Friday, 30 May 2008

Company Focus - Renault-Nissan - Leapfrogging ULEVs to ZEVs

The present picture of those contestant automakers in the Low Emissions race depicts Toyota rightly ahead of the crowd, now having sold over 1m units of Prius, with Honda, GM, Ford and all lagging far behind. VW's announcement on 28.05.08 that it had signed a collaboration deal with Sanyo Electronics demonstrates its recognition that it must look elsewhere beyond CO2 and CAFE assitive Fox, Polo and Bluemotion special editions.

Looking to Renault-Nissan, there has been much industry conjecture that Ghosn has lost his magic touch as financial results falter and as things stand in the critically competitive Hybrid arena that R-N is way at the back of the pack. But as we've seen in the most recent investor conferance Ghosn and his dual-Boards have decided that instead of being a recognised laggard to its Japanese peers by chasing the (contemporaryHybrid) ball that it would aim far higher, to the automotive stratosphere of pure electric vehicles as a primary pillar in R-N's latest growth initiative. In regard to this endeavour, whilst most financial analysts concur in recognising that this puts R-N on a theoretically technically more advanced path, ahead of the Hybrid crowd in the CO2 emissions stakes, there has been very recent comment from certain brokerage analyst quarters that doubt the R-N competive advantage as and when it comes. Stating that others can effectively junk some of the mechanical components from a Hybrid to form an EV.

Of course quotes for the financial press can be all too 'off the cuff' - especially during busy periods - or indeed taken out of context, and equally the respected press reporters seek to give as best account of industry action and analysts' response. Thus with sincere regard we do not seek to undermine or belittle any other general comment.

However, to put the record straight, the R-N initiative to adapt the Cube model is only a first-step and does not, we believe, represent R-N's full ambition to be an EV leader. A properly designed EV is far far more than "a regular hybrid with the gas tank removed". Obviously whilst the majority of financial analysts take a professional and personal interest in vehicle technology they cannot be overtly familiar with the nuances of conceptual engineering philosophy at the front end of possibly radical new product development.

Deductive reasoning might lead one to believe that Hybrids and EVs share a common DNA of body and chassis components, and in these early stages of 21st century vehicle developmental experimentation and critical market acceptance, but as EV powertrain technology starts to truly take hold Ghosn and other engineering knowledgables recognise that a true EV has the potential to massively change the architecture and package of a vehicle, especially in the field of space efficiency, making the kind of leaps forward that the transverse engine of original Mini did and setting a new benchmark/trend.

Thus given R-N's apparent focus on EVs, that latterday product offerings could in fact be game-changers for the industry at large if the company directs effort over the next 7 years to realise the potential of the technology. (See Amory Lovins' 1992 Hypercar as the architype for the 21st century car).

If Ghosn et al can indeed make it happen the LeapFrog would be massive indeed.

Wednesday, 28 May 2008

Industry Structure - Alternative Powertrains - EValuating EV's EVolution

As the trend to ULEvs and ZEVs slowly progresses under a tide of PR stories and financial press reporting, investment analysts are scratching their heads in deep thought. Both the Sell-Side & Buy-Side functions of the Equities equation aswell as Fixed Income and High Yield analysts continue to ruminate as to which of the industry's old and new players look to have positioned themselves most advantageously, and indeed carry the weight and will, to truly drive vehicular and mobility consumption change.

It seems that rightly hard-headed analysts are being persuaded to the potential of what are presently theoretically modelled commercial ventures, but they still recognise there is a great chasm to get from 'Vision to Reality'. The ability to create, and critically deliver, a credible business plan is everything.

On paper at least, the best personally 'connected' regards funding, commercial and political relationships appear to hold better hands of cards, but such political-economic sway must be supported by a well constructed business jigsaw, based upon consumer adoption reality.

Converse to ordinary practice, where an analysts' predictive jigsaw is heavily biased toward the 'bottom-up' numerically based guidance of a host of financial ratios gained from P&L, Balance Sheet & Cash Book, when it comes to previewing what is a nascient, young and dynamic dimension to a previously rigid and cyclical predictable sector the 'top-down' macro picture takes precident. And unlike the orthodoxy of accounts based and sector trends forecasting for matured and stable sectors and companies, the electric vehicle prospect injects a high degree of uncertainty and possibly volatility given that investment research departments must greatly rely upon said 'top-down' reasoning of PESTEL factors and far more in the way of company management transparency to seperate [to be blunt] "the bounty from the bollocks".

