Companies Focus – Global 11 VMs – Q2 2012 Results

The Q2 earnings season saw a raft of mixed results spanning the good, bad and ugly; thus creating a sense of disturbance. Even historically defensive sectors such as banking and oil/gas providing lesser safe-harbours than the case in the past, given high P/Es, low yields and their own PESTEL headwinds. All adding to the 'risk-on, risk-off volatility in the search for value.


Contradictory Signs -

So an an unsure and erratic milieu providing a reduced rational structure for general interpretation. Created by the contrasting “pro and con” results of now globally inter-connected continental macro-level surveys, together with at the micro-level the affect of highly managed earnings guidance from companies (to reflect or boost release sentiment), and critically, the market reliant announcements of influential administrators and politicians. All combine to generate what was predicted and became a sideways moving market with 'snap' sentiment swings of the market – propelled by high-frequency algorithmic auto-trading – and best benefiting short-hold weekly and monthly traders who seek-out the opportunities of 'trough-point' and 'peak-point' stock dynamics, or those long-term participants slowly and cautiously building up holdings when prices (even in low P/E companies) appear attractive.

Being cyclical in nature, auto manufacturers have been forced to ride the heavy weather sentiment of the markets, perhaps more so than most given the demands of heavy capex and working capital requirements.

This now most evidently seen in North America, as the previous short-term financial markets' optimism provided by QE1, QE2 and Operation Twist and the successful lean running of large-caps and SME companies runs into the headwind of revived but still relatively anaemic consumer spending, forcing companies to remain cautious, even in the low-interest (often corporate bond secured) lending environment.

So, whilst America solved its 'capacity obesity' problem with Chapter 11, whilst there may be very real regional structural concerns in Europe, history demonstrates that it is often the case that national economies and auto companies seem to prefer to maintain what could be regarded as 'fallow' capacity (even after the 2 plant closures in Italy and Belgium): for either future job creation or factory disposal (trade-sale or otherwise), whilst awaiting the eventual future economic upswing

Mid and long-term offer a distinct value creation promise in an ever expanding worldwide market, where the BRICS & CIVETS offer so much proven potential. But given Europe's familiarity, still relatively wealthy demographic, cultural links and easily influenced governments – especially now given the economic corporate advantage - an auto-executive's mind still no doubt thinks the company that conquers a now much enlarged Europe (and critically vie against strong Japanese and S.Korean competitors) then has the political and technical lead to conquer the world.

[NB Though FIAT's Marchionne calls for cross-continent European capacity reduction, most other CEOs well recognise the liquidity firing power that GM and FIAT-Chrysler have (intrinsically backed by US foreign policy and a fiscally enabled eased “US$”) to industrially 're-acquire' Europe].


Comparative Q2 2012 Results -

The accompanying graphic (data table) provides an overview of the Q2 results for the prime 'global 11' automakers, GM, Ford, VW, BMW, Daimler, FIAT-Chrysler, Renault-Nissan, Peugeot, Toyota, Honda and Hyundai.

[NB data sourced directly from Q2 / H1 company reports. It appears that for VW, Renault-Nissan, Peugeot and Hyundai, the exact details of a weaker April, May & June sales period have been intentionally absorbed into a general H1 depiction. For the purposes of basic calculation / assumption, the Q2 figures presented are half the H1 numbers presented].

To best provide direct comparison each of the primary accounting lines is examined on a company versus company basis. This across: Revenue / Net Profit / EPS / Liquidity vs Q2 2011 standing.


Revenue -
GM : $37.6bn vs $39.4 (-4.6%)
Ford : $33.3bn vs $35.5bn (-6%)
VW : €47.7bn vs €38.85 (+22%)
BMW : €19.2bn vs €17.9bn (+7%)
Daimler : €28.9bn vs €26.3bn (+10%)
FIAT-Chrysler : €21.5bn vs €13.2bn (+63%)
Renault-Nissan : €10.467bn vs €10.55bn (-0.8%)
Peugeot : €14.77bn vs €15.56bn) (-5%)
Toyota : Y5,501bn vs Y3,438bn (+60%)
Honda : Y2,435.9bn vs Y1,714.5bn (+42%)
Hyundai : KRW21,052bn vs 19,162bn (+9.9%)

Of these, it is apparent that the notional 'winners' regards Revenue improvement are FIAT-Chrysler, Toyota, Honda, and VW & Hyundai. But it must be noted that the Italian-American and Japanese producers come from respectively low bases, so 'easing' their improvement. Whilst the German and Korean producers maintains traction from their record high sales base.


Net Profit -
GM : $1.5bn vs $2.5bn (-40%)
Ford : $1.04bn vs $2.4bn (-56%)
VW : €4.4bn vs €3.25bn (+35%)
BMW : €1.28bn vs €1.77bn (-27.7%)
Daimler : €1.51bn vs €1.7bn (-11.17%)
FIAT-Chrysler : €358m vs €1.2bn (-70%)
Renault–Nissan : €393m vs €626.5m (-37%)
Peugeot : €-409.5m vs €403m (-200%)
Toyota : Y290.3bn vs Y1.1bn (+26,300%)
Honda : Y131.7bn vs Y31.7bn (+415%)
Hyundai : KRW2,550bn vs 2,310bn (+10.4%)

The 'winners' here are Toyota (by a massive degree), Honda, VW and Hyundai. The above remarks pertaining to the Japanese industrial / commercial 'bounce-back' are reflected here at the bottom line. This much contrasted the American duo's foundering as profitability is surpressed to build-up cash reserves and fund capex projects.


EPS -
GM : $0.90 vs $1.54 (-41%)
Ford : $0.26 vs $0.59 (-56%)
VW : €12.05 vs €10.04 (+20%)
BMW : €1.94 vs €2.07 (-6.3%)
Daimler : €1.34 vs €1.51(-11%)
FIAT-Chrysler :not stated
Renault-Nissan : €1.37 vs €2.24 (-39%)
Peugeot : €-1.365 vs €1.77 (-177%)
Toyota : Y91.67 vs Y0.37 (+24,770%)
Honda :Y73.09 vs Y17.64 (+414%)
Hyundai : not stated

Correlated to the outcome of the previous section, the 'winners' here are Toyota (by that massive leap), Honda, VW (and expectantly Hyundai, though not indicated by the company). Once again the reduced profitability of the Detroit 2 is viewed through still positive but much reduced EPS.


Operating Cash Flow -

GM : $3.8bn vs $5.0bn (-24%)
Ford : $0.8bn vs $2.3bn (-65.2%)
VW : €3.35bn vs €4.2bn (-20%)
BMW : €1.84bn vs €3.0bn (-39%)
Daimler : not stated
FIAT-Chrysler :€1.08bn vs €0.52bn (+300%)
Renault-Nissan : €541m vs €767m (-29.5%)
Peugeot : not stated
Toyota : Y702bn vs Y316bn (+222%)
Honda : Y737.43bn vs Y1,070bn (-31%)
Hyundai : not stated

Here FIAT-Chrysler and Toyota win by very wide margins, with Ford seen to suffer most.


