Friday, 31 December 2010

New Year's Message – Individualism – The Real Path to Building the Future

The causes of the financial crash, which created such privation in the western world, have been given a very general, popularly accepted notion - the avarice of bankers and incompetence of regulators.

Whether this stereotype avails because it is infallibly true, or a simplification of reality remains to be seen, the numerous central threads of the crisis documented thus far by willing authors and publishers to hopefully be woven together to form a truly reflective picture at some future point. Yet, today that is how popular perception views the situation.

Undoubtedly, the financial bubble was created and sustained by an intertwined co-dependency on financial leverage, a dualistic – inevitably parasitic – relationship between the financier, the asset class and the market. In this case mortgage companies' desire for growth, the availability of residential and commercial housing stock, and the public's expectation to exercise the right to own in a seeming golden age.

This made for perhaps the most heady financial mix ever seen given the number of banks operating, the size of the western world's housing stock and the appetite by the common (wo)man to enjoy not just a home of his/her own, but the fruits of an ever upward price spiral.

But as the asset class grew in value so the stakes grew higher, and so more nefarious activities emerged. Beyond the questionable use of 'self-cert' mortgages – which itself highlighted the extremities of 'strained credit' at the time – additional self-serving desires played a role.

The equally ever-stretched credibility of the CDO (and CDO2) package [reportedly] invented by Soloman Brothers in the mid 1990s) had engulfed Wall Street, its own already squeezed credit-rating credibility additionally brought into disrepute by the use of 'phantom signers' within finance houses to create a perpetual motion of supply and demand. Indeed it may also be the case that the 'phantom signer' may also have been 'invoked' beyond even this at the demand end: possibly used to help finance companies assist developer-type clients, who in turn tend to hold those larger commercial / semi-private loans which were of greater importance to a lender's balance sheet.

[The very appearance of the 'phantom signer' has created perhaps the largest legal tangle in the US, creating a situation wherein defaulted borrowers are able to stay in situ within their premisis since the long paper-chain of mortgage documentation and ultimate ownership rights has been lost. This largely affecting the bottom end of the housing chain, that could feasibly create a grid-lock in portions of the housing market for years to come. Which could itself act as a negative force regards the necessary de-leveraging of this asset class vis a vis the commercial de-leveraging of the both nations' cost-bases. This creating a pricing vacuum between buyers and sellers].

Many have said that this latest event was a story as old as the hills, and regale tales of the the South-Sea Bubble, the Tulip Bubble, the 1862 London stock crash, and of course the 1907 and 1929 Wall St crashes. But this latest episode was not restricted to pure stock speculation, as were its forebears. It went further into the very heart of what should be responsible capitalism, which itself is born from the very notion of inalienable private property rights.

Thus beyond PIMCO's mention of a 'new norm' (with which investment-auto-motives agrees), the very cornerstone of western capitalism could still potentially find itself at a philosophical cross-roads. This due to what may be a crumbling belief-system amongst the masses and national populace, from Athens, Georgia in the 'battling' USA to Athens in a very 'disheartened' Greece. Whilst the capital markets appear to be functioning, albeit with event driven volatility, the real question pertains to exactly what the new norm ultimately looks like; even if possibly disguised by the recent bounce back.

It is at this time, here in the west, that the 'healing rhetoric' is being offered, where a less believing public are being 'nudged' by ever more tentative political bodies of whichever persuasion and the idea of 'society at large' is being resounded. Yet the masses will take much convincing, if at all. We do not live in a bygone age where the individual is connected to society through a series of irrefutable relationships: family members are spread, community links and spirit largely inconspicuous in metropolitan areas, the church with far less influence etc etc.

In short, as the 1960s post-modernists would have it, the turn of the century saw the end of the 'Grand Narrative' that had been the social glue, whether through State, or Church or National Ideology.

Thus, in the real-world, the notion of 'society and the individual' is largely a fatuous one. The 'insularisation' of people over the last century or so has been a two-sided coin, offering people greater privacies, freedoms and self-governance, whilst also de-constructing the old ways that seemingly sustained mind and soul, even if it be naively so via largely institutional organisation.

So the 'new social norm' is not so recently emergent as the 'new economic norm', yet the two sit side by side at present. And this creates a very new socio-economic terrain for the west. Some will undoubtedly say we sit at the beginning of that much heard 'new world order', where the individual becomes a servant of commerce – possibly seeing facebook as the emergent broker; especially given its founder's aspirations to use it as global industry's interface.

Yet it is also one in which the masses of the west finally open their eyes to the very real physical connectivity to the world at large, one in which the populace and social competition of India or China becomes truly real, instead of some personally ascribed far off notion no matter how well conveyed by the pages of the FT, WSJ, Economist or more partisan tabloids.

[NB The fact that the Indian published 'The Economic Times' has as the world's 3rd largest circulation of an english read financial newspaper says much, albeit the title is an anathema to many in the west].

Thus whilst politicos convey the need to accord to social ideologies, people themselves consciously or sub-consciously will recognise the need to look harder than ever at the 'ideology of individualism'. For their own very real utilitarian and ultimately financial benefit given the reduced support of not only the state, but also the innate structure of corporations that see the human opportunity of the east, offering capabilities far beyond the low level call-centre.

Individualism – especially that of the high-minded - has of course always been with us, at the heart of all great empires, to maximise the willing productivity of its people and nationhood. It has generated new ventures of all kinds, ranging from the high-risk adventure efforts of Shackleton, Scott and latterly Feinnes, to the academic pioneers who saw commercialisation of their discoveries from Marie Curie to Tim Berners-Lee, to the less visible but purely commercial efforts of many entrepreneurs throughout the ages. Individuals who sought to do things their way and create new value for themselves, employees, latter-day stock-holders, and society at large.

For myself / investment-auto-motives, perhaps the greatest relative examples of this 'individualistic drive' being various names in the auto, investment and governmental realms.

In the auto-world the likes of Karl Freidrich Benz (as distinct from the Daimler-Maybach work) for fore-sightedness, of course Henry Ford for appreciation of the far bigger commercial picture, and the downright pluckiness (even if wholly mis-judged) of Preston Tucker who help blazed the path for vehicle development.