As mentioned, the ecological technology snowball (and showboat) now has undeniable momentum so constructing a sense of a realistic, probable outcome from the 'babble and blurb' is fundamental to investment future-casting. Individual technology/company/business model potentiality and a host of inter-dependencies combine to create the jigsaw pieces that need to be mapped, measured and calculated so as to logically clear the hype and rumour fog.

Probably the greatest discussion taking place at present is the debate regards battery development; the pros and cons and real-world applicability of proven Nickel Metal Hydride powerpacks versus more advanced yet unproven Lithium Ion.

The industry's electrical engineers and informed observers are understandably split into 2 camps. This in turn is reflected in the developmental philosophies and R&D agendas of different automakers' approach to their Hybrid and Pure Electric vehicle plans. So mixed opinion dominates the investment debate, most evidently demonstrated by Honda's 'play-safe' exploitation of Ni-Hyd for its expanding range of Hybrids set against GM's presently optomistic stance regards a transition from Ni-Hyd to L-ion by 2012, publicly assuring it can overcome the reliability (thermal runaway), productionisation and life expectancy problems of L-ion.

But perhaps its the recent announcements from Daimler, GM and Renault-Nissan that best demonstrate that 'reality-gap' regards L-ion.

Deiter Zetsche & Mercedes are due to launch the L-ion assisted S400 BlueHybrid luxury car in Q209; an initiative that we recognise as a veritable low-volume, high margin, well-serviced technology test-bed exercise. In direct contrast, GM's Rick Wagoner states that only a year later the L-ion powered, expectedly high volume, medium sized mainstream 'Volt' model is to appear - with an adaption of L-ion for 3 other vehicles. Thus, these 2 vehicles represent the polar opposites of the new technology's introduction. Daimler's at first appears the more considered, a low-key combine of 'tech & spec' with a 'belt & braces' back-up of pinnacle-level service. GM's seems positively 'gangbuster', but then it does have the advantage of greater R&D capabilties and has been monitoring the many Ni-Hyd Hybrids it currently has running around the USA.

Perhaps the most prominant claim regards the commercial power of ULEVs and EVs comes from R-N and Carlos Ghosn, stating that the new vehicles will play a prominant role in the corporate growth plan by 2015. How that translates from recent 'confidence boosting' powerpoint presentations to roll-out reality is yet to be seen, but the R-N & Project Better Place JV focused in Denmark and Israel will provide a certain amount of guidance, even if the early adoption case study modelling derived is heavily biased by government fiscal pressures and social expectation pressures that will not be as directly powerful in regions beyond the more orchestratable Scandinavian and Middle Eastern countries.

Stiching together a credible picture of how the ULEV and EV future will play-out will be key for Goldman Sachs, Lehman Bros, Morgan Stanley, JP Morgan et al, the host of institutional and 'large-play' non-activist and activist private investors, aswell as the ever interested rebounding PE groups looking buy into VC exit strategies.

Much will come down to said investors own vested interests and 'connections' to leverage different pieces of the jigsaw. And this begs the question "could a struggle develop between different partisan individuals and groups allied to different solutions and outcomes?". The Prof John Nash "win-win-win" game-theory scenarios will have surely been discussed well before now.

Recent investment banks and asset managers research notes proffer that the future looks rosy given rampant oil price escalation now at $135 p/b and a GS forecast looking to $200 p/b by EoY thanks to geo-political unrest, ravenous eastern demand, limited extraction volumes and restricted refining capacity not easing within the foreseeable future.

However, the good news stories still require critical analysis to truly appreciate who look to be the winners and losers in the EVolutionary path of the automobile.

Thursday, 22 May 2008

New Business Opportunity - Hybrid Applications - Muscling In on Muscle Cars

Although certain legendary nameplates have been kept in existence to bolster the more sporty dimensions of Detroit's vehicle ranges, the oft heard remark from muscle car enthusiasts and the public alike is that "they don't make 'em like they used to!" A perception that the iconic greats have been watered down whilst their powerful identities and associated sub-brands have been plundered in the pursuit off profit.

This pessimistic snap-shot appears to sum-up much of the period between 1975 and 2005. But of course the business reality has been a 30 year succession of economic, competitive and consumer tren waves that essentially prohibited Detroit from successfully maintaining periodic comebacks, especially in the face of far more elegantly engineered Japanese sports coupes and convertibles, aswell as the eventual rise of homegrown performance sedans seen to be starring (even if in name only) in NASCAR.

