Industry luminaries, observers, CEOs & CFOs have for many years sought to alter the dwindling fundamentals of the matured western industry. A maturity hallmarked by intense competition, the nature of which is laid bare in recessionary times as demands retracts and the stronger absorb the weak; or the latter fall by the way-side.
Thus typically and historically the normal modus operandi has been the striving toward (economies of) scale-building in production and resource management. “Reduce unit costs”...” improve margins”... “exert market leverage”... and critically “re-build stronger”... have all been part of the mantra in order to better compete against new-entry players often better competitively positioned from RoW regions that have fundamental macro-economics. The opposition enjoys everything from everything from low-cost labour to deep pools of governmental financial backing. Thus the western auto-industry has been the 'sine qua non' of that innate industrial (almost military-eque) mentality to scale-up efficiency, incur ever increasing capital & resource intensive expenditure, all defrayed by ever-growing market-share of ever-growing regional automotive markets.
That indeed was the very business model origin of General Motors between 1908 and 2002's acquisition of Daewoo – the original 'buy & hold' strategy of William Durant almost endemic in the corporation and serving to partially off-set eroding NA market share with broader global sales up until 2009. Thus it achieved its centenary but historically savvy investors will rightly say its ROI heyday was many decades ago. However, until its recent heavy divestment undertakings – an action previously recommended by investment-auto-motives – GM had been the effective 'playbook' for all growing automakers.
Obtaining volume scale, new market reach and new segment reach via competitor acquisition at below-par historic values is still as valid today as it ever was for those companies well positioned to do so. The TATA-Jaguar-Land Rover deal, the FIAT-Chrysler deal, the Penske-Saturn deal and Koningsegg-SAAB deal the M&A's of the recent past.
This then is the normative behavior of the western auto-industry, today being relayed across S.Korea, India, China and other areas of SE Asia, the recent bankruptcy of Ssangyong yet another example of Shumpeter's 'creative destruction' as Ssangyong plant and assets are put up for offers and duly taken by either its parent's (SAIC) subsidiaries or competitor companies.
Thus Asia is 'enjoying' the early period of its 'hey-days' - the equivalent of the US industry's 1920s.
But there have been seen to be natural limits to the big is better model, the process itself incurring baggage and costs as a corporation inevitably takes on 'social baggage' (eg pensions, healthcare, etc) and by doing so increasingly must carry a hefty financial drag which in turn inadvertently generates a loss of its commercial & industrial momentum.
We have witnessed this in what was the heavily over-burdened 'Old GM' as it slowly approached its centenary year, requiring a shedding of its wholly 'legacy costs', the divestment of lesser performing divisions with re-focus on North America, China, Asia & Latin America.
This re-orientation marks a visible watershed period of western & Triad region industry, the mature sector understanding its relative position and seeking alternative ways forward with new structures, business models and products. ”New ways for new days” so as to meet the (inter)-national PESTEL challenges of tomorrow.
Unsurprisingly, they primarily include: energy reliance and security and energy cost, with the result - as some political commentators believe - to improve Triad commercial leverage with OPEC, Russia and other oil exporting regions by demonstrating oil's lesser hold on Triad economies.
Beyond the politics, it theoretically allows them to lead the world in eco-tech and latterly sell-on such physical product or licensed IPR advancement to the rest of the world.
So new automotive industrial structures are being formed in the midst of the present sector reformation, some obvious – typically new product types or marketing hype being on the everyday radar-screen of the popular and business press - others less so, effectively below the radar but far more powerful, such as the slow build theoretical formation of new era hypothetical business-models and so value-creation.
To do so enterprise innovators have and are looking to 'best practice' models, cases and benchmarks from external sectors so as to re-shape the very perception of what constitutes 'automotive' per se, and moreover, what constitutes the basis (and accordant perceptions) of personal & family mobility 'reality'. By shifting understanding and perception of the innate 'value' of mobility it so shifts the 'reality of mobility'. By doing so there can be an according re-appropriation of mobility methods, models and pricing structures.
Thus a fundamental shift from the historical/normative viewpoint of “cost-driven pricing” (ie. production cost + retail margin = price), toward “value-driven pricing” (ie mobility value = price). In essence, a deconstruction and reconstruction of mobility from both business profitability and consumer usage dimensions.
That implies re-evaluation - indeed recreation - of the mobility value-chain to ideally gain multiple value-streams and so potential revenue-streams. The process has been termed as “unbundling”; a cutesy phrase less threatening than 'reformation', 'reconstitution' or 'reconstruction'.
The closest example to date in telecommunications - that of the communications device (the mobile phone), the usage methods (ie service package options) and the transmission network itself. In short – the device (basic to complex), the usage (level & type) and the infrastructure.
[NB investment-auto-motive's previously published item “iPODs, Barbie Dolls & Airfix Kits” to demonstrate through analogy and example 3 of the prominent consumer and production trends forging the ability for lowered cost mass customisation, which will in time directly effect the re-strengthening of value-creation, affecting industry structure and so the evolution of public and sector and private sector vehicles]
The basics of an overtly (overly?) broad vision is slowly, step by step being sought, involving new product technology, service options and the implementation of telematics. Hybrids and EVs, new leasing arrangements and the inter-connectivity of 'intelligent transport systems' (ITS) and electrical charge points/grids.
Thus it is around this 3-Dimensional 'Mobility Order' (Product – Service – Network) that investment, commerce and industry is trying to orientate. Developing a plethora of commercial initiatives from mature, developing and embryonic enterprises and sectors.
But although each arena has developed independently since there appears to be no publicised over-riding master-plan or route-map. Whilst academic hypothesis may have been developed behind closed doors, the massive clean-tech and infrastructure spending from inter-national stimulus packages must be adequately planned and governed if the present global economic hiatus is to be used to change the face of mobility.
However, even without the issue of a formally publicised plan, commercial enterprises of all shapes and sizes are driving the agenda, both independently, via official industry bodies and via cross-sector formal and informal forums 'from DAVOS down'.
The investment community and commerce is talking, but is it at the level of detail required? Given this apparent fact, (yet recognising that outline plans will be periodically hypothesised), investment-auto-motives proposes highlights the importance of 'scenario plotting' to trace-out the 3-link business partnerships that best re-shape sector for a latter-day / additional 21st century auto-industry.
Ultimately amongst the plethora of clean-tech vehicle Researchers, Producers, Retailers, Service & Applications Providers, Charging Providers and Energy Companies – and the multiple combinations thereof - the investment community will need to improve its ability to identify the potential winners from the probable losers.
Auto industry history is littered with the lost finances of both professional and optimistic, enthused, naïve amateur investors, seeking to get in on the ground floor of 'future-tech' cars. Where there is chatter, there is interest, and where's there's interest there is the real possibility for the age old 'confidence-trickster'; same scam of 'creaming' over-enthused and irrational investors. The fabled story-line of 'The Producers' or the many historical examples of off-plan real estate projects well illustrate the process from hyped marketing to basic business set-up, business stalling, re-capitalised and re-stalling with the pile of investor funds 'lost' in the process.
And today, such funds carry with them the very heart and weight of investor confidence – at a level perhaps not seen for over 150 years given the micro-macro complexity and depth of today's unprecedented experience.
investment-auto-motives believes that the current optimism in capital markets is misplaced given the overt exuberance toward the “less than very bad” economic indicator news and the better than expected H1 results. [NB See previous post “False Prophets of a False Dawn”]. 'Toxic assets' still haunt the western banking sector - looking something like a case of 'pass the parcel' – and so they still have not been properly identified, re-packaged and confidently sold-off. That means that bank balance sheets are still precarious even if many for the moment appears far stronger than previously. In short, the fundamental concerns that created the financial debacle have not disappeared, even if it appears like normality is re-emerging.
Thus today we see the ongoing, and possibly increasing, pressure on the availability and cost of capital.
Thus the major issue for the investment community keen to re-orientate the overtly matured Western/Triad auto-sector is the manner in which that can be achieved.
Thus presently, the rewards of tomorrow's '3-part Mobility Model' seems a very compelling, but the road to that scenario still appears hazy and the question of how exactly to appropriate the scarce 'propulsion fuel' - the capital markets' liquidity relative to different approaches and enterprises – is being ever more critically debated.
Tuesday, 18 August 2009
Friday, 7 August 2009
Macro-Level Trends – Energising US Autos – Clean Tech Stimulii Toward Broader Horizons.
There have been sharp critics of the 'Cash for Clunkers' initiative in the US, investment-auto-motives one of them. That plan, like those in the UK, Germany, France and Italy, simply re-directs monies from the responsible masses and puts them in the pockets of the relatively few who seek a new cheap new rides.
Those trade-in car buyers effectively event driven arbitragers who will only momentarily buoy a percentage of US production - as much of that money is spent on small foreign imports – the annualised July sales figure of approx 11.7m reflecting little of the realistic 10m new norm that the national industry (GM & Chrysler in particular) must prove it can successfully trade upon.
As $1.0-2.5bn tax dollars are directed toward the mass market (another clunker initiative still being discussed), so President Obama is keen to demonstrate the administration' s commitment to automotive clean tech in EVs and hybrids. Ford, GM, Chrysler, Nissan and the likes of Tesla have already been publicly allotted their government grants from an amalgam of the 2007 Energy Bill and the $787bn stimulus package of approximately $435m.
After the obvious names in the sector, now the focus is on the battery supply-base and US medium-heavy truck-makerss like Navistar International; hosting the Presidential announcement at its Wakarusa plant in Indiana. An area much like Michigan hard hit by the economic crash and eager for stimulus monies to be converted into local jobs.
Having developed the International DuraStar diesel-electric hybrid truck, Navistar has now been given $39m to produce 400 EV trucks, averaging $97,500 per truck, but intending to develop the EV competence base within the company. The new product(s) come from the creation of a JV with Modec, a well known e-truck producer; and from first impressions of the showcased truck, implicitly appears to effectively license current Modec technology, with perhaps ongoing R&D work. It is as yet unclear how this initiative and its monies fits with the USDoE PHEV School Bus programme that is expected to cost $10m. Either way, although the School-Bus and Generic EV Truck programmes differ in their propulsion system solutions there should be a basis for cross-project co-learning.
But much will expected given the Modec, other manufacturer and governmental 'piggy-backing'. [NB investment-auto-motives' previous recommendation that the US must seek RoW clean-tech assistance, Modec an implied capability provider].
The truck sector across the globe has been obviously hard-hit, with only Indian and Chinese truck-makers seeing a rise in orders, so it is hoped that Navistar's usual customers presently devoid of liquidity and strategic intent to buy at present can buy-into the green vehicles in 2-3 years when the US economy has hopefully re-awoken and Navistar's own captive finance house can re-lend to a greater extent.
All in all, 20 states will benefit from the state expenditure in clean tech, the Tier 1 supplier Johnson Controls gains $299m so it can climb up the value-curve, having already formed a French JV from which it can now migrate knowledge into the US.
A123 Battery Systems gains $249m from a large $1.5bn programme dedicated to battery technology development and production, an effort so catch-up with and ideally beat Japanese, Korean and Taiwanese abilities. Though it must be noted that Japan is in reality about a decade ahead of the US in the field of mass market application, in-service monitoring and next generation cost & weight improvement. Thus it is assumed that a portion of this fund will be dedicated at today's US-Asian JVs and attracting additional Asian FDI to transplant its power-knowledge, mirroring the experiences of transplant vehicle factories. However, the irony has been noted that US monies are being given to the US divisions of foreign nation corporations; eg $151.4m to Compact Power, a division of S.Korea's LG Chem Ltd.
Beyond this, $500m goes to others designing electric motors and drivetrain components, perhaps the benchmark in the latter arena set by PSA recently with its low-cost 4WD adaption technology that links an electric motor to the rear axle for part-time 4WD. Other countries', other VM's and other OEM's efforts will be evaluated through what are known as whole-vehicle, vehicle-system and charging-systems 'tear-down' exercises to appreciate what today's 'world-class' engineering looks like. So $400m has been set aside to do just that. Ultimately to “copy +” the best of today and fund R&D to move the science and the eco-tech genre onward.
Joe Biden, Vice-President, is reported as saying “We’ve got to get ahead of this curve,” [otherwise] “We’re going to get left behind.”
The US has made progress in the past, but the science long been in gestation, at best past EV efforts like GM's EV1 and Toyota's US RAV4-EV either at best miss-timed to market or at worst claimed to be cynically calculated PR stunts to prove EVs shortcomings in the mid-90s. US made Hybrids in everything from Silverado pick-ups to Taurus sedans have not been big sellers compared to mainstream hybrids like the Japanese Prius, Civic, Camry and now Insight.
Part of this $2.4bn is to propel US capability forward and start declining the worrisome unemployment figures, but ironically Japan has its own unemployment concerns, now at a 6 year high. It has set the bar for auto-clean-tech, and now may be wishing to focus its own national agenda upon clean energy creation – with next generation solutions spanning everything from nuclear to solar – and of course domestic housing and commercial premises technologies. To do so it will undoubtedly be looking for the cross-fertilization from its auto-industry to do so, with the intention of licensing the IPR and products to the world.
In this recent US initiative, there are 48 identified auto-related projects that will share $2.4bn. In order to avoid playing cross-sector catch-up some of that ought to be set toward setting a road-map for a “technology-ripple” that can affect other equally high – if not higher - CO2 emitting sectors.
At a time when the US is so obviously relatively low on that all important value-curve, it must better plan its way forward to climb and latterly regain control of the curve itself.
Fund recipients such as Navistar with its RV chassis arm may do well by working with its RV build customers to track and model motor-home energy usage & CO2, taking learning from low-energy RV installed products and adapting them to the broader market, either individually as products in their own right or in league with commercial home developers providing a suite of domestic solutions.
History recounts that such ideologies and business models have worked in the past, indeed so for Navistar's former entity International Harvestor. Between the 1930s and the late 1950s the US auto industry created Home Appliances divisions such as Ford's 'Philco', GM's 'Frigidaire', Chrysler's 'Airtemp', Nash's 'Kelvinator' and Studebaker's 'Franklin Appliance Co'. International Harvester maintained its own branded electric appliances marketed to farmers wives benefiting from an expanding electricity grid to rural regions. Today that grid nationwide and worldwide (ie GCC countries) is becoming 'Smart-Grid'.
US industrial policy-making would do worse than reflecting that cross-functional interactive philosophy, and perhaps should demand more of its industry players, to truly see the long-term results of government investment, and the exercise to not simply end as a feasibly the biggest 'sunk-cost'* for possible little return of US history.
[NB. See Auto Task Force's major concerns about the GM Volt business case*].
Those trade-in car buyers effectively event driven arbitragers who will only momentarily buoy a percentage of US production - as much of that money is spent on small foreign imports – the annualised July sales figure of approx 11.7m reflecting little of the realistic 10m new norm that the national industry (GM & Chrysler in particular) must prove it can successfully trade upon.
As $1.0-2.5bn tax dollars are directed toward the mass market (another clunker initiative still being discussed), so President Obama is keen to demonstrate the administration' s commitment to automotive clean tech in EVs and hybrids. Ford, GM, Chrysler, Nissan and the likes of Tesla have already been publicly allotted their government grants from an amalgam of the 2007 Energy Bill and the $787bn stimulus package of approximately $435m.
After the obvious names in the sector, now the focus is on the battery supply-base and US medium-heavy truck-makerss like Navistar International; hosting the Presidential announcement at its Wakarusa plant in Indiana. An area much like Michigan hard hit by the economic crash and eager for stimulus monies to be converted into local jobs.
Having developed the International DuraStar diesel-electric hybrid truck, Navistar has now been given $39m to produce 400 EV trucks, averaging $97,500 per truck, but intending to develop the EV competence base within the company. The new product(s) come from the creation of a JV with Modec, a well known e-truck producer; and from first impressions of the showcased truck, implicitly appears to effectively license current Modec technology, with perhaps ongoing R&D work. It is as yet unclear how this initiative and its monies fits with the USDoE PHEV School Bus programme that is expected to cost $10m. Either way, although the School-Bus and Generic EV Truck programmes differ in their propulsion system solutions there should be a basis for cross-project co-learning.
But much will expected given the Modec, other manufacturer and governmental 'piggy-backing'. [NB investment-auto-motives' previous recommendation that the US must seek RoW clean-tech assistance, Modec an implied capability provider].
The truck sector across the globe has been obviously hard-hit, with only Indian and Chinese truck-makers seeing a rise in orders, so it is hoped that Navistar's usual customers presently devoid of liquidity and strategic intent to buy at present can buy-into the green vehicles in 2-3 years when the US economy has hopefully re-awoken and Navistar's own captive finance house can re-lend to a greater extent.
All in all, 20 states will benefit from the state expenditure in clean tech, the Tier 1 supplier Johnson Controls gains $299m so it can climb up the value-curve, having already formed a French JV from which it can now migrate knowledge into the US.
A123 Battery Systems gains $249m from a large $1.5bn programme dedicated to battery technology development and production, an effort so catch-up with and ideally beat Japanese, Korean and Taiwanese abilities. Though it must be noted that Japan is in reality about a decade ahead of the US in the field of mass market application, in-service monitoring and next generation cost & weight improvement. Thus it is assumed that a portion of this fund will be dedicated at today's US-Asian JVs and attracting additional Asian FDI to transplant its power-knowledge, mirroring the experiences of transplant vehicle factories. However, the irony has been noted that US monies are being given to the US divisions of foreign nation corporations; eg $151.4m to Compact Power, a division of S.Korea's LG Chem Ltd.
Beyond this, $500m goes to others designing electric motors and drivetrain components, perhaps the benchmark in the latter arena set by PSA recently with its low-cost 4WD adaption technology that links an electric motor to the rear axle for part-time 4WD. Other countries', other VM's and other OEM's efforts will be evaluated through what are known as whole-vehicle, vehicle-system and charging-systems 'tear-down' exercises to appreciate what today's 'world-class' engineering looks like. So $400m has been set aside to do just that. Ultimately to “copy +” the best of today and fund R&D to move the science and the eco-tech genre onward.
