To follow-on from the Societal perspective described in the previous post, the following 2 commentaries take a closer look at the Commercial.
As previously stated, business commentators and politicians alike highlight that the economic downturn has bottomed-out and slow recovery has begun. It seems that such leaders have had enough of the 'talking down' of the economy, even if a weighty proportion of metric indicators, along with general sentiment, don't necessarily reflect that optimism.
[NB. Of just as great concern is John Auther's recent Short View note that risk-averse global capital is reverting back into a still stagnant US so supporting a fundamentally weak Dollar and still fragile domestic economy].
Since the start of the Q209 equities rally, the constituent characters that make-up the capital markets view a parallax-biased world. One driven by the extremes of 'on-off' speculation and risk-aversion, much depending on event-driven sentiment. And it seems that such volatility will continue as the global economy lurches from one systemic pillar - and associated problem - to the next. Having been through the Credit Crisis, Banking Crisis, Sovereign Debt Crisis, all look-on with concerns of an Sterling and Euro FX Crisis emerging.
Even so, with many of these crises that form the systemic whole behind us, it is now time to review the very foundations of society and commerce - foundations that must support the future.
As investment-auto-motives has stated in the past, the evolution of the West's credit and asset bubbles demonstrated how the notion of true value and productivity had been surpassed by financial engineering at all levels - corporate, consumer and government, promoted by over-zealous financial innovators.
Although the process will be painful, it is surely time now for the West (UK and US in particular) to grasp the nettle regards the dismal public finances which if unattended will continue to strangle what should be a mixed, yet still pro-capitalist, economy. For it is that ambitious verve, that entrepreneurial drive, which will in large part regenerate desperately needed wealth creation.
In truth today the UK and US appear to sit in an idealistic bubble, many politicos' beliefs fed by their own rhetoric and perpetuated by miles upon miles of journalists' PR-driven column inches.
This eco-era is supposed to be the savior of the West, yet whilst progress is being made it is undeniably slow. The inability to consensually ratify Copenhagen given the costs to the present perilous economy, means that any government/regulatory push to 'greenify' industry and consumers has been largely halted by the headwinds of economic reality. Disheveled national budgets prohibit nationally sourced incentives, add to which the impact of 'liquidity cautious' companies and risk-averse investors. The latter demonstrated by the virtual collapse of Venture Capital funding, which has of course historically provided the seed money for sector transformative products and services.
Hence the green era set in motion still looks decidedly light in colour - more opaque verdigris than deep olive. Accordingly commercial expectations of a massive consumer-led green revolution have faded fast, from their initial unrealistic expectations.
[NB auto industry studies in the mid-1990's and over the following decade regards the importance of eco-friendly cars to consumers demonstrated the issue to be low on their agenda, only brought to bare with oil/petrol price spikes and the opportunity to buy new (eco-cars) at discount via scrappage schemes. That general past reluctance may well have been more entrenched behind the lip-service given the relative high cost-slow breakeven associated with eco-tech].
Even so, with realistic reduced or flat demand-pull some companies are under-taking supply-push.
Major commercial players such as Marks & Spencer here in the UK are indeed playing a role, with beyond its in-house 'No Plan B' initiatives, an externally directed effort to energy-lag its workforces' home attics. However, such cases look very much like an alternative (probably tax-efficient) form of PPI, used as a lever where the state itself has been unable to effect change upon its citizens. The M&S 'directive' stands in contrast to a similar attic-lagging project rolled out by the London Mayor's office, but this grande initiative hence stumbled over the bureaucratic reality that the Mayoral Office cannot enforce the roll-out via autonomous local borough councils.
[NB This initiative of overlapping the notions of 'work' and 'home' could well be M&S's attempt to expand its consumer finance ambitions, probably initially into employee mortgages, then hence moving on to customer mortgages possibly via a banking licence or in league with a major bank ; since M&S and its backers (large equity & FI) undoubtedly recognise the deflated price of the UK housing stock and the eventual need to extend its personal finance activities beyond store cards, insurance and personal loans].
So certain major corporations are, small step by small step both in-house and customer-facing, appear to be contributing; having set out feasible targets. However, others seem to have over-played the eco-promise.
GM's recent announcement that it will discontinue its (Chevy Volt-based) Cadillac Converj concept, highlights how the eco-bar has been dramatically lowered; thereby infact reducing its commitment to what was lauded as large, step-change, enabler.
[NB. investment-auto-motives has, as previously stated on many occasions, long been skeptical about the technical and commercial feasibility of the GM Volt, especially given its $40,000+ price vs $20,000 Honda Insight or $22,000 Toyota Prius. (Expect to see Prius match insight on pricing given the Toyota debacle). Hybrids are only now starting to prove commercially viable, largely on a consortium basis for most automakers, whilst electric vehicles will only be able to realistically exist within their own co-designed 'micro-environs' as we see with North American NEVs within essentially closed communities. Hence a truly bright future for e-vehicles depends upon a en mass changed social fabric].
