The last web-log looked at how a long established but little known private African company sought to extract value by matching its competence in van fabrication with the very real 'workaday' needs of its nation.
This investigation looks at a specific sector of the of UK auto-industry, similarly inhabited by a plethora of private companies, yet one reliant on a similar assembly production skill-set - though with more exacting standards – directed at the camper-van and motor-home 'leisure' market.
Thus whilst focused on technically similar products – converted vans and specialist body built chassis cabs - the 'erratic vs stable' developmental experience of the companies' very different continents and country's over the last 50 years fostered very different commercial market ends.
[NB though it must be remembered that the previously mentioned KVM does indeed provide safari / tour / camping vehicle solutions as commissioned].
However, within Britain, the previous general upward trajectory that lasted those 50 years with periodic lulls, is now well recognised as the last portion of a western dominated golden-age in global trade, an era which has now come to an abrupt end. Whilst Britain is far better placed than many of its European neighbours from a Debt:GDP perspective, it does not have the liquidity fire-power that the US can muster nor its geo-political strength, as recently seen by US visits to the Pacific Rim.
Thus whilst on the right fiscal constraint path to engender mid-term balancing of national budgets, realistically the growth element so desperately sought and discussed here and now, is still some time away. Britain has a very tough upward economic battle and new growth 'green shoots' can only be expected to 'take' and prosper in the right fiscal, regulatory and societal climate...a climate not yet arrived.
Yet there is an obvious imperative that the efforts undertaken by which to stimulate tomorrow's growth should be crafted in the near-term.
To assist this end, investment-auto-motives reviews the UK motor-caravan sector from 3 perspectives, to be relayed over the following weeks.
Part 1 – Social Dynamic: affects the marketplace.
Part 2 – Sector Participants: must assess the terrain and 'visioneer'.
Part 3 – Eco-Tech Transfer: from fringe to mainstream habitation.
In its own 'below the radar' manner the UK's motor-camping sector may be able to provide a relatively small but important contribution to that growth, acting on a local and regional level firm by firm, but also at a national level across various synergistic industrial sectors. investment-auto-motives views this segment as perhaps having the capability - acting in concert with many others - to operate as a small but useful 'economic starter-motor' which in turn assists a re-modelled 'national economic engine' which itself adopts 'eco-tech' learning for broader application from the motor-caravan sector itself; the sector in turn a funnel for best practice acquired from foreign leaders in 'green-tech'.
The following then is a very general overview of the British camper-van & motor-home sector, part of the far broader 'leisure camping' industry.
Motor-Camping in Context -
Whilst investment-auto-motives believes that it is the arena of motor-camping that can serve as a fundamental catalyst toward a revitalised eco-tech orientated future, it must be recognised as one aspect of a muti-dimensional arena.
Today camping per se spans from the very low priced to very expensive.
Ranging across: pseudo-disposable two-man tents directed at music festivals through lightweight walking & cycle-touring dedicated equipment; motor-bike tour items; the towed trailer-caravan segment covering tiny 'aero-pods' for small hatchback cars right up to large 5th wheel trailers for heavy duty pick-up trucks; typically large static-site caravans; chalets of varying standards and the more recent introduction of 'glamping' – a portmanteu of 'glamourous camping' - which encompasses luxuriously appointed themed tents, from Red-Indian Tepee to African Safari to Bedouin tents
Dramatic Growth of Camping -
Statistics gathered by the Office for National Statistics show that in 2009 a total of 5.43 million
camping trips, an massive increase of 29% compared to the previous year. It appears a watershed year since this number the overtook official recordings of B&B (Bed and Breakfast) stays in conventional buildings which itself attracted 4.98 million stays.
[NB however, it should be noted that the propensity for campers to undertake more trips through the year is generally greater than for those who use B&B accommodation. It should also be recognised that because that because the B&B is often the lower cost option for business trips (especially touring groups such blue-collar manual labourers) this may muddy the official statistics].
The ONS stated that in 2010 holiday visits abroad decreased by 12 per cent to 36.9 million compared to 2009, highlighting a trend for low cost nation-based holidays (ie camping) and for post financial crisis 'staycations'. So a definite expectation that couples and families had philosophically migrated to the homeland outdoors alternative.
The Middle-Class Rallye -
During mid 2010 the Telegraph newspaper reported a survey of 2,000 professionals from the AB1 socio-economic group, which discovered that over half were considering a camping trip that year, using their domestic bedding and travel technology like iPod docking stations.
The department store John Lewis noted the same year that wedding-list requests for camping equipment had increased by 44%.
This 'outdoorsy and stoic' British attitude bolstered and engrained by the now ubiqitous appearances of the 'Keep Calm & Carry On' sign on everything from mugs to T-shirts, providing a new sense of pseudo-defiant and semi-pioneering community...nicely complemented and balanced by the 'mix and match' opportunities afforded by the Kath Kidson range of countryside flora inspired goodies.
When the economy becomes tough, for the British middle classes the pragmatic meets the poetic. That sense of romanticism increasingly focused upon a recently grown consciousness for 'regionalism' and 'authenticity', harking back to a previous age of the rural idyll, exemplified by the popularity of local produce, farmers' markets, organic food, and arts and crafts – a less travelled idealised route toward William Morris rather than the much travelled one to Morrissons supermarket; even if that be the reality when stocking up for Cumbria or the Dales.
Even if presented in such a hyper-real manner, such outdoor activity allows the parents of 'molly-coddled', 'cotton-wool wrapped' 21st century children, to become albeit for a short but important time notionally re-connected with nature
For many of the 20-something set the activity is a natural extension to their lifestyle juxtaposition of summer music festival and travel-bound low budget gap years, cemented by and weight of accrued educational and travelling debt
A Clash of Holiday Cultures -
So whilst the conventional package holiday for families, couples and singles is far from dead and buried, this trend toward self-sufficiency and budget consciousness looks to perhaps become even higher up the leisure agenda thanks to the corporate and share-price suffering of the holiday firm Thomas Cook which demonstrating the financial woes of a contraction in general UK-outbound international travel and over-exuberance during its ravenous M&A period. It may or may not be “too big to fail”, all dependent upon re-financing methods, but for a new generation (ironically of all ages) that seeks partly packaged self-discovery culture imbued travel over the heavily faded 'attractions' of the Meditteranean, the watershed at Thomas Cook might be said to reflect a much re-orientated expectation of summer holidays themselves.
The 'back to nature' zeitgeist continues with an expected record attendance at the National Caravan, Motorhome and Camping Show to be held at London's EXCEL centre in February 2012
Of course, much of this new era is to be experienced under canvas, reminiscent of Scouting and Girl-Guides, and intentionally in dynamic contrast to the 1970s style experience for many of static caravans or chalets. But to avoid the worst of the weather there is a growing popularity for the motorised alternative.
Car-hitched caravanning has undoubtedly seen a remarkable re-emergence through the 2000s thanks to an ageing yet relatively wealthy grey-population who seek greater convenience and comfort from the car-caravan formula and don't care about the supposed 'caravan stigma'.
Focus on Motor-Camping -
But there has perhaps been a possibly greater upturn in demand and use of the smaller class of motor-caravans – ie camper-vans as opposed to motor-homes – by a younger demographic with shallower pockets; more cost effective and arguably for much of the year a more functional alternative to the car & caravan; given its innate self-propulsion, passenger car utility and van-like attributes throughout the holiday period, and if owned, throughout the full year.
A Renewed Camper-Van Culture
The re-emergence of camper-van is of course a cultural phenomenon much driven by the media and popular culture portrayal. The massive re-popularisation of the iconic VW camper (the Type 2) in original Split-Screen and later Bay Window guises comes from a merging of the previous retro-chic (as seen with New Beetle, New Mini & New Cinquecento) and the emergent hippy-esque counter-culture in reaction to suffocating corporatisation and 'packaged label-led lifestyles'.
But that rejection – or at least weekend and holiday period rejection – of the conventional by ironically employees of big corporates and authorities, is not just amongst the 20-somethings. Today's 30-somethings are not quite 'xerox' breed replicants of the '30-something' generation as depicted by the 1987-91 US television series of the same name.
Twenty years on things are different, even for 40-somethings. Though not wholly unlike that 'yuppy' era in terms of aspiration – an ever present human trait – today there appears greater attitudinal and lifestyle balance.
This reflected in the way that a 45 year old father might wear the same T-shirt, baggy ¾ length shorts and footwear as his wife, 7 year old son and indeed 5 year old daughter. Today the dynamic of many young families is that of extended youth for the parents and integration into that youth for the children, with an onus on a healthy pursuits lifestyle where gym membership has been replaced or complimented by the use of the functional family MPV, SUV or sporting estate car to enable weekend cycling trips and school-holiday camping trips.
Thus even with the supposed demise of the motherly school-run MPV, the 'FUNctional' vehicle in its many shapes is still very much with us, necessarily so as home owners once again re-discover their practical nature, having to recall what their dads taught them, and using the family vehicle for DIY materials haulage and trips to the recycling centre.
“Practicality” and “Regionalism” have become the contemporary watchwords.
Leading the Philosophical Convoy -
Unsurprisingly the near fetishistic world of TV food, and its conveying lens, reflects much of this. Herein for years the British public has grown-up with an enthusiastic, seemingly class-defying and multi-culturally inclusive national champion in the form of a now not quite so young, family man: Jamie Oliver.