Joe Biden, Vice-President, is reported as saying “We’ve got to get ahead of this curve,” [otherwise] “We’re going to get left behind.”
The US has made progress in the past, but the science long been in gestation, at best past EV efforts like GM's EV1 and Toyota's US RAV4-EV either at best miss-timed to market or at worst claimed to be cynically calculated PR stunts to prove EVs shortcomings in the mid-90s. US made Hybrids in everything from Silverado pick-ups to Taurus sedans have not been big sellers compared to mainstream hybrids like the Japanese Prius, Civic, Camry and now Insight.
Part of this $2.4bn is to propel US capability forward and start declining the worrisome unemployment figures, but ironically Japan has its own unemployment concerns, now at a 6 year high. It has set the bar for auto-clean-tech, and now may be wishing to focus its own national agenda upon clean energy creation – with next generation solutions spanning everything from nuclear to solar – and of course domestic housing and commercial premises technologies. To do so it will undoubtedly be looking for the cross-fertilization from its auto-industry to do so, with the intention of licensing the IPR and products to the world.
In this recent US initiative, there are 48 identified auto-related projects that will share $2.4bn. In order to avoid playing cross-sector catch-up some of that ought to be set toward setting a road-map for a “technology-ripple” that can affect other equally high – if not higher - CO2 emitting sectors.
At a time when the US is so obviously relatively low on that all important value-curve, it must better plan its way forward to climb and latterly regain control of the curve itself.
Fund recipients such as Navistar with its RV chassis arm may do well by working with its RV build customers to track and model motor-home energy usage & CO2, taking learning from low-energy RV installed products and adapting them to the broader market, either individually as products in their own right or in league with commercial home developers providing a suite of domestic solutions.
History recounts that such ideologies and business models have worked in the past, indeed so for Navistar's former entity International Harvestor. Between the 1930s and the late 1950s the US auto industry created Home Appliances divisions such as Ford's 'Philco', GM's 'Frigidaire', Chrysler's 'Airtemp', Nash's 'Kelvinator' and Studebaker's 'Franklin Appliance Co'. International Harvester maintained its own branded electric appliances marketed to farmers wives benefiting from an expanding electricity grid to rural regions. Today that grid nationwide and worldwide (ie GCC countries) is becoming 'Smart-Grid'.
US industrial policy-making would do worse than reflecting that cross-functional interactive philosophy, and perhaps should demand more of its industry players, to truly see the long-term results of government investment, and the exercise to not simply end as a feasibly the biggest 'sunk-cost'* for possible little return of US history.
[NB. See Auto Task Force's major concerns about the GM Volt business case*].
Monday, 3 August 2009
Industry Practice – Platform Sharing – Mas-Cat-Raiding or Masquerading?
Evident difficulties exist when creating a viable business model for what is effectively a low volume performance marque. By its very virtue, it must rely upon the sporting cornerstones of advanced chassis dynamics, the immediacy of power and a unique aesthetic in order to maintain its differentiation and so provide its brand USP.
Automotive history is littered with well intended, highly ambitious but ultimately flawed, commercial thinking by company owners and overtly biased management. People that thought advanced product design alone, without the usual tenants of business management, would create success - from the post-war Tucker Torpedo to NSU's Ro80, and many more names besides.
Indeed, such experiences are not only limited to names of the past, but also appear in the histories of today's players.
Two names that have had a fair share of fruitless, over-ambitious and ultimately value-destructive efforts have been Jaguar and Maserati.
The former with the XJ13 and XJ220 and the latter – under De Tomaso - with the Deauville and the Bi-Turbo range. Of course no 2 examples are ever the same since no 2 set of circumstances are the same, but these items do reflect Jaguar's failed efforts of 'supercardom' in the prosperous 1960s & lean 1980s, whilst Maserati's historical instances result from attempts to battle previous commercial decline, trying to recapture former glory during the PESTEL headwinds of the 1970s a& 1980s.
Jaguar's commercial is in the history books: from William Lyons' 1922 establishemnt of the Swallow Side-Car Company and onward to empire building with milestones such as the XK120, E-Type and series 1 XJ as its arguable peak. And onto the marque's unfortunate tarnishing under the BLMC/BMH umbrella in the 1970s onto 1980s Privatisation under Sir John Egan, onto the 1989 Ford take-over and more recently TATA's relatively recent purchase. Unfortunately for many of those years Jaguar has been a commercial under-performer, this condition created by a mixture of customer migration to markedly better competitors and the downward spiral of lesser revenues inducing reduced core-competances and the influence of parentally enforced higher agendas from BLMC to the process of privatisation to FMC's PAG to now arguably TATA's broader issue conglomerate requirements.
The Maserati brothers established themselves in 1914 as contract-builders for others' GP aspirations. Their own Trident logo appeared in 1926, bought-out by the Orsi family, wisely and effectively switching from race to road car production with increasing success until its commercial heyday in the 1960s. Purchased by Citroen in 1968 ostensibly to raise its own profile and share technology (eg SM), it fell into receivership as part of Citroen's 1974 bankruptcy, only saved by the Italian state GEPI fund as a lifeline bridge before being bought by De Tomaso. Chrysler took a stock slice with the all-important 1993 FIAT full purchase providing stability and expertise; especially so with Ferrari's 50% stake so providing technical resource.
To add more detail of its past problematic experiences, Maserati was effectively 'lost' for 40 years due to poor direction in the mid-1960s, the 1970s downturn, raging 1980s competition and a 'climb-back' in the 1990s - even Lancia aruably better positioned. From 1968 onward various efforts were made, the most interesting perhaps the 4-door Deauville concept mimicking a futuristic Jaguar XJ. That was followed with efforts like the 2-door Longchamp mimicking the Mercedes 2+2 SLC, and the Bigua/Bi-Turbo (latterly Qvale Mangusta and MG X-Power SV, that last tag desperately trying to evoke Lamborghini). Thus a period of brand disorientation, lacklustre products, lost credibility and for De Tomaso and for FIAT until only very recently a cash-burning money-pit. MAserati exemplified the hard task of turning around and reviving a past glory name.
However, the Deauville case-study is prescient today since it attempted a 'modernised' Jaguar XJ (and was an interesting Italianate precursor to Jaguar XJ Kensington concept by Giugiario which heavily latterly influenced Lexus (GS) design identity.
The crux of the matter is that the Deauville concept was not simply an attempt to find a renewed identity but clearly an effort to court the imagination of Jaguar's then quite unsure, uncomfortable management given the massive whole left by Lyon's departure. Appearing in 1970 it came 18 months after the 1968 launch of the series 1 XJ, and effectively a clear statement that Maserati – itself at a major juncture with then Citroen's new ownership – wanted to build alliance with another low volume prestige marque. The pretext was not only for the Italian sub-division but Citroen itself as a manner of walking up the price ladder with a 4-door SM to replace DS.
Thus the Italians and the French well understood the opportunity to gain economies of scale and the opportunity to re-appropriate parts from diverse parts-bins enabling lower cost additional vehicle development.
Remember that this was at a time when the UK Pound had been decimalised and the UK was on the verge of Common Market / EEC entry. So Maserati (& Citroen) would have undoubtedly thought that their implicit proposal to the UK producer had fortune on its side. It was not to be.
That alliance could have offset the flailing fortunes of the luxury collaborators given the oil crisis impact on production volumes and so commercial viability. But Jaguar's focus was UK & BMC-centric given the dire-straits of the period and the level of government (Stokes/Ryder)intervention including funds. For all the pro-EU chatter, any migration would have been politically and socially hapless.
Ultimately, if Maserati and Jaguar hadn't been such national icons with innate marketable potential to Trade-Buyers, Private Equity and Public Markets, both would have diminished in the 1970s. Thier names and supposed future potential saved them.
Today, some 40 years later, those same micro-level and macro-level drivers have converged. Global financial contraction, retracted luxury car sales, tumbling revenues, slashed operating budgets and onerous clean-tech requirement highlight the importance of inter-regional volume efficiencies made possible broader open-market, globalised B2B and B2C trade.
[NB investment-auto-motives' recomendation for a Northern European Eco-Tech 'Regional Rainbow'].
The tenants for regional alliance-building between low-volume producers has oome into being since the BRICs surged and now hold economic stability, whilst the West peaked in 2007, stalling heavily since and now running effectively on empty. Italy and India recognised this trend and informally commercially re-coupled, as they did previously in the 1950s onwards with the Premier-FIAT 500 & 1100 and the myriad of Piaggio & Lambretta JV scooters and 3-wheelers.
But 40 years on it was TATA's turn, and from a very different position.
Given their conglomerate natures and divisional mirroring FIAT & TATA have formed what externally appears a warm relationship; primarily between Ratan Tata and Sergio Marchionne. Tata invited to sit on FIAT's Board as part of their synergy seeking aspirations. The Board will have tasked senior management to seek-out cost-savings, product improvement initiatives, overall core-competence building, inter-company divisional procurement and divestment opportunities.
TATA's purchase of Jaguar-Land Rover was seen as a momentous opportunity for the ambitious company thriving on Indian and (at the time) global growth (thru' TATA Steel & IT Consulting Services). Given the informal FIAT tie there has been natural conjecture that Jaguar and Maserati should form a JV given their similar market positions, similarly sized and specified large saloon/sedan, coupe and convertible vehicles and their limited internal resources vs the German & Japanese competition. Such an accord primarily allows for the cross-application of aluminium structures, platforms and knowledge. So bringing down capital investment, general overhead, per unit costs and enabling their respective R&D budgets to focus upon more customer tangable brand-specific systems focus.
Moreover, and very importantly, FIAT's Chairman Luca Cordero di Montezemolo recognises the commercial pressures facing Ferrari from both reduced F1 Sponsorship revenues and contraction of orders for the Maranello factory. He will not want Maserati to weigh upon Ferrari once again given the financial and technical assistance it has previously provided. So no doubt ordered Maserati to find alternative paths to sustain itself. Let us not forget that Cordero di Montezemolo will have his eyes on the massive Indian potential for Ferrari F1 followers that will draw-back corporate sponsorship to Ferrari aswell as the large potential for car sales to the ever growing entrepreneurial and upper middle classes; aswell of course the ocean of merchandising potential India offers. Ratan Tata obviously has major influence in the region, a fact well known by Coredero di Montezemolo for many years.
2009, and the ideology of that 1970 Deauville toward a cross-fertilisation appears to have come into being with the New Jaguar XJ and Quattroporte. [NB Although no official statement has been released from either party since it would not be in their interests to do so]. However, investment-auto-motives conjects that the TATA-FIAT relationship has now borne the off-spring of the soft-coalition toward new product development.
Very crude basic research (consisting of the visual overlay of vehicle side-views) suggests that the New Jaguar XJ appears to share very similar dimensions with the Quattroporte Bellagio Touring concept (seen as a possible variant or replacement). Apparent in the engineering hard-points for : front-bulk-head / windscreen cowl, A-post lower, front lamp positions and nose/grille section height. Regards the latter, the Jaguar appears to take a similar front lamp dimensions to current Quattroporte, whilst the facelifted 2009 Quattroporte take a new lamp shape closer to the Gran Turismo Coupe. Furthermore, the New XJ's rear approximates the Quattroporte in boot/trunk shut-lines (although placed higher), to accommodate the inward diagonal what look to be shared rear lamp cluster armatures - both cars offering brake lights formed from 2 lines of diagonal LEDs. Lastly and very interestingly, the Jaguar's rear lamps are very evocative of Lancia's treatment created from previous generation Thesis forward and even seen on the Ypsilon city-car. [NB. Similar styling treatment also appears on Nissan's large cars and Infiniti line-up]. This suggests that the XJ vehicle platform would also be used for future large Lancias, and exploited further given the Maserati-Alfa Romeo connection (seen in the sub-structure of the retro-esque 8C) with FIAT's desire to create truly sporting (RWD) Alfas. I.E. the sub-structure would also be utilised as broadly as possible to revitalise FIAT's premium marques as part of its own global growth strategy. Add Jaguar's Daimler marque to the frey and FIAT-TATA hopes to set battle against the large sections of the high margin business BMW, Mercedes, VW and Lexus hold.
Higher level industrial policy-making between Tata and Marchionne & Cordero di Montezemolo, will of course ensure that future large cars meet and better regulatory emissions standards via clean-tech applications. With the Maserati aluminium base dating from late 2003 (designed in 2001/02) that left the newer aluminium Jaguar platform (from Alcan-Novelis) to take the lead for the alliance – especially so given the trickel-down available from the UK government's sponsoring of Jaguar and R&D partners to create the 'Limo-Green' PHEV system. [NB another fuel cell based system is being explored but realistically it will no or very little commercial success].
What is interesting is the subtle balance of power apparently being demonstrated by the New XJ taking on such a close form to its FIAT owned sibling. It is not beyond the realms of logical speculation to purport that either FIAT demanded direct influence over the XJ vehicle 'packaging' and so resultantly 'styling envelope'. More likely, given the long-play industrial game, Ratan Tata probably indicated that the XJ should be closely aligned to the Quattroporte so as to demonstrate to Jaguar management the future NPD-policy regards shared engineering DNA. In effect a reversal of the 1970 Maserati overture to Jaguar, given the benefit it bears with promised FIAT derived volumes for the XJ platform – spread over Maserati, Lancia, Alfa-Romeo and possibly even Arbath.
In short Jaguar becomes to Maserati that which TATA Cars is to FIAT Auto in India - the enabling industrial mechanism which in turn is fed by FIAT global reach.
So the XJ appears to be being utilised as more than simply a car, and more than simply a platform for shared use. The company effectively utilised as a 'commercial vehicle' in its own right espousing greater operational integration of FIAT-TATA and their respective coverage of the automotive markets, sectors, the value-chain and relative core-competencies.
Such aims are of course laudable in terms of the theories of value creation for both parties – TATA recognising FIAT's new reach into North America via Chrysler and FIAT well understanding the influence TATA conglomerate has (from steel manufacture to IT) on the Asian sub-continent. But how has this inter-company bridge-building affected Jaguar – more specifically the chimera-like XJ?
To be candid, at this point in time it does not appear overly positive regards western market expectations in the short-medium term given segment conditions and the consumer flight to (German/Japanese) brand safety, but may be greatly buoyed by the the aspirant desires of the upper-middle class Indian buyer.
The XJ follows the XF which was the real retro mould-breaker for the company. However, ideally that mould should have been broken far far earlier in the early 2000s or well before – the S-Type a mistake in itself. [NB, no a case of 20/20 hindsight, an arguement stated at the time].
[NB. Latterly in 2002 investment-auto-motives provided recommendation for a quick yet robust 'transformation' response – see website: http://www.investment-auto-motives.com/credentials.html ]
By 2008, when the XF appeared, Lexus and the Germans had, with their market gravitas, moved the game forward substantially both in terms of popularly received aesthetic and product credibility. Jaguar has been forced to play catch-up, leaping (forgive the pun) forward vehicle generations but caught-out by the acceptable level of brand-product stretch. The limited numbers of XF in and around major UK and other European cities indicates that the car has unfortunately not lived up to initial expectation.And PR efforts like the XFR Bonneville record-speed car – whilst good for the morale of few in the engineering community – are in reality costly, low impact, no-£-return exercises.
Thus XF has not blazed the trail required to clear an easy path for XJ, due to a mixture of headwinds such as:
a) oxymoronic 'aggressive-defensive' styling leading to a muted public reaction,
b) later than ideal diesel engine availability
c) the economic downturn which hit the 'mid-exec' (D/E) segment hard
d) the pricing power of major competitors
The last point very poignient, competitors often with in-house or affiliated 'captive finance' houses and so better able to weather the credit-crisis fall-out where credit availability contributed historically disproportionately to new car sales.
New XJ whilst a natural successive 'big-brother' to XF - from the front & side views – is a radical departure from 'Old' XJ as has been the intention. But the level of success is highly debatable, especially regards the Audi-esque glass-house and overtly alien rear-view. (There could be an argument made by officiandos that the rear light lenses mimic the Series 3 XJ by Giugiario but that would be a poor effort of persuasion given the little recognition of that fact by the public at large).
In the west, during these fragile economic times that have retracted consumer mentality there is a 'flight to safety' – to the known and importantly socially acceptable - as we see with Ford's re-popularisation in mainstream segments and BMW, Daimler and Lexus 'softening' so as not to repel current or potential customers.
Whilst a bold step forward was needed, there is a real danger that Jaguar has stepped forward but also not quite as straight and true as necessary. Such bold moves can prove useful regards brand direction but often that takes time to execute with the public playing acceptance catch-up and the auto-producer having to absorb the lack of popularity, sales and so income revenue in the short-medium term. The likes of Ford were able to do it with 'Aero' Sierra and BMW latterly with 'Flame Surface' 5 series et al, but both those companies were well financially cushioned when they took the leap, able to swallow the initial fall-off of revenue.
TATA's previous revealed Jaguar-Land Rover's Q1 financial losses, now combined with recent press reports of FY08 losses for the UK business unit (of £641.5m / $1.2bn inc actuarial pension losses). Undoubtedly aired to highlight to the UK government the company's need for short-term aid financing. The State BIS (nee BERR) Office, run by Lord Mandleson, reportedly offering $175m over 6 months versus TATA's £500m amount from the UK over 12 months and an EIB loan worth £340m. [NB excluding exceptional items such as Jaguar's sale of AML shares in 2007, entity's PbT/L was £-38.3m in '07 and £-34.1m in 08].
The majority of financing appears to come from J-LR banking relationships to the tune of £100m and $486m for the Jan-May 09 period, a mixture of regular external banking and TATA internal banking agreements with a stated LoI from TATA to provide further roll-over facilities. Given the Q1 problems TATA had in securing its own funding during the liquidity freeze, it had to understandably resort to appealing to the Indian public; something very sombre and reminiscent of previous struggling periods. More recently impressive Q2 results were attained by TATA Motors (excluding J-LR drag) thanks to improved commodities/materials and FX cost shifts. Even so a portion of those J-LR monies to prop-up a luxury car maker will have ironically come from the pockets of the Indian working class, themselves socially eager (some say pressured) to be seen to believe in the TATA Group.
