's previous 30 year success story), and VW's and Renault's 'parenting' of Skoda and Dacia as the CEE states became meshed with Western Europe.
Incoming Japanese and latterly Korean 'imported' competition, plus the competitive pressure of intra-regional sales, plus the EU's own enlargement created the impetus for necessary for yesteryear structural change, winners and losers diverging: PSA moving out of Renault's shadow to become the EU's second largest producer and Dacia re-established as a pan-regional and export oriented brand, whilst Lancia – like America's old premium brands - struggled to recapture past glory.
Whilst French and Italian producers have long recognised the EU market threat posed by new entrants, they have been largely impotent to tackle the threat by themselves broaching new high potential markets; Renault's American history with AMC an example, as was FIAT's own previous US market efforts; whilst even Audi retracted for many years. Similarly efforts in China and India have been lacklustre compared to the in-roads made by VW, GM, Ford, Toyota, Suzuki etc. Instead it seems that international expansion will continue to be limited to S.America and the MENA region, so almost destined to re-play the experiences of previous decades. Hence Marchionne's daring ploy with Chrysler to break the cycle.
This is not to say that PSA, Renault and FIAT cannot continue to nurture the broad growth opportunities in Brazil and Argentina, even with the former's monumental sector slow-down from its previous fast - indeed over-paced – growth. Simply that the expected renewed growth in North Africa and Near East will require far greater effort and patience to extract new 'national car' and auto-assembly deals (such as that seen previously with Iran's Khodro and the large Tangier's facility) because of greater competitive interest from VW Group (orientating SEAT's model naming toward the Arabic-Moorish), China's various state affiliated car companies seeking price-led export markets and India's TATA, Maruti and Mahindra seeking foreign growth.
Adjusting to the 'New Norm' -
However, those previous periods of adjustment may appear mild compared to the shock of the financial crisis, the reactionary surgical measures immediately required, and the ongoing rounds of surgeory and sector rehabilitation still needed.
Between 2007 and 2010 car sales fell from a record high of 15.5m to the low of 13.2m units, a low not seen since 1997. Governmental 'liquidity pump-priming' certainly saved Renault & PSA (receiving E2bn each), aswell as FIAT, and to a lesser extent assisting the German trio also. This financing initiative together with VMs own rapid cost-cutting and efficiency-seeking efforts and an improvement in general credit conditions for producers and buyers through 2009-11, together helped to stave off what would have been a socially disastrous auto-sector collapse.
Vitally important is the fact that over 15.1m car units were manufactured inside the EU in 2010, indicating a very simplistic 1.7m unit regional over-capacity.
Any argument that import levels (worth E22bn in 2010) adds further 'burden' to such over-capacity is countered by recognising that EU exports (worth E76.5bn) provide a wide trade surplus. However, imports are primarily mainstream vehicles and so can be argued as 'value destructive' to certain key segments in which 'national champions' operate. Whilst a high percentage of exported vehicles are typically in the premium segment where 'national champions' do not operate and so cannot benefit.
This additionally highlights the divergent fortunes of Europe's automotive players.
Slow But Powerful 'Creative Destruction' -
An argument can be posited that a far greater level of 'creative destruction' immediately following the financial crisis (engendered by less state interventionism) would actually have better served the sector in the long run.
However, this viewpoint may be cited as essentially “academic”. Since many of the intermediate private equity entities which notionally could have 'hoovered-up' liquidated assets were unable to access sufficient finance to do so; themselves in danger aversion and capital repair modes. Furthermore, many large auto-sector focused PE entities were already extremely busy executing 'turnarounds' at American and Canadian Tier 1 & 2 suppliers, exploring the bones of Chrysler and assessing new pseudo 'ground floor' investment in the GM re-listing.
It is then perhaps expedient to consider the PE community's attitude toward auto-sector restructures within the US and across Europe as respectively 'speedy' versus 'slow'.
