This four part web-log
has sought to provide much insight into the question of economic
value creation – and so investment returns – regards the global
auto-industry.
The major global
manufacturers are in the process of releasing their Q2/H1 results for
this year, with majority of Triad manufacturers continuing to enjoy
an ongoing – slower growth but bigger volume – buoyancy in
homeland and regionally entrenched consumer markets; this seen as an
off-set to EM constraints, awaiting (likewise) a less voracious yet
larger 'next phase' across EM nations.
The Call for Paradigm
Improvement... -
Nevertheless, FCA
Group's desire to invoke greater commercial rationality across the
higher cost western producers is a valid prompt, albeit one in which
the the process of actually crystallising cost-savings gaining vital
'value added' is fraught with complication. Inevitably, the greater
the ambition of 'mutualisation', the deeper the complexity of the
innate strategic, tactical and practical matters involved. Having
thus far successfully combined FIAT and Chrysler, Marchionne views
the task as achievable once more.
Capital markets however
well recognise that the FCA Group's origination came about at a
specific point in economic history, with its commercial rationality
much enabled by what were very obverse PESTEL conditions of a
specific post crisis period. Today, however, with the force of
American QE now very apparent in a revitalised in US and UK
economies, and a similar though expectantly slower QE experience
re-run across Europe. This 3-phased improvement in the consumer
demand has returned the perspectives of auto-executives and markets
analysts to a validated position of cautious optimism, and with it a
sense of a return to 'business as usual'.
...Tho Hardly a
Structural Paradigm Shift -
As illustrated in Parts
2 and 3 by the accompanying graphic, even this seemingly radical call
for a new round of auto-sector consolidation is in itself only
continuation of an evolutionary process. Although seen now as
unwarranted by most western executives, back in a pitched battle for
market share, volume and profitability, the need and likelihood of an
AM-EM corporate consolidation (as and when truly feasible) should now
be firmly lodged in the minds of truly globally attuned sector
experts.
Critically,
“Confessions of a Capital Junkie” is in itself a useful prompter
for continued debate. An element of that discussion regards the very
thesis presented, the validity and possible hollowness of some of its
facts and figures (esp autos vs other sectors at this point of the
economic cycle). But the more so the major aspect being the need for
'big picture' debate. Something beyond the usefulness of industrial
consolidation: itself proven both powerful agent for good and bad
(value creation vs value destruction) very specific times in
auto-sector history.
So as seen, although
investment banks, management consultants and theoreticians call for a
radical shift in the conventional structure of the auto-industry –
so as to improve its 'investability' – primarily toward what might
be called 'democratised' “unbundling”of the broad value chain.
This however, as an action of 'creative destruction', whilst opening
up new opportunities for theoretically improved ROI in typically
horizontally structured new ventures, also invariably has the
potential to fundamentally destabilises an historically engrained and
well understood automotive commercial template.
In doing so the ruling
power of its best recognised and most influential participants would
be very much eroded. The adjoining argument presumably being that
such released monies from the sale of specific divestments (ie Tier 1
supplier interests to captive retail dealer groups) would release
funds to be put to more productive use, as would the saved monies
from what are regarded as other inefficient commercial agreements.
Even though many of
these incumbent brands/marques are described by investment activists
as providing little more than commoditised personal transport
products – this largely the premis for any envisaged structural
paradigm shift – the unavoidable fact is that as historical markers
of social progress and dynamism, as the most prevalent 'big ticket'
consumer item, automotive marques still have sizeable degrees of
societal influence. That influence has undoubtedly decreased in the
west as credit fuelled what may be described as relative 'status
saturation', together with the changing aspirational belief modes of
younger people projecting experiences over ownership. Yet
unquestionably, most of today's automotive marques have a rich social
heritage; that heritage itself deployed as a product and service
persuasion device.
Yes consumers are
increasingly price sensitive and brand promiscuous, but as even the
wholly prosaic GM recognises through Opel's use of 'Adam' and 'Karl'
nameplates, promoting brand heritage adds authenticity and so
notionally adds perceived value.