Whilst perhaps individualism is harder to identify within the financial field, the old banking names of say Peabody and Morgan(s) stand out for their personal conviction in creating a better world both commercially and socially.

From a governmental/regulatory perspective, individualism is almost an anathema given the innate consensus process, yet mention must go to those who might remain nameless but who 'cleared the way' for innovative an commercial progress. Perhaps the most pertinent here being the UK's 3 'Locomotive Acts' (inc the red Flag Act) between 1861 and 1878, which although initially physically encumbered the physical speed of those first cars, provided for their gradual public acceptance via the very 'checks and balances' imposed on those 'new fangled contraptions'. A later 1896 Act saw these restrictions removed and the 1898 Act formalised vehicle specifications by which a burgeoning British & foreign industry could abide. Whilst the 1903 Act saw vehicles registered to owners and so provided for public responsibility and equally responsibility toward the public. This then shows the progressive stance that late Victorian politicians took on such a breakthrough industry, itself set to propel affiliated full supply-chain industries, from raw materials to retail.

Yet as a singular archetype, the modest yet wholly focused aeronautical brave-heart and hero Charles Lindbergh, perhaps serves best as a near human-deity in our machine-enabled, commercialised age; advancing the belief in the mechanical capability to create a speedy global network of trans-ocean trade.

Thus whilst society is undoubtedly of great importance for the individual, so the progressive yet pragmatic individual has perhaps a greater proportionate (ie a dis-proportionate) influence on society. This so because individuals more instinctively recognise other individuals.

This was undoubtedly the case for Henry Ford, who himself, like so many of his countrymen, grew from a 'simple' farming family. His experiences resonated with the words, essays and general philosophy of Ralph Waldo Emerson (1803-1872). In particularly the essay 'Self-Reliance' of 1841.

This renowned piece starts with a prologue from elsewhere that reads: "Man is his own star; and the soul that can render an honest and a perfect man..” And very early within the text the nub of the essay is scribed with the words: “To believe your own thought, to believe that what is true for you in your private heart is true for all men, — that is genius”. Although not the most high-brow of Emerson's work, this positive diatribe had a massive effect on the new industrialists in the mid-late 1800s and served Henry Ford as an ideological template in his determination to follow his path forward.

In the UK the American's contemporary was Samuel Smiles, a Scottish-born Reformer who saw the ills of his countrymen, their circumstances and what could be done to improve their lives, both intellectually and so physically; acting as an admittedly somewhat middle-class bell-ringer for social improvement for those at the bottom of the social tree.

Likewise, he quoted from other useful sources, and from JS Mill gleans “The worth of a State, in the long run, is the worth of the individuals composing it”. This strikes the central chord of his attitude, much like Confucian thought thousands of years earlier, in that it is down to the individual to improve themselves, which then in turn improves their family's circumstances, then affecting the community, and so en mass affects the all the nationwide. But he was also a staunch reproacher, who cited bad habits – especially that of personal financial imprudence – as being the undoing of many men and women:

To quote: “Times of great prosperity, in which wages are highest and mills running full time are not times in which Mechanics' Institutes and Schools flourish, but times in which publicans and beer sellers prosper and grow rich...A workman earning 50s. to 60s. a week (above the average pay of bankers' clerks) was content to inhabit a miserable one-roomed dwelling in a bad neighbourhood, the one room serving as parlour, kitchen and sleeping-room for the whole family, which consisted of husband, wife, four sons, two cats and a dog. The witness was asked: Do you think this family was unable to get better lodgings, or were they careless? They were careless, was the reply.

Aswell as seeking the best from men, to build a better world, Smiles also undertook biographies of those he esteemed. Many of them were those who had been central to the British civil engineering boom which gave commercial prosperity and so economic growth to Britain's Industrial Revolution; the likes of Matthew Boulton, his affiliate James Watt in steam engine development, and George Stephenson's application of the device as the railway locomotive (beyond Trevethick's earlier work).

Samuel Smiles's philosophy of thriftiness has historically drawn scorn from Keynesian-leaning economists who view such behavior as limiting the availability of private capital for commercial use, as was largely the case by those in mid-Victorian Britain who had long memories of the past and saw the 1862 stock collapse.

Yet today, the west's modern banking system has evolved since the 2008 debacle, albeit slowly and begrudgingly, with higher capital reserve ratios set in place to provide greater public confidence. Regulations are being rewritten with previous debate about re-enactment of a Glass-Steagall type Act in the USA, the recent stability of capital markets undermining the doom-mongers.

So whilst the west continues its 'de-leveraging diet' formed from previous credit spurge, so the shock of the last 3 years has generated a new outlook amongst many to become far more responsible about their financial affairs, and to return to their grandparent's philosophy that was to 'save and prosper'.

It will be this allocation of publicly sourced private funds, along with FDI from the EM regions, that will help to re-buoy the west. It will take many years to recapture the 'good old days' but at least the financial world and consumers themselves will be on a sounder footing.

And as part of this process will come an understanding that much responsibility lies with the individual, not just the reneged responsibilities of the supposedly 'sleeping state' or the 'greedy banks'. We unfortunately don't live in a perfect world, the worst excesses of a base human nature often in the financial press and the cause for widespread social consequences.

Yet, more than ever now, it will be down to the individual to find their own way in creating their future; their own path.

As the adage goes: “The future starts here”,and it is a fact not lost on billions of people elsewhere on the planet. So there is perhaps no better attitude and way to enter 2011.

Saturday, 18 December 2010

Christmas Message – Responsible Capitalism - the only real way forward.

Here in the West, for many people the forthcoming 'Austerity Christmas' will bring about intrinsic personal reflection, with self-generated questions pertaining to a very definition of value, in all its senses.

Over much of the last decade, many people – thought of course not all – have enjoyed what at times seemed a super-charged lifestyle, the scope of what was considered normal being a 'lifestyle entitlement' pushed ever broader and deeper. Such an expectation fueled by easy credit, the upward escalator of the material world, itself driven by 24 hour media, and the desire for ever more exotic experiences, from travel to personal attentions services to provide ever more esoteric luxury dimensions to life.