So the formula of the unsophisticated, mass-platform derived muscle-car (the quarter-mile king but racetrack laggard) was in an ever more technologically progressive and globalised world found desperately wanting.

But 30 years on, relying on the assistance of retro-styling 'Detroit Iron' have made a re-appearence. Firstly in the guise of a poigniently post-modern Mustang, which through re-interpretation of the original icon produced a much needed income sttream for Ford in recent years. From the Chrysler stable we saw the surprising 4 doo, alternative energy fuelled Charger concept some years ago, but now we witness the production of the 'xerox copy' Challenger re-capturing Dodge's halcyon days. And the last of the trio, GM is set to put the sparkle back into what has become a lacklustre Camaro.

But with gas at $4 a gallon and today's eco-conscious mentality, is the socio-economic climate inhospitable to the return of old school 'muscle'?

"Yes" and "No".

"Yes", in as much as that the rudimentary powertrain technology of the original species is completely inappropriate. And with 4WD turbo-charged lightweighter Japanese spiritual successors - like the Nissan GT-R (taking the Nurburgring production car record) - even the quarter-mile accolades are no longer within reach. So true engineering facsimiles are prohibited on many grounds.

"No", in as mush as technology can do much to negate the downsides of the big muscle-car architype, the new use of advanced materials reducing vehhicle mass and the application of cylinder de-activation (as exploited in large trucks) able to lift the once dismal fuel economy figures for the consumer and assist the automaker's CAFE rating. [Detractors will say that hi-tech has ruined the V8's innate "rumble" and induction "hiss" but as the saying goes "you cannot please all the people all the time")

Evolutionise the breed further still and the use of torotoidal gearboxes helps MPG figures, 0-60 times and the quarter-mile time. But the real gain could come through the exploitation of Series & Parallel Hybrid powertrains. Given the weekend and low mileage 'boulevard' use of such top-spec 'boy's (& girl's) toys', perhaps even the deployment of all electric variants?

Ironically the advantage goes to the muscle car because unlike smaller 'package efficient' Japanese and European sports coupes, the large dimensions of say a Challenger make it favourable to the installation of assistive electric motor(s), deployed for accelerative 'launch' and mid-running 'power punches'.

Taken to its optimum conclusion of balancing performance with fuel efficiency, the combination of a lowly 4 cylinder internal combustion engine allied to a powerful electric motor could possibly be the perfect new formula for today's Intelligent 'Muscle'.

[Remeber, we should nott delude ourselves into thinking that only full-blooded, full-capacity Hemis reigned back in the 60s and early 70s. Like today, the true stars like GT350s, GT500s, Shelby KR500s, 'Judge' GTOs and R/T Chargers and Challengers were only a small percentage of the model mix of volume coupe sales].

Back to today's idea of 'Intelligent Muscle' and a large engine bay could envelope a Series motor between engine and gearbox. Ot a Parallel motor could be intergrated behind/under the rear seats, whilst a 'T', 'Y' or flat battery pack (ideally stabalised L-ion) could be positioned within a sandwich floorpan.

So whilst the reborn version would have the distinctive aesthetic DNA lineage and should theoretically better yesteryear performance figures, new technology would make it a better general drive and take a lesser toll on the wallet at the gas pump.

Introduce these advances in the high calibre 'halo' cars and the joys of 'Intelligent Muscle' could be scaled-up for more populist, high volume modules and populist appreaciation.

"They don't make 'em like they used to anymore.....they're even better!"

Wednesday, 14 May 2008

Business Opportunity – Alternative Investments – The Automotive Art Business

With value creation forever top of mind here at investment-auto-motives, a flaneur's wander into a few of the premium art galleries of New Bond Street led to a questioning of the creative, human element of the car design process and the resultant sketches, renderings and artifacts. Are not these 'Art'? Derived from industry and perhaps all the more meaningful by doing so.

Although many vehicle icons - such as a 250GTO, DB5 or 550 Spyder - are described as “artistic masterpieces”, we do not in fact mean the cars themselves, but instead the artistic material that led to the styling and manufacture of such revered, and less iconic but more populous, vehicles themselves – whether for a renowned carrozzeria's one-off creation or a volume manufacturer's studio creation leading to 10 million cars.