Free Cash Flow -
GM : $1.7bn vs $3.8bn (-56%)
Ford : $1.77bn vs $0.46bn (+384%) estimated
VW : €0.995bn vs E1.46bn (-31.5%)
BMW : €853m
Daimler : €1.0bn vs €1.13bn (-11.51%)
FIAT-Chrysler : €0.39bn vs €0.11bn (+354%) estimated
Renault-Nissan : €-100m vs €60.5m (-265%)
Peugeot : €224.5m
Toyota : Y49bn vs 51bn (-3.9%)
Honda : Y64.36bn vs Y339.44bn (-81%)
Hyundai : not stated

The apparent 'winners' here seen to be Ford (in stark contrast to its OCF) and FIAT-Chrysler with more than a tripling of FCF YoY. These figures are only simplistic guestimates, but may have been officially unreleased to build-up greater 'rolled-up' FCF figures for a later Q3/Q4 release, given the power of the indicator to tempt investors. Suffering most is Renault (and presumably Peugeot) given their greatest exposure to Eurozone market troubles.


Liquidity -
GM : $38.5bn
Ford : $33.9bn
VW : €14.9bn vs €17bn (-14%) [$18.47bn]
BMW : €8.01bn vs €7.46bn (+7.5%) [$9.93bn]
Daimler : €12.09bn vs €9.84bn (+23%) [$15bn]
FIAT-Chrysler : €22.7bn vs €21.4bn (+6.5%) [$28.14bn].
Renault-Nissan : E11.1bn [$13.76bn]
Peugeot : €12.08bn [$15bn]
Toyota : Y1,728bn vs Y2,132bn (-19%) [$17.8bn]
Honda : Y1,247.1bn (cash & equiv) [$12.85bn].
Hyundai : KRW17,180bn (cash & equiv) [$15.15bn]

And finally, the importance of 'fiscal fire-power' during this transformative period is seen by the large reserves build-up by GM, Ford and FIAT-Chrysler, with VW and Toyota holding near equal value lower sums and Daimler, Hyundai and Peugeot close behind, with Renault-Nissan, Honda and BMW on lower levels.


Automakers' Positioning -

By the overtly simplistic indications of a) Revenue Increase, b) Net Profit, c) Earnings Per Share, d) Operating Cash Flow, e) Free Cash Flow and f) Liquidity, we see the dominant players per measure:

a) Revenue Increase: FIAT-Chrysler, Toyota, Honda, VW, Hyundai
b) Net Profit: Toyota, Honda, VW, Hyundai
c) EPS : Toyota, Honda, VW, (Hyundai assumed)
d) OCF : FIAT- Chrysler, Toyota
e) FCF: Ford, FIAT-Chrysler (estimated results)
f) Liquidity : GM, Ford, FIAT-Chrysler, VW, Toyota

Consistency goes to Toyota (5 of 6 placings), followed by VW & FIAT-Chrysler (4 of 6 placings), then Honda & Hyundai (3 of 6 placings), Ford (2 of 6 placings), GM (1 of 6 placings).

Unsurprisingly Renault-Nissan and Peugeot lagged heavily, but also too seemingly have BMW and Daimler failed to make a showing. This investment-auto-motives believes because of the BoD's operational consistency which provides slower but ongoing organic value creation, instead of the 'falter and rebound' growth opportunity seen by the aforementioned identified players.


Automaker's Context -

It became apparent some time ago that the dire effects of the credit crunch would most impact western mass market players with heavy exposure to their domestic markets, hence the experiences of previously GM and Chrysler, and now PSA, Renault and FIAT; with the premium/quality type producers with high export market exposure, demonstrated by BMW destined to fair far better, with the 'diversified premium' of Volkswagen and Daimler arguably on even more solid ground spanning B2C and B2C customers. The 'intermediates' of Toyota, Honda and Nissan were destined to sit between the two former groups, but themselves required internal re-structuring to remain competitive; this latterly ironically achieved as a consequence of the 'Great Eastern Japanese' disaster and the Thailand floods.

[NB The recent pan-Indian electrical power failures may induce a far smaller but significant force for auto-producer restructuring as companies seek to relocate to regions of assured power; aswell as obviously providing consulting and installation opportunities for major infrastructure players such as GE, Siemens etc]

As illustrated previously, perhaps the very obvious automotive beneficiary of the global downturn has been the strategically perfectly positioned Hyundai Motor Co with a balanced global sales and production foot-print and ever more attractive and price-compelling vehicle range. Whilst inside western markets for decades, its prime focus over the last decade was in BRIC and EM countries offering small cars and small trucks, then concentrating upon globally credible passenger vehicles as consumer expectations of the 'old-industrial' and 'emerged-industrial' countries began to merge.

However, as seen with the previous focus on Ford, western producers are positioned in course to return to strength if able to set their own paths: either through manifest strategic re-alignment of the intra-national business model (Ford), or through the deployment of large cash reserves via M&A and alliances (GM) or seeking - at smaller level – a combination of both (FIAT-Chrysler). The lessons learned within the US no doubt sought to be deployed by European companies / divisions.

The German corporates have remained strong thanks largely to the success born from the western boom years, their EM exporting models of 'visible' and 'invisible' products and services, the cautious retention of those cash cushions up until recently with now impressive CapEx programmes. These designed to secure industrial dominance domestically...in EM regions...and by virtue of the German 'home improvement plan' re-emphisising its historic role as Europe's industrial hub with powerful spokes now eminating north, west, south and east. .

Outlook -

So beneath the very apparent surface of the 2008-10 financial crisis, the EU sovereign debt and banking crisis, the natural disasters in Asia, the spectre of a technical or real double-dip recession, and so 'in turn' the outcome of heavily afflicted stock prices amongst many 'consumer cyclicals'... the necessary process of business re-invention has been under-way to re-position individual companies and the sector at large into the second decade of the 21st century and beyond.

Companies Focus – VM Basic Assessment (Part 1) - Reviewing the Fundamentals

The intention of this next two part weblog is to review the investment / investor standing of the world's best known auto-manufacturers.

Part 1 (herein) provides a “basic view” by using the standardised 'fundamentals' measure of the price-earnings calculation.

Part 2 (to follow) provides an “advanced view” by examining each companies' 'fundamentals' in greater detail. Through the construction of four graphs which depict the investment-auto-motives' perspective of 'coupled ratios'. This marrying two standard 'ratio' measures to better assess: a) Market Valuation, b) Profitability, c) Liquidity d) Debt.


The Global 'Macro' Picture -

By measure of international bourses, the global economy continues to 'shudder and shake' as a mix of very cautious macro sentiment mingles with what seem rapid 'risk-on, risk-off' equities vs bonds actions creating volatility.

In the USA, a much altered QE policy structure took the wind from the stock-market's sails, the presidential campaigning highlighting President Obama's desire to avert economic focus, whilst Romney obviously seeks to. The USA's previously strong bullishness has wained, America's prime indices the Dow Jones and NASDAQ illustrated that much turned mood. The DJ gave-away a sizeable 1000 points plus drop between its recent peak of 1st May and trough-bottom on 4th June, though has regained approximately half that lost value since. The NASDAQ peaked 26th March and bottomed on 4th June, showing a 366 point loss, and has regained a fifth or so of that loss since. So whilst the encouraging 'bottom-bounce' provides more confidence, the full extend of its strength is yet to be seen.

