Having previously set the
general scene for the 'auto-majors' in Part 1, and provided commentary for GM,
Ford, FIAT-Chrysler, VW, BMW and Daimler in Part 2, this third portion of the
current weblog gives insight into the present strategic position of the
remaining players; namely: Renault-Nissan, Peugeot, Toyota, Honda and Hyundai.
A similar content layout is
used to maintain conformity, and so reflect the present importance of the
North American vehicle market – at the global level - to investor sentiment.
Informed observers will
recognise that the Renault brand and Peugeot brand had little interaction with
those “big hitter” American events: the Detroit Motor Show and SuperBowl.
(Though of course the former gains an indirect boost via its major shareholding
in Nissan).
Of course all of the 'Global
11' are exposed to a far more lacklustre European marketplace, news from press
agencies reporting the fact that certain auto-companies have endured poor sales
performance in the first month of 2013, but only one drastically out of line
with the general 2012 decline trend, others matching that trend of -8.5% drop
in sales.
But expectations are indeed
better, with between a 5-3% drop expected in FY2013 within Europe by
forecasting agencies and auto executives (seen in their outlooks). So seemingly
showing a new market bottom, before macro-economic traction appears in H2 2013
and 2014.
Add the prime momentum of
the North American market to what investment-auto-motives believes will be a
notably improved H2 2013 (thanks to Germany and the UK) giving secondary
momentum,
Renault-Nissan -
The Detroit Show obviously
housed Nissan with, as ever, no in-market imperative for Renault. The Japanese
company showcased the Resonance concept (a mid-size cross-over) alongside its
new model year production vehicles such as the 370Z, Pathfinder, Rogue, Sentra,
new Versa Note (compact MPV). The Infiniti vehicles highlighted the updated
Q50, which has ever greater electrical content replacing mechanical and
electro-mechanical tasks. A one-off GT-R named 'Mr Bolt' (referring to Usain
Bolt) was made available as an auction special (raising over $200,000 for
charity).
Resonance hints to the
replacement for present Murano, but more importantly from the corporate product
strategy perspective, it infers to important 'internal' and 'external'
corporate influences.
The general body-side shape
and its 'DLO' (glazing) appear very similar to the smaller new Renault Megane,
though altered beyond the C-pillar. This infers that across their respective
vehicle segment ranges that Nissan and Renault seek ever-greater design,
engineering, development and production commonality in a bid to meet corporate
cost-down targets. Under-the-skin systems sharing was a prime technical goal
over the last decade, so it may now be the case that more obvious, (though
treatment and detail disguised), sharing will take place regards the BIW
(body-in-white) as a core 'internal' driver.
Of external influence
appears to be Nissan's desire to partially mimic Toyota, not only with its
crypto-declaration that Hybrid powertrains are ultimately more pragmatic and
'usable' (versus the EV path it had previously trodden) but by adopting very
similar front lamp design for Resonance from current Prius (also applied to the
rear); with a 'comet tail' that runs along the hood/bonnet and tailgate
shut-lines.
These two observations
indicate that beyond a few exceptional examples such as Juke, Nissan may to
date be said to have been lagging Honda and Toyota in the product stakes.
[NB Japan's 'Big 3' have
historically played out different product strategies to span domestic and
international markets; Honda historically offering fashion-leading products
which in turn trickle-through].
However, whilst Nissan is in
styling catch-up mode, its ability to leverage internal corporate capabilities
with Renault means that it could overtake its Japanese peers regards the ability
to reduce costs across its full model range and across international
operations.
This has been extrapolated
with its now well established Russian interests, thus increasing ongoing
efficiency via deployment of industrial alliances. Obviously initially seen
with Nissan. Thereafter with AvtoVaz (of Russia) and latterly with Daimler AG.
Although the Daimler
alliance offers opportunity regards small vehicle architectures, powertrain,
contract manufacture of Mercedes Citan (light commercial vehicle), and
seemingly more limited EV programme. However, beyond van production the
ultimate ability to best match Renault-Nissan and Daimler needs so as to
capture optimum savings and technical advancement may be limited given possible
proprietary differences.
In direct contrast to
marrying the needs of two 'advanced' auto-makers, there has been and will
continue to be greater opportunity for industrial cohesion between the
Franco-Japanese and Russians, since the industrial template created is one of
technical cross-fertilisation between 'advanced' and 'laggard' companies, with
an onus upon re-use of amortised technology to boost profitability and lowered
cost vehicle development and production from the LADA Togliatti plant. So
effectively re-running the Dacia model created and employed by Renault in
Romania, yet with far greater volume potential across Russia, the Caucuses and
an 'Expanded Europe'.
[NB now named Alliance
Rostec Auto BV the prime remit to re-develop Avtovaz production capabilities
and critically the LADA nameplate (which presently has 33% Russian market
share). The intent that Renault and Nissan gain greater (67%) control in 2014
whilst providing new foundations for the broader Russian owned auto-sector.
To access the Russian
market, itself seen as a prime growth region in a lower growth world, very
recently Renault-Nissan has sought to create a 60:40 JV with Italy's Unicredit
to offer finance to private consumers, company buyers and fleet operators.
Expected to be established and operation by end 2013. The move will further
support R-N's 12% market share and allow it to ride the 5% YoY TIV growth of a
region presently worth 2.9m units annually.
