Q2/H1 Reporting season is upon us and the general 'not so bad as expected' news appears has lifted markets spirits. No where near the 'animalistic spirits' that drive the market in ordinary times but still apparent cautious optimism.
Yet the 10 day rally period seen across US, Euro and Asia to date sits within the broader context of liquidity constraint – thus trader (not necessarily purist investor) behavior seems to be charging the markets; jumping on any positive signal - no matter how thin – and trading sentiment and volatility instead of fundamentals. Thus we find ourselves in a period of trader vs investor schism.
Of course behind this dynamic is the fact that cash-conscious publicly traded companies on every western exchange are desperate to be seen as investor picks; thereby able to leverage their improved MarketCap to draw financing from either directly off the balance sheet or able to better bargain with bank or bond lenders. All obviously in order to improve cash-flow conditions, working capital and so ease operating pressures both internally and on either side of their creditor-debtor chain.
Recent press has been full of the 'good-news' stories highlighting the day after day upward trending, the 8-month high of the S&P500 and analyst-beating Q2 earnings; from everyone from across the industrial board, from Coca-Cola in consumables, to e-bay in retailing, to Caterpillar in capital goods, to Xerox in IT, to Merck & Bristol-Meyers & Wyeth in pharmaceuticals, and of course (as expected) the more than buoyant results from the more sound “good” financial such as Goldman Sachs and JP Morgan, and even heavily reduced but still positive results from others like Amex.
In Autos, Hyundai as expected performed well making hay domestically (p 15% at home) and leveraging customer attraction efforts in North America at the expense of GM, Chrysler and even Toyota during this tumultuous period; also gaining from the FX effect of a weak Won. And Ford beat analyst expectations with lower than forecast losses, so demonstrating the combined effects of of internal turnaround progress, the “cash for clunkers” programme and migrational US market assistance.
Fairing less well the likes of McDonalds, UPS,Eastman Chemical, EuroTunnel, NCR, Ericssonn, Microsoft, Amazon & Hynix Semiconductor; the last of these tech and cyber-space businesses highlighting that IT and web2.0 have not been as immune as previously thought.
So a mixed bag of results. But what really lays behind the good news stories? Is there substance or are western markets creating a momentary “over-exuberance” primarily via traders and the positive overnight effect of the west-east regions?
Whilst many results have beaten gloomy analyst predictions, and are of course sector influenced (eg the 'recessionary comfort food' factor of Hershey's or the 'global stimulus gain' of Caterpillar Inc), the broad reality is surely that there is a 'counter-point-effect' taking place between continued downbeat macro-fundamental measures (ie those in recent US unemployment and UK GDP retraction) and the ability of corporate management to both take drastic restructuring steps and legitimately re-orientate accounting procedure to boost quarterly results. These could be deferring capital investment, changing inventory values via switching between FIFO to LIFO (especially under today's deflationary times), delaying supplier payments, use of 'extra-ordinaries' eg digging into the provision pot, altering capital goods' depreciation or maintaining old/better asset valuations. The options are varied and many, and during such pressured times firms are undoubtedly re-discovering such pain-relieving financial-engineering tactics.
But it must be said that investors are looking well beyond the top and bottom-line figures, just as CFA's and forensic accountants are well versed in reading the subtleties of accounts so investors are increasingly looking for YoY and QoQ like for like readability, simplicity and general transparency. The best of corporations have realised this and have over the last year or so become more detailed in their reporting, conveying more of their forward-looking business strategies when appropriate can even gain investor credibility by reducing dividends or indeed giving non-payment to demonstrate their financial prudence.
Thus the Q2 season seems marked by CEO's and CFO's continued positioning “between the devil and the deep blue sea”. Whilst the market will trade on transient good news and traders will seek to effectively arbitrage sentiment and trading volumes/patterns the longer-term independent investor must see past the white-noise of volatility and much of the rhetoric from media 'experts' and talking heads who are keen to talk-up their own holdings.
Given western economy realities the world is looking for a rebound in BRIC regions to pull the west from its mire, led by export driven western companies. These for the time being relate to infrastructure and associated sectors (eg mining, commodities and steel-processing and IT hardware and systems) and the push for further globalised (and consolidated) agriculture in China, Asia & Africa. In the medium term select western goods should gain traction again as Asian consumers loosen their discretionary spend wallets.
But it must be stated that China et al obviously seek greater gain from their rebound given their foreign reserve currency holdings and desire to own a greater portion of the global value chain, especially in natural resources, their inbound transportation and outbound transportation of export goods. For hard-pressed western companies and governments who want to ride the Chinese rebound to provide domestic commercial growth, an expanding money supply and returned consumer spending to buoy western economies that will be a hard pill to swallow.
The threat of implicit protectionism has been rising via subtle trade policy changes both in the west and Asia, but for the sake of all concerned this must be avoided. Ironically, given what seems a very deflated state of the western auto-industry, it can continue to provide an inspirational vehicle for open door trade policies and so improve international diplomacy. [NB, even if the Opel-BAIC deal looks doomed due to both German domestic political issues and the reality of BAIC trying to amalgamate the 2 very different enterprises].
Western markets need more than the present over-reaction to less than bad news. Western companies need demand pull from BRIC nations to kick-start their own corporate growth ambitions and so domestic local and national economy fortunes.
Thus the investment community whilst possibly copying their trader counterparts for near term gains, may need to undertake subtle firms of activism toward both their own company-stock interests and toward government.
Ordinarily, when the economic transmission mechanism is running smoothly and top-down (PESTEL) and bottom-up (accounting) evaluations can be made the 'efficient markets' theory has legitimacy. But today we still sit within an uncertain period, especially so given that much of the banking write-downs reportedly necessary have not taken place and so fundamentally undermines sound long-term value-creation.
The western economic engine, whilst previously saved from totally stalling, still needs attention and full comprehension of the problem and its solution. The recent rally we've could well be the result of over-charged optimism, just as a stalling engine can experience a temporary power surge from erroneous air being sucked-into the manifold from a vacuum leak. Hope/sentiment is that vacuum, and the fortuitous Q2 earnings results that erroneous rush of air.
