Last week saw the long-awaited return of 'New GM' to the capital markets. As previously mentioned, the timing of its return and that of the drip-fed $600bn stimulus announcement appear - on the surface at least - to demonstrate the US government's willingness to partially stage-manage events to ensure that GM was – and will be implicitly well buoyed.
The post-Chapter 11 process of renewal has seemingly gone 'swimmingly': the speedy restructuring effort witnessing an (incredible $27bn) abolition of creditor rights, a re-alignment of UAW expectations to 'real-world' levels, capacity reduction to suit the peak to trough loss of 6m TIV units (thus profitable at 10.5m production), the shrinkage of the supplier roster to gain volume efficiencies, 4 legendary but poor performing brands/divisions either sold or moth-balled, inventory slashed, dealership numbers cut to promote local profitability, etc etc.
In short, the necessary formulaic strategic and operational business revision required across the board in North America, aspects of which should have taken place in an ordered controlled manner over the preceding years to provide an over-bloated inefficient company with the ability to right-size itself as macro-economic headwinds demanded.
The argument that it was purely the unexpected dramatic loss of sales and loss of access to wholesale credit that felled old GM is far too simplistic. [NB General Dynamic noted the need for US industrial change back in the early 1990s, and though the profitability of the 'SUV era' obviously post-poned the necessary re-structuring shock, the very basic premises of “Who Says Elephants Can't Dance” was always a very basic set-play template for old GM. One it chose to ignore].
However, “the past is another country” as they say – a phrase that is all too prosaic to the average American – and so GM has been re-born into what seems a very different place to that of 3, 5 or 10 years ago, where the US's ability to set the industrial global agenda has been diminished. Yet as a global company, GM obviously operates across all continents and nigh on all nations. Whilst it light-heatedly reports its dominant 85% market share of Kazakhstan's small market it does so to try and highlight its acceptance in EM, EM+ and developing nations; even though such individual successes maybe more accordant to US foreign-policy efforts.
This historical military-backed and capital-markets assisted 'soft-power' that helped GM's rise in the 20th century for nigh on 80 years. However the US is unarguably loosing its dominant grasp across the world as EM(+)(+) economic growth garners independent confidence and such nations use their own political positioning between the US and China for their own ends. Hence without that level of 'direct' previous politically aided dominance, GM will have to fight for its share of mind and market increasingly by its own efforts.
But perhaps not quite yet!
Since the renewed GM gains from additional political leverage in the short and mid-term. A combination of the recent $600bn US QE2 stimulus measure announced will continue to erode the US Dollar – even in the face of momentary reversals caused by volatility in other currencies; as seen with the Euro recently and possibly the S. Korean Won if cross-border hostilities continue.
This in turn of course buoys both US exports and continues the US$'s role as a carry-trade currency (given its near zero percent interest rate) which when 'recycled' in turn provides speculative uplift to the multi-material commodity trading market. Recent days have seen this uplift falter as 'risk-off' activity is swayed by Chinese slowdown concerns, and so provide an excuse for profit taking; but the fact that so many commodity types are both physically and derivatively traded in US$ (given regional $-pegs etc) suggests that the 'risk-on' mode will return.
The drip feed stimulus of course assists all US 'home-players' as they benefit from the $600bn powered expansion of wholesale credit markets for corporate use, and its feed-through into the retail credit market via both captive finance houses (ie Ford and Chrysler) and those 'associated' (ie GM with Ally).
This also provides the Detroit 3 (and GM especially) with global commodity purchasing power, able to counter-act the last few year's trend for primary and secondary sector players (typically miners and processors) to call the pricing shots based on then short-supply materials.
Thus the new Obama package allows the US domestics renewed credit vigour relative to their home market and a type of 'pincer movement' at both ends of the supply chain on the global stage. The aforementioned 'commodities grab', plus critically either the ability to enact a 'pricing-power' fight in ROW regions given the devalued US$, or maintain localised pricing and benefit from an tailwind of FX improved repatriated income from its ROW operations.
Thus GM (and Ford & Chrysler) have in reality little to complain about, whilst their international competitors (and international politicians) very probably see the implicit Washington interventionism for what it explicitly is!
Macro global dynamics demonstrate that the RoW EM regions are on a one-way upward trajectory and have been for a decade, so GM's task is to hold and ideally grow its individual nation market-shares in EM regions as their economies give a rising tide to all credible automotive manufacturers.
Thus, the IPO floatation was almost designed around the fact that all boats will be lifted by continued though slowed EM market growth. Its timing aligned to the stimulus announcement and drip-feed to provide a 'kick off the starting blocks'. This will be readily recognised by leading institutional & SWF investors, and investment-auto-motives believes, was a major reason as to why the natural demand-base of GM stock-buyers switched from being foreign 'long-range' funds and SWFs to primary demand stemming from domestic US institutionals.
[NB Saudi Arabia's 'Kingdom Holding' run by Prince Alwaleed bin Talal well recognising the impetus of Dollar mutuality between its own national resource base and GM's 'kick-start'; hence its $500m holding of GM, representing 1% of the new subscription].
Yet, ultimately important investors will want to see GM master is the ability to not just match, but beat the EM region TIV rise. Done so with competitive new product, hard-line UAW re-negotiations in 2011 (to which it should hopefully continueto accord), new levels of customer service provision etc; so that when combined with a new 'trim' business mentality it can offer rebuoyed global presence, good unit margins and so ideally leading mainstream producer ROIs. Thus an ability to not just out-muscle Detroit's Ford & Chrysler (as it has always done) but critically against the Japanese powerhouses suffering from Yen strength, and the South Korean brands still globally-bound by their high exportation levels. And importantly to try and be seen as a true competitor to Volkswagen given its pre-eminent position in China and South & Central America.
[NB as of 24.11.2010 VW PfD sits at around E119.00, whilst GM Co sits at $33.48. VW benefited from a rocketing ride over the last 12 months, up 108% in a sector that on average saw only a 27% rise. GM Co is up just 48c from its debut price last week, and as stated in previous posts is set to trade flat until the stimulus monies work through the capital markets and starts the GM price lift].
GM has to yet prove it's renewed 'global' ambition is not simply a 'rising all boats' default of inherited regional presence in China, Latin America, SE Asia and the Middle East. Efforts such as the new Cadillac city-car concept seen at the LA show (the Cadillac Urban Luxury Concept) typify the GM 'show-boating' that it has always under-taken on the PR front to present itself as a contemporary brand, but the reality is that presently in its home market it is not even represented in the top 5 of most popular models sold – coming in at number 6 with Malibu: destined to slide as it ages.
With so much expectation abound from the expanded range of stakeholders, new GM cannot let itself simply 'drift' on the back of: 1) the multi-aspect stimulus 'piggy-back' that exploits the supply chain and international markets, and 2) the fat of the EM+ lands.
Presented at $33.00 to the markets, GM Co must prove that it is worth its relative (pricing-metrics) 'super-valuation' to its obvious counter-part Ford and the myriad of other auto-sector players, old and new.
Almost poetically, the GM Co IPO was preceded by BitAuto.com, an NYSE listing of a Chinese-based on-line car dealer-price comparison site, and was followed by Aeroflex Holding Corp which deals in high-value micro-electronics systems. By virtue of their appearance, these two 'neighbours' serendipitously illustrate the importance of GM's own future ability for self-control: to both be master of its higher integral-value product design process, and its handle on what is still a very transparent and price malleable vehicle market-place.
GM has had its enforced 'weight-reduction' regime, and has had its 'push-off-the-blocks'; now it must show its corporate 'muscle-building' potential to all, but especially so those US and foreign entities who have financially backed the General, and by virtue assisted re-couperation of the US economy. The heart of the GM wealth-creation engine is seen throbbing, and the cogs of the financial transmission mechanism meshing, now it needs to prove its previous 'market torque' to show it has a truly bounce-back corporate rubber soul, since many heads of industry, finance and government are looking on after providing record assistance.
Wednesday, 24 November 2010
Wednesday, 17 November 2010
Macro Level Trends – UK plc – The Royal Reflection in a Marriage of Culture and Commerce.
Sometimes a close juxtaposition of events can be telling sign of the times.
The London announcement of the engagement between HRH Prince William and Katherine Middleton is followed a day later by the New York/Toronto listing of General Motors.
Of course, on the surface, the worlds of Royalty and Commerce are polar opposites, in days gone by the aristocracy – let alone royalty - wouldn't allow their family names to be 'sullied' by the notion of being directly linked to 'trade'. Instead, in the historical tradition of leadership a military career was followed, balanced by cultural learning and pursuits to help provide a rounded character.
Yet the 19th, 20th and early 21st centuries all saw fundamental change in the very foundations of the western social structure were, a re-setting exemplified by the decline of European aristocracy, the rise of American, European and latterly Asian industrial families, with an inter-linking of 'blue-blood' with 'new money'. A minute step-by-step change social ways. That integration of changed social attitudes perhaps best reflected by the abdication of the throne by Edward VIII for Mrs Simpson, and the end of the Debutant's London Ball in the 1950s . That decade also witnessed an emergence for strong post WW2 US-Euro political ties, and was thus bolstered by the coupling of the Prince of Monaco and (Hollywood's) Grace Kelly; almost as scripted to buoy public perception.
This level of convergence between different worlds is of course not quite the case for William and Katherine given their mutual roots from St Andrews University. This somewhat to the chagrin of the popular press who hope to portray the marriage as an archetypical modern-day princess fairytale. Thus, akin to the stories told about the Prince of Denmark and Princess of Sweden marrying non-titled partners.
Instead, the real story seems to be a meeting of personal minds and outlook, yet also representing the proto-social context which recognised the need for social evolution of the monarchy. An evolution which demands (to be candid) 'solid stock breeding' with the right attributes as well as national popularism to re-spark the very meaning of monarchy as the new generation matures. In short, a story of adaption to the increasingly speedily evolving modern world, one in which at this time of austerity, core British values are seen to overtake the traditional halo of 'pomp and circumstance'. Hence, the beginning of the 21st century sees a dwindling of overtly brandished heraldry and 'distance' – though necessarily maintained for formal occasions.
Instead, recognising that the very nature of militarily derived pageantry and formality has been 'counter-foiled' to a great degree by the 'cut and thrust' domination of global commerce in an ever expanding 'globalised' world.
Thus, a long and ongoing re-orientation from the obvious yesteryear 'show of might' to recognising the importance of soft-power within commerce is of course common to all royal families. This greatly assisted by a past knowledge of shared interests and values that underpin trustworthy working relationships amongst European and international royals and their representatives.
This is well illustrated by the most recent commercial deal between the Crown Estate and the Norwegian SWF via a 25% leased sale of its Regent Street property base.
Most monarchies were built upon land interests given the greater importance of that resource in the past. That accrued wealth still very much evident today, yet the modern commercial world is a far cry from from a feudal agrarian world, or that of new-land exploration, or indeed that of industrialised manufacture. Today specific agricultural and specific manufacture activity occupy only a small portion of any advanced, globally traded, capital market:whether that be the FTSE500, S&P500, TSX index, the CAC30, HKSE's Hang Seng index or similar elsewhere.
This is part and parcel of the modern commercial world, one build over the last century and one in which investment banks increasingly took charge of the commercial reigns from those royal and aristocratic families who historically had reigned the local and international econonomies.
However, relative to the modern-day royal remit, the significance of a willful yet fair character is still key - this assisted by formal military training via Sandhurst or elsewhere – and so must not be relegated or dismissed. Such character-forming generating in the past an ability to obtain land, build empire and rule over it. Yet it and more is still core today; a timeless capability stemming from a convergence of both self-discipline and ambitious attitude. Character formation, and in particular the slant of educational learning in an ever expanding and complex world, remains key.
And it is here, regards the traditional nature of royal education, that an argument could be set forward that purports greater acclimatisation - indeed submersion - within the commercial arenas by which a country and the world turns.
Short active military careers followed by symbolic leadership obviously remain necessary, as does the need to cultivate a sensibility to the arts/humanities, yet more important that ever is the need to nurture an understanding of the commercial world that lies between these 2 realms, a world in which competition and creativity are central tenants to national (and sovereign) success.
Industry, commerce and trade are typically built upon a merging of the sciences and arts, brought together by a plethora of strategic, operational and managerial methods.
Any aspirational prime minister or chancellor will have undoubtedly formally and/or informally studied PPE (Politics, Philosophy & Economics) yet whilst historically also the domain of a well-educated royal, the set learning path may be inadvertently restricted to 'the norm' of military and the arts, whilst giving less regard to the central elements of the modern industrial and commercial machine.
This may or may not be the case, but if so begs attention.
In a metaphorical sense, just as perhaps Prince Charles will know by heart the key historic schools/themes of architecture and their intrinsic elements & methods (most obviously Palladian) so the architecture of the industrial and service based commercial world – in both its vertical depth and horizontal stretch – should be an engrossing subject of study for all young royals; thus able to provide tangibility to the normal absorption of PPE.
This has been the case for the aristocracy who since the late Victorian age – and especially post WW1 – became greater participants in 'the City', mimicking the sons (and latterly daughters) of the American 'nouveau -riche' industrialists. The path into stock and bond brokerage and latterly all-important corporate financial analysis became a well trodden one for many, firstly in the 'new world' then in the 'old-world' and now amongst the increasingly powerful of the 'emergent-world'.
Prince William is an RAF flight-officer within a 'Search and Rescue Force', which itself is a prescient commercial case-study of the cost-benefit analysis under which all of the UK's Armed Forces are being scrutinised.
As non-core to national defence, the 'SARF' division/wing is in future to be run with a far more analytical bearing to ensure economy and efficiency whilst also providing a more than adequate rescue cover for the coastline, seaboard and inland areas.
This transition of the activity from being state run to privately run is perhaps a prime learning opportunity for Prince William, and his fellow officers who themselves will act as industry facing representatives. After all, the very nature of the UK's military forces are changing, and so affecting their scope, shape and function, to both better fit inherent demands and the new-era economic climate.
[ NB. The contract has been awarded to Soteria, a consortium of Thales, CHC helicopter operator and the Royal Bank of Scotland – to use the Sikorsky S92 model]
investment-auto-motives suspects this is very well the case already, indeed the rational for his placement in SARF; which by its changed name denotes its changed standing. Yet perhaps beyond any purely 'conceptual' exposure to this 'real-time' subject, a deep and possibly expanded 'business studies' investigation could be undertaken by HRH and others, to fully appreciate the commercial challenges, ramifications and opportunities, such a service re-alignment makes for the companies involved and the nation itself. A kind of case-study where the likes of 'Sandhurst meets the LSE meets MIT meets Harvard/INSEAD'. Where SARF can be evaluated in-the-round from national interest, economic, technical and strategic viewpoints.
[Obviously investment-auto-motives views the re-birth of GM as a parallel exercise given the involvement of Canadian 'bail-out' monies which appear to have required agreement from The Queen and/or her council. This would also provide appreciation of the expansiveness and international reach of the global auto-industry ].
Such a task (or tasks) could be onerous depending upon its scale, especially for a full-time serving officer, but if it is not already the case that young royals are exposed to such multi-dimensional perspectives, this could be a golden opportunity. For both themselves as educational insight, and to possibly co-create a learning template that could be ascribed to latter-day officers who, in a new era, cannot afford to be unexposed to the realities and impact of commercial issues on the armed forces.
It seems that historically, it has been the case that those individuals ranked Major or above have been the ones tasked to be industry facing as part of their own expanded responsibilities. This late exposure to the commercial imperative may in the past have been seen to be problematic as the cultural chasm between the 2 worlds has caused communication, expectation and over-run/over-cost problems. (The fault equally shared between 2 distinctly different worlds). So the second decade of the 21st century could mark a turning-point where-by lower-ranked and typically younger officers are given a much better commercial grounding and exposure.
Again, this may well be all in hand, and if so 'all to the good'. Yet as this transition moves forward so the royal family itself could be seen to be active in bringing together these 2 worlds. And equally so, perhaps use that learning – and broadened exposure - to perhaps become a greater force in helping to steer the inherent interests of the royal family, across the spectrum, from the 'invisible' operations of the Crown Estate all the way through to the 'highly visible' aspects such as Palace & Castle tours and souvenir goods, through to the expanding business-lines and broadened retail channels of 'Duchy Originals'. Plus perhaps yet more.
Today's commercial world is under-going a massive period of re-formation, one in which professionalism, courtesy and trust are needed as never before to regenerate the economic machine. Yet also at this time TV series such as 'The Apprentice' have done a true dis-service to the business world by seemingly condoning and promoting a self-serving, Machiavellian mindset; something noted time and time again by commentators in the financial press.
Thus, about time that a better face to business be painted, to both inspire and encourage tomorrow's entrepreneurs, board-members and middle-managers. This impetus could feasibly be symbolically led by the younger members of the royal lineage, who are set to build upon the efforts of their forebears, and can espouse a much needed 'honourable face' and 'intelligent mindset' for UK's 20 & 30-somethings aswell as within the realms of national and international commerce.
The London announcement of the engagement between HRH Prince William and Katherine Middleton is followed a day later by the New York/Toronto listing of General Motors.
Of course, on the surface, the worlds of Royalty and Commerce are polar opposites, in days gone by the aristocracy – let alone royalty - wouldn't allow their family names to be 'sullied' by the notion of being directly linked to 'trade'. Instead, in the historical tradition of leadership a military career was followed, balanced by cultural learning and pursuits to help provide a rounded character.
Yet the 19th, 20th and early 21st centuries all saw fundamental change in the very foundations of the western social structure were, a re-setting exemplified by the decline of European aristocracy, the rise of American, European and latterly Asian industrial families, with an inter-linking of 'blue-blood' with 'new money'. A minute step-by-step change social ways. That integration of changed social attitudes perhaps best reflected by the abdication of the throne by Edward VIII for Mrs Simpson, and the end of the Debutant's London Ball in the 1950s . That decade also witnessed an emergence for strong post WW2 US-Euro political ties, and was thus bolstered by the coupling of the Prince of Monaco and (Hollywood's) Grace Kelly; almost as scripted to buoy public perception.
This level of convergence between different worlds is of course not quite the case for William and Katherine given their mutual roots from St Andrews University. This somewhat to the chagrin of the popular press who hope to portray the marriage as an archetypical modern-day princess fairytale. Thus, akin to the stories told about the Prince of Denmark and Princess of Sweden marrying non-titled partners.
Instead, the real story seems to be a meeting of personal minds and outlook, yet also representing the proto-social context which recognised the need for social evolution of the monarchy. An evolution which demands (to be candid) 'solid stock breeding' with the right attributes as well as national popularism to re-spark the very meaning of monarchy as the new generation matures. In short, a story of adaption to the increasingly speedily evolving modern world, one in which at this time of austerity, core British values are seen to overtake the traditional halo of 'pomp and circumstance'. Hence, the beginning of the 21st century sees a dwindling of overtly brandished heraldry and 'distance' – though necessarily maintained for formal occasions.
Instead, recognising that the very nature of militarily derived pageantry and formality has been 'counter-foiled' to a great degree by the 'cut and thrust' domination of global commerce in an ever expanding 'globalised' world.
Thus, a long and ongoing re-orientation from the obvious yesteryear 'show of might' to recognising the importance of soft-power within commerce is of course common to all royal families. This greatly assisted by a past knowledge of shared interests and values that underpin trustworthy working relationships amongst European and international royals and their representatives.
This is well illustrated by the most recent commercial deal between the Crown Estate and the Norwegian SWF via a 25% leased sale of its Regent Street property base.
Most monarchies were built upon land interests given the greater importance of that resource in the past. That accrued wealth still very much evident today, yet the modern commercial world is a far cry from from a feudal agrarian world, or that of new-land exploration, or indeed that of industrialised manufacture. Today specific agricultural and specific manufacture activity occupy only a small portion of any advanced, globally traded, capital market:whether that be the FTSE500, S&P500, TSX index, the CAC30, HKSE's Hang Seng index or similar elsewhere.
This is part and parcel of the modern commercial world, one build over the last century and one in which investment banks increasingly took charge of the commercial reigns from those royal and aristocratic families who historically had reigned the local and international econonomies.
However, relative to the modern-day royal remit, the significance of a willful yet fair character is still key - this assisted by formal military training via Sandhurst or elsewhere – and so must not be relegated or dismissed. Such character-forming generating in the past an ability to obtain land, build empire and rule over it. Yet it and more is still core today; a timeless capability stemming from a convergence of both self-discipline and ambitious attitude. Character formation, and in particular the slant of educational learning in an ever expanding and complex world, remains key.
And it is here, regards the traditional nature of royal education, that an argument could be set forward that purports greater acclimatisation - indeed submersion - within the commercial arenas by which a country and the world turns.
Short active military careers followed by symbolic leadership obviously remain necessary, as does the need to cultivate a sensibility to the arts/humanities, yet more important that ever is the need to nurture an understanding of the commercial world that lies between these 2 realms, a world in which competition and creativity are central tenants to national (and sovereign) success.
Industry, commerce and trade are typically built upon a merging of the sciences and arts, brought together by a plethora of strategic, operational and managerial methods.