Within Europe, of particular
importance is the release of the 4th generation Clio, in the high
volume B-segment. Whilst France saw its 2012 TIV fall by -13% a contrasting
picture emerged in the UK, up 4%. Like PSA, investment-auto-motives believes
that Renault will be seeking to use the UK as its European 'beach-head', both
with its new core model, and the introduction of the entry-level Dacia brand
(Sandero, Sandero Stepway and Duster). Improved corporate liquidity enabling
competitive consumer finance.
Of near equal investor
interest is the eventual launch of Renault's Capture vehicle, itself seemingly
largely derived from the Nissan's Juke. This vehicle would be able to present
itself as all new to the Renault range yet also leverage much of the CapEx
absorption from the Juke architecture, so with the potential to offer sizeable
per unit margins, that would theoretically better that high 7% water-mark
achieved by Dacia given the car's price far higher point versus its (Juke
based) Bill of Materials and 'ready tooled' production costs; possibly sharing
the same UK and Indonesian production lines as Juke for western and eastern
export markets.
The oft overlooked matter
however is the relative importance of Renault's LCV activities, on behalf of
itself, Nissan and contract production on behalf of others, notably GM Opel-Vauxhall
regards mid-size vans, with agreement renewal ongoing from 2013, and now
Daimler with small vans. Since company and fleet van sales typically appear
earlier than private car sales, those auto-makers present in this sector should
start to see a much needed, high margin and increasingly strong income stream
in H1 2013.
The official 2013 outlook
illustrated muted EU confidence, with a -3% TIV drop expected at best. Reliance
upon renewed growth in Russia and Brazil is evident, both target markets for
all other auto-makers so likely to deflate previous unit margins for all. A
revival plan for S.Korea and its Samsung Cars division may be problematic given
that the far stronger Hyundai-Kia will be re-focusing upon its home market in
reaction to Yen devaluation and possible capacity reductions for export
markets. The turnaround in India is still awaited given the JV manufacturing
and distribution problems previously seen with Indian partners, plus of course
the slowdown in the national economy which will strengthen local
Maruti-Suzuki's position after its previous operational problems. Rightly,
China is called the 'new frontier' yet R-N sits in an odd position, given that
Nissan gained previous favour with the PRC administrators, and Renault
effectively rebuffed. The recent Sino-Japanese disagreement over the out-crop
islands appears to have softened, so it may be the case that party leaders seek
to ironically play Renault against Nissan regards effective new entry versus
in-situ capacity re-expansion.
Renaults FY2012 report
bolstered investor confidence, given that overall revenues were down by only
3.2% and operating margin as a percentage of revenues by minus 0.8%, showing
the group's favourably dis-location from yesteryear European reliance; with its
financing arm up by 8.5%. Critically Avtovaz demonstrated a near quadrupling of
'associated company' contribution, so highlighting the importance of the
'Russian Effect' as an income off-set. The details and financial implications
of which will be reviewed at a later time, when all auto-players have reported.
Renault's stock price ended
the week at E47.37, having previously climbed 20% or so in 2013 to a high of
E49.24, now sold-off to a more stable price, though the base resistance band
sits slightly lower still before volume buying might resume.
Peugeot -
Obviously, without US
presence, PSA did not appear at the Detroit Show, thus given the US market
tailwind to most of the Global 11 players, could be said to have been
conspicuous by its absence, invariably adding to the weight of investor concern
about the company.
That concern obviously
lingers, FY2012 sales figures food for corporate doom-mongers; though France's
emphatic backing of the company appears to have deterred signs of PSA stock
short-sellers.
Unsurprisingly, it has been
China, Russia and RoW nations which have only very partially off-set the heavy
sales losses across Europe and (more worryingly) Latin America. The current
geographic sales mix shows Europe absorbing approximately 1.76m units (-14.8%
YoY), China 442k units (up 9.2% YoY), Latin America 283k units (-13.2% YoY),
RoW 259k units (up 16% YoY) and Russia 78k units (up 4.9% YoY). Thus of the
2.822m vehicles sold in 2012, 62% were inside burdened EU; the company with
broad exposure to the economically constrained 'periphery' nations.
However, during what have
been unprecedented times, PSA has sought to both concentrate upon its core
vehicle ranges in cars and LCVs aswell as retain a sense of imagination and a
brighter tomorrow using various concept cars over the last recent years, its
notional ambitions spanning everything from the urban-centric, originally
formulated BB1 to the more prosaic SR1 sports coupe-cabrio, to the more
fanciful, yet road-ready Citroen GT concept which entertained crowds in London
and Paris fashion streets, and latterly the Onyx, a carbon-fibre and copper
'skinned' supercar with diesel-hybrid powertrain.
Seemingly perversely through
the economic downturn PSA sought to maintain its Le Mans race programme,
winning in 2009 so as to maintain press and public interest in the company as
it was experiencing a harsh sales environment. Seeking to maintain it an
exciting persona via the Peugeot RCZ (able to do so using a heavily amortised
308 platform) and the Citroen DS range, which itself has pragmatically utilised
a mix-and-match philosophy of Citroen and Peugeot parts and systems to create a
higher value offering to both differentiate PSA and to eak-out unit margins in
specific markets.
Thus whilst its share price
and MarketCap has fallen substantially given the company's size as Europe's
number 2 auto-maker, and its historic large exposure to that 'single market',
the Peugeot family, CEO Varin and his lieutenants have sought to propel the 2
core brands and now a third sub-brand to the fore of target buyer
consciousness.