His own televisual travels highlight the transcendence. Previously zooming around London on his scooter, then touring Southern Europe in his immaculate, expensive and much desired Split-Screen VW Kombi; but more recently whilst reviewing the foreign influence on British cuisine, doing so in an ex-army Bedford TK/MK truck, converted to house a wooden 'pub/kitchen'. The well known 1960s aspirational VW bus then replaced by a now little known odd-ball truck, reminiscent of a motorised old style Gypsy Caravan or the New Age Travellers of the early 1980s. Yet in its manufactured self a twist on the merged “Keep Calm...Kath Kidson” formula.
[NB the programme shows Jamie driving the large truck, but also a Land Rover Defender in certain scenes, thus beyond usual product placement by Land Rover, investment-auto-motives suspects that there is a possibility that TATA, the India conglomerate and maker of trucks and owner of Land Rover, may be seeking to co-align future truck imports / assembly in the UK, and so use the beneficial cross-relate to Land Rover vehicles]
A Convoy Derived from 'Glocalisation' -
The euphemistic term 'Glocalisation' has perhaps been over applied and misused in recent times, but undoubtedly reflects the backdrop to the emergent middle class 'eco-convoy' centred around camping.
Globalisation was emphatically the trend across the late 1990s and the 2000s decade, where West met East by way of not only a new round of western brand expansion across the globe, but for many 'Generation X & Yers' and the new 'Gen 21' general travel has become part of the life expectation. Those hoards of Backpackers themselves still seek new sights, but their own ageing into familydom and the constraints of the economic macro-reality indicates that such travel will be less 'global roaming' and more 'regional discovery'.
And of course, here in the UK much of the European discovery to be had was actually undertaken by young and not so young Australians and South Africans. And it was their own backgrounds of 'outdoors' living and camping that enabled them to embrace tent and van living when travelling across Europe.
New Market Entrants -
To serve that social shift new Van Rental business models were either created of imported, so expanding the UK market beyond the former more expensive, up-scale and older boundaries. The UK arrival of Australia & New Zealand's 'Wicked Campers' allowed ANZACs and now Brits to trek across the UK and Europe, the firm offering anything from a weekend package to a 3 month Van-Tour package.
[NB However, it seems that the firm advertises its campers as 'cars' since not only are many passenger car derived (ie MPVs) but done so to circumnavigate (gas and electricity use) safety laws]
Furthermore, others entered the sector using the classic VW camper as prime attraction, though typically in a smaller way, from the renting-out of a small fleet by enterprises like Devon Cool Campers or home-owned classic (less expensive) Bay-Window VW camper-van such as Hippy-Campers – a tactic also adopted by some established caravan dealers. Others modified other van and vehicle types into campers even if some realistically are not wholly fit for purpose.
It was clear then, that the traditional up-scale professionally converted and thus generally expensive camper-van and motor-home sector had been joined by – though not directly attacked – by a very different species of product.
The Japanese Experience -
Since the 2008 financial crisis and recognition that the future for the West looks far more economically subdued – at last recognised by as 'the new norm' – economists have almost delighted in the ability to apply parallel case studies from elsewhere; none more prosaic that Japan's 'lost decade'. This the obvious parallel given Japan's advanced country status meant that it was the vanguard of what has come to pass, and its painful ongoing process of cost-base devaluation
The cost-cutting constraints imposed on Japanese corporations so as to remain competitive came into lay in the mid 1990s, and of course impacted employee stability. The tale of redundant salary men (though less so women) has been told in Japanese film since. Less cinematic, but far more interesting have been the real-life social and consumer dynamic that took place as part of that process. Japanese growth over the 1980s saw a consumer boom in sales of smaller 4x4s and MPV's many of which were given mini RV (Recreational Vehicle) personalities. Nissan Prarie, Mitsubishi Space Wagon were of this ilk, later joined by special variants of Toyota Previa and Nissan Serena
Ironically though given the propensity to work by salary-men and take little holiday time, these vehicles sat outside homes, offices and shopping malls. Holidays that were taken were typically a flight away to a different part of Japan or to a foreign shore. The downturn ironically brought the RVs into being. Holidays by worried staff and management became far more regional, using the RV-car as the 'living pod', often parked in hotel car-parks so that the hotel's leisure facilities could be used on a pay-for day basis.
Corporate and independent hotel owners of course were partly angered given that rooms were left empty whilst singles, couples and sometimes families 'lived' in the car park, but they did offer a much needed trickle of an income stream which often was not turned down, both for financial reasons and indeed for humanitarian ones, since hotel management and staff knew that they could be themselves soon in a similar marginalised position, whilst corporate owners felt obliged not to turn their backs on their fellow Japanese countryman, and so instead turn a blind-eye.
Of course parallels are rarely 100% truisms, and general western society and the aligned corporate mentality is far more fragmented than the Japanese case, so a direct correlate and expectation cannot be drawn or expected.
However, Japan's long and drawn out technical recession markedly changed a previously heavily engrained attitude and behaviour, by which low-cost camping across city, suburban and usual rural areas became a necessary outcome. That in turn generated a true need for innate functionality from what had been stylised almost falsely functional products, and indeed it seems created new business opportunities in serving these new low-cost consumer groups, very much akin to the 'street-food' trend seen by van vendors in the USA.
So, we see that Japan's much changed conditions, now partly reflected in the UK, altered the basic dynamic of society and its leisure-time activities.
Back to Britain -
As part of the economic re-orientation drive to make the UK less reliant on services (esp financial) and more so materially productive sectors, television and general media have over the last few years spawned a subtle 'nationalistic' agenda. The visible 'book-ends' of this push have been the more serious 'Made in Britain' short series and book presented by Evan Davis and covering 'high-value' industries, contrasting by the more humourous 'Ade in Britain' presented by 'Ade' Edmondson spanning the local foods and traditions of various counties.
Such programmes then help to notionally 'nudge' the mindset of the populace, but far more meaningful and intelligent efforts must be undertaken by a more meaningfully merged mindset of British industry, British financing and International financing.
Yet as the FT has recently explained, whilst the financial institutions and intermediaries of cash-rich foreign countries appear happy to invest sums toward primarily large infrastructure projects with long run, low yield but steady 'utility' type payback schedules, Britain's own financing houses face the far more difficult task of understanding the current dynamic an the more nuanced challenges and opportunities therein.
The Challenge Ahead -
Thus all industrial sectors should perhaps better describe the contextual situation which they face. And the motor-caravan sector should do likewise. This especially the case given the 'boom and bust' experiences endured. These swings have many companies – especially those family owned - understandably and rightly cautious of expansion indebtedness. So although there is a natural onus on all to appreciate the market and commercial terrain, the greater responsibility may lie with those firms that have taken on private equity interests in their private shareholder structure.
Here then for family-firm and PE backed companies, learning from the aforementioned 'Japanese Experience' would prove useful. Whilst the economists spout about macro-economic case studies and fiscal policy-setting learning, it is left to industry's active participants to dissect the reality.
To Follow -
The next instalment Part 2 provides a basic overview of the motor-camping sector's primary manufacturing players.
These ranging from old established family run firms happy to continue in their own carved niche generation on generation, to conglomerate holding companies that recognise the need for the scale-up / cost-down imperative so as to grow margins and feed investment into the sector, and lastly but far from least, the entrepreneurial 'agitators' who wish to progress product and professionalism standards so as to create a new heyday for motor-camping.
Whilst Part 3 looks to how the sector could act as an eco-tech bridge between the fringe habitation of camping and the everyday world of conventional house-dwelling; an issue very much back at the top of the governmental agenda given the protected funds now made available to kick-start housing.
It shows how the UK's motor-camping sector must be re-invigorated, so as to embrace more leading edge technology where available, recognising how 'new-tech' transformed the sector in other countries and made globally renowned brands in doing so. All to demonstrate that the necessarily energy-efficient world of motor-camping can both grow its own gravitas and standing amongst the public, and in doing so grow the health of what should be a critical corner of UK industry, which can have a far broader, transformative affect across the nation.
Showing posts with label UK industrial policy. Show all posts
Showing posts with label UK industrial policy. Show all posts
Saturday, 26 November 2011
Saturday, 26 March 2011
Macro Level Trends - UK Manufacturing – GM & Renault Assist the Mid-term Economic Outlook.
This week saw the UK's new Budget spelled-out to the nation, the unsurprising theme of which is ongoing effort to cut the country's total debt level by 2015, not just by half, with a necessary re-structuring of Health & Education, and 'platforms for growth' said to primarily consist of SME assistance and the re-creation of Enterprise Zones.
These philosophically supersede the Regional Development Zones created under the previous government, yet now with a manufacturing bias as compared to the previous aspiration for nation-wide paper-less offices devoted to start-ups, but led to thousands of square meters of new office-space standing dormant, often in areas in which high-value entrepreneurial ism was an anathema, given the social realities Then the money flowed from government coffers whilst teams regional bureaucrats created overtly over-ambitious – ultimately empty - ideas for transforming run-down, post-industrial towns into the local silicon valley. As such, office construction work temporarily assisted the local economy, but a failure to 'snow-ball' the new small business ideology left a series steel & glass 'white elephants' standing on the edges of flailing towns.