Friday, 24 July 2009
Tuesday, 21 July 2009
PESTEL Trends – the US Future – “Fly-Drive Me to the Moon”?
We live in a period of massive innovation demand. Most notably clean-tech related from a grand political CO2 agenda as a 'social-good' for the masses, and from the individual's perspective ever increasing expectations towards 24/7 communications and ethically responsible mobility. Such trends have been building for some years, different ethical factions of society promoting lifestyle alternatives and choices derived from personal energy responsibility. From cyber-commuting to walking and cycling to the use of (literally) less carbon exhaustive vehicles – whether ICE powered, hybrid-drive or full EV based.
Historically technical progress has been achieved and trickled-down to commercial enterprise and so mass consumption from ambitious, hi-tech endeavours. Efforts that were largely state sponsored, combining (additional resource) exploration with the need for defending ever geographically increasing national interests. Examples span from Pheonician & Greek times scouting African and Persian coastal waters, latterly the Scandinavian and Spanish cross-Atlantic traverses in search of the riches of the New World, right-up to JFK's promise to land a man on the moon; which would demonstrate the American century and provide a strategic defence advantage in the face of a then cold war.
With exploration came the pushing of natural boundaries, the overcoming of these challenges served scientific enlightenment with new knowledge and thus synthesised innovation: from the creation of the Trireme in 500 BC, the honed development of the Galleon & Caravel in the 16th century to the breathtaking achievement that was the Apollo space-craft. The 40th year of the moon-landings is of course now upon us, and although it has never left the background of the popular consciousness, the anniversary is all the more prescient given America's renewed vow to re-visit our lunar satellite and possibly reach further beyond into the solar system. However, the down-to-earth problems of a negative 'over-reach' in short & mid-term economic budget deficit & PSBR, added to the growing costly domestic challenges of rising unemployment costs and health reform costs means that galactic grand schemes today appear a long-way off.
However, thankfully the spirit of man – even the singular man – is indomitable; so where there is a will there is a way.
Given this ever-lasting edict, it is prescient that 40 years on the US should gather the former knowledge gained all those years ago, combine it with latter-day learning, review the 'pure' and 'applied' technical research and create industrial policy development paths to independently self-propel into the future in its chosen direction. For man's spiritual growth and the nation's economic growth.
Space and military R&D has provided various commercial applications over the years, primarily in the computing, communications, energy storage and materials realms - the latter toward extreme environment alloys & ceramic compounds. Typically work is initially maintained in the public-realm due to the vagaries of tech-transfer (re)development timetables and indefinite project costs. Thus unsurprisingly advanced materials and processes must be largely subsidised and ammortised by the state in military, medical and university research applications – themselves expanding R&D knowledge – before solutions can be practicably targeted at and adopted by the commercial world.
The specific gestation and incubation period and locations vary depending upon the political, social, and commercial context, but the role of PPFI (Public-Private Funding Initiatives) ever more present to encourage a smoother transition from state to commercial worlds and, as we see with QinetiQ in the UK, a growing appreciation that public capital markets can be leveraged to assist both R&D agencies and associated in-house projects. Effectively treating hi-tech engineering R&D in the same manner as Pharmaceutical. This in turn providing new funding methods based on IPR rights and future income streams. (NB the speedy return to this alternative funding model by investors and financial agents as a partial substitute to the ongoing capital accessing problem companies are experiencing).
Very broadly and basically, this is the financing context to the typical hi-tech innovation curve, though as stated much depends on the myriad of variables [NB see the myriad of 'Innovation-Push' & 'Adopter-Pull' theories available].
Today we witness the auto-sector slowly fragmenting and slowly re-forming as companies old and new diminish and grow (eg GM vs BYD) and the very philosophy of personal mobility is put under the social spotlight with emergent reduced CO2 solutions being offered in powertrains, structures and C3 (central command control) telematics. Thus there is a juxtaposition of evolutionary development of the ICE engine and conventional vehicle components versus (series or parallel) hybrid and electric powertrains which given their respective packaging and range issues pose concomitant questions about suitable vehicle structures.
[NB. Today, it seems Toyota is by far ahead on petrol-electric hybrids given the Prius-effect, and now PSA gains credibility with a publicised low cost diesel-hybrid switchable 4WD drive system as seen on the 3008].
But whilst the tech-transfer of space-specific knowledge in structures, heat management and energy storage naturally aligns to its Aeronautical counterpart, only the structures element seems to have trickled-down to land craft, and that primarily via the performance necessity (and budgets) of high-level motor-sport. Given the conventional funding context (previously described) this is the normal route. But whilst it provides a pathway of sorts, technology realistically may not come to the masses – the average vehicle buyer – for decades if at all. The realities of commercial adoption play a major role for innovation spread given that private commercial enterprise seeks rightly to inherently minimise risk and maximise profits.
[NB the R&D vs Risk assumptions vary greatly depending on industrial sector in question and so the relatively low cost innovation of say 'quick-reaction' computer software or consumer electronics hardware is in stark contrast to automotive given their very different R&D procedures, product platform bases, business cultures etc].
It is well known that certain entrepreneurs often from the IT sector are trying to re-orientate the automotive world, with what are a wide spectrum range of product types, mobility-services and business model foundations; with variable credibility and variable eventual success.
The electric vehicle (both ZEV and LEV) of course is one genre that has attracted much exploration and attention, ranging from the marketing of Chinese made electric bicycles, scooters and 3-wheeler commercial/passenger vehicles to new start-up companies at either end of the ambition spectrum – from homegrown e-motorcycles to adapted 'integrated e-systems' vehicles using a COTS vehicle basis to JV ventures that combine volume vehicle and battery manufacturers set within state sponsored new infrastructure agreements.
Many appreciate that the electric vehicle trend has a 'back-to-the-future' aspect, those start-ups trying to leverage the learning accumulated 100 years ago, with names like Detroit Electric and so many others. And so it will be that this burgeoning industry must also look back to only 40 years ago, when perhaps the most advanced electric vehicle was constructed by GM-Delco – the Lunar Roving Vehicle.