Wall Street's Lehman Brother's 'moment' and the Sovereign Debt Crisis whilst inter-connected played out over slightly separate successive time-frames, and thus arguably allow for those tranches of America's enhanced liquidity, along with European Stability liquidity, to be invested into EU assets. Europe to see simultaneously merged FDI and 'self-help' funding, the former rationally directed at EU target companies and facilities where the business case (ideally US-EU synergistic) convinces.
The United States of Europe -
This structural difference an important distinction between the regions.
The American ability for a 'pre-pack' Chapter 11 full-scale restructuring of GM and Chrysler through a singular national legal framework, an amenable New York court system, and critically an 'on-board' UAW & general public; sits in stark contrast with the web of corporate, legal and social complexity that exists within Europe.
European leaders must wake-up to this American-European schism, and recognise the danger of slipping further behind the US, China and the increasingly strong economic blocs within Asia and Latin America.
However, in the meantime, the reality of intra-national European differences prevails, which in turn provides potential opportunities for non-European VMs and Supply Chain players to 'slice and dice' the body of the poorly performing members of the EU auto-sector. To obtain 'bolt-on' acquisitions which suit their own strategic ambitions across R&D, technical development, productivity, distribution and market-share.
[NB The 7% interest of GM in PSA might be viewed as part of this process of structural transformation].
In 2010 ACEA (the European Automobile Manufacturer's Association) noted in its yearly report that...”The automotive sector in Europe is highly competitive, supporting 12 million jobs, contributing significantly to economic prosperity. It supplies quality products worldwide and invests more in R&D than any other sector. Steps must be taken to ensure it emerges with strength from the economic downturn, ready to take advantage of market growth”.
Exactly which multi-national VM, which Tier 1 & Tier 2 companies, which distribution enterprises and which retailing groups come to finally benefit from the flux through FDI or Restructuring funding remains to be seen.
Conclusion -
VW AG, BMW AG and Daimler AG are deservedly flying high here and now, with indeed much to yet be gained as the macro-forces in Germany, North America, slowly the UK and eventually Europe provide what could be described as a domino earnings impetus. With of course China's own sustained growth also creating local and regional demand pull for these marques.
Yet the trickle-down of sizable ECB liquidity will undoubtedly eventually improve and re-energise national and regional EU market conditions. Simultaneously an offering a new generation of CO2 conscious vehicles from Peugeot SA, Renault SA and FIAT SpA should be able to excite still cost conscious but more spendthrift consumers, the VMs also theoretically able exercise historic near-reach export market opportunities.
Those valuation uplifts so desperately desired, themselves initially driven by a host of 'bottom-feeding' stock buyers, may possibly be attracted by adding greater 'pictorial detail' and 'aspirational clarity' to what for the most part are typically dry outlook summaries.
This era is obviously one of reflection and 'next move' strategising by company boards. And whilst highly confidential information cannot be leaked, it might prove useful to start relaying in broad terms the fundamentals of corporate intentions. Something that mimics a crystallised near-term ambition, as with VW's move on Porsche, with a far-horizon ideal – such as Toyota's legendary 100 year plan.
In the new age of 100 year (UK) government bonds, no doubt targeted at cash-rich corporations aswell as global pension funds, it makes sense for those auto-players presently in reduced circumstances to weave their substantive corporate intent into the minds of global investors.
[NB American owned GM Europe and Ford of Europe, dragging down their respective homeland good news stories].
The broad picture forming is that auto-sector equities investors presently sit within what could be described as "Act 2 of 3".
Having witnessed successful corporations both feed and become swept up by the voracious bull market that has run since October 2011, the investment community now looks to those by-passed and unloved entities which themselves are in the doldrums and look ripe for orchestrated funding and strategic nurturing.
The following provides outline of the forces that have, and continue, to support the German auto industry – which itself assists massively in financially the re-floating the EU ambition - whilst also highlighting the major market challenges yet investment opportunities for French and Italian companies at VM, Niche Manufacturer and Supply Chain Level.