Any aspirational prime minister or chancellor will have undoubtedly formally and/or informally studied PPE (Politics, Philosophy & Economics) yet whilst historically also the domain of a well-educated royal, the set learning path may be inadvertently restricted to 'the norm' of military and the arts, whilst giving less regard to the central elements of the modern industrial and commercial machine.
This may or may not be the case, but if so begs attention.
In a metaphorical sense, just as perhaps Prince Charles will know by heart the key historic schools/themes of architecture and their intrinsic elements & methods (most obviously Palladian) so the architecture of the industrial and service based commercial world – in both its vertical depth and horizontal stretch – should be an engrossing subject of study for all young royals; thus able to provide tangibility to the normal absorption of PPE.
This has been the case for the aristocracy who since the late Victorian age – and especially post WW1 – became greater participants in 'the City', mimicking the sons (and latterly daughters) of the American 'nouveau -riche' industrialists. The path into stock and bond brokerage and latterly all-important corporate financial analysis became a well trodden one for many, firstly in the 'new world' then in the 'old-world' and now amongst the increasingly powerful of the 'emergent-world'.
Prince William is an RAF flight-officer within a 'Search and Rescue Force', which itself is a prescient commercial case-study of the cost-benefit analysis under which all of the UK's Armed Forces are being scrutinised.
As non-core to national defence, the 'SARF' division/wing is in future to be run with a far more analytical bearing to ensure economy and efficiency whilst also providing a more than adequate rescue cover for the coastline, seaboard and inland areas.
This transition of the activity from being state run to privately run is perhaps a prime learning opportunity for Prince William, and his fellow officers who themselves will act as industry facing representatives. After all, the very nature of the UK's military forces are changing, and so affecting their scope, shape and function, to both better fit inherent demands and the new-era economic climate.
[ NB. The contract has been awarded to Soteria, a consortium of Thales, CHC helicopter operator and the Royal Bank of Scotland – to use the Sikorsky S92 model]
investment-auto-motives suspects this is very well the case already, indeed the rational for his placement in SARF; which by its changed name denotes its changed standing. Yet perhaps beyond any purely 'conceptual' exposure to this 'real-time' subject, a deep and possibly expanded 'business studies' investigation could be undertaken by HRH and others, to fully appreciate the commercial challenges, ramifications and opportunities, such a service re-alignment makes for the companies involved and the nation itself. A kind of case-study where the likes of 'Sandhurst meets the LSE meets MIT meets Harvard/INSEAD'. Where SARF can be evaluated in-the-round from national interest, economic, technical and strategic viewpoints.
[Obviously investment-auto-motives views the re-birth of GM as a parallel exercise given the involvement of Canadian 'bail-out' monies which appear to have required agreement from The Queen and/or her council. This would also provide appreciation of the expansiveness and international reach of the global auto-industry ].
Such a task (or tasks) could be onerous depending upon its scale, especially for a full-time serving officer, but if it is not already the case that young royals are exposed to such multi-dimensional perspectives, this could be a golden opportunity. For both themselves as educational insight, and to possibly co-create a learning template that could be ascribed to latter-day officers who, in a new era, cannot afford to be unexposed to the realities and impact of commercial issues on the armed forces.
It seems that historically, it has been the case that those individuals ranked Major or above have been the ones tasked to be industry facing as part of their own expanded responsibilities. This late exposure to the commercial imperative may in the past have been seen to be problematic as the cultural chasm between the 2 worlds has caused communication, expectation and over-run/over-cost problems. (The fault equally shared between 2 distinctly different worlds). So the second decade of the 21st century could mark a turning-point where-by lower-ranked and typically younger officers are given a much better commercial grounding and exposure.
Again, this may well be all in hand, and if so 'all to the good'. Yet as this transition moves forward so the royal family itself could be seen to be active in bringing together these 2 worlds. And equally so, perhaps use that learning – and broadened exposure - to perhaps become a greater force in helping to steer the inherent interests of the royal family, across the spectrum, from the 'invisible' operations of the Crown Estate all the way through to the 'highly visible' aspects such as Palace & Castle tours and souvenir goods, through to the expanding business-lines and broadened retail channels of 'Duchy Originals'. Plus perhaps yet more.
Today's commercial world is under-going a massive period of re-formation, one in which professionalism, courtesy and trust are needed as never before to regenerate the economic machine. Yet also at this time TV series such as 'The Apprentice' have done a true dis-service to the business world by seemingly condoning and promoting a self-serving, Machiavellian mindset; something noted time and time again by commentators in the financial press.
Thus, about time that a better face to business be painted, to both inspire and encourage tomorrow's entrepreneurs, board-members and middle-managers. This impetus could feasibly be symbolically led by the younger members of the royal lineage, who are set to build upon the efforts of their forebears, and can espouse a much needed 'honourable face' and 'intelligent mindset' for UK's 20 & 30-somethings aswell as within the realms of national and international commerce.
Wednesday, 10 November 2010
Macro Level Trends - Globalisation – 11.11.11: Poignant Remembrance in 2010
In a very different character to the usual commentary and essays, the following words are an unashamed re-generation and modification of the comments made in this blog at this important time 2 years ago.
At that time investment-auto-motives recognised that the severe fracture of the western economic model from the consequences of the financial crisis would put severe strain on international relations between west and east hemispheres and those north and south, but potentially the greatest stemming from US – Chinese relations. The current subtle currency wars were predicted as a latter-day result, and unfortunately this has come to be as regions seek to both protect themselves and best place themselves in this new and fragile era
Recent days have witnessed western premieres seek to both placate eastern concerns about future political movements and the desire to be seen to strengthen trade relations; most prominently in the guise of the UK's Prime Minister Cameron visiting China and the US's President Obama in India and environs.
These visits are of course symbolic by their timeliness with remembrance of historic disputes that have manifested beyond purely financial wars into the atrocity of physical warfare.
It is at this juncture in the calendar that the UK remembers both its own fallen and those of allies and indeed foes. 11am on 11th day of the 11th month marks Remembrance with accompanying day and weekend church services eulogising the 92nd anniversary since the end of WW1.
Of course, many nations across the face of the globe hold similar services both now and at varying times throughout the year. Here in the UK, from the humble village church to the gravitas of the Cenotaph in Whitehall. In Germany prayers will be said for the re-burial of those lost during WW2 in Minsk, now located in Belarus, and symbolising a pertinent element of Germany's efforts to build an expanding and re-stablised EU to avoid regional conflict. And some months ago on 6th August Japan physically and spiritually gathered in Hiroshima's Peace Memorial Park
Yet, perhaps not for half a century have such sentiments had such a meaningful voice, given the level of political friction that exist both regionally and internationally.
The end of WW1 was not “the great war to end all wars”, indeed the very meaning of 'armistice' indicates 'truce' not finale, a sad fact highlighted only a generation later by WW2. It was that conflict that in turn led to the major super-powers of the day to create the Bretton Woods agreement that would stabilise the fundamentals of global trade. A major landmark, given that it was the perception of unfair inter-regional trade practices that has been the perennial problem behind a long history of international conflict. Similar efforts exist today with talk of moving beyond Basel 3 toward something that offers a greater substance-based rational for currency value identification. This being much of the nation-buying led consideration for gold, yet with additional exploration of expansion of ADRs (or similar) or IMF enabled SDRs (or similar) as new internationally-prescribed stabalisation instruments.
Ninety-two years on from that philosophical and literal spark in the Balkans that set the first of a billion bullets flying, the leaders of the G20 nations undoubtedly made initial progress in 'saving the world' back in 2008 with use of multi-lateral stimulus action. But the S.Korean summit this weekend will illustrate - beneath the surface - the new dis-chord. One that has emerged largely between a still spendthrift US and much more conservative tendencies consistently led by Germany's Merkel (much to her credit) and now ajoined by the policy-decisions of the UK, South Africa and elsewhere.
Thus it is seen that the creation of what was originally seen to be a long-term, far-reaching and transformative multi-lateral accord of the so-called 'Spirit of Bretton Woods 2' is seen at this juncture to be viewed as over-zealous. The level of rebound in many G20 member economies demonstrate the myriad of differences each region and nation faces: giving real demarkations of 'strong' versus 'weak'. Thus G20 international health discrepancies obviously split opinion, both between the lead EU countries and the US, but also within a fractured EU; demonstrating that local and regional issues in the relative 'micro' vein take precedence over a now past fear of global melt-down that previously held in the 'macro' vein.
Undeniably, different regions have suffered at different rates and therefore will be far less inclined to a radical re-alignment of trade policy-making set against an increasingly out-moded global policy mandate.
So whilst there was initial 2008 agreement for international fiscal co-ordination of stimulus packages so that each nation or region can assist themselves - ranging from the US's $700bn TARP to talk of an EU Fund to Japan's $51bn effort to China's $589bn by the CCP – the idea of an all-pervasive, completely global agreement has unsurprisingly now looks less appealing; even if re-tabled by America's new drip-fed $600bn QE2 programme, set for mid-2011.
The rest of the world sees it as a slippery-slope given their own – perhaps more manageable – circumstances, and so don't agree with its use. Moreover, other countries probably see it as a pre-curser to what would could inevitably be a global currency de-valuation war in which nobody ultimately wins. It would be one which goes far beyond today's 'fair-game' internal efforts of industry generated cost-base re-alignment (ie structural reform) to improve national global competitiveness.
Historical case studies show that such heavy actions only drive international ill-will and give local support to importation tariff-setting which in turn damages relations and the economically rational global-flow of capability-led free-trade
As stated 2 years ago, there is no singularly similar action plan that each individual national economy can or should undertake, each effort although globally co-ordinated through increasingly aligned open-gates trade-policies must be appropriate to domestic and foreign trade needs and growth plans. This basic premis is obvious given the 'differing states of differing states'. But exactly how this is achieved efficiently and permanently will be a major headache as both the US and China experience such differing internal growth patterns – even if that gap is slowly and only nominally closing
Given the size of the global financial fall-out there have been calls for increased regional and international regulation, and the push to align US accounting standards from GAAP to IFRS will undoubtedly be used as an argument co-coalesce the 21 or so central bank models currently in existence.
However, utilising the GAAP to IFRS vehicle to successfully promote global fiscal policy alignment has thus far been a problem given the negative effect it previously had on US standard results. However, multi-national blue-chips are increasingly moving to offer both accounting standards as an increasing level of income is derived from the rest of the world. Thus with its income stream centre-of-gravity moving eastwards, so its accounting principles should rightly be re-orientated around the standards of the income sources.
Such practices undoubtedly help calm investor waters by demonstrating a more level manner by which to compare the US against Europe, the Middle-East, Asia and South America.
This does create short to medium-term pain for the US economy – and should be undertaken whilst Wall St stays buoyed - but ultimately could strengthen its foothold against the ever more internationally accepted Euro (and possible petro-Euro), and even the broached idea of a Yuan accepted counterpart (and indeed the idea of petro-Yuan denomination if Ems saw it in their favour as was the historical case with the US petro-Dollar). But an accounting alignment especially useful regards creating an extended period for attracting foreign direct investment (FDI) into the US.
At this poignant and prescient time, having seen the well-founded G20 differences at the Korean summit, all nations must continue to remember the lessons drawn from the first half of the 20th century, and act responsibly.
As the spectre of terrorism hopefully wanes (even if the odd blip appears as seen recently) and the topic of climate change becomes the ethereal yet powerful new enemy for all, we will hopefully witness a new age of agreement in both the global fiscal framework of currency valuation aswell as better founded domestic government policy that provides for a global mutuality, Something that does not constrain the independence that the newly powerful 'emerged' BRIC+ nations demand.
To not achieve this will dangerously put the world back 96 years or more, to revisit a time of sullied, anemic economies that creates insularity and engenders nationalism, xenophobia and possibly neo-fascist international moves motivated by a sense of economic loss that was previously seen as 'rightfully' theirs.
To conclude, whilst we remember the past and those who suffered, we should not and cannot sleep-walk back toward the dark-past if the world's peoples are to win as a whole.
We must see the individual and national Chinaman, American, Arabian, European, African and Asian as worthy capability-led trading partners, not economic threats. And arguably for the most part regards an arguably over-indulged west – to be psychologically re-generated by the dynamicism of the east giving a new competitive force for international good.
At that time investment-auto-motives recognised that the severe fracture of the western economic model from the consequences of the financial crisis would put severe strain on international relations between west and east hemispheres and those north and south, but potentially the greatest stemming from US – Chinese relations. The current subtle currency wars were predicted as a latter-day result, and unfortunately this has come to be as regions seek to both protect themselves and best place themselves in this new and fragile era
Recent days have witnessed western premieres seek to both placate eastern concerns about future political movements and the desire to be seen to strengthen trade relations; most prominently in the guise of the UK's Prime Minister Cameron visiting China and the US's President Obama in India and environs.
These visits are of course symbolic by their timeliness with remembrance of historic disputes that have manifested beyond purely financial wars into the atrocity of physical warfare.
It is at this juncture in the calendar that the UK remembers both its own fallen and those of allies and indeed foes. 11am on 11th day of the 11th month marks Remembrance with accompanying day and weekend church services eulogising the 92nd anniversary since the end of WW1.
Of course, many nations across the face of the globe hold similar services both now and at varying times throughout the year. Here in the UK, from the humble village church to the gravitas of the Cenotaph in Whitehall. In Germany prayers will be said for the re-burial of those lost during WW2 in Minsk, now located in Belarus, and symbolising a pertinent element of Germany's efforts to build an expanding and re-stablised EU to avoid regional conflict. And some months ago on 6th August Japan physically and spiritually gathered in Hiroshima's Peace Memorial Park
Yet, perhaps not for half a century have such sentiments had such a meaningful voice, given the level of political friction that exist both regionally and internationally.
The end of WW1 was not “the great war to end all wars”, indeed the very meaning of 'armistice' indicates 'truce' not finale, a sad fact highlighted only a generation later by WW2. It was that conflict that in turn led to the major super-powers of the day to create the Bretton Woods agreement that would stabilise the fundamentals of global trade. A major landmark, given that it was the perception of unfair inter-regional trade practices that has been the perennial problem behind a long history of international conflict. Similar efforts exist today with talk of moving beyond Basel 3 toward something that offers a greater substance-based rational for currency value identification. This being much of the nation-buying led consideration for gold, yet with additional exploration of expansion of ADRs (or similar) or IMF enabled SDRs (or similar) as new internationally-prescribed stabalisation instruments.
Ninety-two years on from that philosophical and literal spark in the Balkans that set the first of a billion bullets flying, the leaders of the G20 nations undoubtedly made initial progress in 'saving the world' back in 2008 with use of multi-lateral stimulus action. But the S.Korean summit this weekend will illustrate - beneath the surface - the new dis-chord. One that has emerged largely between a still spendthrift US and much more conservative tendencies consistently led by Germany's Merkel (much to her credit) and now ajoined by the policy-decisions of the UK, South Africa and elsewhere.
Thus it is seen that the creation of what was originally seen to be a long-term, far-reaching and transformative multi-lateral accord of the so-called 'Spirit of Bretton Woods 2' is seen at this juncture to be viewed as over-zealous. The level of rebound in many G20 member economies demonstrate the myriad of differences each region and nation faces: giving real demarkations of 'strong' versus 'weak'. Thus G20 international health discrepancies obviously split opinion, both between the lead EU countries and the US, but also within a fractured EU; demonstrating that local and regional issues in the relative 'micro' vein take precedence over a now past fear of global melt-down that previously held in the 'macro' vein.
Undeniably, different regions have suffered at different rates and therefore will be far less inclined to a radical re-alignment of trade policy-making set against an increasingly out-moded global policy mandate.
So whilst there was initial 2008 agreement for international fiscal co-ordination of stimulus packages so that each nation or region can assist themselves - ranging from the US's $700bn TARP to talk of an EU Fund to Japan's $51bn effort to China's $589bn by the CCP – the idea of an all-pervasive, completely global agreement has unsurprisingly now looks less appealing; even if re-tabled by America's new drip-fed $600bn QE2 programme, set for mid-2011.
The rest of the world sees it as a slippery-slope given their own – perhaps more manageable – circumstances, and so don't agree with its use. Moreover, other countries probably see it as a pre-curser to what would could inevitably be a global currency de-valuation war in which nobody ultimately wins. It would be one which goes far beyond today's 'fair-game' internal efforts of industry generated cost-base re-alignment (ie structural reform) to improve national global competitiveness.
Historical case studies show that such heavy actions only drive international ill-will and give local support to importation tariff-setting which in turn damages relations and the economically rational global-flow of capability-led free-trade
As stated 2 years ago, there is no singularly similar action plan that each individual national economy can or should undertake, each effort although globally co-ordinated through increasingly aligned open-gates trade-policies must be appropriate to domestic and foreign trade needs and growth plans. This basic premis is obvious given the 'differing states of differing states'. But exactly how this is achieved efficiently and permanently will be a major headache as both the US and China experience such differing internal growth patterns – even if that gap is slowly and only nominally closing
Given the size of the global financial fall-out there have been calls for increased regional and international regulation, and the push to align US accounting standards from GAAP to IFRS will undoubtedly be used as an argument co-coalesce the 21 or so central bank models currently in existence.
However, utilising the GAAP to IFRS vehicle to successfully promote global fiscal policy alignment has thus far been a problem given the negative effect it previously had on US standard results. However, multi-national blue-chips are increasingly moving to offer both accounting standards as an increasing level of income is derived from the rest of the world. Thus with its income stream centre-of-gravity moving eastwards, so its accounting principles should rightly be re-orientated around the standards of the income sources.
Such practices undoubtedly help calm investor waters by demonstrating a more level manner by which to compare the US against Europe, the Middle-East, Asia and South America.
This does create short to medium-term pain for the US economy – and should be undertaken whilst Wall St stays buoyed - but ultimately could strengthen its foothold against the ever more internationally accepted Euro (and possible petro-Euro), and even the broached idea of a Yuan accepted counterpart (and indeed the idea of petro-Yuan denomination if Ems saw it in their favour as was the historical case with the US petro-Dollar). But an accounting alignment especially useful regards creating an extended period for attracting foreign direct investment (FDI) into the US.
At this poignant and prescient time, having seen the well-founded G20 differences at the Korean summit, all nations must continue to remember the lessons drawn from the first half of the 20th century, and act responsibly.
As the spectre of terrorism hopefully wanes (even if the odd blip appears as seen recently) and the topic of climate change becomes the ethereal yet powerful new enemy for all, we will hopefully witness a new age of agreement in both the global fiscal framework of currency valuation aswell as better founded domestic government policy that provides for a global mutuality, Something that does not constrain the independence that the newly powerful 'emerged' BRIC+ nations demand.
To not achieve this will dangerously put the world back 96 years or more, to revisit a time of sullied, anemic economies that creates insularity and engenders nationalism, xenophobia and possibly neo-fascist international moves motivated by a sense of economic loss that was previously seen as 'rightfully' theirs.
To conclude, whilst we remember the past and those who suffered, we should not and cannot sleep-walk back toward the dark-past if the world's peoples are to win as a whole.
We must see the individual and national Chinaman, American, Arabian, European, African and Asian as worthy capability-led trading partners, not economic threats. And arguably for the most part regards an arguably over-indulged west – to be psychologically re-generated by the dynamicism of the east giving a new competitive force for international good.
Thursday, 4 November 2010
Micro Level Trends – American QE2 – How the Federal Reserve's 'Printing Presses' Appears to Underpin GM's Factory Presses
The effect of a continued fragile US economy on public sentiment were well demonstrated this week as the results of the mid-term elections lived-up to forecast expectation. The House and the Senate saw a large swing away from the Democrats toward Republicans on the back of public disillusionment and the outcome of prolific 'Tea Party' campaigning that has managed to give the Republicans a new lease of life.
To the overseas observer these US mid-terms will probably be remembered for the message-delivery method and manner which questioned the innate workings of the American political machine, albeit at a high level so as to convey core themes.
Yet the workings of the nation's political machine and the workings of the nation's economic machine are undoubtedly interwoven, the efforts of the Keynesian 'pump-prime' having saved the country from financial collapse in 2008, now seen to be lack-lustre in its mid-term potency, thereby questioning its impact on the longer-term outlook. The 'bail-out' of the US via QE1 came at a very hefty price, especially so in terms of (inter)national, federal and state debt levels. The incurred indebtedness now weighing very heavy on efforts to properly resuscitate the economic well-being.
Of course at its heart is economic philosophy, and attitude toward the fewer, and less powerful, fiscal and monetary tools left in the Fed's & Treasury's shared tool-box. The primary question for capital markets and the public at large as to whether yet another round of well warned prime-pumping via QE2 will actually provide enough effective benefit that feeds through beyond Wall St to Main St. This round of QE is of a different character, its size of $600bn, $100bn larger than previously expected, but drip-fed from mid 2011 in lots of approximately $75bn per month, depending upon conditions.