More over, of particular
note is the fact that the 'big picture' strategic efforts have not been put on
hold whilst sales figures fire-fighting takes notional precedence, indeed quite
the opposite, PSA deciding to:
a) position itself as a
leading multi-solution hybrid power-train provider (first to offer a hybrid
cross-over/MPV with lower cost bolt-on rear electric axle, in the mass European
market).
b) creation of the 'Mu'
mobility service (fitting car-type option to situational need), so matching the
behaviour patterns of an increasingly less vehicle dependent, city-bound young
population.
c) [Varin's] work 'behind
the scenes' to drive down PSA's large steel procurement bill, (itself aided by
the “commodity slump”).
d) the historical move to
seek close quarter synergies with GM through its 7% sharehold.
e) recognition of Toyota as
an important alliance partner for city cars
f) a willingness to divest
of non-core assets and commercial interests.
g) direct action in
shuttering unproductive plant(s).
h) the ability to overcome
Brussels' concerns about its E2bn loan from the French government.
i) the willingness to absorb
a massive 28%, E4.7bn write-down (part of its FY2012 E5.1bn loss)
j) demonstrating
'over-delivery' on cost savings (by 20%)
k) the French government's
dismissal of a national stake-hold for the E2bn loan.
Thus, perhaps more than any
other auto-maker PSA appears to have been viewing the horizon far beyond the
here and now, and whilst recognising the immediate and mid-term units sales
concerns, battling that exposure well given its level of exposure; below TIV
decline trend during the former 'big hit', and on-trend with FY and Jan 2013
figures.
Ironically, it may even be
the case that PSA may actually have a strategic advantage over Renault given
its apparent dedication to mid and long-term Chinese capital investment. Given
recent premium-seeking efforts and exercises, indicate a desire toward premium
standing in China. Whilst unable to achieve such in the west (having seen
Renault's failed efforts), it may be able to partially re-invent itself as a
French luxury goods company, offering special personal vehicles to China and
Asia. So whilst the RCZ may be its “graceful coupe”, the real strategic 'coup
de gras' would be PSA's much extended reach into China; leveraging its present
joint ventures with Changan and Dongfeng to evolve the DS brand into a kind of
“Prada PSA”.
Furthermore the PSA has no
doubt contemplated the re-creation its own rally-motorsport heritage in the
Chinese manner,both individually on a region by region basis in the mid term,
and later as part of the inevitable global expansion of the World Rally
Championship, with only Asia and China remaining as virgin WRC territory,
though part of the Asia-Pacific championship. Its dominance of WRC at
constructor and driver levels over the last decade, as others faltered, and
during the Group B 1980s heyday, means that its rally-sport pedigree could
feasibly underpin a dedicated Chinese following worth tens of millions of TV
viewers and hundred of thousands of route spectators.
[NB as of today, the sport
is relatively 'narrow' with only (Indian sponsored) VW-Skoda, (privateer)
Subaru and 2012 winners (Malaysian factory team) Proton - a company that has
consistently sought Chinese commercial interaction. China was a WRC destination
in 1999 but has not hosted since, presumably due to WRC negotiational
differences with the FIA, but does host the APRC, and probably a desire to
create a 'home-grown' championship for its indigenous auto-makers].
However the PRC
administration will not simply open its doors to PSA so as to access the ever
growing relatively high spending upper middle classes. As such China will seek
ever greater industrial co-operation, with specific interest in hybrid
technology for adoption by its own players, (having seen very limited efforts
with BYD Auto), and very probably seek to deploy the 'Mu' business template
inside Chinese MegaCities in its own domestic image.
But as of 2013, there are 7
reasons for PSA investors to become gradually more optimistic:
1) the “national back-stop”
attitude of Hollande's government, having offered a E7bn bond guarantee, itself
availed to low cost state bond issuance and ECB OMT liquidity.
2) the devotion to both
immediate remedial action and far-horizon strategy formulation by Varin et al
under the corporate restructuring plan.
3) [as per Renault] the
ability to use the UK and Germany as powerful EU car market 'beach-heads'
4) leadership of the
European LCV sector (21%), set for early-cycle sales return
5) the well styled new
B-segment 208 (versus Clio, Polo, Astra etc) with #1 sales leadership
6) the #2 Euro market Hybrid
provider (behind Toyota/Lexus)
7) the Varin publicised
'clean slate' after swallowing massive balance sheet write-downs, able to buoy
from future mark-to-market asset re-pricing and serve additional (non-EU) CapEx
ambitions
Though it is painfully clear
that unlike its peers PSA cannot enjoy the North American advantage, it has
undoubtedly repositioned itself ahead of the eventual European rebound. (Itself
seemingly foretold in Europe's re-bounding stock markets, now showing traction
in periphery countries). IR presentations more than allude to the fact that it
will re-balance its Euro-centric standing with much increased presence within
China, even daring to raise itself as a mid-market and premium-orientated
French flagship.
And whilst the GM agreement
has yet to show true cost-saving and synergistic fruits, Faurecia suffers
likewise as a parts supplier to Europe, the Gefco logistics divison undergoes
operational footprint restructuring, it is the finance arm Banque PSA (like
others) which points to a structurally improved future, assisted by useful if
small 6.3% net debt reduction within the group, as its adds to its cash
cushion.