Europe of course continues to be blamed as the instigator of ongoing global economic drag. (Most notably as the prime disruptor of US prosperity, a bad citation by Obama given the EU's relatively small intake of US exports). However, the sovereign debt crisis continues to fester, the liquidity demands of the PIIGS debt-laden banking now exacerbated by Spain's calls for EcB monies and with the 'shorting' of Italy's 2-year government bonds; a flattening of the yield curve the same trend as seen prior to Greece's woes. Central of course is the fact that no general agreement has yet been obtained regards exactly how the E 1 trillion ESM (and old EFSF) could be made to operate, Germany's rightful viewpoint that there must be a type of securitization offered by recipient nations – ranging from gold to public assets – so as to avoid the 'moral hazard' problem that has already been witnessed by the empty promises of Greek and Spanish politicians, seeking to both gain liquidity yet also carry favour with voters by not implementing further austerity. Corporate stocks have undoubtedly suffered, with prices at record low, in turn delaying CapEx projects until greater stability appears. That has been indicated by the French, with the idea that yet another policy stimulus could primarily assist domestic producers. But that undoubtedly relies upon the release of ESM funding, so presently appears a PR tactic by President Hollande et al.

South America's desire to reduce its own cost-base and negate its exposure to 'cheap' Chinese imports has meant a quite severe policy response. This primarily via a hike in import duties, especially so upon non-Mercosaur-made vehicles, and efforts to try and re-foster a lean domestic industrial attitude, improving indigenous value-chain capabilities and prompting consumer spending on self-made goods – the previous weblog's mention of Brasil-Movimento motorcycles a good example. The national BOVESPA index hit a high of 68,394 on 13th March and hit a recent low of 52,481 as of 5th June, thus loosing 23% of its value, before rebounding to 55,651 recently.

At first glance, China's economic contraction appears even softer than expected given a growth slowdown to 6.5%, approximately half of its modern era double-digit rate. Yet the 22% YoY rise in vehicle sales in May illustrates what seems a dichotomy, when autos sales rates are supposed to typically reflect general GDP measures. The answer very probably lies with a possible over-statement of growth drop by the PRC government to stimulate 'incentivisation' by producers to maintain and grow consumption; none more so than the hyper-competitive automotive sector, reflected in the provision of a sales initiatives inland. Thus there seems a slowing of coastal generated growth off-set by new growth in 3rd and 4th tier cities and towns in more rural areas, thus a balancing of the national economy as coastal regions themselves seek to reduce cost-bases and so maintain a competitive differential in world markets in light of the deflationary forces in the Triad regions.

Here in the UK new deflationary concerns have resurfaced. The broad manufacturing sector (exempting autos) - previously a start performer throughout 2010 & 2011 - now showing signs of a marked slowdown given lacklustre domestic demand and now decreased EM export demand. That has generated political calls for sector-specific task-forces similar to that of the now politically much applauded Automotive Council, yet it must also be noted that whilst of definite value to the UK economy, the ramp-up in UK factory production of whole vehicles has been because of foreign VM (ie Nissan, Honda, Toyota) domestic capacity constraints previously caused by the Japanese tsunami. Previously the national economy had partially relied upon that important 'visible-trade' export buoyancy, both indigenously owned and foreign owned, but the weakened order book for UK companies and a possible contraction of UK vehicle exports as Japan returns to strength indicates declined value-creation. The BoE's £80bn 'funding for lending' scheme appears a moderate response given the need to both urge lending and contain a growing 3% RPI rate, yet given the caution of SME borrowing – described as the “UK's mittelstand-off by the FT – it is probable that the liquidity is instead directed at the UK stock market, across the FTSE100, 250 and possibly AIM, seeking new growth enterprises.


The World 'As Is' For Automakers -

The fragility of both consumer retail markets and the world's stock markets has for some time now created a delicate balancing act for automaker's CEO's, COO's and CFO's. With much of the Triad region's banking sector and consumers in respective 'deleveraging' mode, and wholesale finance erratic and expensive and dwindled deposit provision by car buyers, the need to protect corporate 'cash cushions' – build-up from CapEx minimisation and deferral - to provide self-financing has been the order of the day. Such internal funds used as no-cost “incentivisation levers” toward car buyers in regions where such prompting initiatives prove useful.

However, the mere existence of those cash cushions on balance sheets have not underpinned the stock-price positions of all, only those that are strategically best positioned. Others heavily exposed to retracted markets, notably Southern and 'fringe' Europe, aswell as 'core' France, have seen their stock values decline in relation to their EU exposure. This in turn, via a cross-sector dynamic, has dragged down the better positioned German companies' MarketCap valuations, though the strongest of those 3 tends to rebound soon after any bad news is absorbed, a sign of institutional investors' constant 'flight to quality', and profiteering reaction of day-traders.


Assessing the Auto-Makers -

Thus, given the erratic state of market dynamics, it would prove useful to gain greater insight into each company's “fundamentals”, so as to stave-off over-reaction to sentiment driven 'buy' or 'sell' actions in the broader marketplace.


Basic Comparison -

The following conveys the basic yet prime stock information per company:
(Prices as of market-close 15.06.2012).

Price P/E EPS Dividend

GM $21.74 6.54 3.32 none
Ford $10.35 2.23 4.71 1.93%
VW E116.80 3.25 36.50 2.47%
BMW E55.96 7.21 7.77 4.11%
Daimler E34.04 6.11 5.57 6.73%
FIAT SpA E3.66 3.23 1.13 none
Renault SA E31.10 4.05 7.68 3.73%
PSA E7.51 2.39 2.56 none
Toyota $76.50 33.67 2.27 1.65%
Honda $32.36 21.89 1.48 2.35%
Hyundai (EDR) E22.60 0.69 32.82 0.73%


Here we see a wide span of current valuations, much of course dependent upon the enterprise value of the firm and the amount of shares (of different classes) made available. Even so, the affect of recent history is readable within present valuations.

'New' GM's Chapter 11 financial restructuring via seen in its price, even though down 30% from its IPO price, it still holds credible price-earnings ratio when compared to its smaller Detroit counterpart, and relatively close to the sector average.

Ford's price essentially limited by the critical inhibitors of weighty debt servicing (by far the most amongst its peers) and the extra-ordinary gains of tax exemption which has boosted profitability, but not directly from the top-line. Though its much improved dividend has been welcomed by institutionals, its 'bottom of the class' price-earnings highlight future regional and PaT concerns.

VW Group's valuation the result of its inherent global reach, B2C & B2B product portfolio reach, and the controlling families' historical desire to be very hands-on by seeking to limit the number of shares in circulation. BMW has come under much pressure recently given the concerns about the impact of global economic contraction upon 'mass-premium' vehicles, yet also reflects the trait of 'family influence' and German institutional holding so as to seek to avoid the long-lasting damage of “vulture-like” short-selling. Its low price-earnings value seemingly a result of heavily constrained liquidity within Europe, which takes a heavy toll on such a large company - as opposed to the firm's innate operational efficiency.

Daimler's price-earnings figure shows strong resilience to both the general squeezed liquidity conditions, and investor concerns about the possible severe impact of a continued global down-turn upon. This probably because Daimler's broad exposure to various private-spend, commercial-spend and public-spend vehicle segments, means that it is also equally well placed for any new European economic revival when it arrives, especially regards early phase spending on HGVs and publicly funded Bus & Coach.