So where does the ever extolled green revolution sit today?
We are in reality seeing the inching forward of practical solutions and drawing back of the impractical.
And that, quite rightly, will set a rational contextual background for the eco-investment mentality. In doing so it will set a conservative tone regards acceptance of proposals set out by companies and entrepreneurs seeking backing. The oft over-hyped 'change the world in one easy step' inventors with wild-card schemes - such as the global CO2 air filtration machine - will be replaced by far more realistic 'incremental opportunists'. Individuals and groups who work pragmatically in accord with real-world restrictions (micro & macro) and can ideally incorporate the tenants of low-risk, low-cost and scalability across multiple market segments an geographies.
Fundamentally, it means reviewing the broad spectrum of possibility across all human activity with a discerning commercial acumen. It may mean that instead of seeking the far-reach scientific panacea, it engenders a view across neighbouring and disperate sectors to identify complementary technical and service solutions. Of consequence is the fact that this process is not purely the domain of the West, since Eastern intellectual force has grown to become weighty and in the future prolific.
So the West, the UK perhaps in particular, must address its place in the world.
Politicos and the like hark the typical rhetoric... “the land of opportunities presented by 21st century high-tech, high-value industries”...typically identifying "the creative industries", Info-Tech, Bio-genetics, Pharmaceutical and of course (Advanced) Energy. Yet we must add to this the somewhat hidden but vitally important sector of Defence, militarily developed technologies often the spring-board for latter-day broader private commercialisation.
But in reality the power of the competitive advantage the UK (& US) seems to innately believe it holds may infact be far weaker than imagined. This is exemplified by the Anglo-Swedish firm AstraZeneca, with its restructuring announcement that sees a consolidation of its R&D activities, with aligned 'high-value' job losses. That act alone demonstrates the commercial pressures in a R&D led organisation, pressures which politicians and business commentators cannot disregard.
And whilst the R&D / IPR 'future-promise' is a central, meaningful mantra, recognition must also be given to the intrinsic complexities of managing an increasingly 'people-soft' based economic system. Complexities which exist from the ground-up of state education all the way through to the organisation of corporate cultural creativity (CCC). Hence it questions the very structural basis of a modern western society.
The issue in the short term has ramifications that stretch well beyond the hypothetical operational management of firms or schools, and drills right down into the heart of investor attitude.
IPR-based sectors whilst undeniably important are also harder to orchestrate to provide continued year on year success unless a firm is fortunate to create a 'wonder' product and associative new segment from which it thenceforth maintains its leadership, as we've seen with Microsoft, Apple, Google, Facebook, Linked-In etc. Thus using IT as the case-construct, early phase investors can do well if a new company gains true market traction and swells enormously in its formative years.
But much of the investor base (from institutionals to skeptical private individuals) – especially today - want a Buffett-eque style of constant returns with secured initial capital set against hard physical assets, as historically typified by manufacturing and other traditional sectors in which labour was a component (replaceable) part of the economic system (ie Smith's: land + capital + labour = rent/profit)....yet today and increasingly tomorrow, people/labour have become the primary element of the investment equation.
Of course the rise of the corporation through the 20th century ring-fenced overt dependence on 'people-soft', yet it is also recognised that the traditional corporation must change to survive...the question is how?
Ultimately the idea of 'high-value' spans a plethora of sectors, from certain media-space through to specialist aero components and systems through to scientific instruments. In essence it means a knowledge-economy created from a merging of discipline-based education/training allied with personal curiosity and experimentation.
'People-soft' centres like Silicon Valley, the Cambridge Triangle and the Pune Valley have helped to set the socio-industrial templates that endeavour to create the best conditions for success, but the need to essentially re-create that 'free' academic campus feeling also increases the peril of remoteness from commercial reality and investment return necessity, and has been a major focus of the investment community's vision for tomorrow.
So today we see the best practices of the academic laboratory and the commercial R&D centre being assessed so as to try and create a commercially controllable environment for innovation – the term 'innovation' in itself a very blunt descriptor for the full spectrum and levels of variant activity.
Thus for the UK and US the real challenge is to spark, encourage, grow and harness the innate ability of their respective and combined populations. But this nurturing ability will need to be directed toward a credible industrial/commercial template. Presently it is the construct of such a template-form which is the major issue for strategic governmental research, assessment, debate and policy-creation.
The UK Auto sector must demonstrate its role in driving the UK economy, identifying its role for value-creation within a regional and global contexts.