Although since the 1950s the younger generation have enjoyed greater income and personal freedoms, the Gen Yers of the now homogenious middle class became the Bright Young People of the 2000s, but unlike that enclave of the monied class in the 1920s the more recent emergence of BYP's were nationwide, who could at weekends literally live the 'high life' no matter what their background. Champagne of whatever Cru and cocktails became de rigeur in metropolitan areas, even if that be not quite the Cristal popularised on 'Bling' music videos and a preferance for Mojito cocktails. The pretence of holidaying in the Maldives or Cuba, or at least psychologically 'living the dream' could be had even if the actual holiday trip had been a package deal to a less salubrious place.

In the 2000s, the idea of luxury sold, and the archetype 'veblan good' reigned in the sea of lifestyle aspiration and the spiral staircase of ever higher expectation.

Materialism and consumerism has of course been part and parcel of an aspirant life since the beginnings of the industrial revolution, and 250 years later to that British invented schema, has become intrinsic to the life-blood of the world over; China's rise of course demonstrating its latest advocate for a better life.

But for the US and Europe 2008 brought the reality-check, the consequential economic strangulation has trickled-down into people's lives via the wrenching and writhing of slowly restructuring western economic models, as the very core of growth mechanisms are questioned and the cost-base of the West necessarily driven down via both commercial and public sector rationalisation.

Thus the leaders of western economies recognise the need for re-align to once again become globally competitive, yet that too has generated a USA vs European attitudinal split that sees the former taking greater steps to artificially inflate its way out of trouble, whilst the later stays as prudent as possible. Europe also trying to retain a sense of solidarity between floating and sinking member countries.

In short a pseudo-protectionist reactionary mentality has arisen, seen both in the USA and amongst the economically lost PIGS which add dead-weight to the Euro-model both in function and world-wide perception of the bloc-currency.

Thus the very value of what were 2 globally esteemed currencies are increasingly being considered and re-considered, on a near daily basis, set of course against the more muted but still ostensibly up-beat tone of the BRIC+ regions, themselves partially extracting themselves from the 'old-world' with ever increasing bi-lateral and multi-lateral trading agreements.

So it is at this time within the 'old-world' that the very question of how to define 'value' has arisen. Moreover, when identified in all of its guises, how it is created/obtained?

It is a question that reaches across from the individual's inward view... to government's outward view... to the players of the commercial world's facing up to the challenge as how to marry aspects former and latter via appropriated ratios dependent on both their fit in society and their place in their respective sector value-chain. Commercial conglomerates and industrial holding companies must view all of this from above as must the financiers within the investment community.

There has been much transition in the west even over the short period of the last three years, and it is set to continue as multi-nationals play both sides of the coin: maintaining the growth push in the EM regions and gauging the appropriate timing and level of western re-investment.

The expected rise in general input prices (as warned by the CEO of Robert Bosch) will probably be (when historically viewed) seen to trend as relatively slow, yet that trend line will be populated by bursts of speculation and correction as geo-political and nation-state economic events periodically send short-term investors to 'upward-bound' safe havens.

Conversely for the west, consumer angst still weighs driven by those basic employment concerns, private industry rightly insisting upon frozen wage/salary rates and flexible contracts and the previous expectation of state employees pertaining to job security and annual income increases now seen to be unsustainable.

Thus the context for all activities are being re-orientated, from B2B to B2C, from those related to wholly private consumption (from wealth management to automobile demand to fashion goods) to those directly concerning the national good (including infrastructure, health, energy, etc etc).

As a result of these shifting sands variously sized investors of various influence must both generate the trends of tomorrow and be able to track those trends.

Hence the 'financial interplay' between the capital bases of private finance, industrial finance and governmental finance has never been so simultaneously open and closed.

This era then is the period during which the 'old-world' West must essentially re-build itself to become once again globally meaningful so as to stand a chance of not being left stranded, increasingly remote and insular relative to ever-rising Asian, S.American, African and Middle Eastern 'new-world' global economy.

This issue then puts pressure on the commercial and industrial infrastructure of the West, and that means making sure the inter-play between governmental finance, industrial finance and private finance is all-together well targeted, harmonious and efficient.

With the 2008 collapse and intervention of governments, many commentators stated that the old capitalist model had failed and that a new ideology was sought. Yet ironically, today in the US, UK and Europe, as a result of these 'bail-outs' and rapid bounce-back by the survivors of the banking world it is the very nation-states themselves that are now weaker than ever, with cash-cushioned multi-nationals and the banking sector itself playing a greater part in 'holding together the western fort'.

It may appear strange to include within the Christmas message of a pro-capitalist investment advisory bureau the name of Vladimir Lenin, who as a Communist was against religion aswell as obviously capitalism, but his standing in that there are 3 types of alternatively avail ably sourced capital was and still is essentially true. As previously stated, these are: Government Capital, Industrial Capital and Finance Capital.

And their relative characteristics, expectations and strengths never in such sharp focus as today.

However, the first, Governmental - whilst obviously concerned with the development of the public good and is directed at projects and schemes that enhance national development - has never been so fragile. The second, Industrial- notionally itself a mixed economic model of publicly and privately sourced funds depending upon the region (previously say Europe in contrast with the UK) – today sees that innate ratio (of whichever previous ideology) tend toward greater self-sourcing or private sourcing. The third is of course purely privately
sourced capital, which historically was initially dualistic tending toward matured commercial sectors, and new (then new-world) 'ventures'; but through the latter half of the 20th century spread across a wide spectrum of sectors and the various growth stages of the various players in various particular fields as both industrial activity broadened and the types of players evolved and the types of instruments to assist also developed.

Thus, today even after the financial crash and the cries for fundamental structural economic change, the reality is that for the West it will be the strategic decisions of private finance and industrial finance that shape its future.

Thus whilst right to distinguish between capital's sources, and having his name recently echoed amongst the youthful yet aggravated intelligentsia of the university campus, Lenin's views have been proven by history as increasingly irrelevant, and could be argued today as being almost disruptive and destructive to the real-world challenge of re-energising the West.