So, today the Tory focus is back on manufacturing and the creation of tangible goods and services for domestic and export consumption. The previous creation of Economic Zones led to the attraction of FDI, the then contracting UK auto-sector seeing the likes of Nissan set-up green-field manufacturing in Sunderland, Honda in Wiltshire and Toyota in Derbyshire and latterly of its own accord BMW investing in the historic Oxford plant. But perhaps the most memorable case-study of the FDI good was the creation of the Hitachi television factory in South Wales that was hailed as a savior until its Asian re-location years later in 2001. Similar Sony and Panasonic plants were built but unfortunately shuttered after the Asian Tiger Crash. However, this month a different division of Hitachi announced opening of a £90m train production plant in Newton Aycliffe, Durham, which will build locomotives and rolling-stock that serves the N.E – London route, and the London – S.Wales route.
When it comes to world-class manufacture of high-value consumer goods the need for FDI – indeed arguably a reliance upon it – is crucial to the British economy. To this end the UK must once again demonstrate itself to the Japanese, S.Koreans and Chinese manufacturers, automotive and otherwise, from Japan's Big 3 and its others, to Hyundai-Kia to SAIC et al.
Beyond buying MG Cars' including the production plant in Longbridge, Birmingham, SAIC also has relations with 'China Ventures' which bought the assets of LDV Vans after its fall into administration. China Ventures partnered with Malaysian Weststar-LDV for a 'lift and shift' of tooling so as to serve the Asian van market, however simultaneously an announcement was made that a new company called 'Eco Concept Ltd' would create a low-volume light commercial vehicle in the Midlands. Yet, thus far little progression appears to have been made, the Longbridge plant once cited as a production base for 'old' MGTF having to wait for the engineering of a replacement car, whilst the trial production of the 'eco van' also at Longbridge is due now. The unfortunate inference is that China could be stalling with false promises, its ultimate intention to use Longbridge as a beach-head for the importation of Chinese made MG branded cars and otherwise branded vans. Reading between the lines, a possible business model would be the importation of basic low-cost Sino-Malay vans which are internally and externally modified in Longbridge for specialist customer demands, the company then able to under-cut present specialist van builders whilst also gaining large profit margins.
Thus in stark contrast to the rhetoric and 'real politik' of such promises, the UK must also look to leveraging manufacturing – large and small – which is 'live' (ie ongoing) or 'confirmed'.
On the global stage of automotive manufacturing GM Luton in the county of Bedfordshire here in the UK is relatively “small-fry”. Size-wise, from a production capacity viewpoint, at only approximately 70k units per year it hardly compares with the likes of VW's Wolfsberg plant in Germany at 500k units, let alone Hyundai's Ulsan plant in S.Korea at 1.9m units. Nor does it offer the touristic 'brand experience' seen at Wolfsberg's 'Autostadt', nor the national GDP contribution of Ulsan.
But this would be to compare Chalk and Cheese. Luton operates a no-nonsense focus on co-developed van production at what are realistically the auto-manufacturing margins, whilst Wolfsberg's & Ulsan's roles are as each respective country's innate socio-industrial heartlands.
GM Luton then is a very different industrial beast, in comparative terms somewhat niche and on the industrial fringe. One which unlike its super-sized Korean and German counterparts, GM executives argue as being well beyond its manufacturing heyday; when it served as GM's counterpart to Ford's Dagenham. (Dagenham ceased what was uneconomic whole vehicle production long ago). GM UK passenger car production has been re-location of car manufacturing to Ellesmere Port, Merseyside in the 1960s which meant that Luton was centred on commercial vehicles alone, experiencing a decrease of UK market share from the early 1980s onward and forced into product-line rationalisation, the adoption and 'badge-engineering' of other VMs vans, and the home-grown generation of smaller car-derived vans that acted as portfolio plugs which maximised cross divisional synergies.
Yet whilst Vauxhall (as Isuzu partnered IBC) was able to previously conquer UK competitor LDV it could not dislodge Ford and its Transit, and itself became open to attack from mid-size Japanese vans aswell as the crop of an ever-expanding van-variant offering from Daimler & VW. The Isuzu JV was latterly replaced with a Renault agreement, producing the Trafic badged Vivaro, and Master badged Movano, alongside the self-generated Corsa-Combo small van. (This model now discontinued in Luton, its successor manufactured by a GM-FIAT Tofas JV in Turkey re-badging the FIAT Doblo).
Increasingly harsh competitive terrain and a high UK cost-base have been the real-world 'headwinds' which have historically and today required Luton plant staff to be flexibility in attitude and labour demands. These headwinds also presented to the UK government when describing the structural picture to politicians and civil servants. As such over the last 2 decades a metaphorical axe has hovered over the plant when model life-cycles and production plans ended, in truth a very necessary bargaining tool for GM executives that could have likewise moves van production to Asia in the WestStar-LDV manner.
Thus the relative UK relief at the recent announcement that a new co-licensing and contract manufacturing deal had been struck with Renault-Nissan for ongoing development and manufacturer of the Vivaro model. It appears that Renault has decided to re-balance its Trafic production strategy away from its partner Nissan's Barcelona plant, instead focus upon capacities efficiencies at Luton aswell as re-organising the French Sandouville plant for Trafic. This leaves Luton as the Vivaro/Trafic European production hub – something welcomed by both the plant management and the union Unite, since it appears to safeguard over 1,000 jobs.
So much needed good news for not only the Luton plant itself but also for the regional economy in which workers spend their earnings, as well as of course for those UK parts and service suppliers that support the Vauxhall plant with components and activities.
The present basic Vivaro/Trafic model has been in production for 10 years (with facelift) during which 1.25m units have been built, so averaging 125k units per annum over what has been a boom decade. Instead the new 2013 vehicle programme's projections is for a more conservative 100k units.
This to be only expected given the level of pan-EU economic contraction with commercial focus targeted at Northern European countries which are in better 'rebound' shape than the periphery 'PIIGS' nations, even if 'anti-budget cut' demonstrations (such as London's this weekend) appear similar to those held in Greece. Moreover, this largely 'northern vs southern' European fiscal divide, could possibly become more evident if others follow Portugal's unwillingness to drastically cut its national budget spend, or in Greece and Ireland's case decide on a fiscal policy U-turn – unlikely but possible, and then creating a stale-mate for Brussels.
At face value Portugal's actions appear very cynical, taking such a turn after its peers have constricted themselves, it looks like it wants disproportionate access the low cost financing from the new ESF to support its state spending. Its attitude seems to be “why worry about a national credit rating fall and consequential added weight to longer-term liabilities when 'easy' money is on the table?”.
Such actions only serve to fracture Europe and concentrate investor confidence in the northern core; this viewpoint perceptively intrinsic to the GM announcement for Luton.
In stark contrast the Renault-Nissan lithium battery factory announced for Cacia, Portugal (next to Renault gearbox build, and a sister of similar UK, France & US plants) might well be contingent upon Portugese government assistance given the partnership deals agreed, which then would have the economic perversity of having other EU members indirectly paying for Portugal's hi-tech manufacturing future, when the state should by rights be self-supporting, and critically a manufacturing threat to those very same 'bail-out' member states. If this is the case, it highlights the ridiculousness of the situation – especially to the UK which itself must seek its manufacturing future by standing on its own feet and absorbing the economic pain to do so.
Hence, as mentioned in previous posts, the the UK has to create its own manufacturing and eco-tech future, one which whilst simultaneously listening to those new 'FDI promisorees' such as China, must be more acutely tuned to those that have already shown willingness to invest into the UK. And beyond this must create tenable visions for UK manufacturing and its correlated services, both with proven FDI partners, seeking out new stable possibilities, as well as undertaking wholly British R&D, development and market-reach endeavours; as displayed by many past achievements ranging from the 'public-good' Routemaster bus to the 'private-delight' of NAIM Audio.
Positioned between these two spheres is the UK auto-industry, spanning diverse sub-sectors from the niche production of track-orientated 'naked' sportscars (eg Ariel Atom & new BAC Mono) to the very opposite as illustrated with the mass production of basic vans, many vehicle companies located at various points along this line, with concomitant links to up-stream and down-stream commercial companies and activities that creates an effective UK automotive eco-system, itself externally and internally integrated with global commerce.
Many of the 400,000+ protesting in London's streets this weekend against the budget cuts are directly or indirectly employed by the state, in reality marching to protect their own futures - an understandable reaction. However, they should equally ask themselves how exactly value is created and paid for, and what the future shape of British industry to create a competitive Britain must look like. And whether they themselves - having been effectively cosseted for so long in the credit bubble at personal and employment levels - are truly equipped to add the necessary human value of knowledge and skills to this ambition?
The protesters would be advised to take an educational trip to the British Museum, to not only view the story of human advancement inside, but to also view a beautiful 1962 Vauxhall Bedford CA model Ice Cream van that sits by the front gates. It appears refurbished yet authentic, with a two-tone 'wave' livery of sea-blue & cream-white and big period Vauxhall Cresta rear lamps. It sells 'real' Cornish ice-cream, not the synthetic kind, and is able to charge a premium for doing so. A sensory delight that reflects the 'Best of British' and 'Made in Britain'. Built in Luton at a time when the country was also depressed soon after the Suez Crisis, yet those very tail-lamps high-light the direct links between its specialist body provider and Vauxhall itself, illustrating the scale and strength of UK industrial inter-relations that once were.