Visits to both the Salvador Dali Foundation's premises and those of the Opera Gallery set the mind exploring the issue - and critically pricing models - of 'Art'. If one in the series of eight officially recognised 'May West' “Lips” sofas is valued at £60,000 and two of three original Chagall's were £600,000 and £1,200,000+ respectively, what opportunity is there for original artworks stemming from the automotive design process? There appears major potential to expand the generally 'low-value' automotive art world and introduce a new 'high-value' sector. Too indeed expand the very definition and scope of 'Automotive Art'.

To date the arena appears to generally consist of classic car paintings in period settings, Grand Prix, Mille Miglia & F1 'colour-flash' representations and miniature scale realistic and precious-metal models. However recent years have seen the sector envelope the provision of original used F1 vehicle components (from manufacturer's Factory Teams) as 'object d'art'.

As with this last example, followers of art will appreciate that the art-world has started to encompass much more than the traditional artforms of painting, sculpting and latterly 'instillations' (of the Damien Hirst and Tracey Emin variety). Driven by the business needs and mentalities of premium dealers, in tandem with the proviso of art cognoscenti, today we witness a blurring of the boundaries as to what constitutes art. After all is it not in the eye of the beholder?. Definitions now expand beyond “beauty” or “philosophical interpretation” per se, to examples of items “uniquely created” in their own right or “fine examples” of specific design genres, schools or periods.

With this broadened scope 'object d'art' now even encompasses architecture, with the modernist Bauhaus originals from the likes of Le Corbusier, van der Rohe and Frank Lloyd Wright creations and very recently Christies Art Auctioneers presented the Richard Neutra designed 'Kaufmann House' in California. Christie's LA President said “it is symptomatic of the trend to include design in contemporary art sales”...”the barriers between the two disciplines have now blurred”.
So if architecture and its original design-work (GA drawings, elevations, plans etc) is now within the purist definition of 'Art', what of automobiles? After all a single house touches but a few dwellers and visitors, a car touches thousands if not millions of people both in their everyday and their fantasies.

In such an artistic climate, investment-auto-motives posits that this trend has now reached the tipping-point for the marketability and sale value of original automotive design sketches and artifacts, The fertile conceptual worlds of volume manufacturers, niche vehicle builders and independent design studios should theoretically have a treasure-trove of exploratory, preliminary, developed sketches (for alternative treatments); final presentation renderings, 1:5 scale clay models, 1:1 exterior 'clays', 1:1 interior 'bucks', prototype vehicles and of course show-cased Concept Cars. However, unfortunately, given the secretive nature of the business process some of what is created is destroyed for confidentiality reasons.

However, automakers, design houses and auto-museum archives probably hold a veritable array of automotive art and objects d'art in 2-D and 3-D formats. The car is perhaps functionally and stylistically the most important object of the 20th century yet the original creations are essentially 'invisible' and 'lost' – much like the architypical 'barn-find' in classic car circles.
Hence we believe that automotive art in its original sense - as opposed to the previously stated conventional perception, or indeed related items like Andy Warhole's 'Car Crash' – has massive potential in this intellectually enraptured age.

To own not simply, or necessarily, the manufactured article, but the original 'transcript' of the idea....the real conceptual “Auto De Fé ”.

Thursday, 8 May 2008

Business Opportunity – The Mobility Value Chain - New Consumer & Industrial Structures for New Challenges & New Solutions

At the dawn of the electric car appears to break, 100 years after a previous false dawn, an array of new vehicles and business models have emerged. The banking community will be scoping the ‘electric terrain’ to identify specific opportunities, those debuted new-carmakers that offer most promise.

But beyond the singular world of new-energy cars, investment specialists should also look to the ‘inter-dependability’ of all mobility devices served electrically, and possibly construct a world of new, expanded functionality and associated business models.