[NB Communism and far-left Socialism proved to be an overtly idealistic and unsustainable economic model, one necessarily inherent high-mindedness and good-heartedness of (wo)men living within a falsely constructed social framework that disregarded the innate 'economic being' within most people, ranging from the purely utility-driven to improve 'his/her lot' to the inter-social competitiveness of a community for one-up-manship, thus Lenin's ideologies, whilst persuasive at a popularist level after the fall of German and Russian aristocracy in fact ran and runs contrary to the 'real-world'. A world in which it is almost a natural diktat that differing levels of inputs by different individuals of differing intelligence and capacity for work must be rewarded at different rates so as to be intrinsically fair, even if at purely the surface level of social impressions it appears unfair].

It is for this reason that the capitalist model - though admittedly with inherent faults that requires checks and balances - is becoming ever more dominant. The historical trend for increased general wealth perpetuating the growth story in less developed regions and so increasing the standard of life for those with little and exposed to the very real dangers of life whether natural or man-made; from the ability to buy medicines for curable disease to escaping poverty-stricken shanty towns and ensuring the next generation has access to education.

We live in a world where for many westerners the financial fortunes of west and east have rapidly switched, and to this end there is an understandable dilemma as to how capital should be attributed.

Although perhaps second to the provision of innate human caring, the responsible provision and allocation of capital remains perhaps the most important challenge for government, industry and financiers.

The auto-industry plays a significant role in wealth generation, but also has been seen to be an agent of wealth destruction time and time again. So the decisions as to which of those automotive sector companies – throughout the value chain - deserve and gain financial backing must be made responsibly by all 3 providers of liquidity. This backing of course depends upon reputation and the outcome of a deep due diligence process. But must surely be primarily based upon past performance, a convincing demonstration that through the previous good times of the 15 years leading up to 2008 - and indeed throughout the financial crisis – what should have been value generative companies lived up to expectation and proved their worth as positive contributors to society.

This is not to say all liquidity should be directed at industrial activity, since the ability to generate value and so wealth for re-appropriation was seen by the 2008-10 capital markets re-bound itself. And since money itself is also effectively a commercial commodity itself so it should be allocated toward the greatest return potential, which includes various capital markets. Indeed, beyond talk of government bail-outs, without that investor based speculative rebound the West would be far far worse state than today, and it is only right that where markets inadvertently drag-down good companies amongst the fear of the bad, so participants within the same market must be able to cherry-pick the sound/good from the bad (as seen with say Ford seen at $1 vs GM) after a fear-driven collapse..

[NB To avoid such pandemonium in future, whilst the 'up-tick' rule is perhaps too 'prescriptive', investment-auto-motives believes that the concept of an 'warning indicator' could prove useful stability tool. Something which warns the market once of a company stock dropping to say -5% below an time-period averaged MarketCap or Book Value. Thus provide the market time to properly assess the fundamentals of a company and so be driven by rationality rather than emotion. This is still of course still leaves a company open to large-play investors running 'hard-shorts' to perhaps intentionally run-down a company, but today's much smaller concentrated private equity world will probably be less likely to use such tactics, instead being seen to be part of the broad value building process].

At the beginning of this new era to do anything less would be disingenuous to both the populace of the West aswell as the fundamentally sound ideological platform that is responsible capitalism.

This then is the central Christmas Message from investment-auto-motives to one and all.

Whilst it may not convey the usual tome of seasonal rhetoric, it hopefully stands as part of a sustained and longer-term reason to cheer, long beyond this Christmas, the next and many of those thereafter.

In the meantime, for a couple of weeks or so, it is...

'Time to See Beyond the Bottom Line'.

My Best Wishes


Tuesday, 7 December 2010

Company Focus – Aston Martin Lagonda – Stretching its Wings with Cygnet.

The emergence of the premium city car came about with the Daimler's brave introduction of the innovative A-class in 1997. It was quickly nick-named 'The Earl of Sandwich' amongst the UK auto-industry given its high price position and innovative twin-layered floor.

Developed from the smaller 1993 'Vision A' concept, which size-wise sat equidistant between production A-class and >Smart ForTwo, so spawning 2 original concepts for the German corporation. A company which at the time had enough liquidity and credibility to take over Chrysler so as to seek platform synergies, accordant cost savings and operational stretch across a broader consumer market. History shows how this corporate ambition flailed, but the A class, along with its less numerous but technically visionary Audi A2, set the scene for establishing the genre as a credible sector.

Premium small cars had been undertaken before, as seen in the 1960s with the effectively coach-trimmed Mini offerings from Hooper Coachworks for Peter Sellers, Wood & Pickett for George Harrison of The Beatles), and the Downton variant, all of course based on the original primary premium small car, the performance orientated Mini Cooper & Cooper S. FIAT of course had Abarth & Giannini variants of the 500 (Cinquecento)and Renault the 8 Gordini.

The French in particular applied up-market fashion-label marketing ties for limited run editions - as seen with the Peugeot 205 Lacoste and others, this effectively copied in the late 1990s by Rover Group for the limited edition Paul Smith 'designer' Mini.

And obviously, those original, inspiring auto-centric monikers have been of course been revived, since the re-introduction of Mini by BMW, the 'Cooper character' utilised as the 'centre of gravity' when devising the reborn range. Abarth and Gordini more recently used to give provenance to the Italian and French makers' higher priced variants. So far the FIAT 500 Abarth Ferrari edition, and one-off Rolls-Royce trimmed Mini reflect the ultimate yet.

Thus it could be said that where possible in the 2000s, most small car makers have adopted the idea of “Putting on the (Mini) Ritz'...and in doing so, as the song says 'Trying very hard to look like (Gary) Cooper.”

Harrods of Knightsbridge, here in London, currently showcases the latest premium city car offering, with Aston Martin Lagonda's much awaited and debated 'Cygnet'. Never have the Aston 'wings' adorned anything so brand-radical, such a small and up-right car sourced from a mainstream producer, re-worked heavily cosmetically and partially mechanically.