Moreover it served as a social beacon of optimism, for both children, their parents and its workforce. What's more this example is still serving the community 50 years on; the very example of sustainability, achieved by those who saw its innate worth. Luton's new 2013 Vivaro in its typical 'white-van' guise may not have its innate character but the truth is that it serves thousands of large British companies and SME's across the country – witnessed with van fleets of the AA, Sky, BT, and the emergency services. It is also an export earner for GME and ultimately the UK Treasury. Moreover, as the highly fragmented set of state-run agencies which also use the van are transformed into leaner privately run state-serving enterprises, so greater procurement scale economies can be achieved for both the new entities and GM Luton itself, so providing a basis for additional plant and product investment – to the good of the region.
Of course, like Nissan, Honda and Toyota, GM Luton is foreign-owned, but its very presence is vital to the UK economy, given that 12% of UK manufacturing is auto-related. Equally along with Nissan's R&D base on Bedfordshire, Ford's R&D base in Essex, and TATA's L-R-Jag R&D base in Warwickshire, so a secured GM Luton must also be seen to contribute to the national R&D agenda. Doing so via efforts such as NAIGT's recommended 'TESTBED' programme (presented in mid-2009) which itself is a critical part at overcoming the the auto-ambivalence of former governments since the early 1980s, and which NAIGT argues has undeniably resulted in innate structural disadvantages as a consequence of becoming an autos-assembler as opposed to autos-originator.
With that important 2013-2020 production announcement by GME in Luton comes a realisation that UK van manufacturing must be anything but “Headed for Bedfordshire”, instead very much part of the nation's industrial fabric, and if moulded properly, ripe for further exploitation. Critically, the Vivaro - aswell as Ford's iconic Southampton built Transit which had similar good news in late 2010 with a £1.5bn investment promise - to be seen as an essential part of a re-awakened “Alarm Clock Britain”: with its implicit overtones of making the most of the manufacturing base.
In this vain, the writers of BBC3's new comedy 'White Van Man' might well script their character to visit Luton, Southampton, Westminster and The City. Perhaps humourously don a plastic bowler hat instead of the usual tradie's cap as he drives down Piccadilly. Thus, a nod to Luton's own hat-making industrial past...a nod to his brown-coated bowler-hatted 1960s forebear...and when passing The Ritz or RAC Club, a warm nod to 'Michael the Doorman' who could doff his own top hat in return. Such a plot-line would then seek to heal any social wound created by the anarchistic actions of a small but virulent quarter of the 'anti-cuts march' who it seems wish to create social divisiveness, when the very opposite is needed.
With new production schedules set for Southampton and Luton, in the mid-term “the new van man cometh!”
City institutions seeking signs of ongoing and renewed corporate & SME growth will be viewing vehicle replacement actions as an indicator of capex confidence, and may wish to themselves doff their imaginary bowlers at such good news.
Better still, buy a real one - or any other type - from Lock & Co in St James's, and help keep economic activity on the home-front going.
These philosophically supersede the Regional Development Zones created under the previous government, yet now with a manufacturing bias as compared to the previous aspiration for nation-wide paper-less offices devoted to start-ups, but led to thousands of square meters of new office-space standing dormant, often in areas in which high-value entrepreneurial ism was an anathema, given the social realities Then the money flowed from government coffers whilst teams regional bureaucrats created overtly over-ambitious – ultimately empty - ideas for transforming run-down, post-industrial towns into the local silicon valley. As such, office construction work temporarily assisted the local economy, but a failure to 'snow-ball' the new small business ideology left a series steel & glass 'white elephants' standing on the edges of flailing towns.
So, today the Tory focus is back on manufacturing and the creation of tangible goods and services for domestic and export consumption. The previous creation of Economic Zones led to the attraction of FDI, the then contracting UK auto-sector seeing the likes of Nissan set-up green-field manufacturing in Sunderland, Honda in Wiltshire and Toyota in Derbyshire and latterly of its own accord BMW investing in the historic Oxford plant. But perhaps the most memorable case-study of the FDI good was the creation of the Hitachi television factory in South Wales that was hailed as a savior until its Asian re-location years later in 2001. Similar Sony and Panasonic plants were built but unfortunately shuttered after the Asian Tiger Crash. However, this month a different division of Hitachi announced opening of a £90m train production plant in Newton Aycliffe, Durham, which will build locomotives and rolling-stock that serves the N.E – London route, and the London – S.Wales route.
When it comes to world-class manufacture of high-value consumer goods the need for FDI – indeed arguably a reliance upon it – is crucial to the British economy. To this end the UK must once again demonstrate itself to the Japanese, S.Koreans and Chinese manufacturers, automotive and otherwise, from Japan's Big 3 and its others, to Hyundai-Kia to SAIC et al.
Beyond buying MG Cars' including the production plant in Longbridge, Birmingham, SAIC also has relations with 'China Ventures' which bought the assets of LDV Vans after its fall into administration. China Ventures partnered with Malaysian Weststar-LDV for a 'lift and shift' of tooling so as to serve the Asian van market, however simultaneously an announcement was made that a new company called 'Eco Concept Ltd' would create a low-volume light commercial vehicle in the Midlands. Yet, thus far little progression appears to have been made, the Longbridge plant once cited as a production base for 'old' MGTF having to wait for the engineering of a replacement car, whilst the trial production of the 'eco van' also at Longbridge is due now. The unfortunate inference is that China could be stalling with false promises, its ultimate intention to use Longbridge as a beach-head for the importation of Chinese made MG branded cars and otherwise branded vans. Reading between the lines, a possible business model would be the importation of basic low-cost Sino-Malay vans which are internally and externally modified in Longbridge for specialist customer demands, the company then able to under-cut present specialist van builders whilst also gaining large profit margins.
Thus in stark contrast to the rhetoric and 'real politik' of such promises, the UK must also look to leveraging manufacturing – large and small – which is 'live' (ie ongoing) or 'confirmed'.
On the global stage of automotive manufacturing GM Luton in the county of Bedfordshire here in the UK is relatively “small-fry”. Size-wise, from a production capacity viewpoint, at only approximately 70k units per year it hardly compares with the likes of VW's Wolfsberg plant in Germany at 500k units, let alone Hyundai's Ulsan plant in S.Korea at 1.9m units. Nor does it offer the touristic 'brand experience' seen at Wolfsberg's 'Autostadt', nor the national GDP contribution of Ulsan.
But this would be to compare Chalk and Cheese. Luton operates a no-nonsense focus on co-developed van production at what are realistically the auto-manufacturing margins, whilst Wolfsberg's & Ulsan's roles are as each respective country's innate socio-industrial heartlands.
GM Luton then is a very different industrial beast, in comparative terms somewhat niche and on the industrial fringe. One which unlike its super-sized Korean and German counterparts, GM executives argue as being well beyond its manufacturing heyday; when it served as GM's counterpart to Ford's Dagenham. (Dagenham ceased what was uneconomic whole vehicle production long ago). GM UK passenger car production has been re-location of car manufacturing to Ellesmere Port, Merseyside in the 1960s which meant that Luton was centred on commercial vehicles alone, experiencing a decrease of UK market share from the early 1980s onward and forced into product-line rationalisation, the adoption and 'badge-engineering' of other VMs vans, and the home-grown generation of smaller car-derived vans that acted as portfolio plugs which maximised cross divisional synergies.
Yet whilst Vauxhall (as Isuzu partnered IBC) was able to previously conquer UK competitor LDV it could not dislodge Ford and its Transit, and itself became open to attack from mid-size Japanese vans aswell as the crop of an ever-expanding van-variant offering from Daimler & VW. The Isuzu JV was latterly replaced with a Renault agreement, producing the Trafic badged Vivaro, and Master badged Movano, alongside the self-generated Corsa-Combo small van. (This model now discontinued in Luton, its successor manufactured by a GM-FIAT Tofas JV in Turkey re-badging the FIAT Doblo).
Increasingly harsh competitive terrain and a high UK cost-base have been the real-world 'headwinds' which have historically and today required Luton plant staff to be flexibility in attitude and labour demands. These headwinds also presented to the UK government when describing the structural picture to politicians and civil servants. As such over the last 2 decades a metaphorical axe has hovered over the plant when model life-cycles and production plans ended, in truth a very necessary bargaining tool for GM executives that could have likewise moves van production to Asia in the WestStar-LDV manner.
Thus the relative UK relief at the recent announcement that a new co-licensing and contract manufacturing deal had been struck with Renault-Nissan for ongoing development and manufacturer of the Vivaro model. It appears that Renault has decided to re-balance its Trafic production strategy away from its partner Nissan's Barcelona plant, instead focus upon capacities efficiencies at Luton aswell as re-organising the French Sandouville plant for Trafic. This leaves Luton as the Vivaro/Trafic European production hub – something welcomed by both the plant management and the union Unite, since it appears to safeguard over 1,000 jobs.
So much needed good news for not only the Luton plant itself but also for the regional economy in which workers spend their earnings, as well as of course for those UK parts and service suppliers that support the Vauxhall plant with components and activities.
The present basic Vivaro/Trafic model has been in production for 10 years (with facelift) during which 1.25m units have been built, so averaging 125k units per annum over what has been a boom decade. Instead the new 2013 vehicle programme's projections is for a more conservative 100k units.
This to be only expected given the level of pan-EU economic contraction with commercial focus targeted at Northern European countries which are in better 'rebound' shape than the periphery 'PIIGS' nations, even if 'anti-budget cut' demonstrations (such as London's this weekend) appear similar to those held in Greece. Moreover, this largely 'northern vs southern' European fiscal divide, could possibly become more evident if others follow Portugal's unwillingness to drastically cut its national budget spend, or in Greece and Ireland's case decide on a fiscal policy U-turn – unlikely but possible, and then creating a stale-mate for Brussels.