Showing posts with label US auto industry. Show all posts
Showing posts with label US auto industry. Show all posts
Wednesday, 3 March 2010
Monday, 8 February 2010
Company Focus – General Motors – Pulling Back to Fitness, Preparing for Public Markets & Looking Far Beyond.
Although obviously not presently listed on the NYSE or other bourses, GM's intention to re-list as soon as practicable, predicates that investment-auto-motives maintains an overview of unfolding events.
GM has obviously been through major changes over the last 18 months, recast effectively as 2 companies – the 'new GM' and Motors Liquidation Co – with more recently amendments made at Board level with some of the faces that made up the 'American Industrial Establishment' moving-on, and replaced by others; the most significant of which was Ed Whitacre appointed as Chairman in June 2009.
By December he was appointed as Interim-CEO, and after reportedly a 2 month executive search for new CEO, Whitacre was named Chairman and CEO on 25th January. This then mirrors his dual role at AT&T – a role he kept for 17 years! Asked how long he would hold this dual-role, the answer was indefinite, but unlike AT&T, his primary role at GM is to cast the foundations internally and externally that prepares 'new' GM for a second coming on the public capital markets.
There has been criticism from the financial press that such dual appointments can make for over-authoritarian corporate regimes, the power-base centralised with the Board and senior executives given little more than implementation roles. Of course the counter-argument is that testing times, such as those now at GM, require definite leadership, the high ideals of consensus possibly leading to the worst of committee outcomes. Thus, it seems that Washington via the 'pseudo-czar' of Ron Bloom (now assisted from a labour-position by Ed Montgomery) has rightly encouraged the idea of 'The General's General', assisted by promoted executives and amenable work-force representation that enables the continued reformatting of GM. A reformatting that seeks in due course to excite the capital markets about a brighter, leaner, greener and globally competitive future.
Asked whether additional Presidential or COO appointments would be made, Whitacre stated that such roles would not be created. Thus a picture forms where Whitacre will be working in a partial, critically intentional, vacuum so as not to become embroiled in the everyday fire-fighting. Instead working as closely with Governmental officials and Wall Street bankers as he is with his own Board and top tier. This then, given previous IPO experience with AT&T, allows him to best understand what both these 2 primary exiting and entering stakeholders require from GM to administer a successful transition from state to private ownership. Relatedly, the promise to payback a slice of the government loan by June effectively reduces the government's share, thus simultaneously creating a greater portion of privately available GM equity. This then provides GM itself with greater decision-making freedom as to exactly how much equity it should offer versus self-held.
Thus far the GM recovery plan has seemingly gone well. Certain divisions sit in limbo awaiting sale, or have been so, within the 'invisible twin' of Motors Liquidation Co (ie Saturn, Pontiac versus Hummer, SAAB) and MLC's own volatile stock-price mirrors event-driven speculation.
Interestingly and appropriately GM has taken different vender-strategies with differing buyers, Hummer sold for a lowly $150m cash (possibly to aid US-Sino relations) whilst SAAB was sold to the consortium fronted by Spyker under a deal sees GM retain $300m worth of equity and take $74m cash. Given the technical-supply relationship a maintained stake was always expected, but what wasn't, was the high level of stake versus minimal cash received; thus ostensibly a paper-based deal.
GM's main focus however, has obviously been its domestic market and operations, with the dual benefits of a major 'weight-loss' bankruptcy filing chronologically superseded by the major aid of Washington's CARS scrappage programme – even if GM was not a primary beneficiary. Such surgeory and rehabilitationn has enabled a stabalising of NA market-share and, as Whitacre reports, achieved the metrics laid out by the internally stewarded GM viability plan. At exactly what level those performance metrics set, and by what degree they were bettered, remains confidential, but investors will require convincing of the self-generated leap made given the massive regulatory and fiscal assistance of the state, and the implicit nature of a seemingly coterie-coddled behind the scenes process as opposed to a commercially naked one.
However, for all the criticism GM has re-bounded well on the product front. The European devised Insignia, badged as Buick Regal in China and the NA, well positioned as a handsome lower exec sector affordable vehicle. The 2010 Astra exudes a matured distinction in the C-segment. The S.Korean (GMDAT) devised Chevrolet Beat (also badged Matiz, and Spark for Asia-Pacific) holds a youthful funky appeal to global markets (Euro and US markets from Q1 2010).
So top-line earnings look set to be boosted from a broad centre-ground yet meaningful market appeal.
In reality the US tax-payers money allowed GM to temporarily massage its business model, able to heavily discount its once sizable vehicle inventory, push stock onto dealers at reduced rates to shed production excess whilst re-aligning new vehicle supply capacity to match lowered forecast demand, yet theoretically maintain margins on new release vehicles such as Insignia and Beat/Spark. Thus it has been able to play both the unit-margins card in the D-segment in Europe and as a result of China-US exportation, and the volume-profit card in the B segment across regions, though the S.Korean Won has risen of late compared to previous ongoing weakness.