Contracted-out by NASA-Marshall to Boeing Aerospace, and sub-contracted to General Motors, the LRV was perhaps the most intellectually intensive EV ever built, demanding engineering solutions that pushed structural, drive-train and energy storage envelopes. It was a (de)foldable lightweight skeletal structure appointed with 4 in-hub motors for 4WD & 4WS (10 foot turning circle), communications equipment and electrical output sockets to power on-board and external ancillary equipment. It had a mass of 209 kg but offered a payload of 490 kg and was 10 feet long x 6 feet wide (ie equal to the length of the1959 Mini). Power was provided by two 36-volt silver-zinc potassium hydroxide non-rechargable batteries with a capacity of 121 A·h. These were used to power the drive and steering motors and also a 36 volt utility outlet mounted on front of the LRV to power the communications relay unit or the TV camera.
Interestingly, the silver-zinc battery chemistry used for LRV has 3 significant advantages over lithium ion It is safer because it lacks the volatile cathode makeup that leads to a thermal runaway, it’s very green since both silver and zinc are non-toxic as well as recyclable, and, perhaps most importantly, it packs 40% more energy for a given volume than lithium ion. Silver-zinc has a long history, used by the military and aerospace where programs could afford to pay for the higher-priced silver in exchange for increased energy density. But of course cost is a prime commercial factor, hence the automotive R&D focus on lithium-ion.
[NB. Even so just as L-ion is being developed to reduce its performance weaknesses, intensive focus should continue to be applied to silver-zinc's structural configurations and re-chargability – as the like of Intel Capital is doing via Zpower].
40 years on and that vehicle and it successors for 2020 exploration (with undoubtedly extended ranges) could be said to offer a possible general specification for dedicated lower speed ZEV urban vehicles of the near term. Today's electric cars are for the most part either adapted from mainstream vehicles or made to try and look like conventional cars so as to be normal enough for marketplace acceptance.
This practice is typical and understandable: if we look back in history, the first cars whether gasoline or electric were styled as horseless carriages.
However, attempting to effectively retro-fit a 'new/alternative' technology into the perceptual envelope of conventional cars is both technically sub-optimal (esp regards structural mass vs range issues) and essentially disingenuous, since by doing so it effectively and unfortuitously encourages the general public to compare apples against oranges dressed as apples. Moreover, electric vehicle companies have the headwind of having to design these oranges to qualify within the legislative realms (esp crash safety) of these apples (conventional cars) unless specific regional legislature has been developed to allow these low speed vehicles onto limited speedway roads.
This has of course happened in certain areas of the USA, but even so there is an obvious social usage chasm between the car and (golf-cart derived) NEV – the latter seen as little more than a joke by many, something belonging to the social fringes of golf-resorts, retirement villages & locales and (mocked) university campus officials. Although sportscar related efforts are trying to change the perception of EVs, there is presently a world of difference between a prototype Mercedes SLS e-Drive (incidentally using hub-motors that are probably sourced from F1 development) and what is being offered as a suitable commuter / shopping vehicle.
Hybrids like Prius and Insight of course fill that middle ground of acceptability, but no EV – even the very limited edition and costly Smart EV & Mitsubushi i-Miev - realistically fulfils the cost/benefit consumer gap. [NB the BMW Mini EV and FIAT 500 EV are still largely R&D and PR exercises given their packaging deficiencies and done largely extol the virtues of BMW & FIAT mainstream eco-tech efforts like 'start-stop' and 'brake re-generation'].
If new-era nuclear-power electricity generation - presently the only feasible clean energy source - is to feed the legions of EVs often described by prompted forecast there is a need for government, enterprise and consumers to re-consider the specific uses and aesthetic forms of alternative types of vehicle – their function derived from their purpose – just as the LRV did. Just as a tractor or HGV / semi-trailer does. Just as a bicycle, boat or airplane does. Just as an Arab stallion or a Clydesdale mare do; respectively suited to racing and ploughing. The case to be set forward of “horses for courses”.
But within this context, enterprise must also appreciate that the public at large views limited capability vehicles differently from the broad capability car or light-truck. And so as long as the direct comparison remains sets a very different price on that capability...one that the industry will not like but must consider when formulating real-world business models that must comprise everything from the cost of production to the life-service of a vehicle.
And to that 'perceptional' end, Obama's words about re-conquering space and the simultaneous desire to protect our planet from our own ravages sets the context to re-orientate the perception of the public at large and the vehicle buying consumer. But it is not an easy task, as previous similar failed efforts with heavily sunken finances litter automotive history.
Perhaps the last words of this short essay are best heard from Charles Lindbergh, the renowned aviator, NACA (later NASA) adviser, son of Detroit and little known 'green guardian', who through his own perseverance of Spirit (of St Louis) promoted transportation innovation:
“All the achievements of mankind have value only to the extent that they preserve and improve the quality of life”....”the human future depends on our ability to combine the the knowledge of science and the wisdom of the wilderness”.
Such words are the philosophical touch-stone for future eco-tech mobility solutions, much of which will depend on an improved cross-fertilisation of ideas from a myriad of different scientific & industrial sectors and sources.
Historically technical progress has been achieved and trickled-down to commercial enterprise and so mass consumption from ambitious, hi-tech endeavours. Efforts that were largely state sponsored, combining (additional resource) exploration with the need for defending ever geographically increasing national interests. Examples span from Pheonician & Greek times scouting African and Persian coastal waters, latterly the Scandinavian and Spanish cross-Atlantic traverses in search of the riches of the New World, right-up to JFK's promise to land a man on the moon; which would demonstrate the American century and provide a strategic defence advantage in the face of a then cold war.
With exploration came the pushing of natural boundaries, the overcoming of these challenges served scientific enlightenment with new knowledge and thus synthesised innovation: from the creation of the Trireme in 500 BC, the honed development of the Galleon & Caravel in the 16th century to the breathtaking achievement that was the Apollo space-craft. The 40th year of the moon-landings is of course now upon us, and although it has never left the background of the popular consciousness, the anniversary is all the more prescient given America's renewed vow to re-visit our lunar satellite and possibly reach further beyond into the solar system. However, the down-to-earth problems of a negative 'over-reach' in short & mid-term economic budget deficit & PSBR, added to the growing costly domestic challenges of rising unemployment costs and health reform costs means that galactic grand schemes today appear a long-way off.