Banque PSA shows itself to
have a Tier 1 'core banking ratio' of 13%, so able to offer consumer and
company client finance that will 'move metal' and indeed could be applied to
other non-automotive personal and commercial loan uses, adding further
'receivables' weight to the corporate balance sheet, aswell as the matching an
newly emerging industry-wide effort to offer retail banking like deposit accounts.
So whilst web-TV broadcasts
the present woes of the “arthritic lion”, just remember that a re-invigorated
entity could may well enjoy the immense symbolic power of the 'Chinese Lion' –
a subtle fact not lost on the Peugeot family, Board executives and indeed
possibly the new Chinese premier Xi Jinping.
Whilst it is easy to bemoan
and over-darken PSA's present competitive position, as investment-auto-motives
has stated previously, the micro and macro fused winds of change will markedly
shift the present storm-clouds.
The Peugeot share price
ended the week at E5.72, down from recent highs of E6.40 after an expected
market correction given previous over-buying, yet well up from the E4.50 lows
seen toward the end of last year.
Toyota -
Toyota seeks to reclaim its
past glories in the US and Canada, and ongoing expansion in Mexico, its sales
and stock price rebound (since Fukushima disasters and product recall problems)
seemingly demonstrate the American public's and investors maintained confidence
in Toyota. It has once again overtaken GM in sales volume to return to its
previously momentarily held #1, now producing 8.7m vehicles under Toyota and
Lexus marques and nearly 10m units including associate nameplates.
During this more
economically restrained 'new-norm' era, the company is unsurprisingly focusing
upon 'sweating' its present assets, hence no new plant builds for three years,
concentration upon globally relevant compact vehicle income streams, assisted
by life-cycle extended editions, lower-cost model development initiatives and
onus upon full capacity utilisation worldwide.
The Detroit show saw the
company showcase various vehicles, with special editions of standard range
product, Corolla, Camry, RAV4, special FJ Cruiser etc. Including the sportier
Corolla S ((itself essentially a carry-over from 2012), which seeks to compete
against the sporty Honda Civic, and draws from Central America's inclusion of a
Corolla XRS edition.
Highlighting the compact
sedan as both a central product offering and future sales generator was the
Corolla Furia concept.
[NB the Corolla nameplate
has represent 38% of sales since its American introduction in 1968, is on a
world-wide level the most produced car/nameplate in history, and currently
holds 13.5% of American compact car market share. Hence the company's desire to
trade on that goodwill and defend its position in a very competitive field].
It accentuates the present
styling cues derived from Honda, and also draws detailing from its upscale sibling
Lexus. Thus seeking to regenerate compact saloon/hatch sales as both more
sporting and mature; Toyota USA adding performance elements in wheels and trim
so as to heighten its cache to those in the Gen-Y / i-Gen crowd who seek
affordable yet customisable vehicle which importantly maintains residual value.
This corporate approach then
merges the previous separate intents of the Toyota brand and the 'underling'
Scion brand, itself created to attract a new generation, yet from a sales
perspective unable thus far., and become less radical to do so. (Offering more
conventional cars in limited colour-run series). As to whether the
productionised performance Corolla gains a Toyota or Scion badge, remains to be
seen. Very possibly both given Toyota's willingness to 'badge-engineer', seen
with elements of the present Scion range, and specifically the GT86 / F-RS/
(Subaru) BRZ coupe; so as to minimise manufacturing costs, distribution costs
and maximise brand aligned consumer reach.
Lexus showed the new IS200, with
evolutionary styling and offering both petrol and Hybrid power units, no diesel
available, which appears the right choice for N.America given that diesel is
even now seen as 'dirty' given its truck and CV associations, 'clean diesel'
adding little consumer pull. Toyota appears then to have reason to believe that
those drivers who drive petrol will remain or move to Hybrid and those
relatively few US drivers that moved to diesel for fuel efficiency reasons will
move on to Hybrid.
During the Corolla Furia
unveil Toyota USA stated that it “anticipates improvement in consumer
confidence, unemployment, the housing market, interest rates and an avalanche
of pent-up demand...we see the market expanding this year” [over the 14.5m
units in 2012]. “Camry remained America's #1 selling car, for the 11th
straight year and 15 of the last 16 years...Corolla second best seller...Prius
third”. And “by the end of the year all Corollas sold here will be built in
N.America”.
As for SuperBowl
advertising, the 'RAV4 Genie' effort sought to demonstrate the car as the
answer to each of a suburban family's individual wishes, as ever using
celebrity association and humour to do so. With the prime message that the
RAV4's exterior mounted spare wheel has been changed, so that the vehicle
appears less 4x4-esque, instead more of a semi-premium cross-over. That advert
supported by a similar 'web-spot' where the 'RAV4 Genie' (Kaley Cuoco) makes
dreams come true for some city folk to the soundtrack of “I wish” by Skee-Lo,
which itself speaks of the desire for a new car. In all it appears little more
than a feel-good campaign that boost a positive psychological connection to the
Toyota, but with the prompt for people to replay the Skee-Lo track on youtube
or i-pod a subtle form and of subliminal coercion.
Wisely, Toyota seeks to
maintain its ever more engrained American identity, having set up its NUMMI
facility in 1984 with GM, others transplant factories since, entered NASCAR
years ago and offered the Tundra full-size pick-up truck to vie against
Detroit's Big 3. The fact that old Toyota mid-size pick-ups (like Nissans) have
become enthusiast 'classic' and 'retro' items demonstrates its well earned
success thus far.