As a presentation of a QE approach this then looks sensible, but the broader question is whether in effect the new round of fiscal stimulus actually assists a proper re-orientation of the US economy or whether it maintains what could be argued as an over-valued 'false-floor' to the national economy; from QE1's frenzied liquidity feed to capital markets; especially toward those US corporations that are well exposed to Asian and South American income streams.
investment-auto-motives concurs with the Wall St Journal's 'Heard on the Street' column (2nd Nov), stating that much of the heavy lifting was done by QE1, so to what end QE2 if both equities and bond markets have already strengthened? The real concern is that QE2 has little ultimate trickle-down effect and inadvertently maintains the divide between Wall St and Main St, as the labour-force content of the country's cost-base grinds painfully through its necessary shrinkage, whilst the low cost of capital available makes for a bonanza period in corporate stock buy-backs and M&A activities; something investment-auto-motives expected to naturally occur even before QE2.
No critically observant markets follower has believed the “strong dollar” rhetoric, even after recent gains against the Euro and Pound, with the reality of a long-weakened US$ key to America's need to export its way out of the mire. As ASEAN and Mercosaur regions grew apace over the last year, so US exports ranging from agricultural equipment to specialist factory plant to pharma also benefited, but as the RoW slightly cooled so it seems the US authorities saw a need to re-involve themselves. Thus the Dollar's mid-week tumble immediately after the Fed's QE2 announcement only accords to expectation by both government, the markets and critically foreign investors who will either spy FX value-driven buys at stock and company level for the fundamentally strong, or seek to withdraw from what they view as an increasingly destabalised region, with preference going to still strong BRIC+ countries, safe-havens such as the Hong Kong exchange and expected rebound markets such as the UK.
Even given this apparent negativity, the intrinsic role and remit of QE2 may be far more than the broad exercise in re-assisting the economy presented. It may in effect have been designed to be a type of implicit buoyancy-aid specifically for those domestic and Canadian institutional investors who to date may have had little confidence in the mid-term traction of the re-born General Motors.
GM's general performance both at IPO launch and its critical short & mid-term stock trading dynamic is critical not only for the company itself, but the nation at large. Although a re-invented 'smoke-stack', given its broad up-stream and down-stream value-chain reaches across a myriad of spheres, GM will be seen as a bell-weather for the US economy
Thus for investment-auto-motives, the announcement of QE2 here and now, coming only a few weeks before the price-setting and availability of New GM stock – in its various guises of: new common stock, 3-for-1 exchanges and convertible preferred shares – is very telling indeed.
Perhaps it was well recognised that political and financial collateral damage could well be incurred from previously potentially higher IPO 'investment losses' to the Treasury, Canadian and Ontario Governments, the UAW and to Motors Liquidation Co holders/investors.
Instead the path ordained appears to see GM listed at the higher end of its $26-29 range with the almost implicit assumption that the month on month dispersion of latter-day liquidity will either prop-up any 6-month interim flailing, or otherwise help boost what have been 'flat' or slow-growth GM shares.
At a time when GM should be seen to fully let-go of its mother's apron strings, after 2 quarters of impressive results and the confidence to talk about the very real macro-headwinds it still faces, it seems that the 'Government Motors' nick-name - whilst slowly fading - may take another year or so to fully disappear.
To the overseas observer these US mid-terms will probably be remembered for the message-delivery method and manner which questioned the innate workings of the American political machine, albeit at a high level so as to convey core themes.
Yet the workings of the nation's political machine and the workings of the nation's economic machine are undoubtedly interwoven, the efforts of the Keynesian 'pump-prime' having saved the country from financial collapse in 2008, now seen to be lack-lustre in its mid-term potency, thereby questioning its impact on the longer-term outlook. The 'bail-out' of the US via QE1 came at a very hefty price, especially so in terms of (inter)national, federal and state debt levels. The incurred indebtedness now weighing very heavy on efforts to properly resuscitate the economic well-being.
Of course at its heart is economic philosophy, and attitude toward the fewer, and less powerful, fiscal and monetary tools left in the Fed's & Treasury's shared tool-box. The primary question for capital markets and the public at large as to whether yet another round of well warned prime-pumping via QE2 will actually provide enough effective benefit that feeds through beyond Wall St to Main St. This round of QE is of a different character, its size of $600bn, $100bn larger than previously expected, but drip-fed from mid 2011 in lots of approximately $75bn per month, depending upon conditions.
As a presentation of a QE approach this then looks sensible, but the broader question is whether in effect the new round of fiscal stimulus actually assists a proper re-orientation of the US economy or whether it maintains what could be argued as an over-valued 'false-floor' to the national economy; from QE1's frenzied liquidity feed to capital markets; especially toward those US corporations that are well exposed to Asian and South American income streams.
investment-auto-motives concurs with the Wall St Journal's 'Heard on the Street' column (2nd Nov), stating that much of the heavy lifting was done by QE1, so to what end QE2 if both equities and bond markets have already strengthened? The real concern is that QE2 has little ultimate trickle-down effect and inadvertently maintains the divide between Wall St and Main St, as the labour-force content of the country's cost-base grinds painfully through its necessary shrinkage, whilst the low cost of capital available makes for a bonanza period in corporate stock buy-backs and M&A activities; something investment-auto-motives expected to naturally occur even before QE2.
No critically observant markets follower has believed the “strong dollar” rhetoric, even after recent gains against the Euro and Pound, with the reality of a long-weakened US$ key to America's need to export its way out of the mire. As ASEAN and Mercosaur regions grew apace over the last year, so US exports ranging from agricultural equipment to specialist factory plant to pharma also benefited, but as the RoW slightly cooled so it seems the US authorities saw a need to re-involve themselves. Thus the Dollar's mid-week tumble immediately after the Fed's QE2 announcement only accords to expectation by both government, the markets and critically foreign investors who will either spy FX value-driven buys at stock and company level for the fundamentally strong, or seek to withdraw from what they view as an increasingly destabalised region, with preference going to still strong BRIC+ countries, safe-havens such as the Hong Kong exchange and expected rebound markets such as the UK.
Even given this apparent negativity, the intrinsic role and remit of QE2 may be far more than the broad exercise in re-assisting the economy presented. It may in effect have been designed to be a type of implicit buoyancy-aid specifically for those domestic and Canadian institutional investors who to date may have had little confidence in the mid-term traction of the re-born General Motors.
GM's general performance both at IPO launch and its critical short & mid-term stock trading dynamic is critical not only for the company itself, but the nation at large. Although a re-invented 'smoke-stack', given its broad up-stream and down-stream value-chain reaches across a myriad of spheres, GM will be seen as a bell-weather for the US economy
Thus for investment-auto-motives, the announcement of QE2 here and now, coming only a few weeks before the price-setting and availability of New GM stock – in its various guises of: new common stock, 3-for-1 exchanges and convertible preferred shares – is very telling indeed.
Perhaps it was well recognised that political and financial collateral damage could well be incurred from previously potentially higher IPO 'investment losses' to the Treasury, Canadian and Ontario Governments, the UAW and to Motors Liquidation Co holders/investors.
Instead the path ordained appears to see GM listed at the higher end of its $26-29 range with the almost implicit assumption that the month on month dispersion of latter-day liquidity will either prop-up any 6-month interim flailing, or otherwise help boost what have been 'flat' or slow-growth GM shares.
At a time when GM should be seen to fully let-go of its mother's apron strings, after 2 quarters of impressive results and the confidence to talk about the very real macro-headwinds it still faces, it seems that the 'Government Motors' nick-name - whilst slowly fading - may take another year or so to fully disappear.
Friday, 29 October 2010
Micro Level Trends – UK Trade & Investment – From the Middle East, to Infiniti & Beyond.
It is during the more testing of economic periods – such as now – that the importance of long-established royal relationships between countries comes to the fore; in re-strengthening the intra-national basis for mutually beneficial trade, industry and commerce.
As seen from the S.Korea meeting, whilst G20+ politicians discuss exactly what the architecture of international agreements, and diplomats are tasked with shaping the building blocks that form cross-border business relationship building; very often the cement which forms necessary strong bonds is mixed and spread at the social level between royals.
This week the the Queen, heading the House of Windsor, has hosted the visit of the Emir of Qatar, heading the House of Al-Thani. The important implicit pretext of maintaining mutual interests between the UK and Qatar and ideally strengthening the level of commercial interaction.
Such initiatives are welcomed at a time when the very notion of national sovereignty – and its financial and diplomatic power - has re-emerged via the important deployment of SWF monies as a major contribution in stemming and rebuilding the previous loss of confidence in capital markets and the economy at large. Whether that was the Middle-Easts re-capitalisation of CitiGroup, or indeed the re-capitalisation of General Motors (North America) with Canadian governmental finance made available, presumably under the ultimate auspices of the UK's Queen's Council.
Thus, we see the very real relevance of 'global back-stop' sovereign governance.
The desire to grow and protect historic trade routes between the 2 regions (as part of the East-West network) and the early 20th century discovery of oil in the Peninsula, has meant that typically the UK's relationship with the Middle-East has been low-key but strong. The tribulations such as concerns about yesteryear UK imperialism, the Suez Crisis and the early 21st concerns regards international terrorism, in the bigger historical context, problems that were (and will be) overcome.
In recent years, Qatar has taken a leading role within the Middle-East in building ties with the UK, its efforts building upon those by Bahrain and Kuwait in the arenas of real estate & automotive (Aston Martin Lagonda). Qatar, through the QIA SWF monies and other vehicles, has (as the FT well illustrated) in 2007 invested a 25.9% stake in Sainsbury's, bought 15.1% of the London Stock Exchange and took a lead share in the (now 'Mutually Royally Re-Worked' and aesthetically far improved) Chelsea Barracks redevelopment scheme that same year. In 2008 helped to underpin Barclays with a 6.8% stake. And in 2010 bought Harrods (from Egyptian Mohammed Al-Fayed) aswell as the Park House site in Oxford Street. These purchases therefor nearing £7 billion.
Of course, such deals are part of a larger, mutually beneficial, reciprocal arrangement which sees portions of trade monies effectively recycled between the UK and Qatar to buoy their respective balance of trade figures: the UK importing CNG and LPG from Qatar via its South Wales storage and distribution centre, as part of its desire to nurture trade and to burn cleaner fossils fuels for its own energy needs.
Nothing mentioned thus far is a revelation, but beneath the surface of such highly visible UK and Mid-East relationships is an ever growing level of smaller scale trade, something noted some time ago by investment-auto-motives via observation of central London retail, and recently highlighted by the FT's Video section which 'snap-shots' Egypt's now outward-bound stance; with examples such as Azza Fahmy (jewellery), Sewedy Cables (industrial electrical) and Citidel Capital (PE firm) based in Cairo. Thus, Egypt and its Arabic neighbours are becoming more export orientated with the confidence to use both local private equity funds and buoyant company balance sheets to make their mark on the international scene. Perhaps in particular London and the UK scene given good historical links and Britain's reputation for speedy economic recuperation during times of economic malaise.
But perhaps the most high profile case in point sits within the automotive retail arena.
Nissan's Infiniti brand launched in the UK in August, making a high-profile appearance on Piccadilly, located opposite The Ritz hotel and next-door to Audi, all as a firm positional statement. This showroom acts as the prestige flagship store, and accompanies a more operationally centric sites in Reading and Birmingham, with plans to open further showrooms in Bristol, Cambridge, Nottingham, Stockport, Leeds, Newcastle, Glasgow & Belfast – so targeted points country-wide.
As part of its marketing initiative to demonstrate Infiniti's soul, the spirit of Japan's 'Adeyaka' has been espoused, the term indigenously used within old Japanese to reflect the essence of 'Japanese artistry', and different interpretations of which are used to convey the persona: from use of Japanese calligraphy to mimic the feature lines of its cars, to the idea of a 'boutique hotel' as part of its showroom image, to an in-house magazine titled Adeyaka that is intrinsically art orientated.
Of note is what appears a collaboration of Japanese & Arabic cultures, with website and magazine graphics displaying 21st century computer-created renditions of traditional Islamic geometric patterns, and the Adeyaka soundtrack seemingly a mixed overlay of calming Japanese and Arabic melody. The use of a cross-marketing exercise with Cirque du Soleil, also conveys the central brand notion of 'a modern twist on a classical theme': raison d'etre of the French acrobatic troupe
The brand arrives as part of Renault-Nissan's strategy to grow Infiniti beyond its previous US boundaries, where the brand was ostensibly devised as effectively a re-badge exercise to utilise Nissan's large car platforms and take on Toyota's Lexus and Honda's Acura. Initially launched with one overtly conventional car the range broadened via the addition of smaller 'badge-engineered' products. The lack of sales success in Japan and the US augured more radical design thinking resulting in the idiosyncratic 'curvy' J30: offering a very different premium car aesthetic as a way to try and stand out from Japanese rivals. However, this strategy the effort failed to truly excite prospective US customers, and the brand whilst holding a steady in sales terms never reached Acura figures, and so very wide of Lexus numbers.
Yet, Nissan recognised it would be a long slog, with the Renault tie up in 1999 adding renewed impetus regards financing, resources much if which is strategically driven by Renault's own failed 'on-off' efforts thus far to create an up-market French brand, having tried to offer avantegarde premium Avantime and Vel Satis models, with Laguna as the supposed 'bridge'.
Hence, the strategic and very necessary role of Infiniti as the R-N group's premium brand has come ever greater to the fore over recent years as mainstream car sales took a heavy hit and additional/complimentary unit margin profitability has been perhaps the prime assessment criteria in the midst of the E3bn of French government support and investor calls for factory closures. Moreover, the recent technical cooperative agreement between Renault-Nissan and Daimler, not only aims to provide both parties with reduced cost quality components, but should critically allow Infiniti to access 'non-obvious' Daimler technology, just as the Germans look to utilise added-advantage from Infiniti's Japanese sourced technologies. But critically, R-N & Daimler talks will have discussed how Infiniti can be used to target BMW & Audi (hence its Piccadilly 'confrontational' positioning). So as to draw-fire in the long-term from Daimler.
This is undoubtedly a welcomed move by GCC fund managers given that Daimler itself is 9.1% owned by Abu Dhabi's Aabar Investment (Aabar itself interestingly taking 40% of Daimler's Tesla stake) and Kuwait's Investment Authority holds 6.9%; with Renault-Nissan holding 3.1% (as at 31.08.2010).
This may appear to undermine Qatar's own stakeholder interests in VW Group, owners of Audi, but in reality the sales volume differential between Audi and Infiniti is presently huge, with Audi due to grow further yet driven by the Chinese market, other EM regions, new entrant vehicles like the sub-compact A1 and new conventional A2 and further economies of scale from the VW group at large. So whilst Infiniti appears to 'sit on the doorstep' of Audi, there is little threat to the Audi (thus VW Group) income stream - and so the size of Qatar's SWF dividends from VW AG - given the bigger picture dynamic.
In contrast to the US experience, Infiniti did however enjoy greater success in the Arab world, largely due to the credibility and respect that Nissan had build-up over the preceding 20 years with the hardy 4x4 Patrol and conservative but ever-reliable sedans. That engineering edge gave Infiniti a gateway into the region which it took, and although still behind Lexus, ahead of Acura. In tandem with this for global publicity purposes it used product placement in the film 'Three Kings', which set in the first Gulf War, set Infiniti convertibles amongst Rolls-Royces et al amongst the disposed despot's luxury car stable amongst.
This then sets the Arabic context to the Infiniti division's global sales aspirations, setting itself out as the alternative brand to the obvious German and Japanese, with efforts towards additional markets primarily in Western Europe, Russia and the higher net worth regions of Asia.
Thus, whilst the RymCo UK proprietorship nameplate is somewhat unknown to the casual showroom visitor in Piccadilly, it should come as little surprise to the worldly observer that the UK market reach for Infiniti is financially backed by the UK arm of a locally publicly listed Lebanese company: the Rasamny-Younis Motor Company. RymCo UK seemingly employing a mix of auto-retail experienced senior management, the average fixed cost-base reduced with the use of enthusiastic younger sales staff. The sales onus is on the level of personal service offered (with valet car pick-up & delivery) along with the Infiniti (entry-strategy) staple of offering a highly specified car for comparable cost to its lesser equipped claimed competitors.
RymCo is Infiniti's partner in its home territory, and the most important vehicle distributor/dealer in the Lebanon. The company was set-up in 1934 and distributed Fords, GM (Holden), Chrysler, aswell as consumer durables such as Colgate toothpaste and Palmolive soaps. Honda and Datsun/Nissan was added in the 1960s, whilst afterward truck distribution and sales for GMC, Nissan Diesel and China's FAW became important contributor to turnover. It has been present in the UK for some years, and today operates across the Middle-East, the US, Japan, Europe and China.
[NB The FAW interaction begs the question that does RymCo see itself as a foreign-region importer of Chinese cars and trucks in due course].
No doubt RymCo also prides itself on the fact that whilst the financial crisis caused untold contraction to western enterprises, seeing car sales collapse, it was able to boast of Lebanese-market unit sales growth in cars of 74% for 2007 (vs 2006) & 84% for 2008 (vs 2007). (Thereby gaining public recognition from Carlos Ghosn, CEO of Renault-Nissan, and himself of Lebanese parental extraction, though born in Brazil)
Though many Middle-Eastern countries and firms have displayed a renewed confidence and improved ability, it can not be denied that (as the FT reports) there are industrial structural and cultural challenges to be overcome.
The executive director of Egypt's government assistance agency highlights the restriction of middle and large capital funding at the local level for foreign investment. An additional challenge is that of the typical foreign-held viewpoints regards the operational commitment by Arab businesses to FDI projects, especially regards their desire for a use of their local labour force so as to stimulate local county-scale economies.
The answers to these and other questions should be addressed firmly and clearly by Arabic businesses and rationally absorbed by foreign representatives seeking FDI, so as to ascertain the true and feasible synergies between the interacting parties, and importantly not to create an unintentional stalemate and so loss of faith between what are typically more urgently motivated westerners (seeking to tick the boxes of development plans) and the more philosophically orientated middle-easterners who seek a level of security and stability to be delivered by outside of their direct cultural influence and so comfort zone. Thus, in the question of expectational manufacturing FDI into Europe or indeed Asia, Arabic companies may need to demonstrate their own manufacturing cost base and national development ambitions time and time again to show their rational for domestic production if it appears a sticky issue.
It is no surprise that to date Arabic investment fields in foreign lands have been typically real-estate (eg Chelsea Barracks), reputation trusted retail (eg Harrods), large corp banking (Citi & Barclays) aswell as reputational global manufacturing (eg Daimler & VW).
These are undoubtedly lower-risk options in what Arabs probably see – for good reason - as a world of higher-risk possibilities. Understandably investors are forced to trust either the asset-base's innate value, the integrity of the management team, and ideally a combination of both. Add a cultural difference into the equation and what appears of medium risk to a western investor possibly borders exotic to a more cautious (wo)man from the Middle-East.
To this end, international success stories such as RymCo - and similar scale peers from around the Arab-world - should serve as models for the small yet ambitious enterprises; ones that see themselves with a place within the regional, continental and world-wide business and investment arena.
This should ultimately be a win-win for Anglo-Arabic relations as British companies identify low-cost sourcing and/or manufacturing opportunities generated by an increasingly skilled Arabic workforce using modern methods, with the possibility of a counter-point skills transfer sees the previously lost-skills of specialist crafts fields either brought back to the UK or indeed possibly newly introduced.
Today Arabic SWFs and cash-laden companies cautiously seek new investment opportunities in foreign climates, both within their usual asset-classes and beyond; this exploration undoubtedly governed by the need for mutual synergy relationships that importantly allow for what they see as appropriate levels of shared return at financial, corporate development and structural development levels.
Thus it does not seem too far a point of conjecture to suggest that as the Qatari Emir rested in Windsor Castle, that his thoughts turned to the efforts and experiences of Lebanese RymCo, its UK HQ situated only a short distance westward down the M4 corridor in Reading.
For the brighter future of the UK, Qatar and Anglo-Arabic relations investment-auto-motives does indeed hope so.
As seen from the S.Korea meeting, whilst G20+ politicians discuss exactly what the architecture of international agreements, and diplomats are tasked with shaping the building blocks that form cross-border business relationship building; very often the cement which forms necessary strong bonds is mixed and spread at the social level between royals.
This week the the Queen, heading the House of Windsor, has hosted the visit of the Emir of Qatar, heading the House of Al-Thani. The important implicit pretext of maintaining mutual interests between the UK and Qatar and ideally strengthening the level of commercial interaction.
Such initiatives are welcomed at a time when the very notion of national sovereignty – and its financial and diplomatic power - has re-emerged via the important deployment of SWF monies as a major contribution in stemming and rebuilding the previous loss of confidence in capital markets and the economy at large. Whether that was the Middle-Easts re-capitalisation of CitiGroup, or indeed the re-capitalisation of General Motors (North America) with Canadian governmental finance made available, presumably under the ultimate auspices of the UK's Queen's Council.
Thus, we see the very real relevance of 'global back-stop' sovereign governance.
The desire to grow and protect historic trade routes between the 2 regions (as part of the East-West network) and the early 20th century discovery of oil in the Peninsula, has meant that typically the UK's relationship with the Middle-East has been low-key but strong. The tribulations such as concerns about yesteryear UK imperialism, the Suez Crisis and the early 21st concerns regards international terrorism, in the bigger historical context, problems that were (and will be) overcome.