Similarly, it may well be that social cohesiveness in India that comes to Jaguar's eventual rescue.
Although separatist by old caste notions and differences in creed, there is a growing notion of 'Indian-ess' created by economic growth and success. The betterment of the nation proudly exemplified on the global stage via achievement in sports (ie cricket previously and today F1 involvement) and world-class industry as seen with TATA's purchase of Corus & J-LR and Mittal's previous acquisition of Arcelor. This slowly emerging unity of social cohesiveness obviously emerged after 1948 Independence, subtly witnessed across private, social and commercial spheres, driven by the paradox of wanting to both assimilate 'the Best of British' from its colonial past but also be seen to beat the British - and other nations - at their own game.
Thus the upper middle classes and exec-set of India recognise at an ephemeral level that what is good for Jaguar is good for India, and so can appease themselves in the feeling that such luxurious consumption is not as socially crass as was viewed in the past. Indeed the purchase of Jaguar (& Land Rover) products actually promotes Indian industrial income, this expected to rise in the future as greater managerial, engineering, IT, administrative and production jobs are passed to Indians and the products themselves co-manufactured in local plants effectively boasting that the apparent 'best in the world' is “made in India”.
Thus it could well be Indian-ness rather than innate British-ness that buoys Jaguar's hopes in the short, medium and long-term.
To sum-up the central theme of this essay: "a current test-case of the platform-sharing ideology" – the past and present aligned forces highlight the potential for the TATA-FIAT initiative; but also highlight the importance of execution.
The use of shared platforms and components is of course as old as the auto-industry itself, with much devoted to the edict that what is out of sight is out of mind. PSA has been traditionally seen as the leader in this field given the 66% level of share by parts count, and 79% by parts value, in the mid 1990s. But as seen with Ford's Premier Automotive Group the push for economies can dilute the marque experience.
Jaguar has effectively been co-dependent since 1989 under Ford, now seemingly with FIAT. From an output high of 130,000 units (over 4 platforms) in 2002, production/sales dropped to a low of 60,485 units in 2007, rebounding to 65,350 units in 2008. Critically these were split between 2 steel structures (X-Type & S-Type/XF) and 2 aluminium structures (XK & XJ), an intolerable situation.
Although X-Type is now discontinued, Jaguar unlike its peers does not have the immediate ability to leverage the momentum of self-sustained volume nor standardised platform bases. It will probably need to migrate next generation XF to full or (at least) semi-aluminium structure to align its R&D & Manufacturing strategies, unhinge itself from the heavy burden of traditional pressed-steel vehicle production and critically to reach/better the 120g/km fleet average eco-target across its fleet. Thus it must both continue to develop its own structural core-competencies derived from Alcan-Novelis (ideally also sold externally as IPR license or contract manufacturer) and continue to effectively borrow conventional mid and small car platform technology from other OEMs or Tier0.5s; most probably FIAT given today's ties or possibly 'New Opel' (from either Magna or RHJI) to access COTS 'pre-packaged' clean-diesel technology.
To reach such a far off growth goal – which must be implicit with Ratan Tata - Jaguar must first underpin its current ethos as a re-vitalised, self-styled “niche player”. Today's task to improve unit margin profitability developed from mid-scale, 'advanced architecture' manufacturing methods. Production ties between the large sedans (XJ/Quattroporte/Lancia 'Limo')and latterly large coupes (XK/Gran Turismo/8C replacement/ Lancia 'Gamma') would help reach the optimal 100,000 unit production run for the architecture. Doing so is especially important given the recent rises in aluminium purchasing costs that are only headed higher given the industrial demand squeeze on the material.
Moreover, Sergio Marchionne's own endeavour to limit FIAT CapEx spending across operations where possible, thus utilising the best current platforms and technology at hand and from alliance partners to update aging product (such as Quattroporte) and stretch-out product life-cycles on the newer available platforms and modules. The CapEx issue especially prevalent given Maserati's YoY Q2 drop in unit sales by 48.3%, equal to a hefty 45.9% revenue reduction, only balanced by severe operational cost containment. [NB Q2 revenue of E111m vs E205m last year, and Q2 of E2m vs E12m last year].
FIAT appears to have timed their Maserati efforts well, exploiting the 2003-2007 period of high growth which was especially fortunate for its buyer set; many of whom either work/worked in high-finance or were commercially closely related to it. Now that such revenue has declined it appears to have leveraged the TATA connection to probably share a next generation platform and so avoid much of the development and productionisation pain and overhead.
Thus, investment-auto-motives believes this describes the 'behind the scenes' reality of the dynamic between TATA and FIAT, a context of relationship building requiring 'given ground' in this instance by Jaguar at a TATA group operational level so impacting product development freedoms.
The New XJ seems to visually demonstrate the inherent compromises that must be made from such a position given the assumed heavy influence of FIAT Auto and its own platform strategy needs. That is not to say that New Jaguar is doomed, simply that it must face a new and very different future largely dependent on the social dynamic and economic engine of India and SE Asia. And much of that depends on whether Jaguar itself can persuade that XF and XJ truly are Jaguars, which given their obvious overtures to to Lexus and Audi by design, and Maserati by default, could be argued as failing to stand on its own “4 feet”.
So, “Mas-Cat-Raiding” or 'Masquarading'? The semantics and tautology are clear, but it will be the Indian buyer that decides whether to call (in cricketing parlance) “In” or “Out”. And TATA-FIAT must learn from the exercise.
Whatever the outcome, the Jaguar-Maserati connection demonstrates the industry critical issue of the need to form alliances yet maintain marque integrity. History demonstrates that this is a very hard objective to achieve, especially so for the partner with lesser leverage. And it is here, with the likes of an academic and in-depth Jaguar-Maserati case-study, that the auto-sector must continue to learn and appreciate the political nuances, corporate subtleties and product consequences of such alliances – the good, the bad and the remote possibility of the unintended ugly.
It is a lesson that the crop of newly 'independent' car-makers that have spun-off from 'Old GM' will need to learn – from SAAB to Hummer to Saturn to Pontiac, as well as very probably the Ford divestment of Volvo when capital markets are re-inflated. For investors will want to see that merged economies of scale can be obtained whilst maintaining marque uniqueness.
Otherwise their investment strategy will simply be to ride the sector upturn and exit before consumer confidence diminishes in a brand. Such resultant – arguably circumstantially enforced - investor behavior will only return the sector to its former poor NPV modelling, low IRR and so low RoI experience; something all involved are keen to avoid.
Automotive history is littered with well intended, highly ambitious but ultimately flawed, commercial thinking by company owners and overtly biased management. People that thought advanced product design alone, without the usual tenants of business management, would create success - from the post-war Tucker Torpedo to NSU's Ro80, and many more names besides.
Indeed, such experiences are not only limited to names of the past, but also appear in the histories of today's players.
Two names that have had a fair share of fruitless, over-ambitious and ultimately value-destructive efforts have been Jaguar and Maserati.
The former with the XJ13 and XJ220 and the latter – under De Tomaso - with the Deauville and the Bi-Turbo range. Of course no 2 examples are ever the same since no 2 set of circumstances are the same, but these items do reflect Jaguar's failed efforts of 'supercardom' in the prosperous 1960s & lean 1980s, whilst Maserati's historical instances result from attempts to battle previous commercial decline, trying to recapture former glory during the PESTEL headwinds of the 1970s a& 1980s.
Jaguar's commercial is in the history books: from William Lyons' 1922 establishemnt of the Swallow Side-Car Company and onward to empire building with milestones such as the XK120, E-Type and series 1 XJ as its arguable peak. And onto the marque's unfortunate tarnishing under the BLMC/BMH umbrella in the 1970s onto 1980s Privatisation under Sir John Egan, onto the 1989 Ford take-over and more recently TATA's relatively recent purchase. Unfortunately for many of those years Jaguar has been a commercial under-performer, this condition created by a mixture of customer migration to markedly better competitors and the downward spiral of lesser revenues inducing reduced core-competances and the influence of parentally enforced higher agendas from BLMC to the process of privatisation to FMC's PAG to now arguably TATA's broader issue conglomerate requirements.
The Maserati brothers established themselves in 1914 as contract-builders for others' GP aspirations. Their own Trident logo appeared in 1926, bought-out by the Orsi family, wisely and effectively switching from race to road car production with increasing success until its commercial heyday in the 1960s. Purchased by Citroen in 1968 ostensibly to raise its own profile and share technology (eg SM), it fell into receivership as part of Citroen's 1974 bankruptcy, only saved by the Italian state GEPI fund as a lifeline bridge before being bought by De Tomaso. Chrysler took a stock slice with the all-important 1993 FIAT full purchase providing stability and expertise; especially so with Ferrari's 50% stake so providing technical resource.
To add more detail of its past problematic experiences, Maserati was effectively 'lost' for 40 years due to poor direction in the mid-1960s, the 1970s downturn, raging 1980s competition and a 'climb-back' in the 1990s - even Lancia aruably better positioned. From 1968 onward various efforts were made, the most interesting perhaps the 4-door Deauville concept mimicking a futuristic Jaguar XJ. That was followed with efforts like the 2-door Longchamp mimicking the Mercedes 2+2 SLC, and the Bigua/Bi-Turbo (latterly Qvale Mangusta and MG X-Power SV, that last tag desperately trying to evoke Lamborghini). Thus a period of brand disorientation, lacklustre products, lost credibility and for De Tomaso and for FIAT until only very recently a cash-burning money-pit. MAserati exemplified the hard task of turning around and reviving a past glory name.
However, the Deauville case-study is prescient today since it attempted a 'modernised' Jaguar XJ (and was an interesting Italianate precursor to Jaguar XJ Kensington concept by Giugiario which heavily latterly influenced Lexus (GS) design identity.
The crux of the matter is that the Deauville concept was not simply an attempt to find a renewed identity but clearly an effort to court the imagination of Jaguar's then quite unsure, uncomfortable management given the massive whole left by Lyon's departure. Appearing in 1970 it came 18 months after the 1968 launch of the series 1 XJ, and effectively a clear statement that Maserati – itself at a major juncture with then Citroen's new ownership – wanted to build alliance with another low volume prestige marque. The pretext was not only for the Italian sub-division but Citroen itself as a manner of walking up the price ladder with a 4-door SM to replace DS.
Thus the Italians and the French well understood the opportunity to gain economies of scale and the opportunity to re-appropriate parts from diverse parts-bins enabling lower cost additional vehicle development.
Remember that this was at a time when the UK Pound had been decimalised and the UK was on the verge of Common Market / EEC entry. So Maserati (& Citroen) would have undoubtedly thought that their implicit proposal to the UK producer had fortune on its side. It was not to be.
That alliance could have offset the flailing fortunes of the luxury collaborators given the oil crisis impact on production volumes and so commercial viability. But Jaguar's focus was UK & BMC-centric given the dire-straits of the period and the level of government (Stokes/Ryder)intervention including funds. For all the pro-EU chatter, any migration would have been politically and socially hapless.
Ultimately, if Maserati and Jaguar hadn't been such national icons with innate marketable potential to Trade-Buyers, Private Equity and Public Markets, both would have diminished in the 1970s. Thier names and supposed future potential saved them.
Today, some 40 years later, those same micro-level and macro-level drivers have converged. Global financial contraction, retracted luxury car sales, tumbling revenues, slashed operating budgets and onerous clean-tech requirement highlight the importance of inter-regional volume efficiencies made possible broader open-market, globalised B2B and B2C trade.
[NB investment-auto-motives' recomendation for a Northern European Eco-Tech 'Regional Rainbow'].
The tenants for regional alliance-building between low-volume producers has oome into being since the BRICs surged and now hold economic stability, whilst the West peaked in 2007, stalling heavily since and now running effectively on empty. Italy and India recognised this trend and informally commercially re-coupled, as they did previously in the 1950s onwards with the Premier-FIAT 500 & 1100 and the myriad of Piaggio & Lambretta JV scooters and 3-wheelers.
But 40 years on it was TATA's turn, and from a very different position.
Given their conglomerate natures and divisional mirroring FIAT & TATA have formed what externally appears a warm relationship; primarily between Ratan Tata and Sergio Marchionne. Tata invited to sit on FIAT's Board as part of their synergy seeking aspirations. The Board will have tasked senior management to seek-out cost-savings, product improvement initiatives, overall core-competence building, inter-company divisional procurement and divestment opportunities.
TATA's purchase of Jaguar-Land Rover was seen as a momentous opportunity for the ambitious company thriving on Indian and (at the time) global growth (thru' TATA Steel & IT Consulting Services). Given the informal FIAT tie there has been natural conjecture that Jaguar and Maserati should form a JV given their similar market positions, similarly sized and specified large saloon/sedan, coupe and convertible vehicles and their limited internal resources vs the German & Japanese competition. Such an accord primarily allows for the cross-application of aluminium structures, platforms and knowledge. So bringing down capital investment, general overhead, per unit costs and enabling their respective R&D budgets to focus upon more customer tangable brand-specific systems focus.
Moreover, and very importantly, FIAT's Chairman Luca Cordero di Montezemolo recognises the commercial pressures facing Ferrari from both reduced F1 Sponsorship revenues and contraction of orders for the Maranello factory. He will not want Maserati to weigh upon Ferrari once again given the financial and technical assistance it has previously provided. So no doubt ordered Maserati to find alternative paths to sustain itself. Let us not forget that Cordero di Montezemolo will have his eyes on the massive Indian potential for Ferrari F1 followers that will draw-back corporate sponsorship to Ferrari aswell as the large potential for car sales to the ever growing entrepreneurial and upper middle classes; aswell of course the ocean of merchandising potential India offers. Ratan Tata obviously has major influence in the region, a fact well known by Coredero di Montezemolo for many years.
2009, and the ideology of that 1970 Deauville toward a cross-fertilisation appears to have come into being with the New Jaguar XJ and Quattroporte. [NB Although no official statement has been released from either party since it would not be in their interests to do so]. However, investment-auto-motives conjects that the TATA-FIAT relationship has now borne the off-spring of the soft-coalition toward new product development.
Very crude basic research (consisting of the visual overlay of vehicle side-views) suggests that the New Jaguar XJ appears to share very similar dimensions with the Quattroporte Bellagio Touring concept (seen as a possible variant or replacement). Apparent in the engineering hard-points for : front-bulk-head / windscreen cowl, A-post lower, front lamp positions and nose/grille section height. Regards the latter, the Jaguar appears to take a similar front lamp dimensions to current Quattroporte, whilst the facelifted 2009 Quattroporte take a new lamp shape closer to the Gran Turismo Coupe. Furthermore, the New XJ's rear approximates the Quattroporte in boot/trunk shut-lines (although placed higher), to accommodate the inward diagonal what look to be shared rear lamp cluster armatures - both cars offering brake lights formed from 2 lines of diagonal LEDs. Lastly and very interestingly, the Jaguar's rear lamps are very evocative of Lancia's treatment created from previous generation Thesis forward and even seen on the Ypsilon city-car. [NB. Similar styling treatment also appears on Nissan's large cars and Infiniti line-up]. This suggests that the XJ vehicle platform would also be used for future large Lancias, and exploited further given the Maserati-Alfa Romeo connection (seen in the sub-structure of the retro-esque 8C) with FIAT's desire to create truly sporting (RWD) Alfas. I.E. the sub-structure would also be utilised as broadly as possible to revitalise FIAT's premium marques as part of its own global growth strategy. Add Jaguar's Daimler marque to the frey and FIAT-TATA hopes to set battle against the large sections of the high margin business BMW, Mercedes, VW and Lexus hold.
Higher level industrial policy-making between Tata and Marchionne & Cordero di Montezemolo, will of course ensure that future large cars meet and better regulatory emissions standards via clean-tech applications. With the Maserati aluminium base dating from late 2003 (designed in 2001/02) that left the newer aluminium Jaguar platform (from Alcan-Novelis) to take the lead for the alliance – especially so given the trickel-down available from the UK government's sponsoring of Jaguar and R&D partners to create the 'Limo-Green' PHEV system. [NB another fuel cell based system is being explored but realistically it will no or very little commercial success].
What is interesting is the subtle balance of power apparently being demonstrated by the New XJ taking on such a close form to its FIAT owned sibling. It is not beyond the realms of logical speculation to purport that either FIAT demanded direct influence over the XJ vehicle 'packaging' and so resultantly 'styling envelope'. More likely, given the long-play industrial game, Ratan Tata probably indicated that the XJ should be closely aligned to the Quattroporte so as to demonstrate to Jaguar management the future NPD-policy regards shared engineering DNA. In effect a reversal of the 1970 Maserati overture to Jaguar, given the benefit it bears with promised FIAT derived volumes for the XJ platform – spread over Maserati, Lancia, Alfa-Romeo and possibly even Arbath.
In short Jaguar becomes to Maserati that which TATA Cars is to FIAT Auto in India - the enabling industrial mechanism which in turn is fed by FIAT global reach.
So the XJ appears to be being utilised as more than simply a car, and more than simply a platform for shared use. The company effectively utilised as a 'commercial vehicle' in its own right espousing greater operational integration of FIAT-TATA and their respective coverage of the automotive markets, sectors, the value-chain and relative core-competencies.
Such aims are of course laudable in terms of the theories of value creation for both parties – TATA recognising FIAT's new reach into North America via Chrysler and FIAT well understanding the influence TATA conglomerate has (from steel manufacture to IT) on the Asian sub-continent. But how has this inter-company bridge-building affected Jaguar – more specifically the chimera-like XJ?
To be candid, at this point in time it does not appear overly positive regards western market expectations in the short-medium term given segment conditions and the consumer flight to (German/Japanese) brand safety, but may be greatly buoyed by the the aspirant desires of the upper-middle class Indian buyer.
