Tuesday, 28 August 2012

Micro-Level Trends – North American Bus & Coach (Part 2) – Evolving Producer & Operator Structures.

Further to the societal aspect of this topic seen in Part 1, this Part 2, provides insight into the internal dynamic of the industry. With critically, particular attention drawn to the lessons that have been, and still can be, learnt from Europe; where mass-mobility transport has typically been more advanced given its historical socio-economic construct regards public transport, and the greater geo-political integration since 1989, so boosting transcontinental and tour trades.

Part 2 – The Industrial Context -

The North American sphere has historically been divided into the prime constituent corner-stones of:

a) Chassis Providers
b) Bus-Body Producers
c) Bus & Coach Operators.

In its broad societal guise, the bus and coach system is a mode of public and semi-private transport that was historically viewed – especially by liberals - as intentionally under-funded throughout the 20th century. So as to promote the scale-based 'individualism' economic interests of US auto and oil industries; which thus provides a far more complex, far-reach basis as a national economic template, and underpinning the American ideology of personal freedom.

The 'Old Guard' Indigenous Producers –

Though of course operating far earlier, the 20th century American bus-age was effectively determined in the 'conglomeratisation' effect of the 1920s. The main auto-makers – then as now Detroit's 'Big 3' providing the vehicle 'running-gear' (mechanical platform) whilst a separate (though sometimes conglomerate connected) body-building specialist would furnish an attached body – series produced or singularly commissioned.

Periodic attempts were made to overcome this structure with the appearance of new entrants seeking to construct proprietary chassis and bodies – and indeed even in earlier years wholly integral monocoque type structures – with a choice of domestic engines; typically Detroit Diesel or Cummins.

But, by virtue of size and scale, reputation and commercial dependability the established players (GM, Ford and Chrysler-Dodge) along with other brand dedicated US truck-makers (eg Mack, International, Freightliner, Kenworth & Peterbilt [now under PACCAR]) maintained a stranglehold on the sector, with little change decade upon decade.

The basic construction method of “body on chassis” remained relatively technically unchanged for 80-90 years, that standard structure similar for both large bus (based on heavy trucks) and mid / small bus (based on van chassis). The former seeing a general re-positioning of the engine to the rear for improved vehicle passenger and luggage 'packaging' from the 1950s onwards. The buses today categorised as Types A, B, C & D. relative to dimensions, GVW and passenger capacity.

For many decades Detroit's “Big 3” and in later years a few close others such as Navistar and PACCAR (directly or indirectly) had a national strangle-hold on engine rolling chassis production. The end-user bus purchaser either bought directly from bus-builders who themselves sourced the rolling chassis and added a handling margin for doing so, or in order to save on costs, separately bought the rolling-chassis and fabrication services of the bus-builder, managing the former's delivery to the latter.

This basic but effective model, much the same as the early luxury-type 'coach-built' passenger car methods, stood in place for decades, ensuring the Big 3's dominance, that of domestic bus-builder. So creating a virtuous circle of activity reliant upon economies of scale, Greyhound, Trailways and mid-size firms like Peter Pan the expansionary demand base..

The (Intermediary) Body-Builders -

The emergence of motor-car and motor-truck saw competition for specialist body-building tasks, participants from across the traditional horse-drawn wagon/coach builders, the horse-drawn tramway builders and a new crop of industry dedicated start-ups.

Whilst many over the years have been absorbed into bigger concerns or failed during recessions, today the list of North American bus & coach body fitters – from what could be considered 'old guard' roots - appears as so:

US participants include:
Advanced Bus Industries [Worthington, Ohio]
Blue-Bird Corp, (Traxis Group, Cerberus Capital Mgmt) [Fort Valley Georgia].
Collins Industries (inc CollinsBus, MidBus, Corbeil)[Hutchinson, Kansas].
Forest River (inc Elkhart Coach, Glaval Bus, Starcraft Bus) (Berkshire Hathaway). [Elkhart, Indiana & Goshen, Indiana].
Gillig Corp (CC Industries) [Hayward, California].
Goshen Coach [Goshen, Indiana]
IC Bus (Navistar International Corp) [Warrenville, Illinois]
Midway Speciality Vehicles [Elkhart, Indiana]
North American Bus Industries (NABI) [Anniston, Alabama]
StarTrans (Supreme Corp) [Goshen, Indiana]
Thomas Built Buses (Freightliner, Daimler AG) [High Point, North Carolina].
Thor Industries (bus divisions: General / Champion / Eldorado National) [various]
Trans Tech (Transportation Collaborative Inc) [Warwick, New York].

Canadian participants include:
Lion Bus (Mssrs Bedard & Chartrand) [Saint-Jerome, Quebec].
MCI (Daimler AG and KPS Capital) [Winnipeg, Manitoba]
NewFlyer [Winnipeg, Manitoba]
Prevost (AB Volvo Group) [Sainte-Claire, Quebec]

A Renewed Battle for the Middle Ground -

Within this list there are telling signs of a sector under-going a new phase of transformation, recent years have witnessed a change in the parental ownership patterns of various firms. Whereas, with only a few anomolies, yesteryear saw distinct separation of chassis-provider and body-provider, the turn of the new 21st century brought a narrowing of that chasm.

The notables being IC Bus owned by Navistar, Thomas Built Buses owned by Freightliner / Daimler, MCI owned by Daimler and Prevost's relationship with AB Volvo.

Today we see that some domestic and foreign truck-makers have re-ignited their interests in absorbing and so controlling certain bus and coach body-building producing firms.

To better ensure that they can grasp a vital slice of this 'higher value' market and ensure extensional control across the sector's value-chain. Thereby able to ensure better access to this increasingly important intermediate-market, provide improved order book stability (assisted by improved pricing flexibility as necessary), enable shorter order lead-times, provide more soundly planned growth projections for both the high capex costs of primary platform operations and labour intensive secondary operations, and no doubt utilise the advantage of cross-divisional transfer pricing up and down its in-house value chain as required to meet strategically set divisional profitability targets. A long list of advantages from consolidation of the build process.

American domestic players do so in part to retain the dominance of their traditional rolling chassis production, so protecting the standard technical formula. Whilst the foreign players seek to ply their proven capabilities regards more advanced technical offerings, both as separate body on chassis guises (given powertrain efficiencies) and critically regards the integrated (monocoque) structure that has become favoured in European bus and coach – the former trickling-down from the latter. .

The only 'All American affair” is Navistar's ownership and amalgamation of IC Bus. At a far lower level, with tentative steps is Volvo's 'strategic partnership' with Prevost. But it is Daimler that is well ahead in the business integration stakes, and with powerful strategic force, given its total control of the traditionally constructed Thomas Built Bus (via its Freightliner subsidary), and part control of MCI (alongside KPS Capital), for increased deployment of monocoque structures.

Daimler then able to direct its efforts simultaneously toward both sub-sectors of the marketplace: the more traditional public-service transit client with primary aim of cost reduction, and the more demanding and so price-elastic coach operator.

This example, and the issues it raises, has set the beginning of a fundamental shift in the shape of production for North American Bus & Coach sector. As depicted above, it presently appears that the 'score' between the progressive Europeans and incumbent Americans, in the manufacturing battle, is presently 3-1, with Daimler scoring twice.

Whilst it has become evident that US and Canadian investment firms and private stock-holders have taken an increasingly large interests in European companies with technological edge (and so have vested interests in seeing the likes of Daimler continue to thrive domestically), there is a possibility that as part of a national re-strengthening effort, it seems likely that North American will seek to redress this glaring and growing 'industrial deficit'. And at some future point seek to absorb the strategic and technical lessons learnt from the Europeans to revive the internal capabilities of its own domestic industry.

Yes this is an age of industrial globalisation, North America shown as fertile ground for such by the numerous car company transplant factories. But how far will it allow its proprietary know-how to diminish?