Critically, Toyota research
indicates that it is younger buyers who are returning to the market in greater
numbers since the financial crash; though that exact demographic of 'younger'
has a broad span given that the median age of a Toyota buyer is 54 years old.
Japan's financial calender
runs from March to March, so the company's 3rd quarter reporting
reflects the October to December period and the nines months previously from
March 2012.
Whilst more analytical
investigation of sales, turnover, EBIT, net profit and re-expansionary
cost-containment efforts will be reviewed at another time, the reported numbers
do highlight Toyota's robust turnaround. YoY worldwide consolidated sales for
those 9 months grew from just under 4.99m units to 6.63m units, up 33%, whilst
net revenues grew by 26% and operating income boomed six-fold, the net income
up three-fold.
The earnings rebound of
Japanese auto-makers was pre-empted by the markets and Toyota's stock has seen
a 35% rise from its most recent low in October 2012.
However, the more sombre but
still impressive Q3 (ie Oct-Dec) figures will steady such heady price climbs,
with a 9% YoY increase in net revenues, a -16.7% drop in operating income and a
still handsome net income at plus 26%.
Those 9 months saw a massive
domestic sales drive, assisted by government incentives, which lifted operating
income well out of the red, and as that boost-effect waned, so newly emergent
demand from N.America has been able to re-balance the income tide and so
Toyota's corporate boat; with gains even Europe over those 9 months unlike many
of its counterparts; only central and south America seeing a small income
decline, again unlike many of its competitors.
Toyota's broad equity
interests with Japan's industrial and services base (eg Daihatsu and Hino
amongst many others) assisted greatly as the broad national economy re-emerged
from previous economic ravage, caused by Fukushima and latterly the
Sino-Japanese political spat.
That re-growth confidence is
retained in Toyota's upward re-stated full FY2013 forecast figures (ending
March 2013).
Japan's willingness to
devalue the Yen in a bid to promote exports activity and effectively create
inflationary growth at home of course benefits Toyota two-fold, abroad and at
home as foreign customers recognise a new price competitiveness in Japanese
vehicles – given greater FX pricing flexibility – and domestic consumers seeing
personal wage inflation become more confident in spending on 'big ticket' items
such as cars. With indeed a propensity for personal income to stay within Japan
as the weakened Yen discourages foreign travel and the foreign auto-makers on
Japanese soil loose any pricing flexibility they may have previously enjoyed.
Notably Toyota is
under-going a new period of CapEx investment, partially paid for (like others)
the extended product life-cycles of its current models, and as mentioned, the
wide-net marketing of specific vehicle models. YoY CapEx up 21% or so, and
R&D up 4%.
However, even though Toyota
is enjoying a resurgence in fortunes, one which as an economic pillar of the
country will trickle throughout the Japan, it seems likely that Toyota Group
may come under pressure from foreign fund holders to divest at least a small
part of its plethora of associated companies; to re-evaluate itself as a possibly
slimmed 'Vertical Keiretsu'.
For good reason, and indeed
seemingly by ancient Japanese law, Keiretsu were formed to maintain Japanese
economic and social stability, this re-enforced during Japan's isolationist era
when it saw its cultures and values counter to those held by 'western
influences'. This could be said to hold true today even if in a diluted form,
and could indeed re-emerge if a stronger Sino-Japan relationship forms in
decades to come.
But the fact is that from a
western and 'modern Japanese' viewpoint there may be much untapped value
existing within the component parts of any singular Keiretsu division. Value
which could be unearthed and maximised by greater autonomy and possibly
listings on national and international bourses.
The paradox is however, that
the Keiretsu model may could be re-inforced, as China's own state companies are
notionally privatised but actually formed into the Keiretsu / Chaebol model
themselves.
Nonetheless, given Japan's
continued need for new economic traction, Toyota should seek to understand how
it might conservatively divest so as to act as a catalyst for the national
economy, providing the ability to direct its large savings base toward more
visible high-value R&D orientated activities, which in turn would attract
FDI and so commercial dispersement opportunities..
Whilst the new GT86 model
seeks to re-capture the buzzing corporate energy of Toyota's 1980s past and
Prius dominates practical eco-tech, now back under Toyoda family influence, it
may perhaps once again review the innate structure of Toyota Group, so that it
grows ever stronger in the 21st century.
Toyota's stock price ended
the week at $102.34, down from a February climb from $96 to near $106, a recent
bounce off of $101 still yet to be directionally determined.
Honda -
Like other Japanese
auto-makers, the troubles of 2011/12 have massively altered Honda's previous
comfortable existence, forced to re-structure its operational cost base
through-out the supply-chain and across the value-chain, within Japan and SE
Asia and re-emphasise the importance of maintaining lean operations in the West
(seen by reduced shifts in UK plants).
However, with signs of light
toward the end of that previous tunnel, with 2013 seeing 4m units produced
globally and ambitions of 6m by 2017, more than 1.5m of those from the new
'compact series', the Fit, the City and all new small SUV, the architecture
highlighted in the official presentation at the Detroit Show.
Just as Toyota inferred the
American and global importance of compact Corolla (B-C) segment, so Honda does
the same for Fit/Jazz in the lower (A-B) segment
[NB the unconventional
'centre-tank' packaging of the Fit/Jazz was recognised by investment-auto-motives
some years ago as Honda's prime platform enabler, providing platform and
module-set engineering flexibility and industrial competitive advantage for
packaging Hybrid component sets; an advantage unfortunately delayed because of
the financial effects of 2008 and 2011].