In mind of, but beyond, the currency effects of global operations, GM effectively seeks to re-invent itself as a right-sized, capable and prosperous modern car company.
Washington has done what it can, arguably far more than economically rational, to enable that metamorphosis. The Chairman and CEO is now tasked with stewarding the transition back to a commercially viable global entity. Once the extended scrappage schemes (eg UK's) that have kept the industry on life-support only those with buoyant balance sheets and attractive products will be able to fight for their respective share of the shrunken 'normalised' markets, and be able to maintain CapEx momentum.
Investors will want to see GM as a clean sheet company, having shed its remaining major operational issues; such as the arbitration filings by “some 500/600” NA dealers.
[NB that very approximate sum was uttered by Whitacre, demonstrating his somewhat removed position from the coal-face].
In contrast to the overtly relaxed, laid-back conference persona the top-brass of GM seemingly espouse, future investors will need substantive convincing that the 'massaged momentum' expected to be seen in financial statements over the next 6 months - as a precursor to the IPO - can be latterly maintained.
In sports parlance, GM's future, for investors and all stakeholders alike, must be considered as a long-haul marathon, not simply an IPO sprint. Today, GM pushes-off of the starting blocks with new vigor and presently less incumbered by a diminished competitor set. Importantly, the renewed Board hopefully offering fresh-thinking to bolster Walter Borst's Congressional promise, must look far beyond the attractive fluttering 'ticker-tape'.
That contention and possible dilemma is the core task that the now all-powerful Whitacre must balance. In this respect GM is a very different beast to AT&T – conglomerate divestment as opposed to conglomerate build, cost-cutting as opposed to competence building, erratic as opposed to stable capital market conditions and international competition as opposed to domestic focus.
Ed Whitacre's obviously astute knowledge of, and progressive introduction to GM, of the TelCo business model means that new GM into the future morphs into a very different beast.
[NB, as stated some time ago, investment-auto-motives conjects that one potential scenario sees the formation of 'GEM', with GE & GM creating a new 'Intel-e-Drive' division, possibly hastened via the acquisition of Chrysler's GEM electric car division].
Ed Whitacre mentioned a stay of two to three years, yet given Bob Lutz's oft return in what should be a stable, 'heir apparent' world of NPD, the mass revision of the complete GM business template indicates that Whitacre's stay looks set to be far longer than announced.
GM has obviously been through major changes over the last 18 months, recast effectively as 2 companies – the 'new GM' and Motors Liquidation Co – with more recently amendments made at Board level with some of the faces that made up the 'American Industrial Establishment' moving-on, and replaced by others; the most significant of which was Ed Whitacre appointed as Chairman in June 2009.
By December he was appointed as Interim-CEO, and after reportedly a 2 month executive search for new CEO, Whitacre was named Chairman and CEO on 25th January. This then mirrors his dual role at AT&T – a role he kept for 17 years! Asked how long he would hold this dual-role, the answer was indefinite, but unlike AT&T, his primary role at GM is to cast the foundations internally and externally that prepares 'new' GM for a second coming on the public capital markets.
There has been criticism from the financial press that such dual appointments can make for over-authoritarian corporate regimes, the power-base centralised with the Board and senior executives given little more than implementation roles. Of course the counter-argument is that testing times, such as those now at GM, require definite leadership, the high ideals of consensus possibly leading to the worst of committee outcomes. Thus, it seems that Washington via the 'pseudo-czar' of Ron Bloom (now assisted from a labour-position by Ed Montgomery) has rightly encouraged the idea of 'The General's General', assisted by promoted executives and amenable work-force representation that enables the continued reformatting of GM. A reformatting that seeks in due course to excite the capital markets about a brighter, leaner, greener and globally competitive future.
Asked whether additional Presidential or COO appointments would be made, Whitacre stated that such roles would not be created. Thus a picture forms where Whitacre will be working in a partial, critically intentional, vacuum so as not to become embroiled in the everyday fire-fighting. Instead working as closely with Governmental officials and Wall Street bankers as he is with his own Board and top tier. This then, given previous IPO experience with AT&T, allows him to best understand what both these 2 primary exiting and entering stakeholders require from GM to administer a successful transition from state to private ownership. Relatedly, the promise to payback a slice of the government loan by June effectively reduces the government's share, thus simultaneously creating a greater portion of privately available GM equity. This then provides GM itself with greater decision-making freedom as to exactly how much equity it should offer versus self-held.
Thus far the GM recovery plan has seemingly gone well. Certain divisions sit in limbo awaiting sale, or have been so, within the 'invisible twin' of Motors Liquidation Co (ie Saturn, Pontiac versus Hummer, SAAB) and MLC's own volatile stock-price mirrors event-driven speculation.