Similarly, whilst the
obvious marketing genealogy is not suited to all, the fact that many
auto-makers hail from familial and community roots means that current
family members (even when remote and “non-controlling” as
shareholders) often view themselves as taking on a mantle for social
improvement. Whether it be the Ford's to Porsche-Pieche's, Toyoda's,
Honda's, Agnelli's or Quandts own descendants or their chosen senior
executives, this sense of social responsibility has and will
increasingly underpin the very persona of the 'commoditised' brands
so as to make them an increasing part of the global social fabric.
Thus whilst it is very
necessary to re-consider how one of the world's most prolific
industrial sectors could be improved to provider better stakeholder
returns; from investors to consumers to the statist desire for public
good; it is perhaps overly optimistic to assert a theoretical,
prescriptive recommendation for wholesale change as the optimum
routeway to avoid 'graceless degredation'.
Instead the industry
must fully recognise the multi-various PESTEL challenges presented by
Maxton and Wormald in 2004, and create suitably optimised roads
forward relative to their own specific conditions. Some may by a
“copy+” of Maxton-Wormald concepts, others new in-house
orientations on a then presented theme, its contemporary outcome and
its future probable emergence.
That said however,
given the potential for increased complexity by way of options and
possibilities, it seems most likely that the major auto-makers will
continue to seek to engage with possible external threats head-on so
as to incorporate such trends under their distinct marques and
corporate umbrella.
[NB This ranges from
Peugeot's multi-choice 'mu' rental system to the presence of BMW and
VW as fully fledged banking units in a reforms enhanced].
The conventional
paradigm then appears unlikely to fundamentally shift, no matter how
much external pressure is exerted, instead the paradigm has, and
continues to, morph so as to become yet more entwined into the newly
burgeoning further reaches of society
C21 Autos: Possible New
Textures to the Social Fabric -
The automobile
irrevocably altered the course of human existence soon after the turn
of the twentieth century. Its affect upon society was profound and
provided for the win-win of extended and convenient mobility for
many, changing patterns of work, rest (domesticity) and play, and
super-charging a nation's economic agenda with the building of
various infrastructures (roads, express-ways, parking lots and
fuelling stations), providing new downstream commercial opportunities
as well as the very production of the vehicles themselves.
As is well recognised,
with the influence of 'the internet of things', looking forward, the
start of the twenty-first century promises what may be described as
both a macro-economic and a micro-economic efficiency up-date, as the
electronic inputs of many functional realms are fed into intelligent
networks providing a 'cyber rationalised' output.
It is within this
socio-economic context that the standard automobile will continue to
evolve.
But just how
conventionally, or radically, remains to be seen. There may be
potential for both if AM and EM markets undertake very separate
future roads to mobility, with the personal and logistics
transportation natures of MegaCities as the conjoining, unifying
influence.
Given the mass
production and demand impetus of EM markets the car 'as is' looks
likely to continue, since EM regions (whether defined as BRICs, MINTS
or CIVETS) were themselves long ago raised upon and industrialised by
the standard auto-sector model. Little change them likely there as
tastes and expectations have already been deeply engrained.
As such, if the Triad
regions ultimately reside in what some economists foresee as
effective secular stagnation, then a marriage of lower cost foreign
manufacture and free-flowing credit (enabled via devaluation) means
the west would be the inescapable recipients of continued
conventional vehicles. Under this scenario, even the expectation of
ever greater electronic feature content may 'flat-line' as VM's main
commercial focus upon EM consumers, including a phased IT content
delivery approach to reach the already high level of Triad
info-tainment provision.
However...
There is a slim but
arguably growing possibility that much increased PESTEL demands to
meet eco-sustainability targets etc (as part of a regulatory and
consumer-led economic agenda requiring fundamental change) that the
very specifications and nature of vehicles themselves 'unbundle'.
That would mean that
the specification of today's city-car alters to become not simply a
small conventional car, but something far better suited to the urban
city-scape.Japan's 'Kei-Car' segment is a useful parallel, as is
France's Micro-Car segment, whilst Daimler has also led the way with
Smart.