The new green auto-makers are staking their plots across the vehicle segment and powertrain type landscape. Early ventures that we’ll witness either grow, fade, willingly consolidate or perhaps (as seen with the Tesla-Fisker IPR legal battle) hostile takeovers of product line and asset-base. [It could be postulated that Tesla seeks to use a legal win to gain a speedy route - via Fisker’s premium saloon – to realise its own WhiteStar proposal. Based on BMW platform it would provide Tesla with the massive key technologies alliance with a respected, advanced VM]

This is just one example of the dynamic new world, whether from engineering, organisational, M&A or IPR litigation standpoints. As the stable of emerging new-energy cars demonstrate, the once scoffed political, entrepreneurial and corporate will is gaining traction and more and more plots on the ‘electric car landscape’ will be claimed by minnows, populating the once barren region. Theoretically, the hussle and tussle of product and venture growth will attract the interests of traditional VMs (as we’ve seen with R&D companies becoming swallowed) and possibly additional interest from a new crop of brand-centric, multi-sector, multi-activity Brand Enterprises (eg Virgin to to Apple to….perhaps even a Chinese name like Lenovo). The VC & PE backers would be happy to see their exit from what should be sizeable value-creation exercises, no doubt with post-sale retained interests, whether via trade sale, onward PE interests, newcomer brands or eventual latter-day IPO.

If that’s the basic picture for electric vehicle companies, what of the conjecture that these enterprises (one or more) could act as a central link in a new ‘electric-mobility-framework’, with an inherently meshed value-chain?

investment-auto-motives believes that if transportational aspect of the CO2 challenge is taken to a natural conclusion, that a full spectrum of electric mobility solutions would be the sine quo none of a forward thinking company; whether a reborn industrialist like GE (General Electric), a lifestyle brand group like Virgin, perhaps Sony looking for electrical device extensions or complete ambitious newcomer like Project Better Place. Indeed the optimum route could well be an amalgamation of 2 or more parties.

Given present-day and future forecasts of economic, geo-political and energy price/security conditions there are very good micro and macro reasons to see the emergence of the electric car against a bigger mobility backdrop, and the context for a conceptual electric mobility network at consumer level and relative framework at the industrial level.

This high-impact wave of change could be argued as invisibly underway, if indeed investment/commercial/academic decision-makers open their mindsets to see the inter-linked solutions base (or value chain) slowly emerging if one puts the electric mobility jigsaw together – from the personal through private and into mass transit: from the innovative Segway, to electric wheelchairs & buggies for the infirm, to electric assist bicycles, to e-mopeds, e-motorcycles, e-trikes, e-cars, e-trucks, e-buses, e-trams and e-trains….[but e-planes maybe on the distant horizon!]

Now at first glance, this may conjure-up images of a centrally planned, clinically sanitised, homogenius ‘Logans Run’ transport environment, but reactionary (and plainly unrealistic) populist ‘sci-fi’ visions apart, such a mechanically interlinked and functionally inter-meshed transport solutions would be the ideal for meeting the CO2 challenge.

However, from the current state of mobility fragmentation such theoretical idealism looks far off but that thought would be nirvana for progressive, ‘Silicon Valley-esque’ technology industrialists. From his/her viewpoint a singular electro-mechanical solution would provide massive opportunities for a raft of new customer products based on a technological & industrial convergence and massive economies of scale. Indeed the ‘mobility landscape’ could be exactingly cultivated.

As to whom the spoils of such a revolution could go depends greatly on those who seek a way forward in devising a plan and critically moulding the right technical basis (whether L-ion, Polymer-based or even advanced Ethanol packs) merged with manufacturing scale-ability for massive output. (Such a specific ‘electric energy’ start-point would obviously have major implications for the range of vehicle designs).

But nevertheless, it begs the question…”could an Elephant like General Electric jump to create inter-vehicle segways with the vision of finding a Better Place?”

Tuesday, 6 May 2008

Company Focus – Ford Motor Company – Tracinda: Avoiding another Rodeo Drive

There are 1981 miles between Detroit and Los Angeles, and that figure will hopefully stand as a serendipitous good omen, because it was that year that finally started to see Ford gain traction after the 1970s oil shock(s) and aftermath that saw major market-share loss and a need for corporate overhaul. Obvious echoes resound today.

Take that tourist drive through the Ford heartlands of Indiana, Missouri, Kansas, Colorado etc (as many have over the decades) and eventually you’ll pull into the manicured streets of Beverley Hills. Disembark near Beverly Gardens Park, hop across Santa Monica Blvd into North Rodeo Drive, wander past the famed designer stores, cross Wilshire Blvd into South Rodeo and at #150 you’ll have reached the offices of Tracinda Corp.