It is a landmark vehicle for the company, which although today stands bigger and stronger than almost ever thanks to Ford's previous governance – especially when compared to its its Lionel Martin 'origination' or David Brown / Victor Gauntlett 'stewardship' days – faces very different business challenges. Back into the private ownership hands of UK and Middle-Eastern investors, today the company must leverage its past experience which brought both increased professionalism, improved commercial acumen, scale growth and so production economies, advantageous infrastructure facilities, a worldwide dealer-base etc.

In short Ford help massively to provide the 'spring-board' for the firm to develop into a very different entity – stronger and more ambitious – and having to be so to convincingly compete against those 'parentally protected' such as: VW's Bentley, FIAT's Ferrari/Maserati, Daimler's Mercedes/AMG and assisted McLaren, BMW's M-series and even Rolls-Royce with its expected Ghost Sports-Coupe.

This independent AML however, like all premium auto-makers, did suffer heavily from the consumer impact of the financial collapse. So beyond pairing back to the bone operationally, this headwind event along with important others - such as the critical incoming CAFE-type emissions regulations - has made the management at its Gaydon HQ think differently about exactly how to create a tenable and ideally prosperous future.

It unsurprisingly sees that through expanding the business both in terms of breadth by re-introducing the Lagonda marque at some point, and expanding the Aston Martin product-line and so reach into new premium markets. That has meant the introduction of the 'Rapide' 4-door coupe and recent preview of 'Cygnet'. These more nominally mainstream cars thus respectively give additional 'breadth' and 'depth' through sub-sector entry, and thus herald new stakes in the ground as claims for new territory.

However, even before the event of the 2008 financial collapse and even on the back of record global unit sales, AML will have recognised that its independence and self-reliance would only be possible with external assistance from one or more major manufacturers. Hence, to try and obtain the reduced procurement costs available to their counterparts, to provide accessible technology streams ideally across the 5 prime vehicle engineering areas so that AML could better devise its own R&D strategy, and so to offer the possibility of adapting and utilising off-the-shelf systems, whole platforms or indeed whole vehicles. The ambition being that these out-sourced R&D and tooling items have already absorbed in part or fully through a 3rd party's own in-house project amortisation.

As CEO Ulrich Bez and the company's owners saw the 2007/8 demolition of both private wealth and effectively closed bank funding access the decision to act strategically and quickly on what were probably already seen as plotted strategic possibilities was taken: to both maintain backing of 'Rapide' with in house resources, and leverage Toyota and its (as yet to be applauded) iQ model to provide for Cygnet.

Thus Cygnet has been a leap of faith on many levels.

However, although large by UK independent manufacturer standards, AML is in structural capacity terms a minnow when compared to VW, Daimler or BMW, so fortunately without the obligation to fill factory production space. Indeed it was always known that 'Rapide' would be assembled elsewhere, as stated in the previous Arabic post, originally ideally in Kuwait given Investment DAR's national development interests, but almost always set for the likes of Steyr (as seen), Huliez, Pininfarina or similar to ensure project delivery timing and product quality.

The ability to process manage 'Rapide' outsourcing in a professional manner (as oppose to the ad-hoc method with earlier 1960s-80s projects) plus the experience of former interaction with Ford's PAG should have step by step generated a level of ease within AML regards running what are effectively joint-venture vehicle programmes.

Thus, from a market perspective, given he apparent buoyancy of the premium small car sector (and the CAFE need to off-set AML's large car V12 & V8 emissions) it was inevitable that a small car project exploration would take place. And given the realistically restricted options available, any project solution would involve adoption of a major car maker's A or B-segment vehicle. The Germans would not (understandably) be willing to share proprietary technology with what is seen as a high-threat competitor, so it was no surprise to investment-auto-motives that Toyota – already a supplier of power-train to UK sport-scar builders and with its own UK manufacturing presence and good political relations – provided the (iQ) platform as the basis for Cygnet. Indeed, from a commercial angle, almost a given 'on a plate' since the top-spec, fully-loaded Japanese iQ models – typically unavailable anywhere outside Japan – could be used as a base.

However, it has caused much debate, both by those shoppers and tourists in Harrods, within the auto-industry and amongst the public-facing car press.

Of the former, a very quick, informal survey of those those that eyed the IQ showed unsurprisingly men frowning and women smiling. In the latter it has divided 'for' and 'against' opinions respectively between the editor of Autocar magazine and a contributor to Marketing Week magazine.

The differential being that there is a major chasm between 'brand extension' as with Ferrari's use of caps, shirts etc (ie merchandise) and 'product-line extension' as reflected by a new vehicle product launch (ie as part of core range). The argument is that these two very different actions have different affects on the core personality, credibility and so reputation of a brand. Much of course depends upon the execution of the newly introduced product, in essence “how true is it to brand DNA amd general perception” and indeed “how much DNA-stretch do the products of a particular brand actually have ?” Get it right and the result flies off the shelf...get it wrong and it could convey the practice of cynical cold marketing.

From a generalist perspective regards the Cygnet case, investment-auto-motives agrees with the concerns of the marketeer. For most 'autophiles' who respect the lineage and GT/racing character of Aston Martin it is indeed a stretch far too far. The product execution of heavy 'design cue' adaption of an iQ is not credible. Akin to a shapeless, wannabe gym-bunny decked from head to foot in sports-logo sponsored lycra...but inevitably destined to sit infront of the TV.

This was precisely why investment-auto-motives wrote a column pointing out that Cygnet should be branded Lagonda, so as to sit alongside its future (possibly Daimler sourced) Lagonda badged SUV big brother. In essence to create the rational basis and segment stretch for a new domain of
vehicles, Lagonda as an affiliated but distinctly separate brand to A-M that had the innate new-brand flexibility that enabled credible adaption of others' products; that was the central raison d'etre.

[NB investment-auto-motives believes the down-sizing west presently lives through an era pertaining to the 'paradoxical premium'. This was previously noted in the TV advertising for Mini 4 (ie Countryman), and conveys to the consumer (and allows him/her in turn) to demonstrate a level of 'constructed irony' regards the premium good. It follows in the pastiche tradition, and is brilliantly demonstrated by a product and display toward the rear of Harrods.