Even more compelling is
a major rebalancing of functional capabilities, with reduced overall
performance capabilities to suit city speed regulations, whilst
size-wise and packaging-wise better suited to occupancy numbers and
volume requirements, whilst possibly gaining as much improved
external functionality as internal functionality.
Whilst there will
always be a need for a number of broadly capable vehicles, there is
an argument that under the totem of efficiency-seeking most vehicles
could be better configured to suit their primary tasks, (much as a
truck is dedicated to its role or an F1 race car the engineering
result of FIA rules and circuit environment).
However, it must be
noted that the very ideology of aspirational consumerism would need
to be 'educated' regards this logic, and so re-directed from much of
the consumer impulse for today's interpretation of status. Since
there would be little room for the irrational vehicles such as
road-bound SUVs or even more irrational large cross-over coupes,
which make-up sections of today's premium (and not so premium) car
market. It would be a case of reversing society's present mindset,
towards consumerism based more upon intelligent substance, less upon
marketed life-style.
However, this is not to
say that vehicles become little more than future reflections of their
yesteryear Eastern-Bloc counter-parts with 'type' classification
numbers, and an absence of consumer compelled variation.
Thus it is here that
the importance of better visions and relationships regards the
research and development of advanced technologies should perhaps be
better recognised.
Tentative beginnings
regards the introduction of 'left of field' products, and associated
business models have been underway for some time: here again mention
of GMD's T-series as leading light. With this come possibilities for
creating new commercial relationships reaching outward from the
traditional auto-sector into other product and service spheres and
segments; so new relationship dimensions up-stream and down-stream
within an altered value-chain.
Whether this occurs via
truly radical incursions into the sector by new entrants or via VM
producers themselves so as to head-off any external threat (acting as
'integrators' or 'integrator-assemblers'), remains to be seen.
But essentially, in
varous ways and to differing degrees, vehicles are both leading and
following those inter-mingled trends which slowly alter the everyday
fabric of society.
Ongoing Programmable
Futures -
Ironically it will be
the adoption of standardised electronic systems and mass volume
production of “under the skin” eco-tech solutions that will
enable this to grow yet further.
Thus far the
'black-box' electronic age for cars is about 40 years old, initially
with relatively simple devices such as electronic ignition (replacing
'points'), the intelligent circuitry of vehicles has evolved
enormously. It impacts virtually all vehicle systems: from early
phase 'invisibles' such as EGR valves sensing acute emissions levels,
to the (thus far) mid phase of the very 'visible' and safety
critical, such as reactive power windows (for children's hands and
dog's heads) and occupant weight sensors which inform internal
air-bags of the correct inflation size.
These then specified by
the manufacturer, yet for some years now, that low level 'artificial
intelligence' has also been provided for the user. 'Memorised'
power-seat positions and similar HVAC settings have been around for
decades, so raising innovation expectations. Thus premium vehicles
now have a basic buyer expectation of alternative “behavioural
modes”, as selectable by the driver. The wizardry of 'mode engaged'
gearboxes, drive-trains and suspension settings - once the preserve
of top-end sports-cars and premium 4x4s - have, in the race for
competitive advantage, begun to trickle-down into more mainstream
products; into initially what was previously labelled the 'executive
class', and expected to spread into lower segments as scale volumes
decrease vehicle on-cost. Similarly automated convenience features –
which have effectively merged into a 'service' function – now span
a broad range of brands. BMW's offers the 'stand aside - garage self
park' function on new 7-series, the car able to remotely drive into a
tight space or garage on its own; and likewise self-starts and exits
the space before the driver's entry. (This then partially mimicking
the self-driving 7-series from the James Bond film 'Tomorrow Never
Dies' from almost 20 years ago). Whilst at the in mainstream segment,
Ford offers (a variant of, or option on) Focus with 'hands-off'
reverse parallel 'self-parking', a manoeuvre which many people with
less attuned spacial recognition abilities have found problematic.
(This seemingly especially helpful to Northern European women*, who
typically experience greater problems than more 'space aware' men,
and to both sexes in in North America, where parallel parking - like
roundabouts - is far less prevalent).