FIAT SpA (FIAT-Chrysler) share price reflects the double impact of high exposure to heavily retracted EU and Brazilian sales. Critically though, ongoing concerns about Italy's core market ability to balance austerity, introduce labour reform and rebound growth; even under the new 'technocratic' administration. This critical to FIAT so as to mimic USA traction by Chrysler.

Renault similarly suffers from an anaemic homeland, but has been assisted by the very supportive earnings gained from Nissan, so better supporting its share-price and price-earnings. Moreover, since partly government owned, there is a markets expectation that Renault stands as natural primary recipient of any supportive direct or indirect government assistance.

PSA's share-price has suffered more so, as Europe's #2 auto-maker and with greater EU market exposure and apparent lack of a 'government backstop' taking a greater toll and adding uncertainty. Though GM's announced intended 7% acquisition ironically induces short-term price reduction until the purchase is actually made – GM enjoying the fact – it also argues for long term value via disposal of PSA assets to GM and possibly others; though. the “platform-share” story still does not convince.

Toyota's price highlights its dichotomy: as a cornerstone of the Japanese economy, yet endured the earnings ravages of the 'tsunami effect' which assisted continued industrial restructuring using off-shore production. Its share price seen as the 'entry cost' by Japanese pension and insurance houses for ongoing stable dividend and for governmental recognition of national patriotism. However, as its earnings increase with a US and China sales rebound, and a possibly improved dividend yield, the result may be reduction the hefty price-earnings ratio that slowly attract foreign interest.

Honda's price and price-earnings ration reflects its less domestically entrenched position, its better dividend arguably showing its greater organisational flexibility and faith in its renewed interest to North American buyers; much needed given its 1.6% car-market share slip since 2010 to current 9%.

Hyundai shows itself to still arguably be an anathema as traded on European bourses; whilst a respective pillar of the Korean economy (with the biggest production plant in the world) it is not yet listed as an ordinary or preferred standard stock, but instead as a form of GDR (Global Deposit Receipt) seeking Euro capitalisation (a EDR); thus not commonly traded, but its underlying value characteristics suggest that Hyundai Motor may seek an ordinary listing in time.

Displaying the table again, investors could seek to simplistically plot the crop of global auto-makers, purely from the prime measure of price-earnings.

Price P/E EPS Dividend

GM $21.74 6.54 3.32 none
Ford $10.35 2.23 4.71 1.93%
VW E116.80 3.25 36.50 2.47%
BMW E55.96 7.21 7.77 4.11%
Daimler E34.04 6.11 5.57 6.73%
FIAT SpA E3.66 3.23 1.13 none
Renault SA E31.10 4.05 7.68 3.73%
PSA E7.51 2.39 2.56 none
Toyota $76.50 33.67 2.27 1.65%
Honda $32.36 21.89 1.48 2.35%
Hyundai (EDR) E22.60 0.69 32.82 0.73%

To plot as such, promotes the usual modelling of depicting the archetypes of 'growth stocks' and 'value stocks'. Given the maturity of the sector, its barriers to entry etc, a true 'growth stock' is rarely ever truly seen. Perhaps only in China between 1999-2008 when certain emergent indigenous auto-companies such as BYD Auto intentionally mustered high profile international PR brand campaigns around the apparent adoption of eco-tech/high-tech, supported by renowned names such as Warren Buffet. Instead, because of the inescapable cyclical impact of macro-conditions on the auto-sector, seasoned long-term investors tend to seek-out unloved auto-stocks during a dour economic climate such as today.

To this end, whilst during normal times (in the West) many asset classes are valued at 10x annual earnings, today the demarkation level of 5x has far more resonance given the market headwinds of cautious sentiment and tight liquidity.

Using this as a very simplistic guide, we see a ranked order of theoretical attraction: Hyundai (EDR*) @ 0.69, Ford @ 2.23, PSA @ 2.39, FIAT @ 3.23, VW @ 3.25 and Renault @ 4.05.

Beyond the 5x level, are: Daimler @ 6.11, GM @6.54, BMW @ 7.21, and far beyond the 10x level are Honda @ 21.89 and Toyota @ 33.67.

However, whilst figures give a good desk-top comparison, all must be seen in context, thus it is critical to view the bigger macro picture by reading between the lines of corporate actions vis a vis regional markets and economies.

The following provides a short picture of recent issues per VM.


Corporate “Headlines” -

GM
- Presently evaluating internal successor to Akerson.
- Akerson recognises 'profitability chasm' relative to best mainstream companies
- Reducing pension burden via group annuity contract with Pru Insurance (20% 1st tranche)
- Facing increasingly tough battle in all important China
- Bochum plant 'life extension' to 2016 for frozen union costs
- Seeking to once again re-animate Cadillac vs dominant German & Japanese premium models
- Notions of any new Republican administration 'dumping' its 26% holding unlikely, expected staged sales at predetermined price-points to ensure corporate price stability.

Ford
- Mulally expected to remain
- Expected to follow the 'annuity contract' route
- Already de-risked pension liabilities by re-weighting to fixed-income
- Critically recent entrant to China so holds consumer appeal
(its May YOY sales marginally above the surprising 22% market climb)
- Seeking to once again re-animate Lincoln (like GM's strategic need)
- Studying indigenous brand for China with JV partners
- Ford Credit regains 'investment grade' status (Moodys) raising $1.5bn recently
- Announced re-alignment of EU market plan appears slow reaction

VW
- Governance issues regards Mrs Peich's Boardroom election seem to diminish
- Successor to Winterkorn expected from restructured divisional management.
- EU May sales slide less than industry average (5.7% vs 8.7%)
- China's Jan-May sales boosted by 9.3% YoY (44% for Audi)
- Continued major China expansion via plant openings (4m unit target for 2018)
- Rational acquisition of Ducati followed by exploration of Navistar Truck holding.
- Remaining stake of Porsche AG to cost E4.5bn (E0.6bn increase).

BMW
- Reithofer maintains conservative stability
- Senior R&D and Purchasing execs swap roles to strengthen internal capabilities.
- New sales records for Q1: Asian growth of 9.1% Jan-May 2012
- China sales for May up 31.5% YoY
- Concept store opens in Paris on “George Cinq”
- i8 hybrid 'supercoupe' expected at E100,000 price level
- JV agreement with Toyota on Lithium battery R&D ratified

Daimler
- Zetsche maintains strategic leadership
- Bernhard retained on board as head of Mercedes Cars until 2018
- New car sales record in May, up 4% YoY
- Truck sales up 20% in Q1
- Long awaited introduction of 'conventional' A-class range
- New Citan small van allows entry against VW & PSA-FIAT Eurovans
- Smart brand to include scooters as of 2014
- Car2go / Europcar rental scheme spans 12 cities / 4000 vehicles

FIAT SpA (Chrysler)
- Marchionne continues as corporate lynch-pin & figurehead
- Cut in CapEx by E0.5bn to E7bn given European market compression
- Introduction of Serbian Kragujevac plant adds lower cost capacity
- Italian sales incentives include new petrol discount scheme
- EU sales down 17% Jan-May 2012
- Chrysler board expanded
- US sales for Chrylser up 30% from very low base in 13.4% market rise
- European R&D slows as US R&D maintained
- Annuity contract pension changes seen as uneccessary