Moreover, that threat is made all the more apparent given the much changed, new realm of foreign bus and coach operators.

Though typically historically separate, when deemed advantageous, an operator would seek to acquire a body-building company for its own ends to dramatically lower the cost of bus manufacture, especially if allotting a large order, and so deny a competitor. This was the case with Greyhound Lines in 1970, when it acquired one of the largest of those intermediate firms Motor Coach Industries; now MCI..

It could feasibly be the case again with the 'British Invasion' (soon explained).

The 'Old Guard' Indigenous Operators -

Both economic downturns and indeed upswings saw a working population effectively mobilised from city to city and from state to state by the low-cost bus, with now legendary names like Greyhound and Trailways. (Trailways devised as a co-ordinated multi-operator system to compete with Greyhound, but later acquired by Greyhound). These two prime actors and smaller independent firms offering easier access to trans-state and trans-national travel compared to a limited routes and organizationally fragmented railway system, even under Amtrac - which itself relies on bus operators to connect separate rail-stations with the ThruWay bus service.

With manufacturing focus on scale and operator focus on costs, as such the sector was only able to offer marginal and incremental improvements in basic levels of comfort, convenience and enjoyment; in seating, heating, and on plusher vehicles curtains, radio and later video/television, and (typically) stewardess service. A quicker and more dramatic pace of change was seen upon the exterior, led by Greyhound with aluminium & plastic skins, panoramic windows and airline-like logos this was primarily an (externalised) exercise to promote company branding and so inter-company competitive advantage.

Thus from the paying customer's perspective, little changed decade upon decade. This no doubt as a consequence of the need for basic utility furnishings for easy cleaning, little customer demand for change given his/her own 'low expectational' lifestyles and infrequent personal travel. And set against the understandable commercial imperative to only improve the product / service for profitable ends by reducing bus weight, improving engine efficiency (MPG & emissions), bettering aerodynamic drag, improving stability and aiding entry/egress access, and critically installing only 'paid for' services to provide additional income streams

End of the 20th Century and 'All Change' -

By the early 1990s the bus sector's cross-state and inter-state travel advantage had waned considerably, partly the result of changing social patterns, partly because of internal 'over-bloatedness' within the sector. The business models of both the operators and so intermediary fabricators and primary producers became increasingly squeezed:

'External Influences' :
- increase of personal wealth even amongst the 'bottom tier' provided non-bus travel options
- the continued growth of car ownership, especially via cheaper used cars.
- modern (shopping mall) consumer lifestyles increased basic service & delivery expectations.
- emergence of affordable and later low-cost domestic airlines and sub-divisions.
- the emergent desire for IT 'inter-connectedness' whilst travelling.

'Internal Events' -
- (Greyhound) bus drivers strike of 1984 with endemic employee malais thereafter
- Fred Currey leading re-structuring of both Trailways & Greyhound Lines.
- the merger of Trailways into Greyhound in 1987.
- 1990 long-term strike action by employees
- Greyhound's bankruptcy filing of 1990
- Greyhound's rebound acquisition of Continental Trailways (separate entity)
- Greyhound acquired by Laidlaw Inc. (already owners of Greyhound Canada)
- Laidlaw Inc's bankruptcy in 2001
- Laidlaw's rebound in 2003 (NYSE listed) now without loss-making routes
- the influence of 'advanced' European bus & coach travel.

Combined, these and other forces, meant that a customer-orientated and internally-necessary evolutionary change was on its way. The last 15 years or so has born testament to that change when viewing the fundamental operator's structure

This sector stall was re-started by the re-organisation of established players including Peter Pan Lines. The introduction of new entrants – or at least seeming new entrants - seeking to offer alternative travel experiences helped to revitalise flagging sales and passenger numbers. New names however variously owned by established players, semi-dependent upon them or in some cases truly new wholly independent players.

The MegaBus network (operated by the UK's Stagecoach plc) was established in 2006. Later in 2008 Bolt Bus was created to serve both the NW & NE regions, but its NW operation is wholly Greyhound owned and the NE operation a JV between Greyhound & Peter Pan. NeOn was also originated that year by Greyhound & Trailways, to bolster Bolt and compete head-on with MegaBus (though apparently its service differentiation has been increasingly diluted, substituted with standard Trailway buses).

To name but a few independent operators, there are: Vamoose Bus which runs between NYC and Washington DC; and Fung Wah Bus, Chinatown Bus and associated lines (Apex, New Century, Lucky Star) which operate along the Eastern and Western sea-boards serving each city's Chinese community and the large numbers of mobile Chinese workers and more budget travellers such as students.

Needless to say there has been friction between the established incumbents and the newcomers, resulting in accusations of Chinese gangland activities, from laundering money to violent acts against persons and property, with in return Chinese buses appearing to incur high numbers of vehicle problems, possibly stemming from either poor maintenance or sabotage or both.

“The British Operator Invasion” -

As part of their own high growth expansion ambitions, three competing UK transportation companies assessed the American potential toward the end of last century and at the beginning of this century. Assisted by a mix of stock-market and fixed income funds, their American assault started.

Initially, Stagecoach plc acquired Coach USA and Coach Canada in mid 1999 for $1.8bn; but when hit by the economic aftershock of the 9-11 attacks in 2001, it divested many of those interests in 2003 to Peter Pan Lines and the PE firm Kohlberg & Co which itself formed Coach America). Stagecoach thus retrenched to operate within the subsidy protected scheduled service of the NE region. As part of its re-expansion plan, it used its back-office capabilities to create the web-friendly MegaBus.com, its own flailed 2006 expansion into the West Coast re-energised in mid 2012 by way of re-purchasing many of the divested divisions previously sold when Coach America itself filed for bankruptcy; thereby spanning much of the nation.

Also in 1999 the Rail and Bus operator FirstGroup plc purchased 2 divested divisions of Ryder Systems: the transit-bus sections and school-bus section, re-naming them 'First Transit' and 'First Student'. It then later acquired Greyhound Lines Inc in Q3 2007 for $3.6bn (£1.9bn). First Student UK (the British arm) has used yellow buses imported from both the USA and Turkey (BMC).

The business model of Go-Ahead plc is heavily biased to serving the UK, but it operates a self-proclaimed “small” joint venture yellow school-bus contract in North America.

The remaining large UK transport companies – Arriva (a holding of Deutsch Bahn) and National Express Group plc - have no American divisions.

“The European Product Invasion” -

As a result of the private car's dominance in North America decade upon decade. and the technical stagnation of indigenous chassis and body producers, it was inevitable that the recently arrived foreign bus and coach operators would look outside the US and Canada when assessing and purchasing it new vehicle fleets.

The familiarity of British and European sourced vehicles meant that with such established and strong commercial relations, and the technical chasm between typical European and N. American vehicles grew all the more apparent; and that almost inevitably US regulation adapted 'Euro' buses would be appearing on Americas highways.

That product shift had a broader sector domino effect.

Having seen this new wave trend set in place by the British operators, from 2000 onwards the domestic municipal operators, with responsibility for state-wide and city-wide public transport, started to test, lease and buy foreign-made buses. Increasing specific interests lay with double-decker buses for city-centre and inner-suburbs routes, so as to reduce vehicle fleet numbers required (so reducing storage and maintenance costs), maximise passenger capacity per route and streamline mass transit services.

In turn, that local-effect caught the attention of smaller regional private operators.

As an example of the trend, in 2004 the UK's Alexander Dennis first started to explore the North American market for its adapted Enviro500: since providing demonstrator, lease and fleet vehicles to 10 municipal transit companies, and 2 private sightseeing/ tour companies. The popularity of the bus underpinned an initial manufacturing deal with ElDorado International. More recently, in May 2012, Alexander Dennis and America's New Flyer Industries announced a new joint-venture to design and manufacture a medium-duty low-floor 'midi bus', with the UK firm undertaking engineering and testing and its US counterpart providing assembly and marketing.