Interestingly and appropriately GM has taken different vender-strategies with differing buyers, Hummer sold for a lowly $150m cash (possibly to aid US-Sino relations) whilst SAAB was sold to the consortium fronted by Spyker under a deal sees GM retain $300m worth of equity and take $74m cash. Given the technical-supply relationship a maintained stake was always expected, but what wasn't, was the high level of stake versus minimal cash received; thus ostensibly a paper-based deal.
GM's main focus however, has obviously been its domestic market and operations, with the dual benefits of a major 'weight-loss' bankruptcy filing chronologically superseded by the major aid of Washington's CARS scrappage programme – even if GM was not a primary beneficiary. Such surgeory and rehabilitationn has enabled a stabalising of NA market-share and, as Whitacre reports, achieved the metrics laid out by the internally stewarded GM viability plan. At exactly what level those performance metrics set, and by what degree they were bettered, remains confidential, but investors will require convincing of the self-generated leap made given the massive regulatory and fiscal assistance of the state, and the implicit nature of a seemingly coterie-coddled behind the scenes process as opposed to a commercially naked one.
However, for all the criticism GM has re-bounded well on the product front. The European devised Insignia, badged as Buick Regal in China and the NA, well positioned as a handsome lower exec sector affordable vehicle. The 2010 Astra exudes a matured distinction in the C-segment. The S.Korean (GMDAT) devised Chevrolet Beat (also badged Matiz, and Spark for Asia-Pacific) holds a youthful funky appeal to global markets (Euro and US markets from Q1 2010).
So top-line earnings look set to be boosted from a broad centre-ground yet meaningful market appeal.
In reality the US tax-payers money allowed GM to temporarily massage its business model, able to heavily discount its once sizable vehicle inventory, push stock onto dealers at reduced rates to shed production excess whilst re-aligning new vehicle supply capacity to match lowered forecast demand, yet theoretically maintain margins on new release vehicles such as Insignia and Beat/Spark. Thus it has been able to play both the unit-margins card in the D-segment in Europe and as a result of China-US exportation, and the volume-profit card in the B segment across regions, though the S.Korean Won has risen of late compared to previous ongoing weakness.
In mind of, but beyond, the currency effects of global operations, GM effectively seeks to re-invent itself as a right-sized, capable and prosperous modern car company.
Washington has done what it can, arguably far more than economically rational, to enable that metamorphosis. The Chairman and CEO is now tasked with stewarding the transition back to a commercially viable global entity. Once the extended scrappage schemes (eg UK's) that have kept the industry on life-support only those with buoyant balance sheets and attractive products will be able to fight for their respective share of the shrunken 'normalised' markets, and be able to maintain CapEx momentum.
Investors will want to see GM as a clean sheet company, having shed its remaining major operational issues; such as the arbitration filings by “some 500/600” NA dealers.
[NB that very approximate sum was uttered by Whitacre, demonstrating his somewhat removed position from the coal-face].
In contrast to the overtly relaxed, laid-back conference persona the top-brass of GM seemingly espouse, future investors will need substantive convincing that the 'massaged momentum' expected to be seen in financial statements over the next 6 months - as a precursor to the IPO - can be latterly maintained.
In sports parlance, GM's future, for investors and all stakeholders alike, must be considered as a long-haul marathon, not simply an IPO sprint. Today, GM pushes-off of the starting blocks with new vigor and presently less incumbered by a diminished competitor set. Importantly, the renewed Board hopefully offering fresh-thinking to bolster Walter Borst's Congressional promise, must look far beyond the attractive fluttering 'ticker-tape'.
That contention and possible dilemma is the core task that the now all-powerful Whitacre must balance. In this respect GM is a very different beast to AT&T – conglomerate divestment as opposed to conglomerate build, cost-cutting as opposed to competence building, erratic as opposed to stable capital market conditions and international competition as opposed to domestic focus.
Ed Whitacre's obviously astute knowledge of, and progressive introduction to GM, of the TelCo business model means that new GM into the future morphs into a very different beast.
[NB, as stated some time ago, investment-auto-motives conjects that one potential scenario sees the formation of 'GEM', with GE & GM creating a new 'Intel-e-Drive' division, possibly hastened via the acquisition of Chrysler's GEM electric car division].
Ed Whitacre mentioned a stay of two to three years, yet given Bob Lutz's oft return in what should be a stable, 'heir apparent' world of NPD, the mass revision of the complete GM business template indicates that Whitacre's stay looks set to be far longer than announced.
Tuesday, 17 November 2009
Industry Structure – GM & Opel – A Temporary Case of Irrational Exuberance?
“Irrational Exuberance” was once the phenomena of stock markets, yet it now seems that such misplaced optimism can be found in the annuls of a still heavily shocked and sedated western auto-sector.