The Present Picture -
North America shows the signs of maintaining a slow tentative structural recovery. China has confidently managed its passage through a successful 'soft-landing' via internally directed fiscal & monetary measures, so arguably demonstrating its ability regards self-containment and self-sufficiency. Japan continues to deploy a strong Yen (relative to the international FX basket) to serve internal infrastructure re-build programmes and overseas M&A ambitions. Brazil begins what appears a pseudo-protectionist stance over its currency and its prime manufacturing base so as to stabilise its own Mercosur fortunes given its global exportation slowdown. The Middle-East experiences the social and political pains of a new pro-Arabic yet 'centralist' transition period which seeks to economically integrate the vast MENA region so as to provide “regional balance” vis a vis Western, Latin, American, Asian and Chinese power-houses.
Europe -
Throughout this very unsettling period of new-era globalisation, European leaders recognised the need to band together to overcome the resulting frictions from the regional sovereign debt crisis; recognising that a truly 'broken Europe' would relegate the majority of EU members into a 21st century 'dark age'. The channelling of largely German liquidity through ESFS & ESFM vehicles has undoubtedly helped to quell intra-national and markets' fears, whilst the long-haul recovery of Greece will ultimately set the re-structuring benchmark – in terms of depth and timetable - for the more reticent Spanish and Portugese.
To the possible wry delight of slightly shaken but mostly unstirred EM nations, the real consequence of the western originated 'global financial crisis' was most evidently seen in the US and across Europe; the former arguably through the turmoil whilst the EU remains effectively a 3-speed destination for investors.
The German Powerhouse -
The financial problems of the European debt crisis were effectively laid at the feet of German politicians, the Bundesbank, the EcB and critically the German populace; by way of its high productivity rate & personal savings levels. Whilst the political and central bankers were able to formulate 'loans for austerity measures' toward the 'PIIGS' countries, the real concern through 2009-11 was whether Germany itself would be over-burdened by its neighbours.
As a result of the disenchantment with all things Greek, Italian, Spanish, Portugese and Irish, the German consumer became increasingly patriotic regards personal expenditure. To such an extent that the domestic economy 'powered through' the fragile period, as seen by the sale of cars increasing by 9% in 2011; a marked contrast to all other contracting EU car markets.
This then has created a condition wherein Germany once again stands as continent's prime economic engine, with France in reality offering little assistance as it battles its own banking sector woes and confines itself for the most part to its own national economic agenda.
Thus, until the EU 'de-coupled' UK finds certain economic traction, Germany sits effectively alone as the sole bright light within the fractured EU region.
Yet it has provided the indigenous German trio of VW, BMW & Daimler (aswell as to a lesser degree Opel and Ford) with a very welcome, somewhat 'inelastic', demand floor.
Fractured Europe / Fractured World -
Thus, as described initially the physically separate continents and their associated indigenous trading blocs within the world are perhaps far more fractured today than at any time over the last two decades; Europe's own dis-unity serving to underline the 'new norm' that re-orientates corporate, political and social agendas.
The Corporate Challenge -
As a result the plethora of multi-national corporations – ranging from investment banks to foodstuff providers – have effectively de-centralised so as to better morph regional divisions and operations to better suit the specific micro-climate. Then more adeptly positioned to acutely manage a portfolio of enterprises that must best evolve within that exacting micro-climate yet within the corporate realm: ranging from the immediacy of locally sourced financing availability and its associated costs, to the far-horizon of 'visioneering' process of how the regional market will develop, all the while necessarily maintaining the cohesion standard operating practice, as delineated by HQ. So a very testing time for regional executives, whether those of GE in Asia or TATA in Europe, and perhaps more so for the Board of Directors who must maintain corporate integration whilst maximising regional opportunities and minimising regional risks.