[NB * The exception
being Paris, where historically a combination of small cars and
hectic city parking meant parallel parking became second nature to
many women. Similar urban environments previously across Southern
European, Barcelona to Rome to Athens, created many skilled female
drivers].
Likewise today, back in
the 'invisible' realm, all these years after 'active EGR', other
forms of 'machine intelligence' have become de-facto. These
expectantly focused on emissions reduction, such as increasingly
adopted 'Stop-Start' engines; in even small cars like FIAT's 500
(naming it a very notional “mild hybrid”. Whilst the large
capacity engines of full-size pick-up trucks and luxury cars have
adopted cylinder de-activation technologies, enabled in high-momentum
conditions, such as highway cruising or down long declines.
Yet today in an
eco-age, a time when citizens are 'nudged' to track their personal
carbon-footprint, even that responsibility has itself long been
turned into a small experiential joy. Toyota led the way with the
digital energy-flow console of original Prius Hybrid, far more
absorbing and less frustrating than the norm to date: the analogue
fuel-efficiency needle as seen in 1980s German and Swedish cars.
Toyota then merged the mentality of the user with the mentality of
the vehicle, whereas previously driving in an efficient manner felt
like a battle of wills, car vs driver. Prius then could be said to
have likewise cognitively programmed the driver.
Since 1997, over the
last decade and well into the smart-phone era, vehicle interfaces
have become very sophisticated at both coaxing the user and
fulfilling expectations, (having been through learning curves such as
BMW's much berated old generation 'i-Drive').
What was once a
'master-slave' relationship between driver and vehicle, has
transmuted into something far more symbiotic, thanks to the
combination of advanced computing, semiotics appreciation, and
increasingly brand attuned interface-function delivery.
These days those
emotional engagement devices, such as the 'Engine Start' button and
the start-up welcome message (Aston Martin's “Power, Beauty, Soul”
best known) appear almost naïve.
The public at large,
and perhaps new car drivers especially, have seemingly become almost
as programmable as the product. No doubt this state of affairs will
generate a counter-culture movement as some people create a backlash
– a rage against the machine. Yet even this challenge has the seeds
of opportunity depending upon exactly how innovation and commerce is
able to mould relative to any prevailing 'e-culture-jamming'.
Mass Customisation From
Standardised Bases -
The very concept of
mass-customisation harks back to the mid 19th century
factory-led beginnings of modern consumerism, with standardised items
of pottery, furniture etc embellished variously according to price
and taste. In automotive circles, although others had sought a
similar approach on niche volumes, the first to extensively deploy
this wholly rational approach was Ford's Model T; the legend about
the colour black very much over-stated. Greater subtlety and so
commercial leverage seen from the early 1930s when Alfred P Sloane's
GM led the way in creating variously styled 'top hat' body structures
to befit marque and model, and an assortment of what today is called
'plug and play' features for customers, then simply named 'add-ons'.
Yet it was not until
electronics begat computing, and software programming begat the
cyber-age, that consumers could be truly bedazzled by a veritable
universe of predetermined and customisable options.
All provided by what
are typically standardised electronics packages; be it laptop,
tablet, smart-phone, watch or spectacles. Seemingly endless variety
enabled through savagely cost reduced (ie commoditised) electronic
and electro-mechanical hardware and critically, highly 'tunable'
software.
Whilst IT engineering
as known provided the operational backdrop, the leading actors with
far greater commercialisation potential were the new realm of
'portals' (typically apps and 'enablers).
[NB twenty years ago
the so called internet 'portals' were website home pages, accessed
via a browsers web address bar, today's 'portals' increasingly the
personally held cache of 'applications'].
The 'internet of
things' is being heavily marketed to younger consumers ostensibly
born into the internet age, most prevalently toward 16-35 year-olds,
and within this broad span of people and places, specifically to
those inner-city urbanites who have long been labelled 'Hipsters'.
Though an unfortunate catch-all name for a group undoubtedly with
specific 'culture layered' sub-sets, they do however appear to have
the similarity of viewing themselves as social- creatives; no matter
what their actual role: musicians to accountants. Heavily cyber-led
in most of their activities and seeing themselves as the natural
citizens of an 'augmented reality' tomorrow.