In recent years, Qatar has taken a leading role within the Middle-East in building ties with the UK, its efforts building upon those by Bahrain and Kuwait in the arenas of real estate & automotive (Aston Martin Lagonda). Qatar, through the QIA SWF monies and other vehicles, has (as the FT well illustrated) in 2007 invested a 25.9% stake in Sainsbury's, bought 15.1% of the London Stock Exchange and took a lead share in the (now 'Mutually Royally Re-Worked' and aesthetically far improved) Chelsea Barracks redevelopment scheme that same year. In 2008 helped to underpin Barclays with a 6.8% stake. And in 2010 bought Harrods (from Egyptian Mohammed Al-Fayed) aswell as the Park House site in Oxford Street. These purchases therefor nearing £7 billion.
Of course, such deals are part of a larger, mutually beneficial, reciprocal arrangement which sees portions of trade monies effectively recycled between the UK and Qatar to buoy their respective balance of trade figures: the UK importing CNG and LPG from Qatar via its South Wales storage and distribution centre, as part of its desire to nurture trade and to burn cleaner fossils fuels for its own energy needs.
Nothing mentioned thus far is a revelation, but beneath the surface of such highly visible UK and Mid-East relationships is an ever growing level of smaller scale trade, something noted some time ago by investment-auto-motives via observation of central London retail, and recently highlighted by the FT's Video section which 'snap-shots' Egypt's now outward-bound stance; with examples such as Azza Fahmy (jewellery), Sewedy Cables (industrial electrical) and Citidel Capital (PE firm) based in Cairo. Thus, Egypt and its Arabic neighbours are becoming more export orientated with the confidence to use both local private equity funds and buoyant company balance sheets to make their mark on the international scene. Perhaps in particular London and the UK scene given good historical links and Britain's reputation for speedy economic recuperation during times of economic malaise.
But perhaps the most high profile case in point sits within the automotive retail arena.
Nissan's Infiniti brand launched in the UK in August, making a high-profile appearance on Piccadilly, located opposite The Ritz hotel and next-door to Audi, all as a firm positional statement. This showroom acts as the prestige flagship store, and accompanies a more operationally centric sites in Reading and Birmingham, with plans to open further showrooms in Bristol, Cambridge, Nottingham, Stockport, Leeds, Newcastle, Glasgow & Belfast – so targeted points country-wide.
As part of its marketing initiative to demonstrate Infiniti's soul, the spirit of Japan's 'Adeyaka' has been espoused, the term indigenously used within old Japanese to reflect the essence of 'Japanese artistry', and different interpretations of which are used to convey the persona: from use of Japanese calligraphy to mimic the feature lines of its cars, to the idea of a 'boutique hotel' as part of its showroom image, to an in-house magazine titled Adeyaka that is intrinsically art orientated.
Of note is what appears a collaboration of Japanese & Arabic cultures, with website and magazine graphics displaying 21st century computer-created renditions of traditional Islamic geometric patterns, and the Adeyaka soundtrack seemingly a mixed overlay of calming Japanese and Arabic melody. The use of a cross-marketing exercise with Cirque du Soleil, also conveys the central brand notion of 'a modern twist on a classical theme': raison d'etre of the French acrobatic troupe
The brand arrives as part of Renault-Nissan's strategy to grow Infiniti beyond its previous US boundaries, where the brand was ostensibly devised as effectively a re-badge exercise to utilise Nissan's large car platforms and take on Toyota's Lexus and Honda's Acura. Initially launched with one overtly conventional car the range broadened via the addition of smaller 'badge-engineered' products. The lack of sales success in Japan and the US augured more radical design thinking resulting in the idiosyncratic 'curvy' J30: offering a very different premium car aesthetic as a way to try and stand out from Japanese rivals. However, this strategy the effort failed to truly excite prospective US customers, and the brand whilst holding a steady in sales terms never reached Acura figures, and so very wide of Lexus numbers.
Yet, Nissan recognised it would be a long slog, with the Renault tie up in 1999 adding renewed impetus regards financing, resources much if which is strategically driven by Renault's own failed 'on-off' efforts thus far to create an up-market French brand, having tried to offer avantegarde premium Avantime and Vel Satis models, with Laguna as the supposed 'bridge'.
Hence, the strategic and very necessary role of Infiniti as the R-N group's premium brand has come ever greater to the fore over recent years as mainstream car sales took a heavy hit and additional/complimentary unit margin profitability has been perhaps the prime assessment criteria in the midst of the E3bn of French government support and investor calls for factory closures. Moreover, the recent technical cooperative agreement between Renault-Nissan and Daimler, not only aims to provide both parties with reduced cost quality components, but should critically allow Infiniti to access 'non-obvious' Daimler technology, just as the Germans look to utilise added-advantage from Infiniti's Japanese sourced technologies. But critically, R-N & Daimler talks will have discussed how Infiniti can be used to target BMW & Audi (hence its Piccadilly 'confrontational' positioning). So as to draw-fire in the long-term from Daimler.
This is undoubtedly a welcomed move by GCC fund managers given that Daimler itself is 9.1% owned by Abu Dhabi's Aabar Investment (Aabar itself interestingly taking 40% of Daimler's Tesla stake) and Kuwait's Investment Authority holds 6.9%; with Renault-Nissan holding 3.1% (as at 31.08.2010).
This may appear to undermine Qatar's own stakeholder interests in VW Group, owners of Audi, but in reality the sales volume differential between Audi and Infiniti is presently huge, with Audi due to grow further yet driven by the Chinese market, other EM regions, new entrant vehicles like the sub-compact A1 and new conventional A2 and further economies of scale from the VW group at large. So whilst Infiniti appears to 'sit on the doorstep' of Audi, there is little threat to the Audi (thus VW Group) income stream - and so the size of Qatar's SWF dividends from VW AG - given the bigger picture dynamic.
In contrast to the US experience, Infiniti did however enjoy greater success in the Arab world, largely due to the credibility and respect that Nissan had build-up over the preceding 20 years with the hardy 4x4 Patrol and conservative but ever-reliable sedans. That engineering edge gave Infiniti a gateway into the region which it took, and although still behind Lexus, ahead of Acura. In tandem with this for global publicity purposes it used product placement in the film 'Three Kings', which set in the first Gulf War, set Infiniti convertibles amongst Rolls-Royces et al amongst the disposed despot's luxury car stable amongst.
This then sets the Arabic context to the Infiniti division's global sales aspirations, setting itself out as the alternative brand to the obvious German and Japanese, with efforts towards additional markets primarily in Western Europe, Russia and the higher net worth regions of Asia.
Thus, whilst the RymCo UK proprietorship nameplate is somewhat unknown to the casual showroom visitor in Piccadilly, it should come as little surprise to the worldly observer that the UK market reach for Infiniti is financially backed by the UK arm of a locally publicly listed Lebanese company: the Rasamny-Younis Motor Company. RymCo UK seemingly employing a mix of auto-retail experienced senior management, the average fixed cost-base reduced with the use of enthusiastic younger sales staff. The sales onus is on the level of personal service offered (with valet car pick-up & delivery) along with the Infiniti (entry-strategy) staple of offering a highly specified car for comparable cost to its lesser equipped claimed competitors.
RymCo is Infiniti's partner in its home territory, and the most important vehicle distributor/dealer in the Lebanon. The company was set-up in 1934 and distributed Fords, GM (Holden), Chrysler, aswell as consumer durables such as Colgate toothpaste and Palmolive soaps. Honda and Datsun/Nissan was added in the 1960s, whilst afterward truck distribution and sales for GMC, Nissan Diesel and China's FAW became important contributor to turnover. It has been present in the UK for some years, and today operates across the Middle-East, the US, Japan, Europe and China.
[NB The FAW interaction begs the question that does RymCo see itself as a foreign-region importer of Chinese cars and trucks in due course].
No doubt RymCo also prides itself on the fact that whilst the financial crisis caused untold contraction to western enterprises, seeing car sales collapse, it was able to boast of Lebanese-market unit sales growth in cars of 74% for 2007 (vs 2006) & 84% for 2008 (vs 2007). (Thereby gaining public recognition from Carlos Ghosn, CEO of Renault-Nissan, and himself of Lebanese parental extraction, though born in Brazil)
Though many Middle-Eastern countries and firms have displayed a renewed confidence and improved ability, it can not be denied that (as the FT reports) there are industrial structural and cultural challenges to be overcome.
The executive director of Egypt's government assistance agency highlights the restriction of middle and large capital funding at the local level for foreign investment. An additional challenge is that of the typical foreign-held viewpoints regards the operational commitment by Arab businesses to FDI projects, especially regards their desire for a use of their local labour force so as to stimulate local county-scale economies.
The answers to these and other questions should be addressed firmly and clearly by Arabic businesses and rationally absorbed by foreign representatives seeking FDI, so as to ascertain the true and feasible synergies between the interacting parties, and importantly not to create an unintentional stalemate and so loss of faith between what are typically more urgently motivated westerners (seeking to tick the boxes of development plans) and the more philosophically orientated middle-easterners who seek a level of security and stability to be delivered by outside of their direct cultural influence and so comfort zone. Thus, in the question of expectational manufacturing FDI into Europe or indeed Asia, Arabic companies may need to demonstrate their own manufacturing cost base and national development ambitions time and time again to show their rational for domestic production if it appears a sticky issue.
It is no surprise that to date Arabic investment fields in foreign lands have been typically real-estate (eg Chelsea Barracks), reputation trusted retail (eg Harrods), large corp banking (Citi & Barclays) aswell as reputational global manufacturing (eg Daimler & VW).
These are undoubtedly lower-risk options in what Arabs probably see – for good reason - as a world of higher-risk possibilities. Understandably investors are forced to trust either the asset-base's innate value, the integrity of the management team, and ideally a combination of both. Add a cultural difference into the equation and what appears of medium risk to a western investor possibly borders exotic to a more cautious (wo)man from the Middle-East.
To this end, international success stories such as RymCo - and similar scale peers from around the Arab-world - should serve as models for the small yet ambitious enterprises; ones that see themselves with a place within the regional, continental and world-wide business and investment arena.
This should ultimately be a win-win for Anglo-Arabic relations as British companies identify low-cost sourcing and/or manufacturing opportunities generated by an increasingly skilled Arabic workforce using modern methods, with the possibility of a counter-point skills transfer sees the previously lost-skills of specialist crafts fields either brought back to the UK or indeed possibly newly introduced.
Today Arabic SWFs and cash-laden companies cautiously seek new investment opportunities in foreign climates, both within their usual asset-classes and beyond; this exploration undoubtedly governed by the need for mutual synergy relationships that importantly allow for what they see as appropriate levels of shared return at financial, corporate development and structural development levels.
Thus it does not seem too far a point of conjecture to suggest that as the Qatari Emir rested in Windsor Castle, that his thoughts turned to the efforts and experiences of Lebanese RymCo, its UK HQ situated only a short distance westward down the M4 corridor in Reading.
For the brighter future of the UK, Qatar and Anglo-Arabic relations investment-auto-motives does indeed hope so.
Thursday, 21 October 2010
Macro Level Trends – UK Eco Investment – Incorporating Green Banking
In the midst of a Comprehensive Spending Review which markedly alters the relationship of the state and the British economy, the ideology of a new state sponsored 'Green Investment Bank' dedicated to eco-commerce has understandably shrunken. The overtly grand aspirations for eco-tech that were set before the financial crisis – and which swallowed massive sums in direct and indirect aid - has had to be trimmed to reflect the new financial and political reality.
The headline (figure) of which has been a reduction in available monies from £6bn to £2bn. But such adaption of size, scope and roles of various systemically critical economic agents is, in the Green Bank's case, not necessarily such a bad development. As with much else of Chancellor Osborne's policy, the core action is consolidation of effort and finances for greater applied force, consequential influence and ultimate achievement.
From a global eco-competitiveness standpoint, the UK undoubtedly lags; given the progress made in Asia (ie Japan, S.Korea), Europe (ie Germany, France) and the US. It is said that the global market is worth $3 trillion, of which the UK holds less than 5%. Current UK exports equal £10 billion, versus Germany's £50 billion. And by 2020, it is estimated that more Germans will be working in Eco-commerce than within its car industry. [NB investment-auto-motives suspects German policy is to use its own auto-industry as a technical and organisational 'spring-board' toward that aim]. Thus the “ability to share risk and foster innovation” is noted as key.
The structure and methods of a Green Investment Bank was explored between January-July 2010 via a team led by (ex-Merrill Lynch) Bob Wigley, with Lord Stern advising, and a broad selection of contributors. As perhaps the prime vehicle for attaining the 2050 CO2 reduction goal of 80%, the objectives of that Conservative party generated Commission were to:
- Recommend a bank funding mechanism which includes both 'Green Bonds' and Private Capital
- Ascertain the likely value/size of funds to be managed (using a US model with 10:1 ratio)
- Identify the Bank's investment criteria centred around high-growth and low-carbon companies.
- Offer guidance on Bank Governance relative to any differences in Public & Private Oversight.
- Understand how to ensure an appropriate geographic balance of investment
To summarise the Commissions findings were:
- That £550 billion is required by 2020 to achieve a sustainable low carbon economy.
- Interventionism should be used to overcome 'market failures & investment barriers'; primarily:
“market investment capacity limits”, “limited utility balance sheet capacity”, “political & regulatory risk given policy-driven returns expectations and the history of changing policy”, “confidence gaps for investors linked to technology risks / policy transparency / high capitalisation levels”, “the challenge of making numerous but individually small projects attractive to institutional investors”.
- Interventionism tooo also be used to: “ensure de-carbonisation targets are met”, “energy security & growth”, “reduction to exposure of high/volatile fuel prices”, “creation of a large number of businesses and jobs”, “address underlying externalities”.
- Operationally it should work under strict guidelines so as to not 'crowd-out' the private sector:
“to leave the private sector to open and execute all viable deals, only acting as a public partner in deals that necessitate involvement to attract private investment” (for the overall public good),
Thus the Green Investment Bank (GIB) seeks to alter the eco-investment landscape, by managing & ideally mitigating investor risk, rather than increasing the current hi-risk / hi-reward quotient.
Such a mandate comes as no surprise, though free-marketeers may be rightly concerned about the level of interventionism plied: at what point does positive interventionism become state direction ?
Yet, the call for co-ordination and the under-pinning of investor confidence to create tomorrow's 'eco world' is hard to fault; especially given the recent past. Creating an investor environment of relative stability via a more harmonious PESTEL equation seems to be key.
As seen by the financial crisis and bursting of the housing bubble, for far too long the tail of the capital markets wagged the dog of the real economy. These still recent events and their consequential concerns re-highlight the very rationality behind the call for stability that brought about the creation of the original (olde worlde) capital markets. Then newly formed capital markets in Persia/Levant, Florence, Amsterdam and London that had to deal with the task of major economic reform given changing PESTEL conditions. Their remit: to create a commercial and trading environment in which harmonious relationships would serve all stakeholders - banking, commerce and the nation at large.
Of course, the changing landscape of events in diplomacy, trade routes, new goods, adapted and new vessels aswell as the core enterprise organisation and the very nature of competition honed investor perception, much as these and many more factors do today. But objective fundamentals largely ruled even if short-lived 'land-grab' and 'commodity' bubbles periodically arose from the overt entwined polemics of disingenuous over-enthusiasm and self-interest feeding off of greed. But during those periods, a level of damage limitation prevailed, generally within the circumscribed and circumspect circles of wealthy merchants, Lloyds names and such. People who could afford to 'venture' portions of their wealth. Today's capital markets are made-up for the most part by the paper-wealth of those many millions who realistically cannot afford to 'venture' – the 1929 crash being the stepping-stone between these 2 worlds. Thus whilst the dynamic of the investment foreground appears similar, the background is not.
Today, more than ever, the requisite harmony between banking, commerce and the nation is critical, done so set against the prevailing disruptive yet opportunistic winds of macro and micro change.
Beyond the prime aim of assisting in reaching CO2 reduction targets (80% by 2050), surely this is the philosophical remit of the new 'UK Green Investment Bank', such sentiment behind its very ethos, structure, capability and delivery.
Yet, how best to achieve this is the hot-topic of the day, with two ministerial level camps emerging debating the prime aspects of Role & Responsibilities', 'Bank Funding Methods' and 'Marketable Products'.
[NB To the layman recent press reports tend to infer that the split may appear to be over 'free-markets' versus 'overt-interventionist' ideologies*. (See Post Script below). Though as seen by the report, this not in actuality the case given the 'PPP' format the GIB takes].
The devil then instead appears to be in the detail of the recommendations:.
Roles & Responsibilities:
1) To amalgamate and centralise the efforts of CO2 relevant quangos, retaining core skills.
2) To absorb recommendations from the recent National Audit Office Report
3) Further analysis of the role of GIB across the UK and the use of devolved administrations
4) Implications of GIB for Government Policy; esp regards Infrastructure UK.
Funding Methods:
A) Gov't Funding for dispersion of Grants,
B) Operational Funding via Green Bonds, Green ISAs, GIB Debt Fund, Levy on Energy Bills
C) Initial GIB Capitalisation to support A & B, via Private & State-Owned Bank capital injections, Use of Bank Levy and Bank Bonus Taxes, Proceeds from Sale of Government Assets and UK Revenues from EU ETS Auctions.
Financial Products offered:
1) Early Stage Grants,
2) Equity Co-Investment,
3) Wholesale Capital,
4) Mezzanine Debt,
5) Purchase Offers for Competed Renewable Assets,
6) Purchase & Securitisation of Project Finance Loans,
7) Insurance Products,
8) Long-Term Carbon Price Underwriting.
Such debate is of course very necessary as part of a process to exactly hone the very nature of the enterprise. To enable its efficient start-up (via an Act of Parliament) and be capital markets relative and sensitive. It had been hoped that process would have completed by early October, ahead of the Comprehensive Spending Revue, but no so; it is far more important to create the right form of entity than to hit nominal reporting deadlines.
The political and bureaucratic debate will continue, yet whilst creating the right framework for the GIB is vitally important, equally so will be its ability to act as an efficient investment catalyst when formed, in situ and operational.
Critically, the GIB must be seen to be highly intelligent regards the commercialisation fields of eco-tech and eco-service, and not simply as a second-hand recipient of knowledge (right or wrong) from private investor circles. This will of course span the various sub-sectors by which the CO2 reduction task is classified, including atmospheric discharge across: Energy Generation / Domestic / Industrial / Transport etc arenas..
Here, along with other eco-tech spheres, the importance of GIB knowledge regards the UK and global auto-industry will be critical. Knowledge that delves far deeper than the headlines of CO2 discharge responsibility levels. As both an incorporator of self-developed technology, an adopter of transferred technology, aswell as its potential as a tech-disseminator to other sectors, the industry must be recognised as a central enabler and facilitator toward the CO2 reduction ambition.
But behind the emotionally charged rhetoric and diatribe must be objective knowledge to understand the complexity of the issue.
Given the level of 'green-wash' and 'green-mania' previously apparent, the emergence of a green-tech bubble seemed inevitable, indeed investment-auto-motives believes that new entrant players in the western auto-industry today still enjoy a level of press-driven exposure which massages popular perception thus in turn intendedly 'over-drives' a company's market capitalisation levels which by supposed virtue of credibility then attracts government grants. Thus playing the 'capital markets game' which stalls on promises year after year, delivering little to actually 'save the planet', yet maintaining an illusion of progress.
The following cases provide an overview:
Tesla Motor has sold just over 1000 units of an 'eco-bling' novelty car with little functionality which has had a truly miniscule real-world impact, yet vaults its MktCap at near $1.8bn since it IPO'd 12% of the company in mid 2010; all on the promise of tomorrow. A recent SEC release states that it will run a JV with Toyota for a RAV4 EV, a replay of something Toyota did a decade ago which foundered.
At the opposite end of scale, as GM's IPO relisting approaches the new revelation is that Volt is in reality a hybrid vehicle, something that investment-auto-motives always suspected, so as to deliver a tenable car. The Volt hype spanned years, the new revelation thus demonstrates a cynical play on the public's and capital markets' 'naïve green consciousness' to date. Volt as a hybrid is technically and commercially more feasible, but gains no competitive edge versus leaders Toyota or Honda, instead essentially playing slow catch-up to the pack-leaders further the limited in-roads made by hybrid-Siverado, hybrid-Vue, hybrid-Malibu.
Nissan's Leaf EV compact sedan will be coming to market in late 2011/12, essentially trying to follow in the footsteps of the original 1997 Prius, but moving the eco goal-posts further. It too has had enjoyed massive PR exposure, but the reality is that whilst being based on a standard platform (bad technically but good commercially) it will represent only a small fraction of that platform's volume output. As an example the Sunderland UK plant manufactures 400,000 units p.a, exporting four-fifths. The accompanying satellite battery-pack plants set-up have a capacity of 40,000 units, yet it is expected that the first 3 years will see a real average output of 10,000 'married' bodies and packs; so approximately 2.5% of the Nissan factory's output – not (for the foreseeable future) the overnight game-changer that has massaged public understanding, nor indeed has set high-expectations for economic regeneration areas such as Sunderland.
The latter twin of Jaguar Land-Rover has had sporadic in-house access to hybrid technology for nearly 2 decades as part of the then Rover Group and Ford. There was chief engineer discussion regards the cross-brand learning and applicability of Mini Metro based 'series' and 'parallel' hybrid formats. This tech was considered as the ideal solution for Land Rover's military customers, providing little or no 'thermal signature' that could be traced for a vehicle in combat conditions. As to where such efforts sit today is of course confidential.