The Show itself displayed
Honda's dealership models aswell as, in the now usual manner, forthcoming
models coyly termed 'concepts'.
Having seen the Accord Coupe
of 2012, an almost production ready item, this year saw a less production ready
small cross-over, presently notionally called 'Urban'. Derived from Fit/Jazz
packaging, it will be manufactured in Japan and Mexico, necessarily so in the
latter to maintain unit margins, off-set Japan's production costs, and provide
cross-continental N and S. American distribution reach.
[NB the model on stage at
Detroit appeared well beyond a 'clay' with fully representational exterior
parts, yet the glazing seemed to be that of 'dynoc' so indicating that interior
fitments are still being engineered].
The (Acura) NSX supercar
concept was re-shown with slight alterations, promising Hybrid powertrain and
AWD system, via a mid-mounted V6 ICE and electric motors propelling front
wheels, it highlights Honda's desire to be provide a spiritual successor to the
original early 1990s car, so as to try gain a badge status equal to Nissan's
GT-R, Audi R-series and other performance and luxury cars. Also within Acura is
the new MDX cross-over, stated as a 'prototype'; a description that other manufacturers
should also employ for obviously near production vehicles; even if not the true
definition of a prototype (given roots in engineering development). But most
urgent for Acura income is the release of 2014 RLX large sedan to buttress the
smaller ILX, with an RLX AWD Hybrid reputedly offering 30mpg city /30 mpg
freeway /30 mpg combined fuel use; its drive-train related to that of the NSX.
Honda's official Detroit
presentation included rhetoric which highlighted the fact that 90% of Honda's
vehicles sold in America are manufactured in America, and presaged the fact
that Accord has been the benchmark mid-size sedan since the mid 1990s, it and
its siblings giving Honda the best sales in 2012 since 2008, and the company;s
4th best year in it American market history
To buoy Accord's stature,
the 2014MY Accord will feature a Plug-In Hybrid model, developed from
'EarthDreams' philosophy, whilst slightly earlier the Accord Hybrid launched in
the Fall/Autumn.
An interesting initiative
has been Honda's Motor's US division partner with Solar City, in a pilot
project to enable a relatively small number of dealerships (10-20) and client
households (2500-3000) install solar panels on a monthly contract basis,
instead of paying a single high fixed price transaction. This obviously better
suited to western and southern states that experience greater strong sunlight
hours per year. Suited to the emergence of Plug-In Hybrid Vehicles (PHEVs)
versus more range limited EVs, though EVs can still pragmatically operate in
such mild climates as city-cars.
When read between the lines,
a general interpretation of the official dialogue indicates that Honda will
seek to avoid too much head-on competition with Toyota in the compact (Corolla
vs Civic) class, instead dedicating its efforts towards small cars (Fit and
variants) and a large range of SUVs and Cross-Overs (inc new 'Urban'.
The SuperBowl advertising
campaign was various, it showcased the 'Urban' vehicle in fast moving
night-time imagery to muster pre-launch interest, it showed a slightly humorous
advert for Civic with Indycar 'legend' Mario Andretti, and in simple manner a
value message regards specification and purchase details for the Accord.
As for its recent
performance, it obviously too has enjoyed the Japanese economic rebound, its Q3
FY2013 earnings report (Oct-Dec 2012) indicating returned signs of improved
health. Post-poning a more detailed deconstruction of its numbers for another
time, the 9 months between March 2012 and December 2012 shows net sales revenue
up 28.7% YoY, operating income up by 242.2%, EBIT up 137.8%, net income up by
108.3%. The EPS for the 9 month period rose about 200% YoY.
As with Toyota, the
standalone Q3 period saw a reduction steadying of the previous explosive growth
patter, with net sales revenue up 24.9% YoY, operating income up by 197.8%,
EBIT up 53.5%, net income up by 62.5%. The EPS for the 3 month period rose by
about 60% YoY.
[NB Some web-TV reports
indicate that Q3 growth for Japanese industry, was flat overall, but even when
slowed from its previous frantic growth pace, its auto-makers have enjoyed
still highly buoyant re-growth].
As for its EoY forecasts
(ending March 2013), Honda believes it will deliver approximately a 23% YoY
improvement in net revenue, a 125% improvement in operating income, a 100%
improvement in EBIT, a 75% improvement in net income and 88% improvement in
EPS. All on a slightly downward sales revision of car, motorcycle and
power-product sales.
However, it should be noted
that seems likely to deliver these figures, even though it has seen a dramatic
decline in European profitability as a result of intent to 'buy market share',
which it is doing to enable its global platform ambitions.
Unlike divisional problems
at BMW Motorcycles – seeing the sale of the Husqvana brand – Honda's broad mix
of utility and performance motorcycles has faired well in N.America and Asia in
(Japanese) Q3, showing a 256k unit improvement across those markets, the
majority of which was utility Asian based, this off-setting a 48k unit loss in
Brazil; so showing a Q3 YoY total up by approximately 6%. However operating
margins in the division have slipped from 10.6% six months earlier to 7.4% in
Q3, highlighting the greater Asian mix.
And the tide appears to be
turning favourably in the Power products division, with the loss-making period
of FY2012 now delivering break-even operating income and operating margin in
Q3.
And the Financial Services
business, whilst fallen from its Q1 2012 highs of 38% operating margin, most
recently delivered a still respectable 27.6%.