[NB
investment-auto-motives (ie Turan Ahmed) labels this seemingly easily
influenced, often herd-like and already much satirised group, as
'customemers'. In recognition of the now entrenched sound-bite meme
ideologies across MacLuhan's global village].
“The internet of
things” is still in its early stages, and presently typically
over-hyped because of the plethora of relatively easily smart-phone
linked, Hipster orientated, everyday item adaptions. These often
marketed through youtube and elsewhere alongside other supposed
modern innovations, which in reality are simply re-inventions or
novelties; the bicycle and clothing arenas being prime targets
because of their personal nature.
Nonetheless, the good,
truly value-adding, concepts should rise to the top of a very crowded
social media. And it will be these true life-enhancers – on a
personal level and for the public good - that perpetuate further
advances.
Herein, the old
incumbents of the automotive industry have perhaps made greater
strides forward than in many instances elsewhere. As they seek to
re-raise the prized rational and emotional value of the car, and
similarly the transport efficiency advantage (with likewise emotional
overtones) of the van, pick-up truck and heavier commercial vehicles.
As Marchionne has
re-highlighted, where feasible design, development and production
cost-savings should be sought, and the deeper under a vehicle's skin,
the greater the potential to achieve both an 'invisible'
standardisation whilst concurrently engineering-in – through
sophisticated systems programming and brand attuned man-machine
interfaces – product differentiation and uniqueness.
Across the vehicle
spectrum, such a move is justified. Closely coupled technical
under-pinnings have been successfully deployed across mix and match
approaches to platform / module utilsation, for BIW (body in white)
structures, chassis items, power-train and electrical systems. Given
expense and complexity, the latter as a 'high-value' system has
proven ever more problematic. It is part of the reason that Renault
Nissan's Infiniti division created a JV with Daimler, and likewise
why Aston Martin Lagonda too has done likewise with Daimler's AMG
division.
If such marriages
regards electronic systems can be harmonized (ie standardised) within
the supposed ivory towers of premium and luxury, then mainstream
producers and their suppliers have an obligation to their investors
to not absorb expense in the duplication of such electronic systems.
Just as new enhanced
standards came to pass decades ago regards alternators over
generators, or 12 volt circuits replacing the 6 volt, so a far better
standardised 'computing platform' to suit 21st century
demands (including probable 18V and 24V systems, with CANBUS
reliance) and provide the necessary tailoring of brand experience, is
ultimately unavoidable.
The Inevitable
Obstacles -
The journey there will
inevitably include challenges and opportunities.
Quite prescient then
that after Marchionne's call, that FIAT Chrysler group should now
face a recall of 1.2m – 1.4m vehicles which have been identified,
through independent test exercises, as exposed to the threat of
computer hacking of critical vehicle controls The fix will be applied
in the form of a software update to the 'U-Connect' system, but the
news reports of targeted test vehicles being prone to such attacks,
will weigh heavily upon the owners of the vehicles, and will be of
concern to those who drive other marques.
However, the vital
facts are that the attacks were wholly orchestrated and only
achievable through (to quote FCA group) “unique and extensive
technical knowledge, prolonged physical access to the subject vehicle
and extended periods of time to write the [necessary] code”.
Thus, whilst a concern
in this seemingly wholly electronically controlled era, the
likelihood of such a problem affecting more than a small number of
vehicles, appears remote. And critically, FCA was quick to recognise,
admit and react to the very marginal public problem.
If anything, the
occurrence might actually serve the cause of greater standardisation
and commonisation, since whilst specific problems would indeed affect
more multi-brand vehicles, likewise an accordingly larger brigade of
independent authorised hackers, should be better at identifying
'back-doors' in the systems which require improved security.
Such a scenario could
be argued as better for manufacturers and consumers.
Automotive 'Version
3.5':
The previous web-log
instalment demonstrated how – through logical demonstration - the
authors of 'Time for a Model Change' (2004) envisaged how the
auto-industry should be better re-structured by way of a “4th
Revolution”; to avoid a decline of 'graceless degradation'.