Recent weeks witnessed a U-Turn of attitude in the RenCen at Detroit, after 'New GM' decided to remove the sale of Adam Opel GmbH from the negotiating table. The heady mix of intra & inter-national industrial policy-making, the social strings of financial aid packages and business-centric strategy formulation ultimately clashed, and the triangular relationship of the 3 prime stakeholders - GM, Magna-Sberbank-GAZ and Angela Merkel – pulled and torn.
The protagonist GM has decided that it should, after all, direct the future of its European division, parachuting in Nick Reilly from his successes at GM Asia-Pac to take the reins from Carl Peter-Forster, his role at Opel presumably seen as untenable given his preference for the unit's sale to the the Canadian auto-supplier and Russian bank that would have given GAZ its much needed transformation.
Unable to arrive at a satisfactory conclusion, it has rebuked the Russian backed offer on strategic grounds relating to IPR, R&D, Russian sales territory and longer term global competitiveness implications. Its stance is understandable, given the strategic importance of Opel as GM's medium car creation hub, and the opportunity the relatively new SCCS platform (created as a JV with FIAT) offers a rival automaker such as GAZ which can leverage to its own export advantage Magna components pricing, low cost labour & overhead and its geo-political position between Europe, the CIS states and 'Chindia'.
Unsurprisingly GM does not wish to 'hand on a plate' its relatively knowledge advanced division to an arguably better placed competitor. But it must in due course and at some point acknowledge that something radical must be done to alter the very DNA of Opel as part of an environment reactive evolutionary process if the company is to not simply survive on the largess of state sponsorship in the face of withering consumer attraction.
Critics rightly judge GM by its historical lack of good parenting toward Opel and the 21st century mis-management of its own North American operations, since Detroit has indeed been less than adept in profitably operating such a sprawling monolith - with typical internal & legacy conflictions - caught in a ravenous sea of global sector change.
The 'New GM' with new leadership and a largely new board seeks to redress such criticism, but realistically can it? What exactly will it do to redress the situation and specifically the Opel GmbH challenge?
Recent news indicates it seems to be replaying the 'set-play' recently created in the US by GMNA, which effectively draws in state and union stakeholder for interim term survival. Read between the news-report lines and this appears to be the case; GM using US and EU aid finance aswell as its own rebuoyed balance sheet.
But let us not forget the fact that the political will to keep financially bolstering under-performing companies is withering, and the fact that GM's improved balance-sheet is only – re-iterate 'only' – a function of a macro-enabled external assistance(s).
These being:
1. a fast-track (investor debilitating) Chapter 11 procedure,
2. massive financial injections from Washington ($13.4bn of which still sits in Treasury escrow)
3. the CARS 'cash for clunkers' scrappage scheme which effectively drove an estimated 50% of GM dealership footfall in the period (& with the by-product that it actually benefited Toyota, Honda, Hyundai and Ford far more so than GM).
4. it is effectively US tax-payer cash that repays Opel's E1.5bn bridging loan from the German tax-payer – done so to eradicate the implicitly socialist agenda of the 'custodial' Opel Trust
Given that this is the reality, GM though better placed, is not in a position convey any swagger, or indeed “irrational exuberance”. For its is far from out of the woods in the US, and especially not so relative to Opel's diminished prowess in Europe.
Removing the remit and need for the Opel Trust is indeed a good development, since it partially de-shackles management, but instead of simply re-running the 'GMNA set-play' of state & union equity provision – and thus simply replacing one set of shackles with others - a truly viable plan of action is needed to re-shape Opel. One to suit its diminished place within the EU consumer market yet of possibly more marked importance to a global GM and indeed a global auto-sector.
And it is from the hopeful 'lessons learnt' by way of the Magna-Sberbank-GAZ consortium that GM Europe must re-invent itself.
Such aspiration may or may not be the case, we shall have to wait and see.
In the meantime, instead of an Opel sale, GM has arrived at its own plan, one which reduces the level of German aid reliance and so presumably freeing itself from much of the present plant & labour overhead obligation. Following the FIAT lead with a pan-European approach it seeks to spread the $3bn cost and load of re-structure across various EU nations and labour unions, with $1.48bn of company capital re-directed from Detroit to Russelsheim and beyond.
GM states that Opel has enough liquidity to maintain operations (effectively 'as is') but lacks the resources to undertake the full re-structure required.
So beyond the lower level contribution of EU state and union aid – including 'only' hundreds of millions of Euros from Germany vs the previous E2.2bn relative to the Magna deal – the largest slice of such additional resource presently look to come from the US Treasury.