Having listed the American chassis and body makers, a similar list is provided regards European manufacturers.

Traditional Chassis Providers :
Daimler EvoBus [Germany]
DAF (engine supply only) (PACCAR) [Netherlands / USA]
Enterprise Bus [United Kingdom]
IVECO [Italy]
MAN [Germany]
Scania {Sweden]
Volvo [Sweden]

Traditional Body Constructors:
Advanced Vehicle Builders [United Kingdom]
Alexander-Dennis (Mayfair Group) [United Kingdom]
BUSiness [The Netherlands]
Cacciamali [Italy]
Carrus [Finland]
Caetanobus [Portugal]
Castrosua [Spain]
De Simon Group SpA [Italy]
Hess [Switzerland]
Ikarus [Hungary]
Irizar [Spain]
Laden Autokori [Finland]
Libertybus [Germany]
NEOPLAN [Germany]
Optare [United Kingdom]
RedKite [United Kingdom]
Sfakianakis [Greece]
Sitcar [Italy]
Solaris [Poland]
Van Hool [Belgium]
VDL Bus & Coach (VDL Groep) [Eindhoven, Netherlands]
Wrightbus [Northern Ireland, United Kingdom]

Amalgamated Chassis & Body Supply
IVECO + Irisbus [Italy-France]
MAN + NEOPLAN [Germany]
Daimler + SETRA [Germany]

Integrated Mono-Structure:
Alexander-Dennis (Mayfair Group) [United Kingdom]
Van Hool (engine choice) [Belgium]
VDL Groep [Netherlands]
Wrightbus [United Kingdom]

As highlighted previously, of particular note is the manner in which the European sector has evolved, and impacted the US & Canada:

1) the increasing bus amalgamation interests of volume truck-makers
2) the defensive consolidation reaction of larger hi-tech body-builders
3) the increasing adoption of integrated monocoque construction techniques*
4) the very powerful strategic and industrial competitive capabilities of advanced truck & car
manufacturers (ie Daimler and VW Group)

[NB * ironically first pioneered in the public realm by the London Routemaster in 1958]

Hence the reasons are clear as to why investment-auto-motives labels the European sector as 'Avante-Garde' in relation to the 'Old Guard' American sector.
As is now apparent, it is the larger VM type companies spanning both traditional and new formats that has the commercial advantage.

Importantly, American industry well recognises the commercial power and commercial prowess that has evolved from the number of 'Euro-EM' alliances formed, and indeed as a consequence, the very real low-cost threat posed by a new raft of ever improving EM players that have replicated and arguably moved beyond the NA model. The fact that Mexican company DINA previously acquired a large stake-hold in Canada's MCI in order to improve its own vehicle engineering capabilities speaks volumes.

The Euro-EM and EM players include:

Ashok Leyland [India]
BMC [Turkey]
Busscar [Brazil]
Caio Induscar [Brazil]
DINA Camiones [Mexico]
Eicher Motor [India]
Encava [Venezuela]
GolAZ [Russia]
Golden Dragon [China]
Guleryuz [Turkey]
Higer [China]
Imeca [Argentina]
Karsan [Turkey]
Marcopolo [Brazil]
Mercedes-Benz Turk (Daimler EvoBus) [Turkey]
Mahindar-Navistar [India]
Marz [Russia]
MAZ [Belarus]
MWM-Navistar (engine supply) [Brazil]
PAZ [Russia]
TATA [India]
TEMSA [Turkey]
Tezeller [Turkey]
Zhengzhou Yutong Group [China]

The “Big Picture” -

The accompanying diagram (located top right for the duration of this two-part web-log) provides a contemporary contextual 'big picture' of North America's Bus & Coach sector.

The section above depicts the American vs European industrial spheres. Whilst obviously separated by geography and history, they could be said to respectively represent 'inward' vs 'outward' market environments, which effectively hindered vs helped industrial progress. Furthermore, it could be argued that differing perspectives of what constitutes 'value creation' has had an enormous affect: the near term profit motive of the US (as deployed by Chapter 11 quick turnaround restructuring) vs European (ie German) philosophy (for organisational longevity underpinned by technical capability).

Thus illustrating what may be seen as two very different indutrial micro-climates with very different levels of commercial, industrial and technical integration. So evolving the 'Avant-Garde' scenario that sets an ideology of “European Future-Forwardism”, bound to the eco-driven profit imperative; itself led by Germany, Netherlands, Scandinavia and United Kingdom. Whilst under American 'Old Guard' is shown the transitional effect that the Europeans are having upon North America, and the reaction by Navistar to follow a 'capabilities consolidation' as set by Daimler, VW Group (MAN & Scania) and AB Volvo.

European 'Future-Forwardism' -

So whilst we see low level progression in the North American sector, thanks to the 'Euro-bus' evolution, much of the sector is still effectively decades behind Europe. The cause suspected being a fiscally powerful yet technically antiquated business model of Ford-JMC doing little to drive change because of the transit-bus business platform that could be argued as negating fundamental change.

The internet-conveyed official marketing pictures of the Euro producers, with a greater bias toward less utilitarian coach-travel type offerings demonstrate a host of comfort and safety features such as hi-style cabins and high-visibility floor-level aisle LED-lighting for use in (smoke related) emergency situations, but also used to welcome boarding passengers with knowing reference to aircraft related feel and functionality.

Such interior appointments only the last of a long history of Euro bus and coach design advancement, a world away from an 'era-trapped' US industry.

The creation of a new generation 'Trolley Bus' has emerged by the likes of Hess.

[NB the term 'Trolley-Bus has been modified by the industry since its origins as an electrified, pantograph linked, single body vehicle, now applied to alternative bus architectures].

The Hess version is that of a multi-sectioned bendy-bus which snakes as per a train, thus a true road-train. Whilst no doubt adaptable to electric motor installation and pantograph 'hook-up' for original Trolley-Bus operation, the real interest seems to lay in being conventionally ICE powered but guided by road-surface installed magnets route which can automatically or semi-automatically steer the vehicle.

Other versions of the modern 'Trolley-Bus' – pertaining to short or long multi-linked sections - has been developed by Van Hool. This time with hybrid-drive system that couples an ICE motor with pantograph-fed electric motor. Van Hool also exploring continuation of standard hybrid power-trains (ie non pantograph fed) and on-board Fuel-Cell electrical generation for true zero emissions power. This the case across all the major European producers: Daimler, MAN, Scania, Volvo, Iveco.

An oft forgotten instance is the creation of the Jumbo-Cruiser: a very high capacity vehicle in the form of a double-decker bendy-bus. Conceived in the mid 1970s in reaction to the '73-'74 oil crisis and the heavy contraction of the US aviation sector, it went into limited European operation in the 1990s, but stalled itself with the growth of low-coat airlines. Whilst this example undoubtedly demonstrated short-falls relative to a latter-day airline boom in both Europe and the US, it does demonstrate a progressive fusion of micro-level solutions to macro-level problems.

The Ripple Effect -

The precursors to these examples did have a rub-off effect in North America, but ultimately only a small one, with little real world outcome. Bigger players have undertaken various evolutionary and revolutionary R&D paths to seemingly evolve the generic bus.

Reaction came from the likes of NewFlyer, NABI (North American Bus Industries), and far smaller ABI (Advanced Bus Industries).

NewFlyer with use of plastic exterior body panels to reduce weight, introduction of LED external lighting packs for purer light and reduced electrical drain and introduction of the Bus Rapid Transit BRT model which is essentially a 'styled' bendy-bus. NABI similarly introduced a BRT bendy-bus, with also a Low Floor 'LFW' model so offering basic regulatory provision and more interestingly the CompoBus model, combining chassis and shell using lightweight composite materials And of course vehicle adaption to LNG & CNG powered engines requiring high-pressure tank installations.