Renault
- Carlos Ghosn cites “3-4 years stagnation” in Europe
- This negativity viewed as pressuring ministers to evoke state aid.
- Able to service Nissan with components during tsunami aftermath
- Star performer division Dacia cuts production to re-balance slower sales
- Renault badged (Dacia) Duster performs well in slowed Brazil
- EU sales down 19% Jan-May 2012

PSA
- Varin continues strategic efforts for major cost reduction and asset divestment
- Downsizing of 6000 posts by YE2012, Sevelnord plant & elsewhere
- Expected to dispose of 50% of GEFCO logistics subsiduary to PE consortium
(8 candidates emerged, 2-3 probably sharing the deal to preserve cash)
- China sales up approx 20% Ytd in May
- EU sales down 15% Jan-May 2012

Toyota
- $2.5bn bond issue announced to run between 2012-14
- Massive 87% YoY rise in US sales in May 2012
- NAFTA plants increase production by 64% Jan-May 2012
- Japan sales boosted by 125% (exc kei cars)

Honda
- President & CEO Takanobu Ito highlights share-holder value: to be seen
- NAFTA plants increase production by 67% Jan-May 2012
- Japan sales boosted by 48% (exc kei cars)
- Recall of Civic and other regulatory safety investigation in US

Hyundai
- Chairman Mong Koo Chung (holding 25% share-base) maintains solid control
- Worldwide sales up 8.1% in May YoY
- All new Sante Fe and Sonata models released helping model mix
- Doubling of production with Kibar Holding in Turkey
- Small car product recall in China, possibly used to cross-sell products / services
- S.Korean union calls to reduce flexible labour content (and so 'competence advantage').

[NB. European auto-execs meet this week under European Union supervision to discuss the possibility of a “factory-closure blueprint”; so as to discourage member states from offering incentives to protect local jobs at the cost of the broader efficiency of the Eurozone.

However, even as Marchionne (the idea's originator) cites, such an agreed outcome given the present conditions, looks unlikely.

Although it will be an opportunity for 'suffering' VMs (FIAT, PSA, Renault) to discuss JV projects. Additionally Brussels is also examining whether to introduce yet higher standards of CO2 emissions targets for new cars, a topic no doubt welcomed by FIAT & PSA]


Plotting VM Positions -

The accompanying chart provides a simplistic perspective of the respective positions of the global VMs vis a vis each other. The respective axis used are: the 'micro' of a company's price-earnings (P/E), and 'macro' which assimilates the general picture of that company's prime challenges / opportunities ('headwinds' vs 'tailwinds' with mid “transition zone” seperating the two). Though the P/E is a well recognised as an objective pseudo-scientific metric (and the 5x vs 10x demarkation has been mentioned), conversely, the assessment of exactly where a company sits in the macro picture depends upon a generalistic subjective summary, weighted by exposure to contracting, stable or expanding regional economies; and its competitive advantage / disadvantage therein.


Results -

Expectantly, the lower down the vertical P/E axis a firm sits the more enticing the value proposition appears for the investor, but this must be viewed against the 'real world' context.

Today that low price-earnings figures could be said to be either the outcome of innate pessimism regards a corporate turnaround, or the sign of cautious slow moving “viscous” market liquidity, or indeed a combine of both. Thus anything under 5x deserves close evaluation of operational health and prospects.

Those firms with higher P/E numbers between 5x & 10x presently tend to:

1. Have an intrinsic governmental 'safety-net' (ie too big to fail)
2. Comprise of anti-cyclical divisional-based business model
3. Historically demonstrated consistent value-creation

Contrastingly, the Japanese firms with (to western eyes) extreme P/E ratios above 20x or so are located in an ostensibly deflationary 'low-growth' homeland, which has experienced decades long 'pumped liquidity' programmes.

[NB This in turn has appeared to 'normalise' a Japanese firms valuation relative to the seemingly 'frothy' valuations of far newer high growth companies in China and across SE Asia. These notionally comparable valuations in turn assisting the book-building process behind ever ongoing M&A, cross-holding and JV process which has built modern industrial Asia].

Ironically, it may well be the massive differential between the 'poor' West and 'valuable' East that kick-starts the European revival in the mid-term future.

The chart and each respective corporate position speaks for itself.

Macro Level Trends - Re-Building Japan - Reading New Age Consumer Complexity

The earthquake, its resultant tsunami and consequential nuclear disaster shocked not only Japan but the world at large. TV pictures beamed around the world displayed a disorientated north-eastern region of the main island, yet unlike probable outcomes in other supposedly developed countries, chaos did not reign for even seemingly a moment, the idea of social anarchy and the notion of looting an anathema to the civic pride of Japan.

What we saw instead was devastation met by heroic levels of humanitarian concern and stoic spirit - a lesson to many of the world.

The flattening of villages and towns also economically flattened certain prefectures, and those close-by areas not so obviously physically effected had to mentally deflect the concern of nuclear fall-out 'cloud'. As recently reported, the outcome of that event ultimately changed Japan's government policy toward the use of nuclear energy for decades to come.

Whilst it was somewhat insensitive of economists to discuss the positive re-generative effects created by the re-building challenge, at this point in time these few months on, it is perhaps a useful exercise to try and gauge just how the Japanese consumer has been shaped by events with the arguable existence of a new national psychology that may either stall or propel the economic re-bound.

To us foreign outsiders, Japan seems an almost mystical place. Its culture so unique that a mystery prevails perhaps even more so if one has visited for a short while. Such uniqueness was of course created from a policy of isolation across much of the 2nd millennium AD from China after wars, and later international isolation through the 18th & first half of the 19th century. Then aware of the internal problems that had blighted China after trade and political dealings with the Dutch, French and British.

The often foreign-serviced opium dens of Shanghai and other coastal towns which had undermined the morality and productivity of the masses had managed to wriggled through the statute-book prohibitions. This and other concerns had been noted by Japan, such observation and experiences then affecting late 19th century relations with America and other 'new colonials'.

Hence, up until the turn of the 20th century Japan had stayed resolutely Japanese, unchanged in method of rule under the Emperor and his Ministers, in the method of social structure pertaining to familial and individuals roles and of course resolute in the traditional teachings, crafts and ceremonies, in the daily, monthly and annual time-frame, that maintained the 'Japanese Way'.

However, the 20th and 21st centuries have seen massive societal change, arriving more as revolutionary shifts (than perhaps the typical evolution the West understands) each generated by foreign influence. Most notably of course that of the USA through its economic might via 'hard' and 'soft' power, which spans everything from the MacArthur Plan to McDonalds. Critically Japan incurred greater social shifts than perhaps the likes of S.Korea or China in recent decades, given their faster yet intrinsically less socially complex re-shapings.