However, thankfully the spirit of man – even the singular man – is indomitable; so where there is a will there is a way.
Given this ever-lasting edict, it is prescient that 40 years on the US should gather the former knowledge gained all those years ago, combine it with latter-day learning, review the 'pure' and 'applied' technical research and create industrial policy development paths to independently self-propel into the future in its chosen direction. For man's spiritual growth and the nation's economic growth.
Space and military R&D has provided various commercial applications over the years, primarily in the computing, communications, energy storage and materials realms - the latter toward extreme environment alloys & ceramic compounds. Typically work is initially maintained in the public-realm due to the vagaries of tech-transfer (re)development timetables and indefinite project costs. Thus unsurprisingly advanced materials and processes must be largely subsidised and ammortised by the state in military, medical and university research applications – themselves expanding R&D knowledge – before solutions can be practicably targeted at and adopted by the commercial world.
The specific gestation and incubation period and locations vary depending upon the political, social, and commercial context, but the role of PPFI (Public-Private Funding Initiatives) ever more present to encourage a smoother transition from state to commercial worlds and, as we see with QinetiQ in the UK, a growing appreciation that public capital markets can be leveraged to assist both R&D agencies and associated in-house projects. Effectively treating hi-tech engineering R&D in the same manner as Pharmaceutical. This in turn providing new funding methods based on IPR rights and future income streams. (NB the speedy return to this alternative funding model by investors and financial agents as a partial substitute to the ongoing capital accessing problem companies are experiencing).
Very broadly and basically, this is the financing context to the typical hi-tech innovation curve, though as stated much depends on the myriad of variables [NB see the myriad of 'Innovation-Push' & 'Adopter-Pull' theories available].
Today we witness the auto-sector slowly fragmenting and slowly re-forming as companies old and new diminish and grow (eg GM vs BYD) and the very philosophy of personal mobility is put under the social spotlight with emergent reduced CO2 solutions being offered in powertrains, structures and C3 (central command control) telematics. Thus there is a juxtaposition of evolutionary development of the ICE engine and conventional vehicle components versus (series or parallel) hybrid and electric powertrains which given their respective packaging and range issues pose concomitant questions about suitable vehicle structures.
[NB. Today, it seems Toyota is by far ahead on petrol-electric hybrids given the Prius-effect, and now PSA gains credibility with a publicised low cost diesel-hybrid switchable 4WD drive system as seen on the 3008].
But whilst the tech-transfer of space-specific knowledge in structures, heat management and energy storage naturally aligns to its Aeronautical counterpart, only the structures element seems to have trickled-down to land craft, and that primarily via the performance necessity (and budgets) of high-level motor-sport. Given the conventional funding context (previously described) this is the normal route. But whilst it provides a pathway of sorts, technology realistically may not come to the masses – the average vehicle buyer – for decades if at all. The realities of commercial adoption play a major role for innovation spread given that private commercial enterprise seeks rightly to inherently minimise risk and maximise profits.
[NB the R&D vs Risk assumptions vary greatly depending on industrial sector in question and so the relatively low cost innovation of say 'quick-reaction' computer software or consumer electronics hardware is in stark contrast to automotive given their very different R&D procedures, product platform bases, business cultures etc].
It is well known that certain entrepreneurs often from the IT sector are trying to re-orientate the automotive world, with what are a wide spectrum range of product types, mobility-services and business model foundations; with variable credibility and variable eventual success.
The electric vehicle (both ZEV and LEV) of course is one genre that has attracted much exploration and attention, ranging from the marketing of Chinese made electric bicycles, scooters and 3-wheeler commercial/passenger vehicles to new start-up companies at either end of the ambition spectrum – from homegrown e-motorcycles to adapted 'integrated e-systems' vehicles using a COTS vehicle basis to JV ventures that combine volume vehicle and battery manufacturers set within state sponsored new infrastructure agreements.
Many appreciate that the electric vehicle trend has a 'back-to-the-future' aspect, those start-ups trying to leverage the learning accumulated 100 years ago, with names like Detroit Electric and so many others. And so it will be that this burgeoning industry must also look back to only 40 years ago, when perhaps the most advanced electric vehicle was constructed by GM-Delco – the Lunar Roving Vehicle.
Contracted-out by NASA-Marshall to Boeing Aerospace, and sub-contracted to General Motors, the LRV was perhaps the most intellectually intensive EV ever built, demanding engineering solutions that pushed structural, drive-train and energy storage envelopes. It was a (de)foldable lightweight skeletal structure appointed with 4 in-hub motors for 4WD & 4WS (10 foot turning circle), communications equipment and electrical output sockets to power on-board and external ancillary equipment. It had a mass of 209 kg but offered a payload of 490 kg and was 10 feet long x 6 feet wide (ie equal to the length of the1959 Mini). Power was provided by two 36-volt silver-zinc potassium hydroxide non-rechargable batteries with a capacity of 121 A·h. These were used to power the drive and steering motors and also a 36 volt utility outlet mounted on front of the LRV to power the communications relay unit or the TV camera.
Interestingly, the silver-zinc battery chemistry used for LRV has 3 significant advantages over lithium ion It is safer because it lacks the volatile cathode makeup that leads to a thermal runaway, it’s very green since both silver and zinc are non-toxic as well as recyclable, and, perhaps most importantly, it packs 40% more energy for a given volume than lithium ion. Silver-zinc has a long history, used by the military and aerospace where programs could afford to pay for the higher-priced silver in exchange for increased energy density. But of course cost is a prime commercial factor, hence the automotive R&D focus on lithium-ion.
[NB. Even so just as L-ion is being developed to reduce its performance weaknesses, intensive focus should continue to be applied to silver-zinc's structural configurations and re-chargability – as the like of Intel Capital is doing via Zpower].
40 years on and that vehicle and it successors for 2020 exploration (with undoubtedly extended ranges) could be said to offer a possible general specification for dedicated lower speed ZEV urban vehicles of the near term. Today's electric cars are for the most part either adapted from mainstream vehicles or made to try and look like conventional cars so as to be normal enough for marketplace acceptance.