Elements of learning and improvement have come with the growth of the specialist 'coach-conversion' sub-segment. Which sees coaches being originally commissioned or converted to mobile homes, for 'on the road' clients with luxury demands moving from event to event; such as: touring music singers and bands, touring entertainers, the general film industry and race-car sector requiring plush motor-homes.

ABI is an example of such. It was originally established to serve the specialist niche of highly-styled midi-sized luxury coaches, consisting of fibre-glass bodies and heavily feature packed for comfort and convenience. The company was taken over by ex-transit management with a view to offering the advanced vehicle to metro transit clients. But durability and reliability problems from the advanced windscreen and suspension systems plagued the operators, so were discarded in favour of conventional 'old guard' vehicles from well known manufacturers.

Whilst American-devised advanced technologies have been explored in a few specific cases, the prototyping, development and testing regimes were deemed to be wholly inadequate; thereby creating the commercially untenable situation where the risk-averse operator ultimately acts as project test-bed.

No surprise then that the few examples of notional vehicle design progress stalled quickly, highlighting the need for true R&D professionalism in the NA sector. This perhaps the greatest historical difference between North American vs Northern European industrial practice.

For Appearances Sake -

Given the general desire for modernity by most end-users, private and public operators, so believing that their funds have been well spent, it is little surprise that the American producers provide that appearance, even if vehicle platforms are little evolved.

This perhaps especially the case when municipal regions seek to differentiate themselves as part of broader regeneration efforts toward suburban expansion, brown-field reclamation and dense urban-living initiatives; with the attraction of private enterprise a high agenda item, so necessitating good mobility infrastructure.

As such a number of public operators adopted the higher capacity bendy-bus, had it re-styled (often poorly) and re-naming it the 'BRT (Bus Rapid Transit) system'. But this supposedly an innovative new mass transit philosophy was little more than “mutton dressed as lamb”.

Such a resistance to true progress has meant that the medieval towns of 'olde worlde' Europe often have far more advanced transit vehicles (and systems) than the skyscraper towns of 'new world' America.

Unfortunately, for 21st century America, little looks set to change.

The “American Renaissance” Thesis -

As the accompanying graphic displays, investment-auto-motives seeks to highlight the possibility that Ford (and its investment bank backers) may seek to re-join the party, so as to rebalance the 'industrial deficit' now seen within North American.

However, if the thesis is correct, it only serves to fulfil half the modern industrial agenda requirement, and only re-traces the past steps of the 'Old Guard'.

Ford looks to be in the position of being able to create a powerful value-chain which connects its low-cost truck-making interests in China's JMC to a lesser known Canadian used-truck retail business also named JMC based in Winnipeg, this city the production heartland where both MCI and NewFlyer are based

Given that MCI and Thomas Built Bus are respectively under direct and indirect Daimler control, Provost with Volvo and Navistar with IC Bus, it then indicates that NewFlyer is a natural target for Ford seeking to expand its heavy vehicle interests..

Such a move would then mimic the efforts of Navistar, which beyond presently having IC Bus as a synergistic sub-holding also operates a Chinese JV with Anhui Jianghuai, aswell as with India's Mahindra.

Under this scenario it should be noted that investment-auto-motives believes Ford would not create a hi-tech type of bus/coach product. Instead intentionally utilise the traditional body on chassis 'easy build / easy maintain' construction methods that suit China's inland bus operators on poorer semi-rural roads, and the opposite-side of the Pacific, maintain a technical corollary to NewFlyer's traditional client-base of public transit companies, who likewise seek conventional engineering.

However, whilst tried and tested 'old-tech' undoubtedly has its place, and can offer sizeable profit margins on large scale order volumes, the North American industry must also manifestly progress to catch-up with “the best of the rest” so as to climb the bus and coach value ladder.

That means investment in making a technology leap, which today sees lightweight monocoque construction solutions commercially interwoven with IT enabled intelligent networks and route-planning.

Required Evolution of the American Breed -

However, a danger exists that sees the US & Canada continue to slip behind.

There is a likelihood that, because of military -backed US economic domination through the latter half of the 20th century, now effectively replaced by newly generated QE liquidity which acts as the 21st century 'soft power' (eg GM's 7% of Peugeot), that America will not seek to self develop its industrial capabilities. It may have asked itself why it should develop new types of “Menlo Park” in old industries when interests in leading others (such as Peugeot's low CO” engines) can now be bought?). Why indeed go backwards when even Silicon Valley appears to be faltering with poor performing IPOs?

It is today able to re-run the template of the 'American century' elsewhere around the globe, especially in Asia, with remote industrial direction of Japan, Vietnam & S.Korea, pushing each to become respective leaders in eco-tech, mass manufacture and IT, with of course its growing merged industrial interests in China.

Today, those niche to mass-scale, low-value to high-value interests across the world means the US could replay its 20th century global industrial play-book, but whereas before it was the smokestack industries leading to GM & Ford domination, the 21st century sees the US network of interest create more complex and dynamic industrial and commercial webs connected by the internet.

Yet the ironically the investment and returns attraction (ie replay) of 'dinosaur technologies' exemplified by 'body on chassis' vehicles, with business models based upon low capex outlays and ever present low cost labour, means that for all the rhetoric about industrial and commercial progress, the impetus is to re-run the successful formula.

Changing Global Winds -

But the world has changed, from the milestone markers that were the original Rio & Kyoto eco-summits to the subtle manner in which China seeks industrial domination, able to adopt and utilising learning from its own domesticated Europeans to do so.

North America must recognise itself in the industrial and commercial middle-ground, sat between that 'European Future-Forwardism' that is increasingly well received by wealthy EM nations and China's remarkable capability to replay the American 'dinosaur-tech' capitalist model on its own terms.

The old American heavyweight single-deck bus with varying wheel-base and rear overhang - and indeed its “RBT” close cousin - is reliant upon little more than cost-averse engineering alterations. This historically an understandable ploy given the economic cycles of bus building and so aversion to heavy capex exposure. So vehicle updates are ostensibly cosmetic rather than technical, in the 1950s Detriot idiom that 'new' in fact simply means restyled.

Such heavyweight simple construction (which promoters call 'over-engineered' has undoubtedly assisted the fixed cost operations of producers but at the detriment of far heavier variable in-service costs of operators, most notably fuel consumption (and related emissions), especially during times of surging oil prices. This is now well recognised by those operators, especially the more enlightened such as Stagecoach and FirstGroup.

21st Century Macro Drivers for Change -

The following points highlight the trends that the North American industry must satisfy, or be overtaken on home territory by the European vehicle providers and operating companies.

- an ageing indigenous population with reduced self-driving patterns
- greater mobility expectations of specialist groups (esp less able-bodied).
- the demographic corollary of the two former trends
- less wealthy young indigenous population unable to run a car
- less % of the young seeking driving licences
- greater immigration flows to replenish society
- assisted by increasing 'open border' policies across NAFTA (esp US & Central America)
- reduced reliance and prohibition of private cars in certain areas
- increased 're-urbanisation' of specific city centres
- growth of cycling cities and 'car-free' inhabitants (Portland, Oregan etc)
- fewer cars per family (or indeed individual)
- present sense of greater American 'inwardness' (akin to 1930s)
- reduced federal and state general transportation and community travel budgets
- needs filled by private enterprise
-continual process of upgrading of state and national road network via PFI or wholly private
- expected rise of travel-systems infrastructure, private companies using 'intelligent network' capacity allocation
- increased adoption of road-toll highways and federally induced 'travel pricing'

[NB the private American passenger car will of course maintain its popularity, and indeed very probably grow in production and overall car-parc numbers, by way of increased population size and the desire for personal freedom and status expression; albeit the era of the SUV and full-size car may be over as American 'enormity' is gradually down-sized to global norms].