Very simplistically, investment-auto-motives believes those Japanese socio-economic shifts can be described as containing 7 distinct phases

until 1868: rural-based feudal system of tribal peoples led by Shogun leaders.
1855-8: Western influx through treaty signings with US, UK, Russia & France
1869 – 1912: revived imperialistic & expansionist policy using western technology to win wars against China and Russia
1912 – 1936: continuation of industrial modernisation era, licensing and adapting western-sourced technologies to create an indigenous heavy engineering spanning machine tools, plant, auto & aero.
1945 – 1980: post-WW2 economic ascent, combination of low cost base with increasingly sophisticated engineering & electronics hi-value capabilities for export & domestic consumption, so living standards raised, creation of conglomerate empires give 'job for life' stability.
1980 – 1992: economic peak, able to export to re-buoyed western nations, able to create high-priced lifestyle orientated products for domestic market, and heyday of advanced electronics.
1992 – 2011 early period seeks to satiate fantasy-driven consumption reflective of social ease, but global recession of 1990-1993 and Asian Tiger crash in 1998 hits hard, highlighting the major cost-base differential disadvantages Japan suffers. In answer, the national tech-advantage seen as its foundation-stone relative to the 1992 Kyoto Protocol. Domestic consumption initially targeted to retain Yen strength, this used for international (typically USA) M&A. The national R&D toward the 'bio-mechanics' & 'technology interfaces'. But Japan 'stuck' between the high costs of its domestic 'social obligation' and so a necessary international deflationary stance for over a decade. These disjoints still proving highly problematic to today.
2011: The Fukushima disaster in March appears to 're-set' the nation's psychological outlook, instigating an economic re-build “on 1945 scale” (though in reality not so), such social messages to relay the task in hand and the requisite 'social perspective and attitude re-alignment' necessary.

Whilst now the 3rd largest global economy, when in the previous 2nd place unlike the US it remained a manufacturing power-house having built its international reputation for vehicles, white goods and brown goods since the 1960s. But it has been far later than its international peers to 'off-shore' manufacturing activity that had been undertaken domestically. In the automotive arena, whilst Toyota created alliance JVs and later green-field trans-plant factories to gain ever greater market-share in the US in the 1980s & 90s – a model latterly replicated across the world - domestic manufacturing and its large chunks of the vertical and horizontal value-chains were seen as sacrosanct, and so effectively untouched.

This arguably value-destructive attitude resulted from the domestic industry's highly inter-connected conglomerate structure, which whilst providing a highly stable foundation for growth, self-reliance and workforce CSR over preceding decades, meant that since the late 1980s until mid 2000s it lacked the ability to effectively re-structure low and mid-value sections. The increasing costs at the lower end of the value-ladder borne by the higher tier divisions. The structure undoubtedly allowed for trusting working relationships to evolve which bore fruit in the manner of benchmark R&D planning and execution, aswell as most visibly world-class product quality levels which in turn drove demand; all to the good.

But it also created internal commercial conditions where investor capital was not being deployed in a wholly efficient manner, executives caught in an ever more pressured position between the demands of global capital markets wishing to see good ROI & ROE figures, and the sense of good corporate responsibility to its workers and the nation at large, a sentiment bred into the psyche of senior executives commanding Japan's largest companies.

In autos, perhaps the first to suffer in this manner was Nissan, its late 1990s demise necessitating the buy-in and guidance of Renault SA since 1999. That take-over was whilst in reality a welcome relief for Nissan shareholders and workforce, was also somewhat distasteful embarrassment for Japan, however it did provide a much needed 'wake-up' call for the likes of Toyota / Daihatsu, Honda, Suzuki and Subaru; Mazda already partially under the wing of Ford.

The holy-grail of the 'in-house' secure control of corporate R&D has been relaxed, at least regards the post concept engineering development project stage (ie post product approval by the BoD). So Japanese corporations have recognised the need to become less rigid in orchestrational manner, utilising the best available from outside. This seen by Toyota's relationship with Subaru in developing a new performance coupe.

The competitive pressures of global industry across many sectors has also seen Japan latterly 'off-shore' what had been the national obsession of domestic production for domestic consumption, an integral part of its hard-learned attitude of self-reliance. And whilst done to suit prevailing conditions, it cannot be assumed that this more flexible attitude toward Japan's 'industrial social security' will remain, the internal reaction to events such a Fukushima could see Japan once again 'pull-up the drawbridge'.

Thus whilst the 'Keiretsu' system has indeed been slowly dismantled, the philosophy that created it is still very much integral to the Japanese psyche, for it set within the context of the international playing field, under-pinned the creation of modern Japan. After all, it was that unity which prevailed even after the Post-WW2 MacArthur Plan sought to see the the old 'Zaibatsu' system – under the control of aristocratic old families – demolished. Those families seemingly well understood that sizable portions of Japan's industry would have otherwise been sold-off in favour of the interests of the Alliance powers that won the war.

It can be argued that Japan today may well once again look inward to sustain its future., presently feeling marginalised between the undermining economic might and coersive political expectations of the USA and China relative to foreign policy, aswell as the internal challenges of the Fukushima aftermath set within its long-term economic stagnancy (reporting -3.7% in Q1 2011 and continuation of 0% inflation and interest rates).

Having been so 'Trans-Pacific' over the last 50 years with powerful new discourse with EM regions – beyond China – and with Kyoto credence and advanced eco-technologies, Japan could possibly see itself in a new role, one of its own making, as opposed to playing as a co-partner to the geo-political and technology imperatives deigned by the US and China. Beyond keeping cordial relations with the super-powers, Japan may try to define itself as a more independent advanced technology provider to not only the West & China, but critically to EM nations, thus becoming a kind of eco-tech & human-tech provider to the world.

Having seen virtual 'ownership' of the capital markets by the US, and weary of a similar re-run by China, it may wish to leveraging its own IPR and industrial capabilities for itself, as opposed to having its scientific and technical advances quickly assimilated by others and commercially exploited.

The Toyota Prius and Honda Insight are examples of such a policy of 'soft-power' application, both VMs rightly pursuing the more tenable 'real-world' Hybrid solution, so as to be attractive to private, commercial and state consumers all over the globe, from Los Angeles to Chile's Los Alamos.

However for the most part, beyond the obvious car-makers' nameplates and the logos of eponymous IT hardware manufacturers, Japanese companies' identities are for the most part visibly nation-bound – unlike GM, American Express or Starbucks. The bank Nomura gained greater European visibility – temporarily in the news at least - when it acquired Lehman Bros' regional business, as did Mitsubishi UFJ (MUFG) with 20.1% purchase of Morgan Stanley. A consequence of Japan's export success with high-tech products, but misadventures with department-stores, fashion clothing, and indeed foodstuffs – the foreign trend for sushi over the last decade mostly created and served by US and European companies.

Indeed, it was surprising that Japan did not make more cultural headway when Sony bought the Hollywood film studio Columbia-Tristar in 1989 to form Sony Pictures Entertainment, and bought Columbia-CBS to form Sony Music; the all-American management and attitude left in place so as to not upset the 'golden geese'.

More recently, as a 'halfway house' as a part of its own identity stamping, Nissan's expansion of its up-scale Infiniti brand tries to coalesce Japanese product personality and culture, its marketing material in on-line and hard-copy formats centred upon the influence of historic Japanese artforms.

However, as seen, to date although there have been periodic 'cultural expansions', the marriage of Japanese commerce and cultural consumption has been unsurprisingly predominately with the Japanese consumer.

For B2C companies 'reading the consumer' and 'prompting the consumer' sits at the heart of success.