It will be of little doubt that as GM was negotiating with Magna as to the IPR package made available for sale, it would have also been convincing the Obama Administration of Opel's central strategic role to the company given its R&D exposure to Germany's advanced eco-engineering sector that realistically downplays high-cost EV and hybrid R&D for that of low-cost clean diesel development. Whilst the Japanese may have the petrol-NiMH hybrid lead, GMNA may realistically wish to ultimately pursue a more conventional path for all the rhetoric of presently limited available US-made hybrids or next generation L-ion range-extender vehicles (NB GM Volt est $35,000 vs Toyota prius $22,000!)
Beyond the US's own intrinsic benefit from Opel (ie Germanic) know-how, and we see that with FIAT & RHJ International still probably in the background, GM recognises that Opel's constituent parts of: R&D capabilities, project development assets (HR, IT, studios, test-cells, tracks etc), plants and company dealerships and company land can be very probably further sweated. The company is less than the sum of its parts as a whole, but what if the parts themselves can be informally or formally hived-off?
Investment-auto-motives suspects that even if Opel's full and final sale is not imminent, a new period of corporate asset re-evaluation is so. Led by Reilly he will note: the EU's supplier base ambitions to become Tier0.5 players (not still discounting Magna); FIAT's own growth ambitions (yet cogniscent of historical FIAT-CCCP relationships), and lastly and very importantly his experience of China's auto-industry structural growth path with GM seeking a leading role.
The new Opel plan is ultimately an interim step, and undoubtedly will mean a required metaphysical 'deconstruction' of the entity. Exactly how that comes to play out in the future remains unclear. At one extreme via a 'GMNA set-play' Opel GmbH could be floated to become an AG or more likely an SE via an IPO to reflate its value. At the other extreme it could become a discreet set of self-propelled cost-centres, acting as an eco-engineering house, contract manufacturer, Tier0.5 player and yet more; tasked to compete within the GM empire (esp vs NA & China) to drive down costs and improve quality, and indeed reach out beyond GM to assist at a price in the development of BRIC auto-sectors.
As President Obama talks trade with President Hu Jintoa, that old adage of “what's good for GM is good for America...” is given the additional line “...is good for Sino-American relations”
However, for the moment that is a far-horizon possibility.
Any present GM jubilence should be recognise as only a momentary respite in the battle for GM transformation, since reports of Frederic Henderson's self-pronounced reliance on near-term sales which will now slacken after CARS will not provide GMNA with the momentum to turn the corner.
Hence it must look critically at the corporate and sector functions of Adam Opel GmbH.
Recent weeks witnessed a U-Turn of attitude in the RenCen at Detroit, after 'New GM' decided to remove the sale of Adam Opel GmbH from the negotiating table. The heady mix of intra & inter-national industrial policy-making, the social strings of financial aid packages and business-centric strategy formulation ultimately clashed, and the triangular relationship of the 3 prime stakeholders - GM, Magna-Sberbank-GAZ and Angela Merkel – pulled and torn.
The protagonist GM has decided that it should, after all, direct the future of its European division, parachuting in Nick Reilly from his successes at GM Asia-Pac to take the reins from Carl Peter-Forster, his role at Opel presumably seen as untenable given his preference for the unit's sale to the the Canadian auto-supplier and Russian bank that would have given GAZ its much needed transformation.
Unable to arrive at a satisfactory conclusion, it has rebuked the Russian backed offer on strategic grounds relating to IPR, R&D, Russian sales territory and longer term global competitiveness implications. Its stance is understandable, given the strategic importance of Opel as GM's medium car creation hub, and the opportunity the relatively new SCCS platform (created as a JV with FIAT) offers a rival automaker such as GAZ which can leverage to its own export advantage Magna components pricing, low cost labour & overhead and its geo-political position between Europe, the CIS states and 'Chindia'.
Unsurprisingly GM does not wish to 'hand on a plate' its relatively knowledge advanced division to an arguably better placed competitor. But it must in due course and at some point acknowledge that something radical must be done to alter the very DNA of Opel as part of an environment reactive evolutionary process if the company is to not simply survive on the largess of state sponsorship in the face of withering consumer attraction.
Critics rightly judge GM by its historical lack of good parenting toward Opel and the 21st century mis-management of its own North American operations, since Detroit has indeed been less than adept in profitably operating such a sprawling monolith - with typical internal & legacy conflictions - caught in a ravenous sea of global sector change.
The 'New GM' with new leadership and a largely new board seeks to redress such criticism, but realistically can it? What exactly will it do to redress the situation and specifically the Opel GmbH challenge?
Recent news indicates it seems to be replaying the 'set-play' recently created in the US by GMNA, which effectively draws in state and union stakeholder for interim term survival. Read between the news-report lines and this appears to be the case; GM using US and EU aid finance aswell as its own rebuoyed balance sheet.