Here the Theo Fennel brand has produced fine silver crafted 'coats and caps' for the classic everyday items of the English breakfast table, ie HP sauce bottle, Heinz ketchup bottle, Marmite jar, Coleman Mustard jar and other similar condiment items. These silver casings are blatantly superfluous to function, yet 'work' as they combine innate grandioseness with the balance of contextual humour. In short a psychologically and sociologically balanced premium offering for a mundane activity.

Such examples should be 'digested' to help inspire similar efforts within the automotive realm. A light-hearted attitudinal direction may have seen Cygnet 'play' further on its origins, in a similar vein to the 1998 New Beetle's inclusion of the abstract flower and vase alluding to original Beetle].

However, here is the rub for marque purists with regards to Aston Martin.

Having previously set-out the strategic imperative, it seems that a very real operational, short-term cash-flow rational has been the basis for the A-M badged Cygnet. Cygnet is very probably helping to underpin that all important corporate agenda right now: accessible and low cost working capital.

Gaydon has undoubtedly given the issue much thought, and reached its conclusion that beyond the fact that the global A-M global dealer-base needs new product beyond Rapide which accords to the times and broadens the client-base. Yet more important for the AML HQ is the fact that short-term pressures to generate income is very probably nigh on critical.

This period is all too telling, since having seen the peaks and troughs of the company's past, Dr Bez and colleagues undoubtedly wish to stabalise the sales/income curve. So as to overcome the all-too typical wide-swing cyclicity typically seen by independent premium sportscar makers. Gaining improved control of the demand-side of the business model as well as the supply-side is the ideal of all companies, but perhaps none so much as the likes of AML with so exposure to events such as recessions, oil crisis, 'down-shifting' sociological trends etc. (This is something both Morgan and Ferrari at either end of that spectrum in size and product offering have done).

The ultimate paradox for the brand purist is that – depending on its production numbers and 'exclusivity' – the parody Cygnet will sell well. There is always a market for limited number, exclusive club fashion goods, no matter what their logical or pseudo logical rationale. And that income will be welcomed by Ulrich Bez, Dave Richards, John Sinders and the Kuwait based EFAD Group / Investment DAR.

Whilst those high net worth ladies who have earned their own wealth take a male attitude toward the car, and would only ever buy a Vantage or better, the Cygnet is the perfect 'designer' Christmas present for those cosseted daughters, wives and girlfriends of wealthy men. Importantly, it is only available to Aston Martin customers, thereby generating a level of demand amongst a section of people who want to have themselves recognised as the preferred clients of AML.

Moreover, it will probably act as as the 'City run-about' for wealthy families who have a car 'tied' to their London, Paris or Milan apartments sat within basement car-parks. Or indeed as the 'Marina run-about' in the guise of a pseudo modern-day successor to the canopy-topped, wicker-seated FIAT 600 Jolly. But for most users inhabiting the suburban fringes, it simply allow them to say “my other car is an....Aston Martin”. Cygnet then, being AML client only, acts as lifestyle mirror for times when driving the 'real' Aston is inconvenient.

Indeed, very probably the Arabic owners of AML and Harrods will individually take one or two so as to help prop up the company and their associated holdings – and if one were in their position of company stewardship and wealth, one would have to ask “well why not?”.

Yet, let's hope that they also ask for the Lagonda-bronze body colour and an after-fit Lagonda badge. Why just start a fashion trend, when you personally have the capability to start a new company?

Those lucky few will just need to find a very large, car-sized, box that says “Eid Mubarak” and “Merry Christmas”.

Wednesday, 1 December 2010

PESTEL Trends – Arabian Auto-Culture – The Need Re-Direct the Car Culture Drift.

The world over, history has proven that powerful cars and young men can often create an ever increasingly dangerous public environment. Given that the car acts as such a potent facilitator for physical & spiritual freedom, and acts as perhaps the most publicly apparent status symbol, it is little surprise that youth and cars make for a potentially hazardous mix.

This has been the case from 1950s America and its quarter-mile drags encapsulated by the Hot-Rod & Muscle-Car culture, for 1960s Britain and tuned Ford 'Pops' and Mini's, for 1970s Germany and 1980s Mexico with tuned VWs, and for 1990s Japan with big RWD coupe performance models which led to the 2000 craze for 'drifting'.

'Drifting' is the colloquial term for 'power-slide over-steer' and it has been a trend that has migrated from suburban Japan to across the world in the last 20 years, popularised by the availability of affordable powerful used cars and coverage via high-visibility public and private media platforms.

A plethora of 1990s-2000s sports-coupes and performance saloons became available – typified by the Mitsubishi Starion / GTO (its named derived from former Pontiac and the pre-cursing original Ferrari), the Toyota 3000GT / Supra / Soarer, the Nissan 200SX /350Z, the Honda Prelude. This trend generated the iconic Subaru Impreza & Mitsubishi Evo - the rallying achievements of which set the tone for drifting and stunt-driving – followed by the 'FWD' 'Hot 4s' such as Honda's Integra and Type-R series.

As stated, popularisation was generated by initially coverage by mainstream broadcasters of side-show events at official motor-sport, with the trend trickling down amongst dare-devil youngsters (and the not-so-young) which was self-promoted via typically camera-phones and video-phones, the scenes of which were and are uploaded to primarily and other similar social-media sites.

Aided by video-console games such as Grand Theft Auto and a raft of driving games, the first decade of the 2000s has seen a massive growth in this youth-culture phenomenon, it being a natural result from 20 and 30 somethings previously high disposable income levels, the parallel game-related virtual world and ever greater need for status. Thus the amalgum created a turbo-charged car-culture.

Yet it of course also comes with high social and economic costs. Costs which national governments and regional police forces obviously identify as detrimental to the overall public good. Of course, well policed, ably governed city-centres, suburbs and environs typically limit the ability of potentially dangerous, adrenalin-charged drivers (and 'egg-on' passengers) to do as they please.

But even in such controlled areas - as typically seen in Japan, the UK and across Northern Europe - the two obviously opposed agendas of youth and police often leads to a type of 'hide & seek' eventuality that creates an unfortunate climate of ever greater risk-taking. This picture especially seen across the cities and towns of more provincial areas where arguably the car serves a greater ability for enjoyment, and that all important 'momentary escape' from the all too real 'hum-drum' of dis-satisfied young lives.