Europe's Entrenched Auto Players -
Europe's mainstream VMs have, for the most part, long been participants in worldwide markets, though of course each with varying distant past and recent history success. However, many including PSA, Renault, FIAT and GME still have a legacy bias to their homeland and European markets, marques such as Citroen, Skoda, Dacia, Opel, Vauxhall and Lancia with respectively greater perceived social and industrial connection to the home market. Whilst they themselves were intrinsic to local positive economic history thus obtaining a once entrenched (ie captive) customer base of private, fleet or government sales, that grip has weakened as a result of de-regulation and open borders policy-making.
That story of gradually eroded market share only bucked by PSA's expansionary growth at Citroen (piggy-backing Peugeot's previous 30 year success story), and VW's and Renault's 'parenting' of Skoda and Dacia as the CEE states became meshed with Western Europe.
Incoming Japanese and latterly Korean 'imported' competition, plus the competitive pressure of intra-regional sales, plus the EU's own enlargement created the impetus for necessary for yesteryear structural change, winners and losers diverging: PSA moving out of Renault's shadow to become the EU's second largest producer and Dacia re-established as a pan-regional and export oriented brand, whilst Lancia – like America's old premium brands - struggled to recapture past glory.
Whilst French and Italian producers have long recognised the EU market threat posed by new entrants, they have been largely impotent to tackle the threat by themselves broaching new high potential markets; Renault's American history with AMC an example, as was FIAT's own previous US market efforts; whilst even Audi retracted for many years. Similarly efforts in China and India have been lacklustre compared to the in-roads made by VW, GM, Ford, Toyota, Suzuki etc. Instead it seems that international expansion will continue to be limited to S.America and the MENA region, so almost destined to re-play the experiences of previous decades. Hence Marchionne's daring ploy with Chrysler to break the cycle.
This is not to say that PSA, Renault and FIAT cannot continue to nurture the broad growth opportunities in Brazil and Argentina, even with the former's monumental sector slow-down from its previous fast - indeed over-paced – growth. Simply that the expected renewed growth in North Africa and Near East will require far greater effort and patience to extract new 'national car' and auto-assembly deals (such as that seen previously with Iran's Khodro and the large Tangier's facility) because of greater competitive interest from VW Group (orientating SEAT's model naming toward the Arabic-Moorish), China's various state affiliated car companies seeking price-led export markets and India's TATA, Maruti and Mahindra seeking foreign growth.
Adjusting to the 'New Norm' -
However, those previous periods of adjustment may appear mild compared to the shock of the financial crisis, the reactionary surgical measures immediately required, and the ongoing rounds of surgeory and sector rehabilitation still needed.
Between 2007 and 2010 car sales fell from a record high of 15.5m to the low of 13.2m units, a low not seen since 1997. Governmental 'liquidity pump-priming' certainly saved Renault & PSA (receiving E2bn each), aswell as FIAT, and to a lesser extent assisting the German trio also. This financing initiative together with VMs own rapid cost-cutting and efficiency-seeking efforts and an improvement in general credit conditions for producers and buyers through 2009-11, together helped to stave off what would have been a socially disastrous auto-sector collapse.
Vitally important is the fact that over 15.1m car units were manufactured inside the EU in 2010, indicating a very simplistic 1.7m unit regional over-capacity.
Any argument that import levels (worth E22bn in 2010) adds further 'burden' to such over-capacity is countered by recognising that EU exports (worth E76.5bn) provide a wide trade surplus. However, imports are primarily mainstream vehicles and so can be argued as 'value destructive' to certain key segments in which 'national champions' operate. Whilst a high percentage of exported vehicles are typically in the premium segment where 'national champions' do not operate and so cannot benefit.
This additionally highlights the divergent fortunes of Europe's automotive players.
Slow But Powerful 'Creative Destruction' -
An argument can be posited that a far greater level of 'creative destruction' immediately following the financial crisis (engendered by less state interventionism) would actually have better served the sector in the long run.