This practice is typical and understandable: if we look back in history, the first cars whether gasoline or electric were styled as horseless carriages.
However, attempting to effectively retro-fit a 'new/alternative' technology into the perceptual envelope of conventional cars is both technically sub-optimal (esp regards structural mass vs range issues) and essentially disingenuous, since by doing so it effectively and unfortuitously encourages the general public to compare apples against oranges dressed as apples. Moreover, electric vehicle companies have the headwind of having to design these oranges to qualify within the legislative realms (esp crash safety) of these apples (conventional cars) unless specific regional legislature has been developed to allow these low speed vehicles onto limited speedway roads.
This has of course happened in certain areas of the USA, but even so there is an obvious social usage chasm between the car and (golf-cart derived) NEV – the latter seen as little more than a joke by many, something belonging to the social fringes of golf-resorts, retirement villages & locales and (mocked) university campus officials. Although sportscar related efforts are trying to change the perception of EVs, there is presently a world of difference between a prototype Mercedes SLS e-Drive (incidentally using hub-motors that are probably sourced from F1 development) and what is being offered as a suitable commuter / shopping vehicle.
Hybrids like Prius and Insight of course fill that middle ground of acceptability, but no EV – even the very limited edition and costly Smart EV & Mitsubushi i-Miev - realistically fulfils the cost/benefit consumer gap. [NB the BMW Mini EV and FIAT 500 EV are still largely R&D and PR exercises given their packaging deficiencies and done largely extol the virtues of BMW & FIAT mainstream eco-tech efforts like 'start-stop' and 'brake re-generation'].
If new-era nuclear-power electricity generation - presently the only feasible clean energy source - is to feed the legions of EVs often described by prompted forecast there is a need for government, enterprise and consumers to re-consider the specific uses and aesthetic forms of alternative types of vehicle – their function derived from their purpose – just as the LRV did. Just as a tractor or HGV / semi-trailer does. Just as a bicycle, boat or airplane does. Just as an Arab stallion or a Clydesdale mare do; respectively suited to racing and ploughing. The case to be set forward of “horses for courses”.
But within this context, enterprise must also appreciate that the public at large views limited capability vehicles differently from the broad capability car or light-truck. And so as long as the direct comparison remains sets a very different price on that capability...one that the industry will not like but must consider when formulating real-world business models that must comprise everything from the cost of production to the life-service of a vehicle.
And to that 'perceptional' end, Obama's words about re-conquering space and the simultaneous desire to protect our planet from our own ravages sets the context to re-orientate the perception of the public at large and the vehicle buying consumer. But it is not an easy task, as previous similar failed efforts with heavily sunken finances litter automotive history.
Perhaps the last words of this short essay are best heard from Charles Lindbergh, the renowned aviator, NACA (later NASA) adviser, son of Detroit and little known 'green guardian', who through his own perseverance of Spirit (of St Louis) promoted transportation innovation:
“All the achievements of mankind have value only to the extent that they preserve and improve the quality of life”....”the human future depends on our ability to combine the the knowledge of science and the wisdom of the wilderness”.
Such words are the philosophical touch-stone for future eco-tech mobility solutions, much of which will depend on an improved cross-fertilisation of ideas from a myriad of different scientific & industrial sectors and sources.
Saturday, 11 July 2009
Company Focus – 'New' General Motors Company – All Change at the RenCen and Around the Globe.
General Motors has emerged from bankruptcy proceedings in a record time of 39 days -thanks to the 363 procedure - astounding investors, industry executives and indeed re-structuring lawyers given the minimum of 90 days expected. Justifiably the 'old' bond-holders will continue to feel marginalised given the 60.8% stake now owned by Washington – costing approximately $1bn for each 1.22% - the 17.5% by the UAW, 11.7% by the Canadian Government and remaining 10% left to 'old GM' MLC (Motors Liquidation Company) and by virtue its equity and debt-holders.
[NB. The 'old' GM free-float rallied on the 'exit' news from a fluctuating range of $0.35 to a close of $1.15 on Friday (10.07.09) giving it a MktCap of $702.25m].
Thus the Board's remit is to both create a vision for tomorrow and simultaneously effectively dismantle and divest 'Liquidation Motors' of yesteryear. Whilst Whitacre, Henderson and Lutz perform much of the former - including a new e-bay based venture, the latter will probably be left to Whitacre, Isdell, Kresa, Laskawy & Kidder working with the investment banking community. The search to find suitable domestic and foreign trade and PE customers continues for the divested brands, product inventories, plants, tooling and land assets. Their job to create compelling 'Blue-Books' possibly for complete divisions but more probably on a part-by-part basis, the latter with the potential to release greater capital value generated by a wider audience.
Thus today even the New GM appears a world away from the long-term vision of 'General Mobility' – with concomitant new vehicle modes and business models - that it seeks under Whitacre. Many, including ourselves, will question the efficacy of the lightening-quick bankruptcy exit, but it must be assumed that although not formally 'pre-packaged' per se, the resultant animal is close in shape to the desired outcome by both Washington and GM itself.
But whilst Henderson et al maintain the GM publicity machine of 'customer focus' and 'star products' that buoys consumer – indeed American – confidence, others from Wall St, the City, Moscow's Presnensky, HK's Choong Wan, Seoul's Cheonggyecheon, Shanghai's Lujiazui & Beijing's own financial district will all have representatives clammering over GM's remaining 'toxic assets'. Assets which if utilised by others with low cost structures should have surprising inherent value. Penske's bid for Saturn and BAIC's bid for Opel should start a stampede.
Thus although the Washington – Beijing relationship has been tetchy in the recent past, this opportunity for bi-lateral and global trade which also aids the fragile US$-Renmimbi balance should be welcomed, as indeed will Washington glad to see immediate returns.
[NB. The 'old' GM free-float rallied on the 'exit' news from a fluctuating range of $0.35 to a close of $1.15 on Friday (10.07.09) giving it a MktCap of $702.25m].