Conclusion -

The North American bus and coach industry had an early wake-up call in the early 1990s with the creation of the aforementioned Jumbo-Bus concept (by NEOPLAN), seen at the time by industrialists as a distant but very real threat both domestic bus industry and the resurging airline sector, from new carriers to Boeing.

In reaction, Hollywood (care of Wall Street) played its hand to subtly defend the status quo with the 1976 spoof-disaster movie 'The BigBus”, the story of a super-fast, bendy-double-decker, nuclear powered trans-national bus, which encounters various technical problems because of sabotage time-bombs. By not so mocking the idea of true Mega-Bus in the populat consciousness, the film subtly assisting the regeneration process of the domestic airline sector by wooing people back to 'safer and quicker' aircraft.

The emergence of low-cost internal airlines and commercial reaction from the larger, established carriers has had an undoubted effect upon the likes of Greyhound and its smaller rivals, and many of those dedicated internal airlines did well from the mid 1980s onwards to 2001 and again over the last decade.

But the fact remains that North America is facing a very different future to the recession rebounds of the past, one in which an unprecedented macro-economic shift has and will affect the lives and travelling habits of millions over the coming years.

The recent MegaBus crash on 08.08.2012 in Lichfield (NE St Louis) when en route between Chicago to Kansas, has of course drawn momentary negative attention, with the death of a young Asian-Indian lady. That incident adds short-lived public perception pressures on the bus-sector, and specifically the “MegaBus” service run by the UK's Stagecoach plc.

But the required remedial action of one operational incident does not undermine the very real potential of the sector into the future, one which even with renewed airline expansion, looks set to rise.

North American bus and coach can unthinkingly replay its past.

But by doing so exposes itself yet further to the very real threat of global competitive pressures taking an ever greater slice of the homeland manufacturing and travel-service markets.

Daimler Leads the Pack -

The efforts by the German company to cross-breed its technical prowess with Thomas Built's and MCI's renowned in-market names reflects the growing “Europeanisation” of North America's bus and coach fleets and overall car-parc. That Europeanisation itself created by the increasingly changed and ever greater demands of the sector's fleet operators customers.

From the ambitious producer's perspective – as per Daimler – it is able to offer its conventional trucks to trucking companies across the world, use the basic modules from those trucks to create front and rear 'chassis-mounted' sections for a transit bus range, and in turn utilise those modules (adapted as required) for the module elements within an integrated monocoque structure.

This then extends the basic business model raison d'etre yet again, from the basic counter-cyclicity of truck vs bus production - given respective private vs public funding sources and schedules - to now include and interweave an additional, now very distinct coach business stream. A simple metaphor drawn from electrical engineering sees an evolving a business model that moves from 2-phase to 3-phase streams, which ideally even-out and stabalise capex 'inputs' and revenue 'outputs'.

All the remaining American producers should take note of the German advantage.

Deploying American Private Equity -

International free markets have demonstrated that better foreign ideas have had right success. America must now follow those tracks..

To this end the large and mid-size asset managers of the PE community, along with various investment bank interests, seek to deploy the present low cost, possibly additionally QE3 fueled liquidity environment. And are presently re-building their respective coffers. Yet core elements of an American eco re-industrialisation process and outcome should not be to try and simply mimic the best international efforts, but to recognise the desperate need to physically embrace the best of the rest.

As seen previously with the American commercial capture of the European industrial leaders in 1880s and1920s..."it's all just a little bit of history repeating".

Dinosaurs, Mammals and Birds -

An overtly simplistic, but all to true synopsis, is to compare the technical and so commercial offerings as the “American Dinosaur” set against the far more intelligent “European Mammal”, both suited to their own environments. However, situational change saw the lumbering dinosaur become extinct. Mammals thrived. But, a few dinosaur species evolved into multi-faceted flyers and so 'took to the blue' to become birds.

Monday, 20 August 2012

Micro-Level Trends – North American Bus & Coach (Part 1) – Evolution of Producer & Operator Structures.

North America is obviously undergoing an unprecedented socio-economic shift. Whilst the red and green ticker-boards of Wall Street reflect moment by moment reaction to incoming business news, the fact is that Main Street America is a very different place today, and many people who inhabit this all too real world face a very different future. One that has very real echoes of the past when the country itself saw its population mass-mobilised to seek work and find affordable leisure times.

Such a fundamental shift should commercially and technically re-invigorate what has become arguably a lack-lustre and outdated domestic bus and coach sector.

This following Part 1 of this specific weblog looks at the broad role of the American bus, before the following Part 2 provides insight into the internal dynamic of the industry, with critical attention drawn to the lessons that have been, and still can be, learned from Europe, where mass-mobility transport has typically been more advanced.

Part 1 – The Social Context -

Since North America's mass popularisation of the private automobile - thanks to Henry Ford, Alfred P Sloane and Walter Chrysler – the bus has for the last 90 years has been perceived as a transportational 'poor cousin'.

Yet it has kept the USA and Canada on the move and been a vital component of economic activity in good times and bad; both as a productive industry in its own right, and as prime travel enabler for millions of people for work and social purposes.

Compared to the impact and economic might of car production, with its massive advertising campaigns, global reach and consumer aspirational brands, the Bus & Coach sector appears at first far less glamorous and so interesting. Whilst overshadowed, like he truck sectors it provides a necessary socio-economic backbone to all countries. Though that argument appears less convincing for notionally 'advanced' regions like the North America relative to the BRIC and CIVETS countries, given the far higher private vehicles per head ratio, the fact is that 'new western norm', with far tighter national and personal fiscal conditions indicates that the Bus & Coach sector may be set to enjoy greater popularity than seen over the last 50 years

The sector began to fundamentally shift as the 20th century gave way to the 21st, with a new and unprecedented wave of new foreign ownership across many of the nations bus operating companies. Percolating throughout the entire downstream 'operator' structure: from regulated public services and school-bus services, more recently seeing a greater innovation in schedules and charter services via web-based booking, new improved vehicles and the introduction of new brands, often the result of imported practice.

Yet that very surge of change - in what was arguably previously a introverted, self-serving and possibly progressively stagnant sector – may have gripped the interest of America's own industrial giants. The automotive producers – as the 'old heart' of the industry – previously had deep commercial tentacles in Bus & Coach throughout its heyday to both benefit from and influence its activity.

The difference being that today those interests span the two parallel markets of USA-Canada and China, with each regions neighbouring geographies and the respective regional and international trade pacts.

Basic desk research suggests that a lost foothold to European industrial interests in this sector – in operational service and thus product origins - might well be sought to be re-obtained. This done as a plethora of dynamic socio-economic shifts inside N.America (but most powerfully in the USA) combine to create the 'new norm', providing a fresh era for business potential, yet paralleled by greatly much increased customer expectancy within Bus & Coach.

This 'new norm' of an economically de-based West alongside an ever increasing raised expectational by the fervently mobile middle-tier and bottom-tiers peoples of EM nations across the world. So demonstrates a larger than ever global potential for bus and coach product producers (which as we have seen in past web-logs have risen in those EM countries) and the primarily western service providers.

“All aboard” was the familiar cry across the bus stations of 1950s America. It could well be the Bus & Coach sector's powerful commercial cry today, so pre-empting the commercial potential of tomorrow..

The Dreams of the 'Bus-Boy' -

The bus has been a mode of transport typically used by the 'bottom tier' of American society; the general case in all but the most densely crowded cities. A state-wide and trans-national conveyance mechanism toward the idea of a better life through prospective higher income, better living conditions and improved overall life prospects – the theory often illusionary for those with little to offer besides manual labour.