At face value Portugal's actions appear very cynical, taking such a turn after its peers have constricted themselves, it looks like it wants disproportionate access the low cost financing from the new ESF to support its state spending. Its attitude seems to be “why worry about a national credit rating fall and consequential added weight to longer-term liabilities when 'easy' money is on the table?”.
Such actions only serve to fracture Europe and concentrate investor confidence in the northern core; this viewpoint perceptively intrinsic to the GM announcement for Luton.
In stark contrast the Renault-Nissan lithium battery factory announced for Cacia, Portugal (next to Renault gearbox build, and a sister of similar UK, France & US plants) might well be contingent upon Portugese government assistance given the partnership deals agreed, which then would have the economic perversity of having other EU members indirectly paying for Portugal's hi-tech manufacturing future, when the state should by rights be self-supporting, and critically a manufacturing threat to those very same 'bail-out' member states. If this is the case, it highlights the ridiculousness of the situation – especially to the UK which itself must seek its manufacturing future by standing on its own feet and absorbing the economic pain to do so.
Hence, as mentioned in previous posts, the the UK has to create its own manufacturing and eco-tech future, one which whilst simultaneously listening to those new 'FDI promisorees' such as China, must be more acutely tuned to those that have already shown willingness to invest into the UK. And beyond this must create tenable visions for UK manufacturing and its correlated services, both with proven FDI partners, seeking out new stable possibilities, as well as undertaking wholly British R&D, development and market-reach endeavours; as displayed by many past achievements ranging from the 'public-good' Routemaster bus to the 'private-delight' of NAIM Audio.
Positioned between these two spheres is the UK auto-industry, spanning diverse sub-sectors from the niche production of track-orientated 'naked' sportscars (eg Ariel Atom & new BAC Mono) to the very opposite as illustrated with the mass production of basic vans, many vehicle companies located at various points along this line, with concomitant links to up-stream and down-stream commercial companies and activities that creates an effective UK automotive eco-system, itself externally and internally integrated with global commerce.
Many of the 400,000+ protesting in London's streets this weekend against the budget cuts are directly or indirectly employed by the state, in reality marching to protect their own futures - an understandable reaction. However, they should equally ask themselves how exactly value is created and paid for, and what the future shape of British industry to create a competitive Britain must look like. And whether they themselves - having been effectively cosseted for so long in the credit bubble at personal and employment levels - are truly equipped to add the necessary human value of knowledge and skills to this ambition?
The protesters would be advised to take an educational trip to the British Museum, to not only view the story of human advancement inside, but to also view a beautiful 1962 Vauxhall Bedford CA model Ice Cream van that sits by the front gates. It appears refurbished yet authentic, with a two-tone 'wave' livery of sea-blue & cream-white and big period Vauxhall Cresta rear lamps. It sells 'real' Cornish ice-cream, not the synthetic kind, and is able to charge a premium for doing so. A sensory delight that reflects the 'Best of British' and 'Made in Britain'. Built in Luton at a time when the country was also depressed soon after the Suez Crisis, yet those very tail-lamps high-light the direct links between its specialist body provider and Vauxhall itself, illustrating the scale and strength of UK industrial inter-relations that once were.
Moreover it served as a social beacon of optimism, for both children, their parents and its workforce. What's more this example is still serving the community 50 years on; the very example of sustainability, achieved by those who saw its innate worth. Luton's new 2013 Vivaro in its typical 'white-van' guise may not have its innate character but the truth is that it serves thousands of large British companies and SME's across the country – witnessed with van fleets of the AA, Sky, BT, and the emergency services. It is also an export earner for GME and ultimately the UK Treasury. Moreover, as the highly fragmented set of state-run agencies which also use the van are transformed into leaner privately run state-serving enterprises, so greater procurement scale economies can be achieved for both the new entities and GM Luton itself, so providing a basis for additional plant and product investment – to the good of the region.
Of course, like Nissan, Honda and Toyota, GM Luton is foreign-owned, but its very presence is vital to the UK economy, given that 12% of UK manufacturing is auto-related. Equally along with Nissan's R&D base on Bedfordshire, Ford's R&D base in Essex, and TATA's L-R-Jag R&D base in Warwickshire, so a secured GM Luton must also be seen to contribute to the national R&D agenda. Doing so via efforts such as NAIGT's recommended 'TESTBED' programme (presented in mid-2009) which itself is a critical part at overcoming the the auto-ambivalence of former governments since the early 1980s, and which NAIGT argues has undeniably resulted in innate structural disadvantages as a consequence of becoming an autos-assembler as opposed to autos-originator.
With that important 2013-2020 production announcement by GME in Luton comes a realisation that UK van manufacturing must be anything but “Headed for Bedfordshire”, instead very much part of the nation's industrial fabric, and if moulded properly, ripe for further exploitation. Critically, the Vivaro - aswell as Ford's iconic Southampton built Transit which had similar good news in late 2010 with a £1.5bn investment promise - to be seen as an essential part of a re-awakened “Alarm Clock Britain”: with its implicit overtones of making the most of the manufacturing base.
In this vain, the writers of BBC3's new comedy 'White Van Man' might well script their character to visit Luton, Southampton, Westminster and The City. Perhaps humourously don a plastic bowler hat instead of the usual tradie's cap as he drives down Piccadilly. Thus, a nod to Luton's own hat-making industrial past...a nod to his brown-coated bowler-hatted 1960s forebear...and when passing The Ritz or RAC Club, a warm nod to 'Michael the Doorman' who could doff his own top hat in return. Such a plot-line would then seek to heal any social wound created by the anarchistic actions of a small but virulent quarter of the 'anti-cuts march' who it seems wish to create social divisiveness, when the very opposite is needed.
With new production schedules set for Southampton and Luton, in the mid-term “the new van man cometh!”
City institutions seeking signs of ongoing and renewed corporate & SME growth will be viewing vehicle replacement actions as an indicator of capex confidence, and may wish to themselves doff their imaginary bowlers at such good news.
Better still, buy a real one - or any other type - from Lock & Co in St James's, and help keep economic activity on the home-front going.
Wednesday, 20 January 2010
Industry Structure – UK Autos – 'Fiscal Consolidation' vs Need for a 'UK Auto Manifesto'.
The 2007/8 financial crisis expectantly led to sizable government stimulus spending. The UK's costly vehicle scrappage scheme perhaps the most visible in answering the distress calls by industry bodies such as the SMMT.
Consequentially car sales were indeed buoyed, with perhaps the major beneficiary being the retail motor trade itself, for the most part assisting the sales of affordable B-segment import vehicles made by Ford, PSA, FIAT, VW Group brands & Hyundai-Kia. GM's own Vauxhall Astra (though a C segment car) should have been a prime sales candidate were it not for the model's production run-out in Ellesmere Port, whilst Nissan's Sunderland-made Micra, also an aging product, gained relatively little uplift. As for the likes of JLR (Jaguar Land-Rover), Bentley or Rolls Royce, they of course were never really part of the mass-market scrappage scheme equation that sought not only sales but positive political impact.
As a consequence the direct financial 'multiplier-effect' through the retail-base, into home manufacturers and thence into home Tier 1 & 2 companies was realistically limited. The dealers were given cold comfort and redundancies post-poned (to the present-day). But importantly, the core of the UK auto-industry per se appears not to have been fundamentally assisted.
In short the political reaction, as part of its QE exercise, appeares well-intended, though perhaps naive of economic reality and level of direct domestic influence.
Fundamental, targeted assistance is what is required if the UK industry is to prosper. Such assistance not necessarily in financial terms or hand-outs - though such calls always come – but more so relative to proper understanding and creation of a relevant and strong industrial-commercial framework that allows UK Autos plc to successfully compete both at home, and critically throughout the world.
Today, as a somewhat stabalised nation, the UK now faces the resultant massive fiscal deficit outcomes and must both address the repayment of the gaping deficit and simultaneously review the future for its industrial base and national commercial competences.
With the former of these issues presently under the spotlight as a general election draws ever closer, the Conservative PR machine wishes to demonstrate its governance capability and policy direction by utilising the 'lessons leaned' from the parallel case study of Sweden's economic turnaround of the early 1990s. To this end Anders Borg (Sweden's current Finance Minister) was invited to give a lecture summary of the Swedish recovery model, prior to reflective words by George Osborne, the Shadow Chancellor of the Exchequer.
[NB. Understandably the centre-right keen to practice the very essence of prudent micro-economics set within reformist macro-economic policy, which looks in greater part, to the true utility and leverage of private investment as an objective national driver. This thankfully instead of the public (pseudo) 'investment' we've witnessed over the last decade by the centre-left which basically espoused a policy of publicly-funded 'bought' 'wooden-dollar' public-sector job expansion, the beneficiaries of which in turn arguably fueled the credit bubble].
To summarise the Swedish recovery formulae, it was a return to archetypical neo-classical econometrics for balancing a budget:
1.All options available for application should be reviewed and used.
2.Taxation should be biased away from prime motivators (ie personal income & corporate) and set toward a broader-base plethora of tertiary sources.
3.Expenditure decrease to be achieved via cost-restructuring whilst safe-guarding essential human (future labour capital) development criteria (ie education & welfare)
4.Improve the 'base-line' scenario through productivity expansion via R&D & reform.