In another potentially conspired twist of fate, that will cause more old bond-holder consternation, GM has along with Chrysler & Nissan North America agreed to loan Ford monies that will be passed-on to the quasi-dependent but bankrupt Visteon (itself filing 28.05.09). That occurrence obviously entwines the US auto-industry and we suspect was done so at the behest of Steven Rattner's Auto Task Force Team, so as to ensure Detroit helps itself by creating a collaborative culture rather than the historically normal competitive one – a case of value creation rather than value destruction. This of course stabilizes Visteon and allows for the precedent that a greater emphasis on 'common systems engineering' will prevail which will reduce development costs, inventory count, manufacturing overheads & variables, and logistics costs.
Thus at last Detroit is creating a very loose kind of chaebol system, that being the crucial basis of previous Japanese and S. Korean operating methods that both reduced costs and allowed for quicker new model development programmes. This probably an outcome of the efforts by Senator Bob Corker that created the covenant-like 'bail conditions' for GM.
Beneath the rebirth spin, the question must be what does GM realistically have that can transpose the PR into successful achievement? Viewing from afar, it has a crop of 30-something/40-something managers who have been essentially elevated by this historic occurrence. No doubt Henderson et al will be pep-talking those people: paralleling their 'opportunity' to that of John DeLorean's rapid rise. So the chance to re-make GM, now focused upon a slimmer brand portfolio of Chevrolet, Buick, Cadillac and GMC, with much needed debt-reduction boosting the balance sheet massively
[NB. Debt down from $176bn to $48bn according to the WSJ vs the FT's report of $54.4bn to $17.3bn. GM itself states it as $11bn excluding $9bn of preferred stock and could - ie probably will - alter under new accounting terms].
Given the new heavy marketing stance, Bob Lutz is now saying how he is really a marketing man at heart, having 'illegally' spent the majority of his career in product strategy and development. All part of the usual staged corporate rally cry that Detroit has mustered at such times to bolster belief both internally and critically externally.
So assuming that the operational management has been appropriately cut-to-shape and does have the experience and competence, what of the new Board? An entity which must combine the balancing act of creating strategic futures will the task of cherry-picking the recommended operational initiatives? The WSJ yesterday reported what much of the new board will look like, those members who are departing and those to take their new seats.Under new Chairman Ed Whitacre, Henderson carries on his good work as CEO including the direct responsibility for GMNA, [Nick Reilly now with International Ops (GMIO)] whilst Bob Lutz takes a Vice-Chair post probably charged with running the smaller Auto-Strategy Board & Auto-Product Board, and critically building the confidence of the remaining US dealer-base and pepping-up critical BRIC+ regional business divisions. Other names come and go.
As mentioned in the previous post, Stephen Girsky plays a pivotal role given his ability to see both side of the management-ownership equation. Although former Kodak CEO George Fisher departs, six current Board Execs remain including: former Coca-Cola Chairman Neville Isdell, ex Northrup Grumman CEO Kent Kresa ex E&Y Chairman Phil Laskawy. The appointment by the Obama administration of former investment banker Robert Kidder to GM aswell as Chrysler demonstrates the ideal of sector inter-connectedness that Washington seeks.
Thus the Board's remit is to both create a vision for tomorrow and simultaneously effectively dismantle and divest 'Liquidation Motors' of yesteryear. Whilst Whitacre, Henderson and Lutz perform much of the former - including a new e-bay based venture, the latter will probably be left to Whitacre, Isdell, Kresa, Laskawy & Kidder working with the investment banking community. The search to find suitable domestic and foreign trade and PE customers continues for the divested brands, product inventories, plants, tooling and land assets. Their job to create compelling 'Blue-Books' possibly for complete divisions but more probably on a part-by-part basis, the latter with the potential to release greater capital value generated by a wider audience.
Thus today even the New GM appears a world away from the long-term vision of 'General Mobility' – with concomitant new vehicle modes and business models - that it seeks under Whitacre. Many, including ourselves, will question the efficacy of the lightening-quick bankruptcy exit, but it must be assumed that although not formally 'pre-packaged' per se, the resultant animal is close in shape to the desired outcome by both Washington and GM itself.
But whilst Henderson et al maintain the GM publicity machine of 'customer focus' and 'star products' that buoys consumer – indeed American – confidence, others from Wall St, the City, Moscow's Presnensky, HK's Choong Wan, Seoul's Cheonggyecheon, Shanghai's Lujiazui & Beijing's own financial district will all have representatives clammering over GM's remaining 'toxic assets'. Assets which if utilised by others with low cost structures should have surprising inherent value. Penske's bid for Saturn and BAIC's bid for Opel should start a stampede.
Thus although the Washington – Beijing relationship has been tetchy in the recent past, this opportunity for bi-lateral and global trade which also aids the fragile US$-Renmimbi balance should be welcomed, as indeed will Washington glad to see immediate returns.
Thus it should not be such a wonder that Motors Liquidation Company has attracted so much attention, much of it speculative in the short-term but arguably with such international interest providing longer-term sustainability. Especially so if seperated-off as a strategic holding company for unhurried investors. Thus MLC may have firmer grounds for market confidence than perhaps many presently think.
Sometimes it pays better to be rationally contrarian...to 'think small'.
Monday, 6 July 2009
Macro-Level Trends – 'New' General Motor Co – Stars & Stripes Industrial Policy-Making Knotted by Orion's Bow-Tie
A CEO's remit is to harness the economic conditions of the day to maximise the investment, growth and returns potential of his/her organisation. Even if that organisation be in a rather unconventional state of play (ie Chapter 11) and under alternative effective ownership (ie Government & UAW) in what is supposed to be a capitalist society that CEO must make coherent rational choices, especially so if s/he seeks to create long-term stability from what have been fragile foundations.
Thus few industry observers will fault Frederick Henderson for siting 'New' GM's proposed small car-plant in Orion Township – Michigan, given the state's contribution of $779m in tax-credits over the next 20 years, other local incentives totaling $102m and a federal pot of £130m for local worker training. But the present realpolitik, which obviously includes Washington's $50bn+ of bail-out financing, wasn't lost on Orion's peer bid-competitors in Spring Hill, Tennessee and Janesville, Wisconsin. The Republican representatives of those locales reportedly concerned by what they see as a misrepresentation of a winning criteria based on CSR attributes instead of pure business-case fundamentals. [NB. The reported criteria spans a diverse range of issues both CSR and purely commercial, thus it is suggested that it was infact the 'spun' PR reporting regards 'eco' & 'community' that provided the fuel for the fire].