Well depicted in the 1969 film Midnight Cowboy: its mains characters: a young, optimistic Joe 'Buck' initially travelling north into New York City to make his fortune, and an older, cynical 'Ratso' Rizzo wanting to head south to get away from the seedy side of NYC, the bus represents escape and betterment. The departure of a character leaving his/her home-town to taste the world outside, by stepping onto the bus, a culturally immediately recognisable story reference point at the beginning or end of movies. “Moving On” a constant theme for an economy reliant upon the high mobility patterns of its manual work-force.

The lowliest restaurant post was duly christianed 'bus-boy' – still in use today – derived from “just off the bus” between the 1920s dust-bowl era, through to the 1950s beatnik traveller age and onto today.

A Reflection of Broad Society -

As post WW2 indigenous white Americans gained longer-term and secure employment, thus leading to widespread car ownership, the wealth gap, lifestyle gap and so perceived racial difference extended yet further between the white populace and the so called 'colored' peoples – primarily African-Americans.

Now recorded in the history books, it was on a bus in late 1955 that Rosa Parks made her stand by refusing to surrender her seat to a white person at the demand of the white male bus driver, so practising her right to equality, even if not then recognised by the Alabama statute books. She was arrested, so leading to the Montgomery Bus Boycott. Her action recognised as a defining moment in the civil rights movement. She saw well within her lifetime, the defining moment when African-American females began to occupy bus drivers' seats for themselves in the late 1970s.

Over the following years non-US born, Hispanic peoples - from Cuban, the Caribbean & Mexico - became prime customers for bus operators. With the rise of national post-graduate education through the 1970s onwards students became a growing customer-base, often themselves 'education-stay' immigrants or sons and daughters of poorer families. They were joined by the international 'back-packer' set consisting of Europeans, Australians, New Zealanders and later various Asiatic nationalities. And most recently, the recent arrival 'low-cost' Chinese and Vietnamese workers.

Whilst the comparative inconvenience of bus travel is the prime negation factor for wealthier Americans, so utilising cars, it would be wholly disingenuous not to highlight the other obvious issues that effectively now subtly segregate the car user from the bus user.

Although US bus travellers now reflect a wider demographic than ever before, there still exists major and very real gulf between the privacy of a cocooned car interior with its many conveniences at hand, and the probable personal intrusion on a bus. Each in a way reflects the lifestyle of its user, wealthier car users typically able to have greater personal space at home, at work and in social circles, whilst the bus user will typically be far more socially integrated for more of the time, at home, at work and in social activities. The luxury of wealth, as well known by philosophers and sociologists alike, is that in most cases it affords far greater privacy.

Unsurprisingly so there is an engrained perception amongst many hard-working aspirant Americans (of all hues) that the “bus is not for us” - not conducive to lifestyle and preferences – and so tied to the car with a psychological umbilical cord.

So whist the public transit ideology was originally intended as a democratic all-inclusive form, and often reflects a any nation's level of social cohesion, in the USA it also an vehicle that both ironically socially promotes and yet personally defies the idyll of the 'American Dream'.

Private cars to this day remain the quintessential foundation-stone of that idyll.

Things though may be slowly shifting as socio-economically the 'new norm' increasingly avails itself as part of the necessary re-shaping of the United States.

Transport as 'Social Glue' -

More positively, for many the daily or weekly familiarity and routine of state-run and private-bus systems mean that differing persons across varied social groups ultimately mix to one degree or another.

Most obvious in the US is that of children, the 'big yellow' bus historically a major part of many children's lives, where parents can neither afford the means or time to drive their off-spring. It could be argued that the big yellow bus, certainly more than the streamed-learning school classes of similar ilk, and possibly more than any other formalised social initiative, could be seen to be the true 'melting pot' of early phase multi-cultural American life.

When eventually the commercial lifetimes of the vehicles have been drawn through the accounts book by way of full depreciation, those ex-school buses, the ex-company buses and ex-corporate buses are refurbished by new community groups, to serve the needs of the myriad of regional churches that span the reaches of the South and Mid-West, so as to transport their 'flocks' between religious events and social outings. Unfortunately, the great irony being the Pastor often travelled separately in (stereo-typically) his Lincoln or Cadillac to maintain his authority. So highlighting the innate social discrepancies that exist in even the supposedly closest- knit groups.

[NB The “Pastor's Caddy” just one example of the simplistic fallacy of the recent “99% vs 1%” demonstrations].

[NB Indeed, under the banner of social injustice, what seem self-serving special interest groups appear to seek influence and power without evident formal accountability, strings pulled from the shadows. Moreover exploiting any ends to attract a following, such as the medium of diverting the genre of 'performance art' into “performance demonstration” to buoy participant numbers and to provide entertainment to the tent-city dwellers. Ms Rosa Parks, whilst recognising the importance of the general principles, would no doubt be sickened by the fatuousness of 21st century American demonstration.].

As seen, the very act of mass transit, especially in a routine manner, be it between strangers or community groups, creates a mode of 'social glue'. Whatever that level of integration, from a nod of acknowledgement to deep conversation, it is an activity needed perhaps more than ever as the country feels the ever greater strains of economic and so social fracture.

So whilst for many Americans “the bus” has dour connotations with the less fortunate members of society, it also demonstrates itself to be a conveyor of social hope and greater integration.

A Snapshot of America Today -

Whilst the “1% vs 99%” activism generated a highly simplistic interpretation of the current picture – and indeed subtly manipulated to create a “them vs us” mentality – the reality is that the picture across the US, North America, the UK and Europe is far more complex mosaic of issues and differences.

As well communicated in the quality press in recent years, different people in different situations – from SME business leader to factory hand - have different concerns and stories to tell.

A recent WSJ article (09.08.2012) provided a good contrasting 'snapshot' picture, comparing today with the performance of previous Presidents with Obama at a similar 4th-year 1st term / only term stage. The measures spanned: National GDP, Per Capita Income levels, Personal Net Worth and Household Real Estate Value. The results show that in 3 of the 4 measures (GDP, Income, Real Estate Value) America today is worse-off. GDP -1.8% worse than the previous low under Clinton, Income -4.6% worse than under the former low under G.W.Bush, and Real Estate -12% lower than under HW Bush. Only in Personal Net Worth +10.6% has this administration achieved a middling performance akin to GW Bush – largely thanks to its QE programmes boosting the NYSE, NASDAQ and periphery stock markets.

Thus it is plainly obvious that for much of the population who are either unwilling or unable to convert cash (of whatever sums small or large) into stocks, given their respective innate caution, the need to deleverage or suffering from modern poverty, there appears at this moment in time to be a divergence of fortunes.

[NB investment-auto-motives recognises that even this observation is bound to be overtly simplistic given the greater proclivity of the average Americans, relative to other national populations, to partake in the national stock market; though the terribly managed Facebook IPO will have deterred many potential newcomers].

Thus , whilst far from a case of the “99% vs 1%”, the basic figures displayed by the WSJ highlight the woefulness of an economy awaiting that much needed long-span, drip-fed productivity push described by investment-auto-motives in previous web-logs.

The coming of the 2008 financial crisis has obviously left a legacy of notable social differences.

The previous era of increasing apparent consumer equality - itself created via an unsustainable reliance on 'manufactured credit' – now wholly defunct. Unfortunately, the old saying about “swimming trunks and tides” apt not just for sections of Wall Street, but the whole sections of American society.

Given the previously described innate drive for private mobility and convenience, the economic general health and pulse rate of the nation is no better gauged than by the sales figures of Detroit's Big 3 auto-makers. In Q2 2012 we saw what were post crisis re-bound figures stall somewhat, indicating that 2012 would overall be a flat year in terms of sales and corporate income.

So whilst not faltering into negative territory again, the economic rebound is proving a slow and tortuous one.