However, the Jaguar lag in developing an in-house or even bought-in hybrid system for use on XJ and XF has been disappointing. Execs with point to the instability caused by Ford's disposal of Jaguar on R&D policy, and by the financing concerns TATA Group had when it took-on JLR, but in truth Jaguar should have done far more far sooner as part of its own premium brand catch-up strategy.
The XJ LimoGreen project has been operating for some years now, yet even a very recent press article highlights that no introduction date has been identified, only that whilst the 'range-extender' (in reality read hybrid) technology is operative, the question is scale and so component piece price - the chicken and egg cycle. In reality it appears that progress on LimoGreen (which includes Lotus Engineering and Caparo Engineering) accords to the influx of government funds.
Many years ago investment-auto-motives openly recommended that as an interim 'saviour step' Jaguar ought to ally (formally or informally) with Toyota's Lexus to obtain much needed, speedy market differentiation, packaging hybrids into 'more classically sculpted counterparts' to a more contempoary Lexus. Instead Jaguar aesthetically mimicked Lexus in aspects of form and detailing, whilst directing efforts at modern diesels thus severely lagging in the hybrid stakes against the Japanese and relative to hybrid-demanding US, Chinese and Japanese customers. The recent article seems to indicate only more of the same expectancy for TATA-Jaguar to rely on government funds; funds which are now severely restricted.
Such initiatives when well intended and executed are indeed welcome as part of a multi-solution Eco reduction strategy. But it cannot be denied that the reality of CO2 step change will be smaller and more conventional than typically imagined, and primarily concerns ongoing eco-development of the ubiquitous, globally economically integrated and so value-adding, internal combustion engine.
These aforementioned 4 examples of 'tomorrow's world' must be objectively seen to suffer at best from corporate over-statement for brand differentiation, middling a reliance on government funds for eco-progression, and at worst, open to accusations of manipulation of eco-investor enthusiasm.
History illustrates that such investor-directed, auto-sector-disruptive, 'jam-tomorrow' enterprises are by no means without precedent; and every industry has had its cases promising radically new tomorrow's. The important matter today for the UK, the US and Europe is that industry-directed investment funds from whichever sources - institutionals, private equity, SWFs or even hedge funds - must be allied to truly plausible, reduced risk offerings across the vertical value-chain, and in both final product and service realms.
As the catalyst of conventional risk-averse investor consciousness, the new UK Green Investment Bank must demonstrate itself able to see through the 'eco-haze' so as to set UK and global eco-development on a firm footing. GIB must demonstrate its own credibility as an intelligent lender in this undeniably important field.
The long-term ambition of GIB must surely be to move from public ownership to private ownership via a private treaty sale or perhaps floatation in the years to come, when the more radical of the innovations and sub-sectors it backed becomes near mainstream, so leaving plenty of meat on the bone for the latter-day buyer(s).
Thus, it would appear an obvious step forward to provide the UK Green Bank with a 2-step growth path.
Initially, between 2011 and say 2015 limiting itself to the role of 'simple' grant, loan and other basic provider so a stable conduit toward larger eco-commerce, with an accordant in-built level of risk-aversion with perhaps covenant-heavy capital availability that implies. With latterly, 2015 onwards tranche by tranche disposal into private hands, developing as a broader 'sophisticated' products provider. Thus by implication of greater freedoms, broader access to UK and international capital markets, with a seemingly greater level of risk exposure theoretically counter-balanced by a more robust global economy and by then an engrained consumer eco-behaviour that is far less timid, and more exploratory than perhaps today.
Post Script*
To have delineated the new Green Bank as a copy+ of a conventional investment bank, it would have acted as market reactive conduit between the spectrum of capital markets and the commercial end-user. So obtaining liquidity at a market rate (LIBOR, other reactive-rate or bond-rate), and selling-on the available liquidity with either no a given margin, no doubt dependent upon the health of the market 'push', the commercial demand 'pull' and the required demands of the Treasury in its efforts to plug the UK debt deficit. This approach no doubt thus providing a sense of real-world 'eco-commerciality' whilst also demonstrating the UK's desire to be seen as a friend of the capital markets (so assisting credit-ratings) aswell as possibly presenting a Green Investment Bank vehicle / model / format which the UK could promote across the world; itself promoting the innovative spirit of the UK's financial services sector.
In contrast, to have delineated the GIB as simply a re-organised government entity, now with far less though centralised financial muscle, would have led to a sense of even greater incredibility both within Whitehall, but especially across the capital markets and industry / commerce. Yes, it would have no doubt had greater 'non-negotiable' powers regards regulation and interventionism, but interaction with the external business world would have undoubtedly suffered, so in effect pseudo-control without the real power to alter the direction, structure and growth pace of the UK economy].
The headline (figure) of which has been a reduction in available monies from £6bn to £2bn. But such adaption of size, scope and roles of various systemically critical economic agents is, in the Green Bank's case, not necessarily such a bad development. As with much else of Chancellor Osborne's policy, the core action is consolidation of effort and finances for greater applied force, consequential influence and ultimate achievement.
From a global eco-competitiveness standpoint, the UK undoubtedly lags; given the progress made in Asia (ie Japan, S.Korea), Europe (ie Germany, France) and the US. It is said that the global market is worth $3 trillion, of which the UK holds less than 5%. Current UK exports equal £10 billion, versus Germany's £50 billion. And by 2020, it is estimated that more Germans will be working in Eco-commerce than within its car industry. [NB investment-auto-motives suspects German policy is to use its own auto-industry as a technical and organisational 'spring-board' toward that aim]. Thus the “ability to share risk and foster innovation” is noted as key.
The structure and methods of a Green Investment Bank was explored between January-July 2010 via a team led by (ex-Merrill Lynch) Bob Wigley, with Lord Stern advising, and a broad selection of contributors. As perhaps the prime vehicle for attaining the 2050 CO2 reduction goal of 80%, the objectives of that Conservative party generated Commission were to:
- Recommend a bank funding mechanism which includes both 'Green Bonds' and Private Capital
- Ascertain the likely value/size of funds to be managed (using a US model with 10:1 ratio)
- Identify the Bank's investment criteria centred around high-growth and low-carbon companies.
- Offer guidance on Bank Governance relative to any differences in Public & Private Oversight.
- Understand how to ensure an appropriate geographic balance of investment
To summarise the Commissions findings were:
- That £550 billion is required by 2020 to achieve a sustainable low carbon economy.
- Interventionism should be used to overcome 'market failures & investment barriers'; primarily:
“market investment capacity limits”, “limited utility balance sheet capacity”, “political & regulatory risk given policy-driven returns expectations and the history of changing policy”, “confidence gaps for investors linked to technology risks / policy transparency / high capitalisation levels”, “the challenge of making numerous but individually small projects attractive to institutional investors”.
- Interventionism tooo also be used to: “ensure de-carbonisation targets are met”, “energy security & growth”, “reduction to exposure of high/volatile fuel prices”, “creation of a large number of businesses and jobs”, “address underlying externalities”.
- Operationally it should work under strict guidelines so as to not 'crowd-out' the private sector:
“to leave the private sector to open and execute all viable deals, only acting as a public partner in deals that necessitate involvement to attract private investment” (for the overall public good),
Thus the Green Investment Bank (GIB) seeks to alter the eco-investment landscape, by managing & ideally mitigating investor risk, rather than increasing the current hi-risk / hi-reward quotient.
Such a mandate comes as no surprise, though free-marketeers may be rightly concerned about the level of interventionism plied: at what point does positive interventionism become state direction ?
Yet, the call for co-ordination and the under-pinning of investor confidence to create tomorrow's 'eco world' is hard to fault; especially given the recent past. Creating an investor environment of relative stability via a more harmonious PESTEL equation seems to be key.
As seen by the financial crisis and bursting of the housing bubble, for far too long the tail of the capital markets wagged the dog of the real economy. These still recent events and their consequential concerns re-highlight the very rationality behind the call for stability that brought about the creation of the original (olde worlde) capital markets. Then newly formed capital markets in Persia/Levant, Florence, Amsterdam and London that had to deal with the task of major economic reform given changing PESTEL conditions. Their remit: to create a commercial and trading environment in which harmonious relationships would serve all stakeholders - banking, commerce and the nation at large.
Of course, the changing landscape of events in diplomacy, trade routes, new goods, adapted and new vessels aswell as the core enterprise organisation and the very nature of competition honed investor perception, much as these and many more factors do today. But objective fundamentals largely ruled even if short-lived 'land-grab' and 'commodity' bubbles periodically arose from the overt entwined polemics of disingenuous over-enthusiasm and self-interest feeding off of greed. But during those periods, a level of damage limitation prevailed, generally within the circumscribed and circumspect circles of wealthy merchants, Lloyds names and such. People who could afford to 'venture' portions of their wealth. Today's capital markets are made-up for the most part by the paper-wealth of those many millions who realistically cannot afford to 'venture' – the 1929 crash being the stepping-stone between these 2 worlds. Thus whilst the dynamic of the investment foreground appears similar, the background is not.
Today, more than ever, the requisite harmony between banking, commerce and the nation is critical, done so set against the prevailing disruptive yet opportunistic winds of macro and micro change.
Beyond the prime aim of assisting in reaching CO2 reduction targets (80% by 2050), surely this is the philosophical remit of the new 'UK Green Investment Bank', such sentiment behind its very ethos, structure, capability and delivery.
Yet, how best to achieve this is the hot-topic of the day, with two ministerial level camps emerging debating the prime aspects of Role & Responsibilities', 'Bank Funding Methods' and 'Marketable Products'.
[NB To the layman recent press reports tend to infer that the split may appear to be over 'free-markets' versus 'overt-interventionist' ideologies*. (See Post Script below). Though as seen by the report, this not in actuality the case given the 'PPP' format the GIB takes].
The devil then instead appears to be in the detail of the recommendations:.
Roles & Responsibilities:
1) To amalgamate and centralise the efforts of CO2 relevant quangos, retaining core skills.
2) To absorb recommendations from the recent National Audit Office Report
3) Further analysis of the role of GIB across the UK and the use of devolved administrations
4) Implications of GIB for Government Policy; esp regards Infrastructure UK.
Funding Methods:
A) Gov't Funding for dispersion of Grants,
B) Operational Funding via Green Bonds, Green ISAs, GIB Debt Fund, Levy on Energy Bills
C) Initial GIB Capitalisation to support A & B, via Private & State-Owned Bank capital injections, Use of Bank Levy and Bank Bonus Taxes, Proceeds from Sale of Government Assets and UK Revenues from EU ETS Auctions.
Financial Products offered:
1) Early Stage Grants,
2) Equity Co-Investment,
3) Wholesale Capital,
4) Mezzanine Debt,
5) Purchase Offers for Competed Renewable Assets,
6) Purchase & Securitisation of Project Finance Loans,
7) Insurance Products,
8) Long-Term Carbon Price Underwriting.
Such debate is of course very necessary as part of a process to exactly hone the very nature of the enterprise. To enable its efficient start-up (via an Act of Parliament) and be capital markets relative and sensitive. It had been hoped that process would have completed by early October, ahead of the Comprehensive Spending Revue, but no so; it is far more important to create the right form of entity than to hit nominal reporting deadlines.
The political and bureaucratic debate will continue, yet whilst creating the right framework for the GIB is vitally important, equally so will be its ability to act as an efficient investment catalyst when formed, in situ and operational.
Critically, the GIB must be seen to be highly intelligent regards the commercialisation fields of eco-tech and eco-service, and not simply as a second-hand recipient of knowledge (right or wrong) from private investor circles. This will of course span the various sub-sectors by which the CO2 reduction task is classified, including atmospheric discharge across: Energy Generation / Domestic / Industrial / Transport etc arenas..
Here, along with other eco-tech spheres, the importance of GIB knowledge regards the UK and global auto-industry will be critical. Knowledge that delves far deeper than the headlines of CO2 discharge responsibility levels. As both an incorporator of self-developed technology, an adopter of transferred technology, aswell as its potential as a tech-disseminator to other sectors, the industry must be recognised as a central enabler and facilitator toward the CO2 reduction ambition.
But behind the emotionally charged rhetoric and diatribe must be objective knowledge to understand the complexity of the issue.
Given the level of 'green-wash' and 'green-mania' previously apparent, the emergence of a green-tech bubble seemed inevitable, indeed investment-auto-motives believes that new entrant players in the western auto-industry today still enjoy a level of press-driven exposure which massages popular perception thus in turn intendedly 'over-drives' a company's market capitalisation levels which by supposed virtue of credibility then attracts government grants. Thus playing the 'capital markets game' which stalls on promises year after year, delivering little to actually 'save the planet', yet maintaining an illusion of progress.
The following cases provide an overview:
Tesla Motor has sold just over 1000 units of an 'eco-bling' novelty car with little functionality which has had a truly miniscule real-world impact, yet vaults its MktCap at near $1.8bn since it IPO'd 12% of the company in mid 2010; all on the promise of tomorrow. A recent SEC release states that it will run a JV with Toyota for a RAV4 EV, a replay of something Toyota did a decade ago which foundered.
At the opposite end of scale, as GM's IPO relisting approaches the new revelation is that Volt is in reality a hybrid vehicle, something that investment-auto-motives always suspected, so as to deliver a tenable car. The Volt hype spanned years, the new revelation thus demonstrates a cynical play on the public's and capital markets' 'naïve green consciousness' to date. Volt as a hybrid is technically and commercially more feasible, but gains no competitive edge versus leaders Toyota or Honda, instead essentially playing slow catch-up to the pack-leaders further the limited in-roads made by hybrid-Siverado, hybrid-Vue, hybrid-Malibu.
Nissan's Leaf EV compact sedan will be coming to market in late 2011/12, essentially trying to follow in the footsteps of the original 1997 Prius, but moving the eco goal-posts further. It too has had enjoyed massive PR exposure, but the reality is that whilst being based on a standard platform (bad technically but good commercially) it will represent only a small fraction of that platform's volume output. As an example the Sunderland UK plant manufactures 400,000 units p.a, exporting four-fifths. The accompanying satellite battery-pack plants set-up have a capacity of 40,000 units, yet it is expected that the first 3 years will see a real average output of 10,000 'married' bodies and packs; so approximately 2.5% of the Nissan factory's output – not (for the foreseeable future) the overnight game-changer that has massaged public understanding, nor indeed has set high-expectations for economic regeneration areas such as Sunderland.
The latter twin of Jaguar Land-Rover has had sporadic in-house access to hybrid technology for nearly 2 decades as part of the then Rover Group and Ford. There was chief engineer discussion regards the cross-brand learning and applicability of Mini Metro based 'series' and 'parallel' hybrid formats. This tech was considered as the ideal solution for Land Rover's military customers, providing little or no 'thermal signature' that could be traced for a vehicle in combat conditions. As to where such efforts sit today is of course confidential.
However, the Jaguar lag in developing an in-house or even bought-in hybrid system for use on XJ and XF has been disappointing. Execs with point to the instability caused by Ford's disposal of Jaguar on R&D policy, and by the financing concerns TATA Group had when it took-on JLR, but in truth Jaguar should have done far more far sooner as part of its own premium brand catch-up strategy.
The XJ LimoGreen project has been operating for some years now, yet even a very recent press article highlights that no introduction date has been identified, only that whilst the 'range-extender' (in reality read hybrid) technology is operative, the question is scale and so component piece price - the chicken and egg cycle. In reality it appears that progress on LimoGreen (which includes Lotus Engineering and Caparo Engineering) accords to the influx of government funds.
Many years ago investment-auto-motives openly recommended that as an interim 'saviour step' Jaguar ought to ally (formally or informally) with Toyota's Lexus to obtain much needed, speedy market differentiation, packaging hybrids into 'more classically sculpted counterparts' to a more contempoary Lexus. Instead Jaguar aesthetically mimicked Lexus in aspects of form and detailing, whilst directing efforts at modern diesels thus severely lagging in the hybrid stakes against the Japanese and relative to hybrid-demanding US, Chinese and Japanese customers. The recent article seems to indicate only more of the same expectancy for TATA-Jaguar to rely on government funds; funds which are now severely restricted.
Such initiatives when well intended and executed are indeed welcome as part of a multi-solution Eco reduction strategy. But it cannot be denied that the reality of CO2 step change will be smaller and more conventional than typically imagined, and primarily concerns ongoing eco-development of the ubiquitous, globally economically integrated and so value-adding, internal combustion engine.
These aforementioned 4 examples of 'tomorrow's world' must be objectively seen to suffer at best from corporate over-statement for brand differentiation, middling a reliance on government funds for eco-progression, and at worst, open to accusations of manipulation of eco-investor enthusiasm.
History illustrates that such investor-directed, auto-sector-disruptive, 'jam-tomorrow' enterprises are by no means without precedent; and every industry has had its cases promising radically new tomorrow's. The important matter today for the UK, the US and Europe is that industry-directed investment funds from whichever sources - institutionals, private equity, SWFs or even hedge funds - must be allied to truly plausible, reduced risk offerings across the vertical value-chain, and in both final product and service realms.
As the catalyst of conventional risk-averse investor consciousness, the new UK Green Investment Bank must demonstrate itself able to see through the 'eco-haze' so as to set UK and global eco-development on a firm footing. GIB must demonstrate its own credibility as an intelligent lender in this undeniably important field.
The long-term ambition of GIB must surely be to move from public ownership to private ownership via a private treaty sale or perhaps floatation in the years to come, when the more radical of the innovations and sub-sectors it backed becomes near mainstream, so leaving plenty of meat on the bone for the latter-day buyer(s).
Thus, it would appear an obvious step forward to provide the UK Green Bank with a 2-step growth path.
Initially, between 2011 and say 2015 limiting itself to the role of 'simple' grant, loan and other basic provider so a stable conduit toward larger eco-commerce, with an accordant in-built level of risk-aversion with perhaps covenant-heavy capital availability that implies. With latterly, 2015 onwards tranche by tranche disposal into private hands, developing as a broader 'sophisticated' products provider. Thus by implication of greater freedoms, broader access to UK and international capital markets, with a seemingly greater level of risk exposure theoretically counter-balanced by a more robust global economy and by then an engrained consumer eco-behaviour that is far less timid, and more exploratory than perhaps today.
Post Script*
To have delineated the new Green Bank as a copy+ of a conventional investment bank, it would have acted as market reactive conduit between the spectrum of capital markets and the commercial end-user. So obtaining liquidity at a market rate (LIBOR, other reactive-rate or bond-rate), and selling-on the available liquidity with either no a given margin, no doubt dependent upon the health of the market 'push', the commercial demand 'pull' and the required demands of the Treasury in its efforts to plug the UK debt deficit. This approach no doubt thus providing a sense of real-world 'eco-commerciality' whilst also demonstrating the UK's desire to be seen as a friend of the capital markets (so assisting credit-ratings) aswell as possibly presenting a Green Investment Bank vehicle / model / format which the UK could promote across the world; itself promoting the innovative spirit of the UK's financial services sector.
In contrast, to have delineated the GIB as simply a re-organised government entity, now with far less though centralised financial muscle, would have led to a sense of even greater incredibility both within Whitehall, but especially across the capital markets and industry / commerce. Yes, it would have no doubt had greater 'non-negotiable' powers regards regulation and interventionism, but interaction with the external business world would have undoubtedly suffered, so in effect pseudo-control without the real power to alter the direction, structure and growth pace of the UK economy].
Thursday, 14 October 2010
Micro-Level Trends – Auto Advertising – The Importance of Message Coherence for Credibility, and so Top & Bottom-Line Profitability
Typically investment-auto-motives provides a helicopter investment perspective towards industry, and whilst comment is made upon product and operations, focus is rarely given to specific areas of the internal 'value-adding' value-chain. Unless of course it has pertinent contribution to a specific period of performance, noted via its quarterly, bi-annual or annual accounts. These typically refer to: input cost changes, new product introductions, levels of plant utilisation efficiency or similar otherwise.
As a change of tack, the following comments upon the internally generated yet externally directed world of advertising, which acts as the consumer-orientated counter-play toward expanding sales, and so the top-line revenue; relative to all internally directed efforts which seek to maximise the differential relative to bottom-line income and residual net and per-share profitability.
Obviously, both sides of the supply-demand equation must work at peak levels to maximise the potential of the auto-firm, yet whilst much has been recently focused on directly measurable input costs (ie sourcing costs, inventory levels, labour costs etc), perhaps less focus – because of its nebular nature - has been directed at marketing, and specifically, the role and success of advertising. An area which has seen much change and given great debate outside of the automotive arena.
Advertising's fortunes have obviously been framed by the fortunes of the western auto-industry at large, but given the old adage that “necessity is the mother of invention” needs to be more thoughtfully considered; at both 'channel' and 'connection' levels. There are still good examples of auto-advertising out there, but equally there has been an increase in poorly directed and/or executed efforts, with blame no doubt apportioned to both parties: auto-client and ad agency.
But first, context:
Since the retraction of stimulus monies the automotive markets of the developed economies have once again dwindled. Up on 2008 lows, but not gaining the traction that many auto execs said the Triad regional markets would.