However, investment-auto-motives believes that in the interest of pure economic theorum, that it must be stated that the Michigan siting of the small-car plant, although in the short-term an attractive package, is still highly questionable. That is unless 'New' GM can somehow radically change the economics of the traditional US car-manufacturing business which is inherently tied to incompatible global cost-competitiveness throughout the US-centric value-chained.
But with new Board under new Chairman (ex AT&T) Edward E Whitacre Jnr, consisting of primarily government overseers & UAW figures there is a heavy reliance on the know-how of 'old-guard' GM management that (with all due respect) are not known for radical auto engineering and production approaches. Thus the Board with all the best intentions appears caught between a business case that must parallel car-market reality (at 9.9m-10.1m SAAR) that necessitates lowest-cost approaches, and the inherent external & internal pressures of what is now effectively a state-run enterprise. Whilst Whitacre will have the strategic perspective of transforming New GM into something with 'Telco' form (ie product service contracts and bolt-on packages) the only real informed Board-member is Stephen Girsky (now a UAW representive) from the Rattner Task Force; given that he sat alongside Wagoner in years gone by, and best understands the shape and form of the global company. Given his dual-role experiences, he is the real power-player in the broad schema.
As stated the realpolitik cannot be under-estimated, but the fact that New GM proposes to manufacture sub-compact (B-class) segment vehicles in Michigan still seems concerning. Even given the new lower Tier 2 UAW wage-rates ($14-16.23 per hour) that arguably compete with Southern states' labour rates they do not compete with Asian rates. Nor is there the flexibility to compete in the future as the US Administration seeks to raise the minimum wage from $6.55 to $7.25; that 70c raise will in turn indubitably push 'semi-skilled' rates up by $1 or more, so widening the cost-gap between Michigan, its southern counterparts, and particularly Mexico and BRIC regions which are 'enjoying' deflationary pressures to improve their auto-industry cost structures.
[NB. It was for very good reasons that Chrysler decided to manufacture its proposed Hornet sub-compact in China with its JV partner Chery – now possibly TATA-Chery given FIAT's acquisition].
New GM's small car should look something akin to the 'BEAT' concept which won an on-line potential-buyers poll in 2007 is a segment-adjusted interpretation of the new-age Chevrolet aesthetic (as also seen with Volt) due for production release in 2010. That B-class platform named 'Gamma2' has been developed by GMDAT in Inchen, S. Korea so much of the development costs will have been born by the relatively buoyant Asian subsidiary. Thus we suspect that the programme cost has been divorced from the (heavily subsidised) production cost, and much of the high-value systems (esp electronics) will be sourced from S. Korea, so therefore producing a 'feasible' business-case for Orion's small-car on paper.
In essence, Orion is acting in the same manner as the notional transplant production facility, ironically its new owner (the US Government) able to leverage both the reduced cost of overseas engineering development and exploit the deflationary pricing resultant from the re-structuring of weak chaebols ongoing in S. Korea and the FX rate fall of the Won vs Dollar.
(The irony of a present centre-left US administration benefiting from global capitalism is not lost! But of course the tenants of Adam Smith's 1776 ideology is about the exploitation of regional core competences...so all to the good).
However, the fact remains that even with such 'priced-in' costs that make the small-car programme apparently workable, it is the very basics of the US Administration's fiscal and monetary policies (ie heavy stimulus spending plans combined with M3's “Quantitative Easing” that threaten the mid-long-term viability of the BEAT/AVEO to New GM vs foreign manufacturer's such as Toyota, Hyundai within the US.
For, investment-auto-motives is bearish on the mid-term, believing that any apparent new growth will infact be little more than an illusionary mixture of a (possibly heavily) devalued Dollar combined with spiralling price inflation initially created by artificial wage-price adjustment. That perception of growth (primarily in observed data sets) will neither be true 'demand pull' nor 'productivity push', but a consequence of today's pump-priming actions, that in turn could well choke the US economy, and so set it for a dreaded invisible 'L-shaped' future.
If and when such a scenario plays out, New GM may endeavour to add margin to the small car programme by resorting to Buick, Cadillac and even possibly GMC branded variants that will try an d piggy-back the luxo-small car trend that appeared after the Merc A-Class, Brabus Smart and continues with the Aston Martin (Lagonda) Cygnet based on the Toyota iQ [see last posting]. (The Buick version would sit under or replace the Buick Sail in China, that car possibly brought to the US so expanding today's limited 3 car vehicle range; with also a mooted 'Wildcat Gran Sport' inspired coupe as a halo vehicle).
Thus we are back to a replay of the economic circumstances of the 1970s which in turn prompted the invention of mid-size Buicks and Cadillacs that assisted group revenue at the time, but helped to diminish the brand equity of both once illustrious marques. Of course GM must now pay as much, and realistically more, attention to China's marketplace, so the US will increasingly become second fiddle with S. America on the other side of the regional product strategy sandwich.
At that point, GM will once again need to re-create itself again as a 'Brand Broker' and that is when we'll see the legacy of Edward Whitacre Jnr via new business modelling
That work will need to happen asap for in the meantime, if our economic conjecture* proves correct, the New GM is yet another phase of what is a long journey of transformation.
Post Script
* Our fundamental yet academically undetailed economic conjecture parallels Prof Niall Ferguson's edict. In essence, that today's economic reality is best understood as a re-modeled hybrid construction of various past depression/heavy recession experiences. Thus is not a direct replay but involves different elements of various US (1930s/70s), European (1930s/70s), Japanese (1990s/2000s) and Asian (1990s) experiences and so requires a 'weighted basket' of countering policy reactions to suit.