However, this viewpoint may be cited as essentially “academic”. Since many of the intermediate private equity entities which notionally could have 'hoovered-up' liquidated assets were unable to access sufficient finance to do so; themselves in danger aversion and capital repair modes. Furthermore, many large auto-sector focused PE entities were already extremely busy executing 'turnarounds' at American and Canadian Tier 1 & 2 suppliers, exploring the bones of Chrysler and assessing new pseudo 'ground floor' investment in the GM re-listing.
It is then perhaps expedient to consider the PE community's attitude toward auto-sector restructures within the US and across Europe as respectively 'speedy' versus 'slow'.
Wall Street's Lehman Brother's 'moment' and the Sovereign Debt Crisis whilst inter-connected played out over slightly separate successive time-frames, and thus arguably allow for those tranches of America's enhanced liquidity, along with European Stability liquidity, to be invested into EU assets. Europe to see simultaneously merged FDI and 'self-help' funding, the former rationally directed at EU target companies and facilities where the business case (ideally US-EU synergistic) convinces.
The United States of Europe -
This structural difference an important distinction between the regions.
The American ability for a 'pre-pack' Chapter 11 full-scale restructuring of GM and Chrysler through a singular national legal framework, an amenable New York court system, and critically an 'on-board' UAW & general public; sits in stark contrast with the web of corporate, legal and social complexity that exists within Europe.
European leaders must wake-up to this American-European schism, and recognise the danger of slipping further behind the US, China and the increasingly strong economic blocs within Asia and Latin America.
However, in the meantime, the reality of intra-national European differences prevails, which in turn provides potential opportunities for non-European VMs and Supply Chain players to 'slice and dice' the body of the poorly performing members of the EU auto-sector. To obtain 'bolt-on' acquisitions which suit their own strategic ambitions across R&D, technical development, productivity, distribution and market-share.
[NB The 7% interest of GM in PSA might be viewed as part of this process of structural transformation].
In 2010 ACEA (the European Automobile Manufacturer's Association) noted in its yearly report that...”The automotive sector in Europe is highly competitive, supporting 12 million jobs, contributing significantly to economic prosperity. It supplies quality products worldwide and invests more in R&D than any other sector. Steps must be taken to ensure it emerges with strength from the economic downturn, ready to take advantage of market growth”.
Exactly which multi-national VM, which Tier 1 & Tier 2 companies, which distribution enterprises and which retailing groups come to finally benefit from the flux through FDI or Restructuring funding remains to be seen.
Conclusion -
VW AG, BMW AG and Daimler AG are deservedly flying high here and now, with indeed much to yet be gained as the macro-forces in Germany, North America, slowly the UK and eventually Europe provide what could be described as a domino earnings impetus. With of course China's own sustained growth also creating local and regional demand pull for these marques.
Yet the trickle-down of sizable ECB liquidity will undoubtedly eventually improve and re-energise national and regional EU market conditions. Simultaneously an offering a new generation of CO2 conscious vehicles from Peugeot SA, Renault SA and FIAT SpA should be able to excite still cost conscious but more spendthrift consumers, the VMs also theoretically able exercise historic near-reach export market opportunities.
Those valuation uplifts so desperately desired, themselves initially driven by a host of 'bottom-feeding' stock buyers, may possibly be attracted by adding greater 'pictorial detail' and 'aspirational clarity' to what for the most part are typically dry outlook summaries.
This era is obviously one of reflection and 'next move' strategising by company boards. And whilst highly confidential information cannot be leaked, it might prove useful to start relaying in broad terms the fundamentals of corporate intentions. Something that mimics a crystallised near-term ambition, as with VW's move on Porsche, with a far-horizon ideal – such as Toyota's legendary 100 year plan.
In the new age of 100 year (UK) government bonds, no doubt targeted at cash-rich corporations aswell as global pension funds, it makes sense for those auto-players presently in reduced circumstances to weave their substantive corporate intent into the minds of global investors.
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