Today the Drifting trend is virtually global, from the archetypical night-scapes of neon-lit Tokyo Prefectures that give a road-grid for Japanese rich-kids, to the day-time adventures of newly motorised yet essentially poor twenty-somethings in Sao Paulo; using minimally-powered but crucially RWD cars.
[NB Given the inescapable fact that most affordable small cars are FWD, there has also been wide-spread use these].

Yet it is across the Middle-East that both types of rich and not so rich 'Aspirant Hero Drifter' are seen. Side by side within the ever-developing cities and geographically spanning quite remote regions separated by vast tracts of desert and very different regional economic fortunes. These of course linked by desert roads and the automobile.

From Abu Dhabi in the UAE, to Jeddah in Saudi Arabia to Aden in the Yeman, the availability of cheap oil, the socialized male 'entitlement' to the car and the high rate of infrastructure build (which provides new roads and the 'room to play' on de-congested highways) when combined means that in many cases (as with the west) the car has been re-utilised as part personal toy from its previous role as practical family tool. This runs across the social spectrum, but of course is most evident within the indigenous young male population who tend to enjoy high levels of personal income plus no or limited personal responsibilities.

So the activity has become a niche aspect of an already ingrained Arabic vehicle culture. One which spans a broad diversity from supercars to humble hatchbacks, from 'desert adventure' 4WDs to antiquated haulage trucks. Indeed, without wanting to appear blasphemous - vehicles have become almost physical icons with powerful significance. Sheikh Hamah bin Hamdan Al Nahyan demonstrates this with his giant-scale classic Dodge Powerwagon (eight times original size and acts as a house on wheels), his globe motorhome (one millionth the size of the earth), and his 200 item car collection that is open free to the public. As is evident, the car has almost as much cultural significance as the Camel or the Falcon.

So unsurprisingly, it has become an inward and outward expression. In the same vein as has been the case for the US with previously the 1950s James Dean types driving stripped pre-WW2 Ford coupes in the Mid-West, or the filmic inspired 'Blaxpoitation' Caddy's and Lincolns in 1970s Harlem, or the long history of Latino association with 'low-rider' Chevy Impalas and similar throughout Southern Californian and Florida.

This desire for 'tribal' self-expression comes in many forms: aesthetic and dynamic and has been a major aspect as how car culture has developed within all global regions.

Thus Arabia effectively mirrors and endeavours to develop what is seen on the US west coast scene. That as a 'start-point' the endemic Arab vs American differences, almost spurring on the Arabic youth in a competitive manner. Many go to extremes with vehicle development to metaphorically 'out-gun' the West, being bigger, better or braver; and so arguably go driving extremes to compete not just locally amongst peers, but also internationally upon the more virtual world stage enabled by youtube etc. Most extreme-driving participants will argue that they are in control of theie vehicle, and indeed 99% of the time this is the case given the high level of driving skills nurtured. But this of course leaves the 1% room for error.

Indeed 'drifting' per se has been adapted to what is know as the 'Saudi Drift' which comprises essentially of stunt-style show-boating on broad straight-roads in near deserted periphery districts.

As for the socially concerning act of stunt driving and traditional 'drifting', it has become a popular escapade amongst all Arab classes, indigenous and immigrant; from the flagrantly mega-rich with say a 'top-end' Porsche GT, Mercedes SLR or Aston Martin, to the 'mere' wealthy in BMW M5 series, to the middle classes in Toyota Camrys and Honda Accords, and even amongst those at the bottom of the ladder (who are typically male immigrants who financially club together to buy a car for both work transport and motorised weekend and holy-day fun).

[NB obviously powerful front engined, rear wheel drive models are better 'facilitators' whilst mid-engined Porsche's and Ferraris offer greater 'challenge' to participants, but also more dangerous social consequences given the inability to 'play' a mid-engined car so easily].

The ruling elites and police forces have watched this socialized male 'outlet' grow over the years, but no doubt find themselves caught between a rock and a hard-place, given that they must recognise both the social role this phenomenon offers as a 'socio-cultural glue' set against the high potential for personal and community tragedy.

Importantly, general car-culture and the popularity for Drifting is perhaps more prolific in the Arab world given its historic and endemic reverence regards 'manliness' and the innate hierarchical nature of the societal framework. And as such, thus encapsulates a broader age-range of the male demographic. Moreover, as seen in the west, the emergence of increasingly emancipated young women within a freer social scene offers both a new dimension to the all-male car culture, but also assists the 'drive' toward greater showing off and so propensity for danger.

So undoubtedly questions surround this pursuit of auto-entertainment, one which which has both its left and right feet respectively planted in sociological and economic roots. These are the roots that the governing classes are trying to husband by creating new branches which when ideally managed promote regional development, social integration and reduce the potential for social harm.

Moving the wealthy street-racers (who act as social leaders) from the suburbs and onto officially authorised and typically government-grant developed [F1 and GT class level) race-tracks has been a major effort over the last 5 years or so. Tracks such as Abu Dhabi's Yas Marina, Bahrain's International Circuit, Jeddah Race Way and the Losail Circuit in Qatar have been either specifically built or are being upgraded to not only encourage world-class motor-sport events that highlight a nation's standing, but also draw in amateur race events and public track-day events. These theoretically critically offer the track owners a smaller though more stable 'year-round' income stream, and offer a safe yet competitive environment for wealthy locals to play at being motoring heroes.

Furthermore, the development of these locations into broader entertainment parks, spanning music concerts, festivals and complete entertainment complexes - such as Ferrari World on Yas Island - add yet greater commercialisation opportunities, which also add to the social fabric of the city or state.