5.Creation of a credible budget 'base-line' so as not to alienate capital markets (re: Government Guilts , Bonds, Note issuance prices & spreads) or households (ie gross vs net disposable spending).
6.'Front-load' the consolidation, demonstrating “pain equals gain” improvement thus providing “openness to build credibility”
7.Calculate the political cost vis a vis SIGs (Special Interest Groups) and public perspectives.
8.Safeguard labour force participation to create value-adding society
9.Strengthen fiscal institutions via greater independent target-data advisory & examination
10.Maintain social cohesion so as not to experience a destructive splintering pattern
Given the dire circumstances of EU members, ranging from a false appearance of stability in France (re: cost-structures vs RoW) to the real concerns over Greece's economic credibility, such actions will be required across the EU and even Triad region; thus intra and inter-nationally. This will bring substantial ramifications for the European auto-industry in terms of continued need for re-structuring, something which is seemingly being led by London's capital market demands (ie seeking restructuring, value-creation opportunities) and Italy's recognition of the need for change (ie FIAT's vanguard as EU cost-harmoniser with RoW regions as part of its own growth strategy). Thus we view the apparent paradox of a once heavily socialist state leading the race for regional cost-down in a global context that with revive both the European auto-industry and member state economies.
Set against this context the UK sector itself stands distinctly separate to its EU neighbours at micro & macro levels, in as much that:
A. the sector is of different 'shape' -
(ie no national mass manufacture 'champions', instead a broad scattering of 'upstream' enterprises)
B. the UK holds relative administrative independence -
(eg relative autonomy providing flexible monetary and labour policy-setting)
Therefore,
In contrast to EU peers, the UK's auto-sector has progressed beyond 'domestically owned' low-value mass manufacturing, by refocusing core productivity towards spheres of activity, which albeit far smaller in size & turnover figures, sit higher-up the commercial value-chain and so enable improved margins and profitability. These include:
1.Strategic Consulting
2.Systems & Whole Vehicle R&D (partially in association with academia)
3.Project Engineering
4.Test & Development
5.Associated Software & Hardware Development
6.Professional & Amateur Motorsport(s)
7.Premium (Luxury & Sports) Niche Vehicle Production
[NB. Such 'up-stream' activities are partially mirrored within the normative schema of matured mass-manufacturer operations, but under such in-house circumstances are arguably constrained by conflicting political & financial/capital allocation company demands. The process of 'unbundling' appears to be a prime strategic aim of Toyota Motors (sic Japanese industry) as it faces stiffer global competition].
[NB. The UK must also review how it can evolve the auto-sector's 'downstream' activities -
the retail base & process, through-life ownership interaction, and vehicle disposal network].
[NB. With the structural re-formation of Volvo & SAAB under Chinese &/or other interest – which will alter the very core of Sweden's auto-sector - it appears that Sweden may wish to learn from the UK auto-sector's industrial evolution model, just as the UK seeks to utilise the Swedish Fiscal consolidation model. Thus there may be an opportunity to strengthen Scandinavian ties, as part of what investment-auto-motives conjects as a Northern European Auto-Sector 'Rainbow'].
Moving on to item B in lesser detail...
Although presently in a deeper economic hole than its EU counterparts, yet has the (hard-defended) fortune of relative independence and so greater flexibility regards monetary/fiscal and labour-force policy-setting. Such flexibility is critical to meet the challenges of a present-day heavily mired government budget, and the ability to re-set & re-orientate the nation's industrial and commercial template.
It is with regard to creating a 21st century template that the highly visible UK auto-industry could possibly play a leading role, but before such ambitions, it is indubitably important that the 'Fiscal Consolidation' process itself does not to 'de-rail' its constituent parts whether 'on-shore', nor 'off-shore' in its role as a 'quiet voice' global leader. Examples such as assisting China to create its own NPD capabilities or answering the US call for electric vehicle alliances demonstrate the UK sector's importance as a commensurate foreign-trade , income generator.
To this end the UK sector should be viewed as de-coupled from the typical perception that all EU auto-activity is automatically 'value-destructive', even if the over-capacity problem does pose a profitability threat to incumbent large manufacturers – delineated as 'winners' & 'losers' and much of the cross-border retail trade (inc UK).
The business of 'UK-Auto' is to serve domestic personal mobility needs, and by setting that bar high via consumer acceptable regulation so demanding new technical solutions, able to in turn serve the R&D and development needs of 'follower' nations and global-reach foreign auto-companies. This then accompanies Britain's already proven ability to guide Emerging Market auto-players relative to today's established vehicle systems solutions and relative modifications, within the fields of conventional ICE (internal combustion engine) technology, the traditional 'Budd Manufacturing' pressed steel vehicle body production, the development of intelligent electro-mechanical architectures etc etc.
investment-auto-motives simplistically depicts the UK picture using a created (copyrighted) graphic (see above) that overlays the endemic value-curve over a 4x4 matrix, the axis of which demonstrate theoretical marginal profitability versus relative geographic requirements. The model titled “4x4 Policy Traction” introduces the aforementioned Northern European 'Rainbow' industrial model as part of a 4 tier 'trickle-down' system which affords the UK to seize the opportunity to act as a global auto-industry policy originator and consulting destination and technology service provider.
The finite detail of this broad overview regards what is effectively a 'UK Automotive Manifesto' must be understood and act as agenda reference criteria relative to the execution of the aforementioned governmental 10 point plan for fiscal consolidation, so as to not only negate possible negative implications and outcomes of both models' inter-operative meshing, but in actuality properly guide and promote the UK sector at national and international levels.
Thus, to conclude, whilst the UK can undoubtedly learn much from Sweden relative to fiscal turnaround, so in turn may Sweden learn from the UK in developing its own and a UK-Sweden synergistic automotive industrial planning thesis. This in turn engenders the UK potential ambition as an even greater influence and player on the global industrial stage.
Consequentially car sales were indeed buoyed, with perhaps the major beneficiary being the retail motor trade itself, for the most part assisting the sales of affordable B-segment import vehicles made by Ford, PSA, FIAT, VW Group brands & Hyundai-Kia. GM's own Vauxhall Astra (though a C segment car) should have been a prime sales candidate were it not for the model's production run-out in Ellesmere Port, whilst Nissan's Sunderland-made Micra, also an aging product, gained relatively little uplift. As for the likes of JLR (Jaguar Land-Rover), Bentley or Rolls Royce, they of course were never really part of the mass-market scrappage scheme equation that sought not only sales but positive political impact.
As a consequence the direct financial 'multiplier-effect' through the retail-base, into home manufacturers and thence into home Tier 1 & 2 companies was realistically limited. The dealers were given cold comfort and redundancies post-poned (to the present-day). But importantly, the core of the UK auto-industry per se appears not to have been fundamentally assisted.
In short the political reaction, as part of its QE exercise, appeares well-intended, though perhaps naive of economic reality and level of direct domestic influence.
Fundamental, targeted assistance is what is required if the UK industry is to prosper. Such assistance not necessarily in financial terms or hand-outs - though such calls always come – but more so relative to proper understanding and creation of a relevant and strong industrial-commercial framework that allows UK Autos plc to successfully compete both at home, and critically throughout the world.
Today, as a somewhat stabalised nation, the UK now faces the resultant massive fiscal deficit outcomes and must both address the repayment of the gaping deficit and simultaneously review the future for its industrial base and national commercial competences.
With the former of these issues presently under the spotlight as a general election draws ever closer, the Conservative PR machine wishes to demonstrate its governance capability and policy direction by utilising the 'lessons leaned' from the parallel case study of Sweden's economic turnaround of the early 1990s. To this end Anders Borg (Sweden's current Finance Minister) was invited to give a lecture summary of the Swedish recovery model, prior to reflective words by George Osborne, the Shadow Chancellor of the Exchequer.
[NB. Understandably the centre-right keen to practice the very essence of prudent micro-economics set within reformist macro-economic policy, which looks in greater part, to the true utility and leverage of private investment as an objective national driver. This thankfully instead of the public (pseudo) 'investment' we've witnessed over the last decade by the centre-left which basically espoused a policy of publicly-funded 'bought' 'wooden-dollar' public-sector job expansion, the beneficiaries of which in turn arguably fueled the credit bubble].
To summarise the Swedish recovery formulae, it was a return to archetypical neo-classical econometrics for balancing a budget:
1.All options available for application should be reviewed and used.
2.Taxation should be biased away from prime motivators (ie personal income & corporate) and set toward a broader-base plethora of tertiary sources.
3.Expenditure decrease to be achieved via cost-restructuring whilst safe-guarding essential human (future labour capital) development criteria (ie education & welfare)
4.Improve the 'base-line' scenario through productivity expansion via R&D & reform.
5.Creation of a credible budget 'base-line' so as not to alienate capital markets (re: Government Guilts , Bonds, Note issuance prices & spreads) or households (ie gross vs net disposable spending).
6.'Front-load' the consolidation, demonstrating “pain equals gain” improvement thus providing “openness to build credibility”
7.Calculate the political cost vis a vis SIGs (Special Interest Groups) and public perspectives.
8.Safeguard labour force participation to create value-adding society
9.Strengthen fiscal institutions via greater independent target-data advisory & examination
10.Maintain social cohesion so as not to experience a destructive splintering pattern
Given the dire circumstances of EU members, ranging from a false appearance of stability in France (re: cost-structures vs RoW) to the real concerns over Greece's economic credibility, such actions will be required across the EU and even Triad region; thus intra and inter-nationally. This will bring substantial ramifications for the European auto-industry in terms of continued need for re-structuring, something which is seemingly being led by London's capital market demands (ie seeking restructuring, value-creation opportunities) and Italy's recognition of the need for change (ie FIAT's vanguard as EU cost-harmoniser with RoW regions as part of its own growth strategy). Thus we view the apparent paradox of a once heavily socialist state leading the race for regional cost-down in a global context that with revive both the European auto-industry and member state economies.