The XJ follows the XF which was the real retro mould-breaker for the company. However, ideally that mould should have been broken far far earlier in the early 2000s or well before – the S-Type a mistake in itself. [NB, no a case of 20/20 hindsight, an arguement stated at the time].
[NB. Latterly in 2002 investment-auto-motives provided recommendation for a quick yet robust 'transformation' response – see website: http://www.investment-auto-motives.com/credentials.html ]
By 2008, when the XF appeared, Lexus and the Germans had, with their market gravitas, moved the game forward substantially both in terms of popularly received aesthetic and product credibility. Jaguar has been forced to play catch-up, leaping (forgive the pun) forward vehicle generations but caught-out by the acceptable level of brand-product stretch. The limited numbers of XF in and around major UK and other European cities indicates that the car has unfortunately not lived up to initial expectation.And PR efforts like the XFR Bonneville record-speed car – whilst good for the morale of few in the engineering community – are in reality costly, low impact, no-£-return exercises.
Thus XF has not blazed the trail required to clear an easy path for XJ, due to a mixture of headwinds such as:
a) oxymoronic 'aggressive-defensive' styling leading to a muted public reaction,
b) later than ideal diesel engine availability
c) the economic downturn which hit the 'mid-exec' (D/E) segment hard
d) the pricing power of major competitors
The last point very poignient, competitors often with in-house or affiliated 'captive finance' houses and so better able to weather the credit-crisis fall-out where credit availability contributed historically disproportionately to new car sales.
New XJ whilst a natural successive 'big-brother' to XF - from the front & side views – is a radical departure from 'Old' XJ as has been the intention. But the level of success is highly debatable, especially regards the Audi-esque glass-house and overtly alien rear-view. (There could be an argument made by officiandos that the rear light lenses mimic the Series 3 XJ by Giugiario but that would be a poor effort of persuasion given the little recognition of that fact by the public at large).
In the west, during these fragile economic times that have retracted consumer mentality there is a 'flight to safety' – to the known and importantly socially acceptable - as we see with Ford's re-popularisation in mainstream segments and BMW, Daimler and Lexus 'softening' so as not to repel current or potential customers.
Whilst a bold step forward was needed, there is a real danger that Jaguar has stepped forward but also not quite as straight and true as necessary. Such bold moves can prove useful regards brand direction but often that takes time to execute with the public playing acceptance catch-up and the auto-producer having to absorb the lack of popularity, sales and so income revenue in the short-medium term. The likes of Ford were able to do it with 'Aero' Sierra and BMW latterly with 'Flame Surface' 5 series et al, but both those companies were well financially cushioned when they took the leap, able to swallow the initial fall-off of revenue.
TATA's previous revealed Jaguar-Land Rover's Q1 financial losses, now combined with recent press reports of FY08 losses for the UK business unit (of £641.5m / $1.2bn inc actuarial pension losses). Undoubtedly aired to highlight to the UK government the company's need for short-term aid financing. The State BIS (nee BERR) Office, run by Lord Mandleson, reportedly offering $175m over 6 months versus TATA's £500m amount from the UK over 12 months and an EIB loan worth £340m. [NB excluding exceptional items such as Jaguar's sale of AML shares in 2007, entity's PbT/L was £-38.3m in '07 and £-34.1m in 08].
The majority of financing appears to come from J-LR banking relationships to the tune of £100m and $486m for the Jan-May 09 period, a mixture of regular external banking and TATA internal banking agreements with a stated LoI from TATA to provide further roll-over facilities. Given the Q1 problems TATA had in securing its own funding during the liquidity freeze, it had to understandably resort to appealing to the Indian public; something very sombre and reminiscent of previous struggling periods. More recently impressive Q2 results were attained by TATA Motors (excluding J-LR drag) thanks to improved commodities/materials and FX cost shifts. Even so a portion of those J-LR monies to prop-up a luxury car maker will have ironically come from the pockets of the Indian working class, themselves socially eager (some say pressured) to be seen to believe in the TATA Group.
Similarly, it may well be that social cohesiveness in India that comes to Jaguar's eventual rescue.
Although separatist by old caste notions and differences in creed, there is a growing notion of 'Indian-ess' created by economic growth and success. The betterment of the nation proudly exemplified on the global stage via achievement in sports (ie cricket previously and today F1 involvement) and world-class industry as seen with TATA's purchase of Corus & J-LR and Mittal's previous acquisition of Arcelor. This slowly emerging unity of social cohesiveness obviously emerged after 1948 Independence, subtly witnessed across private, social and commercial spheres, driven by the paradox of wanting to both assimilate 'the Best of British' from its colonial past but also be seen to beat the British - and other nations - at their own game.
Thus the upper middle classes and exec-set of India recognise at an ephemeral level that what is good for Jaguar is good for India, and so can appease themselves in the feeling that such luxurious consumption is not as socially crass as was viewed in the past. Indeed the purchase of Jaguar (& Land Rover) products actually promotes Indian industrial income, this expected to rise in the future as greater managerial, engineering, IT, administrative and production jobs are passed to Indians and the products themselves co-manufactured in local plants effectively boasting that the apparent 'best in the world' is “made in India”.
Thus it could well be Indian-ness rather than innate British-ness that buoys Jaguar's hopes in the short, medium and long-term.
To sum-up the central theme of this essay: "a current test-case of the platform-sharing ideology" – the past and present aligned forces highlight the potential for the TATA-FIAT initiative; but also highlight the importance of execution.
The use of shared platforms and components is of course as old as the auto-industry itself, with much devoted to the edict that what is out of sight is out of mind. PSA has been traditionally seen as the leader in this field given the 66% level of share by parts count, and 79% by parts value, in the mid 1990s. But as seen with Ford's Premier Automotive Group the push for economies can dilute the marque experience.
Jaguar has effectively been co-dependent since 1989 under Ford, now seemingly with FIAT. From an output high of 130,000 units (over 4 platforms) in 2002, production/sales dropped to a low of 60,485 units in 2007, rebounding to 65,350 units in 2008. Critically these were split between 2 steel structures (X-Type & S-Type/XF) and 2 aluminium structures (XK & XJ), an intolerable situation.
Although X-Type is now discontinued, Jaguar unlike its peers does not have the immediate ability to leverage the momentum of self-sustained volume nor standardised platform bases. It will probably need to migrate next generation XF to full or (at least) semi-aluminium structure to align its R&D & Manufacturing strategies, unhinge itself from the heavy burden of traditional pressed-steel vehicle production and critically to reach/better the 120g/km fleet average eco-target across its fleet. Thus it must both continue to develop its own structural core-competencies derived from Alcan-Novelis (ideally also sold externally as IPR license or contract manufacturer) and continue to effectively borrow conventional mid and small car platform technology from other OEMs or Tier0.5s; most probably FIAT given today's ties or possibly 'New Opel' (from either Magna or RHJI) to access COTS 'pre-packaged' clean-diesel technology.
To reach such a far off growth goal – which must be implicit with Ratan Tata - Jaguar must first underpin its current ethos as a re-vitalised, self-styled “niche player”. Today's task to improve unit margin profitability developed from mid-scale, 'advanced architecture' manufacturing methods. Production ties between the large sedans (XJ/Quattroporte/Lancia 'Limo')and latterly large coupes (XK/Gran Turismo/8C replacement/ Lancia 'Gamma') would help reach the optimal 100,000 unit production run for the architecture. Doing so is especially important given the recent rises in aluminium purchasing costs that are only headed higher given the industrial demand squeeze on the material.
Moreover, Sergio Marchionne's own endeavour to limit FIAT CapEx spending across operations where possible, thus utilising the best current platforms and technology at hand and from alliance partners to update aging product (such as Quattroporte) and stretch-out product life-cycles on the newer available platforms and modules. The CapEx issue especially prevalent given Maserati's YoY Q2 drop in unit sales by 48.3%, equal to a hefty 45.9% revenue reduction, only balanced by severe operational cost containment. [NB Q2 revenue of E111m vs E205m last year, and Q2 of E2m vs E12m last year].
FIAT appears to have timed their Maserati efforts well, exploiting the 2003-2007 period of high growth which was especially fortunate for its buyer set; many of whom either work/worked in high-finance or were commercially closely related to it. Now that such revenue has declined it appears to have leveraged the TATA connection to probably share a next generation platform and so avoid much of the development and productionisation pain and overhead.
Thus, investment-auto-motives believes this describes the 'behind the scenes' reality of the dynamic between TATA and FIAT, a context of relationship building requiring 'given ground' in this instance by Jaguar at a TATA group operational level so impacting product development freedoms.
The New XJ seems to visually demonstrate the inherent compromises that must be made from such a position given the assumed heavy influence of FIAT Auto and its own platform strategy needs. That is not to say that New Jaguar is doomed, simply that it must face a new and very different future largely dependent on the social dynamic and economic engine of India and SE Asia. And much of that depends on whether Jaguar itself can persuade that XF and XJ truly are Jaguars, which given their obvious overtures to to Lexus and Audi by design, and Maserati by default, could be argued as failing to stand on its own “4 feet”.
So, “Mas-Cat-Raiding” or 'Masquarading'? The semantics and tautology are clear, but it will be the Indian buyer that decides whether to call (in cricketing parlance) “In” or “Out”. And TATA-FIAT must learn from the exercise.
Whatever the outcome, the Jaguar-Maserati connection demonstrates the industry critical issue of the need to form alliances yet maintain marque integrity. History demonstrates that this is a very hard objective to achieve, especially so for the partner with lesser leverage. And it is here, with the likes of an academic and in-depth Jaguar-Maserati case-study, that the auto-sector must continue to learn and appreciate the political nuances, corporate subtleties and product consequences of such alliances – the good, the bad and the remote possibility of the unintended ugly.
It is a lesson that the crop of newly 'independent' car-makers that have spun-off from 'Old GM' will need to learn – from SAAB to Hummer to Saturn to Pontiac, as well as very probably the Ford divestment of Volvo when capital markets are re-inflated. For investors will want to see that merged economies of scale can be obtained whilst maintaining marque uniqueness.
Otherwise their investment strategy will simply be to ride the sector upturn and exit before consumer confidence diminishes in a brand. Such resultant – arguably circumstantially enforced - investor behavior will only return the sector to its former poor NPV modelling, low IRR and so low RoI experience; something all involved are keen to avoid.
Friday, 24 July 2009
Macro-Level Trends – H209 Outlook – False Prophets of a False Dawn
Q2/H1 Reporting season is upon us and the general 'not so bad as expected' news appears has lifted markets spirits. No where near the 'animalistic spirits' that drive the market in ordinary times but still apparent cautious optimism.
Yet the 10 day rally period seen across US, Euro and Asia to date sits within the broader context of liquidity constraint – thus trader (not necessarily purist investor) behavior seems to be charging the markets; jumping on any positive signal - no matter how thin – and trading sentiment and volatility instead of fundamentals. Thus we find ourselves in a period of trader vs investor schism.
Of course behind this dynamic is the fact that cash-conscious publicly traded companies on every western exchange are desperate to be seen as investor picks; thereby able to leverage their improved MarketCap to draw financing from either directly off the balance sheet or able to better bargain with bank or bond lenders. All obviously in order to improve cash-flow conditions, working capital and so ease operating pressures both internally and on either side of their creditor-debtor chain.
Recent press has been full of the 'good-news' stories highlighting the day after day upward trending, the 8-month high of the S&P500 and analyst-beating Q2 earnings; from everyone from across the industrial board, from Coca-Cola in consumables, to e-bay in retailing, to Caterpillar in capital goods, to Xerox in IT, to Merck & Bristol-Meyers & Wyeth in pharmaceuticals, and of course (as expected) the more than buoyant results from the more sound “good” financial such as Goldman Sachs and JP Morgan, and even heavily reduced but still positive results from others like Amex.
In Autos, Hyundai as expected performed well making hay domestically (p 15% at home) and leveraging customer attraction efforts in North America at the expense of GM, Chrysler and even Toyota during this tumultuous period; also gaining from the FX effect of a weak Won. And Ford beat analyst expectations with lower than forecast losses, so demonstrating the combined effects of of internal turnaround progress, the “cash for clunkers” programme and migrational US market assistance.
Fairing less well the likes of McDonalds, UPS,Eastman Chemical, EuroTunnel, NCR, Ericssonn, Microsoft, Amazon & Hynix Semiconductor; the last of these tech and cyber-space businesses highlighting that IT and web2.0 have not been as immune as previously thought.
So a mixed bag of results. But what really lays behind the good news stories? Is there substance or are western markets creating a momentary “over-exuberance” primarily via traders and the positive overnight effect of the west-east regions?
Whilst many results have beaten gloomy analyst predictions, and are of course sector influenced (eg the 'recessionary comfort food' factor of Hershey's or the 'global stimulus gain' of Caterpillar Inc), the broad reality is surely that there is a 'counter-point-effect' taking place between continued downbeat macro-fundamental measures (ie those in recent US unemployment and UK GDP retraction) and the ability of corporate management to both take drastic restructuring steps and legitimately re-orientate accounting procedure to boost quarterly results. These could be deferring capital investment, changing inventory values via switching between FIFO to LIFO (especially under today's deflationary times), delaying supplier payments, use of 'extra-ordinaries' eg digging into the provision pot, altering capital goods' depreciation or maintaining old/better asset valuations. The options are varied and many, and during such pressured times firms are undoubtedly re-discovering such pain-relieving financial-engineering tactics.
But it must be said that investors are looking well beyond the top and bottom-line figures, just as CFA's and forensic accountants are well versed in reading the subtleties of accounts so investors are increasingly looking for YoY and QoQ like for like readability, simplicity and general transparency. The best of corporations have realised this and have over the last year or so become more detailed in their reporting, conveying more of their forward-looking business strategies when appropriate can even gain investor credibility by reducing dividends or indeed giving non-payment to demonstrate their financial prudence.
Thus the Q2 season seems marked by CEO's and CFO's continued positioning “between the devil and the deep blue sea”. Whilst the market will trade on transient good news and traders will seek to effectively arbitrage sentiment and trading volumes/patterns the longer-term independent investor must see past the white-noise of volatility and much of the rhetoric from media 'experts' and talking heads who are keen to talk-up their own holdings.
Given western economy realities the world is looking for a rebound in BRIC regions to pull the west from its mire, led by export driven western companies. These for the time being relate to infrastructure and associated sectors (eg mining, commodities and steel-processing and IT hardware and systems) and the push for further globalised (and consolidated) agriculture in China, Asia & Africa. In the medium term select western goods should gain traction again as Asian consumers loosen their discretionary spend wallets.
But it must be stated that China et al obviously seek greater gain from their rebound given their foreign reserve currency holdings and desire to own a greater portion of the global value chain, especially in natural resources, their inbound transportation and outbound transportation of export goods. For hard-pressed western companies and governments who want to ride the Chinese rebound to provide domestic commercial growth, an expanding money supply and returned consumer spending to buoy western economies that will be a hard pill to swallow.
The threat of implicit protectionism has been rising via subtle trade policy changes both in the west and Asia, but for the sake of all concerned this must be avoided. Ironically, given what seems a very deflated state of the western auto-industry, it can continue to provide an inspirational vehicle for open door trade policies and so improve international diplomacy. [NB, even if the Opel-BAIC deal looks doomed due to both German domestic political issues and the reality of BAIC trying to amalgamate the 2 very different enterprises].
Western markets need more than the present over-reaction to less than bad news. Western companies need demand pull from BRIC nations to kick-start their own corporate growth ambitions and so domestic local and national economy fortunes.
Thus the investment community whilst possibly copying their trader counterparts for near term gains, may need to undertake subtle firms of activism toward both their own company-stock interests and toward government.
Ordinarily, when the economic transmission mechanism is running smoothly and top-down (PESTEL) and bottom-up (accounting) evaluations can be made the 'efficient markets' theory has legitimacy. But today we still sit within an uncertain period, especially so given that much of the banking write-downs reportedly necessary have not taken place and so fundamentally undermines sound long-term value-creation.
The western economic engine, whilst previously saved from totally stalling, still needs attention and full comprehension of the problem and its solution. The recent rally we've could well be the result of over-charged optimism, just as a stalling engine can experience a temporary power surge from erroneous air being sucked-into the manifold from a vacuum leak. Hope/sentiment is that vacuum, and the fortuitous Q2 earnings results that erroneous rush of air.
Yet the 10 day rally period seen across US, Euro and Asia to date sits within the broader context of liquidity constraint – thus trader (not necessarily purist investor) behavior seems to be charging the markets; jumping on any positive signal - no matter how thin – and trading sentiment and volatility instead of fundamentals. Thus we find ourselves in a period of trader vs investor schism.
Of course behind this dynamic is the fact that cash-conscious publicly traded companies on every western exchange are desperate to be seen as investor picks; thereby able to leverage their improved MarketCap to draw financing from either directly off the balance sheet or able to better bargain with bank or bond lenders. All obviously in order to improve cash-flow conditions, working capital and so ease operating pressures both internally and on either side of their creditor-debtor chain.
Recent press has been full of the 'good-news' stories highlighting the day after day upward trending, the 8-month high of the S&P500 and analyst-beating Q2 earnings; from everyone from across the industrial board, from Coca-Cola in consumables, to e-bay in retailing, to Caterpillar in capital goods, to Xerox in IT, to Merck & Bristol-Meyers & Wyeth in pharmaceuticals, and of course (as expected) the more than buoyant results from the more sound “good” financial such as Goldman Sachs and JP Morgan, and even heavily reduced but still positive results from others like Amex.
In Autos, Hyundai as expected performed well making hay domestically (p 15% at home) and leveraging customer attraction efforts in North America at the expense of GM, Chrysler and even Toyota during this tumultuous period; also gaining from the FX effect of a weak Won. And Ford beat analyst expectations with lower than forecast losses, so demonstrating the combined effects of of internal turnaround progress, the “cash for clunkers” programme and migrational US market assistance.