The contrast in the relative level of cut volume between the US and Europe has been stark, the American domestic players recognising the level of re-structuring needed and taking-out approximately 3 million units annually. Whilst simultaneously, the 'national champion' Europeans have made what appear very conservative contractions, as part of their own politically influenced agendas, expecting domestic buyers to re-inflate their industry once economic strength prevails.
So highly interventionist approaches of respective governments either side of the Atlantic. Yet, although EU contraction has been called for, it is only now that GM-Opel intends to close its Antwerp,Belgian plant after the lack of new investor interest. [NB the plant produces the C-segment Astra model which was only partly boosted by the CO2 car stimulus packages – relative to Corsa - but the platform production of which must now be aligned to true EU & periphery market demand, and take advantage of less costly component supplier options].
Caught between the credit-squeeze and collapsed markets all producers paired-back operating input costs – through supplier and labour re-negotiations – which enabled a financial rebound from Q209 to Q2 2010. However that much needed re-bound, whilst dramatic, was short-lived. This event a natural and foreseeable consequence to what was in reality manipulated US and EU auto-markets. This matter of particular concern to those manufacturers without, or generally less, exposure to broad EM coverage which presently counter-balances flagging home market performance.
The wise players made the most of the 2009/10 boost by conserving cash. Even going so far as to momentarily halt shareholder dividends to help the re-strengthening effort – as seen prominently by Dr Zeitsche at Daimler – for the sake of future growth. Such measured, investor-relative acts applauded by investment-auto-motives. Very recently, even Renault - the prime beneficiary of state interventionism, and so apparent 'anti-capitalism' has re-orientated 180 degrees. By selling its $4.2bn 'B-share' stake in Volvo truck it un-hooks itself from Paris's political expectations, any incumbent labour-relations headwinds and critically demonstrates its commitments to capital markets. This in contrast to GMNA's 'blunder' when it ran US advertisements inferring that GMNA had re-paid its bail-out monies in full. A less than true reflection of the proportionate pay-back reality that reportedly saw monies transferred from one government funded source to another.
Thus today, any economic observer recognises the irony of the situation where within the western automotive environment, the very basics of nationally-aligned classical economic theory has been turned on its head, even if GMNA is fighting hard to re-instate such conditions with its IPO.
Yet today, beyond the shallowness of any political figure-pointing and cat-calling, at the operational coal-face, western auto-makers are having to once again pair-back to the bone any non-core overhead costs whilst simultaneously seeking revenue maximisation, so as to try and maintain at least a modicum of the re-buoyed profit margins (or indeed reduced losses) recently enjoyed.
In what is a savage marketplace, this means that corporate brands and their vehicle-lines are having to vie for share of mind with the hope that it translates to eventual share of market. Of course, prior to potential buyers actually gaining a close-up view of a vehicle itself in the showroom, a broader public perception must be moulded across the popular consciousness to attract people onto corporate web-sites and into showrooms.
Populist advertising in all its forms – above the line, below the line, direct and now viral – by far plays the biggest role.
[NB However, alternative 'perception massagers' have re-emerged beyond the now crude efforts of obvious product placement in the media. The most notable being Ford UK's use of the film 'Made in Dagenham'. It uses a plot-line (ie message platform) which has contemporary relevance by juxtaposing the very real needs for UK industrial cost re-alignment in the mid 1960s alongside the changing nature of labour relations – the former very much in the background, whilst the latter sits very much in the foreground. Yet it is a feel-good movie which ultimately has a positive rub-off effect on the Ford persona, seen to be at the vanguard of 'fair' labour-relations negotiations, an important persona to hold if Ford intends to continue its investment levels in the UK, at Dagenham (now solely an engine plant) and elsewhere].
But as stated, by far the greatest 'immediate-effect' influence is typical car advertising. It spans a myriad of strategic and tactical aims, depending upon the corporation, the economic climate, competitor actions, etc etc. That spectrum of far-reach, medium-term and immediate objectives is of course governed by a host of internal issues, perhaps the most important of which is the 'stretch' and impact of what are in reality – and by historical standards – anemic marketing budgets, often necessitating less regionality and more generality. A complaint you'll hear in the advertising world itself, as the creative envelope for regional or national nuance is reduced, and so supposedly the adverts impact/
Even though TV continued to convey the heady days of early 1960s MadMen - living an Upper East-Side lifestyle further down-town on Madison Avenue, the 2010 western reality is very, very different. Advertising executives and account-handlers may well thanking the fact that a plethora of media-entrenched trendy 20-somethings still see the role as an 'advertising creatives' as 'it'; since the laws of supply and demand obviously hold true in employee selection and pay-levels.
So, the erosion of corporate budgets should not automatically mean a reduction in creativity and so consumer impact. Yet whether by virtue of risk-averse corporate clients or indeed risk-averse advertising executives, the attraction and impact of much automotive advertising has lessened and indeed in certain instances become almost generic to TV advertising themes in general for all kinds of products and services.
As such it is not surprising when adverts are remembered for their graphics or music, but consumer recollection of the thing actually being advertised is poor. The importance of brand/product message relative to the creative execution is of course all important.
As such the following looks at various vehicle TV adverts recently shown in the UK, highlighting from (by subjective standards) most successful to least successful.
The Good:
VW Brand:
At what are cost-conscious, risk averse times, VW has maintained a focus on its historical key brand values. Volkswagen UK has pushed its Golf and Polo advertising by focusing on both price and reputation, and closely cross-relating the TV campaign with Bill-Board campaign; therefor creating the circularity of a simple message.
The TV advert shows a bill-board poster operative attaching the fly-sheets and telephoning his boss to questioning the last one (highlighting the price) to be pasted. To him it is an anomaly and cannot believe that the price is right given the brand. Besides highlighting the obvious apparent cost-saving, the very fact that the advert uses a bill-board means that there is a direct cross-relate for viewers when they indeed see the real world bill-boards.
Hence a merging of the virtual and real advertising realms, which re-enforces the central message that VW offers an affordable level of high quality: a central message that is deeply engrained within the brand's history for intelligence and rationality. Moreover, the questioning nature of the central character reflects the general state of mind of consumers today, seeking-out a rational, value-based truth that drives the purchase process in such times.
Thus a price led campaign for what is seen as perhaps the most emotionally and financially stable of automotive vehicle purchases, and as such re-crystallises and re-ratifies the engrained cultural understanding of VW.
Mini SAV (“Countryman”):
This advert immediately gains by the fact that the car is essentially new. Although seen as a derivative model from the Mini family, it shares platform parts with BMW's X1, and its product positioning demonstrates itself to be so removed from Clubman that it is indeed an all new car. – the first ever conventional 5 door Mini given additional differentiation by being a city SUV/SAV; and popularly coined as “Countryman” though this badge does not appear on the car.
Yet within the initial UK advert although prominent the car is not the star as such.
It is the hyper-real visual setting of young, fashion conscious, ironically mud-averse city-dwellers, 'playing' in a green field with the backdrop of Canary Wharf. The ad-agency seems to have encapsulated the ideology of the 'city-farm' and transposes it over the car and the people. This is the opposite of old-world SUV advertising by the likes of Land-Rover which, by the nature of the origins of its products, previously aligned itself with the true country-side and broader world adventurism (safari, jungle etc), with at most the correlate of weekday city and weekend country-escape.
Mini playfully shows the ironic reality that purveys the reality of a limited off-road yet trendy citySUV; the flip-side (indeed “flippant side”) of the 4WD notion previously conveyed with 'old-money' overtones and the overlaying the countryside dream.
Here BMW does well in creating and re-enforcing the idea of the car's use as a psychological escape machine rather than a truly physical one. Unlike the former poor Mini advertising - 'Mini Adventure' - which was ill conceived from the brand's birth and ran on far too long – the product itself doing much of the marketing 'heavy-lifting' - this vehicle specific advert recognises the irony and plays upon the satire and humour of the car and indeed the self-recognition withing the potential buyers own lifestyle.
This advert echoes the character of the car which in turn echoes the character of hyper-fantasist urban consumerism; yet shows a conscious cultural depth via its self-mockery, which will resonate with a percentage of culture-literate Mini All4 buyers.
Audi R8 Spyder:
This advert for Audi's comfortable supercar, plays upon the central idea of (technical) juxtaposition, which imbues the old “Vorsprung Durch Technik” (“Advancement through Technology”).
It sets the overtone of yesteryear technology in the form of oil-dripping, noisy, Stock-Car Hot-Rods raging in frantic, uncontrolled chaos within the background of an all-white 'clean' arena. So presenting a philosophical contrast of today's 'dirty car' set within the need for a clean eco-friendly environment. The noise abates and into the chaos enters a serene white R8 - an obvious alignment/allegory to its clean surroundings, which masterfully dodges the 'dinosaur pack', and is accompanied by an angelic choral audio track. Having beaten the crowd it comes to rest with the tag-line “mirror, signal, out-manoeuvre”, once again referencing its acknowledgement of the changing face of (super)car motoring”.
This well considered advert, unlike many obvious 'mainstream lifestyle' efforts, highlights the R8 product itself in a very different ethereal setting.. All the cars have no driver, and so have lives of their own which adds to the contrast in personalities between the crowd and the Audi. Given the price-point of the car, the alternative and intelligent execution is refreshing, so reflecting the higher cerebral and emotional expectancies of its target audience, yet also mesmerising the mainstream which has a VW Group rub-off to VW cars.
[NB Interestingly, the vast white arena is populated with colourful cars also has overtones of an art gallery, and its walls and doors carry painted alpha-numeric position codes (eg B9), which reflects not just an space-futurism but also infers chess-board positions so a competitive edge, aswell as mimicking the alpha-numeric code Audi uses (eg R8). The driverless 'angry' cars also culturally reference the 1974 film 'The Cars that Ate Paris' which highlights a destructive localised automotive economy ].
The Average:
Nissan Juke:
This new B-segment citySUV was initiallyyyy introduced to the UK public by using the effective segway of a sign-off message for Juke when advertising the facelifted version of its larger sibling 'Qashqai'.It was given a colourful mischievous personality reflective of its more radical styling and youth.
The dedicated 'Little Star' advert uses the now near cliché of an empty urban night-time backdrop to present a context of 'otherness', with use of neon and fluorescent flicker-stark lighting to provide a jarring yet ethereal effect indicating the world waking-up to Juke's arrival. The use of Gen'Y' / Gen 'A' 'clubbing' characters are seen heading home after a night out, the with the 'safe come-down' psychological effect of the slowly paced female vocalised 'twinkle twinkle little star' soundtrack. It cross-references to toy cars, bunnies and the like aswell as public transport. All together trying to effect a message of offering diverse, uber-cool city lifestyle combined with pyschological security and connection references to childhood and thus 'safe-playfulness'. This diverse milieu of effects intended to draw in different demographic groups at various life-stages, but particularly pointed to young families where the parents wish to remain fashionable, couples and singleton buyers that seek the life-affirming idea of 'exciting but safe'.
To this end the advert diverges from the product's initial characterisation alongside Qashqai, though seen to be necessarily progressive. But the contextual references are cliched, and indeed mixed.
Ford Fiesta:
The 'This is Now' campaign has been running for a few years now, as part of the Fiesta's need to grow its female and young couple target demographic. The July forward advert primarily shows a montage of interesting excerpts of a young couple's life, interposed by periodic thru-windscreen shots of the couple inside the car, inferring that it is the 'lifestyle enabler'.
By using supposedly jerky time-lapse cinema-photography and other surrealist efforts, the advert references certain 1980s pop videos by the likes of Talking Heads, this itself based on the recent '80's' cultural phenomenon playing out at street-level in London and elsewhere in the UK (Boy George and Marilyn look-a-likes abound in the West End!)
Ultimately the advert mentally connects to its target demographic by virtue of its formulaic component ingredients, but as with so many adverts, the medium and not the product ends up as the central message.
This is not surprising given that Fiesta has such a broad customer base, from targeting provincial 20-somethings that see themselves as London Trendies, to rationally motivated German pensioners to Mexican young families and far beyond. So the persona of the product is manufactured via targeted advertising relative to region and buyer-type. This the typical character of much 'global goods' advertising.
The Bad:
Kia '7 Year Warranty':
Hyundai owned Kia provides the 'value-conscious' portion of the Hyundai-Kia equation. Thus is vehicles are, though far better than previously, still bought for cost and function reasons, a raison d'etre well understood by Kia UK. To maintain its competitiveness in this harsh field, Kia extended its new car warranty to 7 years, thus demonstrably longer than European or Japanese peers.
Such a simple yet powerful brand message obviously does not require a convoluted advert, yet to bolster brand equity should be executed both conceptually and visually with aplomb.
Unfortunately, the 'Leading Thinkers' advert does neither. Supposedly humourous, it uses brainiac academics and scientists sat in an auditorium to see and state the obvious and see the light. But it is a parody that does not really 'carry', and as such was a lost opportunity for Kia. Undoubtedly the central simple message of a 7-year warranty will drive more foot-flow through dealerships, but little additional brand-building has been accomplished, which is a shame given the exploratory efforts and ground gained that vehicles such as the unconventional Soul have achieved.
This was a prime opportunity to visually demonstrate why Kia has true belief in its product's engineering integrity which enables the long-life warranty. Whether scientifically explained or just creatively inferred, much more could have been done to align what are obvious multi-issue corporate objectives.
Ultimately it seems an obvious case of limited budget allocation, or poor project direction and/or limited creative solution provision. No matter which, this advert reflects a low-tide level of corporate and agency interaction.
The Ugly
SAAB 9-5:
SAAB was always seen as the poor cousin under GM stewardship, but now has been taken over by The Dutch firm Spyker, under a broader holding company. Prior to the GM disposal, SAAB was touting its re-invention with new era concept cars, the new owners presumably providing greater management freedoms at Trollhatten to achieve their aim of a differentiated premium car brand that can grow UK and global sales. Thus, the recent UK ad campaign should have publicised the intent and ability to offer the exec car market something new and meaningful, at brand and vehicle levels.
Unfortunately the advert, set in an unconvincingly stylised old drawing office layout, consists of the formulaic depictions of leaves and sky, a paper plane (referencing SAAB's past but lost on most), with 'brand value' words of : “power”, “heritage”, “inspiration” shown. Generally a weak brand and product message. (However, even the ad-director / agency thinks its being clever by giving the paper-planes a sound-track with the lyrics “I've got stories you don't know”. Almost an in-joke on the public, for the art-director community that is designed to win ad-direction awards as opposed to sell a powerful purchase convincing message to the public. The sign-off is “Anything but Ordinary”, when infact the advert is very much that.
Ultimately it tries to be too clever for its own good and as a result dismally fails in conveying what should be an important message and so fails the corporate client.
This should be of major concern to SAAB UK, Trollatten HQ, Spyker Cars and the parent holding company that is trying to rebuild the brand and Swedish company.
Conclusion
The very nature of what has been a near century of a media-led world means that the presented imagery forges citizens' own perceptions, understandings and ultimately experiences of the man-made world around them. The idea of 'hyper-reality' and simulacrumhas become so engrained in popularist understanding that they have become central tenants of the very world that is newly created; as initially seen by re-made films, to recycled fashion ideas, to the merging of physical & cyber realms via console game play, to products that are self referential their classic origins – as seen with VW Beetle, BMW Mini, FIAT 500 in product form and Citroen DS in brand form.
As many have noted, the western world has been post-modern (ie the re-played use of eclectic and re-invented sources) for many decades
As such it would be only natural to believe that the once diverse realms of profit-driven commercialism and exploratory creativity have co-coalesced. And in some sense they have, even it be in a very formulaic sense when devising vehicle products and then marketing/advertising them. Indeed, the process itself should theoretically deliver consumer-directed, high-appeal products, are immediate hits and profit maximisers.
In one way the commercial creative world of various creatively interactive disciplines are thought to be closer than ever, after all, all the 'Gen Yers' and 'Gen Aers' working are from the same cultural background as so should share mutual outlooks. But equally so the level of progressive originality has arguably dissipated, into something less and less meaningful to culture-savvy audiences and consumer groups.
This means that the general consumer / automotive world is a very different to the one which created the iconic long-live products and ad campaigns of the past, and as seen over the last 40 years advertising has played an increasingly important role to massage lifestyle and aspirational perceptions when the very offering of the product itself is less and less understood and so meaningful. Consumer's beliefs and expectations are filtered through the 'media machine', in stark contrast to the hands-on experience of say a 1950s car magazine, the annual Motorshow and the local dealer showroom.
That multi-level media complexity relative to the different buyer-types is what needs to be properly understood and controlled by automotive executives and their senior managers, and is a very pertinent aspect of how investors themselves should assess the management capability of any auto-firm.
Such good appreciation is evident in the echoed simplicity of VW's adverts which exactly 'hit the spot' of consumer consciousness today, whilst at the other extreme, SAAB's generic advert ultimately performs very little service whatsoever for a re-capitalised, reborn firm that is supposed to be the very antithesis of the generic, homogenous consumer durable.
This is part of the reason why the large yet well-controlled VW (with Audi) holds its place as an investor favourite, and why SAAB must dramatically sharpen-up its outward appearance and character via Ad-Land, if its new era is to truly make its mark amongst the premium Euro-set.
Long gone are yesteryear days of Issigonis philosophically considered Mini, designed for practical needs of a mobility-hungry nation focused on the 'magic enabling mechanism' of the car itself.
50 years on the world is very different, even for new mobility nations. And as such, today's “Twinkle Twinkle Little Star” evocation of the Sunderland build Nissan Juke, represents a very average effort by a risk-averse client and ad-agency to generate target-buyer attention for what has ultimately become a relatively short-lived, consumer durable. Juke has gained popularity and should continue to do well in the UK and abroad thanks to its styling.
But such efforts represents an auto-dream for the individual, public at large and the client corporation. It must be constructive and compelling, and not represent something that is self-directed, self-congratulatory and open to accusations of self-aggrandisement. Its real remit to generate car purchase motives a long long time ago.
Of the 7 very short case-studies presented, 4 fail in their remit. Whilst 2 of the best 3 are from the same corporation though reflecting very different vehicle types and ad campaigns. The failed 4 show mediocre and possible mis-management at corporate and agency level, whilst the best 3 illustrate harmony of the process.
Today, more than ever the auto-industry is about “the money” given the fact that the western world is about 'the economy stupid!”. That means ever clearer lines of strategic assessment and expanded due-diligence will be drawn by investors as to how to deeply judge car-makers across the full spectrum of their internal value-chains and their outwardly directed efforts.
And at a time when a single mainstream vehicle programme costs over $1.5bn just to engineer, this figure excluding massive overhead costs and major additional marketing & advertising costs, the onus is to get the strategic and operational formulae exactly right to maintain investor's interest.
Moreover, this 'game' is critical to the very health of national and international economies, so little margin for error. Thus a billion and one reasons to get it right.
As a change of tack, the following comments upon the internally generated yet externally directed world of advertising, which acts as the consumer-orientated counter-play toward expanding sales, and so the top-line revenue; relative to all internally directed efforts which seek to maximise the differential relative to bottom-line income and residual net and per-share profitability.
Obviously, both sides of the supply-demand equation must work at peak levels to maximise the potential of the auto-firm, yet whilst much has been recently focused on directly measurable input costs (ie sourcing costs, inventory levels, labour costs etc), perhaps less focus – because of its nebular nature - has been directed at marketing, and specifically, the role and success of advertising. An area which has seen much change and given great debate outside of the automotive arena.
Advertising's fortunes have obviously been framed by the fortunes of the western auto-industry at large, but given the old adage that “necessity is the mother of invention” needs to be more thoughtfully considered; at both 'channel' and 'connection' levels. There are still good examples of auto-advertising out there, but equally there has been an increase in poorly directed and/or executed efforts, with blame no doubt apportioned to both parties: auto-client and ad agency.
But first, context:
Since the retraction of stimulus monies the automotive markets of the developed economies have once again dwindled. Up on 2008 lows, but not gaining the traction that many auto execs said the Triad regional markets would.
The contrast in the relative level of cut volume between the US and Europe has been stark, the American domestic players recognising the level of re-structuring needed and taking-out approximately 3 million units annually. Whilst simultaneously, the 'national champion' Europeans have made what appear very conservative contractions, as part of their own politically influenced agendas, expecting domestic buyers to re-inflate their industry once economic strength prevails.
So highly interventionist approaches of respective governments either side of the Atlantic. Yet, although EU contraction has been called for, it is only now that GM-Opel intends to close its Antwerp,Belgian plant after the lack of new investor interest. [NB the plant produces the C-segment Astra model which was only partly boosted by the CO2 car stimulus packages – relative to Corsa - but the platform production of which must now be aligned to true EU & periphery market demand, and take advantage of less costly component supplier options].
Caught between the credit-squeeze and collapsed markets all producers paired-back operating input costs – through supplier and labour re-negotiations – which enabled a financial rebound from Q209 to Q2 2010. However that much needed re-bound, whilst dramatic, was short-lived. This event a natural and foreseeable consequence to what was in reality manipulated US and EU auto-markets. This matter of particular concern to those manufacturers without, or generally less, exposure to broad EM coverage which presently counter-balances flagging home market performance.