Hence from the late 1950s onward, the realm of marketing grew to include a myriad of new elements that better understood the market-base. Deconstructions to identify specific consumer groups expanding from the initial idiom of age and ABC class demographics, toward the personal psychologies of current & potential users. Research now spans demographic, product/service usage and psychographic areas, and the use of 'customer clinics' watched behind one-way glass and 'vox-pop' user diaries common-place.

But the GenX, GenY and 'New Millenials' have grown-up in the marketing age and are typically very tuned-in to the methods and manners used by corporations, especially regards advertising and marketing, so have grown increasingly disenchanted, disenfranchised and disagreeable. In answer we see the evolution of TV advertising in the UK which both goes 'back to basics' providing either a parody of 'sexy' adverts to then give a simple message (Tesco), uses simple humour (VW) or provides 'knowing humour' to highlight their understanding of their clients' dissatisfaction with manipulative tactics (DirectLine).

Whilst the UK, US and Europe obviously have their own marketing cultures, perhaps nowhere has been as commercially bombarded as Japan, itself the foremost information-driven society (with S.Korea close behind). It has been formed by a virtual 'informational pressure-pot' within a competitive environment, first experienced when young, at school, through educational career and later the corporate career. Until recently the Japanese 'salary-man' (& woman) in major cities read 3 daily newspapers – morning, afternoon and evening – a sign of the relentless pace of daily change. That informational pace seen clearly in 'above-the-line'' but especially in 'below-the -line' advertising, newspaper and magazine pages crammed with colourful (supposedly) eye-catching words and phrases.

In reaction to this oversell, especially Japan's ongoing stagnant era, the younger generation has become increasingly dis-illusioned with 'being sold to', and instead have in ever greater numbers sought their own less commercially sourced identities, creating individualistically created counter-cultures which themselves become the basis of a new trend and so commercially served. The apotheosis of this almost a decade ago was the creation of those no-name shops that would 'pop-up' and then just as quickly disappear.

Having watched youth fascination with western culture, girls reconstructing the Audrey Hepburn look, and boys reconstructing the Elvis Presley look, in the late 1990s Toyota and its multi-sector strategic partners tried to engage the Japanese youth with its WiLL brand.

Created as a singular lifestyle identifier targeted at the 15-35 year old age-range, so spanning differing disposable incomes. All WiLL products could be accessed immediately by the 30-something with high disposable income, or built-up year after year by the 15 year old. That 15 year old could immediately purchase a WiLL deodorant and other small items, but later when moving through life-stages could purchase the WiLL refrigerator (akin to the iconic SMEG) and as a couple purchases the WiLL car (itself supposedly inspired by Cinderella's carriage reflecting the couple's romance),

The exercise, whilst not wholly unsuccessful, and improved units sales for all participants, did not create the unitary tribal identity sought, nor the new 'commercial hold' over next generation consumers ultimately wanted.

The mind of the Japanese youth (or at least the 'fashionista intelligentsia' that leads youth trends), for all its impression of child-like naivety with a penchant for Disney characters, anime, manga picture novels, virtual pets and fluorescent rag-doll dresses, was not going to be so easily and overtly 'sold'.

[NB In direct contrast, compare WiLL to the later seemingly comparable cross-sector branding exercise undertaken in China. Here, the social messaging website QQ and automaker Chery created a co-lensing deal, 'QQ' used as a model name for its small car, itself a copy of the Daewoo Matiz. (This a good example of what investment-auto-motives calls “Matrix Manufactoring”©). Importantly, this wholly fabricated exercise was knowingly directed at a far less sophisticated youth consumer market, one 'pent-up' with aspiration in an economically strong environment, unlike the Japanese effort directed at a satiated and arguably near exasperated sophisticated target market].

The Japanese 'problem' then for some years has been the bad marriage of economic stagnancy so undermining consumer confidence, a psychologically mature consumer-base across the age range, and products which having surpassed basic quality expectations some years ago must be increasingly sold relative to the less tangible aspects of their personality and social association. Creating that critical human connection has been the focus of corporations from over a decade, instilling products with ever greater 'Shinto' (soul), the realms of IT and emotionally derived human interface designs examples of this seen annually at the Tokyo Motor Show.

The Japanese consumer, especially the savvy young, then appears somewhat oxymoronic, a veneer of the 'kidult' yet insightful of sophisticated marketing ploys.

That “Matrix Manufactoring” has been played out time after time, so no surprise then that younger members of Japanese society both at home and whilst abroad have become jaded by obvious commercialism, and though still cling to designer European brands if they have the means, many have sought instead to re-invent their personal worlds of dress, language, general consumption patterns and 'being', often closer in appearance to an on-screen game-play character or personal avatar than the standard 'clone-like' human.

That modern raconteur and globe-trotter Tyler Brûlé (who himself evokes an almost cartoon-esque image of the man-about-town) conveyed a good snapshot of Japanese tribal dress in his FT Weekend column. His May holiday observations were that domestic fashions were becoming more utilitarian, the stylistic 'uniforms' being displayed as he described them seemed to draw greater inspirational bias from the outfits worn by predecessors from the agricultural fields and early industries of a century ago.

Whilst this could be a mimicking of the UK's recent youth interest in 1940's Austerity Fashion reflecting the recession (itself generating a reaction of far more upmarket Lawn Tennis. Boating & Golfing Edwardian dress) the sharp difference between West and East was that the British re-interpretation was more of an affectation, whilst the Japanese take (as described) is a more modest, less-affected simplicity. As such possibly far closer to Japan's social history, with thus with greater meaning as a mirror for the current zeitgeist.

As Brûlé highlights, there are commercial concerns from analysts and socio-economic observers about what direction the Japanese consumer takes next, given the additional social 'weight' the Fukushima disaster place upon the social consciousness.

After the 50 year rule of the more conservative Liberal Democratic Party, the (ironically more socially liberal) Democratic Party of Japan took office in 2009, led initially by Yukio Hatoyama and since 2010 by Naoto Kan, the men as youthful leaders seen to be more in step with modern times and global outlook than previous older generation. The cabinet then have the task of re-vitalising Japan on the home-front, an achievement that has been a long time coming, though Fukushima adds a very powerful new dimension.

So as foreign observers wait & watch to view the fortunes of the imported luxury goods market (ie German cars, Italian clothing, French accessories & grooming) so Kan and colleagues must try and orchestrate a lift in the domestic economy. As is obvious, these two actions have corollaries, given that Ministers would rather see local consumption of luxury goods directed at Japanese made items rather than foreign goods which negatively effects the Balance of Payments, something which has become increasingly sensitive because Japan historically ran a soundly surplus BoP account.

The Bank of Japan presently reports that as of Q4 2010-end, the country ran a gross national debt position of ¥211,555bn, this the highest since Q1 2008 in the aftermath of the Triad financial crisis when ¥211,015bn. Critically at that time Inter-company Investment Lending sat at ¥3,417bn whilst in Q4 2010 it sat lower at ¥3,085bn. Also to be noted is the near parallel lending levels in these two periods to Public Sector and General Government in a ¥68,020bn to ¥68,099bn range, showing the desire to maintain a constant, effectively deflationary, control of public spending.