[NB The 1st
Revolution being Ford's deployment of 'Taylorism' for standardised
volume production, the 2nd being Sloane's corporate
creation of a “ladder of brands and models”, and the 3rd
being Toyota's introduction of 'lean manufacture'].
But as also noted,
these 'revolutions' were introduced from the 'inside' of the sector,
critically from seeking competitive advantage. Whereas
Maxton-Wormald's “4th Revolution” appears only
practically feasible through enforced global level regulatory change;
most unlikely given the importance of the conventional auto-sector to
the USA and many EM countries.
Importantly, whilst at
the time of writing the book (around 2002) Europe did indeed embraced
the beginnings of a 'block exemption' ideology - so as to free-up
downstream sales, servicing and retail activities - the detail of the
2010 and 2013 rulings regards 'Vertical Block Exemption' was far from
revolutionary, indeed arguably protective of in-situ value chains.
Thus too all intense
purposes the historical auto-sector's innate commercial model remains
in place.
Instead it seems that
any approximation to a 4th Revolution should be actually
termed 'Version 3.5'. This an enhancement of consumer targeted
innovation made possible through the the process of a quickened
electronics evolution.
A merging of micro and
macro directed consumer electronics has inevitably set the backdrop
to yet further deepened influence upon vehicle functionality, across
convenience provision and performance improvement and convenience
provision, via 'visble' and 'invisible' vehicle systems. The former
for product and so consumer experience enhancement, the latter for
(typically eco and safety) regulatory applications. Whilst the
emergence of driving monitors / aids, often marketed through
auto-insurance companies, bridge the previous chasm between private
and public).
'Version 3.5' then is
best explained as the continued, long since digitally enhanced
advancement of the historical automotive Revolutions to date.
However, just as there came tipping-points for the design and
manufacturing of the product itself, via CAD and CAM from the early
1980s onwards, so recent years have witnessed a tipping-point regards
the morphing of technology and user behaviour, given the former's
cognitive – absorbing and habit forming – effect. As mentioned,
the entrancing dashboard graphic of 1997 Prius was amongst the first
'smart-tech' devices to pull the “subject” (user) into the
“object” (product). Ever since, the combination of the massive
levels of info-tainment, absorbed through smart-phones and now
smart-wearables means that people have obviously been long drawn ever
deeper into the cyber-physical, into 'augmented reality', and thus
into a new chapter of (perceived) reality.
This is of course
recognised by most, to varying degrees, depending upon age,
back-ground, objectivity etc.
But the critical issue
for nearly all brands, and specifically e-enabled consumer products
manufacturers and service providers, is the ability to judge to what
degree a group type or indeed n individual consumer is happy to
subsume him/herself.
Given personal
background and experiences, each person will be slightly different,
the business of 'big data' and 'data mining' companies to create
personal profiles for (ideally) the global population by which their
commercial clients can guide their own mass, niche and personal
customer interactions.
Hence, the 'brand
equity' and associated societal influence of auto-makers are at the
forefront of medium to long range consumer interpretation; just as
super-markets and FMCG firms intensely study the short view.
The breadth of the
digital universe stretches from the seemingly very remote regards
everyday consumer behaviour patterns, through to the preferred manner
by which a driver (and passengers) interact with the car
itself....typically from yesteryear's 'master-slave' to today and
tomorrow's 'eco-equitable relationship' to the far horizon's
possibility of (time-cost related) 'nudged mobility'.
In Conclusion -
This lengthy four part
weblog has sought to provide improved understanding regards the
real-world issues which exist behind calls from more idealistic
investors, consultants and academics, for major commercial
restructuring of the mainstream producers within the VM portion of
the automotive sector.
Within institutional
investment houses - amongst the rafts of all too formulae led
administrative managers - there are those who (typically via
self-education) maintain a close eye on the automotive sector, and
are very aware of the traditional pros and cons. Likewise for the
self-taught retail investor. They will recognise the immense drag of
economic recessions and the cash burden of large CapEx projects, and
the necessary balancing act during the worst of times, versus the
endemic boost provided by returned broad economic spend, itself
boosted by the efficiencies gained through well conceived and
executed corporate 'turn-arounds'.