Fairing less well the likes of McDonalds, UPS,Eastman Chemical, EuroTunnel, NCR, Ericssonn, Microsoft, Amazon & Hynix Semiconductor; the last of these tech and cyber-space businesses highlighting that IT and web2.0 have not been as immune as previously thought.
So a mixed bag of results. But what really lays behind the good news stories? Is there substance or are western markets creating a momentary “over-exuberance” primarily via traders and the positive overnight effect of the west-east regions?
Whilst many results have beaten gloomy analyst predictions, and are of course sector influenced (eg the 'recessionary comfort food' factor of Hershey's or the 'global stimulus gain' of Caterpillar Inc), the broad reality is surely that there is a 'counter-point-effect' taking place between continued downbeat macro-fundamental measures (ie those in recent US unemployment and UK GDP retraction) and the ability of corporate management to both take drastic restructuring steps and legitimately re-orientate accounting procedure to boost quarterly results. These could be deferring capital investment, changing inventory values via switching between FIFO to LIFO (especially under today's deflationary times), delaying supplier payments, use of 'extra-ordinaries' eg digging into the provision pot, altering capital goods' depreciation or maintaining old/better asset valuations. The options are varied and many, and during such pressured times firms are undoubtedly re-discovering such pain-relieving financial-engineering tactics.
But it must be said that investors are looking well beyond the top and bottom-line figures, just as CFA's and forensic accountants are well versed in reading the subtleties of accounts so investors are increasingly looking for YoY and QoQ like for like readability, simplicity and general transparency. The best of corporations have realised this and have over the last year or so become more detailed in their reporting, conveying more of their forward-looking business strategies when appropriate can even gain investor credibility by reducing dividends or indeed giving non-payment to demonstrate their financial prudence.
Thus the Q2 season seems marked by CEO's and CFO's continued positioning “between the devil and the deep blue sea”. Whilst the market will trade on transient good news and traders will seek to effectively arbitrage sentiment and trading volumes/patterns the longer-term independent investor must see past the white-noise of volatility and much of the rhetoric from media 'experts' and talking heads who are keen to talk-up their own holdings.
Given western economy realities the world is looking for a rebound in BRIC regions to pull the west from its mire, led by export driven western companies. These for the time being relate to infrastructure and associated sectors (eg mining, commodities and steel-processing and IT hardware and systems) and the push for further globalised (and consolidated) agriculture in China, Asia & Africa. In the medium term select western goods should gain traction again as Asian consumers loosen their discretionary spend wallets.
But it must be stated that China et al obviously seek greater gain from their rebound given their foreign reserve currency holdings and desire to own a greater portion of the global value chain, especially in natural resources, their inbound transportation and outbound transportation of export goods. For hard-pressed western companies and governments who want to ride the Chinese rebound to provide domestic commercial growth, an expanding money supply and returned consumer spending to buoy western economies that will be a hard pill to swallow.
The threat of implicit protectionism has been rising via subtle trade policy changes both in the west and Asia, but for the sake of all concerned this must be avoided. Ironically, given what seems a very deflated state of the western auto-industry, it can continue to provide an inspirational vehicle for open door trade policies and so improve international diplomacy. [NB, even if the Opel-BAIC deal looks doomed due to both German domestic political issues and the reality of BAIC trying to amalgamate the 2 very different enterprises].
Western markets need more than the present over-reaction to less than bad news. Western companies need demand pull from BRIC nations to kick-start their own corporate growth ambitions and so domestic local and national economy fortunes.
Thus the investment community whilst possibly copying their trader counterparts for near term gains, may need to undertake subtle firms of activism toward both their own company-stock interests and toward government.
Ordinarily, when the economic transmission mechanism is running smoothly and top-down (PESTEL) and bottom-up (accounting) evaluations can be made the 'efficient markets' theory has legitimacy. But today we still sit within an uncertain period, especially so given that much of the banking write-downs reportedly necessary have not taken place and so fundamentally undermines sound long-term value-creation.
The western economic engine, whilst previously saved from totally stalling, still needs attention and full comprehension of the problem and its solution. The recent rally we've could well be the result of over-charged optimism, just as a stalling engine can experience a temporary power surge from erroneous air being sucked-into the manifold from a vacuum leak. Hope/sentiment is that vacuum, and the fortuitous Q2 earnings results that erroneous rush of air.
Tuesday, 21 July 2009
PESTEL Trends – the US Future – “Fly-Drive Me to the Moon”?
We live in a period of massive innovation demand. Most notably clean-tech related from a grand political CO2 agenda as a 'social-good' for the masses, and from the individual's perspective ever increasing expectations towards 24/7 communications and ethically responsible mobility. Such trends have been building for some years, different ethical factions of society promoting lifestyle alternatives and choices derived from personal energy responsibility. From cyber-commuting to walking and cycling to the use of (literally) less carbon exhaustive vehicles – whether ICE powered, hybrid-drive or full EV based.
Historically technical progress has been achieved and trickled-down to commercial enterprise and so mass consumption from ambitious, hi-tech endeavours. Efforts that were largely state sponsored, combining (additional resource) exploration with the need for defending ever geographically increasing national interests. Examples span from Pheonician & Greek times scouting African and Persian coastal waters, latterly the Scandinavian and Spanish cross-Atlantic traverses in search of the riches of the New World, right-up to JFK's promise to land a man on the moon; which would demonstrate the American century and provide a strategic defence advantage in the face of a then cold war.
With exploration came the pushing of natural boundaries, the overcoming of these challenges served scientific enlightenment with new knowledge and thus synthesised innovation: from the creation of the Trireme in 500 BC, the honed development of the Galleon & Caravel in the 16th century to the breathtaking achievement that was the Apollo space-craft. The 40th year of the moon-landings is of course now upon us, and although it has never left the background of the popular consciousness, the anniversary is all the more prescient given America's renewed vow to re-visit our lunar satellite and possibly reach further beyond into the solar system. However, the down-to-earth problems of a negative 'over-reach' in short & mid-term economic budget deficit & PSBR, added to the growing costly domestic challenges of rising unemployment costs and health reform costs means that galactic grand schemes today appear a long-way off.
However, thankfully the spirit of man – even the singular man – is indomitable; so where there is a will there is a way.
Given this ever-lasting edict, it is prescient that 40 years on the US should gather the former knowledge gained all those years ago, combine it with latter-day learning, review the 'pure' and 'applied' technical research and create industrial policy development paths to independently self-propel into the future in its chosen direction. For man's spiritual growth and the nation's economic growth.
Space and military R&D has provided various commercial applications over the years, primarily in the computing, communications, energy storage and materials realms - the latter toward extreme environment alloys & ceramic compounds. Typically work is initially maintained in the public-realm due to the vagaries of tech-transfer (re)development timetables and indefinite project costs. Thus unsurprisingly advanced materials and processes must be largely subsidised and ammortised by the state in military, medical and university research applications – themselves expanding R&D knowledge – before solutions can be practicably targeted at and adopted by the commercial world.
The specific gestation and incubation period and locations vary depending upon the political, social, and commercial context, but the role of PPFI (Public-Private Funding Initiatives) ever more present to encourage a smoother transition from state to commercial worlds and, as we see with QinetiQ in the UK, a growing appreciation that public capital markets can be leveraged to assist both R&D agencies and associated in-house projects. Effectively treating hi-tech engineering R&D in the same manner as Pharmaceutical. This in turn providing new funding methods based on IPR rights and future income streams. (NB the speedy return to this alternative funding model by investors and financial agents as a partial substitute to the ongoing capital accessing problem companies are experiencing).
Very broadly and basically, this is the financing context to the typical hi-tech innovation curve, though as stated much depends on the myriad of variables [NB see the myriad of 'Innovation-Push' & 'Adopter-Pull' theories available].
Today we witness the auto-sector slowly fragmenting and slowly re-forming as companies old and new diminish and grow (eg GM vs BYD) and the very philosophy of personal mobility is put under the social spotlight with emergent reduced CO2 solutions being offered in powertrains, structures and C3 (central command control) telematics. Thus there is a juxtaposition of evolutionary development of the ICE engine and conventional vehicle components versus (series or parallel) hybrid and electric powertrains which given their respective packaging and range issues pose concomitant questions about suitable vehicle structures.
[NB. Today, it seems Toyota is by far ahead on petrol-electric hybrids given the Prius-effect, and now PSA gains credibility with a publicised low cost diesel-hybrid switchable 4WD drive system as seen on the 3008].
But whilst the tech-transfer of space-specific knowledge in structures, heat management and energy storage naturally aligns to its Aeronautical counterpart, only the structures element seems to have trickled-down to land craft, and that primarily via the performance necessity (and budgets) of high-level motor-sport. Given the conventional funding context (previously described) this is the normal route. But whilst it provides a pathway of sorts, technology realistically may not come to the masses – the average vehicle buyer – for decades if at all. The realities of commercial adoption play a major role for innovation spread given that private commercial enterprise seeks rightly to inherently minimise risk and maximise profits.
[NB the R&D vs Risk assumptions vary greatly depending on industrial sector in question and so the relatively low cost innovation of say 'quick-reaction' computer software or consumer electronics hardware is in stark contrast to automotive given their very different R&D procedures, product platform bases, business cultures etc].
It is well known that certain entrepreneurs often from the IT sector are trying to re-orientate the automotive world, with what are a wide spectrum range of product types, mobility-services and business model foundations; with variable credibility and variable eventual success.
The electric vehicle (both ZEV and LEV) of course is one genre that has attracted much exploration and attention, ranging from the marketing of Chinese made electric bicycles, scooters and 3-wheeler commercial/passenger vehicles to new start-up companies at either end of the ambition spectrum – from homegrown e-motorcycles to adapted 'integrated e-systems' vehicles using a COTS vehicle basis to JV ventures that combine volume vehicle and battery manufacturers set within state sponsored new infrastructure agreements.
Many appreciate that the electric vehicle trend has a 'back-to-the-future' aspect, those start-ups trying to leverage the learning accumulated 100 years ago, with names like Detroit Electric and so many others. And so it will be that this burgeoning industry must also look back to only 40 years ago, when perhaps the most advanced electric vehicle was constructed by GM-Delco – the Lunar Roving Vehicle.
Contracted-out by NASA-Marshall to Boeing Aerospace, and sub-contracted to General Motors, the LRV was perhaps the most intellectually intensive EV ever built, demanding engineering solutions that pushed structural, drive-train and energy storage envelopes. It was a (de)foldable lightweight skeletal structure appointed with 4 in-hub motors for 4WD & 4WS (10 foot turning circle), communications equipment and electrical output sockets to power on-board and external ancillary equipment. It had a mass of 209 kg but offered a payload of 490 kg and was 10 feet long x 6 feet wide (ie equal to the length of the1959 Mini). Power was provided by two 36-volt silver-zinc potassium hydroxide non-rechargable batteries with a capacity of 121 A·h. These were used to power the drive and steering motors and also a 36 volt utility outlet mounted on front of the LRV to power the communications relay unit or the TV camera.
Interestingly, the silver-zinc battery chemistry used for LRV has 3 significant advantages over lithium ion It is safer because it lacks the volatile cathode makeup that leads to a thermal runaway, it’s very green since both silver and zinc are non-toxic as well as recyclable, and, perhaps most importantly, it packs 40% more energy for a given volume than lithium ion. Silver-zinc has a long history, used by the military and aerospace where programs could afford to pay for the higher-priced silver in exchange for increased energy density. But of course cost is a prime commercial factor, hence the automotive R&D focus on lithium-ion.
[NB. Even so just as L-ion is being developed to reduce its performance weaknesses, intensive focus should continue to be applied to silver-zinc's structural configurations and re-chargability – as the like of Intel Capital is doing via Zpower].
40 years on and that vehicle and it successors for 2020 exploration (with undoubtedly extended ranges) could be said to offer a possible general specification for dedicated lower speed ZEV urban vehicles of the near term. Today's electric cars are for the most part either adapted from mainstream vehicles or made to try and look like conventional cars so as to be normal enough for marketplace acceptance.
This practice is typical and understandable: if we look back in history, the first cars whether gasoline or electric were styled as horseless carriages.
However, attempting to effectively retro-fit a 'new/alternative' technology into the perceptual envelope of conventional cars is both technically sub-optimal (esp regards structural mass vs range issues) and essentially disingenuous, since by doing so it effectively and unfortuitously encourages the general public to compare apples against oranges dressed as apples. Moreover, electric vehicle companies have the headwind of having to design these oranges to qualify within the legislative realms (esp crash safety) of these apples (conventional cars) unless specific regional legislature has been developed to allow these low speed vehicles onto limited speedway roads.
This has of course happened in certain areas of the USA, but even so there is an obvious social usage chasm between the car and (golf-cart derived) NEV – the latter seen as little more than a joke by many, something belonging to the social fringes of golf-resorts, retirement villages & locales and (mocked) university campus officials. Although sportscar related efforts are trying to change the perception of EVs, there is presently a world of difference between a prototype Mercedes SLS e-Drive (incidentally using hub-motors that are probably sourced from F1 development) and what is being offered as a suitable commuter / shopping vehicle.
Hybrids like Prius and Insight of course fill that middle ground of acceptability, but no EV – even the very limited edition and costly Smart EV & Mitsubushi i-Miev - realistically fulfils the cost/benefit consumer gap. [NB the BMW Mini EV and FIAT 500 EV are still largely R&D and PR exercises given their packaging deficiencies and done largely extol the virtues of BMW & FIAT mainstream eco-tech efforts like 'start-stop' and 'brake re-generation'].
If new-era nuclear-power electricity generation - presently the only feasible clean energy source - is to feed the legions of EVs often described by prompted forecast there is a need for government, enterprise and consumers to re-consider the specific uses and aesthetic forms of alternative types of vehicle – their function derived from their purpose – just as the LRV did. Just as a tractor or HGV / semi-trailer does. Just as a bicycle, boat or airplane does. Just as an Arab stallion or a Clydesdale mare do; respectively suited to racing and ploughing. The case to be set forward of “horses for courses”.
But within this context, enterprise must also appreciate that the public at large views limited capability vehicles differently from the broad capability car or light-truck. And so as long as the direct comparison remains sets a very different price on that capability...one that the industry will not like but must consider when formulating real-world business models that must comprise everything from the cost of production to the life-service of a vehicle.
And to that 'perceptional' end, Obama's words about re-conquering space and the simultaneous desire to protect our planet from our own ravages sets the context to re-orientate the perception of the public at large and the vehicle buying consumer. But it is not an easy task, as previous similar failed efforts with heavily sunken finances litter automotive history.
Perhaps the last words of this short essay are best heard from Charles Lindbergh, the renowned aviator, NACA (later NASA) adviser, son of Detroit and little known 'green guardian', who through his own perseverance of Spirit (of St Louis) promoted transportation innovation:
“All the achievements of mankind have value only to the extent that they preserve and improve the quality of life”....”the human future depends on our ability to combine the the knowledge of science and the wisdom of the wilderness”.
Such words are the philosophical touch-stone for future eco-tech mobility solutions, much of which will depend on an improved cross-fertilisation of ideas from a myriad of different scientific & industrial sectors and sources.
Historically technical progress has been achieved and trickled-down to commercial enterprise and so mass consumption from ambitious, hi-tech endeavours. Efforts that were largely state sponsored, combining (additional resource) exploration with the need for defending ever geographically increasing national interests. Examples span from Pheonician & Greek times scouting African and Persian coastal waters, latterly the Scandinavian and Spanish cross-Atlantic traverses in search of the riches of the New World, right-up to JFK's promise to land a man on the moon; which would demonstrate the American century and provide a strategic defence advantage in the face of a then cold war.
With exploration came the pushing of natural boundaries, the overcoming of these challenges served scientific enlightenment with new knowledge and thus synthesised innovation: from the creation of the Trireme in 500 BC, the honed development of the Galleon & Caravel in the 16th century to the breathtaking achievement that was the Apollo space-craft. The 40th year of the moon-landings is of course now upon us, and although it has never left the background of the popular consciousness, the anniversary is all the more prescient given America's renewed vow to re-visit our lunar satellite and possibly reach further beyond into the solar system. However, the down-to-earth problems of a negative 'over-reach' in short & mid-term economic budget deficit & PSBR, added to the growing costly domestic challenges of rising unemployment costs and health reform costs means that galactic grand schemes today appear a long-way off.
However, thankfully the spirit of man – even the singular man – is indomitable; so where there is a will there is a way.
Given this ever-lasting edict, it is prescient that 40 years on the US should gather the former knowledge gained all those years ago, combine it with latter-day learning, review the 'pure' and 'applied' technical research and create industrial policy development paths to independently self-propel into the future in its chosen direction. For man's spiritual growth and the nation's economic growth.
Space and military R&D has provided various commercial applications over the years, primarily in the computing, communications, energy storage and materials realms - the latter toward extreme environment alloys & ceramic compounds. Typically work is initially maintained in the public-realm due to the vagaries of tech-transfer (re)development timetables and indefinite project costs. Thus unsurprisingly advanced materials and processes must be largely subsidised and ammortised by the state in military, medical and university research applications – themselves expanding R&D knowledge – before solutions can be practicably targeted at and adopted by the commercial world.
The specific gestation and incubation period and locations vary depending upon the political, social, and commercial context, but the role of PPFI (Public-Private Funding Initiatives) ever more present to encourage a smoother transition from state to commercial worlds and, as we see with QinetiQ in the UK, a growing appreciation that public capital markets can be leveraged to assist both R&D agencies and associated in-house projects. Effectively treating hi-tech engineering R&D in the same manner as Pharmaceutical. This in turn providing new funding methods based on IPR rights and future income streams. (NB the speedy return to this alternative funding model by investors and financial agents as a partial substitute to the ongoing capital accessing problem companies are experiencing).
Very broadly and basically, this is the financing context to the typical hi-tech innovation curve, though as stated much depends on the myriad of variables [NB see the myriad of 'Innovation-Push' & 'Adopter-Pull' theories available].