Of interest is the fact that
Honda has sought to de-list its Y50 common stock offering from the London Stock
Exchange. This comes as little surprise to investment-auto-motives, given the
small size of the Autos section on the LSE, its odd mix of few 'giants and
dwarves', contrasting the far greater trading volumes seen on the Tokyo
exchange, the NYSE and across Europe.
As of today, given the
increasing ecological pressures on automakers to 'down-size' their vehicle
offerings in the west, and the need to compel the EM masses into small cars, a
major theme of global vehicles will be the ability to integrate traditional car
technologies with that of smaller engine capacities typically seen in motorcycles
and the ability to integrate alternative power sources. With at the extreme of
integrational picture, the ideal that one day a vehicle can not only draw
energy from elsewhere as a 'plug-in hybrid' may, but also possibly, in a
reversed condition, actually feed un-used energy back into a national or
international power grid.
Honda Group's own industrial
structure, and its future-forward initiatives such as robotic Asimo,
theoretically puts its at the forefront of being able to deliver such a future.
Honda Motor's stock price
ended the week at $37.56, down a dollar from recent highs, yet still with a
seemingly strong rebound from its $36.85 recent floor.
Hyundai-Kia
Hyundai-Kia has enjoyed over
the last 5 years or so entered the early phases of its maturation period, both
in terms of global footprint, and regards product aesthetic and quality. These
three critical elements, having taken 30 years to evolve, together with what
has been a weak Won (so enabling export income) have been the foundational aids
to the company's sales success.
However, today with its own
ambitions to move up the price ladder to mid and upper mid price points – so as
to support S.Korea's own increased cost base and its social aspirations --
means that it faces the challenges of moving from perceived as an entry level
vehicle option to a fully fledged mainstream offering, having matured itself
first within its domestic market to try a match US and (higher) European
quality benchmarks. The creation of the Genesis and Equus nameplates
demonstrates its desire to match premium segment expectations, naturally doing
so with lower pricing and higher vehicle content.
These ambitions made evident
at the 2013 Detroit Show, where it showcased the company's dealer available range,
and new introduction and possibility. The new Kia Cadenza large sedan (a
re-badge of the Korean market Hyundai Azera/Grandeur) was shown as the new US
flagship for Kia. And the Genesis HCD-14 large premium sedan concept designed
to high-light its continued attempt on the 'near luxury' and 'premium' sector
(ie versus Buick, Cadillac, Lincoln, Acura, Infiniti) (BMW, Mercedes, Audi,
Lexus).
Hyundai's US leaders
understandably sought to re-emphasise its meeting of last years sales target of
700k units. It highlighted its low incentive spend vs competitors, though
itself a function of the lower sticker price, and its low fleet mix, again a
partial function of volume.
[NB A point about Hyundai's
US market presence is that it more closely reflects the true market price
elasticity of N.America, and reflects the contortion of major brand historical
pricing].
Hyundai is obviously seeking
to micro-manage the residual values of its premium-seeking Genesis and Equus
vehicles, seemingly able to support used vehicle values via a returned vehicle
trade-in policy that also apparently generates customer loyalty; this feasible
at present given its low sales volumes. This part of the strategy to “evolve
public perceptions from a 'value brand' to a 'valuable brand'. Given the
relatively low cost in satisfying these early adopters Hyundai has rightly
offered a valet type service which reduces the usual dealership run-around for
its high-end clients, its 'home call' service a critical element.
By lowering the barriers to
entry and slightly altering the playbook (price, residual value and service)
the company seeks to create the right formula to overpower the near luxury and
premium segments. Each competitor brand of course will be calculating its
capability to match or nearly match that purchase mix.
A note of caution though is
the self-congratulation regards customer feedback on product and service
quality ratings. It has always been the norm that early adopter customers of
non-conventional brands have sought to defend their purchase decision, both
internally to themselves and externally to others. Such leading scores were
also noted for the likes of Skoda at the opposite end of the spectrum twenty
years ago; during its modern-era early conquest days.
It appears the case that the
real strategic function of Detroit 2013 was to try and underpin the credibility
and gravitas of the Hyundai and Kia brands, using the recent success of
Genesis, and the theatre of HCD-14 (little more in actuality) to cast a halo
over its semi-premium and mass-market underlings
Soon after Detroit, the
SuperBowl campaign provided a series of humorous but differently themed adverts
relative to each vehicle type shown. The Sante Fe mid-size cross-over came in
two versions. The first demonstrating itself in a 'guardian role' as it
collects the friends of one nice child who'd previously been intimidated,
challenged and had his football taken. The physically smaller but determined
new group of friends arrive, voicing their preference for a 'tackle' (not
'touch') football game. The obvious overtone is that of Hyundai, as the
relatively new kid on the block, seeks to take on the older, 'bigger'
incumbents. In the second, it serves as one family's adventure vehicle, as they
enjoy various activities with cinematic overtones; intentionally including Star
Wars to associate with the popularity gained by VW's own previous 'Darth Vader'
advert.
But by far the best effort
was Hyundai Canada's airing of 'Gaspocalypse', in which a middle-class Sonata
Hybrid driver is chased by a threatening gang of V8 driving MadMax lunatics.
The the first twist being that they run out of fuel first so denying their
'capture', the second punchline being when the Hyundai driver speaks to the
gang them at the gas station, berating their fantasist 'weekend warrior' ways.
The brand then seeks to
evoke a very middle-class sentiment...the ability to have fun, operate within
the realms of social respectability and responsibility, and strength subtly
challenge those that don't.