Thus few industry observers will fault Frederick Henderson for siting 'New' GM's proposed small car-plant in Orion Township – Michigan, given the state's contribution of $779m in tax-credits over the next 20 years, other local incentives totaling $102m and a federal pot of £130m for local worker training. But the present realpolitik, which obviously includes Washington's $50bn+ of bail-out financing, wasn't lost on Orion's peer bid-competitors in Spring Hill, Tennessee and Janesville, Wisconsin. The Republican representatives of those locales reportedly concerned by what they see as a misrepresentation of a winning criteria based on CSR attributes instead of pure business-case fundamentals. [NB. The reported criteria spans a diverse range of issues both CSR and purely commercial, thus it is suggested that it was infact the 'spun' PR reporting regards 'eco' & 'community' that provided the fuel for the fire].
However, investment-auto-motives believes that in the interest of pure economic theorum, that it must be stated that the Michigan siting of the small-car plant, although in the short-term an attractive package, is still highly questionable. That is unless 'New' GM can somehow radically change the economics of the traditional US car-manufacturing business which is inherently tied to incompatible global cost-competitiveness throughout the US-centric value-chained.
But with new Board under new Chairman (ex AT&T) Edward E Whitacre Jnr, consisting of primarily government overseers & UAW figures there is a heavy reliance on the know-how of 'old-guard' GM management that (with all due respect) are not known for radical auto engineering and production approaches. Thus the Board with all the best intentions appears caught between a business case that must parallel car-market reality (at 9.9m-10.1m SAAR) that necessitates lowest-cost approaches, and the inherent external & internal pressures of what is now effectively a state-run enterprise. Whilst Whitacre will have the strategic perspective of transforming New GM into something with 'Telco' form (ie product service contracts and bolt-on packages) the only real informed Board-member is Stephen Girsky (now a UAW representive) from the Rattner Task Force; given that he sat alongside Wagoner in years gone by, and best understands the shape and form of the global company. Given his dual-role experiences, he is the real power-player in the broad schema.
As stated the realpolitik cannot be under-estimated, but the fact that New GM proposes to manufacture sub-compact (B-class) segment vehicles in Michigan still seems concerning. Even given the new lower Tier 2 UAW wage-rates ($14-16.23 per hour) that arguably compete with Southern states' labour rates they do not compete with Asian rates. Nor is there the flexibility to compete in the future as the US Administration seeks to raise the minimum wage from $6.55 to $7.25; that 70c raise will in turn indubitably push 'semi-skilled' rates up by $1 or more, so widening the cost-gap between Michigan, its southern counterparts, and particularly Mexico and BRIC regions which are 'enjoying' deflationary pressures to improve their auto-industry cost structures.
[NB. It was for very good reasons that Chrysler decided to manufacture its proposed Hornet sub-compact in China with its JV partner Chery – now possibly TATA-Chery given FIAT's acquisition].
New GM's small car should look something akin to the 'BEAT' concept which won an on-line potential-buyers poll in 2007 is a segment-adjusted interpretation of the new-age Chevrolet aesthetic (as also seen with Volt) due for production release in 2010. That B-class platform named 'Gamma2' has been developed by GMDAT in Inchen, S. Korea so much of the development costs will have been born by the relatively buoyant Asian subsidiary. Thus we suspect that the programme cost has been divorced from the (heavily subsidised) production cost, and much of the high-value systems (esp electronics) will be sourced from S. Korea, so therefore producing a 'feasible' business-case for Orion's small-car on paper.
In essence, Orion is acting in the same manner as the notional transplant production facility, ironically its new owner (the US Government) able to leverage both the reduced cost of overseas engineering development and exploit the deflationary pricing resultant from the re-structuring of weak chaebols ongoing in S. Korea and the FX rate fall of the Won vs Dollar.
(The irony of a present centre-left US administration benefiting from global capitalism is not lost! But of course the tenants of Adam Smith's 1776 ideology is about the exploitation of regional core competences...so all to the good).
However, the fact remains that even with such 'priced-in' costs that make the small-car programme apparently workable, it is the very basics of the US Administration's fiscal and monetary policies (ie heavy stimulus spending plans combined with M3's “Quantitative Easing” that threaten the mid-long-term viability of the BEAT/AVEO to New GM vs foreign manufacturer's such as Toyota, Hyundai within the US.
For, investment-auto-motives is bearish on the mid-term, believing that any apparent new growth will infact be little more than an illusionary mixture of a (possibly heavily) devalued Dollar combined with spiralling price inflation initially created by artificial wage-price adjustment. That perception of growth (primarily in observed data sets) will neither be true 'demand pull' nor 'productivity push', but a consequence of today's pump-priming actions, that in turn could well choke the US economy, and so set it for a dreaded invisible 'L-shaped' future.
If and when such a scenario plays out, New GM may endeavour to add margin to the small car programme by resorting to Buick, Cadillac and even possibly GMC branded variants that will try an d piggy-back the luxo-small car trend that appeared after the Merc A-Class, Brabus Smart and continues with the Aston Martin (Lagonda) Cygnet based on the Toyota iQ [see last posting]. (The Buick version would sit under or replace the Buick Sail in China, that car possibly brought to the US so expanding today's limited 3 car vehicle range; with also a mooted 'Wildcat Gran Sport' inspired coupe as a halo vehicle).
Thus we are back to a replay of the economic circumstances of the 1970s which in turn prompted the invention of mid-size Buicks and Cadillacs that assisted group revenue at the time, but helped to diminish the brand equity of both once illustrious marques. Of course GM must now pay as much, and realistically more, attention to China's marketplace, so the US will increasingly become second fiddle with S. America on the other side of the regional product strategy sandwich.
At that point, GM will once again need to re-create itself again as a 'Brand Broker' and that is when we'll see the legacy of Edward Whitacre Jnr via new business modelling
That work will need to happen asap for in the meantime, if our economic conjecture* proves correct, the New GM is yet another phase of what is a long journey of transformation.
Post Script
* Our fundamental yet academically undetailed economic conjecture parallels Prof Niall Ferguson's edict. In essence, that today's economic reality is best understood as a re-modeled hybrid construction of various past depression/heavy recession experiences. Thus is not a direct replay but involves different elements of various US (1930s/70s), European (1930s/70s), Japanese (1990s/2000s) and Asian (1990s) experiences and so requires a 'weighted basket' of countering policy reactions to suit.
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