Set against this context the UK sector itself stands distinctly separate to its EU neighbours at micro & macro levels, in as much that:
A. the sector is of different 'shape' -
(ie no national mass manufacture 'champions', instead a broad scattering of 'upstream' enterprises)
B. the UK holds relative administrative independence -
(eg relative autonomy providing flexible monetary and labour policy-setting)
Therefore,
In contrast to EU peers, the UK's auto-sector has progressed beyond 'domestically owned' low-value mass manufacturing, by refocusing core productivity towards spheres of activity, which albeit far smaller in size & turnover figures, sit higher-up the commercial value-chain and so enable improved margins and profitability. These include:
1.Strategic Consulting
2.Systems & Whole Vehicle R&D (partially in association with academia)
3.Project Engineering
4.Test & Development
5.Associated Software & Hardware Development
6.Professional & Amateur Motorsport(s)
7.Premium (Luxury & Sports) Niche Vehicle Production
[NB. Such 'up-stream' activities are partially mirrored within the normative schema of matured mass-manufacturer operations, but under such in-house circumstances are arguably constrained by conflicting political & financial/capital allocation company demands. The process of 'unbundling' appears to be a prime strategic aim of Toyota Motors (sic Japanese industry) as it faces stiffer global competition].
[NB. The UK must also review how it can evolve the auto-sector's 'downstream' activities -
the retail base & process, through-life ownership interaction, and vehicle disposal network].
[NB. With the structural re-formation of Volvo & SAAB under Chinese &/or other interest – which will alter the very core of Sweden's auto-sector - it appears that Sweden may wish to learn from the UK auto-sector's industrial evolution model, just as the UK seeks to utilise the Swedish Fiscal consolidation model. Thus there may be an opportunity to strengthen Scandinavian ties, as part of what investment-auto-motives conjects as a Northern European Auto-Sector 'Rainbow'].
Moving on to item B in lesser detail...
Although presently in a deeper economic hole than its EU counterparts, yet has the (hard-defended) fortune of relative independence and so greater flexibility regards monetary/fiscal and labour-force policy-setting. Such flexibility is critical to meet the challenges of a present-day heavily mired government budget, and the ability to re-set & re-orientate the nation's industrial and commercial template.
It is with regard to creating a 21st century template that the highly visible UK auto-industry could possibly play a leading role, but before such ambitions, it is indubitably important that the 'Fiscal Consolidation' process itself does not to 'de-rail' its constituent parts whether 'on-shore', nor 'off-shore' in its role as a 'quiet voice' global leader. Examples such as assisting China to create its own NPD capabilities or answering the US call for electric vehicle alliances demonstrate the UK sector's importance as a commensurate foreign-trade , income generator.
To this end the UK sector should be viewed as de-coupled from the typical perception that all EU auto-activity is automatically 'value-destructive', even if the over-capacity problem does pose a profitability threat to incumbent large manufacturers – delineated as 'winners' & 'losers' and much of the cross-border retail trade (inc UK).
The business of 'UK-Auto' is to serve domestic personal mobility needs, and by setting that bar high via consumer acceptable regulation so demanding new technical solutions, able to in turn serve the R&D and development needs of 'follower' nations and global-reach foreign auto-companies. This then accompanies Britain's already proven ability to guide Emerging Market auto-players relative to today's established vehicle systems solutions and relative modifications, within the fields of conventional ICE (internal combustion engine) technology, the traditional 'Budd Manufacturing' pressed steel vehicle body production, the development of intelligent electro-mechanical architectures etc etc.
investment-auto-motives simplistically depicts the UK picture using a created (copyrighted) graphic (see above) that overlays the endemic value-curve over a 4x4 matrix, the axis of which demonstrate theoretical marginal profitability versus relative geographic requirements. The model titled “4x4 Policy Traction” introduces the aforementioned Northern European 'Rainbow' industrial model as part of a 4 tier 'trickle-down' system which affords the UK to seize the opportunity to act as a global auto-industry policy originator and consulting destination and technology service provider.
The finite detail of this broad overview regards what is effectively a 'UK Automotive Manifesto' must be understood and act as agenda reference criteria relative to the execution of the aforementioned governmental 10 point plan for fiscal consolidation, so as to not only negate possible negative implications and outcomes of both models' inter-operative meshing, but in actuality properly guide and promote the UK sector at national and international levels.
Thus, to conclude, whilst the UK can undoubtedly learn much from Sweden relative to fiscal turnaround, so in turn may Sweden learn from the UK in developing its own and a UK-Sweden synergistic automotive industrial planning thesis. This in turn engenders the UK potential ambition as an even greater influence and player on the global industrial stage.
Thursday, 10 December 2009
Macro Level Trends – UK – The Economy Drive of All Time.
Once the white knights of the global financial fiasco, the western-world national account budgets have suffered a heavy toll over the last 12 months. Capital markets watched as the US further plundered its national deficit to support its stimulus and the UK did the same, leading the G20 with the over-ideological internationally co-ordinated financial response.
But of course different countries face different complex problems, and those star performers of the early part of the decade – the likes of the CEE region, Spain, Greece and Ireland that leveraged their low cost-bases & hyped-up asset values – are now suffering. Their 'thin' economic models have surfaced as the financial tide of private FDI and locally generated funding has withdrawn. Productivity has shrunk, GDP contracted, credit ratings slipped and credibility stymied, so creating a negative multiplier effect.
But the smaller brother nations, whilst more precarious, do not find themselves alone. Anything but. The US is publicly perceived as 'in hoc' to China given the respective $800bn trade deficit and the > $2 trillion Sino reserves. Germany & France find themselves caught in socially biased mixed economies which are popularly moving further to the left, but unlike the past where social-democracy could survive unfettered given the European competitive lead, such EU countries find themselves a very different global context – less post-colonial, more intrinsically post-modernist (ie post 20th-century).
But it is perhaps the UK that without the US political clout and noted as the EU laggard – the last to technically emerge from recession – that finds itself with perhaps the greatest future-forward transitional challenge to face. Today, the economy is at its lowest ebb in living memory.
As the UK government's National Statistics Office has reported: present GDP levels are at an average -5.2% over 2009, that average presented via a bottoming-out in Q209 and slight 'upturn' in Q309. The attached graphic highlights the UK's plight, with real GDP falling over 7% since Q108.
Of Q309, the greatest downturn was seen in the “distribution, hotel & catering” sector, this segment taking what could be regarded as a normative / expected hit as a cyclical consequence to previous period hits of primary industries (mining, agriculture), secondary industries (processing and production) and construction. Thus theoretically, the recession is working its way through, supported by the now ramped-down but still loose Quantitative Easing stimulus spending (1.2% of national GDP).
But that massive fiscal injection by the government into primarily the banking sector along with consumer incentivisation (ie the UK car scrappage scheme) has left public finances in a dire situation. At its heart the current or new-come government must steer the UK economy between the extremes of a Japan-like long-term minimal growth scenario and that of an over-extended QE policy generating M4 liquidity to give a false impression of substantial growth which invites hard to handle inflationary pressures. Keen to avoid both, Mervyn King et al on the BoE's Monetary Policy Committee must now work in conjunction with broader industrial policy-makers to regenerate the economy, especially so since many of the fiscal levers have already been effectively exhausted.
In summary, the concerning environment is as follows: a budget deficit of £175bn approx (of a £800bn PSBR), a trade deficit of £8.3 as of November (down from a previously better 7.8% 'helped' by car exports) and unemployment standing at (an 'official' though suspectedly unrepresentative) 8%.
And so it is in this already concerning context that the UK Treasury Minister yesterday highlighted his government's need to take the nation's accounts yet further into the red to eventually alleviate the pain, the aim to half the national debt by 2014. The measures of reduced public sector expenditure nominally by -12 to -15% and the efforts to increase income via steeper taxation are of course expected, though sensitively deployed. A theoretically pertinent element here is the application of the Low Carbon Transport initiative, which alleviates company car tax on electric cars and vans. And though good news for the likes of Smiths Electric and Modec that convert and manufacture e-vans, the real effect in increasing zero emissions e-vehicles on UK roads will be realistically negligible given the chicken-and-egg dichotomy of of e-charging infrastructure that has to date seen little real investment; especially so outside of inner-London.
So Alistair Darling's announcement was par for the course, yet still elicited little corporate or public belief as to how his (or any) government would or could engage a plan of national economic growth. For it is the question of long-term industrial planning, beyond the rhetoric of the “Green Economy”, that UK & foreign corporations and the public at large ponder.
The disparity gap between the rhetoric and reality has perhaps grown to an all time high. The very function of a supposedly knowledge economy shown to be in schism when theoretically highly qualified graduates work in 'chicken-cell' call-centres, inanimate computer servers as opposed to human brains are the real knowledge hubs, and the street graffiti artist 'Banksy' depicts better social commentary 'advertising' than the famed creative media 'shops' of Soho Square. Disaffection runs rife through all age groups, but perhaps most prevalent in the productive critical 30 & 40-somethings - over and above the comfortably off Baby-Boomers or their cyber-space'd (almost self-consciously removed) teenage grand-children.