Thus whilst the BoJ obviously acts in the capacity of a notional Central Bank – as seen by its maintaining 0% rates - and clearly not in the role of a national investment bank, the large difference between public sector expenditure and inter-company investment lending is noticeable.

[NB That illustrated 11 quarter time-line, also shows that Japan has sought to maximise its use of the low interest levels available on spot-rate international markets, and so has extended it short-term exposure whilst contracting its long-term].

Yet the question that still stands like the proverbial elephant in the room is how to get the economy moving again, beyond the reconstruction projects in and around the North East.

It has been a long-time public ambition by the state to regenerate domestic private spending, even if privately the BoJ hopes it not too great given the deflationary trend-line Japan still needs to maintain.

Of greatest hope are the large sums of savings that the older generation have secured as what they see as a necessary cash-cushion during these insecure times. The old theme is that these Japanese housewives by virtue of their number and level of savings were central to the foundations of the Yen carry-trade by foreign investors using borrowed no/low interest Yen to invest in other currencies and EM markets. The National Treasury believed that this money which had been either locked into nil-interest bearing savings accounts or 'stuffed under the mattress' by a concerned public, could be put to better use by spending on high-value goods made by Japanese factories.

This impetus was part of Toyota's decision to introduce its Lexus brand into Japan in 2005, some 16 years after its birth and international success story. Interestingly, America's firm import favourite - the Lexus LS400 and siblings - had never been badged as Lexus on home ground, the upscale models used to defend the standing of Toyota's own label on home turf. But the action was taken to both stop defection by Toyota loyalists to Mercedes, BMW, Audi & Range-Rover aswell as to try and attract those domestic consumers that had to date been loyal to the German car-makers. It is believed that the move did indeed stop defection and attracted others, but to what exact degree is not known, more a case of general sector discussion and hearsay. But it is unquestionable that the introduction of the smaller Lexus vehicles, its lead in Hybrid propulsion, and the marriage of these two elements in cars such as the Prius based CT200h has played a role in maintaining Toyota's standing domestically.

In the bigger context, this then could be viewed as part of Japan's own effort to highlight its credibility as a luxury brand and goods provider to its own people.

But the greatest dilemma Japan faces is how it can exploit the obvious creative and increasingly individualistic talents its young people demonstrate whilst simultaneously convincing the economically astute 50 & 60-somethings to part with their savings. However, the older generation infact looks upon today's youth as the spoilt generation living in what seems an ongoing childhood supported by family and state typically into their 30s; so a world-away from their own hard-working, self-denying past that helped build Japan.

The Fukushima aftermath will undoubtedly close the generation gap in the North East where old and young can be part of the re-build in one form or another. Yet the generational chasm that exists throughout the rest of the country and especially so in major cities is the one that attention must be drawn to.

The Japanese government must ironically educate the grey generation as to how its underlings are both very different to themselves yet simultaneously far more fluent in the realities of consume culture and re-inventing it for their own use, aswell as that of their peers and even foreign consumers via a new generation of Japanese luxury brands that have global meaning.

Whilst new bridges are physically build in the Fukushima region, new sociological bridges must be created between old and young across the country, from Hokkaido island in the North to the reaches of Kagoshima on the south island.

That is perhaps the central pillar of Japan's additional economic re-build task.


Post Script

A very brief part PESTEL view provides additional insight of Japan:

Political
It was only in the post-WW2 era that constitutional change devolved power from Emperor and his Advisors to the newly created Diet government. Though infact old 'fuedal' Japan was far more collaborative than generally understood, given that the Emperor's lofty standing as a diety (human god) meant that he typically ratified policy decisions already concluded by his court.

Economic
Having moved from a rural-based economy to that of a hi-tech one, the country (in western terms) morphed from an 18th century condition to that of a 21st century persona within a period of 70 years. Such change and growth primarily created by ever higher value manufactured goods and electronics leadership. But this stalled in the early/mid 1990s as a consequence of national 'over-inflation', becoming essentially economically and competitively dislocated from new Asian challengers such as S.Korea, Malaysia, Taiwan etc. The innate over-inflation of the cost-base and value-base created by wage-rate spiralling, parallel cost of living increases, the weakening of foreign currencies whilst the Yen comparatively sored, and perhaps most visible the bubble in Tokyo property prices. These and the whole nation have since the late 1990s been in a process of de-leveraging; trying to continually re-balance the innate cost gap between itself and the world, initially the West, then ASEAN, now China and up-coming N11 (Next 11) EMs.

Social – the once prevelant wholly 'community' directed mentality which stemmed from village life and then transferred into conglomerate corporate life has increasingly wained as family, social and corporate fractures grew, thus instilling a more individualistic attitude amongst the more 'dislocated' young. This also undermined the previously innate deference between young and old. Additionally the necessary deflationary environment and increase in IT-based jobs encouraged greater participation of the female workforce, so changing the systemic roles of both sexes and thus the framework of society.

Corporates
The following provide a list of recognised Japanese company names to non-Japanese eyes, though these reflect a large proportion of the national GDP output, they only reflect about 20% of the nation's large but effectively unknown corporate names:

Automotive -
Toyota, Toyota Boshuko, Toyota Industry, Honda, Mazda, MazdaSpeed, Nissan, Nagisa Auto, Isuzu, Ralliart, Suzuki, Subaru, Yamaha, Yamaha Motor, Denso, Bridgestone, Autobacs, NGK, Kabuta, Yanmar,

Consumer & Industrial Electronics -
Sony, Matsushita-Panasonic, Brother, Canon, Casio, Hitachi, JVC Kenwood, Konoca Minolta, Makita, Mitsubishi Electric, Mitsui, NEC, Nikon, Nintendo, Olympus, Pentax, Pentel, Pioneer, Sanyo, Sega, Sharp, Sony / Sony Music, Toshiba,

Large Scale Engineering -
Fuji Heavy Industry, Fujitsu, Kawasaki Heavy Industry, Mitsubishi Heavy Industry, Nippon Steel, NSK, Sumitomo Group

Retail -
Mitsukoshi

Food & Beverage -
Sapporo Beer, Asahi Beer, Kirin Beer.

Finance -
Bank of Tokyo Mitsubishi UFJ, Daiwa Securities, Nomura Holdings,

The large Japanese conglomerates which still hold influential control are:

Keiretsu -
Mitsubishi:
(Mitsubishi [Motor, HI, Electric], Kirin Brewery, Nippon Yusen Shipping, etc)
Mitsui:
(Sony Corp, Toshiba, Japan Steel, Fuji Photo, Nippon Flour Mills, etc)
Sumitomo:
(Mazda, NEC, Asahi Breweries, Hanshin & other Railways, etc)
Fuyo:
(Nissan, Yamaha, Canon, Ricoh, Asahi Kasei Chemical, Tobu Railway, Matsua Retail)
Dai-Ichi Kangyo:
(Isuzu, Kawasaki, Fujitsu, Hitachi, TEPco, Showa Shell, Japan Metals)
Sanwa:
(Suntory Foods, Hankyu & Keisei Railways, Kobe Steel, Cosmo Oil, Hitachi, Ube Ind)
Tokai:
(Toyota, Suzuki, Daido Steel, Ricoh Machinary, IK Petroleum etc)
IBJ:
(Fuji HI [Subaru Cars], Riken Machinery, Nippon Soda Chemicals etc)