This then boosts demand for utility type goods as seen by buoyant pricing in the used car market, and also creates a platform for utility type transportation, which bodes positively for the bus and coach sector.

Post Script -

To qualify...

Although certain quarters of the press may mention otherwise, there is no real direct substitutional effect between car and bus. Any car owner has a highly inelastic economic relationship with the car given upfront and through-life sunk costs of ownership. This obviously includes: purchase price (often ameliorated month by month and so a constant drain), insurance costs, road-use tax costs and maintenance costs. So the likelihood of a car owner switching to the bus to seemingly save on a 'per journey' basis (unless inner city) is remote given the economic and emotional investment. All the more so in regions of poor bus networks.

It is only when that owner fully halts car usage because of its far higher costs does he/she switch to the far less convenient substitute that is the bus.

Monday, 13 August 2012

The London 2012 Olympic Games - Run Full Circle

The opening ceremony set the historical backdrop to Britain for the world absorb. A contextual roadmap of Britain's socio-economic evolution: from the romantic idyl of an agricultural land, through the conquests of the industrial revolution, the horror of war, the development of 'care for all', the emergence of youth culture, the soundtrack of peoples lives, the birth of the internet, today's stream of media-connected social- consciousness and the age old story of love.

Two weeks of sporting competition saw Britain provide an unrivaled backdrop for the events, from Greenwich Park's equestrian events to Box Hill's snaking roads in cycling to the Serpentine Lake of Hyde Park to the final exhausting 'home stretch' of The Mall.

Amongst the joy of the triumphant and tears of the the vanquished were the far subtler human stories, such as the unveering self-knowledge of injustice that saw a Japanese contender sit hour after hour in protest.

The closing ceremony provided a contrasting spectacle to the former. It centered on a London with an oval perimeter road that exists in reality. Its streets represented the arms of the Union Flag, Westminster Bridge and Big Ben the core, those streets wrapped in a 'papier-mache' newsprint that gave torn snippets of famous quotations.
On those streets paraded all types of people and vehicles, from the cockney-cabbie to carnival parade floats to tractor towed fashion bill-boards to chauffeur driven convertible limousines to a swarm of scooters. Those vehicles transported celebrities whose songs and imagery transported the minds of the audience.

It set the stage to demonstrate that Britain will continue to play a vital global socio-economic role on the global stage well into the future. London itself a microcosm of the world, the world in many ways a macrocosm of London.

The words of those 2oth & 21st century populist songs by the likes of The WHO, Queen, George Micheal, Oasis, The Spice Girls, Take That and Tinie Tempa perhaps holding as much real-life resonance for people as the emphatically stirring music
of the 19th century.

Britain hosted with verve and aplomb.

Monday, 6 August 2012

Companies Focus – Global 11 VMs – Q2 2012 Results

The Q2 earnings season saw a raft of mixed results spanning the good, bad and ugly; thus creating a sense of disturbance. Even historically defensive sectors such as banking and oil/gas providing lesser safe-harbours than the case in the past, given high P/Es, low yields and their own PESTEL headwinds. All adding to the 'risk-on, risk-off volatility in the search for value.

Contradictory Signs -

So an an unsure and erratic milieu providing a reduced rational structure for general interpretation. Created by the contrasting “pro and con” results of now globally inter-connected continental macro-level surveys, together with at the micro-level the affect of highly managed earnings guidance from companies (to reflect or boost release sentiment), and critically, the market reliant announcements of influential administrators and politicians. All combine to generate what was predicted and became a sideways moving market with 'snap' sentiment swings of the market – propelled by high-frequency algorithmic auto-trading – and best benefiting short-hold weekly and monthly traders who seek-out the opportunities of 'trough-point' and 'peak-point' stock dynamics, or those long-term participants slowly and cautiously building up holdings when prices (even in low P/E companies) appear attractive.

Being cyclical in nature, auto manufacturers have been forced to ride the heavy weather sentiment of the markets, perhaps more so than most given the demands of heavy capex and working capital requirements.

This now most evidently seen in North America, as the previous short-term financial markets' optimism provided by QE1, QE2 and Operation Twist and the successful lean running of large-caps and SME companies runs into the headwind of revived but still relatively anaemic consumer spending, forcing companies to remain cautious, even in the low-interest (often corporate bond secured) lending environment.

So, whilst America solved its 'capacity obesity' problem with Chapter 11, whilst there may be very real regional structural concerns in Europe, history demonstrates that it is often the case that national economies and auto companies seem to prefer to maintain what could be regarded as 'fallow' capacity (even after the 2 plant closures in Italy and Belgium): for either future job creation or factory disposal (trade-sale or otherwise), whilst awaiting the eventual future economic upswing

Mid and long-term offer a distinct value creation promise in an ever expanding worldwide market, where the BRICS & CIVETS offer so much proven potential. But given Europe's familiarity, still relatively wealthy demographic, cultural links and easily influenced governments – especially now given the economic corporate advantage - an auto-executive's mind still no doubt thinks the company that conquers a now much enlarged Europe (and critically vie against strong Japanese and S.Korean competitors) then has the political and technical lead to conquer the world.

[NB Though FIAT's Marchionne calls for cross-continent European capacity reduction, most other CEOs well recognise the liquidity firing power that GM and FIAT-Chrysler have (intrinsically backed by US foreign policy and a fiscally enabled eased “US$”) to industrially 're-acquire' Europe].

Comparative Q2 2012 Results -

The accompanying graphic (data table) provides an overview of the Q2 results for the prime 'global 11' automakers, GM, Ford, VW, BMW, Daimler, FIAT-Chrysler, Renault-Nissan, Peugeot, Toyota, Honda and Hyundai.

[NB data sourced directly from Q2 / H1 company reports. It appears that for VW, Renault-Nissan, Peugeot and Hyundai, the exact details of a weaker April, May & June sales period have been intentionally absorbed into a general H1 depiction. For the purposes of basic calculation / assumption, the Q2 figures presented are half the H1 numbers presented].

To best provide direct comparison each of the primary accounting lines is examined on a company versus company basis. This across: Revenue / Net Profit / EPS / Liquidity vs Q2 2011 standing.

Revenue -
GM : $37.6bn vs $39.4 (-4.6%)
Ford : $33.3bn vs $35.5bn (-6%)
VW : €47.7bn vs €38.85 (+22%)
BMW : €19.2bn vs €17.9bn (+7%)
Daimler : €28.9bn vs €26.3bn (+10%)
FIAT-Chrysler : €21.5bn vs €13.2bn (+63%)
Renault-Nissan : €10.467bn vs €10.55bn (-0.8%)
Peugeot : €14.77bn vs €15.56bn) (-5%)
Toyota : Y5,501bn vs Y3,438bn (+60%)
Honda : Y2,435.9bn vs Y1,714.5bn (+42%)
Hyundai : KRW21,052bn vs 19,162bn (+9.9%)

Of these, it is apparent that the notional 'winners' regards Revenue improvement are FIAT-Chrysler, Toyota, Honda, and VW & Hyundai. But it must be noted that the Italian-American and Japanese producers come from respectively low bases, so 'easing' their improvement. Whilst the German and Korean producers maintains traction from their record high sales base.

Net Profit -
GM : $1.5bn vs $2.5bn (-40%)
Ford : $1.04bn vs $2.4bn (-56%)
VW : €4.4bn vs €3.25bn (+35%)
BMW : €1.28bn vs €1.77bn (-27.7%)
Daimler : €1.51bn vs €1.7bn (-11.17%)
FIAT-Chrysler : €358m vs €1.2bn (-70%)
Renault–Nissan : €393m vs €626.5m (-37%)
Peugeot : €-409.5m vs €403m (-200%)
Toyota : Y290.3bn vs Y1.1bn (+26,300%)
Honda : Y131.7bn vs Y31.7bn (+415%)
Hyundai : KRW2,550bn vs 2,310bn (+10.4%)

The 'winners' here are Toyota (by a massive degree), Honda, VW and Hyundai. The above remarks pertaining to the Japanese industrial / commercial 'bounce-back' are reflected here at the bottom line. This much contrasted the American duo's foundering as profitability is surpressed to build-up cash reserves and fund capex projects.