[NB. The book 'Fantasy Island', authored by Elliot & Atkinson, although not yet read by investment-auto-motives, appears to give a good rounded account of the UK's present PESTEL position]
Inevitably, planning the country's industrial future is perhaps the most important task for the highest echelons of the UK establishment that sit in Whitehall. One only hopes they have a good appreciation of the size of that task, the complexity of the journey and ultimately the required outcome. But given past performance of only limited advancement and holistically orchestrated demonstration, there are 101 million reasons to think not.
However, to this end we will undoubtedly see the re-emergence of greater central planning – even under probable future Tory governance – which administratively echoes the 'reign' of the National Economic Development Council of 1962 – 92. Though unlike NDEC, the primary 3 way conversation must be between government, industry and finance. The latter replacing seat of the 'old world – old view' unions that ruled and stalled Britain the 1960s and 70s.
As a result, investment-auto-motives imagines new Economic Development Committees (neo-NDC's) will be born relative to each systemically-important industrial sector. And as such the remit of an automotive sector strategy council will take and progress the recent findings of the UK Motor Industry Report.
Presently in the broader forum, the re-balancing of investment in government bonds, corporate bonds, hybrid instruments such as convertible bonds and newly emergent 'CoCo's and renewed belief in fundamentally strong stocks will slowly but surely provide a new platform for growth.
Equally a platform must be built for the future of UK Autos, one which includes investment-auto-motives' previously mentioned need for a synergistic relationship between imported Tier 1 technologies and national NPD and local build competences. That probably means a re-birth of the 1981 British Technology Group, the conjoined forces of the then National Research and Development Council and the Development Corporation. Today the Sept of BIS (nee BERR) seems to be setting the scene for that eventuality to promote industrial efficiency and innovation – through probably today a PPI scheme, given the contextual background of government owned large UK banks and the need for wholesale sector transformation.
And so today is set in the context of historical economic cycles, rises and slumps necessitating the use of alternate associative loose and tight industrial planning.
As the progressive Chinese automaker BYD sets its sights on Los Angeles as its entry-point for its clean-tech cars, the UK must ask itself how it can best serve itself in this arena.
Today's UK auto-industry spans a plethora of scale and capabilities, yet must be essentially re-worked as an intelligent, interactive network to maximise change and productivity.
Today's low production run e-vans are of little impact and realistically commercially unviable. So the structural climb to large scale mass mobility that offers very low & zero emissions CO2 vehicles, perhaps engineered, produced and retailed in a very different manner via a very different business model and set of capabilities is today still practically a long-reach aim; even if on the fringes pieces of the jigsaw are being slowly put into place.
But of course different countries face different complex problems, and those star performers of the early part of the decade – the likes of the CEE region, Spain, Greece and Ireland that leveraged their low cost-bases & hyped-up asset values – are now suffering. Their 'thin' economic models have surfaced as the financial tide of private FDI and locally generated funding has withdrawn. Productivity has shrunk, GDP contracted, credit ratings slipped and credibility stymied, so creating a negative multiplier effect.
But the smaller brother nations, whilst more precarious, do not find themselves alone. Anything but. The US is publicly perceived as 'in hoc' to China given the respective $800bn trade deficit and the > $2 trillion Sino reserves. Germany & France find themselves caught in socially biased mixed economies which are popularly moving further to the left, but unlike the past where social-democracy could survive unfettered given the European competitive lead, such EU countries find themselves a very different global context – less post-colonial, more intrinsically post-modernist (ie post 20th-century).
But it is perhaps the UK that without the US political clout and noted as the EU laggard – the last to technically emerge from recession – that finds itself with perhaps the greatest future-forward transitional challenge to face. Today, the economy is at its lowest ebb in living memory.
As the UK government's National Statistics Office has reported: present GDP levels are at an average -5.2% over 2009, that average presented via a bottoming-out in Q209 and slight 'upturn' in Q309. The attached graphic highlights the UK's plight, with real GDP falling over 7% since Q108.
Of Q309, the greatest downturn was seen in the “distribution, hotel & catering” sector, this segment taking what could be regarded as a normative / expected hit as a cyclical consequence to previous period hits of primary industries (mining, agriculture), secondary industries (processing and production) and construction. Thus theoretically, the recession is working its way through, supported by the now ramped-down but still loose Quantitative Easing stimulus spending (1.2% of national GDP).
But that massive fiscal injection by the government into primarily the banking sector along with consumer incentivisation (ie the UK car scrappage scheme) has left public finances in a dire situation. At its heart the current or new-come government must steer the UK economy between the extremes of a Japan-like long-term minimal growth scenario and that of an over-extended QE policy generating M4 liquidity to give a false impression of substantial growth which invites hard to handle inflationary pressures. Keen to avoid both, Mervyn King et al on the BoE's Monetary Policy Committee must now work in conjunction with broader industrial policy-makers to regenerate the economy, especially so since many of the fiscal levers have already been effectively exhausted.
In summary, the concerning environment is as follows: a budget deficit of £175bn approx (of a £800bn PSBR), a trade deficit of £8.3 as of November (down from a previously better 7.8% 'helped' by car exports) and unemployment standing at (an 'official' though suspectedly unrepresentative) 8%.
And so it is in this already concerning context that the UK Treasury Minister yesterday highlighted his government's need to take the nation's accounts yet further into the red to eventually alleviate the pain, the aim to half the national debt by 2014. The measures of reduced public sector expenditure nominally by -12 to -15% and the efforts to increase income via steeper taxation are of course expected, though sensitively deployed. A theoretically pertinent element here is the application of the Low Carbon Transport initiative, which alleviates company car tax on electric cars and vans. And though good news for the likes of Smiths Electric and Modec that convert and manufacture e-vans, the real effect in increasing zero emissions e-vehicles on UK roads will be realistically negligible given the chicken-and-egg dichotomy of of e-charging infrastructure that has to date seen little real investment; especially so outside of inner-London.
So Alistair Darling's announcement was par for the course, yet still elicited little corporate or public belief as to how his (or any) government would or could engage a plan of national economic growth. For it is the question of long-term industrial planning, beyond the rhetoric of the “Green Economy”, that UK & foreign corporations and the public at large ponder.
The disparity gap between the rhetoric and reality has perhaps grown to an all time high. The very function of a supposedly knowledge economy shown to be in schism when theoretically highly qualified graduates work in 'chicken-cell' call-centres, inanimate computer servers as opposed to human brains are the real knowledge hubs, and the street graffiti artist 'Banksy' depicts better social commentary 'advertising' than the famed creative media 'shops' of Soho Square. Disaffection runs rife through all age groups, but perhaps most prevalent in the productive critical 30 & 40-somethings - over and above the comfortably off Baby-Boomers or their cyber-space'd (almost self-consciously removed) teenage grand-children.
[NB. The book 'Fantasy Island', authored by Elliot & Atkinson, although not yet read by investment-auto-motives, appears to give a good rounded account of the UK's present PESTEL position]
Inevitably, planning the country's industrial future is perhaps the most important task for the highest echelons of the UK establishment that sit in Whitehall. One only hopes they have a good appreciation of the size of that task, the complexity of the journey and ultimately the required outcome. But given past performance of only limited advancement and holistically orchestrated demonstration, there are 101 million reasons to think not.
However, to this end we will undoubtedly see the re-emergence of greater central planning – even under probable future Tory governance – which administratively echoes the 'reign' of the National Economic Development Council of 1962 – 92. Though unlike NDEC, the primary 3 way conversation must be between government, industry and finance. The latter replacing seat of the 'old world – old view' unions that ruled and stalled Britain the 1960s and 70s.
As a result, investment-auto-motives imagines new Economic Development Committees (neo-NDC's) will be born relative to each systemically-important industrial sector. And as such the remit of an automotive sector strategy council will take and progress the recent findings of the UK Motor Industry Report.
Presently in the broader forum, the re-balancing of investment in government bonds, corporate bonds, hybrid instruments such as convertible bonds and newly emergent 'CoCo's and renewed belief in fundamentally strong stocks will slowly but surely provide a new platform for growth.
Equally a platform must be built for the future of UK Autos, one which includes investment-auto-motives' previously mentioned need for a synergistic relationship between imported Tier 1 technologies and national NPD and local build competences. That probably means a re-birth of the 1981 British Technology Group, the conjoined forces of the then National Research and Development Council and the Development Corporation. Today the Sept of BIS (nee BERR) seems to be setting the scene for that eventuality to promote industrial efficiency and innovation – through probably today a PPI scheme, given the contextual background of government owned large UK banks and the need for wholesale sector transformation.
And so today is set in the context of historical economic cycles, rises and slumps necessitating the use of alternate associative loose and tight industrial planning.
As the progressive Chinese automaker BYD sets its sights on Los Angeles as its entry-point for its clean-tech cars, the UK must ask itself how it can best serve itself in this arena.
Today's UK auto-industry spans a plethora of scale and capabilities, yet must be essentially re-worked as an intelligent, interactive network to maximise change and productivity.
Today's low production run e-vans are of little impact and realistically commercially unviable. So the structural climb to large scale mass mobility that offers very low & zero emissions CO2 vehicles, perhaps engineered, produced and retailed in a very different manner via a very different business model and set of capabilities is today still practically a long-reach aim; even if on the fringes pieces of the jigsaw are being slowly put into place.
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