At the investment
coal-face are the investment bank auto-sector analysts, the more
'sophisticated' realms of investment, such as hedge funds, and those
very few specialist consultants who have a truly rounded
appreciation. These economic agents keep a watchful eye on the
quarterly performances of VM firms, recognising their respective
positions relative to each other, and in comparison to broader
capital market dynamics, such as vis a vis broad retail (white goods,
holidays etc) and other B2C and B2B general industrials.
More critically these
proactive agents are - within their own limits of individual
expertise – able to recognise when perhaps a CEO has over-stretched
the plausibility of an envisaged commercial strategy story, or
whether a CFO has relied upon accounting ploys to either boost the
bottom-line or indeed, as sometimes practised through volatile
periods, to smooth-out otherwise 'choppy' quarter on quarter
earnings, or indeed stated over-heavy 'extra-ordinaries' to
intentionally reduce bottom-line profitability, so driving down a
share price, before staging a seemingly remarkable return at a later
date.
Thus although
capitalism itself is a general force for good (when morally
orchestrated) the fact is that the investment arena itself is a far
more ethereal entity than (typically American) media commentators
would have the public, and indeed 'silo'-located “investment
professionals” believe.
Thankfully, especially
so for institutionals with heft future obligations, unlike the
market's highly reactionary behaviour – whether via the
media-fuelling of high potential growth sectors or the heavy shorting
of commodities - it is the maturity and relative commercial clarity
and overall conservatism of the auto-motive sector that helps to
provide a sense of security for pension funds etc. Autos represents a
true economic cornerstone for many countries and regions,
under-pinning international trade and helping to provide, for the
increasingly globalised investment community, international economic
off-sets and equilibriums; USA vs China the obvious present
illustration
As this cornerstone,
such nicely boring, yesteryear measures of investability are welcome.
Yet, quite rightly,
within the broad automotive value-chain, as Maxton-Wormald indicate
and promote, where at all feasible, those areas convincingly
demonstrated as holding untapped investor potential should be
explored and exploited.
Such areas will
demonstrate a probability to:
1. Progress the
critical 'inner-mechanics' of the leviathan sector (eg as did Budd or
CAD/CAM)
2. Begin any wholly
rational and feasible 'unbundling', at small scale level to evaluate.
3. Generate truly
compelling new products, not simply (sometimes unjustified) model
proliferation
4. Generate compelling
new services – increasingly enabled through 'cyber-assistance'.
5. Advance personal
mobility, mass mobility and logistics mobility solutions for society
6. Include high levels
of technical standardisation (ie the lessons of history)
7. Innovate at a new
venture business model level, creating in-house 'incubators' etc.
As what appear
'all-powerful' global entities, the major auto-makers are typically
necessarily cautious, with an innate need to maintain broad control
of the value-chain given their responsibilities to share-holders and
as international economic giants.
Yet the best have also
demonstrated a willingness to take big leaps forward to help create
and gain from the future; from Daimler's lengthy 'under-writing' of
its initial SmartCar project, to latterly BMW's radical i-series
city-car, and in a very different revolutionary manner, Ford's new
aluminium F-series full-size pick-up truck. And of course those
previously typically incremental technical steps – particularly in
powertrain – have become far more strident in ambition and
achievement.
Applying that level of
strategic thinking to the very industrial and commercial basis of the
sector is what is required. It is a far cry from many of the “bluff”
actions of the past where a VM was only seen to be attempting
something new and provocative, without true intention.
All too ironically, the
previous sector 'revolutions' came from within: by influential people
who were astute observers, lateral thinkers and able exploiters etc,
not from the all too theoretical external pressures of Wall St
seeking 'creative destruction'.
As GM's re-birth
illustrated there is a time for such 'creative destruction', but with
the wounds of the financial crisis slowly healing and a much altered
socio-economic landscape, proper and realistic consideration is
needed as to what (primarily 'self-moulding') shape the
next-generation auto-sector might ultimately become.