GM : $0.90 vs $1.54 (-41%)
Ford : $0.26 vs $0.59 (-56%)
VW : €12.05 vs €10.04 (+20%)
BMW : €1.94 vs €2.07 (-6.3%)
Daimler : €1.34 vs €1.51(-11%)
FIAT-Chrysler :not stated
Renault-Nissan : €1.37 vs €2.24 (-39%)
Peugeot : €-1.365 vs €1.77 (-177%)
Toyota : Y91.67 vs Y0.37 (+24,770%)
Honda :Y73.09 vs Y17.64 (+414%)
Hyundai : not stated

Correlated to the outcome of the previous section, the 'winners' here are Toyota (by that massive leap), Honda, VW (and expectantly Hyundai, though not indicated by the company). Once again the reduced profitability of the Detroit 2 is viewed through still positive but much reduced EPS.

Operating Cash Flow -

GM : $3.8bn vs $5.0bn (-24%)
Ford : $0.8bn vs $2.3bn (-65.2%)
VW : €3.35bn vs €4.2bn (-20%)
BMW : €1.84bn vs €3.0bn (-39%)
Daimler : not stated
FIAT-Chrysler :€1.08bn vs €0.52bn (+300%)
Renault-Nissan : €541m vs €767m (-29.5%)
Peugeot : not stated
Toyota : Y702bn vs Y316bn (+222%)
Honda : Y737.43bn vs Y1,070bn (-31%)
Hyundai : not stated

Here FIAT-Chrysler and Toyota win by very wide margins, with Ford seen to suffer most.

Free Cash Flow -
GM : $1.7bn vs $3.8bn (-56%)
Ford : $1.77bn vs $0.46bn (+384%) estimated
VW : €0.995bn vs E1.46bn (-31.5%)
BMW : €853m
Daimler : €1.0bn vs €1.13bn (-11.51%)
FIAT-Chrysler : €0.39bn vs €0.11bn (+354%) estimated
Renault-Nissan : €-100m vs €60.5m (-265%)
Peugeot : €224.5m
Toyota : Y49bn vs 51bn (-3.9%)
Honda : Y64.36bn vs Y339.44bn (-81%)
Hyundai : not stated

The apparent 'winners' here seen to be Ford (in stark contrast to its OCF) and FIAT-Chrysler with more than a tripling of FCF YoY. These figures are only simplistic guestimates, but may have been officially unreleased to build-up greater 'rolled-up' FCF figures for a later Q3/Q4 release, given the power of the indicator to tempt investors. Suffering most is Renault (and presumably Peugeot) given their greatest exposure to Eurozone market troubles.

Liquidity -
GM : $38.5bn
Ford : $33.9bn
VW : €14.9bn vs €17bn (-14%) [$18.47bn]
BMW : €8.01bn vs €7.46bn (+7.5%) [$9.93bn]
Daimler : €12.09bn vs €9.84bn (+23%) [$15bn]
FIAT-Chrysler : €22.7bn vs €21.4bn (+6.5%) [$28.14bn].
Renault-Nissan : E11.1bn [$13.76bn]
Peugeot : €12.08bn [$15bn]
Toyota : Y1,728bn vs Y2,132bn (-19%) [$17.8bn]
Honda : Y1,247.1bn (cash & equiv) [$12.85bn].
Hyundai : KRW17,180bn (cash & equiv) [$15.15bn]

And finally, the importance of 'fiscal fire-power' during this transformative period is seen by the large reserves build-up by GM, Ford and FIAT-Chrysler, with VW and Toyota holding near equal value lower sums and Daimler, Hyundai and Peugeot close behind, with Renault-Nissan, Honda and BMW on lower levels.

Automakers' Positioning -

By the overtly simplistic indications of a) Revenue Increase, b) Net Profit, c) Earnings Per Share, d) Operating Cash Flow, e) Free Cash Flow and f) Liquidity, we see the dominant players per measure:

a) Revenue Increase: FIAT-Chrysler, Toyota, Honda, VW, Hyundai
b) Net Profit: Toyota, Honda, VW, Hyundai
c) EPS : Toyota, Honda, VW, (Hyundai assumed)
d) OCF : FIAT- Chrysler, Toyota
e) FCF: Ford, FIAT-Chrysler (estimated results)
f) Liquidity : GM, Ford, FIAT-Chrysler, VW, Toyota

Consistency goes to Toyota (5 of 6 placings), followed by VW & FIAT-Chrysler (4 of 6 placings), then Honda & Hyundai (3 of 6 placings), Ford (2 of 6 placings), GM (1 of 6 placings).

Unsurprisingly Renault-Nissan and Peugeot lagged heavily, but also too seemingly have BMW and Daimler failed to make a showing. This investment-auto-motives believes because of the BoD's operational consistency which provides slower but ongoing organic value creation, instead of the 'falter and rebound' growth opportunity seen by the aforementioned identified players.

Automaker's Context -

It became apparent some time ago that the dire effects of the credit crunch would most impact western mass market players with heavy exposure to their domestic markets, hence the experiences of previously GM and Chrysler, and now PSA, Renault and FIAT; with the premium/quality type producers with high export market exposure, demonstrated by BMW destined to fair far better, with the 'diversified premium' of Volkswagen and Daimler arguably on even more solid ground spanning B2C and B2C customers. The 'intermediates' of Toyota, Honda and Nissan were destined to sit between the two former groups, but themselves required internal re-structuring to remain competitive; this latterly ironically achieved as a consequence of the 'Great Eastern Japanese' disaster and the Thailand floods.

[NB The recent pan-Indian electrical power failures may induce a far smaller but significant force for auto-producer restructuring as companies seek to relocate to regions of assured power; aswell as obviously providing consulting and installation opportunities for major infrastructure players such as GE, Siemens etc]

As illustrated previously, perhaps the very obvious automotive beneficiary of the global downturn has been the strategically perfectly positioned Hyundai Motor Co with a balanced global sales and production foot-print and ever more attractive and price-compelling vehicle range. Whilst inside western markets for decades, its prime focus over the last decade was in BRIC and EM countries offering small cars and small trucks, then concentrating upon globally credible passenger vehicles as consumer expectations of the 'old-industrial' and 'emerged-industrial' countries began to merge.

However, as seen with the previous focus on Ford, western producers are positioned in course to return to strength if able to set their own paths: either through manifest strategic re-alignment of the intra-national business model (Ford), or through the deployment of large cash reserves via M&A and alliances (GM) or seeking - at smaller level – a combination of both (FIAT-Chrysler). The lessons learned within the US no doubt sought to be deployed by European companies / divisions.

The German corporates have remained strong thanks largely to the success born from the western boom years, their EM exporting models of 'visible' and 'invisible' products and services, the cautious retention of those cash cushions up until recently with now impressive CapEx programmes. These designed to secure industrial dominance domestically...in EM regions...and by virtue of the German 'home improvement plan' re-emphisising its historic role as Europe's industrial hub with powerful spokes now eminating north, west, south and east. .

Outlook -

So beneath the very apparent surface of the 2008-10 financial crisis, the EU sovereign debt and banking crisis, the natural disasters in Asia, the spectre of a technical or real double-dip recession, and so 'in turn' the outcome of heavily afflicted stock prices amongst many 'consumer cyclicals'... the necessary process of business re-invention has been under-way to re-position individual companies and the sector at large into the second decade of the 21st century and beyond.