But let us not forget the fact that the political will to keep financially bolstering under-performing companies is withering, and the fact that GM's improved balance-sheet is only – re-iterate 'only' – a function of a macro-enabled external assistance(s).
These being:
1. a fast-track (investor debilitating) Chapter 11 procedure,
2. massive financial injections from Washington ($13.4bn of which still sits in Treasury escrow)
3. the CARS 'cash for clunkers' scrappage scheme which effectively drove an estimated 50% of GM dealership footfall in the period (& with the by-product that it actually benefited Toyota, Honda, Hyundai and Ford far more so than GM).
4. it is effectively US tax-payer cash that repays Opel's E1.5bn bridging loan from the German tax-payer – done so to eradicate the implicitly socialist agenda of the 'custodial' Opel Trust
Given that this is the reality, GM though better placed, is not in a position convey any swagger, or indeed “irrational exuberance”. For its is far from out of the woods in the US, and especially not so relative to Opel's diminished prowess in Europe.
Removing the remit and need for the Opel Trust is indeed a good development, since it partially de-shackles management, but instead of simply re-running the 'GMNA set-play' of state & union equity provision – and thus simply replacing one set of shackles with others - a truly viable plan of action is needed to re-shape Opel. One to suit its diminished place within the EU consumer market yet of possibly more marked importance to a global GM and indeed a global auto-sector.
And it is from the hopeful 'lessons learnt' by way of the Magna-Sberbank-GAZ consortium that GM Europe must re-invent itself.
Such aspiration may or may not be the case, we shall have to wait and see.
In the meantime, instead of an Opel sale, GM has arrived at its own plan, one which reduces the level of German aid reliance and so presumably freeing itself from much of the present plant & labour overhead obligation. Following the FIAT lead with a pan-European approach it seeks to spread the $3bn cost and load of re-structure across various EU nations and labour unions, with $1.48bn of company capital re-directed from Detroit to Russelsheim and beyond.
GM states that Opel has enough liquidity to maintain operations (effectively 'as is') but lacks the resources to undertake the full re-structure required.
So beyond the lower level contribution of EU state and union aid – including 'only' hundreds of millions of Euros from Germany vs the previous E2.2bn relative to the Magna deal – the largest slice of such additional resource presently look to come from the US Treasury.
It will be of little doubt that as GM was negotiating with Magna as to the IPR package made available for sale, it would have also been convincing the Obama Administration of Opel's central strategic role to the company given its R&D exposure to Germany's advanced eco-engineering sector that realistically downplays high-cost EV and hybrid R&D for that of low-cost clean diesel development. Whilst the Japanese may have the petrol-NiMH hybrid lead, GMNA may realistically wish to ultimately pursue a more conventional path for all the rhetoric of presently limited available US-made hybrids or next generation L-ion range-extender vehicles (NB GM Volt est $35,000 vs Toyota prius $22,000!)
Beyond the US's own intrinsic benefit from Opel (ie Germanic) know-how, and we see that with FIAT & RHJ International still probably in the background, GM recognises that Opel's constituent parts of: R&D capabilities, project development assets (HR, IT, studios, test-cells, tracks etc), plants and company dealerships and company land can be very probably further sweated. The company is less than the sum of its parts as a whole, but what if the parts themselves can be informally or formally hived-off?
Investment-auto-motives suspects that even if Opel's full and final sale is not imminent, a new period of corporate asset re-evaluation is so. Led by Reilly he will note: the EU's supplier base ambitions to become Tier0.5 players (not still discounting Magna); FIAT's own growth ambitions (yet cogniscent of historical FIAT-CCCP relationships), and lastly and very importantly his experience of China's auto-industry structural growth path with GM seeking a leading role.
The new Opel plan is ultimately an interim step, and undoubtedly will mean a required metaphysical 'deconstruction' of the entity. Exactly how that comes to play out in the future remains unclear. At one extreme via a 'GMNA set-play' Opel GmbH could be floated to become an AG or more likely an SE via an IPO to reflate its value. At the other extreme it could become a discreet set of self-propelled cost-centres, acting as an eco-engineering house, contract manufacturer, Tier0.5 player and yet more; tasked to compete within the GM empire (esp vs NA & China) to drive down costs and improve quality, and indeed reach out beyond GM to assist at a price in the development of BRIC auto-sectors.
As President Obama talks trade with President Hu Jintoa, that old adage of “what's good for GM is good for America...” is given the additional line “...is good for Sino-American relations”
However, for the moment that is a far-horizon possibility.
Any present GM jubilence should be recognise as only a momentary respite in the battle for GM transformation, since reports of Frederic Henderson's self-pronounced reliance on near-term sales which will now slacken after CARS will not provide GMNA with the momentum to turn the corner.
Hence it must look critically at the corporate and sector functions of Adam Opel GmbH.
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