Today we witness the auto-sector slowly fragmenting and slowly re-forming as companies old and new diminish and grow (eg GM vs BYD) and the very philosophy of personal mobility is put under the social spotlight with emergent reduced CO2 solutions being offered in powertrains, structures and C3 (central command control) telematics. Thus there is a juxtaposition of evolutionary development of the ICE engine and conventional vehicle components versus (series or parallel) hybrid and electric powertrains which given their respective packaging and range issues pose concomitant questions about suitable vehicle structures.
[NB. Today, it seems Toyota is by far ahead on petrol-electric hybrids given the Prius-effect, and now PSA gains credibility with a publicised low cost diesel-hybrid switchable 4WD drive system as seen on the 3008].
But whilst the tech-transfer of space-specific knowledge in structures, heat management and energy storage naturally aligns to its Aeronautical counterpart, only the structures element seems to have trickled-down to land craft, and that primarily via the performance necessity (and budgets) of high-level motor-sport. Given the conventional funding context (previously described) this is the normal route. But whilst it provides a pathway of sorts, technology realistically may not come to the masses – the average vehicle buyer – for decades if at all. The realities of commercial adoption play a major role for innovation spread given that private commercial enterprise seeks rightly to inherently minimise risk and maximise profits.
[NB the R&D vs Risk assumptions vary greatly depending on industrial sector in question and so the relatively low cost innovation of say 'quick-reaction' computer software or consumer electronics hardware is in stark contrast to automotive given their very different R&D procedures, product platform bases, business cultures etc].
It is well known that certain entrepreneurs often from the IT sector are trying to re-orientate the automotive world, with what are a wide spectrum range of product types, mobility-services and business model foundations; with variable credibility and variable eventual success.
The electric vehicle (both ZEV and LEV) of course is one genre that has attracted much exploration and attention, ranging from the marketing of Chinese made electric bicycles, scooters and 3-wheeler commercial/passenger vehicles to new start-up companies at either end of the ambition spectrum – from homegrown e-motorcycles to adapted 'integrated e-systems' vehicles using a COTS vehicle basis to JV ventures that combine volume vehicle and battery manufacturers set within state sponsored new infrastructure agreements.
Many appreciate that the electric vehicle trend has a 'back-to-the-future' aspect, those start-ups trying to leverage the learning accumulated 100 years ago, with names like Detroit Electric and so many others. And so it will be that this burgeoning industry must also look back to only 40 years ago, when perhaps the most advanced electric vehicle was constructed by GM-Delco – the Lunar Roving Vehicle.
Contracted-out by NASA-Marshall to Boeing Aerospace, and sub-contracted to General Motors, the LRV was perhaps the most intellectually intensive EV ever built, demanding engineering solutions that pushed structural, drive-train and energy storage envelopes. It was a (de)foldable lightweight skeletal structure appointed with 4 in-hub motors for 4WD & 4WS (10 foot turning circle), communications equipment and electrical output sockets to power on-board and external ancillary equipment. It had a mass of 209 kg but offered a payload of 490 kg and was 10 feet long x 6 feet wide (ie equal to the length of the1959 Mini). Power was provided by two 36-volt silver-zinc potassium hydroxide non-rechargable batteries with a capacity of 121 A·h. These were used to power the drive and steering motors and also a 36 volt utility outlet mounted on front of the LRV to power the communications relay unit or the TV camera.
Interestingly, the silver-zinc battery chemistry used for LRV has 3 significant advantages over lithium ion It is safer because it lacks the volatile cathode makeup that leads to a thermal runaway, it’s very green since both silver and zinc are non-toxic as well as recyclable, and, perhaps most importantly, it packs 40% more energy for a given volume than lithium ion. Silver-zinc has a long history, used by the military and aerospace where programs could afford to pay for the higher-priced silver in exchange for increased energy density. But of course cost is a prime commercial factor, hence the automotive R&D focus on lithium-ion.
[NB. Even so just as L-ion is being developed to reduce its performance weaknesses, intensive focus should continue to be applied to silver-zinc's structural configurations and re-chargability – as the like of Intel Capital is doing via Zpower].
40 years on and that vehicle and it successors for 2020 exploration (with undoubtedly extended ranges) could be said to offer a possible general specification for dedicated lower speed ZEV urban vehicles of the near term. Today's electric cars are for the most part either adapted from mainstream vehicles or made to try and look like conventional cars so as to be normal enough for marketplace acceptance.
This practice is typical and understandable: if we look back in history, the first cars whether gasoline or electric were styled as horseless carriages.
However, attempting to effectively retro-fit a 'new/alternative' technology into the perceptual envelope of conventional cars is both technically sub-optimal (esp regards structural mass vs range issues) and essentially disingenuous, since by doing so it effectively and unfortuitously encourages the general public to compare apples against oranges dressed as apples. Moreover, electric vehicle companies have the headwind of having to design these oranges to qualify within the legislative realms (esp crash safety) of these apples (conventional cars) unless specific regional legislature has been developed to allow these low speed vehicles onto limited speedway roads.
This has of course happened in certain areas of the USA, but even so there is an obvious social usage chasm between the car and (golf-cart derived) NEV – the latter seen as little more than a joke by many, something belonging to the social fringes of golf-resorts, retirement villages & locales and (mocked) university campus officials. Although sportscar related efforts are trying to change the perception of EVs, there is presently a world of difference between a prototype Mercedes SLS e-Drive (incidentally using hub-motors that are probably sourced from F1 development) and what is being offered as a suitable commuter / shopping vehicle.
Hybrids like Prius and Insight of course fill that middle ground of acceptability, but no EV – even the very limited edition and costly Smart EV & Mitsubushi i-Miev - realistically fulfils the cost/benefit consumer gap. [NB the BMW Mini EV and FIAT 500 EV are still largely R&D and PR exercises given their packaging deficiencies and done largely extol the virtues of BMW & FIAT mainstream eco-tech efforts like 'start-stop' and 'brake re-generation'].
If new-era nuclear-power electricity generation - presently the only feasible clean energy source - is to feed the legions of EVs often described by prompted forecast there is a need for government, enterprise and consumers to re-consider the specific uses and aesthetic forms of alternative types of vehicle – their function derived from their purpose – just as the LRV did. Just as a tractor or HGV / semi-trailer does. Just as a bicycle, boat or airplane does. Just as an Arab stallion or a Clydesdale mare do; respectively suited to racing and ploughing. The case to be set forward of “horses for courses”.
But within this context, enterprise must also appreciate that the public at large views limited capability vehicles differently from the broad capability car or light-truck. And so as long as the direct comparison remains sets a very different price on that capability...one that the industry will not like but must consider when formulating real-world business models that must comprise everything from the cost of production to the life-service of a vehicle.
And to that 'perceptional' end, Obama's words about re-conquering space and the simultaneous desire to protect our planet from our own ravages sets the context to re-orientate the perception of the public at large and the vehicle buying consumer. But it is not an easy task, as previous similar failed efforts with heavily sunken finances litter automotive history.
Perhaps the last words of this short essay are best heard from Charles Lindbergh, the renowned aviator, NACA (later NASA) adviser, son of Detroit and little known 'green guardian', who through his own perseverance of Spirit (of St Louis) promoted transportation innovation:
“All the achievements of mankind have value only to the extent that they preserve and improve the quality of life”....”the human future depends on our ability to combine the the knowledge of science and the wisdom of the wilderness”.
Such words are the philosophical touch-stone for future eco-tech mobility solutions, much of which will depend on an improved cross-fertilisation of ideas from a myriad of different scientific & industrial sectors and sources.
Saturday, 11 July 2009
Company Focus – 'New' General Motors Company – All Change at the RenCen and Around the Globe.
General Motors has emerged from bankruptcy proceedings in a record time of 39 days -thanks to the 363 procedure - astounding investors, industry executives and indeed re-structuring lawyers given the minimum of 90 days expected. Justifiably the 'old' bond-holders will continue to feel marginalised given the 60.8% stake now owned by Washington – costing approximately $1bn for each 1.22% - the 17.5% by the UAW, 11.7% by the Canadian Government and remaining 10% left to 'old GM' MLC (Motors Liquidation Company) and by virtue its equity and debt-holders.
[NB. The 'old' GM free-float rallied on the 'exit' news from a fluctuating range of $0.35 to a close of $1.15 on Friday (10.07.09) giving it a MktCap of $702.25m].
Thus the Board's remit is to both create a vision for tomorrow and simultaneously effectively dismantle and divest 'Liquidation Motors' of yesteryear. Whilst Whitacre, Henderson and Lutz perform much of the former - including a new e-bay based venture, the latter will probably be left to Whitacre, Isdell, Kresa, Laskawy & Kidder working with the investment banking community. The search to find suitable domestic and foreign trade and PE customers continues for the divested brands, product inventories, plants, tooling and land assets. Their job to create compelling 'Blue-Books' possibly for complete divisions but more probably on a part-by-part basis, the latter with the potential to release greater capital value generated by a wider audience.
Thus today even the New GM appears a world away from the long-term vision of 'General Mobility' – with concomitant new vehicle modes and business models - that it seeks under Whitacre. Many, including ourselves, will question the efficacy of the lightening-quick bankruptcy exit, but it must be assumed that although not formally 'pre-packaged' per se, the resultant animal is close in shape to the desired outcome by both Washington and GM itself.
But whilst Henderson et al maintain the GM publicity machine of 'customer focus' and 'star products' that buoys consumer – indeed American – confidence, others from Wall St, the City, Moscow's Presnensky, HK's Choong Wan, Seoul's Cheonggyecheon, Shanghai's Lujiazui & Beijing's own financial district will all have representatives clammering over GM's remaining 'toxic assets'. Assets which if utilised by others with low cost structures should have surprising inherent value. Penske's bid for Saturn and BAIC's bid for Opel should start a stampede.
Thus although the Washington – Beijing relationship has been tetchy in the recent past, this opportunity for bi-lateral and global trade which also aids the fragile US$-Renmimbi balance should be welcomed, as indeed will Washington glad to see immediate returns.
[NB. The 'old' GM free-float rallied on the 'exit' news from a fluctuating range of $0.35 to a close of $1.15 on Friday (10.07.09) giving it a MktCap of $702.25m].
In another potentially conspired twist of fate, that will cause more old bond-holder consternation, GM has along with Chrysler & Nissan North America agreed to loan Ford monies that will be passed-on to the quasi-dependent but bankrupt Visteon (itself filing 28.05.09). That occurrence obviously entwines the US auto-industry and we suspect was done so at the behest of Steven Rattner's Auto Task Force Team, so as to ensure Detroit helps itself by creating a collaborative culture rather than the historically normal competitive one – a case of value creation rather than value destruction. This of course stabilizes Visteon and allows for the precedent that a greater emphasis on 'common systems engineering' will prevail which will reduce development costs, inventory count, manufacturing overheads & variables, and logistics costs.
Thus at last Detroit is creating a very loose kind of chaebol system, that being the crucial basis of previous Japanese and S. Korean operating methods that both reduced costs and allowed for quicker new model development programmes. This probably an outcome of the efforts by Senator Bob Corker that created the covenant-like 'bail conditions' for GM.
Beneath the rebirth spin, the question must be what does GM realistically have that can transpose the PR into successful achievement? Viewing from afar, it has a crop of 30-something/40-something managers who have been essentially elevated by this historic occurrence. No doubt Henderson et al will be pep-talking those people: paralleling their 'opportunity' to that of John DeLorean's rapid rise. So the chance to re-make GM, now focused upon a slimmer brand portfolio of Chevrolet, Buick, Cadillac and GMC, with much needed debt-reduction boosting the balance sheet massively
[NB. Debt down from $176bn to $48bn according to the WSJ vs the FT's report of $54.4bn to $17.3bn. GM itself states it as $11bn excluding $9bn of preferred stock and could - ie probably will - alter under new accounting terms].
Given the new heavy marketing stance, Bob Lutz is now saying how he is really a marketing man at heart, having 'illegally' spent the majority of his career in product strategy and development. All part of the usual staged corporate rally cry that Detroit has mustered at such times to bolster belief both internally and critically externally.
So assuming that the operational management has been appropriately cut-to-shape and does have the experience and competence, what of the new Board? An entity which must combine the balancing act of creating strategic futures will the task of cherry-picking the recommended operational initiatives? The WSJ yesterday reported what much of the new board will look like, those members who are departing and those to take their new seats.Under new Chairman Ed Whitacre, Henderson carries on his good work as CEO including the direct responsibility for GMNA, [Nick Reilly now with International Ops (GMIO)] whilst Bob Lutz takes a Vice-Chair post probably charged with running the smaller Auto-Strategy Board & Auto-Product Board, and critically building the confidence of the remaining US dealer-base and pepping-up critical BRIC+ regional business divisions. Other names come and go.
As mentioned in the previous post, Stephen Girsky plays a pivotal role given his ability to see both side of the management-ownership equation. Although former Kodak CEO George Fisher departs, six current Board Execs remain including: former Coca-Cola Chairman Neville Isdell, ex Northrup Grumman CEO Kent Kresa ex E&Y Chairman Phil Laskawy. The appointment by the Obama administration of former investment banker Robert Kidder to GM aswell as Chrysler demonstrates the ideal of sector inter-connectedness that Washington seeks.
Thus the Board's remit is to both create a vision for tomorrow and simultaneously effectively dismantle and divest 'Liquidation Motors' of yesteryear. Whilst Whitacre, Henderson and Lutz perform much of the former - including a new e-bay based venture, the latter will probably be left to Whitacre, Isdell, Kresa, Laskawy & Kidder working with the investment banking community. The search to find suitable domestic and foreign trade and PE customers continues for the divested brands, product inventories, plants, tooling and land assets. Their job to create compelling 'Blue-Books' possibly for complete divisions but more probably on a part-by-part basis, the latter with the potential to release greater capital value generated by a wider audience.
Thus today even the New GM appears a world away from the long-term vision of 'General Mobility' – with concomitant new vehicle modes and business models - that it seeks under Whitacre. Many, including ourselves, will question the efficacy of the lightening-quick bankruptcy exit, but it must be assumed that although not formally 'pre-packaged' per se, the resultant animal is close in shape to the desired outcome by both Washington and GM itself.
But whilst Henderson et al maintain the GM publicity machine of 'customer focus' and 'star products' that buoys consumer – indeed American – confidence, others from Wall St, the City, Moscow's Presnensky, HK's Choong Wan, Seoul's Cheonggyecheon, Shanghai's Lujiazui & Beijing's own financial district will all have representatives clammering over GM's remaining 'toxic assets'. Assets which if utilised by others with low cost structures should have surprising inherent value. Penske's bid for Saturn and BAIC's bid for Opel should start a stampede.
Thus although the Washington – Beijing relationship has been tetchy in the recent past, this opportunity for bi-lateral and global trade which also aids the fragile US$-Renmimbi balance should be welcomed, as indeed will Washington glad to see immediate returns.
Thus it should not be such a wonder that Motors Liquidation Company has attracted so much attention, much of it speculative in the short-term but arguably with such international interest providing longer-term sustainability. Especially so if seperated-off as a strategic holding company for unhurried investors. Thus MLC may have firmer grounds for market confidence than perhaps many presently think.
Sometimes it pays better to be rationally contrarian...to 'think small'.
Monday, 6 July 2009
Macro-Level Trends – 'New' General Motor Co – Stars & Stripes Industrial Policy-Making Knotted by Orion's Bow-Tie
A CEO's remit is to harness the economic conditions of the day to maximise the investment, growth and returns potential of his/her organisation. Even if that organisation be in a rather unconventional state of play (ie Chapter 11) and under alternative effective ownership (ie Government & UAW) in what is supposed to be a capitalist society that CEO must make coherent rational choices, especially so if s/he seeks to create long-term stability from what have been fragile foundations.
Thus few industry observers will fault Frederick Henderson for siting 'New' GM's proposed small car-plant in Orion Township – Michigan, given the state's contribution of $779m in tax-credits over the next 20 years, other local incentives totaling $102m and a federal pot of £130m for local worker training. But the present realpolitik, which obviously includes Washington's $50bn+ of bail-out financing, wasn't lost on Orion's peer bid-competitors in Spring Hill, Tennessee and Janesville, Wisconsin. The Republican representatives of those locales reportedly concerned by what they see as a misrepresentation of a winning criteria based on CSR attributes instead of pure business-case fundamentals. [NB. The reported criteria spans a diverse range of issues both CSR and purely commercial, thus it is suggested that it was infact the 'spun' PR reporting regards 'eco' & 'community' that provided the fuel for the fire].
However, investment-auto-motives believes that in the interest of pure economic theorum, that it must be stated that the Michigan siting of the small-car plant, although in the short-term an attractive package, is still highly questionable. That is unless 'New' GM can somehow radically change the economics of the traditional US car-manufacturing business which is inherently tied to incompatible global cost-competitiveness throughout the US-centric value-chained.
But with new Board under new Chairman (ex AT&T) Edward E Whitacre Jnr, consisting of primarily government overseers & UAW figures there is a heavy reliance on the know-how of 'old-guard' GM management that (with all due respect) are not known for radical auto engineering and production approaches. Thus the Board with all the best intentions appears caught between a business case that must parallel car-market reality (at 9.9m-10.1m SAAR) that necessitates lowest-cost approaches, and the inherent external & internal pressures of what is now effectively a state-run enterprise. Whilst Whitacre will have the strategic perspective of transforming New GM into something with 'Telco' form (ie product service contracts and bolt-on packages) the only real informed Board-member is Stephen Girsky (now a UAW representive) from the Rattner Task Force; given that he sat alongside Wagoner in years gone by, and best understands the shape and form of the global company. Given his dual-role experiences, he is the real power-player in the broad schema.
As stated the realpolitik cannot be under-estimated, but the fact that New GM proposes to manufacture sub-compact (B-class) segment vehicles in Michigan still seems concerning. Even given the new lower Tier 2 UAW wage-rates ($14-16.23 per hour) that arguably compete with Southern states' labour rates they do not compete with Asian rates. Nor is there the flexibility to compete in the future as the US Administration seeks to raise the minimum wage from $6.55 to $7.25; that 70c raise will in turn indubitably push 'semi-skilled' rates up by $1 or more, so widening the cost-gap between Michigan, its southern counterparts, and particularly Mexico and BRIC regions which are 'enjoying' deflationary pressures to improve their auto-industry cost structures.