As seen perhaps most evidently at Yas Marina, beyond the obvious income-stream of Ferrari World type projects, a vitally engrained design remit when building these kind of infrastructure projects is to integrate within the architecture both the innate Arabic spirit and the desire to create globally iconographic silhouettes. To demonstrate that the Gulf respects its history and yet should be regarded as thoroughly modern

This ambition to promote historic and modern* 'Arabic Culture', aswell as demonstrating the Middle- East as the new 'Global Cultural Hub', has obviously been part of the regional development agenda for some years. Hence the new construction work – in the midst of the construction slowdown – that sees new satellite locations for The Louvre in the UAE and Saudi Arabia, and for the The Guggenheim also in Abu Dhabi, on Saadiyat Island. Internationally, Islamic Art has come to the for recently with exhibitions and auctions, such as the recent Sotheby's event, which primarily showcased contemporary works ranging from early 20th century European influenced Arabic works to late modern works.

Thus, clearly the 'east-meets-west' globalisation effect is regaining strength after the tensions of the last decade, with satellite museum and gallery projects helping to re-establish those inter-cultural links that have historically grown and waned.

[NB Here the news that Pearson Publishing's iconic 'Penguin Classics' brand will be serving the Mid-East market renowned western titles whilst also re-publishing classic Islamic texts is culturally and geo-politically a very welcome development].

Although there has been a strong vocalisation of opposition to such global commercialisation of museums and a galleries – typically by groups of curators and academics – such important cross-fertilization should be applauded since it both transmits-out and absorbs-in differing influences at artistic, popular and public levels. This especially important to the young who will have either studied in Europe or the US, or had wished they had been able to. Whilst the Mid-East is far far more informed about western ways than most outside the region would believe, this 2-way bridging of higher-brow cultures is important. Why shouldn't an American can read 'The Rubaiyat of Omar Khayyam', whilst a Bahraini reads Byron?

The Royal families and ruling elites of the Middle-East no doubt well recognise the importance of cultural development on local, global and ideally 'glocal' levels.

Hence the key will be to identify how the Arab culture can evolve within the context of previously dominant European and American cultures, yet also alongside those new cultural forces emerging from China,India, Brazil and elsewhere.

Thus having as broad a 'picture-scope' as possible will be key in the ongoing economic develop of the Gulf, as its seeks to continues to expand beyond reliance on oil & gas, yet also has learned from the property bubble that both helped and hindered its diversification plans.

As seen in Qatar, “Education, Education, Education” is seen as a prime pillar for future capability and expansion, the work of Sheikha Moza bint Nasser Al-Missned combined with public funding attracting big-name institutions from the US. Yet as has been seen, the apparent educational capacity has yet to filled, with the question of the ratio between local and foreign students seemingly unfixed and perhaps intendedly flexible.

Yet finding a way to deepen the presence of, and ideally marry, the arts, the sciences and use commerce as an enabler will be key. Using the academic realm to leap-frog other nations' R&D and industry sector capabilities where possible. The Qatari Royals know that will be the starter motor for the newly build economic engine.

And it is perhaps in the ambitions and hands of the 'internationally minded' young that progress will be made, ideally aiding the creation of investment possibilities within the automotive sector and its affiliate sectors, including the potential for technology-transfer. Even though automotive is thought to sit relatively low on the development agenda – surpassed by what is viewed as higher-value pharmaceutical, eco-energy, telco and the like – it is a value-generative force that should be harnessed. Especially so given the auto-obsession of the Arabic youth.

The regional web-logs devoted to local car-culture and drifting are peppered with English-based conversation between informed and educated members of the Arab youth, which highlight that the participants of this craze are anything but the 'brainless and bored' contributors of many global car-culture web forums. There is recognition amongst portions of the higher-brow young that the activity deservedly has a bad name given the irresponsibility that it both draws towards it, and indeed draws out of participants. Hence even the young see the need for improved control, but a control that does not eradicate the adrelin rush, or fragment the 'tribal bond building'.

What is noticeable is the desire for the youth of the Arabian countries to develop their own forms of self-expression, themselves noting that car-culture effectively started in the US - as have most modern trends – but also noting how it was Japan that evolved its own car culture to reflect its own identity – such as the Samurai Warrior tradition. These now global trends in turn being both absorbed and adapted (ie the 'Saudi Drft'), with what seems an intense desire to 'self-create' in their chosen fields. In short an identity led evolution of 'nation-layered' car culture.

This then is good news since it demonstrates that there exists a willingness by the though-leaders of young car-obsessed Arabians that this sphere has evolutional potential. To move beyond what are essentially imported car-crazes seen at the social level, and the imported (motor-sport) business models at the economic level.

The islamic world has in the past had grand ambitions regards regards the automobile, but in reality little has emerged as permanently to date. This ranges from Malaysia's previous ambition for its domestic Proton to become the archetype high volume 'Global Islamic Car', to at the other extreme of niche manufacture, the UK based Persian entrepreneur Arash Farhad developing high-end supercars. In the GCC, an intendedly grown core competence for aluminium smelting has generated spin-off sectors such as alloy-wheel casting and fabrication, yet these items are in turn exported for high-quality finishing elsewhere. This probably part of a trade-pact agreement amongst Arab states or Asia, given possible high labour content, yet it does also highlight the need to walk-up the value chain.

Thence, just as the GCC wishes to bridge international cultures, so it must build a staircase between its present low-value manufacturing and service capabilities and its high-value aspirations. To do so its member states must continue to investigate, adopt and possibly adapt a commercial framework drawn from past experiences both to its East and to its West.

It was hoped some years ago that the partially Middle-Eastern owned Aston Martin Lagonda could have constructed its new 'Rapide' 4-door coupe in the region. But from CEO's (Ulrich Bez's) perspective, the commercial obstacles and risk involved proved (rightly) too much of an idealistically-driven gamble.Too much of a risk to the company itself, then facing the real need for an additional model income stream, and of course its profit-sharing responsibility toward its shareholders.

Yet that flailed ambition would provide insight and future guidance, and so should be deeply investigated as a case study, the conclusion and recommendations of which to be used as a building block in creating that much needed 'developmental staircase'.

In short, the time seems right to halt the 'automotive cultural drift' witnessed at both social and economic levels, and to identify exactly how the car and the context of its use, can instead be used as a dual purpose 'perpetual motion vehicle' - something that sits equidistant between its new infrastructure projects and its renewed artistic heart.

As the sands of time shift, so should focus on the GCC's automotive world.