With a 4.7% stake in Ford - intended to rise to 5.6% with today’s announced 20 million share tender - Kirk Kerkorian and Jerome York will be hoping their efforts at 150 Rodeo will have a major bearing on the future of Ford; the semantic irony being that the firm’s core earner - the F-150 pick-up - is seen at so many fairs and rodeos. But in reality, boardroom and stock-trend rodeo rides are the last thing Tracinda & Ford wants. But as ever much is about the capital market's perceptions of Tracinda’s end-game.

Some will say that at such prescient times as these, with major previous ‘drags’ dissipated (ie the UAW liabilities converted to VEBA) and high leverage giving large cash-piles, the obvious desire from activists is simply to see that cash-cushion used for dividends. Aspects of this may be true, but of course much depends on ‘weights and measures’ of the immediate yield demanded vs long-stay yield expectations.

The trouble is that activist investors per se in Autos over recent years have tended to have traded on the sector’s volatility through ‘shorting’ stocks. That scenario tends to develop when there are many micro & macro confluence factors of considerable impact, such as the previous UAW concerns and level of operating/fiscal inertia. However, when that impacting complexity decreases and operating inertia freed, the scope for such volatility decreases, so opportunity to ‘short’ decreases. We can see that opportunity in the Banking sector at present, but Autos has come through that period…or so the signs show. And so the ‘slow build’ looks to be Tracinda’s angle.

Kerkorian & York are recognised to have a different track-record to the ‘shorting’ or ‘heavy-handed’ activist. Indeed, one of longevity and commitment given Chrysler, MGM and MGM Mirage examples.

Though that’s not to say they remain inactive – active they are, and rightly so when circumstances demand. Given their not insignificant stakes, they are reputed to take a collaborative interest as opposed to a confrontational one at Board level. Though that isn’t what’s oft been reported given the 1990s Chrysler ‘debate’ (after Iacocca’s step-down) regards proxy battles, cash-cushions, dividends levels and Board representation. That ‘debate’ became more heated after effectual acquisition by Daimler in 1998, which led to Tracinda’s attempt to gain $1bn restitution, once it emerged that it was not a partnership, but a take-over. (Kerkorian claimed that Chrysler was being ‘milked’ by Daimler). And more recently, in April 07, he offered $4.5bn to Daimler for Chrysler, but the Cerberus offer for 89.9% won out. So it can be argued that Kerkorian / York understand that decent value-creation in the ‘auto-game’ takes time. Of course they’ll have an exit strategy, but appear to prefer income generation from a mix of dividend yield and slow capital growth, as opposed to more nefarious options.

But onto today, and the major focus will stay on Ford North America’s operational re-build, buoyed by the impressive Q108 cost-saving of $1.2bn. Ford states that that is expected to slow to $2.6-$3.2bn for FY08, suggesting that perhaps big ‘tailwinds’ like Global Fiesta’s engineering that possibly helped Q1 figures aren’t understandably as sustainable. Of course Ford could be giving such guidance to latterly surprise capital markets, but analysts will have calculated where the 08 year’s Q2/3/4’s additional savings will originate from and to what degree they’ll shape overall contribution.

And beyond NA, the real question hangs over Europe, and particularly Germany as the country’s industrialists air the high possibility of German/European economic contraction as the effects of the Credit Crisis hit commerce and consumers. Ford Europe (and Latin America) once again assisted with strong results and thankfully for Ford their European product mix will improve in the B and latterly A+ segments just as the possibility of a down-turn hits European consumers who’ll be looking for conservative small car purchases.

So, by starting to hit a new product mix ‘sweet spot’, NA will be greatly assisted by introductions of new F-150 ‘cornerstone’ for business and private buyers, with ideally the larger F-series models with cylinder-deactivation for improved highway MPG. Below F-series FMC could follow GM’s lead in re-introducing the car-derived pick-up segment for truly fuel conscious, less demanding utility users, importing Falcon Ute from Australia, though current FX rates dictate that margins would be slim even at production price transfer-costing – GM are positioning their ‘SportsWagon’ (based on the Holden HSV Ute) as a trendy-lifestyle pick-up. [Though with a street named El Camino only a block away from Rodeo Drive, York may see that serendipitous too!] But the truth lies in whether such a project is used to simply provide export capacity for an export desperate Ford Australia or can actually make money. For all the serendipity York will want to see fiscal traction not the treading water of foreign operations. Additional NA launches include the Flex ‘muscular station wagon’ CUV as a modern-day spiritual successor to Explorer, and the upscale Lincoln MKS for wallet-strung Euro-premium migrants seeking more affordable luxury. (Latterly, extremely important is the successor to Taurus…vs Camry & Accord).