2012 proved another good
year for the company, its global sales up over 7%, within which American sales
were up by over 8%, European sales up by over 10%, Chinese sales up by nearly
12%, RoW up by nearly 7.5%, with Korea down by just over -2%, but growing domestic
market share. The model sales mix increased notably in small cars, highlighting
the importance to European and Chinese sales. Group revenue was up 8.6%, with
operating profit up 5.1%, net profit up by 11.7% and profit margin increased to
10.7%. Its cash cushion boosted by about 8% YoY.
The official 2013 outlook
sees overall sales increasing by 5.7%, the majority originating from
international manufacturing and sales as Korea sees a -3% production and sales
contraction. The US and China unsurprisingly expected as the main profit
creators, the mid-size Sonata and compact Elantra being the respective prime
income contributors, which bodes well for unit margins.
The future for Hyunda-Kia
looks “balanced”, with both obvious headwinds and tailwinds.
Having enjoyed western and
EM growth over the last decade, boosted by EM economic emergence, by
value-seeking buyers in western markets, and by the stumbling of Japan.
Sizeable new 'headwinds' have appeared; primarily by way of the Won's global
basket FX appreciation and Japan's recent return to power.
Hyundai may be required to
endure a tougher era for its 'exports' given the end of what has been
long-lasted period of Won depreciation in light of the Triad region (N.America,
Japan and probably Europe) probable willingness to maintain ongoing 'currency
wars'. Yen devaluation especially critical for Korea given its impact on the
Korean-Japanese vehicle export race. This illustrated in even domestic market
competitiveness, whereby Hyundai has seen its large car sales down -20%,
reducing their list price by 3% or so to maintain Korean buyer loyalty; in the
face of Toyota's Camry winning Korea's COTY.
More positively, N.American
re-expansion is a 'rising tide' for all auto-makers, and the fact that a
surprisingly buoyant UK market should lead the way for Europe's return over the
coming and next year. But for both markets it is still early days, with
improved but still risk-averse consumer credit flows, so the importance of
maintaining value offerings remains; a natural position for Hyundai-Kia.
Hyundai's stock price (on
the European market) ended the week at E24.59, up from a recent E23.20 low,
accelerating hard within its usual 'slow climbing trending range' with its
'on-off' trading manner.
Conclusion -
With present ongoing European market
fragility and a settling of lower growth across EM regions (though in grater
volumes), this still fractious period may very well prove to have ultimately
been over-looked as a prime investment period for autos.
At a time when Berkshire
Hathaway pays a 20% premium on Heinz for a “safe” company at a p/e of x23, and
at a time when powerful hedge funds seek to short questionable business models
or corporate operations - as seen by Herbalife and Apple Inc - the very structure
and transparency of the auto-sector provides investment “safety”.
Physical assets (capital
goods and inventory), improved cash-flow, global brand power, the massive
global aspiration for personal transportation, the simple 'abacus' calculation
of units sold plus contribution of any captive finance division (many with
psuedo-banking aspirations), and the car company of today continues to be a
slowly re-strengthening pillar of the world's macro economy into tomorrow.
That perspective understood
by Berkshire Hathaway with its purchase of 10m more shares in one certain
auto-maker last year, to add to the 15m already held.
Yes, recent market bullishness has and will fade over the short term, but that eradication of sentiment driven 'froth' only serves to draw the investment eye ever closer to company fundamentals, regional production/sales TIV dynamics, broader inter-continental economic relationships, and the greater inference of rooted 'glocal' advantage for an auto-manufacturer.
Yes, recent market bullishness has and will fade over the short term, but that eradication of sentiment driven 'froth' only serves to draw the investment eye ever closer to company fundamentals, regional production/sales TIV dynamics, broader inter-continental economic relationships, and the greater inference of rooted 'glocal' advantage for an auto-manufacturer.
Post Script -
Japan's Eco-Tech Industrial
'Renaissance'
investment-auto-motives
believes that any Japanese economic rebound, obviously massively assisted by
the now (G8/G20) uncontested Yen devaluation, will come through a smaller scale
but similar national automotive industrial strategy template to that seen in
the 1960s/70s.
Then, as a natural evolution
of the Kei car era, the main manufacturers not only used a great deal of common
component parts across their own respective vehicle ranges, but utilised a
great deal of same and similar items (across all 5 system types) 'under the
skin'. It was such industrial cooperation which enabled Japan's low cost base
plus (as now) a weak Yen, that made it an export earning (so balance of trade)
powerhouse.
Of course, given today's
relatively high general cost base of Japanese and Triad production, any present
boost effect from industrial alignment will not parallel that of 40-50 years
ago; but will nonetheless add support to Japan's economic rebalancing efforts.
The major continued focus being the production scale efficiencies of
Nickel-Cadmium battery packs and associated electronic hardware for Hybrid
vehicles across Japan's main auto-players.
Moreover,the Detroit Show
inferred that the Japanese seek to slice-up their share of the N/American
market in the following manner:
Toyota seeking to primarily
offer mainstream compact and mid-size coupes/sedans/hatches/wagons and
affordable sportscars in petrol and Hybrid forms, Honda primarily offering small
cars, a mid-size range and lower functionality cross-overs, in petrol and
Hybrid form (plus diesel elsewhere), and Nissan offering compact sedans,
various MPVs and higher-functionality SUVs with Hybrid introductions later than
its peers.