The wise players made the most of the 2009/10 boost by conserving cash. Even going so far as to momentarily halt shareholder dividends to help the re-strengthening effort – as seen prominently by Dr Zeitsche at Daimler – for the sake of future growth. Such measured, investor-relative acts applauded by investment-auto-motives. Very recently, even Renault - the prime beneficiary of state interventionism, and so apparent 'anti-capitalism' has re-orientated 180 degrees. By selling its $4.2bn 'B-share' stake in Volvo truck it un-hooks itself from Paris's political expectations, any incumbent labour-relations headwinds and critically demonstrates its commitments to capital markets. This in contrast to GMNA's 'blunder' when it ran US advertisements inferring that GMNA had re-paid its bail-out monies in full. A less than true reflection of the proportionate pay-back reality that reportedly saw monies transferred from one government funded source to another.
Thus today, any economic observer recognises the irony of the situation where within the western automotive environment, the very basics of nationally-aligned classical economic theory has been turned on its head, even if GMNA is fighting hard to re-instate such conditions with its IPO.
Yet today, beyond the shallowness of any political figure-pointing and cat-calling, at the operational coal-face, western auto-makers are having to once again pair-back to the bone any non-core overhead costs whilst simultaneously seeking revenue maximisation, so as to try and maintain at least a modicum of the re-buoyed profit margins (or indeed reduced losses) recently enjoyed.
In what is a savage marketplace, this means that corporate brands and their vehicle-lines are having to vie for share of mind with the hope that it translates to eventual share of market. Of course, prior to potential buyers actually gaining a close-up view of a vehicle itself in the showroom, a broader public perception must be moulded across the popular consciousness to attract people onto corporate web-sites and into showrooms.
Populist advertising in all its forms – above the line, below the line, direct and now viral – by far plays the biggest role.
[NB However, alternative 'perception massagers' have re-emerged beyond the now crude efforts of obvious product placement in the media. The most notable being Ford UK's use of the film 'Made in Dagenham'. It uses a plot-line (ie message platform) which has contemporary relevance by juxtaposing the very real needs for UK industrial cost re-alignment in the mid 1960s alongside the changing nature of labour relations – the former very much in the background, whilst the latter sits very much in the foreground. Yet it is a feel-good movie which ultimately has a positive rub-off effect on the Ford persona, seen to be at the vanguard of 'fair' labour-relations negotiations, an important persona to hold if Ford intends to continue its investment levels in the UK, at Dagenham (now solely an engine plant) and elsewhere].
But as stated, by far the greatest 'immediate-effect' influence is typical car advertising. It spans a myriad of strategic and tactical aims, depending upon the corporation, the economic climate, competitor actions, etc etc. That spectrum of far-reach, medium-term and immediate objectives is of course governed by a host of internal issues, perhaps the most important of which is the 'stretch' and impact of what are in reality – and by historical standards – anemic marketing budgets, often necessitating less regionality and more generality. A complaint you'll hear in the advertising world itself, as the creative envelope for regional or national nuance is reduced, and so supposedly the adverts impact/
Even though TV continued to convey the heady days of early 1960s MadMen - living an Upper East-Side lifestyle further down-town on Madison Avenue, the 2010 western reality is very, very different. Advertising executives and account-handlers may well thanking the fact that a plethora of media-entrenched trendy 20-somethings still see the role as an 'advertising creatives' as 'it'; since the laws of supply and demand obviously hold true in employee selection and pay-levels.
So, the erosion of corporate budgets should not automatically mean a reduction in creativity and so consumer impact. Yet whether by virtue of risk-averse corporate clients or indeed risk-averse advertising executives, the attraction and impact of much automotive advertising has lessened and indeed in certain instances become almost generic to TV advertising themes in general for all kinds of products and services.
As such it is not surprising when adverts are remembered for their graphics or music, but consumer recollection of the thing actually being advertised is poor. The importance of brand/product message relative to the creative execution is of course all important.
As such the following looks at various vehicle TV adverts recently shown in the UK, highlighting from (by subjective standards) most successful to least successful.
The Good:
VW Brand:
At what are cost-conscious, risk averse times, VW has maintained a focus on its historical key brand values. Volkswagen UK has pushed its Golf and Polo advertising by focusing on both price and reputation, and closely cross-relating the TV campaign with Bill-Board campaign; therefor creating the circularity of a simple message.
The TV advert shows a bill-board poster operative attaching the fly-sheets and telephoning his boss to questioning the last one (highlighting the price) to be pasted. To him it is an anomaly and cannot believe that the price is right given the brand. Besides highlighting the obvious apparent cost-saving, the very fact that the advert uses a bill-board means that there is a direct cross-relate for viewers when they indeed see the real world bill-boards.
Hence a merging of the virtual and real advertising realms, which re-enforces the central message that VW offers an affordable level of high quality: a central message that is deeply engrained within the brand's history for intelligence and rationality. Moreover, the questioning nature of the central character reflects the general state of mind of consumers today, seeking-out a rational, value-based truth that drives the purchase process in such times.
Thus a price led campaign for what is seen as perhaps the most emotionally and financially stable of automotive vehicle purchases, and as such re-crystallises and re-ratifies the engrained cultural understanding of VW.
Mini SAV (“Countryman”):
This advert immediately gains by the fact that the car is essentially new. Although seen as a derivative model from the Mini family, it shares platform parts with BMW's X1, and its product positioning demonstrates itself to be so removed from Clubman that it is indeed an all new car. – the first ever conventional 5 door Mini given additional differentiation by being a city SUV/SAV; and popularly coined as “Countryman” though this badge does not appear on the car.
Yet within the initial UK advert although prominent the car is not the star as such.
It is the hyper-real visual setting of young, fashion conscious, ironically mud-averse city-dwellers, 'playing' in a green field with the backdrop of Canary Wharf. The ad-agency seems to have encapsulated the ideology of the 'city-farm' and transposes it over the car and the people. This is the opposite of old-world SUV advertising by the likes of Land-Rover which, by the nature of the origins of its products, previously aligned itself with the true country-side and broader world adventurism (safari, jungle etc), with at most the correlate of weekday city and weekend country-escape.
Mini playfully shows the ironic reality that purveys the reality of a limited off-road yet trendy citySUV; the flip-side (indeed “flippant side”) of the 4WD notion previously conveyed with 'old-money' overtones and the overlaying the countryside dream.
Here BMW does well in creating and re-enforcing the idea of the car's use as a psychological escape machine rather than a truly physical one. Unlike the former poor Mini advertising - 'Mini Adventure' - which was ill conceived from the brand's birth and ran on far too long – the product itself doing much of the marketing 'heavy-lifting' - this vehicle specific advert recognises the irony and plays upon the satire and humour of the car and indeed the self-recognition withing the potential buyers own lifestyle.
This advert echoes the character of the car which in turn echoes the character of hyper-fantasist urban consumerism; yet shows a conscious cultural depth via its self-mockery, which will resonate with a percentage of culture-literate Mini All4 buyers.
Audi R8 Spyder:
This advert for Audi's comfortable supercar, plays upon the central idea of (technical) juxtaposition, which imbues the old “Vorsprung Durch Technik” (“Advancement through Technology”).
It sets the overtone of yesteryear technology in the form of oil-dripping, noisy, Stock-Car Hot-Rods raging in frantic, uncontrolled chaos within the background of an all-white 'clean' arena. So presenting a philosophical contrast of today's 'dirty car' set within the need for a clean eco-friendly environment. The noise abates and into the chaos enters a serene white R8 - an obvious alignment/allegory to its clean surroundings, which masterfully dodges the 'dinosaur pack', and is accompanied by an angelic choral audio track. Having beaten the crowd it comes to rest with the tag-line “mirror, signal, out-manoeuvre”, once again referencing its acknowledgement of the changing face of (super)car motoring”.
This well considered advert, unlike many obvious 'mainstream lifestyle' efforts, highlights the R8 product itself in a very different ethereal setting.. All the cars have no driver, and so have lives of their own which adds to the contrast in personalities between the crowd and the Audi. Given the price-point of the car, the alternative and intelligent execution is refreshing, so reflecting the higher cerebral and emotional expectancies of its target audience, yet also mesmerising the mainstream which has a VW Group rub-off to VW cars.
[NB Interestingly, the vast white arena is populated with colourful cars also has overtones of an art gallery, and its walls and doors carry painted alpha-numeric position codes (eg B9), which reflects not just an space-futurism but also infers chess-board positions so a competitive edge, aswell as mimicking the alpha-numeric code Audi uses (eg R8). The driverless 'angry' cars also culturally reference the 1974 film 'The Cars that Ate Paris' which highlights a destructive localised automotive economy ].
The Average:
Nissan Juke:
This new B-segment citySUV was initiallyyyy introduced to the UK public by using the effective segway of a sign-off message for Juke when advertising the facelifted version of its larger sibling 'Qashqai'.It was given a colourful mischievous personality reflective of its more radical styling and youth.
The dedicated 'Little Star' advert uses the now near cliché of an empty urban night-time backdrop to present a context of 'otherness', with use of neon and fluorescent flicker-stark lighting to provide a jarring yet ethereal effect indicating the world waking-up to Juke's arrival. The use of Gen'Y' / Gen 'A' 'clubbing' characters are seen heading home after a night out, the with the 'safe come-down' psychological effect of the slowly paced female vocalised 'twinkle twinkle little star' soundtrack. It cross-references to toy cars, bunnies and the like aswell as public transport. All together trying to effect a message of offering diverse, uber-cool city lifestyle combined with pyschological security and connection references to childhood and thus 'safe-playfulness'. This diverse milieu of effects intended to draw in different demographic groups at various life-stages, but particularly pointed to young families where the parents wish to remain fashionable, couples and singleton buyers that seek the life-affirming idea of 'exciting but safe'.
To this end the advert diverges from the product's initial characterisation alongside Qashqai, though seen to be necessarily progressive. But the contextual references are cliched, and indeed mixed.
Ford Fiesta:
The 'This is Now' campaign has been running for a few years now, as part of the Fiesta's need to grow its female and young couple target demographic. The July forward advert primarily shows a montage of interesting excerpts of a young couple's life, interposed by periodic thru-windscreen shots of the couple inside the car, inferring that it is the 'lifestyle enabler'.
By using supposedly jerky time-lapse cinema-photography and other surrealist efforts, the advert references certain 1980s pop videos by the likes of Talking Heads, this itself based on the recent '80's' cultural phenomenon playing out at street-level in London and elsewhere in the UK (Boy George and Marilyn look-a-likes abound in the West End!)
Ultimately the advert mentally connects to its target demographic by virtue of its formulaic component ingredients, but as with so many adverts, the medium and not the product ends up as the central message.
This is not surprising given that Fiesta has such a broad customer base, from targeting provincial 20-somethings that see themselves as London Trendies, to rationally motivated German pensioners to Mexican young families and far beyond. So the persona of the product is manufactured via targeted advertising relative to region and buyer-type. This the typical character of much 'global goods' advertising.
The Bad:
Kia '7 Year Warranty':
Hyundai owned Kia provides the 'value-conscious' portion of the Hyundai-Kia equation. Thus is vehicles are, though far better than previously, still bought for cost and function reasons, a raison d'etre well understood by Kia UK. To maintain its competitiveness in this harsh field, Kia extended its new car warranty to 7 years, thus demonstrably longer than European or Japanese peers.
Such a simple yet powerful brand message obviously does not require a convoluted advert, yet to bolster brand equity should be executed both conceptually and visually with aplomb.
Unfortunately, the 'Leading Thinkers' advert does neither. Supposedly humourous, it uses brainiac academics and scientists sat in an auditorium to see and state the obvious and see the light. But it is a parody that does not really 'carry', and as such was a lost opportunity for Kia. Undoubtedly the central simple message of a 7-year warranty will drive more foot-flow through dealerships, but little additional brand-building has been accomplished, which is a shame given the exploratory efforts and ground gained that vehicles such as the unconventional Soul have achieved.
This was a prime opportunity to visually demonstrate why Kia has true belief in its product's engineering integrity which enables the long-life warranty. Whether scientifically explained or just creatively inferred, much more could have been done to align what are obvious multi-issue corporate objectives.
Ultimately it seems an obvious case of limited budget allocation, or poor project direction and/or limited creative solution provision. No matter which, this advert reflects a low-tide level of corporate and agency interaction.
The Ugly
SAAB 9-5:
SAAB was always seen as the poor cousin under GM stewardship, but now has been taken over by The Dutch firm Spyker, under a broader holding company. Prior to the GM disposal, SAAB was touting its re-invention with new era concept cars, the new owners presumably providing greater management freedoms at Trollhatten to achieve their aim of a differentiated premium car brand that can grow UK and global sales. Thus, the recent UK ad campaign should have publicised the intent and ability to offer the exec car market something new and meaningful, at brand and vehicle levels.
Unfortunately the advert, set in an unconvincingly stylised old drawing office layout, consists of the formulaic depictions of leaves and sky, a paper plane (referencing SAAB's past but lost on most), with 'brand value' words of : “power”, “heritage”, “inspiration” shown. Generally a weak brand and product message. (However, even the ad-director / agency thinks its being clever by giving the paper-planes a sound-track with the lyrics “I've got stories you don't know”. Almost an in-joke on the public, for the art-director community that is designed to win ad-direction awards as opposed to sell a powerful purchase convincing message to the public. The sign-off is “Anything but Ordinary”, when infact the advert is very much that.
Ultimately it tries to be too clever for its own good and as a result dismally fails in conveying what should be an important message and so fails the corporate client.
This should be of major concern to SAAB UK, Trollatten HQ, Spyker Cars and the parent holding company that is trying to rebuild the brand and Swedish company.
Conclusion
The very nature of what has been a near century of a media-led world means that the presented imagery forges citizens' own perceptions, understandings and ultimately experiences of the man-made world around them. The idea of 'hyper-reality' and simulacrumhas become so engrained in popularist understanding that they have become central tenants of the very world that is newly created; as initially seen by re-made films, to recycled fashion ideas, to the merging of physical & cyber realms via console game play, to products that are self referential their classic origins – as seen with VW Beetle, BMW Mini, FIAT 500 in product form and Citroen DS in brand form.
As many have noted, the western world has been post-modern (ie the re-played use of eclectic and re-invented sources) for many decades
As such it would be only natural to believe that the once diverse realms of profit-driven commercialism and exploratory creativity have co-coalesced. And in some sense they have, even it be in a very formulaic sense when devising vehicle products and then marketing/advertising them. Indeed, the process itself should theoretically deliver consumer-directed, high-appeal products, are immediate hits and profit maximisers.
In one way the commercial creative world of various creatively interactive disciplines are thought to be closer than ever, after all, all the 'Gen Yers' and 'Gen Aers' working are from the same cultural background as so should share mutual outlooks. But equally so the level of progressive originality has arguably dissipated, into something less and less meaningful to culture-savvy audiences and consumer groups.
This means that the general consumer / automotive world is a very different to the one which created the iconic long-live products and ad campaigns of the past, and as seen over the last 40 years advertising has played an increasingly important role to massage lifestyle and aspirational perceptions when the very offering of the product itself is less and less understood and so meaningful. Consumer's beliefs and expectations are filtered through the 'media machine', in stark contrast to the hands-on experience of say a 1950s car magazine, the annual Motorshow and the local dealer showroom.
That multi-level media complexity relative to the different buyer-types is what needs to be properly understood and controlled by automotive executives and their senior managers, and is a very pertinent aspect of how investors themselves should assess the management capability of any auto-firm.
Such good appreciation is evident in the echoed simplicity of VW's adverts which exactly 'hit the spot' of consumer consciousness today, whilst at the other extreme, SAAB's generic advert ultimately performs very little service whatsoever for a re-capitalised, reborn firm that is supposed to be the very antithesis of the generic, homogenous consumer durable.
This is part of the reason why the large yet well-controlled VW (with Audi) holds its place as an investor favourite, and why SAAB must dramatically sharpen-up its outward appearance and character via Ad-Land, if its new era is to truly make its mark amongst the premium Euro-set.
Long gone are yesteryear days of Issigonis philosophically considered Mini, designed for practical needs of a mobility-hungry nation focused on the 'magic enabling mechanism' of the car itself.
50 years on the world is very different, even for new mobility nations. And as such, today's “Twinkle Twinkle Little Star” evocation of the Sunderland build Nissan Juke, represents a very average effort by a risk-averse client and ad-agency to generate target-buyer attention for what has ultimately become a relatively short-lived, consumer durable. Juke has gained popularity and should continue to do well in the UK and abroad thanks to its styling.
But such efforts represents an auto-dream for the individual, public at large and the client corporation. It must be constructive and compelling, and not represent something that is self-directed, self-congratulatory and open to accusations of self-aggrandisement. Its real remit to generate car purchase motives a long long time ago.
Of the 7 very short case-studies presented, 4 fail in their remit. Whilst 2 of the best 3 are from the same corporation though reflecting very different vehicle types and ad campaigns. The failed 4 show mediocre and possible mis-management at corporate and agency level, whilst the best 3 illustrate harmony of the process.
Today, more than ever the auto-industry is about “the money” given the fact that the western world is about 'the economy stupid!”. That means ever clearer lines of strategic assessment and expanded due-diligence will be drawn by investors as to how to deeply judge car-makers across the full spectrum of their internal value-chains and their outwardly directed efforts.
And at a time when a single mainstream vehicle programme costs over $1.5bn just to engineer, this figure excluding massive overhead costs and major additional marketing & advertising costs, the onus is to get the strategic and operational formulae exactly right to maintain investor's interest.
Moreover, this 'game' is critical to the very health of national and international economies, so little margin for error. Thus a billion and one reasons to get it right.
Thursday, 30 September 2010
Company Focus – General Motors – How the NOMAD MEN will be Targeting Additional Buyers for the IPO Roadshow
Recent press releases at long last demonstrate that fact that the US Treasury must temper its ambitions regards the innate sale value of GM's first IPO tranch. Intended to raise between $10-20bn, recent murmurings highlight that the figure could be lower.
The standard below-par offer sits at between -5% to -8% the nominal face-value of a released stock, so as to try and ensure the 'early-bird' investors see a positive short-term gain. At extremes, there are reported views that GM's stock may have to be presented at up to -30% face-value.
Such an event would make a mockery of the floatation, and has set-off alarm bells for the UAW trustees and Canadian government, who would rather release their respective portions when improved market conditions assure recoup of original respective 'debt-swap' and 'bail-out' expenditures.
Thus the US Treasury would be the only seller, and itself caught between a rock and a hard place, between being seen to recapture a portion of the tax-payer funded $61bn GM package and the possibility of seeing proportionate value-destruction.
That $61bn sum of course does not include the additional costs actually incurred by the process of Chapter 11 administrative filing and expected fees in marketing and finalising the IPO. Some say that figure, added to the original $61bn, reaches near $70bn all told. The natural method for pricing is to compare with domestic sector competitors, with Ford really as the only comparable benchmark.
The debt-laden but operationally profitable Ford is worth approximately $40bn market capitalisation, hoping to combat recent and ongoing input cost and consumer demand headwinds by actually reducing its range (as seen with the retraction of the 'thinner margin' Ranger pick-up from the NA market).
[NB Chrysler is not referenced given its operational integration/protection by FIAT, and the inability to clearly assess a standalone enterprise, even if early official reports state it as being profitable].
Thus, this essentially direct comparison of two US multi-national automakers, set against the global sea of Eastern players - is the current bug-bear of the markets in identifying a fair value for GM.
GM's nominated advisors (its NomAds) will have scoured the global investment community to identity the most likely candidates for near assured sale: the FT reporting of 10 book-runners and under-writers. Although the usual suspects of large institutionals are the first port of call, other non-traditional may well have been approached given the limited level of risk-exposure all large investment bodies presently seek; with the underwriters themselves possibly re-insuring themselves against a possible 'hit' of unsold stock..
A general view indicates that with so many fund managers seeking a mix of western risk-free buys (typically in bonds and revolved defensive stocks) married to still buoyant EM stocks, in-house pressures to maintain stability and growth of their portfolios indicates that longer-shot buys will largely remain on the shelf. And presently, GM could be seen by some as such a long-shot.
In recognising the 'perspective dependent' volatility of GM's value, the interest of the shrunken but hard-fighting hedge-fund sector may take, could also be problematic. With the macro-global outlook stance increasingly tepid on the expectation of China's 'soft-landing' and still fragile US consumer confidence, undermined by underpar jobs data , the hedge-fund attitude may well be negative. Those bigger players with market-fire-power could well seeking to short the stock, so positioning themselves for a latter 'buy-in' after what could be a number of rolled-over shorts, and so marked stock price decline.