[NB. It was for very good reasons that Chrysler decided to manufacture its proposed Hornet sub-compact in China with its JV partner Chery – now possibly TATA-Chery given FIAT's acquisition].
New GM's small car should look something akin to the 'BEAT' concept which won an on-line potential-buyers poll in 2007 is a segment-adjusted interpretation of the new-age Chevrolet aesthetic (as also seen with Volt) due for production release in 2010. That B-class platform named 'Gamma2' has been developed by GMDAT in Inchen, S. Korea so much of the development costs will have been born by the relatively buoyant Asian subsidiary. Thus we suspect that the programme cost has been divorced from the (heavily subsidised) production cost, and much of the high-value systems (esp electronics) will be sourced from S. Korea, so therefore producing a 'feasible' business-case for Orion's small-car on paper.
In essence, Orion is acting in the same manner as the notional transplant production facility, ironically its new owner (the US Government) able to leverage both the reduced cost of overseas engineering development and exploit the deflationary pricing resultant from the re-structuring of weak chaebols ongoing in S. Korea and the FX rate fall of the Won vs Dollar.
(The irony of a present centre-left US administration benefiting from global capitalism is not lost! But of course the tenants of Adam Smith's 1776 ideology is about the exploitation of regional core competences...so all to the good).
However, the fact remains that even with such 'priced-in' costs that make the small-car programme apparently workable, it is the very basics of the US Administration's fiscal and monetary policies (ie heavy stimulus spending plans combined with M3's “Quantitative Easing” that threaten the mid-long-term viability of the BEAT/AVEO to New GM vs foreign manufacturer's such as Toyota, Hyundai within the US.
For, investment-auto-motives is bearish on the mid-term, believing that any apparent new growth will infact be little more than an illusionary mixture of a (possibly heavily) devalued Dollar combined with spiralling price inflation initially created by artificial wage-price adjustment. That perception of growth (primarily in observed data sets) will neither be true 'demand pull' nor 'productivity push', but a consequence of today's pump-priming actions, that in turn could well choke the US economy, and so set it for a dreaded invisible 'L-shaped' future.
If and when such a scenario plays out, New GM may endeavour to add margin to the small car programme by resorting to Buick, Cadillac and even possibly GMC branded variants that will try an d piggy-back the luxo-small car trend that appeared after the Merc A-Class, Brabus Smart and continues with the Aston Martin (Lagonda) Cygnet based on the Toyota iQ [see last posting]. (The Buick version would sit under or replace the Buick Sail in China, that car possibly brought to the US so expanding today's limited 3 car vehicle range; with also a mooted 'Wildcat Gran Sport' inspired coupe as a halo vehicle).
Thus we are back to a replay of the economic circumstances of the 1970s which in turn prompted the invention of mid-size Buicks and Cadillacs that assisted group revenue at the time, but helped to diminish the brand equity of both once illustrious marques. Of course GM must now pay as much, and realistically more, attention to China's marketplace, so the US will increasingly become second fiddle with S. America on the other side of the regional product strategy sandwich.
At that point, GM will once again need to re-create itself again as a 'Brand Broker' and that is when we'll see the legacy of Edward Whitacre Jnr via new business modelling
That work will need to happen asap for in the meantime, if our economic conjecture* proves correct, the New GM is yet another phase of what is a long journey of transformation.
Post Script
* Our fundamental yet academically undetailed economic conjecture parallels Prof Niall Ferguson's edict. In essence, that today's economic reality is best understood as a re-modeled hybrid construction of various past depression/heavy recession experiences. Thus is not a direct replay but involves different elements of various US (1930s/70s), European (1930s/70s), Japanese (1990s/2000s) and Asian (1990s) experiences and so requires a 'weighted basket' of countering policy reactions to suit.
Thus few industry observers will fault Frederick Henderson for siting 'New' GM's proposed small car-plant in Orion Township – Michigan, given the state's contribution of $779m in tax-credits over the next 20 years, other local incentives totaling $102m and a federal pot of £130m for local worker training. But the present realpolitik, which obviously includes Washington's $50bn+ of bail-out financing, wasn't lost on Orion's peer bid-competitors in Spring Hill, Tennessee and Janesville, Wisconsin. The Republican representatives of those locales reportedly concerned by what they see as a misrepresentation of a winning criteria based on CSR attributes instead of pure business-case fundamentals. [NB. The reported criteria spans a diverse range of issues both CSR and purely commercial, thus it is suggested that it was infact the 'spun' PR reporting regards 'eco' & 'community' that provided the fuel for the fire].
However, investment-auto-motives believes that in the interest of pure economic theorum, that it must be stated that the Michigan siting of the small-car plant, although in the short-term an attractive package, is still highly questionable. That is unless 'New' GM can somehow radically change the economics of the traditional US car-manufacturing business which is inherently tied to incompatible global cost-competitiveness throughout the US-centric value-chained.
But with new Board under new Chairman (ex AT&T) Edward E Whitacre Jnr, consisting of primarily government overseers & UAW figures there is a heavy reliance on the know-how of 'old-guard' GM management that (with all due respect) are not known for radical auto engineering and production approaches. Thus the Board with all the best intentions appears caught between a business case that must parallel car-market reality (at 9.9m-10.1m SAAR) that necessitates lowest-cost approaches, and the inherent external & internal pressures of what is now effectively a state-run enterprise. Whilst Whitacre will have the strategic perspective of transforming New GM into something with 'Telco' form (ie product service contracts and bolt-on packages) the only real informed Board-member is Stephen Girsky (now a UAW representive) from the Rattner Task Force; given that he sat alongside Wagoner in years gone by, and best understands the shape and form of the global company. Given his dual-role experiences, he is the real power-player in the broad schema.
As stated the realpolitik cannot be under-estimated, but the fact that New GM proposes to manufacture sub-compact (B-class) segment vehicles in Michigan still seems concerning. Even given the new lower Tier 2 UAW wage-rates ($14-16.23 per hour) that arguably compete with Southern states' labour rates they do not compete with Asian rates. Nor is there the flexibility to compete in the future as the US Administration seeks to raise the minimum wage from $6.55 to $7.25; that 70c raise will in turn indubitably push 'semi-skilled' rates up by $1 or more, so widening the cost-gap between Michigan, its southern counterparts, and particularly Mexico and BRIC regions which are 'enjoying' deflationary pressures to improve their auto-industry cost structures.
[NB. It was for very good reasons that Chrysler decided to manufacture its proposed Hornet sub-compact in China with its JV partner Chery – now possibly TATA-Chery given FIAT's acquisition].
New GM's small car should look something akin to the 'BEAT' concept which won an on-line potential-buyers poll in 2007 is a segment-adjusted interpretation of the new-age Chevrolet aesthetic (as also seen with Volt) due for production release in 2010. That B-class platform named 'Gamma2' has been developed by GMDAT in Inchen, S. Korea so much of the development costs will have been born by the relatively buoyant Asian subsidiary. Thus we suspect that the programme cost has been divorced from the (heavily subsidised) production cost, and much of the high-value systems (esp electronics) will be sourced from S. Korea, so therefore producing a 'feasible' business-case for Orion's small-car on paper.
In essence, Orion is acting in the same manner as the notional transplant production facility, ironically its new owner (the US Government) able to leverage both the reduced cost of overseas engineering development and exploit the deflationary pricing resultant from the re-structuring of weak chaebols ongoing in S. Korea and the FX rate fall of the Won vs Dollar.
(The irony of a present centre-left US administration benefiting from global capitalism is not lost! But of course the tenants of Adam Smith's 1776 ideology is about the exploitation of regional core competences...so all to the good).
However, the fact remains that even with such 'priced-in' costs that make the small-car programme apparently workable, it is the very basics of the US Administration's fiscal and monetary policies (ie heavy stimulus spending plans combined with M3's “Quantitative Easing” that threaten the mid-long-term viability of the BEAT/AVEO to New GM vs foreign manufacturer's such as Toyota, Hyundai within the US.
For, investment-auto-motives is bearish on the mid-term, believing that any apparent new growth will infact be little more than an illusionary mixture of a (possibly heavily) devalued Dollar combined with spiralling price inflation initially created by artificial wage-price adjustment. That perception of growth (primarily in observed data sets) will neither be true 'demand pull' nor 'productivity push', but a consequence of today's pump-priming actions, that in turn could well choke the US economy, and so set it for a dreaded invisible 'L-shaped' future.
If and when such a scenario plays out, New GM may endeavour to add margin to the small car programme by resorting to Buick, Cadillac and even possibly GMC branded variants that will try an d piggy-back the luxo-small car trend that appeared after the Merc A-Class, Brabus Smart and continues with the Aston Martin (Lagonda) Cygnet based on the Toyota iQ [see last posting]. (The Buick version would sit under or replace the Buick Sail in China, that car possibly brought to the US so expanding today's limited 3 car vehicle range; with also a mooted 'Wildcat Gran Sport' inspired coupe as a halo vehicle).
Thus we are back to a replay of the economic circumstances of the 1970s which in turn prompted the invention of mid-size Buicks and Cadillacs that assisted group revenue at the time, but helped to diminish the brand equity of both once illustrious marques. Of course GM must now pay as much, and realistically more, attention to China's marketplace, so the US will increasingly become second fiddle with S. America on the other side of the regional product strategy sandwich.
At that point, GM will once again need to re-create itself again as a 'Brand Broker' and that is when we'll see the legacy of Edward Whitacre Jnr via new business modelling
That work will need to happen asap for in the meantime, if our economic conjecture* proves correct, the New GM is yet another phase of what is a long journey of transformation.
Post Script
* Our fundamental yet academically undetailed economic conjecture parallels Prof Niall Ferguson's edict. In essence, that today's economic reality is best understood as a re-modeled hybrid construction of various past depression/heavy recession experiences. Thus is not a direct replay but involves different elements of various US (1930s/70s), European (1930s/70s), Japanese (1990s/2000s) and Asian (1990s) experiences and so requires a 'weighted basket' of countering policy reactions to suit.
Tuesday, 30 June 2009
Company Focus – Aston Martin Lagonda – Cygnet Signifies an Alternative Business Stream
The WSJ today reports that Aston Martin Lagonda and Toyota have agreed a platform/vehicle sharing arrangement with the iQ city car.
To be known as the Cygnet under an AML marque, the strategic aim appears to enable both regulatory adherence regards CO2 emissionsf its V12 and V8 the DBS, DB9 and V8 Vantage & Volante supercars and provide reach into affluent yet congested and increasingly restricted global city-centres.
Of course initial reaction to the idea of a Aston badge adorning the front and rear of an iQ is “shock-horror”, but of course there will be far more rational and detail behind the initiative. As the economic slow-down bites into conventional business at Gaydon and capacity & revenue sharply, Ulrich Bez et al will deploy a plan of action designed to battle the historic norm of AML's generational demise as the supercar business-cycle sweeps into a trough.
It is generally recognised that unlike the Aston brand, the revived Lagonda marque is not “set in stone” by the public's perception. (Indeed its periodic re-emergence has been a both svelte AM saloon body variants in the '80s and previously the then shocking 1970s Townsend designed angular vehicle. It's original 1920s and 30s guise is lost to most except marque connoisseurs). Hence it's re-invention can be made theoretically from a blank canvas, and that it exactly what AML did with the Lagonda concept X-over vehicle at Geneva 09.
That car was used to demonstrate a new forward looking era for the revived marque, one which rode the X-over trend by marrying the DNA of a Porsche Cayenne, Range Rover and Bentley, The remit to produce something alternative for the uber-luxury set of target clienteleee that span the globe and have outer-city homes; from contemporary weekend beach-side houses in The Hamptons to luxury weekend Khaymas (tents) in thdesert-landsds of the Arabic Gulf - in indeed both! This select latter group could well apply to the part-owners of AML: the Adeem investment consortium.
So whilst the Geneva car presented something of the alternative new Lagonda, the story appears not to end there. There was mention of a sedan vehicle, which given that the X-over is based on a Mercedes GL platform would suggest that a sedan would be evolved from an S-Class or E-Class base, cementing a Daimler inter-relationship which also offers new 'eco-tech' solutions (such as L-ion hybrids) and critically would also strengthen the inter-relationship of GCC SWF and PE funds given Adeem's AML interests and Abu Dhabi's $2.7bn Aabar Investment Fund buy-in to Daimler in March along with (and slightly diluting) the the Kuwait Investment Authority holding.
As we see today, the reports of the AML-Toyota city car alliance alters partially 'given' perceptions that the other AML cars would be born from Daimler given Stuttgart's willingness to seek alliances. (ie suggested Daimler-BMW small car). However it seems that the the A-B class platform and Smart Car base were either not put on the table for debate - perhaps Daimler demanding retained sole usage - or the limited ability to alter the A-class and Smart's aesthetic to suit another brand's design cues with in the latter's case the added disadvantage of sub-optimal NVH (noise, vibration, harshness) driving characteristics.
So AML it seems needed another borrowed platform to provide credibility to inhabit the premium city-car segment. So providing an urban-focused radically different counterpoint product to the previously displayed X-over. One that not only fitted the luxury city-car genre, but also by establishing a second stake in the ground so far away from the original indicated the potential stretch & span (ie market segment coverage) of the Lagonda brand.
Now the Lagonda Wings are truly stretched!
But investment-auto-motives suspects that AML has also taken on this 2nd strategic partner to enable dual access possibilities to eco-tech powertrains from Daimler & Lexus for fitment to next generation supercars such as the successor to the soon to arrive Aston Rapide and a probable sister Lagonda variant. And increasingly beyond the 30mph/50kph + speed limits of suburban roads and motorways / freeways / autobahns, Lagondas will have to operate inside city-centre LEV and ZEV environs (from London to Singapore) that will demand alternative propulsion solutions.
Lagonda has the task of creating an identity from scratch his purports that the Lagonda marque will offer an alternative driving and passenger experience. To do this it appears to be rightly looking across the spectrum and history of personal travel. Remember the word sedan in auto-terms originates from the sedan chair, of which there was even a Lagonda names version.
To be known as the Cygnet under an AML marque, the strategic aim appears to enable both regulatory adherence regards CO2 emissionsf its V12 and V8 the DBS, DB9 and V8 Vantage & Volante supercars and provide reach into affluent yet congested and increasingly restricted global city-centres.
Of course initial reaction to the idea of a Aston badge adorning the front and rear of an iQ is “shock-horror”, but of course there will be far more rational and detail behind the initiative. As the economic slow-down bites into conventional business at Gaydon and capacity & revenue sharply, Ulrich Bez et al will deploy a plan of action designed to battle the historic norm of AML's generational demise as the supercar business-cycle sweeps into a trough.
It is generally recognised that unlike the Aston brand, the revived Lagonda marque is not “set in stone” by the public's perception. (Indeed its periodic re-emergence has been a both svelte AM saloon body variants in the '80s and previously the then shocking 1970s Townsend designed angular vehicle. It's original 1920s and 30s guise is lost to most except marque connoisseurs). Hence it's re-invention can be made theoretically from a blank canvas, and that it exactly what AML did with the Lagonda concept X-over vehicle at Geneva 09.
That car was used to demonstrate a new forward looking era for the revived marque, one which rode the X-over trend by marrying the DNA of a Porsche Cayenne, Range Rover and Bentley, The remit to produce something alternative for the uber-luxury set of target clienteleee that span the globe and have outer-city homes; from contemporary weekend beach-side houses in The Hamptons to luxury weekend Khaymas (tents) in thdesert-landsds of the Arabic Gulf - in indeed both! This select latter group could well apply to the part-owners of AML: the Adeem investment consortium.
So whilst the Geneva car presented something of the alternative new Lagonda, the story appears not to end there. There was mention of a sedan vehicle, which given that the X-over is based on a Mercedes GL platform would suggest that a sedan would be evolved from an S-Class or E-Class base, cementing a Daimler inter-relationship which also offers new 'eco-tech' solutions (such as L-ion hybrids) and critically would also strengthen the inter-relationship of GCC SWF and PE funds given Adeem's AML interests and Abu Dhabi's $2.7bn Aabar Investment Fund buy-in to Daimler in March along with (and slightly diluting) the the Kuwait Investment Authority holding.
As we see today, the reports of the AML-Toyota city car alliance alters partially 'given' perceptions that the other AML cars would be born from Daimler given Stuttgart's willingness to seek alliances. (ie suggested Daimler-BMW small car). However it seems that the the A-B class platform and Smart Car base were either not put on the table for debate - perhaps Daimler demanding retained sole usage - or the limited ability to alter the A-class and Smart's aesthetic to suit another brand's design cues with in the latter's case the added disadvantage of sub-optimal NVH (noise, vibration, harshness) driving characteristics.
So AML it seems needed another borrowed platform to provide credibility to inhabit the premium city-car segment. So providing an urban-focused radically different counterpoint product to the previously displayed X-over. One that not only fitted the luxury city-car genre, but also by establishing a second stake in the ground so far away from the original indicated the potential stretch & span (ie market segment coverage) of the Lagonda brand.
Now the Lagonda Wings are truly stretched!
But investment-auto-motives suspects that AML has also taken on this 2nd strategic partner to enable dual access possibilities to eco-tech powertrains from Daimler & Lexus for fitment to next generation supercars such as the successor to the soon to arrive Aston Rapide and a probable sister Lagonda variant. And increasingly beyond the 30mph/50kph + speed limits of suburban roads and motorways / freeways / autobahns, Lagondas will have to operate inside city-centre LEV and ZEV environs (from London to Singapore) that will demand alternative propulsion solutions.