In Europe Kuga should theoretically gain a following – though we reserve judgement given the ‘badge credibility’ dimension of CUVs in Europe, and of course Global Fiesta (and latterly regional new Ka) will provide very good returns on programme spend.

Of course although vehicle launches are key, Tracinda will be looking at the business’s complete structure for value enhancement and divestment possibilities and recent remarks from Jerome York demonstrate that Ford management will be pushed to demonstrate why FMC should continue to hold onto Volvo and indeed Mercury. And in this regard investment-auto-motives has also privately questioned reasoning and possibilities (in terms of product renewal vs divestment) of the 2 divisions. When PAG was set-up Volvo was the group-wide originator/deployer of safety related technologies, It’s core brand values of ‘Premium’, ‘Safety’ and ‘Eco’ strike the perfect chord for today’s consumers, so the question is whether to keep pushing and develop a continuum of cars that stretch down and out beyond C30, or sell the whole entity to another automaker or perhaps Private Equity firm whilst the goodwill and value potential of the brand is apparent.

Indeed, would York be thinking, as we are, that Tracinda could buy Volvo from Ford, so releasing FMC internal management pressures and creating a new legally separate auto-company that derives much of its platform base and (initially) key technologies from FMC? That "2 birds with 1 stone" scenario could suit Tracinda very well indeed. The execution of ‘bygone’ Mercury (in the US market) would also provide additional market share potential for the Volvo brand. At this point with disappointing Volvo results Tracinda could see a ‘steal’ opportunity but conversely Mulally will want to build-up Volvo’s P&L and Balance Sheet if he were to divest at maximum price instead of selling under-value to a ‘pally’ shareholder.

As regards Mercury, there could be great value in selling the once great and progressive marque to any of the highly liquid Chinese Automakers. Such a buyer could then eventually vie against the highly powerful GM Buick brand in China, and create a likelihood of returning the ‘Eastern cost-stripped’ brand back to the US market at a later date. Once again Tracinda would perhaps like create and capture this opportunity.

Finally on the brand front is the major ‘polish-up’ of Lincoln is necessary to regain the luxury ground. In real terms Lincoln has been languishing given the truly beautiful concepts displayed over the last 5 years, only the very basic elements unfortunately diluted into production cars. Lincoln needs to re-energise as Cadillac is seen to age and become outdated. Historically Cadillac and Lincoln have swapped leading positions for periods of time allowing each to ‘own’ the US Luxury market; we’d expect this to continue, now towards Ford’s favour.

In a broader context, Ford has like GM been able to cut production rates and deplete excess ’08 vehicle inventory, though as has cited, incentive levels have started creeping up again to shift the vehicles – this margin reducing effect of course co-created by Edmunds’ own TMV (True Market Value) vehicle pricing comparison initiative. However, the ongoing dealer rationalisation programme and dealer buy-back initiative will from now on stem the ravenous local and inter-regional competition that has forced the downward spiral in car prices, so giving FMC more leverage over pricing policy and help independent dealer bartering, assisting both supplier and dealer in ensuring improved margins.

As described, at the other end of the value-chain is input prices and although raw material prices have escalated over the last few months - steel more than others at 63% and 71% for mid and high grade, and coking coal at 240% - FMC has managed to counteract with labour costs re-alignment through Ford ONE’s amalgamation of global engineering development efforts and global procurement, including very probably the devolution of certain engineering responsibilities to Tier 1 suppliers and project outsourcing to capable programme engineering firms

All in all, Tracinda’s decision to enter the Ford Fray at this point appears to be extremely valid. Kerkorian and York will be over-seeing that Mulally and his management are indeed keeping to strategy and schedule, and Tracinda itself (as with the Volvo & Mercury examples) will be avidly looking to see which elements it can cherry-pick from Ford, and will be looking externally upstream and downstream of the value chain to see what other strategically advantageous firms to FMC can be snapped-up and sold onto Ford to assist the re-build.

And this looks to be Kerkorian’s end-game. To be part of, indeed construct much of, the value creation process for FMC. Able to gain ‘measured’ cash-pile derived dividends whilst gaining from specific ‘divestment’ and ‘bolt-on’ M&A opportunities that underpins operational and product range improvements, so building mid to long-term share-price.