Hence, with the risk-averse major institutionals weary (perhaps only taking the smallest floatation slice for political reasons) and hedge-funds possibly predatory, the NomAds will probably be targeting other buyer types:
1. Global Sovereign Wealth Funds
2. 'Bailed-Out' US Institutionals
3. US Governmental Pension Scheme Agency Funds
4. US Municipal Investment Funds
5. Foreign Auto Companies (ie Chinese & S.Korean)
6. Private Equity
Given their intrinsically long-time horizons and roles as facilitators of international diplomacy, sovereign wealth funds have a major part to play as IPO facilitators. The US could feasibly use its separate Treasury interests in GM to 'borrow from Peter to pay Paul' but such a ploy – even if indeed tenable - would obvious only serve to send the message out to the broader market that the GM entity was essentially a dubious running concern, and create a 'field-day' for political and financial journalists. Instead the far more buoyant pots of Asian, Middle Eastern and South American SWFs are undoubtedly seen as the prime candidates for taking long positions on GM, with the ability to stand any minor early period stock shocks that could come about. Equally, although well entrenched operationally within EM regions, GM is still seen as a local industrial and economic facilitator, part of the 'driving mechanism' to advance infrastructure and standards of living. Hence, these are seen by investment-auto-motives as the prime candidates from the NomAd viewpoint.
Whilst the more secure, risk-averse private and publicly held institutionals in pensions and insurance realms may baulk at the GM offering, certain enterprises – namely those themselves bailed-out by the US government during the financial crisis – may be expected to participate as buyers, even if not 'corner-stone buyers'. The most obvious is AIG, into which the US Treasury pumped a reported $182bn to stem its losses and restructure the company. The US Treasury is about to transfer its holding of preferred stock worth $49.1bn to 1.66bn common stock shares to itself recoup its 'public good investment'. But whilst AIG is naturally seeking to divest of non-core assets – including an auto-insurance company, there could well be quiet whispers from Washington that seek it to take-up a stake in GM; especially so since it is the only insurer not to have repaid its TARP monies (Hartford and Lincoln having done so). Not quite a case of borrowing from Peter to pay Paul, but in reality not too far off.
The third candidate is the varied group of Pension Funds run at Federal and State levels that seek to secure the retirement futures of government employees. Separated from Municipal bodies to avoid conflicts of interest regards a state's balance sheet, they have acted much as mini-SWFs, with a vested interest in 'hard'/'soft' national infrastructure aswell as down-the-line earnings to satiate the increasing demand-level from retirees. These economically aligned funds are obvious participants in the GM offering. Under the 1932 inaugurated State Employees Retirement System ('SERS' latterly 'PERS'). 'CALPERS' is perhaps the best known, today representing the retirement interests of California's public workers, and seen to be the most activist. Whilst the one of the largest funds there may take some convincing of the patriotic good in backing GM, since beyond its own activism toward GM in 1992 regard corporate governance, California has historically been the home of various auto-companies design, R&D and divisional HQs, but much of GM's activity (besides retail) takes place outside of CA: in Michigan, the mid-west, and now southern states. Also California's recent 'sponsorship' of alternative energy vehicles including companies such as Tesla Motor could lead to Board-level conflict when pursuing the national and state agendas. (Any vested interests by board members or influential state persons should be identified). However, given the importance of the GM IPO to the US, such frictions would be expected to be overcome, ideally without word from Washington, and as part of the balanced stock-price identification mechanism.
Municipal Investment Funds and State Investment Funds have obviously been set-up for the good of the region, state and so in turn the nation*. Wisely separated from Governor access, like PERS, these regional funds have the similar remit to act as mini-SWFs, with dual goals of providing both additional short-term operating cashflow (thereby assisting beyond immediate tax revenues and budget spend) aswell as longer-term capital cushion buoyancy. Given the poor state of many State finances, these investment funds have gained greater visibility in recent years, both in terms of risk exposure – given the CDO debacle – and general governance.
[*This remit stands in stark contrast to the massive over-leveraging of the PSBR many US states have undertaken. Whilst historically conservative states like Nebraska, Texas and Virginia have constrained spending and so debt, other like California and Michigan weigh-down the nation. leaving their own credit standing - and possibly that of the whole US nation's - as near perilous, with ramifications for the dollar – something China undoubtedly sees with resistance to its own Rm rise; an issue GM itself must address given the repatriation effect of Rm:$].
However, Municipal and State-level investment funds have a major role to play determining the success of the GM floatation, yet whilst acting as floatation catalysts will also recognise the onus on themselves as foundations of regional balance sheet wealth creation, thus have an impetus not to overpay, so again actors in the stock-price determination mechanism. Interesting to watch will be the actions of intermediaries such as the New Jersey State Investment Council, the likes of which may have to pursue (simplistically) split investment attitudes between homeland offerings such as GM and more international opportunities via PE firms such as TPG on its roster.
Foreign automotive companies are also an obvious possibility, seeing the opportunity to gain a new or greater foot-hold in North America via (symbolic or otherwise) ownership of GM stock. Such a move would also provide a basis for technical co-operation and expansion between GM and other interested VMs. To this end, two Asian countries hold the greatest appeal: China and S.Korea.
Along with Chrysler, GM was one of the first 'foreign enablers' for China in the early 1980s, its initial arms-length co-operation evolving into the biggest JV entity via GM-SAIC (Shanghai-GM offering Cadillac, Buick & Chevrolet), with more recent stake in Wuling mini-vans to broaden its own product coverage and critically ingratiate itself with an important economy-driving segment. Thus continues to play a major role in US-Sino relations; even if the HUMMER deal was canceled.
After 3 decades of such focus, given the changing economic/financial world order, it seems only natural that the PRC itself seek to put a portion of its massive foreign reserve dollar holdings to work, thereby gaining greater corporate, technical and political co-operative standing with the US, and simultaneously reducing the dollar's strength via FX flows which in turn provides a short term buying opportunity in US$ based assets (and equally $ pegged assets) aswell as the impetus to reduce its own internal cost base for later resumption of higher-value exported goods and services.
Thus just as the US has bought into China, so we seem to have come to the point where China buys into the US.
A second possibility is one, two or even three S.Korea auto-companies: namely Hyundai-Kia, Samsung and Ssangyong. Hyundai is of course well known in the US with its own manufacturing plants, but its CEO's public ambition is to grow massively to become ultimately the No3 maker. Assisting this effort, Hyundai procured a brokerage house some time ago to (although not explicitly stated) serve its own periodic buy-back ambitions, assist its own equity financing methods, and provide less conspicuous buy into other domestic and foreign companies through-out the automotive value chain. Thus with such ambitions, the piggy-backing of GM – through its IPO - could be a strategic option.
Samsung is the lesser known player outside of S.Korea, and sits as a sub-division of Renault-Nissan. Carlos Ghosn recognises the need to expand R-N's coverage of the USA and Canada, given that Nissan is the sole representative and could do with an underling to fend-off Hyundai-Kia et al. Given Samsung's export entry into South America has proceeded seemingly slowly but well, the notion could well be to position Samsung as the American Dacia, serving both South, Central and North America with affordable vehicles. This would counter its homeland position as near-premium, but allows for R-N's global expansion. Thus Samsung could through a third party take a small slice of the IPO offering to secure its place, in time growing its holding to become a latter-day operational associate with GM.
Ssangyong, the previous purveyor of exported SUVs with Daimler engines, has had injections of Chinese funds via SAIC's partial ownership, and access to low-cost components so as to maintain an element of modernity about the products and the company. Although notionally S.Korean,it could feasibly serve as China's entry vehicle into world markets as SAIC grows its ownership of the firm which at least has brand recognition in RoW markets, even if perhaps not an illustrious image.
Private Equity is the last candidate, though perhaps for less than obvious reasons. With the slowed economic era, the returns that shareholder activism was generating have also diminished. However, this era is witnessing PE taking on less of a 'conflict role' and more of a 'assistive role'. The replacement of Ed Whitacre with the appointment of Daniel Akerson as CEO, demonstrates Washington's, Whitacre's and the GM's Board's sensitivity to the requirements of the private equity sector. (Akerson well established in that field as a Director of Carlyle Group was appointed to the GM Board by the Autos Task Force in 2009). As mentioned in a previous web-log post at the time of the Akerson appointment, GM still has much to do to divest of its sizable asset-base, from the tangible defunct property and plant, the core of standalone divisional operations, to the less tangible goodwill value of dormant brands. Akerson will know how the PE sector operates, and it will be his remit to enthuse PE companies to take up the GM stock offering as part of their own long-horizon plays, so as to to gain favour in purchasing any of the divested assets GM must shed. Here, his task is to seek-out PE relationships which provide a good balance between long-term mutual wealth generation through GM operations probably working with a PE company's own portfolio, and the more immediate arbitrage opportunity the PE sector can earn from purchasing and latterly selling tangible and goodwill assets.
Thus all said and done, the GM IPO will not be an easy marketing exercise for the NomAds themselves, having to pitch to a myriad of investor types, many of which are not the usual candidates, and with recognition that Washington has a close eye on the process so as to try and ensure it recaptures a proportionate value of its bail-out spend.
Even with hard-ball negotiations between the book-runners and buy-siders, that looks increasingly unlikely given the present global macro climate, and the fact that any buyer – patriotic or not – must be seen to be operating an up-trend portfolio.
Those buyers will use prime evidence such as GM's September's NA market share slippage (to 18%) in their negotiations, and whilst not a perfect outcome, the more realistic the IPO pricing, the better for all to conclude in a successful take-up. Infact, this is an instance where all parties - the buyers, the book-runners and the under-writers – have a real role to play as economic actors that underpin the fragile US economy.
The standard below-par offer sits at between -5% to -8% the nominal face-value of a released stock, so as to try and ensure the 'early-bird' investors see a positive short-term gain. At extremes, there are reported views that GM's stock may have to be presented at up to -30% face-value.
Such an event would make a mockery of the floatation, and has set-off alarm bells for the UAW trustees and Canadian government, who would rather release their respective portions when improved market conditions assure recoup of original respective 'debt-swap' and 'bail-out' expenditures.
Thus the US Treasury would be the only seller, and itself caught between a rock and a hard place, between being seen to recapture a portion of the tax-payer funded $61bn GM package and the possibility of seeing proportionate value-destruction.
That $61bn sum of course does not include the additional costs actually incurred by the process of Chapter 11 administrative filing and expected fees in marketing and finalising the IPO. Some say that figure, added to the original $61bn, reaches near $70bn all told. The natural method for pricing is to compare with domestic sector competitors, with Ford really as the only comparable benchmark.
The debt-laden but operationally profitable Ford is worth approximately $40bn market capitalisation, hoping to combat recent and ongoing input cost and consumer demand headwinds by actually reducing its range (as seen with the retraction of the 'thinner margin' Ranger pick-up from the NA market).
[NB Chrysler is not referenced given its operational integration/protection by FIAT, and the inability to clearly assess a standalone enterprise, even if early official reports state it as being profitable].
Thus, this essentially direct comparison of two US multi-national automakers, set against the global sea of Eastern players - is the current bug-bear of the markets in identifying a fair value for GM.
GM's nominated advisors (its NomAds) will have scoured the global investment community to identity the most likely candidates for near assured sale: the FT reporting of 10 book-runners and under-writers. Although the usual suspects of large institutionals are the first port of call, other non-traditional may well have been approached given the limited level of risk-exposure all large investment bodies presently seek; with the underwriters themselves possibly re-insuring themselves against a possible 'hit' of unsold stock..
A general view indicates that with so many fund managers seeking a mix of western risk-free buys (typically in bonds and revolved defensive stocks) married to still buoyant EM stocks, in-house pressures to maintain stability and growth of their portfolios indicates that longer-shot buys will largely remain on the shelf. And presently, GM could be seen by some as such a long-shot.
In recognising the 'perspective dependent' volatility of GM's value, the interest of the shrunken but hard-fighting hedge-fund sector may take, could also be problematic. With the macro-global outlook stance increasingly tepid on the expectation of China's 'soft-landing' and still fragile US consumer confidence, undermined by underpar jobs data , the hedge-fund attitude may well be negative. Those bigger players with market-fire-power could well seeking to short the stock, so positioning themselves for a latter 'buy-in' after what could be a number of rolled-over shorts, and so marked stock price decline.
Hence, with the risk-averse major institutionals weary (perhaps only taking the smallest floatation slice for political reasons) and hedge-funds possibly predatory, the NomAds will probably be targeting other buyer types:
1. Global Sovereign Wealth Funds
2. 'Bailed-Out' US Institutionals
3. US Governmental Pension Scheme Agency Funds
4. US Municipal Investment Funds
5. Foreign Auto Companies (ie Chinese & S.Korean)
6. Private Equity
Given their intrinsically long-time horizons and roles as facilitators of international diplomacy, sovereign wealth funds have a major part to play as IPO facilitators. The US could feasibly use its separate Treasury interests in GM to 'borrow from Peter to pay Paul' but such a ploy – even if indeed tenable - would obvious only serve to send the message out to the broader market that the GM entity was essentially a dubious running concern, and create a 'field-day' for political and financial journalists. Instead the far more buoyant pots of Asian, Middle Eastern and South American SWFs are undoubtedly seen as the prime candidates for taking long positions on GM, with the ability to stand any minor early period stock shocks that could come about. Equally, although well entrenched operationally within EM regions, GM is still seen as a local industrial and economic facilitator, part of the 'driving mechanism' to advance infrastructure and standards of living. Hence, these are seen by investment-auto-motives as the prime candidates from the NomAd viewpoint.
Whilst the more secure, risk-averse private and publicly held institutionals in pensions and insurance realms may baulk at the GM offering, certain enterprises – namely those themselves bailed-out by the US government during the financial crisis – may be expected to participate as buyers, even if not 'corner-stone buyers'. The most obvious is AIG, into which the US Treasury pumped a reported $182bn to stem its losses and restructure the company. The US Treasury is about to transfer its holding of preferred stock worth $49.1bn to 1.66bn common stock shares to itself recoup its 'public good investment'. But whilst AIG is naturally seeking to divest of non-core assets – including an auto-insurance company, there could well be quiet whispers from Washington that seek it to take-up a stake in GM; especially so since it is the only insurer not to have repaid its TARP monies (Hartford and Lincoln having done so). Not quite a case of borrowing from Peter to pay Paul, but in reality not too far off.
The third candidate is the varied group of Pension Funds run at Federal and State levels that seek to secure the retirement futures of government employees. Separated from Municipal bodies to avoid conflicts of interest regards a state's balance sheet, they have acted much as mini-SWFs, with a vested interest in 'hard'/'soft' national infrastructure aswell as down-the-line earnings to satiate the increasing demand-level from retirees. These economically aligned funds are obvious participants in the GM offering. Under the 1932 inaugurated State Employees Retirement System ('SERS' latterly 'PERS'). 'CALPERS' is perhaps the best known, today representing the retirement interests of California's public workers, and seen to be the most activist. Whilst the one of the largest funds there may take some convincing of the patriotic good in backing GM, since beyond its own activism toward GM in 1992 regard corporate governance, California has historically been the home of various auto-companies design, R&D and divisional HQs, but much of GM's activity (besides retail) takes place outside of CA: in Michigan, the mid-west, and now southern states. Also California's recent 'sponsorship' of alternative energy vehicles including companies such as Tesla Motor could lead to Board-level conflict when pursuing the national and state agendas. (Any vested interests by board members or influential state persons should be identified). However, given the importance of the GM IPO to the US, such frictions would be expected to be overcome, ideally without word from Washington, and as part of the balanced stock-price identification mechanism.
Municipal Investment Funds and State Investment Funds have obviously been set-up for the good of the region, state and so in turn the nation*. Wisely separated from Governor access, like PERS, these regional funds have the similar remit to act as mini-SWFs, with dual goals of providing both additional short-term operating cashflow (thereby assisting beyond immediate tax revenues and budget spend) aswell as longer-term capital cushion buoyancy. Given the poor state of many State finances, these investment funds have gained greater visibility in recent years, both in terms of risk exposure – given the CDO debacle – and general governance.
[*This remit stands in stark contrast to the massive over-leveraging of the PSBR many US states have undertaken. Whilst historically conservative states like Nebraska, Texas and Virginia have constrained spending and so debt, other like California and Michigan weigh-down the nation. leaving their own credit standing - and possibly that of the whole US nation's - as near perilous, with ramifications for the dollar – something China undoubtedly sees with resistance to its own Rm rise; an issue GM itself must address given the repatriation effect of Rm:$].
However, Municipal and State-level investment funds have a major role to play determining the success of the GM floatation, yet whilst acting as floatation catalysts will also recognise the onus on themselves as foundations of regional balance sheet wealth creation, thus have an impetus not to overpay, so again actors in the stock-price determination mechanism. Interesting to watch will be the actions of intermediaries such as the New Jersey State Investment Council, the likes of which may have to pursue (simplistically) split investment attitudes between homeland offerings such as GM and more international opportunities via PE firms such as TPG on its roster.
Foreign automotive companies are also an obvious possibility, seeing the opportunity to gain a new or greater foot-hold in North America via (symbolic or otherwise) ownership of GM stock. Such a move would also provide a basis for technical co-operation and expansion between GM and other interested VMs. To this end, two Asian countries hold the greatest appeal: China and S.Korea.
Along with Chrysler, GM was one of the first 'foreign enablers' for China in the early 1980s, its initial arms-length co-operation evolving into the biggest JV entity via GM-SAIC (Shanghai-GM offering Cadillac, Buick & Chevrolet), with more recent stake in Wuling mini-vans to broaden its own product coverage and critically ingratiate itself with an important economy-driving segment. Thus continues to play a major role in US-Sino relations; even if the HUMMER deal was canceled.
After 3 decades of such focus, given the changing economic/financial world order, it seems only natural that the PRC itself seek to put a portion of its massive foreign reserve dollar holdings to work, thereby gaining greater corporate, technical and political co-operative standing with the US, and simultaneously reducing the dollar's strength via FX flows which in turn provides a short term buying opportunity in US$ based assets (and equally $ pegged assets) aswell as the impetus to reduce its own internal cost base for later resumption of higher-value exported goods and services.
Thus just as the US has bought into China, so we seem to have come to the point where China buys into the US.
A second possibility is one, two or even three S.Korea auto-companies: namely Hyundai-Kia, Samsung and Ssangyong. Hyundai is of course well known in the US with its own manufacturing plants, but its CEO's public ambition is to grow massively to become ultimately the No3 maker. Assisting this effort, Hyundai procured a brokerage house some time ago to (although not explicitly stated) serve its own periodic buy-back ambitions, assist its own equity financing methods, and provide less conspicuous buy into other domestic and foreign companies through-out the automotive value chain. Thus with such ambitions, the piggy-backing of GM – through its IPO - could be a strategic option.
Samsung is the lesser known player outside of S.Korea, and sits as a sub-division of Renault-Nissan. Carlos Ghosn recognises the need to expand R-N's coverage of the USA and Canada, given that Nissan is the sole representative and could do with an underling to fend-off Hyundai-Kia et al. Given Samsung's export entry into South America has proceeded seemingly slowly but well, the notion could well be to position Samsung as the American Dacia, serving both South, Central and North America with affordable vehicles. This would counter its homeland position as near-premium, but allows for R-N's global expansion. Thus Samsung could through a third party take a small slice of the IPO offering to secure its place, in time growing its holding to become a latter-day operational associate with GM.
Ssangyong, the previous purveyor of exported SUVs with Daimler engines, has had injections of Chinese funds via SAIC's partial ownership, and access to low-cost components so as to maintain an element of modernity about the products and the company. Although notionally S.Korean,it could feasibly serve as China's entry vehicle into world markets as SAIC grows its ownership of the firm which at least has brand recognition in RoW markets, even if perhaps not an illustrious image.
Private Equity is the last candidate, though perhaps for less than obvious reasons. With the slowed economic era, the returns that shareholder activism was generating have also diminished. However, this era is witnessing PE taking on less of a 'conflict role' and more of a 'assistive role'. The replacement of Ed Whitacre with the appointment of Daniel Akerson as CEO, demonstrates Washington's, Whitacre's and the GM's Board's sensitivity to the requirements of the private equity sector. (Akerson well established in that field as a Director of Carlyle Group was appointed to the GM Board by the Autos Task Force in 2009). As mentioned in a previous web-log post at the time of the Akerson appointment, GM still has much to do to divest of its sizable asset-base, from the tangible defunct property and plant, the core of standalone divisional operations, to the less tangible goodwill value of dormant brands. Akerson will know how the PE sector operates, and it will be his remit to enthuse PE companies to take up the GM stock offering as part of their own long-horizon plays, so as to to gain favour in purchasing any of the divested assets GM must shed. Here, his task is to seek-out PE relationships which provide a good balance between long-term mutual wealth generation through GM operations probably working with a PE company's own portfolio, and the more immediate arbitrage opportunity the PE sector can earn from purchasing and latterly selling tangible and goodwill assets.
Thus all said and done, the GM IPO will not be an easy marketing exercise for the NomAds themselves, having to pitch to a myriad of investor types, many of which are not the usual candidates, and with recognition that Washington has a close eye on the process so as to try and ensure it recaptures a proportionate value of its bail-out spend.
Even with hard-ball negotiations between the book-runners and buy-siders, that looks increasingly unlikely given the present global macro climate, and the fact that any buyer – patriotic or not – must be seen to be operating an up-trend portfolio.
Those buyers will use prime evidence such as GM's September's NA market share slippage (to 18%) in their negotiations, and whilst not a perfect outcome, the more realistic the IPO pricing, the better for all to conclude in a successful take-up. Infact, this is an instance where all parties - the buyers, the book-runners and the under-writers – have a real role to play as economic actors that underpin the fragile US economy.
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