Lagonda has the task of creating an identity from scratch his purports that the Lagonda marque will offer an alternative driving and passenger experience. To do this it appears to be rightly looking across the spectrum and history of personal travel. Remember the word sedan in auto-terms originates from the sedan chair, of which there was even a Lagonda names version.
However, crucially the marque's name is actually a transmogrification, derived from 17th century wealthy Venetian's calling for “La Gondolier” for canal-way carriage .
Furthermore, Lagonda was once synonymous with the forerunners of today's powerboats, the V12 car engines used for propulsion and that water-land connection promoted numerous wooden-body and boat-tailed vehicle creations.
So it seems AML, Dr Bez & Adeem are indeed, through the Cygnet initiative, following that change in social & business tidal flow - using high-quality, visionary external business partners exemplifed by Daimler and now Toyota. This exercise demonstrates their "(signet) ring of confidence", and will (intendendly) be the talk of the Henley Royal Regatta this weekend.
Monday, 22 June 2009
Industry Practice – Formula One – Competing for Pole Position in the F1 Business Model.
It was a very long time ago that motorsports were the amateur sport of choice for European gentlemen. Today, homage runs such as the Mille-Miglia is where the leisured money is directed , even if behind the scenes passionate classic car owners also consider the importance of Mille-Miglia vehicle valuations, keeping P&L and balance sheet accounts as an important “aside”.
As a raw commercial counterpoint to VSCC, RAC and other leisure-class racing, Grand Prix's post WW2 popularisation has grown exponentially, with it snowballed commercial rewards. Firstly from day & weekend gate receipts, from track advertising, then from vehicle/team sponsorship and of course in the last 30 years from global TV transmittance. As F1 popularity expanded so increasing multi-stream revenues were devised and implemented, the monies enabled the sport's participants to hone every dimension of their competitiveness, from R&D facilities that led to the paradigm-shift of carbon fibre to the use of telematics to the offered sizable salaries that drew top driver talent.
Unsurprisingly, as that ever expanding liquidity pot attracted business acumen, deals and contracts followed leading to what has essentially become the agenda- driven forces of power-broking parties.
The FIA regulates the sport - presided by Max Mosley - and prescribes the specification 'formula' to which the race-cars must accord. Whilst it was Bernie Ecclestone that created the modern template, as a past team owner of Brabham he saw the value of the sport's commercial rights potential back in the late 70s, In doing so set-up FOCA (Formula One Constructors Association) with Mosley, then as legal council, to fight the cause for commercial change which he/they won.
A finance vehicle was created called FOPA (Formula One Promotions & Administration) which split the income as: 47% to the Teams, 30% FIA and 23% to FOPA (ie Ecclestone). FOPA latterly morphed into FOM (Formula One Management) and FOA (Formula One Administration) under the Alpha Prema investment umbrella with latter-day CVC Capital Partner's; interest thereby taking on much of the operational responsibility and financial rewards of the sport.
Thus for nigh on 3 decades these 2 prime arbiters of F1 have orchestrated, with understandable periodic tensions; the Teams obliged to take their cut as prescripted. But Grand Prix's exponential popularisation based on national patriotism and auto-brand affiliation has both encouraged and demanded a ballooning of financial injection – F1 has been the veritable financial snowball. YoY F1 grew as the dynamic global advertising medium, Team inter-rivalry pushing R&D limits that required, and were met by, increasing corporate sponsorship spend; as was regional race-track infrastructure spend.
This means that where once the FIA garnered much of the income from motorsport, latterly split that growing pot from event operators and TV broadcasters to Ecclestone's FOM/FOA , the rise of 'Team Turnover' means that billions of US$ the sport has encouraged is being handled by the Teams. Unsurprisingly, they have argued for some years that the former 47% agreement - and the associated 5 Concorde Agreements – do not represent a fair/true representation of level of their contribution or share of the sport's profitability. As to the size of that 'contribution' to the sport, FormulaMoney's calculations and research estimates the top 8 Teams 2008 budgets to total $2.906bn, of which only $771 represents sponsorship contract fees, the remainder (>$2bn) made up of manufacturer's and constructor's monies.
[NB. Whilst the manufacturers undoubtedly have a case to set forward, those sponsorship numbers do appear low and may be a result of dramatically cut-back 2008 corporate marketing budgets, whilst the incurred Team costs presented could be taken from the more buoyant 2006/7 seasons, so generating such a wide 'manufacturer contribution' gap. Such figures as always must be drilled into to understand the underlying accounting sources and exceptions. Such self-regarding evidence will of course be expected from all 3 parties].
Today ironically, the cyclical wheel of progress becomes apparent once again.
Just as Ecclestone as an ex-team owner leveraged combined Team's muscle in the 70s, so now 35 years on, Flavio Briatore - ex Benetton owner and now Renault Team MD – is undertaking a similar move with FOTA (Formula One Team Association) with the acumen and influence of FOTA's founder Ferrari/FIAT's President, Luca Cordero di Montezemolo. [NB Cordero di Montezemolo's previous condemnation of FIA regulations regards the 2005 US GP's single tyre per race controversy].
So, today there are 3 in a bed within the GP kingdom, the latest of which FOTA – a body born from the frustration - continues to recoil against the FIA prescribed 2010 season team budget capping at $40m. This represents a fraction of modern team budgets and is what FOTA calls “resource restriction”. (Given the fact that today's pit-stop crew consists of 26 members each undertaking a specific task, and the size of other team HR 'service demands' such as trailer staff and complementary guest overhead the FIA will try to present a case for Team fiscal over-indulgence).
However, in the face of such growing criticism, FOTA threatens that to operate normally, at near today's cost levels, it will form a breakaway championship; thus carrying-away with it the big auto-names such as Ferrari, Renault, McLaren, BMW Sauber, Toyota, Brawn GP, Red Bull and Torro Rosso, threatening to leave F1 with only the commercially low-yielding Williams and Force India.
Thus today we witness a re-run of the historic schisms that have been part and parcel of any sport as differing power-players endeavour to maximise their 'take' relative to media spend – seen in UK football over the last 5-10 years and seen with Kerry Packer in Australian cricket back in the 1970s.
Thus, eventual outcome will be decided by the influence of the global TV audience, and critically their waking hours. For it is the ability to reach that expanding audience that forms the very foundations of a 21st century GP business model. Just as the sport expanded into EM regions from Istanbul to Shanghai, and so was forced to schedule night races – re-formated as a new dimension in F1 – to access western hemisphere audiences, so the 21st century business demands will also shape the GP business model.
Such a format - created by Briatore and Ecclestone - is already being laid-out under the GP2 Series banner; the feeder series for F1 which replaced F3000. The GP2 Series operates as GP2 and GP2 Asia, the remit of which is to create an Asian-based mirror to its western counterpart; incorporating an intended bias to Middle-Eastern and Asian drivers to whom EM audiences feel a greater connection. Ecclestone's FOM owns the TV rights and since the GP2 races are held a support events to F1 races, there appears strong evidence that it is being used as a template for an improved business model format for F1 itself.
However, the FIA although an income beneficiary well understands the FOM GP2 strategy to wrestle control, and so a year ago announced a countermeasure – a competing interest - via the return of F2 in 2009. Stock vehicle chassis and engines are supplied by MotorSportVision (MSV) with the vehicle designwork done by Williams – hence William's loyalty to F1's and the FIA's status quo. But MSV also acts as promoter of the race-series so with no doubt ambitions to emulate Ecclestone's FOM success.
Given GP2's “lead”, this of course begs the question, can F2 truly compete or will it be required to buy-out Ecclestone GP2 interests to gain commercial traction?
investment-auto-motives suspects it will, and in the process create F2 and F2 Asia: more formalised templates for a longer-term traditional F1 and a new F1 Asia.
FOTA, whose members are perhaps the prime players, well understands the global potential of the sport as both a massive income generator in its own right as well as the 'magic halo' for their own brands and road-vehicles – none more so than Ferrari, understandably the greatest protagonist.
Details as to whether FOTA has managed to persuade financial backers remains unclear, as would the championship's name/title, though the existence of A1GP – based on 'National Teams' does raise questions as to how that could be leveraged, by FOTA or indeed the FIA and FOM in F1.
[NB RAB Capital as 80% A1GP shareholder will be keen to 'turbocharge' its investment bought from A1GP founder His Highness Sheikh Maktoum Hasher Al Maktoum – probably partly by using GCC SWF monies to create a competing set of GCC Teams].
As the FIA endeavours to rationalise the engineering difference between F1 vehicles, laying out what FOTA detractors state as “generic basic skateboard chassis that reduces Team innovation”, could the real end-game be to effectively swap-over F1 participants? In essence promoting the possibilities for:
1. Shifting automakers into their own alternative field of conventional ICE technology.
2. Introducing Nation-based Teams using greater eco-tech powertrains :
This echoes the 1930s Auto-Union/Merc Silver Arrows era where national budgets were directed at GP – this time however it is the US Government who as owners of much of the US auto industry could display US.
3. Thereby creating a roadmap for latter-year 'demand-pull' for the automakers to buy back into F1 as representing National Champions :
It is suspected that the Briatore-Sarkozy and Cordero di Montezemolo – Berlesconi links are strong enough to complete this outcome in the years ahead.
For the moment the Mosley, Ecclestone, Briatore & Cordero di Montezemolo self-interested 'scripts' continue.
Notes...
[NB As an aside MSV has its testing facilities in Bedfordshire UK, a county also houses Nissan's UK/European development centre known as NTEC and houses various motorsport R&D and production centres. Interestingly, the recent government review of the UK auto-industry calls for a new ideology called 'Test-Bed UK' which appears to focus on extolling the virtues of the region, with nearby Northamptonshire, and possibly make it an auto-sector clean-tech hub with trickle-down tech from F1, F2 etc into mainstream production cars].
As a raw commercial counterpoint to VSCC, RAC and other leisure-class racing, Grand Prix's post WW2 popularisation has grown exponentially, with it snowballed commercial rewards. Firstly from day & weekend gate receipts, from track advertising, then from vehicle/team sponsorship and of course in the last 30 years from global TV transmittance. As F1 popularity expanded so increasing multi-stream revenues were devised and implemented, the monies enabled the sport's participants to hone every dimension of their competitiveness, from R&D facilities that led to the paradigm-shift of carbon fibre to the use of telematics to the offered sizable salaries that drew top driver talent.
Unsurprisingly, as that ever expanding liquidity pot attracted business acumen, deals and contracts followed leading to what has essentially become the agenda- driven forces of power-broking parties.
The FIA regulates the sport - presided by Max Mosley - and prescribes the specification 'formula' to which the race-cars must accord. Whilst it was Bernie Ecclestone that created the modern template, as a past team owner of Brabham he saw the value of the sport's commercial rights potential back in the late 70s, In doing so set-up FOCA (Formula One Constructors Association) with Mosley, then as legal council, to fight the cause for commercial change which he/they won.
A finance vehicle was created called FOPA (Formula One Promotions & Administration) which split the income as: 47% to the Teams, 30% FIA and 23% to FOPA (ie Ecclestone). FOPA latterly morphed into FOM (Formula One Management) and FOA (Formula One Administration) under the Alpha Prema investment umbrella with latter-day CVC Capital Partner's; interest thereby taking on much of the operational responsibility and financial rewards of the sport.
Thus for nigh on 3 decades these 2 prime arbiters of F1 have orchestrated, with understandable periodic tensions; the Teams obliged to take their cut as prescripted. But Grand Prix's exponential popularisation based on national patriotism and auto-brand affiliation has both encouraged and demanded a ballooning of financial injection – F1 has been the veritable financial snowball. YoY F1 grew as the dynamic global advertising medium, Team inter-rivalry pushing R&D limits that required, and were met by, increasing corporate sponsorship spend; as was regional race-track infrastructure spend.
This means that where once the FIA garnered much of the income from motorsport, latterly split that growing pot from event operators and TV broadcasters to Ecclestone's FOM/FOA , the rise of 'Team Turnover' means that billions of US$ the sport has encouraged is being handled by the Teams. Unsurprisingly, they have argued for some years that the former 47% agreement - and the associated 5 Concorde Agreements – do not represent a fair/true representation of level of their contribution or share of the sport's profitability. As to the size of that 'contribution' to the sport, FormulaMoney's calculations and research estimates the top 8 Teams 2008 budgets to total $2.906bn, of which only $771 represents sponsorship contract fees, the remainder (>$2bn) made up of manufacturer's and constructor's monies.
[NB. Whilst the manufacturers undoubtedly have a case to set forward, those sponsorship numbers do appear low and may be a result of dramatically cut-back 2008 corporate marketing budgets, whilst the incurred Team costs presented could be taken from the more buoyant 2006/7 seasons, so generating such a wide 'manufacturer contribution' gap. Such figures as always must be drilled into to understand the underlying accounting sources and exceptions. Such self-regarding evidence will of course be expected from all 3 parties].
Today ironically, the cyclical wheel of progress becomes apparent once again.
Just as Ecclestone as an ex-team owner leveraged combined Team's muscle in the 70s, so now 35 years on, Flavio Briatore - ex Benetton owner and now Renault Team MD – is undertaking a similar move with FOTA (Formula One Team Association) with the acumen and influence of FOTA's founder Ferrari/FIAT's President, Luca Cordero di Montezemolo. [NB Cordero di Montezemolo's previous condemnation of FIA regulations regards the 2005 US GP's single tyre per race controversy].
So, today there are 3 in a bed within the GP kingdom, the latest of which FOTA – a body born from the frustration - continues to recoil against the FIA prescribed 2010 season team budget capping at $40m. This represents a fraction of modern team budgets and is what FOTA calls “resource restriction”. (Given the fact that today's pit-stop crew consists of 26 members each undertaking a specific task, and the size of other team HR 'service demands' such as trailer staff and complementary guest overhead the FIA will try to present a case for Team fiscal over-indulgence).
However, in the face of such growing criticism, FOTA threatens that to operate normally, at near today's cost levels, it will form a breakaway championship; thus carrying-away with it the big auto-names such as Ferrari, Renault, McLaren, BMW Sauber, Toyota, Brawn GP, Red Bull and Torro Rosso, threatening to leave F1 with only the commercially low-yielding Williams and Force India.
Thus today we witness a re-run of the historic schisms that have been part and parcel of any sport as differing power-players endeavour to maximise their 'take' relative to media spend – seen in UK football over the last 5-10 years and seen with Kerry Packer in Australian cricket back in the 1970s.
Thus, eventual outcome will be decided by the influence of the global TV audience, and critically their waking hours. For it is the ability to reach that expanding audience that forms the very foundations of a 21st century GP business model. Just as the sport expanded into EM regions from Istanbul to Shanghai, and so was forced to schedule night races – re-formated as a new dimension in F1 – to access western hemisphere audiences, so the 21st century business demands will also shape the GP business model.
Such a format - created by Briatore and Ecclestone - is already being laid-out under the GP2 Series banner; the feeder series for F1 which replaced F3000. The GP2 Series operates as GP2 and GP2 Asia, the remit of which is to create an Asian-based mirror to its western counterpart; incorporating an intended bias to Middle-Eastern and Asian drivers to whom EM audiences feel a greater connection. Ecclestone's FOM owns the TV rights and since the GP2 races are held a support events to F1 races, there appears strong evidence that it is being used as a template for an improved business model format for F1 itself.
However, the FIA although an income beneficiary well understands the FOM GP2 strategy to wrestle control, and so a year ago announced a countermeasure – a competing interest - via the return of F2 in 2009. Stock vehicle chassis and engines are supplied by MotorSportVision (MSV) with the vehicle designwork done by Williams – hence William's loyalty to F1's and the FIA's status quo. But MSV also acts as promoter of the race-series so with no doubt ambitions to emulate Ecclestone's FOM success.
Given GP2's “lead”, this of course begs the question, can F2 truly compete or will it be required to buy-out Ecclestone GP2 interests to gain commercial traction?
investment-auto-motives suspects it will, and in the process create F2 and F2 Asia: more formalised templates for a longer-term traditional F1 and a new F1 Asia.
FOTA, whose members are perhaps the prime players, well understands the global potential of the sport as both a massive income generator in its own right as well as the 'magic halo' for their own brands and road-vehicles – none more so than Ferrari, understandably the greatest protagonist.
Details as to whether FOTA has managed to persuade financial backers remains unclear, as would the championship's name/title, though the existence of A1GP – based on 'National Teams' does raise questions as to how that could be leveraged, by FOTA or indeed the FIA and FOM in F1.
[NB RAB Capital as 80% A1GP shareholder will be keen to 'turbocharge' its investment bought from A1GP founder His Highness Sheikh Maktoum Hasher Al Maktoum – probably partly by using GCC SWF monies to create a competing set of GCC Teams].
As the FIA endeavours to rationalise the engineering difference between F1 vehicles, laying out what FOTA detractors state as “generic basic skateboard chassis that reduces Team innovation”, could the real end-game be to effectively swap-over F1 participants? In essence promoting the possibilities for:
1. Shifting automakers into their own alternative field of conventional ICE technology.
2. Introducing Nation-based Teams using greater eco-tech powertrains :
This echoes the 1930s Auto-Union/Merc Silver Arrows era where national budgets were directed at GP – this time however it is the US Government who as owners of much of the US auto industry could display US.
3. Thereby creating a roadmap for latter-year 'demand-pull' for the automakers to buy back into F1 as representing National Champions :
It is suspected that the Briatore-Sarkozy and Cordero di Montezemolo – Berlesconi links are strong enough to complete this outcome in the years ahead.
For the moment the Mosley, Ecclestone, Briatore & Cordero di Montezemolo self-interested 'scripts' continue.
Notes...
[NB As an aside MSV has its testing facilities in Bedfordshire UK, a county also houses Nissan's UK/European development centre known as NTEC and houses various motorsport R&D and production centres. Interestingly, the recent government review of the UK auto-industry calls for a new ideology called 'Test-Bed UK' which appears to focus on extolling the virtues of the region, with nearby Northamptonshire, and possibly make it an auto-sector clean-tech hub with trickle-down tech from F1, F2 etc into mainstream production cars].
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